Choosing the right provider for implementing a transformational process is very important, negotiating the right deal is even more so. Going ahead with a transformational outsourcing deal is vastly different from outsourcing your accounts or payroll function, so is the negotiation process for the two.

Requirements for negotiating

Firstly, in a transformational transaction, vendors requirements are 'softer', or more specialized. “In such a transaction, vendor requirements will be ‘softer’, if you will,” says David Jackson, Partner, Baker and Mckenzie. “You are going to need someone with expertise in your vertical. Like for Oracle or SAP implementation, you are going to need someone who’s done that for your vertical because there are regulatory issues which people in your vertical may definitely have to deal with, other practical considerations which might run through your vertical.”

Such transactions also require communication skills for communicating both from the client side to the vendor side, as well as internally on the vendor side to get the implementation done correctly.

High level project management skills are essential. “Project management is definitely important, especially during the transition stage. But its even more important when you are doing a transformational deal, because the sophistication level of the project management skills required is higher,” says Jackson.

Requirements in a transformational transaction will keep on changing, even after the RFP has been put together and a lot of information has exchanged hands between the vendor and customer. This is true for all outsourcing contracts, but the degree to which they change is greater in transformational deals.

The Real Deal: the Negotiation Process

While negotiating, both the vendor and client teams should make use of internal and external expertise. The vendor's team, especially the sales team, should have technical expertise in the transformational aspect that the client is trying to implement.

On the client side, subject matter experts (SMEs) in the organization should be brought to the table, as part of the team, right from the pre- RFP process. Similarly, the negotating teams should be part of the business strategy meetings of their respective organizations. This will prevent the contract from falling short at crucial points, and also make expectations of each side clear to the other.

When it comes to discussing the finer details of a contract, vendors especially, would rather finish with it sooner than later, says William A Tanenbaum, Chairman - Technology, Intellectual Property & Outsourcing Group, Kaye Scholer. Quoting a TPI survey, he says that at least with respect to large vendors, they would rather have the whole large contract in the RFP, because they would prefer to answer the questions once. “They would look at the MSA (Master Service Agreement) and figure out what you really want, rather than have a discussion and a general RFP, have some answers and then do it all over again in the MSA,” he says.

The most important thing in the negotiation process is to be flexible, says Jackson. “The objective of this process is to find the value maximization point, and to minimize the external factors that can shift the value curve in the wrong direction,” he says.

From the clients' side, its not advisable to have a narrow vision, he says. They'll be cheating themselves by not engaging with the vendors, who have a world of knowledge and expertise within and outside the client's vertical.

Excerpted by Sruthi Ramakrishnan from the 2011 Global Services Conference session “Collaborative Sourcing”

Read this in the Global Services February 2011 Digital issue