In SRM’s 30 years of experience representing our clients in vendor contract negotiations, we’ve developed deep insights into the best way for financial institutions to approach this process. We recently boiled down several best practices into a timely white paper titled “Rising to the Challenge – SRM’s Seven Rules for Optimizing Vendor Contracts.”
https://info.srmcorp.com/srm-seven-rules-for-optimizing-vendor-contracts
It’s a perfect time for Colorado banks to revisit third-party relationships. To start, synergies with fintech firms have never been stronger. These service providers are well-equipped to rapidly design and deliver digital solutions sought by customers, often at a lower cost than in-house development.
At the same time, the current inflationary environment has FIs exploring all avenues to control costs, especially given labor expense trends.
Consider two of SRM’s proven rules – the need for a disciplined approach and the necessity of tapping into outside relationships.
Combining Discipline and Expertise
“Keeping it professional” involves more than limiting the role of emotions. A programmatic approach is necessary for the effective management of financial technology contracts. It’s helpful for banks to assign a Project Lead – most likely the CFO, Controller, or, in larger organizations, a delegate from the finance department – as the point person for each agreement. This is not to minimize the procurement department’s role if such a function exists. It is an acknowledgment that these types of contracts require specialized knowledge to supplement traditional procurement skill sets.
Important perspectives and input exist throughout the organization – customer support, IT, compliance, and other functions. We also recommend that the Project Lead set clear priorities for the relationship – for the negotiation process, as well as a framework for successful ongoing operations.
“Keeping it professional” involves more than limiting the role of emotions.
Leverage Outside Relationships
Information is power. Much of the imbalance of power inherent in a contract negotiation stems from the vendor’s deep knowledge of the space – precisely the type of expertise the bank aims to leverage through their relationship.
Conversations with colleagues at other financial institutions who have tackled similar projects, industry benchmarking data, and other forms of due diligence are all helpful and recommended steps. An even more valuable step is to enlist a partner with similar domain expertise and market insight to assist with vendor selection and contract negotiation. Having someone in your corner who built a cache of benchmarking data and negotiation proficiency can level the playing field. Another excellent resource is the use of contract management software.
The vendor contract negotiation process should comprise only a small sliver – albeit very crucial – of a bank’s long-term relationship with a service provider. It can set the stage for operational and financial success and must be approached programmatically and professionally.
The assignment of a cross-functional team with clearly defined roles and responsibilities is an essential step in this direction. As mentioned above, you’ll find more on these and our other rules for optimizing vendor contracts in SRM’s new white paper.
Patrick Goodwin is President at SRM (Strategic Resource Management) based in Memphis, TN. Patrick oversees the implementation of bottom-line improvement strategies for SRM’s clients. He has 20 years of contract negotiation experience spanning two dozen distinct specialties.
To learn more about SRM’s expertise in this area, contact Colorado representative Phillip Foster at pfoster@srmcorp.com or 303-588-1484. Or check out the SRM website at srmcorp.com.
