The Fine Art of Negotiation

Negotiation Takeaways:

  • The What’s In It for We (WIIFWe) paradigm shift asks negotiating, on-the-fence companies to reach an agreement that solves business challenges while creating market value.
  • Getting to We Wikidata requires both parties to collect and analyze data before reporting out one set of data in a negotiation.
  • To reach a beneficial agreement, negotiating parties should align strategies with similar, if not the same, goals, objectives and initiatives in solving business problem(s).

Companies have been schooled in the principles of “Getting to Yes” since Roger Fisher’s and William Ury’s original publication of the book on effective negotiation. And most companies approach contract negotiations from a desire to optimize their own position, even going so far as to win at the expense of their partner. But it’s one thing to get to “yes” in your negotiations and another to craft a sustainable business relationship that creates value for both parties. As the 21st Century demands a more transparent and collaborative approach for working with our most strategic suppliers, a new negotiation paradigm is needed. Companies must challenge traditional negotiating practices and adhere to principles that help achieve a win-win for both the buyer and supplier—enter the What’s In It for We (WIIFWe) approach.

Make way for a new paradigm

Traditional negotiation theory assumes the classic, economic model that when each strives for his own personal interest—even at the expense of each other’s interests—the resulting deal benefits the market. When the companies get to “yes” a deal is struck that creates market equilibrium. The premise? If it was not a good deal the parties wouldn’t have reached an agreement. The conventional approach is for the buyer and the supplier to sit across the table during negotiations, standing in opposition to one another in an old-fashioned tug of war. We have all been in the situation—the age-old tit-for-tat position where you try to get to “yes” while giving up as little as you can. The power of the relationship is used up because each company tries to extract value from the other. And after partners have extracted value, the economic landscape looks bleak and renewal conversations are even more contentious.

Even contemporary, interest-based philosophies are lacking. Interest-based negotiations, premised on the classic economic theory, teach business leaders to listen to their opponent in order to maximize their own self-interest. At best, companies look for common ground through the lens of self-interest for a self-optimized solution. Parties got to yes, but is yes enough to solve the complex business problems strategic partnerships are designed to solve?

Reaching a commercial agreement with a strategic partner to solve today’s tough business problems demands the Getting to We concept. This negotiation paradigm asks partners to pull together on the same side of the rope—effectively putting the business problem on the other side of the rope. This exponential power, pooled when companies work together, helps solve tough business problems that create market value.

Does co-creating value by working together sound too good to be true? It isn’t. In fact, some of our nation’s most reputable companies have struck gold simply by sticking to the WIIFWe philosophy. Microsoft and Accenture teamed to drive up productivity and eliminate compliance risk in their finance operations, which resulted in an 18 percent improvement in productivity, an additional $63 million in costs savings and zero Sarbanes Oxley compliance issues.

Getting to WIIFWe

How does the WIIFWe concept work in practice? Negotiation skills necessary to create value stand in contrast to traditional negotiation practices. The crux of the strategic relationship is legal independence coupled with economic interdependence, i.e., the more interdependent the relationship, the greater the need for “we” thinking. Businesses should implement the five principles of WIIFWe to reach effective company results via this new negotiation paradigm shift.

Skinny Dipping-Transparency: Transparency is the most important principle in Getting to We. In a world where information is power, most people tend to hide, horde and misrepresent information, and use it as a battering ram to get their way. But such classic negotiation tactics act as a trust barrier. Solving tough business problems requires companies to share more information with each other than ever before. Businesses also have to recognize that sharing information can change the conversation.

After years of contentious conversations, one $3.5 billion company knew it needed to make a bold move to prove that it was going to treat its service provider as a partner. At the outset of conversations to renew the service provider’s agreement, the buying company agreed to give the service provider its master agreement with its customer. The buying company felt they had nothing to hide and everything to gain by allowing their service provider to generate value-creating ideas. And it worked. Conversations shifted away from how to penalize for performance errors to measures designed to catch and rectify problems before the customer was ever aware of them, thus creating a win for all.

Another example of transparency is sharing your Best Alternative to No Agreement (BATNA). In traditional negotiations, it is sacrilege to share your BATNA, which is, in essence, your walk-away alternative. Negotiation training experts warn never to share your walk-away strategy as the person on the other side of the table can take advantage of you by knowing your breaking point. In a pure commodity purchase, this approach may work well but when your aim is to create value, it is counter-productive.

Let’s Get Real-Authenticity: Authenticity is more than a buzz word. It means that both partners’ employees are devoted to honoring commitments. In most cases, everyone from the bottom up does what is needed to perform at all times. This means everyone will tell the truth. Companies simply will not achieve extraordinary financial benefits from partnering if one or both companies fail to perform as promised and if their employees tell each other white lies because that is what the other party wants to hear. It all boils down to trust. Do you trust your partner? Many executives trust certain individuals at their partner’s company but not others. Mistrust leads to justification, blame, telling white lies and ultimately, communication and performance breakdowns.

In one such scenario, a sales executive for a service provider agreed to service level agreements (SLA) with a penalty clause for non-performance, but then mandated his team to not perform after the buyer ignored remarks that they were being unreasonable. Instead of trying to reach an agreeable negotiation by both parties, the service provider agreed to the buyers terms, and ignored the mandate because the cost of non-performing was far less than the cost to jump through hoops to meet their required service level. This type of insincerity is rampant on the buy side as well. Many service providers have grown averse to “gainsharing” provisions because some customers don’t make the gainshare payment to the service provider. Some companies may even quit signing up for gain-sharing provisions because their internal investment requires more than the fair share gained in return—or any share gained at all.

Practitioners on both the buy and sell sides share reasonable justifications about their public agreement and their unwillingness to follow through. This behavior creates enormous mistrust that hurts profitability at both companies. So what works? It all starts from the top, with senior level leadership from each company. Engage in discussions that provide both parties with effective feedback. As leaders model authentic behavior, they need to insist that their middle managers adopt the same stance.

Wikidata-Common knowledge: Wikidata means both companies create one set of data to analyze for trends, performance issues and market opportunities. It is inevitable that markets change, end users’ demands change and commodities become more or less scarce. In a Getting to We environment, both partners generate data and analyze that data, much the way internal company wiki’s work. Most use some form of unilateral collection of data for performance measurement. In a traditional negotiation setting, parties use data about performance history as a weapon to extract value from the other party. For example, when companies unilaterally score their suppliers, some suppliers share their disagreement with how their client arrived at the performance rating.

An effective result is for parties to share the responsibility of collecting and analyzing data before reporting out one set of data. In a relationship that is economically interdependent, it is unwise for one company to be responsible for collecting data while another company analyzes data to score performance. In that scenario, no one trusts the data or the analysis. When Microsoft outsourced their facilities management to Grubb & Ellis, both companies agreed to jointly collect data for the balanced score card. Over the course of two years, the gap in expectations and performance closed by 91.5 percent[1]. As the gap closed, employees for both companies grew to trust one another, resulting in tight alignment.

Power with-Collaborative Style: Economics has much to do with negotiating. Dr. Oliver Williamson’s work studying transaction cost economics showed that there are costs associated with a “muscular” approach to negotiating.[2] According to Williamson’s findings, using the power play and beating up on your suppliers will actually cost you money. Unfortunately, his teachings are all too often ignored by most negotiators. Most negotiators assume that the only way one can get his needs met is by taking a muscular stance (classic economic theory).

The muscular thinking is so entrenched business people feel the need to always be on guard to better protect themselves from their opponents. This line of reasoning sounds very circular and leads to justification of using hardball negotiation tactics such as bluffing; puffery; good cop vs. bad cop; and other techniques meant to manipulate your partner.

Some suppliers even withhold known efficiencies to protect net revenue. In one case, a packaging supplier was paid by the “touch,” resulting in no incentive to create a more efficient system. In fact, when a line supervisor told his boss that the number of touches could be reduced almost in half, his boss cited that his company would reduce their own revenue. The boss reasoned that his company had fought hard to get paid fairly for the number of touches and it was not going to damage its financial well-being by reducing the number of touches. The result? A lost opportunity for both parties.

Co-creating value is the name of the game when entering strategic partnerships. Both companies have to take a more collaborative stance. This is not a group hug. It is a balance of advocacy and inquiry. It means asking tough questions, uncovering hidden assumptions and articulating a sound course of action. It also means standing up for the shared vision for the partnership, knowing that when the partnership wins, you will also win.

Are we on the same page? Alignment: Classical negotiation theory suggests that each person approaches negotiation from their own self-interest. While hundreds of books support the need to seek common ground, negotiators are looking for common ground through their self-interest. All too often the common ground is achieved by a series of tradeoffs and concessions—taking an existing pie and trying to divide it.

A better approach is to gain alignment about common goals, objectives or a business problem that needs a solution. But aligning around a set of desired outcomes that are bilateral in financial outcomes and have a measureable upside for the end-user means much more than seeking common ground. Alignment demands a commitment to one vision, one path and one set of actions to achieve that vision. This is a very radical position for negotiation teams who are about to enter into some form of contract negotiation.

Another important aspect of alignment is compatibility. Are both companies a cultural fit? Or does one company have a lower set of standards than the other? If you don’t like your business partner, don’t kid yourself into thinking they’d make a good strategic relationship.

Jaguar’s successful deal with Unipart demonstrated the power of alignment. Both companies admitted they needed to drastically improve their performance because Jaguar customers were waiting too long for replacements parts. Consequentially, the CEOs of both companies created a shared vision for their partnership via internal and external alignment. Thus, Jaguar and Unipart were aligned to ensure that Jaguar’s service parts logistics were best in class[3] and the luxury car manufacturer went from ninth to first in JD Power and Associates survey of Customer Satisfaction. As a result, Jaguar sold more cars because of increased service and Unipart earned more money—alignment at its best.

Negotiation tactics review

Traditional negotiating practices undermine trust and rapport between two companies at all levels. Mistrust doesn’t evaporate when the ink on the paper dries—if anything, it continues to fester. The unintended consequences of contentious negotiation practices means neither company has any incentive to work with the other company’s representatives in a transparent, authentic manner to achieve extraordinary financial results. Since traditional negotiation theory encourages people to get to “yes” with the underlying principle to get the best deal for their organization, business people can’t wrap their minds around sitting side-by-side to co-create value day-in and day-out.

It is nearly impossible to enter into a highly cooperative relationship to create value if both companies send in their negotiators using traditional negotiation tactics. It’s time business partners used a different negotiation approach to reach strategic partnership agreements. The financial upside of Getting to We is transformational as the new negotiating paradigm focuses on creating value, rather than seeking to extract value. Ask yourself: Are you ready to adopt the new way and make a change? The choice is yours.

 

[1] “The Outsourcing Manual: A Guide for Creating Successful Business and Outsourcing Agreements.” Kate Vitasek, New York, 2011.
[2] “Unpacking Oliver: Ten Lessons to Improve Collaborative Outsourcing.” Kate Vitasek, 2010.
[3] “The Outsourcing Manual.” Kate Vitasek, 2010.

About the Author: Jeanette Nyden, J.D., is an educator, speaker and author of “Negotiation Rules! A Practical Approach to Big Deal Negotiations” and co-author of “The Vested Outsourcing Manual: A Guide to Creating Successful Business and Outsourcing Agreements.”

About the Author: Kate Vitasek, member at the University of Tennessee’s Center for Executive Education, is author of “Vested Outsourcing: Five Rules that will Transform Outsourcing” and “The Vested Outsourcing Manual: A Guide to Creating Successful Business and Outsourcing Agreements.”

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