As the world shrinks and becomes more interconnected, global clients have come to expect their preferred providers to deliver services and be accountable everywhere and anywhere. For the provider, the reality may be that they cannot deliver every service in every location this client requires, but they must rely on a network of partners. Whether those partners are truly third parties, or more like subsidiaries, business units, regional divisions, or something else, they are often in fact accountable to different leadership teams with different incentives and priorities.
We’ve worked with numerous IT services and outsourcing service providers who, by choice or as a consequence of their growth through acquisition, are indeed comprised of a variety of entities who must sign on to a deal in order to deliver services globally. Similarly, some of the largest professional services in the world, the audit and accounting firms, are legally incorporated and regulated separately in many countries and their decision rights when it comes to client contracts are quite decentralized. Even in well-integrated enterprises, different territories, business units, and divisions may have different market and growth targets, different operating costs and margin expectations, and different capacity to support investments and take on liabilities.
The Problematic Internal Dynamics of a An External Deal
These differences have a tendency to show up at the worst of times. During complex negotiations with a client in a competitive bidding situation, one provider entity or silo typically leads the effort; in getting there, they have had to shape a deal they can live with and is competitive enough to win the business. But when they try to get the other necessary entities to sign up for the deal, they may find resistance. Those participating business units may be getting a smaller share of the total pie. Or if the particular client or offering is less of a strategic priority, some business units may resist some of the concessions made in the negotiation: the scope of work, the volume discounts the “prime” entity has negotiated, the liability or indemnification undertakings the client has required, or something else.
The internal negotiations between the contracting party and those internal partners who are in a necessary subcontractor role can be much more difficult and time-consuming than the ones with the client — who is impatiently tapping their fingers and considering moving to their number two choice waiting in the wings.
Of course, global clients have their own internal silos and stakeholder challenges — but at contracting time they expect their providers to show up as a unified team, able to speak for the organization and take responsibility for getting the deal done. There are few things that frustrate clients more than having to wait for a response on a markup because the provider team has to “negotiate internally” around some pricing issue or the shouldering of liability.
For nearly 20 years, we’ve conducted a double-blind market survey on behalf of a client, tracking how different professional service firms are perceived as contracting partners by large global clients. The results are eye-opening: Consistently, according to buyers of services, “flexibility,” “responsiveness,” and “ease of negotiation process” have been the principal differentiators for providers that meet expectations during the contracting process; these have also been cited as possible reasons to choose smaller, more agile competitors over larger and more capable firms.
Shaping a United Front in External Negotiations: Four Key Elements
So how do you manage the necessary structural differences and come to the negotiating table offering a united front? It's a problem that requires some different elements to come together, but the four ideas below are some of the most important.
- Consult broadly — If ultimately you will need their buy in, it is much better to solicit the input of those internal parties early and give them time to see the deal shaping up. Don’t expect them to be ready, on a short timeline, to accept what feel like much worse terms than they usually negotiate for themselves. And carefully framing the questions matters: If what they hear you asking them is "Do you want these terms or something better?” you won't like the answer.
- Prepare systematically — Anticipate the rough patches and come up with options to address them. You have done this before; you know the issues that are problematic to the client, and to your internal stakeholders. Prioritize interests, explore trade-offs, leverage standards and precedents. Make sure that when you ask your internal stakeholders to take a deep breath and accept some unfavorable terms, they don't feel you just didn't try hard enough to take their concerns into account.
- Take some big rocks off the table early — If you are planning to drive growth by doing more deals that require significant internal partnering, it's worth taking the time, in advance of any given client negotiation, to work out some default terms and some acceptable trade-offs. Having to work these out in real time just creates an opportunity for competitors to undermine you. Know what assurances, offsets, or side letters are going to be needed, and set them up ahead of time, so that your necessary subcontractors know you've got their back, and they can agree to delegate authority over the specifics of the deal. For example, if you know big volume discounts are always a problem for internal entities that are not getting a lot of volume, work out model scenarios for how you make such a deal palatable to them. If you know broad global liability caps are a problem, create structures that enable everyone on your side to make sense of that.
- Broaden capabilities — One key challenge in gaining alignment on what it takes to win a large global deal is that some of your internal stakeholders have few opportunities to negotiate such deals and to be exposed to what is required to win in the market today. Even without revisiting organizational differences or taking down silos that have been created over time, you can put in place some simpler mechanisms like a Center of Excellence to broaden the requisite knowledge and skills. Shared playbooks, training programs, and staff rotations can help others access hard earned lessons, and help align the broader organization's market awareness and risk tolerances.
You may not be able to entirely eliminate the challenges of "negotiating internally". But if you know you are going to have those negotiations, why not begin to move some of them to a time of your choosing, when they won't cost you client goodwill and perhaps the deal itself?
For more detail on our work with Professional Services firms, visit our Professional Services page.