Category Archives: Negotiations

How Do You Turbo-Charge Negotiations?

Not that long ago, THE REVELATOR asked some questions around negotiations and how you could turbo-charge them for a better outcome. Of course, the doctor answered because this is becoming an even more important topic given the state of world, and technology, affairs, but its also one that needs a repeat discussion because this topic comes up a lot and the doctor fears that everyone is missing at least one key point.

What does it mean to “turbocharge” negotiations?

How about “what should it mean”. Everyone has their own answer for “what does it mean”, and most aren’t that useful.

Turbocharge should mean to back up with facts (based on organizational data) and market data relevant to every aspect of the negotiation, to go in knowing both what value there is in it for you as well as your BATNA, and the value that it is in for your counterpart, and a best guess at their BATNA.

Without all this insight, you don’t know if you even have a leg to stand on, or how to reach common ground to carry the negotiation forward. Data insight goes much, much, further than a carrot or a stick ever will.

What do you define as being a successful negotiation outcome?

A successful negotiation outcome is a win-win. It’s not a zero-sum win-lose game like a certain world famous infamous author thinks it is … unless, or course, both parties have the exact same collection of goals which they would rank and weight the exact same way, which is astronomically rare. Thus, since the vast majority of the time both parties have their own unique definition of winning, which can have some overlap, both parties can win.

What are your thoughts about AI and the negotiation process?

When it comes to AI and Negotiation, the answer is no, No, NO, ??, ??! Since it’s not true artificial intelligence, you should never, ever, ever let it negotiate as that is letting the system make a decision, vs recommending a decision, which even IBM told all its employees 46 years ago that this is something you should NEVER, EVER do!

To what degree do experience and expertise impact negotiations?

Experience and Expertise both help, but reality is that the results depend more on the differential between the two parties at the table than any scale you might come up with to measure your own. So you want both, but you should always expect to be outmatched, which is why data, facts, and insight are so critical. If you can find that common ground and give up at least some of what the other party truly wants, you have a much better chance of getting something you want and coming out okay.

Bonus Questions

“Are women better at negotiation than men?”

That would, of course, depend on your definition of negotiation and success. I’m inclined to say yes, but if your definition of success is to be a complete a-hole pre, during, and post, well, I’ve seen way more men who excel at that.

“Is AI better at bluffing than humans?”

Regular humans, or sociopaths? Since AI has no feelings, and doesn’t understand truth from lies, depending on how you define bluffing, it can be absolutely great at it … or not.

“Is AI “Genderless”

Not the right question. We know tech is genderless.

The right question is the following: Is AI trained genderless? Usually not as its usually trained on results that were predominantly created and input by men (who make up 75% of STEM). So it’s not genderless and, sometimes, it is very, very biased.

FINAL QUESTION

Is it the technology or how you use it?

It is most definitely how you use the technology, not the technology itself. Heck, you can get good results with a carrot if you are in negotiations with a bunny. 😉

And that technology must be used to get you the data and insights you need to have a good human to human negotiation. No more, no less. Because, at the end of the day, that’s the only way you can turbocharge a negotiation for success!

A Good Negotiation is Key in Technology Acquisition

But whatever you do, please don’t mistake cost savings with value generation. But, as usual, let’s backup.

A recent article over on The Financial Express on the importance of a technology procurement negotiator noted that the art of negotiation has taken on a whole new level of complexity, especially in technology procurement and that discovering the most equitable prices … is a strategic imperative at a time when maximizing returns on investments is paramount.

And this is certainly true, as are most of the other messages in their article. Specifically, such a negotiator must:

  • understand the digital disruption
  • have high intelligence, which must go beyond technical expertise
  • understand the high stakes of technology investments
  • have the personality, worldview, and knowledge to navigate the negotiation beyond the technical aspects
  • be able to reflect on the bigger picture
  • be able to sync with the project

… but the criticality of ensuring that the technology procured provides exceptional value for the money spent cannot be over-emphasized. One cannot understate the importance of understanding the product’s role, functionality, and how it aligns with organisational goals. It doesn’t matter how much you save if the product isn’t the right fit. It’s critically important to not only have the technology experts identify the products that could serve your needs, but the right configurations, the associated services that will be required, and the right partners for the organization.

Additional savings is worthless if it comes at the expense of the vendor removing a key module from the reduced offer, not including necessary implementation or integration services, limiting computing or storage, and so on. If you end up paying significantly more after implementation as a result of change-orders, you not only haven’t saved, but you’ve cost the organization more. This is what often gets missed when negotiators lead. While the eventual owners shouldn’t lead, as they’ll always go with their top ranked provider (even if three systems can do the job equally well, and it’s just a preference as to which system is easiest to use), if they’re not kept in lock stop, it’s easy to miss key details or requirements or stray away from what is truly needed for value generation and ROI in the search for the ultimate deal. This is especially true if the negotiator brings a new vendor in at the last minute for price pressure, believing the new vendor, if not perfect, meets all the key requirements, when in reality the vendor’s platform doesn’t.

This is especially important to remember in SaaS negotiations, where it’s common knowledge that most organizations that buy without using a skilled negotiator are overpaying by an average of 30% or more. This is because an average negotiator’s inclination is to drive for massive discounts to prevent overspend, which might result in not only choosing the less optimal vendor, but the less optimal agreement. At the end of the day, price matters, but ROI matters more, especially in Procurement where the right solution will generate a 5X ROI or more and the wrong solution will barely pay for itself.

Molly Fletcher’s 5 Mistakes Everyone Makes in Negotiations

Yesterday at Jaggaer Rev 2019, the best presentation was the guest keynote speaker. While the vision from Bonavito was interesting, and an overview of the enterprise technology journey to date from Zahiri was illuminating for those who haven’t been in tech for almost three decades, neither were very enlightening with respect to how current and potential customers could do a better job of Procurement right now.

On the other hand, Molly Fletcher’s talk (of the Molly Fletcher Company) really hit home and didn’t overlook the fact that at the end of the day, every strategic engagement will be between people who will put the final touches on a contract that, once signed, will govern a relationship for years to come. Moreover, when you negotiate a good contract, both parties understand up front what the other is looking for — and this usually means that you can literally set and forget the contract until renewal time (but still have confidence and assurance on the off chance something goes wrong).

So what are the mistakes? And how do you overcome them? We’ll get to them. But first, it’s only fair to tell you that we’ll be trying to explain the five mistakes — and corrections — in source-to-pay terms, as opposed to the much more exciting — and real — sports (negotiation) terms that Molly, a sports agent rock star, used. (In other words, her presentation is exciting and engaging … and you really should see it if you get the chance, or, even better, organize it when you get the chance.)

1. Not Knowing Who You Are Negotiating With

Some negotiators think that who you are negotiating with doesn’t matter — it’s all about the negotiation and getting the best deal. And while it can be all about the negotiation and getting the best deal if that’s what both sides want, this is only going to work if both sides are interested in (almost) the (exact) same thing. If both sides only care about the number at the end of the day, it might work. But if one side only cares about the number but the other side cares about the future direction of the organization they are partnering with and how the product, service, or overall relationship is going to improve and grow, then the negotiations aren’t going to go anywhere.

On the other hand, if you know what matters most to the other organization, and what they want at the end of the day, and address that continuously during the negotiation, you have a much better chance at a negotiation that is not only smooth, but truly profitable. If what the other side wants the most is not the most important factor to you, a few concessions on the other party’s wants can lead to more concessions against your wants. If the other side just cares about the price, and you waver a little bit, they might throw in more services or better delivery terms or R&D support.

2. Negotiation is a Transaction

The outcome is a transaction in the form of a contract, but the negotiation itself is not a transaction. The negotiation is a relationship where both parties want to continue the interaction with the goal of coming to an agreement that will see both parties working together for months, to years, to come. If you overlook the relationship, you may never get to the transaction.

3. Getting Offensive

All offensiveness does is cause the other party to become defensive. And defensiveness never results in an open dialogue where the other party is looking for a way to overcome the disconnect between the desired outcomes of both parties and cross whatever perceived impasse has been reached. The solution here is to instead get curious, ask questions about possibilities, or orthogonal opportunities, that will instead get the other party to open up about what they really want or what they might be able to do if they can’t meet your need in a direct fashion.

4. Everything Has to Happen Now

Presuming you are starting a negotiation before you need the product or service, or a contract renewal before the contract ends, you have time — and usually more than you think (even if you have to expedite a shipment). Just because your timeline says you should finish in a week, that doesn’t mean you have to. Sometimes the other party just needs time and a little time can make all the difference — and the more strategic the negotiation, sometimes the more time you need. And even if it means you are without an agreement for a month or two, or buying from the spot market, it’s not always the right thing to rush a strategic negotiation. If the negotiation could result in a 5 year long-term deal that is more valuable than any extra costs you’d pay in the short term as a result of a short delay, especially if the supplier or partner could be strategic and bring innovation and value to your organization you could not get otherwise, can often be more than worth it.

5. Not Asking with Confidence

Always ask with confidence. Do your research. Know your facts. Know what you are asking for is reasonable. And then ask with confidence. Not only will you not get what you don’t ask for, but you won’t get what you do ask for if the other party has any sense at all that you expect you might not get it. Be confident … always. (But don’t be foolish. It doesn’t matter how confident you are, you won’t get a price below the supplier’s cost of goods, for example. But it never hurts to challenge the margin.)

If You’re Still Negotiating With the Carrot and the Stick …

… you’re not getting anyone’s attention but good ol’ Bugs. And, generally speaking, giving all the hijinks he causes, it’s best if his attentions are focussed on your competition.

So how should you be negotiating? With facts. Preferably binders of facts (but they can be in e-form on your tablet — no need to kill trees unnecessarily.)

Facts that show:

  • you know what the product should cost to make,
  • you know what margin should be healthy for the supplier,
  • you know what value-add services the supplier can offer more economically than you,
  • you know what performance metrics are reasonable, and
  • you know what the market offers are right now (and whether or not the supplier can beat them).

Suppliers don’t respond to sticks if they believe you really need them and they can get away with what they want, nor do they respond to carrot if other customers seem more enticing. Plus, they will wonder what crawl-out shelter you just climbed out of because no one from a modern organization negotiates like that anymore.

Especially if they are a typical sales organization that is all about the relationship (and talking win-win even if their definition of win-win is win for the organization, win for them at bonus time) or a more modern, Gen-X led, millennial-influenced organization that’s all about the synergy.

In the first case there will be value pitches followed by claims no one can do what they do as well and lots of smooth talk to get you off guard for when they indicate that their price (even if it has a margin that is twice industry average) is really as good as it gets and the latter will try to entice a deal from the synergy.

But regardless of organization type, every organization will respond to fact-based negotiations. With fact-based negotiations, they can’t hide fat margin behind claims of high cost, high-value, or synergy as the only way they can dispute your models, metrics, and market insight is to provide their true costs (or own research from third parties if they expect their costs to rise over the expected contract term).

And the above isn’t that hard to gather. It might take some elbow grease and a category expert, but once you’ve built the proper model and identified the proper data sources, it’s quick to update.

All you need for a fairly accurate should cost model is:

  • the bill of material break down
  • the typical energy required to produce one unit (kWh)
  • the typical labour required (labourer hours by labourer type)
  • the average industry margin

If it’s a contract manufactured product, you have this, if not, you can get an industry expert to help you craft a typical bill of materials. Your current supplier, or an industry expert, should be able to roughly estimate the typical energy overhead (based on typical production process). Similarly, your current supplier (or industry expert) should know average labour requirements against the production line.

All that’s left is understanding the acquisition cost of the materials, energy, and labour. Most raw materials are traded on exchanges, so it’s easy to get an average market cost. Most countries either have electrical utilities as state owned organizations or as highly regulated private organizations with standard prices per kWh. And most countries or labour bureaus compile average labour rates. Industry insight gives you standard margins, and you can see it’s not hard to build a reasonably accurate should cost model with expertise and elbow grease. And since the only way for a supplier to challenge it is to provide their costs, you can get even the model more accurate if their costs are actually higher. (And if they don’t challenge your model, then its relatively accurate or their costs are actually lower. In the latter case, they might get a bit more margin than you want to give in negotiations, but chances are you’ve lowered your cost as well with the model.)

This just leaves an identification of what services they can likely offer more economically, which again comes down to good modelling, and performance metrics (along with cost / profit impacts), which you should be gathering across your supply base. Then you can negotiate for better performance metrics (with penalties if they are not met) with an incumbent that isn’t doing as well as they should and wants to keep the business, or baseline metrics with a new supplier that wants the business based on current average performance across the supply base for the metric in question.

So gather your facts, and give yourself a true edge in negotiations.

The More Things Change … Negotiations

Ten years ago we posted timeless principles to steer you through negotiations and, looking back, they truly were timeless. Each is as true today as it was then as they were a decade before we summarized them.

Negotiating is not about dividing up a limited pie in ways that are divisive. It is about making a bigger and better pie.

If each side sees the pie as small, then each side is going to want a bigger piece of that pie. But if the pie is large, both sides will be happy with a piece that is about half.

Conflict is at the heart of negotiation but only a positive view of conflict will result in a successful outcome.

Both sides must believe that a resolution will occur that both sides will be happy with.

There is a time to speak and a time to shut up in negotiations. When you do more listening than speaking, you actually increase your power.

If you don’t understand what the other side wants, really, really wants, then how do you know what you really need to give up and what you don’t? After all, you must

Recognize that you will only reach agreement by understanding the deeply-held needs of the other side.

Both sides make a lot of demands, but at the end of the day, only a few of the demands will generally be non-negotiable.

In power negotiations, when the stakes are high, let the other side believe what you or they want them to believe. But don’t lie or be dishonest.

If you can distract them away from what the biggest value is to you, it might help.

You can only succeed in negotiations with a win-win attitude.

As per our first point, you have to be focussed on enlarging the pie so you can divide it up in a way that both sides see a win.

Negotiating is an essentially human way of interacting.

That’s why you will get to keep your job when Procurement bot takes over inventory, re-ordering, spot-buying, and the vast majority of your job.