One of the most important parts of any software implementation project is sitting down to hammer out the contract....
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But when it's Oracle on the other side of the table, the task can be much more difficult, according to one recent report.
Oracle's reputation as a tough negotiator in deals -- for software, database or middleware -- is well earned, according to Duncan Jones, senior analyst with Cambridge, Mass.-based Forrester Research Inc. That's due largely to Oracle's insistence on a centralized approval process, Jones reports in Best Practices: Negotiating with Oracle.
"Decisions have to go to the center to be approved," Jones said. "If buyers are used to dealing with smaller software companies and quicker access to decision makers, where a rep may have more authority, it may seem Oracle is dragging its feet."
Oracle's approval process is designed to provide consistency for customers across its many regions and products. Jones said, however, that there are anecdotal reports from Forrester clients about unreasonable practices by individual Oracle reps.
"It's not clear if it's one rep overstepping the bounds of what's reasonable or something that Oracle is condoning," he said. "Sometimes there's a difference between the way of the world as perceived by an Oracle executive and the way it's practiced by sales reps and buyers. It does seem Oracle gets more of those complaints than other vendors."
Despite Oracle's reputation as a tough negotiator and its obvious edge in experience when it comes to negotiating technology contracts, there are steps organizations can take to win concessions.
Allow plenty of time
Because of Oracle's centralized oversight of contracts, even minor changes may need to be escalated up the chain for approval. That can be frustrating, but buyers should prepare for it. If someone insists that the deal get done in a couple weeks, the IT sourcing manager should push back, Jones advised. In addition, organizations should be wary of discounts that encourage getting the deal done by an early deadline and should instead set internal expectations appropriately. A medium-sized deal may take three months, and buyers should allow nine months for a first-time agreement, according to the report.
Take advantage of the initial agreement
You only get one chance to make a first impression and one chance to negotiate your first deal with Oracle. Oracle's ongoing battle with SAP in the applications arena, and with IBM in databases and middleware, provide plenty of leverage for buyers, but those must be realistic options, Jones said. In-house development or best-of-breed vendors are also viable alternatives that Oracle should be made aware of. Once an organization has committed to Oracle's products, much of its leverage is gone.
"The ones who complain the most [about negotiating with Oracle] are two or three years into a deal," Jones said. "They got a good deal when they signed up originally and they want to renegotiate, and they find it's tough. It's really important to get as long a deal up front as possible. Three years may seem a long time, but really you're making a purchase for five or 10 years. People don't tend to switch after they've made a commitment."
When changes are required, Oracle can be particularly difficult on maintenance and support, according to the report. For example, some companies attempting to take shelfware off support contracts found that Oracle refused any reduction in maintenance at all. At other times, companies have found that Oracle's pricing structure has changed since they first negotiated a deal, and changes to the contract require them to renegotiate under the more expensive structure.
Organizations should have a clear understanding of their long-term implementation plans to avoid unused licenses and support -- and should review Oracle's price lists and discount tables in advance. Unlike some other vendors, Oracle publishes its global price lists and discount tables. Buyers should be familiar with these, as well as relevant industry research, before heading into a negotiation, Jones said.
Oracle will offer discounts for bigger deals and multiple products, but it's important for companies to make it clear to Oracle managers above the product-specific rep that they're buying more than one Oracle product. Someone with regional or vertical oversight (who sees the bigger picture) will be more willing to cooperate.
Buyers should also identify the most important parts of the contract up front and stand by their demands, the report states. The more warning there is of a potential deal-breaker, and the more reinforcement, the more likely Oracle will be to agree to it.
"Clients who got the best concessions said what [the deal breakers] were right up front and kept repeating it," Jones said. "The rep realizes that 'this is what the client wants; we're not going to get the deal without this.'"
One common strategy -- waiting until the end of the financial quarter to insist on new concessions -- is unlikely to be successful because it is only going to make the rep look foolish to management, rather than having them helping to include provisions, Jones added.
Advice for acquired customers
Organizations that are customers of one of the many companies Oracle has recently acquired are now in a unique position. They can seriously threaten to move to competing products, and they are attractive to Oracle for their upsell potential. However, they should also pay close attention to their existing contracts, Jones said. Once the acquired company has been absorbed, Oracle moves to rationalize pricing across its portfolio and eliminate things that don't fit its model and re-work maintenance.
"Make absolutely sure you've got evidence of what your current agreement is," Jones said. "If you're used to dealing with a company in a fairly casual way -- gentlemen's agreements, handshakes -- that won't work with Oracle. When you get acquired, make sure you get that agreement together and get it in writing so you can go to Oracle and say, 'This is our agreement with the vendor you just bought.' Oracle will honor the existing agreement, but you have to show what it is."
Forrester also advises that companies – once they make a commitment to Oracle -- plan for a long-term relationship, becoming active in the Oracle user community and even acting as a reference customer.