“Negotiation is a core organisational competence, and not just an individual skill” so say Harvard and MIT professors Hal Movius and Lawrence Susskind, obviously supporting the notion that negotiation is a team sport, and not simply about whether our individual buyers are able to out-manoeuver their supplier counterparts.
One of the privileges I enjoy is to teach on Birmingham Business School’s MBA programme, specifically the Strategy & Procurement Management MBA that is currently in its 20th year. Last week, one of the day-long lectures I delivered was on ‘Negotiation Theory & Practice’ where we discussed the exhaustive (and exhausting) research into and commentary on negotiation (15,000+ books on Amazon, 23m Google entries, etc.). Also discussed were a range of tools and methods procurement can use in negotiating optimum value from supplier relationships.
We got to the point where we were questioning what were the essential negotiating practices that need to be in place if an organisation is going to maximise its collective negotiating capability in its supplier relationships. What follows are what I suggest are the 10 essentials that every organisation should seek to put in place and practice.
- Relational Competence: Negotiators need to be able to diagnose the true state of the relationship in which they are negotiating. All staff will then appreciate the need for effective influencing, aligned strategy and consistent communications between the organisation and the supplier. Ideas such as ‘the customer is always right’ are there to be challenged and negotiators will proceed with a reality-based assessment of the relationship.
- Understanding of Power: Like it or not, power is a hugely important factor in who ‘wins’ in negotiation. A daily glance into the newspapers will uncover at least one story of supply market dominance or monopoly behaviour displayed by suppliers of large IT, transport, and utilities, amongst others. This is dangerous territory for the unwary. The organisation must work to understand the principles of relational power and dependency, and rigorous power analysis should underpin any negotiation strategy.
- Negotiating Authority: No one likes to negotiate with people who have no authority to decide, so there must be clarity around which people have the authority to make concessions and decisions, and these are agreed up front. However, it’s sometimes useful to send people into negotiations who don’t have the authority to close the deal. In these circumstances, be clear about when and to whom is the negotiation escalated (see below).
- Planning: I know this is the old chestnut, but negotiators continue to under-prepare and rely too much on their experience and their assumptions. Competent organisations truly value preparation time and establish processes to systematically capture necessary information and plan how the negotiation will be undertaken.
- Interests: Negotiators should be dispassionate and rigorous in determining the organisation’s own commercial and operational interests, and those of the supplier. Interests should be systematically captured and assumptions tested. No shortcuts here: interests are the very source of value improvement and can tranform a mediocre deal into an excellent one.
- Conditioning: Still one of the most effective tools in the negotiator’s toolbox, and yet so underestimated. Competent negotiators appreciate the importance and potential value of communication before and during negotiations. Commercially-advantageous messages are communicated routinely to manage the expectations of the supplier. The goal here is to secure control of the agenda.
- Roles & Responsibilities: Clear roles are assigned between leader, technical specifiers, supporting functions, sponsor (unusually the point of escalation), and contract administrator. Negotiators stick to the agreed script. The players and roles of the supplier are known and are taken into account during negotiation preparation and execution.
- Value Creation: The priorities of each party are evaluated prior to negotiations (see ‘interests’ above) and, during those negotiations, opportunities to improve the agreement for both parties are diligently pursued. Trust-building mechanisms between buyer and supplier are consciously managed. There are worse guiding principles than ‘mutuality’.
- Negotiation Strategy: All the preparation in the world is going to be meaningless if the execution of an agreed approach is botched. For important negotiations, the negotiating team not only develops its strategy, it also documents it and provides clear direction for the process of the negotiation, its goals and targets, and concession planning. It is this formality that moves the negotiation from a ‘hope for the best’ approach to one that’s truly professional.
- Follow Through: What’s the point of investing in all that preparation, only to see the deal go sour after the contract is signed through neglect or one-party’s opportunism? Competent negotiators create incentives for both parties to live up to their commitments. Enthusiastic implementation of the agreement by all sides is a key goal and as such implementation is managed in a determined fashion, with benefits appropriately measured.
I am sure readers will come up with their own ‘essentials’ to supplement this list. Feel free to add them to the comments section below. In the meantime, I hope the essentials I’ve presented here provide, at the very least, a reminder to the already competent, and fresh insight to the curious – both individual and at the level of the organisation.