The CCC Bank Deal. Analysis of a Business Negotiation


Research Paper (postgraduate), 2010
22 Pages, Grade: magna cum laude

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Table of Content

1. Introduction

2. Background Information
2.1. Structure of the current contract
2.2. Outgoing Service Recipients
2.3. Employment Contract Offer

3. Memorandum of Understanding
3.1. Objectives
3.2. General Conditions
3.3. Transition
3.4. Costs
3.5. Final Provisions

4. The Players and their negotiation positions
4.1. ITSI GmbH
4.2. CCC-Bank
4.3. Trust AG
4.4. BATNA
4.5. BATNA of ITSI GmbH
4.6. BATNA of CCC-Bank

5. Trust AG’s Negotiation Strategy and BATNA
5.1. The EPOCH Scenario with ITSI GmbH
5.2. The Scenario with CCC-Bank
5.3. Preparation and Bid Process

6. Transcope Project
6.1. Structure
6.2. Communication

7. Bilateral Negotiation Groups

8. Outcome and assessment
8.1. Contract Structure and Results
8.2. Appraisal of Conditions
8.2.1. Time Pressure
8.2.2. Cultural Differences
8.2.3. Historical Factors
8.2.4. Personal Involvement

1. Introduction

This report about the CCC-Bank business negotiation is highly confidentially. I do not want to breach the data security law and therefore I decided to cover the information in that way that nobody could guess the real companies and the real actors playing in this negotiation game.

So I will mask the company names. I take fantasy names for the companies and for the protagonists. Furthermore I let play the game in the past and veil the real dates.

The intention is that nobody could conclude from the story the real world companies and there will not be any suspect in breaching the data security regulations.

2. Background Information

Trust AG bid successfully during a 6 month lasting bid process (request for information at mid of 2003, request for proposal in December 2004, last bid in March 2004). The proposal encompasses the IT-services for the Finance Group in Germany. The total contract value amounts to 2xx millions € for 5 years.

This was the first large outsourcing contract Trust AG had won in Germany.

The contract is named “EPOCH” (“EPOCH Services”, “EPOCH Contract”) and was contracted between ITSI GmbH (IT Service house of Finance Group) and Trust AG Services Deutschland (subsidiary of Trust AG concern).

Since the acquisition of the D-Bank by the CCC-Bank in 2006, the services of Trust AG to D-Bank have to be renegotiated. The involved parties are ITSI GmbH as prime contract and CCC-Bank as the new service recipient.

The services to D-Bank contain user help desk, end user computing and voice services (telecommunication).

2.1. Structure of the current contract

ITSI GmbH provided IT-services to D-Bank AG[1] on the basis of a framework contract signed on 17th May 2000, amended through individual contracts. With the integration of the D-Bank into the CCC-Bank on 21th May 2006 the ITSI GmbH henceforth provides the IT-Services to the CCC-Bank. ITSI GmbH instates Trust AG as subcontractor for provision of IT services regarding user help desk, end user computing and voice services.

illustration not visible in this excerpt

ITSI GmbH, Trust AG and CCC-Bank intend to restructure the contractual relationships until the end of 2006, so that the new contracts reach effect 1st January 2007.

2.2. Outgoing Service Recipients

Through the acquisition of DDD Bank by CCC-Bank the case of “Outgoing Service Recipients” as a section within the EPOCH contract is applied. The provisions for such a case are defined in the foll0wing section. “The following shall apply if an existing Service Recipients leaves the Finance Group in whole or in part owing to divestment of a share of the Service Recipient or an asset transfer: Insofar as the contractual relationship between ITSI GmbH and the Service Recipient is not terminated pursuant to section “Exit Management”, delivery of the Services to the outgoing Service Recipient shall continue. On request from ITSI GmbH, the Supplier shall continue providing the Services to the Service Recipient or the Third Party recipient of the Service Recipient without effecting any change whatsoever in the terms and conditions governing the realization of such Services.”[2]

These provisions have a significant meaning for Trust AG. We have to deliver the services to CCC-Bank under the same terms and conditions that means same prices and regarding the service quality the same service level fulfilling as for ITSI GmbH resp. D-Bank.

2.3. Employment Contract Offer

The EPOCH contracts set forth that employees who were transferred from ITSI GmbH to Trust AG (by German law §613a BGB) on effect date 30.06.2004 should get an employment offer after contract termination on 30.06.2009 or earlier if the contract will be ended by convenience.

To provide the service for D-Bank Trust AG employs XX people transferred from ITSI GmbH.

The problem for Trust AG is that these employees have a dismissal protection until 30.6.2006 and are deemed as a fix cost amount albeit the employees will not be needed for the services as predicted under the EPOCH contract. With the acquisition and merging from D-Bank into the CCC-Bank all branch offices of the D-Bank and a huge part of their applications will disappear in the next months. So Trust AG will lose revenue and will have residual cost regarding salaries of the XX employees.

“The provisions of Exit Management shall apply insofar as (a) the Outsourcing Agreement is terminated in its entirety or with respect to specific Services; and (b) the terminated services are to be transitioned in whole or in part to a Successor Supplier. The provisions shall apply irrespective of the grounds for termination of all or part of the Outsourcing Agreement, i.e. in the event the Agreement is terminated for Cause or for Convenience.

In the event of termination and upon Time of Termination of the Retrieval Contract, ITSI GmbH shall provide to all Provider employees an employment-contract offer (or ensure that another Subsequent Provider provides such an offer).”[3]

3. Memorandum of Understanding

3.1. Objectives

Mid of 2009 the parties worked out a MOU (Memorandum of Understanding). Within this MOU the parties declare the principle willingness to negotiate the service provision agreements in a constructive and timely manner. ITSI GmbH, Trust AG and CCC-Bank intend to restructure the contractual relationships. In this context the participants prove the following measures for contractual restructuring:

4 CCC-Bank - ITSI GmbH: Change and partially termination of individual agreement from 2006
5 ITSI GmbH-Trust AG: Change and partially termination of EPOCH contract (Outsourcing contract from 1st June 2001 – 30th June 2006)
6 CCC-Bank-Trust AG: Conclusion of a service contract
7 from here on referred as „planned contractual agreement“-.

In case the participants will actually agree upon the planned contractual agreements, it is planned to conclude the agreements with effect from 1st January 2007.

The content of the planned contractual agreements are regulations upon the services which Trust AG provides as subcontractor of ITSI GmbH to ITSI GmbH or to the sites of the D-Bank for the CCC-Bank. These services are named herein as „EPOCH Services“.

Herein there are included:

1 User Help Desk for the following EPOCH Services
2 Provision and services of Desktops (PC, notebooks, monitors, printer)
3 Voice services and telecommunication (Telephone, FAX, Video conferencing)

The scope of the EPOCH Services is different for the branch offices and for the headquarters.

Subject of the planned contractual agreements should also be applied to the defined projects within unless they are not completed on the target date.

It is intended until the migration onto the target scenario that the existing services is provided by Trust AG without any change and accordingly to the „contractual agreements currently in effect“.

As a result from the situation that hardware assets are a part of EPOCH Services contract, transfer from previous stock balance regarding hardware is most likely. The concept of the both parties intended target scenario considers a service model without the intention that the CCC-Bank should be neither legally nor economically property owner of the assets need for services provision.

3.2. General Conditions

The following general conditions should be deemed for the planned contractual agreements. The adjustment of the resource baseline and base charge through reduction of the EPOCH Services overtaken by CCC-Bank with unchanged prices (calculated units) within relationship ITSI GmbH – Trust AG will be done.

The contract between Trust AG and CCC-Bank should have the same remaining term as the previous EPOCH contract until 30th June 2006.

Die CCC-Bank should not submit an offer to the employees transferred from ITSI GmbH to Trust AG (at the time of writing this document there are XX employees) at the contract conclusion date with Trust AG nor at the end of the term of the contract.

Services which are contracted in anticipation of the newly intended contracts by the CCC-Bank and Trust AG, should be settled with the residual costs derived from the reduction of the current services.

Overall the term cumulated there should not be any residual costs for Trust AG. Residual costs comprise particularly lost contribution margins[4] through service reduction or abolishment and costs refer to the transferred employees from ITSI GmbH to Trust AG.

Trust AG offers the EPOCH Services for prices in line with the market.

There is a need for adjustments of the Exit Regulations within the EPOCH contract between Trust AG and ITSI GmbH in relation to the reduction of volume through the transfer of the EPOCH Services to the CCC-Bank (among other things the reduction of the personal projection matrix by XX employees in the relation Trust AG – ITSI GmbH). Trust AG, ITSI GmbH and CCC-Bank will take effort in order to attain an accordingly adjustment within the contracts of Trust AG. Any discrepancies in the residual costs, which will be created by the planned reduction of the personal projection matrix will be refunded to Trust AG by CCC-Bank.

The asset transfer at the end of the newly concluded contracts regarding EPOCH Services will be regulated individually within the single contracts.

3.3. Transition

The transition of the EPOCH Services onto the CCC-Bank should be carried out within a transition project. The transition project should consist of a workgroup for each service and a super ordinate transition project leader. The transition project leader should be assigned by the CCC-Bank. The transition scenario should be defined within the framework of the transition project.

ITSI GmbH and Trust AG will support the transition project as it is required. Efforts for planning of the transition project regarding EPOCH Services should be funded by each party. All efforts of ITSI GmbH and Trust AG in the framework of implementation of the transition project will be assigned and funded by the agreed processes by the CCC-Bank.

ITSI GmbH and CCC-Bank intend bilaterally to regulate the transfer of licences particularly from server and desktops until the target date.

Existing services should be provided by Trust AG like at this time until the migration onto the target scenario is completed. These services contain User Help Desk by Trust AG as well as all parts of EPOCH Services provided by ITSI GmbH.

It is intended, that new services of the intended target scenario will be supported from the time when the migration has been completed by the existing Benutzer-Service-Desk of the CCC-Bank (service line). The service parts of ITSI GmbH resp. Trust AG will be dropped.

In case that CCC-Bank provides parts of the existing services having effects to the service levels which are derived from these parts should be unconsidered regarding the service level evaluation from Trust AG.

3.4. Costs

From the target date on, ITSI GmbH and Trust AG should invoice their services separately. The existing services should be prized as previously and divided to one part for ITSI GmbH and one part for Trust AG.

ITSI GmbH will charge the infrastructure proportion as two new products with a lump sum in consideration of the following performance categories:

1. Infrastructure services DDD-Bank headquarters
2. Infrastructure services DDD-Bank branch offices

The service costs based on CCC-Bank forecasted quantities will be newly recalculated for each year and remain unchanged within a margin of deviation. For quantities exceeding the defined margins of deviation the service costs will be adjusted.

3.5. Final Provisions

There is common understanding among the parties, that the provisions in this document are solely the frame for the planned talks and negotiations. Yet no party is obliged by this document to conclude the planned agreements. Furthermore it is a common understanding that the planned contractual agreements outlined within the preamble in case they are contractually concluded solely concluded as a whole.

Any expenses incurred by the participants planned talks and negotiations will be borne by the parties by their own.

4. The Players and their negotiation positions

I know the difficulties arising when we believe that we know the negotiation position of the opponent. Therefore these statements should only be considers as our still vaguely opinion. We have to prove these assumptions during several talks up front the official negotiation dates.

We know ITSI GmbH very well. We have a lot of misleading discussions and have been lost a lot of money since the customer is a hard negotiator and has as our largest customer a lot of power. To give an impression about the difference between the three parties we apply the assessment guide for negotiators[5].

4.1. ITSI GmbH

- Behaves like an adversary
- Knowing to loss the customer but seeks the most possible outcome
- Demands concessions
- Is hard on people and hard on problem
- Distrust his opponent
- Change position hardly and digs in positions often
- Makes threats
- Demand gains
- Looks for mutual acceptable options
- Yields to pressure

Summarizing the negotiator’s behaviour is mostly ineffective and generates bad temper.

4.2. CCC-Bank

- Looks for solution nd behave often like a friend
- Seeks wise outcome
- Makes concessions
- Is soft on people and soft on problems
- Trusts to us distrusts heavy to ITSI GmbH
- Focuses on interests not positions
- Makes offers
- Comes up with options for mutual gains
- Looks for mutual acceptable options
- Applies problem solving, takes pressure if necessary

Summarizing the negotiator’s behaviour is effective and gives us fruitful results.

4.3. Trust AG

- Looks for solution
- Seeks wise outcome
- Makes concessions
- Is soft on people and soft on problems
- Trusts to CCC-Bank distrusts heavy to ITSI GmbH
- Focuses on interests not positions
- Makes offers
- Comes up with options for mutual gains
- Looks for mutual acceptable options
- Applies problem solving

Summarizing the negotiator’s behaviour is effective and generates beneficial outcomes.

4.4. BATNA

Batna is a term which stems from the abbreviation “Best Alternative To a Negotiated Agreement”. There is no evidence that all negotiators have a Batna. In the herein described case we know the Batna of Trust AG. All the other parties did not unveil their Batna neither before nor after the negotiations. If one knows the Batna of the opposite party it would be easy to reach the best outcomes. It is worthwhile to think about the possible Batna of the involved parties. If we know what they want to get in the deal, than we can set up a strategy to get the best possible yield. It is likewise an advantage to know what the minimum (or the bottom line or the worst acceptable outcome) is that the negotiation partner wants to achieve. If you take this into account you can prevent a deadlock situation. Otherwise if you know your bottom line it is easier for you to resist pressure or temptations[6]. The better your own Batna the more power you will have during the negotiation process.

The deadlock is generally to get a worse result than the current situation. This has to be prevented.

Within the first sessions all involved parties will give some information which allow to assess the main content which is really important for the partner. By interpretation of spoken and written information and non-verbal expressions like posture, pitch of the voice, eye movements and so on we can conclude to the possible negotiation strength of the partner.

After each session there is an urgent need to discuss the new information and behaviour of the members of the opposite party in order to prove if the Batna remains the same or has been changed and which course of action will yield the best outcome.

This rule is applicable: if the offer is worse than your Batna consider rejecting it. If the offer is better than your Batna consider accepting it. Between the offer presentation and the conclusion to reject or accept it there is room for negotiation. The goal is to fight for concessions to improve the outcome. If this is not successful perhaps you have to exercising a new Batna.[7]

There is a difference in the approaches. To understand the other side it is more valuable to ask for the interests than for the position of the other party. The art is to permanently work to the clarification of the true underlying interests. In many negotiations searching for underlying interests will reveal that often there are many more interests that are shared than ones that are opposed[8].

We put the question which Batna the other parties will follow. Surely we could not know all insights and background information but we have a best guess Batna for both parties. During the negotiation the Batna can be changed due to new information for example layer’s interpretation of legal provisions within the contracts. The interrelationship exists between ITSI GmbH and CCC-Bank stipulated within different contracts.

4.5. BATNA of ITSI GmbH

What is the Batna of the ITSI GmbH?

ITSI GmbH has the role of the prime contractor to the D-Bank for the scope services yet.

The declared goal of the CCC-Bank is the cancelling of the prime contractor role of ITSI GmbH. Hence, CCC-Bank plays the win-lose game. ITSI GmbH will lose power, revenue and money.

The Batna for ITSI GmbH can be the reduction of the residual costs. These costs consist of salaries for some employees working at the interface ITSI GmbH to D-Bank, account manager, administration clerks, service level manager and so on. These people will lose their tasks and have to get new tasks independently of the bank. The second part of the Batna is the reduction of the residual costs for the XX Trust AG people working for the bank. As stipulated in the contract under section exit management with the end of the term ITSI GmbH has to pay the severance payment or to obliged the succeeding provider to take over this people if they are need for the service. The Batna is to get rid of this obligation.

ITSI GmbH’s overall business strategy is to organise European business. The loss of D-Bank business is inevitable. The Finance Group concern has a dynamic business with a lot of mergers and acquisitions at a worldwide base. The European extensions will be additional business for the ITSI GmbH. The forced termination of all business connections related to D-Bank by CCC-Bank at the end of 2009 is more an act of revenge than reconciliation. This broken relationship is mirrored in this statement: In bad times when they loose their privileged position it is payback time, years of bullying will backfire …[9].

More to this issue and the background is explained in chapter Historical Factors.

4.6. BATNA of CCC-Bank

What is the Batna of the CCC-Bank?

Primary goal is the end of the relationship with ITSI GmbH as the prime contractor for services. Secondly is the reduction of the cost for the merger. According the current EPOCH Contract CCC-Bank has to cover approx. € X millions ITSI GmbH residual cost. The goal will be to reduce these costs as a minimum.

Third target is the removal of the sourcing model. For each service group they want only one first supplier without any go-betweens. The target model comprises the contract termination of other service providers in the field of break and fix services for client work stations. These services should be transferred to Trust AG.

Fourth target is a removal of the contract structure. They want a clearly structured contract consisting of frame contract, pricing form and service specifications as attachments.

Fifth target is a new frame contract. Herein the paramount issue lies in the unconfined liability for gross negligence.

CCC-Bank is risk-averse. Most concern is to fail the time scale. The upper management expects a settlement in 2006. So time pressure can be used to get better outcomes for Trust AG. Negotiation positions were always in a positive frame. The gains are described less the loss perspective. The behaviour is more risk averse and more concessionary than risk taking and taking a tough stand. The fear of a deadlock and time consuming situation is great.

5. Trust AG’s Negotiation Strategy and BATNA

Trust AG pursuits a long term strategy. It is about a new customer with more potential. For Trust AG’s outsourcing business the customer can become a new reference. To have banks and insurance companies as satisfied customers is valuable. This shows power and trust and supports the endeavour to become one of the four main players in the outsourcing business on a worldwide level.

Trust AG developed a road map detailing each party’s Batna and interrelationships. It indicates who influences, opposes and agrees to Trust AG’s interests.

5.1. The EPOCH Scenario with ITSI GmbH

The EPOCH scenario can be described as follow

As Trust AG pursues the current EPOCH Contract the consequences are that unit prices for ITSI GmbH increase as volumes decrease. The result will be € xx millions more revenue through negative economy of scale but overall approximately xx millions less revenue in total. The operating profit related to CCC-Bank will be a loss of xx millions € from 1.1.2004 until 30.6.2006 (contract end)

Because the Partial termination regulation does not apply the § 613a BGB to transfer 63 staff members back to ITSI GmbH or to CCC-Bank does not apply. Trust AG has to pay for the residual staff notwithstanding whether the employees will have billable work or not.

ITSI GmbH’s obligation to submit contract of employment when EPOCH contract ends might be reduced by XX. This means Trust AG has the risk to lay off XX employees and pay each a lump sum for compensation.

The EPOCH scenario is the worst case and should be prevent.

The following risks were seen.

- Loss of customer CCC-Bank:
CCC-Bank has to cover approx.€ xx millions ITSI GmbH residual cost
- Negative impact on relationship with ITSI GmbH: unit prices for ITSI GmbH increase as volumes decrease (overall ~ € xx millions)
- ITSI GmbH’s obligation to submit contract of employment when EPOCH contract ends might be reduced by xx (~ € x mio)

5.2. The Scenario with CCC-Bank

The best alternative to negotiated agreement (Batna) is the CCC-Bank scenario.

It can be described as follow:

Trust AG adjusts the EPOCH contract towards ITSI GmbH on the basis of newly negotiated fair prices reflecting the reduced volumes

Trust AG gets directly contracted by CCC-Bank on services for D-Bank headquarters and branch offices. D-Bank voice services (telecommunication services). These services should be contracted directly with the CCC-Bank and without the ITSI GmbH as intermediary. This is the first negotiation target. Further Trust AG should offer new services and new project services to CCC-Bank to compensate the decreasing business and most likely to make additional revenues. This is the second negotiation target.

The compensation costs for the D-Bank related staff at the end of the term 6/12 amounting approximately X millions €. Trust AG intents to share this compensation sum with CCC-Bank. The maximum will be X millions € the minimum negotiation target is X millions €. This is the third negotiation target.

Concerning the contract content Trust AG will insist on changes to the incumbent scope contract. The disadvantages are service credits in the form of contractual penalties. The price model of ARC/RRC[10] mechanism that means prices decrease if volume increases and vice versa. The scope contract applies a “employer’s managerial authority”[11] that means Trust AG has to deliver albeit the commercial agreement regarding cost covering. Fs often deliver services as result of employer’s managerial authority without getting the financial compensation.

As a result we want to get out of this partly destructive relationship.

Derived from these negative experiences Trust AG will take these key points into the negotiation process. The key points are:

- no service credits on “as-is services”
- no ARC/RRC mechanism
- no employer’s managerial authority at the prime contractor

The following risks are identified:

- Contracts cannot be adjusted without residual costs
- remaining redundancy payments risk: € X millions.
- skills of existing staff don‘t match required skills for new business:
€ X millions.
- Unlimited liability for gross negligence

The following opportunities are pursued:

- getting a new customer in managed service
- best positioned for new CCC-Bank RFP[12] in 2008
- improved position for additional business with improved margin with CCC-Bank

For our upper management the positioning of Trust AG for cross-functional outsourcing projects as a strong competitor against XX in order to win the next big deal (RFP 2008) regarding desktop services embracing the whole bank.

5.3. Preparation and Bid Process

Trust AG created a bid team. The bid team consists of a front-office and a back-office. The member of the front-office can be considered as the negotiation team. The team is led by the sales director who concurrently has the position of one of two general managers of Trust AG. Next to him is the account manger. He is in charge of the relationship management. The negotiation team consists additionally of two commercials. One of them has the title of a lawyer, the other works as an economist.

The back-office consists of bid management, sales support and finance consultancy. Trust AG has two senior finance consultants in the bid team. They are responsible for the cost breakdown, the resource calculations and the profit and loss calculation. If there are different scenarios the calculations are accomplished for all alternatives. The Trust AG finance and upper management on the European level is involved. Before bidding and contracting the reviews on the board level have to be taken. Before we deliver the proposal to the customer there is a BAR (bid approval review). We have to unfold the strategy, the calculations (profit and loss), the solution design and the risk log.

The bid manager is responsible for the whole bid. The tasks consists of resource planning, bid budgeting, risk analyses and the development of the value proposition and strategy for implementation.

Last not least the service delivery unit is involved into the bid and review process. Deal making is one side of the coin, the successful implementation what has been contracted is the other side. Therefore the delivery manager is due to the implementation of all proposed solutions.[13]

We can distinguish three stages in our negotiation process[14]. The stages are consultation, confrontation and concretisation.

The first stage is consultation. We dive in the contracts, reading, discussing, take expert knowledge and advices from lawyers. We come together with the negotiation partner and give some information in order to get reciprocally information from them. The focus lies on the discovery of shared interests, impasses and backlogs. The outcome of this process was the memorandum of understanding.

In the second stage the parties come together and disclose their interests and their positions. The phase is named confrontation. Now the differences get obvious. The Batna can be reviewed and adapted. The proposals are offered and discussed. Concessions are claimed. Concessions are refused. Negotiation breaks are common. Adjournments are used, sometimes as tactical instruments.

The last stage is the concretisation. In this phase the parties reach an agreement, see their mutual gains or losses, if there is a win-loss game (in a zero-game scenario). The contract is concluded.

In the aftermath of the negotiation we come together and perform a lesson learned workshop. The relationship between our business partners is defined as trustful and reliable or negatively as not trustful and not sustainable.

6. Transcope Project

The concern about satisfactory outcomes for all parties leads to a problem solving approach. The approach results in establishing a project named “Transcope”. The initiator and leader of the project is the CCC-Bank. Its first interest is to consolidate all services, contracts in order to set up a new basis for business from 2006 on. The project Transcope belongs to the programme “Growing Togther”.

6.1. Structure

The main purpose of the Transcope Project is to reach the sign-off of all contracts in a timely manner. The target date to start the new services is 1st January 2006.

Each work group and the project management contains of one responsible person for each party (ITSI GmbH, CCC-Bank and Trust AG). The workgroups are Desktop Services, User help desk & Support, TK Services and Cross-Functions.

By means of the MOU the work groups have clearly defined tasks and an ambitious schedule. This time pressure determines the negotiation process. This can be an advantage for Trust AG.

The project starts in summer 2006 and should be finished end of 2006.

6.2. Communication

The meeting structure is as the following:

illustration not visible in this excerpt

All official meetings are prepared by the project office by CCC-Bank. There are official invitations with agenda. Minutes for each session are documented and disseminated according to a defined distribution list.

7. Bilateral Negotiation Groups

The atmosphere is relaxed and the mode of negotiation is constructive and joint benefits are intended.

All session have an agenda. Normally set up by Trust AG and sent to the customer which agreed upon or makes some amendments. During all sessions the minutes were written and as the last action the text is confirmed by all involved parties. If there are some points which need clarification and scrutiny than the decision will be adjourned. Meantime until the next meeting each party takes expert opinion and exchange the statements mutually. Then these issues will be discussed at the next meeting again.

We set up different negotiating groups. Primarily the service related issues were discussed and agreed at groups with subject matter experts. Then the content was fixed as an proposal. The proposal was our first offer. This proposal was negotiate commercially that means prices and fees for breaching the service level agreements. In this group was the commercials (legal, layers) and the account manager. The corresponding group at customer site consisted of legal people and people from purchasing department.

8. Outcome and assessment

Firstly Trust AG submits the requested proposal on the basis of the best margin we would expected from a new customer. This is a method named “hypothese houte” within the negotiation constructive[15]. During two major sessions we discussed and finally agreed upon the commercial conditions. The final commercial session was lead by the chief manager of the purchasing department.

Trust AG applies the ploy not to compare apple and peaches. We changed the conditions and in some minor parts the service offers pursuing the target not to be directly comparable to the former services and conditions contractes with the ITSI GmbH. Trust AG took new price matrixes and new service conditions, f. e. working hours are extended if it will be necessary without additional costs, week-end work will be rated at a price lift of only 25 percent in comparison to 50 percent for Saturday work until 200 percent for Sunday night shifts within the former contract. Our proposals are well designed. We have a lot of internal knowledge of the customer this have been built up for many years and by the former employees of the customers now working for us as colleagues. With this “Power of Knowledge[16] ” we are very strong and have a favourable position. We take the advice “build in your own targets in his proposals and give him the impression that you agree with his ideas…[17] ”.

We took the package deal strategy for Adaptive Project Management Services. The customer should be for a project management office as a package and in advance. Once we have established the project management office we will get all information about other projects and will be able to identify resource needs and will offer the right skilled people on a time and material basis to generate new business. APMS can be assessed as a basket deal. “Basket deals means you create additional value by including things that were not originally included…”[18]

We have reached a long term relation with CCC-Bank.

We will get the chance to bid for the new contract for workplace provisioning of hardware and services for the whole bank encompassing headquarters and branch offices in sum approximately 30 thousand clients supplied with personal computers and peripheries.

Is the deal a win-win deal? I think we can assess the deal only preliminary as a win-win deal. The future development will give us more certainty. The crucial point is if we can find opportunities to make the redundant employees billable either in additional projects at CCC-Bank or at other new customer contracts as a result of new business.

Mr. Schneider was responsible for workplace services at D-Bank. He was the interface manager for Trust AG during the legal unit of the D-Bank as a subsidiary company of the Finance Group AG. He was highly satisfactory with the services provided by Trust AG. After the merge into CCC-Bank he perceived the services from the provider of CCC-Bank as less satisfactory and his goal is to optimize the services and to keep on Trust AG people wherever possible.

So Trust AG has a sponsor or a promoter in Mr. Schneider and can trust in his support as long as the Trust AG service is impeccable. For example Trust AG got information from Mr. Schneider regarding the incumbent break & fix service provider. Mr. Schneider shares information about yearly costs for this service so that Trust AG could submit an attractive proposal. Finally Trust AG get the contract instead the prolongation of the incumbent provider.

8.1. Contract Structure and Results

The structure of the negotiated contracts is the following:

- Frame Contract
- Service Operation Agreements
- Contingent Contract

The umbrella of all contracts is the Frame Contract. Within this contract the contentious negotiation issue about liability is stipulated.

As a result of the negotiation process we have to make concessions. Our goal was to agree upon a limitation on liability. This could be reached but the amount is high and could only be agreed with the consent of the board members.

“Claims for damages resulting from a party’s ordinary negligence shall be limited for all damaging events that occur during the term to an amount of the double of the yearly revenue.”[19] This can be approximately a sum of 18 millions. €.

“Claims for damages resulting from a party’s gross negligence shall be limited for all damaging events that occur during the term to an amount of 50 millions € in the aggregate.”[20]

The services are specified within the “Service Operation Agreements”. According the continuation of services there are

- Managed Service Enduser Computing Headquaters
- Managed Service Enduser Computing Branches
- Managed Service Telecommunication

Trust AG continues to provide service in the current mode of operation.

The prices for the service are fixed and calculated by managed objects. It is stipulated in the contracts that a benchmarking of the services and the prices is not planned. This is a concession of the CCC-Bank and quite fair.

The contractual penalty is a concession Trust AG has to agree upon. The intention was not to accept any penalty for not achieving a minimum service level score. But during the negotiation process the CCC-Bank did not yield and insist on mean to apply pressure to the service provider. The penalty clause is mitigated in comparison to the former clause within the ITSI GmbH contract. The maximum penalty fee per year is limited to 5% of the total annual revenue. With this fix amount applied in the worst case scenario the risk can be taken by Trust AG.

The term is 12 months related to the end user computing for the headquarters and 24 months related to the end user computing for branch offices. The parties act on the assumption that the transition from D-Bank workplaces to CCC-Bank workplaces will take 12 months for the headquarters and 24 months for the branch offices. After 12 month all workplaces of the D-Bank headquarters will be replaced by solely CCC-Bank workplaces and consequently the services of Trust AG will be terminated. The same conditions are assumed after 24 months for the branch offices.

Related to the managed service telecommunication the contract determines the termination dates of the services. The service for headquarters will last until October 2007 while the service for branch offices will be reduced by 50% until June 2008 and will end until June 2009.

Consequently we can appoint that the managed services will be longer alive than it was planned at the beginning of the negotiations.

The prolonged service duration is an advantage for Trust AG because the revenue is less diminished as previously projected and consequently the residual costs are lower than it was expected at the beginning of the negotiations.

We are happy with this value-creating approach. If we get new projects and deliver excellent results we can develop a fruitful and sustainable customer relationship and generate relevant revenue with the CCC-Bank in future.

Contingent Contract

The agreement stipulated that Trust AG get a contingent for new services. Within the term of xx years the CCC-Bank is obliged to assign new services at a value of xx millions € to Trust AG. The new services consist of new projects, extended managed services, support to test management and likewise services. The contingent is divided into monthly quotas along with a confined transferring quota of 25 % from current to the next month. But there is a guarantee of 90% of the contingent even if Trust AG get not the opportunity to provide the service valued as projected and could not exploited the monthly quota. The evaluation and compensation is planned for each half year period.

Redundancy Payments – Restructuring Costs

The CCC-Bank will pay a lump sum for the compensation of the restructuring costs related to the xx employees transferred from the Asic to Trust AG through the EPOCH contract in 2004. The lump sum will be paid immediately after the sign-off of the contract. The sum set to x millions €. This is higher than expected and in considering the net present value the lump sum is a favourable reassurance for the worst case that Trust AG will not have the need for the employees and is obliged to lay them off. If we think positively the amount sufficient for efficient and effective education measures building up new skills in areas Trust AG can offer new services and generate new revenue ensuring the employment in the future.

With the sign-off of the contingent contract Trust AG has agreed not take any claim for compensation to the parties neither to CCC-Bank nor to the ITSI GmbH. All claims are finally compensated.

8.2. Appraisal of Conditions

8.2.1. Time Pressure

CCC-Bank has a firm deadline and we could benefit from this. “The party with the most time constrains losses power”[21]. Our interest is to close a good deal. For us it was not critical if we get the contract two or three month later. In this case we had for more two or three month the go-between ITSI GmbH. The advantages of an early agreement mean a better margin for us at an early date. We managed to take advantages from the effectiveness of deadlines. We rewrite complex clauses and make it easier to understand and easier for us to fulfil the conditions. E.g. the service level reporting will be not so complex as before and we can cut costs for reporting. We know our contracts very well and better than the CCC-Bank-. They have to get familiar with the complex contract structure and it s difficult for them to cope with the many contradictions in these documents.

In the short time of six months the CCC-Bank reached the target to implement the new sourcing model without the go-between ITSI GmbH to the target date 1st January 2007. All involved parties agreed upon the commencement date albeit the contracts are not finalised at this date. I took further six weeks to write and negotiate the contracts. Today the contracts are not signed off. The scheduled date is end of February 2007. But the commencement date remains the 1st January 2010. So the parties behave as if the contract would be signed already.

8.2.2. Cultural Differences

Regarding the negotiation partners we don’t have real cultural differences. There are no people from abroad involved. But companies have also a culture. This culture can be very different and will be therefore mentioned here.

Organizational culture consist of a pattern of common assumptions learned by the group in solving problems related to external adaption and internal integration, assessed as successfully applied and deemed as bounding. These patterns will be forwarded to new members as rationale and emotional correct approach. Applying these rules and values ensures success in cope with colleagues and issues.

In the negotiation process we meet different personalities from different organizations. The personal characteristic of each person can be discovered during difficult negotiation situations. There are some knows tools to cope with difficult persons in difficult situations. On the other side we have to take into account the organizational behaviour learned and adopted by the employees from s specific company. In the following I will give my findings regarding the involved organizations and its culture.

The D-Bank distinguishes from other German banks through characteristics as future oriented, customer friendly, focusing on wealth management in private banking. In the 70th all branch offices were built up on the same cooperated style. The office hall was large, the carpets were green. The same colours and pattern were found on furniture. Daily newspapers were offered to the client at a waiting corner. The patient client waiting for his consulting talk read news paper[22]. The employees were proud of being employed by such a successful and future oriented bank. This attitude sometimes reveal as arrogant. The organisational culture regarding the employees can be described as trustful, career oriented and short-term oriented.

The CCC-Bank was more rooted to the soil. The clients are the average citizen in private banking and the middle-sized companies regarding business customers. The student gets the same treating as a client with high income. Middle ranged companies are welcomed. The bank withdrew from international trading and limited the investment banking to European level. The organisational culture regarding the employees can be described as trustful, mutual supporting and long-term oriented.

Finance Group as the biggest insurance company is conservative. The management is well searched. The careers are long term based. Often employees from normal clerk to middle and high management are ten and more years in the company. The Finance Group company area is huge. The central building was built at the country side and encompasses offices for eighth thousand employees. All people under a single umbrella and isolated from normal city life. The organisational culture regarding the employees can be described as cautious, risk-avers and long-term oriented. We often make the experience that the employees are not willing to make a decision without any reinsurance. The culture can be defined as “angst culture”. The employees are scared to make a fault, get blamed and fear negative consequences like job downgrading or loss of job.

Taking this distinguished organisational characteristics into account some negotiation process and outcomes are more understandable.

Regarding Finance Group the responsible persons for negotiations are always the upper management. All achieved agreements are not valuable until the upper management has approved it. At D-Bank and CCC-Bank the negotiation partners are at the department leader level. The negotiation content is documented and communicated on a regularly to the upper management. Hence setbacks as surprises seldom occurred. More often such setbacks were seen at Finance Group. Already negotiated issues were surprisingly opened again due to the involvement of the upper management.

8.2.3. Historical Factors

The Trust AG employees had been working for D-Bank in the 90’s. Mid 90 D-Bank founded a separate IT service organisation as an own legal entity, called D-Bank-IT GmbH, but 100% subsidiary of the concern D-Bank. In the early years of the first decade from 2000 until 2003 there was a banking consolidation in Germany. D-Bank was bought from Finance Group concern. Finance Group was and remains until today the largest insurance company in Germany and possibly worldwide. The objective of Finance Group was to create a “All Finance Institute” encompassing insurance, private banking, investment banking and merger & acquisitions. The slogan was all finance services under one roof.

Finance Group founded similar to D-Bank and other large companies in Germany (for example Lufthansa, BMW, VW, Mercedes) its own IT company as a separated 100% affiliated legal entity, called ITSI GmbH and renamed 2007 to ITSI GmbH SE.

The D-Bank-IT employees were merged into the ITSI GmbH. The consolidation process leads to lay-offs. Many former employees from D-Bank-IT were forced to move from A-Stadt, the location of headquarters, to B-Stadt (Finance Group) or C-Stadt (Finance Group Specialities). As intended many left the ITSI GmbH voluntarily since it was inconvenient for the employees and their families to change their living centre. More important for understanding the negotiation objectives of the DDD-Bank respective CCC-Bank is the fact that applications and procedures of the D-Bank-IT regarding IT and TK infrastructure (“Run the Bank”) were abolished and replaced by ITSI GmbH systems not always by a reasonable manner but more as a means of power. Some decisions were taken without asking the subject matter experts of the D-Bank-IT . Many D-Bank-IT managers lost their responsibilities did minor work or left the company. The power of ITSI GmbH resp. Finance Group was dominant in all areas. These circumstances created resentment, anger and bad temper. This kind of paternalism still exists until the take-over of the CCC-Bank in February 2006. The primarily objective of the CCC-Bank management partly determined by former D-Bank-IT managers is to get rid of ITSI GmbH as soon as possible. The target date was mid November 2003 and after a adjournment 1st January 2007. From this date on no service request, no service report, no service invoicing is due via ITSI GmbH resp. Finance Group. Starting from the target date solely CCC-Bank contracts to Trust AG for IT services for for D-Bank. The direct provision of services through Trust AG has also economic reasons. The ITSI GmbH was a champion in negotiation by power and nibbling so far that ITSI GmbH reaches a margin of 50 to 100% (the benchmark in the IT services is 10 to 30%). That means for the final customer for example the D-Bank to pay a lot to ITSI GmbH as a go-between without getting an appropriate added value.

8.2.4. Personal Involvement

My part in the game was the role of bid manager. I defined the negotiation strategy with the team. My contribution was also the formulation of the value proposition in all proposals we offer to CCC-Bank. I was partially involved in negotiations preparation and discussions with the customer.

Appendix, Sources

Bellenger, Lionel, Réussissez toutes vos négociations, ESF éditeur, 2nd édition, Paris 2008, ISBN 978 2 7101 1937 1

Bellenger, Lionel, La Négociation, Press universitaire aux France, Paris 2009, ISBN 978 2 13 056911 4

Fisher, Roger, Ury, William Getting to Yes, 2nd edition, London 1992, ISBN 9781844131464

Harvard Business Manager, Erfolgreich verhandeln, Edition 4 /2008, ISBN 978 3 935577 27 4

Kennedy, Gavin, Negotiation – an A – Z Guide, London 2004, 2009, ISBN 978 1 84668 169 1

Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished

[...]


[1] affiliated to the Finance corporate group until 22th January 2006

[2] Taken from contract section “Serviceempfänger”, translated by the author.

[3] Taken from contract section “Exit Management”, translated from German by the author

[4] In German “Deckungsbeitäge”

[5] Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished, page 84

[6] Fisher, 1992, page 102

[7] Kennedy, 2004, page 33

[8] Fisher, 1992, page 43

[9] Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished, page 9

[10] ARC means Additional Resource Credites; RRC means Reduced Resource Credits;

[11] “Weisungsrecht“ in German

[12] RfP means Request for Proposal

[13] A similar organisation structure for outsoucing deals is described in the article „Wie HP Services glaubwürdig verhandelt“ in Harvard Business Manager 4/2008, page 31

[14] The CCC approach is described in Bellenger, Lionel, 2008, page 65 and in Bellenger, Lionel, 2009, page 81 – 91.

[15] Berlinger, Lionel, 2009, page 86

[16] Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished, page 31

[17] ditto

[18] Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished, page 6

[19] Frame Contract, page 45

[20] ditto

[21] Negotiation Techniques, Institute for European Business Administration, October 2009, unpublished, page 32

[22] Information comes from Markus Weisbeck “Operation Vertrauenspartner – im Wohnzimmer der Großbank”, Frankfurter Allgemeine Zeitung, 29/12/2009 page 32

22 of 22 pages

Details

Title
The CCC Bank Deal. Analysis of a Business Negotiation
College
Institute for European Business Administration  (http://ieba-edu.com/)
Grade
magna cum laude
Author
Year
2010
Pages
22
Catalog Number
V313716
ISBN (Book)
9783668130128
File size
670 KB
Language
English
Notes
The case study presented here is fictional.
Tags
BATNA, Negotiation
Quote paper
Kurt Lehberger (Author), 2010, The CCC Bank Deal. Analysis of a Business Negotiation, Munich, GRIN Verlag, https://www.grin.com/document/313716

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