In this world of not having enough time and resources to get things done, we can't afford not to become proficient in areas that make the most impact. One of the most important, and most impactful, skill sets for the supply chain is negotiation skills and behaviors.
To become an effective negotiator, it takes more than just honing your skills. You need to learn how to establish a plan that can be applied to all your supply and demand chain processes when sourcing, selling or operating your company. Then you need to communicate the results to employees, shareholders, customers and vendors.
Return on Investment — and Expectations
When you allocate resources for a negotiations course, don't forget about return on investment (ROI). Take the dollars you invest and any fully loaded costs and measure the delta from deals your teams close with vendors, customers or internal parties. Compare your benchmark of what you expected to what you actually received. Divide this into your investment and you have a simple ROI that provides a good measurement but doesn't require much time to determine.
But what about return on expectations (ROE)? Jim Kirkpatrick, renowned expert on justifying resources dedicated to training, talks about a measurement that impacts the business in a qualitative way. He says that before training, we need to measure expectations of how people will behave after they're trained. For example, if we put in place a process for preparation of negotiation, we should develop a preparation document to identify certain outcomes that we expect in the major deals with vendors. If people use this document, it is an observable behavior. If we expect them to use it in every engagement, then we can measure their actions against those expectations. The ROE (use of the process document) will drive behaviors that impact the way we get to our ROI(more sound outcomes by using the planning document). Sometimes we forget that we're dealing with human beings and need to measure behavior, not just dollar outcomes.
Following are a few areas to consider when you're conveying the investment and expectation impact to the business for negotiation training, based on one of our case studies.
Start at the Top
Our experience working with corporations across the globe has shown that the best place to start identifying the impact on negotiation is at the highest point of business impact. This means the top level in your supply and demand chain organization. If you begin with your executives and change their behaviors and applications of negotiation, you'll have the best chance for sustainable change and meaningful ROI and ROE.
For one technology industry company, we started with the C-level executives within the organization, which had brought its top executives into a single course over two-and-a-half days. We worked them like we intended to work their teams. Their issues were not with single vendors but with different categories, business units and parts of the country and the world, spanning all business service offerings.
The executives who enrolled comprised five division presidents, vice presidents, senior directors, the CEO, the chief operating officer, the chief procurement officer, the chief information officer and the chief financial officer — all major influencers on their organization. Most entered the course thinking they were too seasoned to be "taught." But since the course is a behavioral experience, they all got to practice process and engagement the entire time. In other words, they weren't taught — they practiced and learned. By the end of the two-and-a-half days, the executives were designing the deals they would take on and conveying key messages to their organization about the desired impact, who would be involved and how they would sustain it in their business.
To help produce the greatest impact to their business, the group of executives devoted two years to bringing their top 380 people across the supply and demand chain through a series of courses and live deal applications, and to building a sustainable negotiation process. Three years later, this company has planned its next level of strategic negotiations. Its staff are running their negotiations much more smoothly and achieving the intended results and more. But without involving the top of the organization in the initial step, this would not have been possible.
Identify Measurable Areas of Impact
In another strategy to maximize the impact, the company, over a two-year period, identified their desired outcomes — in business results and in behaviors — and conveyed them to the participants. So as part of their senior-level negotiation skills course, they identified business and behavioral implications of this undertaking. We sat down with the chief operating officer and his senior director and laid out an implementation plan and a measurement plan. They decided to invest $830,000 and wanted a plan to measure the impact on the organization. This measurement was their total cost of ownership, so they weighed the investment in the training and all associated costs.
The executives set out two measurements: ROI and ROE. Business results to be attained would directly relate to the change in approach and the application of skills. First, they identified the largest of the deals to follow and measured the deals across the entire organization. And they also wanted to measure the effective use of the negotiation planning tool they had worked on with teams during the courses. All these planning tools were embedded in their risk review process around all major deals, with the expectation that each category or team would present them before getting the necessary funding and authorizations.
Together we created a plan to sustain these changes in behaviors and process. We assigned an executive champion to communicate the importance of the initiative and a business partner to implement the details. Over the next year, the company sent its deal teams into courses together. These teams were brought together in order to create a single language and behavioral process across the teams in their negotiations. The executives who initially came through the course opened each of the subsequent courses and supported the initiatives through constant communication. As these deal teams began to engage with customers, vendors and each other, their behaviors were fully supported by the executives.
Measurable ROI and ROE
One of the company's executives, a division president, shared his success after completing the courses. He was working with his team in a deal with a targeted fee of $72 million for the company's services. But the buyer was pressuring them to deliver the same services for just $60 million. They used tools from the courses and their expected outcomes to guide their behaviors.
Because of their process evaluation, preparation and skills application to this engagement, the division president and his team closed the deal for $72 million, attaining the targeted profits and delivering the services far earlier than anticipated. They attributed the additional $12 million on this deal to their planning and application of skills taught across the organization. This positive outcome was communicated back to the employees and the board and continues to be used as a benchmark for future deals.
In summary, when you teach negotiation across your company, develop a well-orchestrated plan for achieving ROI and ROE. Then stick to that plan and build it into your organizational processes and behaviors. The result should be a significant and lasting impact on your business.