How to Negotiate Cloud Service Subscription Renewals, OpEx Contracts
Many of our clients are fast approaching their contractual renewal dates for cloud and as-a-service (aaS) offerings. They have expressed concerns over vendors changing licensing models and pricing terms at the renewal point, usually to our clients’ detriment. They feel almost powerless at the negotiation table and perceive that vendors are playing on their immaturity regarding effective aaS exit management strategies, making them reluctant to change vendor and in turn leading to uncomfortable budgetary discussions with their CIOs.
So how can Sourcing & Vendor Management (SVM) professionals avoid these feelings of being held to ransom? I have spoken with numerous Vendor Management Office (VMO) Directors who have successfully managed their renegotiations, avoiding the pitfalls of substantial price increases and confusing licensing models, whilst still ensuring that business value is realized.
They shared these key takeaways that made their vendor discussions successful:
1. Prepare your strategy at least 18 months prior to contract expiry Work with your IT teams to investigate alternative solutions and how long it would take to switch to them. The rapid pace of technology change provides a steady stream of contenders vying for your business and you should take full advantage of this. Understand their pricing structures and licensing models as well as any transitional costs (both external costs for any contingent resources and internal costs of your teams’ time).
Then use that information to set the timeline for the go/no go decision about the renewal, in case you need to start migrating several months before your current contract expires.
Also, arming yourself with this information shows your incumbent vendor that you have conducted due diligence and are serious about walking away from them should a satisfactory contractual agreement not be reached.
2. Align your stakeholders by working with your CIO’s direct reports to secure formal agreement of your negotiation strategy Prepare them for all exiting eventualities. Find out their concerns and work hard to allay them. Having these stakeholders engaged from an early stage helps overcome any cultural challenges you may face with any aaS changes further down the line.
3. Even if you decide not to renew, try to maintain amicable relations with your incumbent vendor You may purchase future services from your incumbent vendor so maintaining a professional and productive working relationship where possible is key. Keep dialogue open and honest and share your exit strategy with them as early as possible.