ENSURE VICTORY IN YOUR RENEWAL BATTLES: HOW FOLLOWING A FORMAL RENEWALS PROCESS CAN BE A GAMECHANGER FOR YOUR ORGANIZATION
Ahsan Mujeeb
Sourcing and Vendor Management Consultant
Throughout this series, we’ve compared current challenges in software and software maintenance renewals to the travails experienced by the Fellowship of the Ring (and all of Middle Earth) in the seminal classic book (and films based on) The Lord of the Rings. This series has not only discussed general tactics being used by software vendors, right now, but also did some deep dive into a few real-world situations experienced by our Clients, discussing not only the challenges, but also how those Clients were able to successfully navigate the situations.
As we bring this series to a close, we’ll leave you with a couple of lists (after all, who doesn’t love lists?!?) outlining the why and the how of a Best Practices Renewals process, and maybe even offer a challenge to you.
Before we do, though, it makes sense to talk a bit about what it looks like when organizations do NOT employ best practices in their renewals (and, believe me, that is extremely common, even in large organizations). It looks something like this…a renewal notice comes in from the applicable vendor. Sometimes it’s a simple email or letter, sometimes it’s an invoice for the upcoming renewal term, sometimes it never comes at all. Often the business team that uses the solution receives the notice (or knows about the upcoming renewal), sometimes it comes from accounts payable (because they receive the invoice), and sometimes, in best cases, it comes from your contract management system/team. Once that notice is received, the business team often approves the renewal/invoice/whatever and submits that to AP for the creation of a PO or payment of the invoice. Often, nobody else is involved, and no other checks and balances occur. No legal. No financial oversight. No risk oversight. Just a continuation of the status quo, without considering what may have changed over the past few years.
That’s it.
Nothing more.
And that’s a problem for you.
Now let’s talk about a best practices renewal process. What does that look like?
Receive Notice. First, you should have a process in place to ensure you receive notification of upcoming renewals in a timeframe that allows you the flexibility you need. In renewals, like other negotiations, time is a very valuable asset you cannot afford to be without. This tracking and notification is best accomplished via contract management.
Engage Sourcing. Second, once the business is aware of the upcoming renewal, they should engage with Sourcing. Don’t underestimate the immense value of a separate, objective Sourcing team. (Yes, I understand it’s a bit self-serving for a Sourcing and Vendor Management Consultant to be extolling the virtues of Sourcing and Vendor Management, but, hey, it’s our passion and that doesn’t make it wrong.) Your organization has specialists everywhere…IT specialists, Legal specialists, Tax specialists, Risk specialists…everywhere special skills are needed. But somehow many organizations don’t believe they need Sourcing specialists. They just let their businesspeople handle it. Well…and this is my challenge to you…that’s wrong and it is hurting your organization. There’s a reason that it’s called a “Best Practice”, and there’s a reason that you’d be hard-pressed to find any Fortune 1000 company that doesn’t employ a dedicated Sourcing and Vendor Management function. It works, and it’s better.
Understand the Landscape. Third, your Sourcing team begins the process of “Understanding the Landscape” of the renewal. They ask questions. What Agreements exist and what do they say about this renewal? What does the business want to do in the renewal…what are their priorities? Do they intend to use the solution for many years? Do they want out? Do they need to buy more licenses? Do they need fewer licenses? Does your organization buy other stuff from this vendor? Might they? You cannot conduct a proper renewal without asking questions. Once the information is gathered, a formal strategy is documented, to ensure that Sourcing and the business team are on the same page, so the business is confident and comfortable that their priorities are being protected. (For those of you familiar with the Seprio process, this is a step in all negotiations, not just renewals.)
Create Leverage. Fourth, your Sourcing team will manufacture, collect, store, and maximize your leverage. Leverage is what you use to persuade the vendor to give you what you want. It might be a multi-year commitment, it might be a long and positive relationship, or it might be a potential, or an actual, need to buy more, or different, stuff from that vendor. It might be that you’re mad at the vendor, or unhappy with the solution or services. Leverage takes many forms, but, at its essence, leverage is motivation, and an experienced Sourcing expert can find leverage in places that many others cannot. When leverage is maximized, negotiations can take place.
Document, Document, Document. Finally, when negotiations are complete and you’ve gotten (hopefully) what is important to you, Sourcing will ensure the contract documents are updated to reflect what you and the vendor agreed upon. This is critical because even businesspeople who are good negotiators (and there definitely are those) often are not nearly as comfortable, or interested in, drafting or reviewing contract language, and failing to accurately document the deal can be a critical failure. Remember, if it’s not written down, it doesn’t exist.
So how does following this Best Practice Renewals Process benefit you, you ask? (I’m sure you asked…)
Well, let me tell you. There are several undeniable truths regarding best practices in renewals:
The Value of Expertise and Experience: Professional eyes trained over years of experience catch details that others might overlook. We understand that many people are, or at least see themselves as, good negotiators. And they might very well be. But they’re not as good as someone who does it all the time…they just aren’t. Imagine you’re on a hike and your trachea is blocked or collapses. I come upon you and, lucky for you, just happen to have a knife and a ballpoint pen. Armed with the knowledge gained from watching the episode of M*A*S*H where Hawkeye walks Radar through a field tracheotomy over the radio, I know I can save you. I’m confident and sure of myself. Seriously…I can do this. But do you really want me doing it? (In full disclosure, my MD friends seem equally, or even more, confident that you definitely should not let me near you with my knife and pen, unless the situation is really, really dire…but I’m pretty sure they’re just protecting their turf.)
Protecting Your Ever-Changing Interests: Contracts are designed to protect, clarify, and document, and a forgotten or overlooked stipulation can be costly. Regular reviews of agreements, especially long-term ones, are essential to ensure your interests remain protected as things change over time. Agreements generally do not age particularly well, especially for technology, given that changes so quickly, so renewals are a great time to revisit them and ensure they still meet your needs. Imagine the kind of data protection or IT security provisions that are in a seven-year-old agreement. Do you really think that’s going to protect you?
Renewals are Important. While renewals are often dismissed as ‘simple’ or ‘easy’, and they often receive much less attention or diligence as a result, they can often come with more risk than new purchases. For one thing, the shiny newness of new purchases ensures they get the attention they deserve, often by an entire team. Boring old renewals are just a continuation of something that has, to-date, worked well, right? Well…imagine an automatic 3-year renewal on a $1MM per year solution that an organization isn’t even using anymore, but whose 90-day termination notice period was missed (it happened). Imagine the opposite…intending, and needing, to have a contract for a critical system renew, only to find out that there was no automatic renewal and, because the term was allowed to expire, the vendor is requiring a new agreement with much higher fees (it happened). Imagine any of the situations we’ve described to you in this series and take the affirmative step to stop underestimating renewals.
We hope you’ve enjoyed this series and maybe even learned a little something. Throughout, we’ve tried to describe the different problems that can arise in renewals, and how using a best practices renewal process can help prevent, or solve, those problems. From our perspective, no renewal is merely a “routine” or “simple” renewal, but, rather, each one is an opportunity to achieve savings, conduct a contract “checkup”, and/or further build upon your relationship with your vendor to get you even more of what you want. As the business, and economic, landscapes continuously evolve in unfamiliar and unexpected ways, ensuring the proper renewal of existing contracts becomes even more vital.
Please reach out to us with any questions about our services, this blog, or anything else you may be curious about. Thank you for reading the Seprio Blog, and until next time.
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