BBC vs. Info R Us

See attached file for full problem description.

Dan Kelly works for Info R Us. He enjoyed his position as contract manager for the Big Bell Corporation (BBC) account. Info R Us was the subcontractor to BBC Network Systems who was the seller. BBC Network System had a mega-deal with the Chinese Government for new fiber-optic cables and wireless communications equipment across the country.

Dan had worked the contract for 3 years when it came time for a contract modification. As he prepared for the contract meeting, he sat down with the new sales manager from Info R Us, Bennie Edwards.

"Bennie, I know you've never dealt with BBC before, and I want to make sure that you understand what you're up against," Dan explained.

Bennie leaned back in the chair. "I don't think they'll be a problem. BBC wants us to deliver our new wireless equipment earlier and provide them larger discounts. I've done stuff like this in my sleep."

Dan leaned forward, "You don't know BBC. They want everything yesterday, and if you give them a centimeter, they'll take a kilometer." Dan handed a sheet of paper across the desk. "There are also some things that we need to get out of this contract change, so we have to remember that we have to hold out to support our negotiating position as well."

"You think I'm going to give away the company?" Bennie asked. "I have a little more experience than that."

"It isn't that at all," Dan responded. "I just want to make sure that you understand the whole picture." Dan ran through a little corporate history. "Over the past 3 years, we've learned that BBC seriously underbid the project and that they're straining to keep costs down. We also know that they don't plan extensively, and that's left them with higher costs than planned. They're constantly pushing us to give them larger price discounts and step up the schedules on new equipment. Obviously, that doesn't do much to improve our profitability, so we're trying to keep the old contract intact as much as possible. We try to accommodate them where possible, but we need to hold the line in certain areas, especially price."

Bennie reached down for his briefcase. "I brought along some data on the changes they want and what I think we should charge for them." He passed them across the desk. "It's tight, but I think it will provide us a reasonable profit margin."

Dan shook his head to say no. "These prices are way to low." Bennie disagreed. "If BBC shops around, they might be able to undercut us. We need to come in at least 15 percent lower, otherwise we may lose the business to a low price competitor."

"Fifteen percent lower!" Dan slammed his briefcase shut. "You think I didn't do my Business Case? I know what these modifications will cost in the open market, and I don't think we need to cut it this close. They'd still buy our products at this price."

"Look, Dan," said Bennie. "I know BBC well enough to know that if we're too high, they'll go with another company. I don't want another company to win just because they were a little cheaper. I'd rather give them a lower price, and work the schedule issues to our advantage. We can't afford to give away anything on the schedule. Trust me," Bennie said. "When we get to the negotiating table, I really think we ought to plan on working from a position of strength - lower price but no change in the delivery schedule. Don't put us in a bad position to start with."

Dan disagreed, closing his briefcase. "You do what you have to do, and I'll do what I have to do." He stood and turned toward the door. "Honestly, Bennie, I have the best interests of Info R Us at heart. I want to keep the contract alive as much as you do, but I'm sure that if we are even remotely close to the right price, they'll stick with us. After all, we've been working with them for 3 years. Remember, we're in business to make money."

Questions

1. How should Dan, as the contract manager, prepare for his negotiating session with BBC?
- Stick with his plan and approved business case - do not lower the price.
- Conduct a follow-up meeting with Bennie (the PM), prior to his meeting with BBC, to resolve negotiation strategy disagreement.

2. What if Bennie ignores Dan's recommendations during the negotiation with BBC?
- Bennie (the PM) could create a real problem for Info R Us, possibly causing the loss of important profits.
- Bennie could de-position Dan (the CM) with the customer (BBC) if he disagrees with Dan during a meeting with the customer.

3. What risks exist for Dan at this point?
- Loss of Revenue for Info R Us
- Loss of Profit for Info R Us
- Loss of credibility with the customer
- Damaged relationship with Info R Us Project Manager (PM) - Bennie
- Bad financial precedent, resulting in lower prices on future deals.