The Idea in Brief
Your firm probably negotiates thousands of times every year—from special customer deals to supplier contracts to joint-venture partnering.
A single deal may not greatly impact your company’s fortunes. But taken together, they can make or break your bottom line. If individual negotiators see each deal as separate, they can unknowingly undermine other efforts; for example, a creative response to one customer’s needs may hamstring a broader product strategy.
To avoid this problem, you need a coordinated approach to negotiation. By making some modest but systematic changes, you can help your negotiators share information and start each deal understanding how it supports the firm’s goals. The pay-offs? Smarter deals, stronger relationships with outside partners, and more efficient and productive negotiators.
The Idea in Practice
Build your firm’s negotiation capability by:
- Creating a negotiation infrastructure. One negotiation’s outcome should not hinge solely on an individual negotiator’s skills. Instead, give all negotiators better and more information, including lessons from past negotiations and corporate priorities.
Example:
When Serfin, a large Mexican bank, faced loan defaults after Mexico’s 1994 currency crisis, it decided to standardize its negotiation processes. It launched a negotiation-training curriculum, created a categorization scheme rating each debtor and matching that rating to a negotiation strategy, and established a system for sharing negotiation successes.
- Broadening your measures of success. Don’t judge negotiations only by financial measures. Evaluate other key benefits as well—e.g., better communication with suppliers, fresher solutions, and more workable commitments. Then, explicitly link those measures to negotiators’ incentives.
Example:
Many companies base sales reps’ compensation on the longevity of their customer relationships, innovations that those relationships have generated, customers’ own evaluation of the relationships, and referral business.
- Distinguishing between the deal and the relationship. Drawing a line between a deal and the longer-term relationship starts a virtuous cycle. You build a stronger relationship and trust. Both sides share more information, leading to more creative and valuable agreements.
Example:
When Eastman Kodak transferred its data center operations to IBM, key managers created two lists of issues—one related to the specific deal, the other to the overall relationship. They agreed not to resolve problems from one list (e.g., pricing) by exacting concessions on issues from the other (e.g., mutual respect). Their relationship is a paragon of effective partnering.
- Learning to walk away from a deal. Always define the best alternatives to closing a deal —and think them through before you begin negotiating. Then carefully evaluate the proposed negotiation against the best alternative. If the alternative is better, walk away.
Example:
Colbún SA, Chile’s third largest electric-power company, often has to bargain with larger companies for capacity such as transmission lines.
Colbún’s policy requiring negotiators to define alternatives to every deal prompted the company to break off some negotiations—because its own alternatives proved more profitable. That done, it is no longer at the mercy of its competitors.
Every company today exists in a complex web of relationships, and the shape of that web is formed, one thread at a time, through negotiations. Purchasing and outsourcing contracts are negotiated with suppliers. Marketing arrangements are negotiated with domestic and foreign distributors. The contents of product and service bundles are negotiated with customers. Product development pacts are negotiated with joint-venture partners. It’s difficult to think of any business initiative that does not require some form of negotiation.