When Harcourt Inc. was in the market for a new software package last year, it decided to get a little outside advice before it sealed the deal. The company turned to an Atlanta consultancy, NPI, made up primarily of former technology sales executives. NPI looked at the terms offered by the vendor, compared them with pricing data that it tracks in a database, and made it clear that the price was not nearly as low as it could be. “We were so happy with how much they helped us save,” says Bill Ellison, business controller for Harcourt Education IT at the Orlando-based educational publisher, “that it’s almost embarrassing.”
Alas, embarrassment seems to be an unexpected Achilles’ heel for such boutique consulting firms. Their success may cast a client’s internal procurement group in a bad light. Rather than being welcomed with open arms, some companies say they are having a difficult time being heard, even though their message should be music to CFOs’ ears.
“We’ve been sabotaged by procurement teams that want us off their turf,” says Joel Dupzyk, founder of Software Contract Solutions Inc. (SCS), a company similar to NPI. “They say, ‘That’s what we do, so get the hell out of here.’”
Not everyone feels that way, of course. “Why be that defensive?” says Ellison. “We want to take advantage of whatever expertise we can.”
Third-party negotiators offer both expertise and plenty of data, and say they have an inside view of software-sales practices that no procurement staff could be expected to possess. “We had witnessed some ugly things for years,” says Dupzyk. “Companies spend millions on software, and often they have no idea what they’re doing in negotiating large deals.”
NPI and SCS operate in a similar way: they encourage clients to negotiate the best contractual terms they can with a vendor, and then enter the process before the deal is finalized to see if there is any more wiggle room. SCS takes a percentage of any savings it can negotiate, while NPI charges an annual retainer of $72,000. Both companies indicate, however, that their specific business models are evolving.
That sounds like a no-lose proposition, but Dupzyk says that even in cases where SCS has saved a company more than a million dollars, it may not get a second chance. “You’d think that based on what we offer, the floodgates would open,” he says. “But we have to fight tooth and nail for more business.”
Jon Winsett, who joined NPI in 2003, a year after it was founded, doesn’t paint the market so bleakly. But he does say, “I’ve heard some interesting stories about how challenging it was in our first year.” He says that participation in IT industry conferences, where the company won a number of “Best Solution” awards from attendees, helped propel the business.
But Winsett does agree with Dupzyk that it can be difficult to convince companies that they have nothing to fear from such third-party firms. “In selecting the right software,” he says, “companies spend 90 percent of their time evaluating competing products, and we don’t touch that piece. But that last 10 percent of the process, deciding on price, requires a leap to external expertise, the level of which most IT and procurement staff just don’t have.”