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Establishing Trust in Transformation

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When working with transformation advisory clients, we often talk about the role of procurement and the need to change how they are perceived within the organization. Changing stakeholder perceptions is not an easy task, nor does it happen overnight.

So where do we begin? Stakeholder relationship management.

To effectively and efficiently run a business, you need two simple elements – someone to spend the money and something to spend the money on. In other words, your stakeholders and your suppliers. There are many other complexities to be ironed out, like where the money comes from (revenue) and who assigns the authority to spend it (governance). Procurement acts as the liaison in this process, serving as the key intermediary between stakeholders and the suppliers.

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Which came first – the chicken or the data?

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I recently covered a fascinating story of present-day industry intrigue… centering around allegations by food distributors Sysco and USFoods that chicken producers (including Tyson and Perdue) have been colluding to raise the prices of chicken for a decade. This story has everything that makes supply chain an exciting place to work: razor thin margins, collusion, and federal intervention.

But an easily overlooked component of this case is that industry data sources were (allegedly) manipulated by the producers.

The Sysco and USFoods lawsuits accuse chicken producers of justifying increased prices by constraining supply (i.e. ensuring less available chickens) and inflating market rates through the manipulation of industry benchmarks. The Georgia Bench pricing system had to be shut down and replaced in 2017 because of questions about the reliability of their data.

Agri Stats (a subsidiary of Eli Lilly & Co.) is actually mentioned in the lawsuits because the subscription-based data they make available to chicken producers allows the producers to determine the breeding potential (i.e. production potential) of their competitors and change their own volume in response.

Since many of procurement’s efforts – and contracts for that matter – are heavily tied to industry data sources and benchmarks, Jeanette Jones (my Supply Market Intelligence for Procurement Professionals co-author) and I decided to offer our independent advice (written in parallel and without discussion) about how to apply a critical eye to industry data.

Keep in mind that you can always get our insight on industry data at ProcureSearch - a free, online resource based on our book.

Jeanette Jones’ Perspective: Finding a Trusted Source

Two chicken pricing benchmark providers have been mired in recent events that have highlighted, in a profound way, the critical need for using trusted, credible resources. It should be noted our focus here is on one aspect and that these stories are complex as there are many factors involved with determining truthful pricing benchmarks for not only poultry, but for all agriculture commodities.

Agri Stats (a subsidiary of Eli Lilly & Co) is connected with the Sysco and US Foods lawsuits because its data made available information about chicken production that provided competitive advantage to a select few. The Georgia Premium Poultry Price Index (GPPPI), which replaced Georgia Department of Agriculture’s (GDA) Georgia Dock chicken price index in January 2017, is in the news once again as it ceased to operate this past week due to a lack of available data. The GPPPI, in response to inflated price reporting concerns, considered evolving production techniques and buying practices in the poultry industry, and included changes that measure the aggregate change in the price of poultry sold on contract over three periods of time, in addition to reporting that indicates the weekly change in demand (GDA website).

In the past year, a number of valuable articles on how to detect misleading and false data have been published. One of the emerging strategies in detecting false information is to track the leading data claim directly to the primary source. In these two stories, the primary source appears to be about as credible as you can get: self-reported data by chicken producers. The challenge presented is how do you know if the primary data is being reported and presented correctly? The damage caused by the use of misleading information is felt by the businesses that rely on the data the most. This is hard to grasp if the provider of the primary data is considered a trusted source. This is especially so if you believe, like some, that the most valuable business commodity is trust.

The answer to the trust dilemma can be solved by the implementation of transparency measures by both the provider of the resource and the primary data provider (in this case self-reported chicken producers). The provider of the resource becomes 100% transparent about where the primary data originates and how it is being used. Getting back to GPPPI, an interesting aspect of the new index is its statement on verification: All data provided will be subject to verification through a random review, done through a prescribed process that will confirm submitted prices and quantities with the buyers. All formulas and forms utilized in the calculation of the price indexes will be open source and available to all parties to allow for the opportunity for any individual or company to track their own price indexes in relation to the industry aggregate index. Company specific proprietary information will not be available to the public. Regardless of what happens with GPPPI, the GDA is on the right track in regards to transparency of methodology and data origination, which is the direct path to regaining trust of past users.

Kelly Barner’s Perspective: Putting the Fox in Charge of the Hen House

In an age where real-time data is the difference between leading an industry and lagging it, procurement would be wise to understand the connections between the sources of data and the companies that profit or not based upon what it indicates. In this case, chicken producers provided data on the price per pound they earned during the current period. That data would then govern the prices paid to producers by distributors. 10 chicken producers constitute 80% of the market – so it doesn’t take a genius to figure out that they had an incentive to provide either good news or no news. And while not all of those 10 producers are based in Georgia (where the Georgia Dock pulls its data from), Georgia is the #1 producer of chicken in the U.S. The temptation was just too great to put a finger on the scale for their own benefit. Unfortunately, they grew too bold or too greedy and the Georgia Dock was ‘indefinitely suspended’ in 2016. The final death of the Georgia Dock was when, in response to concerns, the Georgia Department of Agriculture required producers to sign affidavits that their data was accurate. That quickly led to such a drop in data that the index had to be discontinued… draw your own conclusion.

The lesson for procurement in this is to consider which contracts you will use the data to govern, where the data comes from, and how much control or leverage  those parties have over their costs, profit margins, and the data they provide.

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What would you do? Increasing the alignment of multi-functional negotiations

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Picture this: your organization needs to create a multi-year contract covering critical components for its manufacturing process. Because of the technical nature of those components, management requests that the team creating the contract be led by procurement but also include engineering, R&D, and finance. Each of the people involved will have different priorities, even though all agree on what they want the end result to be. How do you present a united front at the negotiation table?

What would you do?

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Book Review: Expensive Sentences

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“We can spot an Expensive Sentence by its impact. Expensive Sentences limit information. They end conversations. They create urgency and isolation. They reduce options. They steal choice.” (p. xviii)

Expensive Sentences: Debunking the Common Myths that Derail Decisions and Sabotage Success by Jack Quarles (Ideapress, 2017) accomplishes two amazing things in one highly readable book:

  1. It provides procurement with an approach to managing ‘creep-in’ costs that has the potential to become viral on its own, as long as procurement is ready to lead the way, and
  2. It serves as a benchmark (in my opinion) that procurement’s brand image has made huge strides – and that we are being rewarded with a book that is both savvy and cool.

Expensive Sentences is about the power of spoken language. You may not be aware of it, but some of the most common sentences aired in your company on a daily basis are costing you money.

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The True Cost of Noncompliance

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Have you ever wondered why your savings projections supersede the realized savings? Have you ever been challenged by your finance department to validate the projected cost savings one year into an agreement? Has your C-suite ever complained that procurement’s estimates and projections go unrealized? If you have faced any of these or similar situations, you are not alone. Savings projections often fall short of reality, but why? For many procurement organizations, their sourcing efforts aren’t felt due to noncompliance.

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5 Ways a Purely Vendor-Neutral, Integrated Contingent Workforce Model Helps Companies Get Peak Value

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Companies today are spending significant amounts of money on contingent workers, with businesses allocating hundreds of billions of dollars for these engagements. As a result, the C-suite is increasingly interested in whether they’re getting peak value from their contingent workforce program. And they are right to be concerned - inefficient management, laggard technologies, and disaggregated solutions can thwart efforts to maximize value.

A purely vendor-neutral, integrated MSP and VMS solution provides an innovative way for companies to manage their contingent workforce. Pure vendor neutrality means the MSP or VMS has no affiliation with a staffing agency. Because no one staffing firm is unfairly prioritized, this creates a highly competitive playing field for the staffing firms sourcing talent for organizations that demand a higher caliber of talent.

Since suppliers are focused on providing clients with the best value — which may not be the case when the MSP can compete to fill requisitions — businesses receive the highest-performing talent at the most competitive cost.

Additionally, with an integrated model, the technology and human aspects are intertwined, making it easier for companies to achieve optimal results. Here are five key ways this approach will help businesses get peak value from their contingent workforce program.

 

1) Risk Management

Worker misclassification enforcement has never been greater than it is today. Between 2011 and 2015, the U.S. federal budget allocated $113 million to detecting and deterring worker misclassification issues. Continuing this trend, the 2017 budget “... expands funding for efforts to ensure that workers receive back wages they are owed and cracks down on the illegal misclassification of some employees as independent contractors …”

Given this uptick in enforcement, having an MSP team well-versed in the complexities of managing worker classification and co-employment risk management can make a huge difference in eliminating issues. To further enhance the MSP team’s efforts in managing business validation, co-employment risk, third-party payrolling of self-sourced contractors and more, organizations need to have access to an integrated, best-in-class VMS platform.

With an integrated platform, the MSP and VMS work in lockstep throughout the entire contingent workforce management process to ensure proper worker classification, onboarding, and worker management. And by pulling all workforce spend into one platform, clients reduce the risk of rogue managers spending randomly and managing contingent workers in an uncontrolled environment.

In addition, businesses with contingent workforces typically have hundreds if not thousands of workers utilizing proprietary corporate networks and systems while accessing their ideas and protocols. A proven MSP team helps ensure the proper nondisclosure agreements are in place to protect a company’s intellectual property.

 

2) Cost Savings

An integrated solution helps companies generate cost savings in a myriad of ways.

Consolidated invoicing through a VMS reduces instances of billing error, while the aforementioned MSP risk mitigation helps ensure clients avoid costly litigation and misclassification penalties.

Self-sourcing talent is another key way for clients to generate significant hard dollar savings in a large contingent workforce program — especially in more mature programs. A leading-edge joint MSP/VMS offering makes it easy. An expert MSP team can offer a breadth of experience across different industry segments, while an integrated, top-tier VMS will provide self-sourcing capabilities that give businesses the opportunity to avoid traditional supplier-sourced mark-ups and generate cost savings.

In my experience, a company that places 10 self-sourced workers over the course of a year will save, on average, a quarter of a million dollars.

 

3) Process Efficiency

A fully integrated MSP and VMS solution enables organizations to extract as much value as possible from the latter. With a joint offering, the on-site MSP team of recruitment and employment experts oversees the automation of contingent workforce management processes via the VMS. Users can then tap into the power of automation to reduce the average requisition process from weeks to days. Better still, users can do so knowing they’re getting superior talent at a lower price while managing risk. This efficiency extends through the entire contingent workforce management process, as it enables users to handle sourcing, onboarding, time/project approvals, e-invoicing, offboarding and more in a single application.

This effectiveness provides immediate relief across the entire organization. Human resources, finance, procurement, IT and legal have one system they can go into and extract relevant data to help them work smarter in their area of expertise. In addition, a more sophisticated VMS will be built on open architecture, offer integrations with every major ERP, HRIS and PPM, and have a framework in place for quickly creating custom integrations. As a result, integrations with security, IT, facilities and any other tech systems are simple to implement.

Since workplace efficiency today often involves mobile access, the best VMS solutions enable users to manage the full contingent workforce lifecycle from anywhere they are, powering total freedom of mobility and a seamless omnichannel experience. Top-tier platforms will also bubble up the new action items required to manage a user’s contingent workforce. This helps managers avoid overlooking critical tasks and get more done with fewer swipes and taps.

 

4) Complete Workforce Visibility

Capturing and harnessing data across each stage in the worker lifecycle is critical, and properly leveraging true business intelligence requires a combination of cutting-edge technology and human expertise. A VMS with real-time visibility into a myriad of dashboards provides executives and other power users with invaluable metrics around worker population, usage, billing, performance and more. With historical data pulled through a single system and presented in a visually friendly, intuitive fashion, clients can make smarter workforce decisions, anticipating and planning for future usage.

Another area that’s vital to managers is Total Talent Management reporting. With the most sophisticated VMS providers, clients gain total visibility into both contingent AND full-time resources across the entire organization. By importing specific types of ‘sanitized’ full-time data and viewing it right next to contingent data, managers can determine the best way to engage resources across all categories from a cost, quality and risk perspective.

With a leading-edge joint MSP/VMS solution, users with specific needs can work with the MSP team to create any executive dashboard desired. These customized dashboards can visually reflect the data points requested and enable the ability to interact with this data in a seemingly endless number of ways.

 

5) Talent Quality

In today’s business world there’s a war for talent. Taking a vendor-neutral approach through an integrated model is helping companies win every day.

Within a leading-edge VMS, built-in tools deliver additional supplier management assistance. For example, supplier scorecarding offers a mechanism for ranking suppliers, which not only provides valuable feedback but can also help inform future sourcing decisions. In addition, clients can work with their MSP to create a suppler-tiering system, so that new job requisitions are initially routed to first-level suppliers that have historically delivered superior talent.

 

Conclusion

Superior talent quality, cost efficiency, greater agility, and pure simplicity from a combined solution start at implementation and increase over time. These are wins that cannot be achieved when an MSP and VMS are used separately. A truly integrated and purely vendor-neutral provider offers a one-stop shop for users and enables businesses to realize peak value from their contingent workforce program.

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2017 is a Year for Big #Gratitude

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Five years ago, I started a tradition here at BMP – stopping to say thanks to all of the people and organizations that make it possible for me to live out my dream as a writer and procurement professional. This year is no different, although I can’t help but feel exceptional gratitude for the amazing year we are about to put into the books.

I am grateful beyond words (quite a feat given how much time I spend writing and talking) to all the people I crossed paths with this year – everyone I met in person and those of you that I will never meet but regularly engage with through the miracle of modern communications.

I wish you and your families a safe and happy Thanksgiving!

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What would you do? Social Responsibility Factors in Choosing Offshore Suppliers

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Imagine walking into your office and being tasked with a new challenge: finding an offshore supplier in a region from which you don’t usually source.  Once you start, the task gets even harder: you have nagging concerns about social responsibility factors, including health and safety, as well as fair labor practices, even though initial audit results show nothing amiss. How do you select the supplier that provides the cost efficiencies you need, while also ensuring you maintain the high ethical standards of your business – and your profession? What would you do?

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Procuring Lives in Puerto Rico

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Before examining Hurricane Maria’s stampede through Puerto Rico, let’s take a glimpse of this Caribbean island before the natural disaster hit. 3.4 million U.S. citizens live in this commonwealth of the United States. After being “discovered” by Columbus, the island endured Spanish colonial rule, disease, African slavery, attempted colonization by the French, Dutch, and British, the Spanish-American War, and the unending ambiguity of territorial status.

This past May, Puerto Rico declared bankruptcy with more than $70 billion in debt, exacerbated by the Jones Act, which doubles the cost of goods due to American control of Puerto Rican ports. PREPA, the main electric company on the island, has $9 billion in debt, resulting in total absence of modernization efforts of the power grid in Puerto Rico and frequent outages.

And then, Hurricane Maria happened, inflicting widespread devastation where significant challenges already existed. There is an opportunity here for procurement to play a significant role in helping Puerto Rico cope and eventually recover: by delivering the right supplies and services at the right time for the right cost in the right amounts to the right places.

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Managed Print Services Models Part II: Actual Volumes or Allowance + Overages?

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In Part I of this series, Managed Print Services Models Part I: Lease vs Buy?, we looked at the key business considerations when making the lease vs. buy decision for acquiring copiers/printers. The other decision point within an MPS program is determining the service/maintenance agreement structure.

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Managed Print Services Models Part I: Lease vs Buy?

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In a world where everything seems to be moving to ‘digital’, many people may assume printing is going the way of the dodo. And yet, managed print programs and the costs associated with copiers, printers, and maintenance of these devices are still quite common - and even necessary - for many organizations. While this may be driven by specific industry needs or be the result of an organization’s comfort level with printing, managed print services (MPS) are evolving and continue to be an area of opportunity for procurement to review and help optimize.

Whether your organization is just now making the move to MPS, looking to consolidate your MPS supply base, or trying to better manage your current MPS supplier(s), there are two main cost drivers to focus on within the category: 1. obtaining the device and the associated financing model and 2. The cost per click (CPC) (or the maintenance/service component). [As a side note, the maintenance component goes by a variety of names (cost per page, cost per copy, service cost, maintenance cost, click rate, etc.) and may have slight variations depending on what is actually included in your service agreement. I will refer to all of the above examples as ‘CPC’ throughout this post for simplicity’s sake.]

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The Secret of the Procurement Director

The Secret of the Procurement Director

It had been a particularly hard week for the whole team. Factory audits had been going on with the accuracy of a Swiss watch (plane, factory, hotel, plane, factory, hotel...). That Friday night we were isolated by a storm that had canceled our flight home and left us stuck in an airport hotel, not knowing what day it was or when we would get back. Our ‘batteries’ were very low.

Only Avi, our expert sales agent, strengthened by a thousand negotiations, seemed to be fresh as a lettuce.

Around the crackling of the chimney, while the storm whipped outside, we all tried to shelter ourselves in hot cups of coffee, seeking the strength to recover our spirits.

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4 Buyer Types: Bureaucrat, Cost Killer, Innovator, and Business Developer

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Can buyers create value for customers and reduce costs?

 

The two main objectives of a buyer in most organizations are:

  1. Reducing Total Cost of Ownership (TCO) or Life Cycle Costs (LCC)
  2. Creating value for Intermediate or Final Clients

 

Reducing Total Cost of Ownership or Life Cycle Costs

Often involves lowering prices, but not always; sometimes to save more you need to spend more on a per item basis. If you buy a razor for $1 and you can use it for 10 shaves, it is 100% more expensive than a razor for $2 that you can use for 40 shaves. This example is simple but true and captures the distinction between price and cost.

Sometimes involves reducing unnecessary or excessive consumption (i.e. waste). If companies roll out a course that trains employees with company cars to drive more economically and ecologically, it is possible to save money. A trained driver whose vehicle only consumes 7 gallons of fuel per 100 miles instead of 7.7 allows the company to reduce their fuel costs by 10% (excluding the costs related to the training, which are to be deducted).

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How a world class Managed Services Provider can drive unmatched value in SOW Management

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Services Procurement remains a point of significant pain to procurement departments as well as business managers due to the high volume of projects and the substantial number of vendor partners involved. There are typically multiple systems at play without a centralized repository for all elements of a project engagement. Catalog e-procurement solutions, ‘blanket purchase orders’, and A/P automation all offer limited visibility, governance, or compliance support. Procurement teams are often short-staffed and ill-equipped to manage all of the projects coming through the pipeline. This can result in all attention (not to mention compliance and savings) being focused on large projects while smaller/non-strategic projects go unmanaged or receive minimal oversight. This partial visibility extends to vendor performance as well as the benchmarking of project rates, milestones and deliverables, and even estimated project completion time. Project owners are often left to their own devices where they single-source with one vendor (bypassing the competitive bid process entirely), or selecting project vendors at high rates where staff augmentation work could be utilized at a much lower cost.

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LAVERGNE Management Matrix Operating Instructions: Benevolent Leadership

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I created the Lavergne Management Matrix to make it possible to share and discuss ‘Benevolent Leadership’.

The managerial aptitude of a person can be evaluated according to two criteria:

  • The satisfaction of her/her employees (whether trending down, stable, up)
  • The performance of his/her employees (whether trending down, stable, up)
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Blockchain: Disrupting Procurement and the Supply Chain

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If you have heard a lot about blockchain but don't really know what it is, you're not alone. The success of Bitcoin and other cryptocurrencies has given blockchain a major leap forward. But cryptocurrencies aren't the only place where blockchain technology makes itself useful. It can completely disrupt procurement and supply chain operations. First, however, it's important to have a bird's eye view of blockchain.

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Book Review: The LIVING Supply Chain

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In the new global era, speed and velocity are more important than everything else!” (p. 12)

The LIVING Supply Chain: The Evolving Imperative of Operating in Real Time by Rob Handfield and Tom Linton (Wiley, 2017) takes everything you know about ecosystems and Darwinian principles and applies it to supply chain management.

One of the most telling sections in the book is in the Preface where Handfield shares three major shifts affecting the digital economy (paraphrased here by me):

  1. Data is a natural resource (think raw material)
  2. Converting data into decisions is the key refinement process of the digital era
  3. Cognitive computing (human/machine interaction) will be a critical ‘relationship’

To me, these points are significant because they are NOT followed by something along the lines of “… and here is what all this means for supply chain.” Like the authors, we need to stop thinking of the supply chain as somehow separate or downstream from economic/digital trends. The supply chain is a fully integrated piece of the ecosystem – or should be – and must be managed as such. Every time we feel compelled to translate trends, priorities, forces into a supply chain-centric version, we obscure their meaning and slow the movement of information.

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Fleet: Key Considerations

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Have you ever wondered what other company’s fleets look like? How other companies source their fleet units, parts, and services? What information is needed to begin? The first thing to know, is that no two fleet profiles are the same. The second thing to understand, is that there is no right place to start; it all depends on your corporate procurement goals. Are you trying to maximize upfront funds? Is your goal to streamline services and optimize vehicle performance? Are you attempting to marry two fleets after a merger or acquisition? There are endless scenarios that will benefit from strategic procurement thinking.

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Book Review: Mastering High Stakes Negotiations

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I cannot guarantee whether you will be successful after a well-prepared negotiation, but I can 100 percent guarantee failure or finding yourself outsmarted and in a concessionary position if you choose not to do a thorough prep prior to a negotiation.” (p. 38)

 

Mastering High Stakes Negotiations: Both Sides of the Table by Mark M. Bilgin, Ph. D. (BookLocker.com, 2017) is true to its title in that it lays out all of the considerations associated with the most critical, highest dollar value negotiations conducted. In an odd way, however, even meeting that high bar is still selling the book short.

If you are a people watcher, or a student of human behavior, you will absolutely love this book. I was immediately drawn in by the author’s use of case studies, both his own and the ‘outside’ experiences of others to illustrate in colorful but honest fashion the incentives and pitfalls associated with negotiation prep. Negotiation is, at its simplest level, the use of leverage, exchange, and (somewhat) predictable human behavior to bring parties together for their perceived benefit. As a result, you can not be a master negotiator without being aware of and interested in what people say and do. That may come as a great relief to anyone that still thinks negotiation is about aggressively dominating ‘them’ to get what is best for yourself at any cost.

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Time to Renew Your Office 365 Deal – Where Should You Place Your Bet?

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Sourcing managers with a Microsoft enterprise agreement (EA) that is about to expire face an important decision and may have many questions. Should they renew their next EA along the same lines as they did three years ago? Expand it to embrace Microsoft’s new cloud-based services, including the Office 365 suite? Scale it back significantly to save money?

Fundamental changes in Microsoft’s product and licensing strategies mean drastic changes to its software assurance’s (SA) value. Your decision criteria will be very different from when you last evaluated your EA, and any related decision involves placing bets on your organization’s future deployment of Microsoft products.

Where should you place your bet?

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