Making the most of the win-win window
With the recession stacking the odds in favour of the purchaser, the art of negotiation has been reduced to unsustainable 'smash and grab' raids. But there's plenty of scope for 'win-win' scenarios, providing you get your timing right.
It's often said that a week is a long time in politics. Yet for the first time, in perhaps a generation or more, as a result of the current financial crisis the commercial world is similarly changing dramatically and at an extraordinary speed.
In just a few weeks, old certainties have been turned on their head. We have become accustomed to banks - for many the symbol of stability and reliability - going to the wall. Everything, or so it seems, can be bought at a discount as suppliers desperately try to shift their stock in order to keep some sort of momentum in their cash flow. And this leads to the inevitable question in any economic downturn: where does that leave the role of negotiation in the context of the buyer/seller relationship?
Without doubt, the goal of win/win as the basis of long-term commercial partnerships between customers and suppliers is under unprecedented strain. Indeed, received wisdom would have us believe that this is no longer realistic: with buyers typically perceived to be holding most of the cards in commercial negotiations, the power imbalance is more likely to resemble WC Fields' old adage: 'never give a sucker an even break.'
If true, this is fatally short-sighted: the result of the 'win/lose' outcome long-term remains the same: 'lose/lose'. This is because the deal is almost certainly less profitable for the seller, who then cannot afford to provide the service the buyer wants, so neither party gets the outcome it truly desires.
Why is this? Some companies say they play win/win and do really practice win/win in their business dealings. Yet it is all too easy to see how the buyer is seduced by short-term gain in abusing their power: such an unsatisfactory outcome, however, is also down to the seller's ineffectiveness in caving in because of a misperception of their own negotiating position.
In such a situation, the key to successful negotiation is to understand how to plan to achieve a 'win/win' outcome and how to recognise and handle the buyer who is playing win/lose.
Joint problem or battle of adversaries?
However, the reality is more complex, fast-changing and challenging. Suppliers, especially in the manufacturing and engineering arena, are seeing margins squeezed from several directions. Not only are buyers seeking to drive down prices of finished goods, but they are still feeling the effect of earlier high oil and other energy costs feeding through to cost of manufacture, together with the increasing cost of capital (if available at all).
And, finally, all the evidence seems to suggest that suppliers in this situation can't just hope to ride out a short-term storm by, for example, simply agreeing unprofitable deals to keep the business afloat on the basis that they are 'contributing to overheads'. Whatever strategy is adopted, it must be sustainable in the context that the present economic downturn is likely to be with us for some time to come.
At the same time, it is all too easy to be seduced by the argument that today's buyer is holding all the cards. It is true, of course, that buying organisations facing similar commercial pressures will want to protect margins by striking a tough bargain with their suppliers. And further, that this is likely to be exacerbated when professional procurement teams are charged exclusively with achieving short-term cost-cutting goals.
However, in the face of this, the balance of supply versus demand can switch very quickly as providers go out of business. At a time when the global economy is in recession, previously low cost, acceptable quality alternatives from the Far East may no longer be available as a stick with which to beat the local supplier.
In such cases, the balance of power will rapidly swing to the seller who, in a similar fit of short-termism, may seek to abuse their superior negotiating position to secure a win/lose result.
However tempting the essentially adversarial approach of 'winner takes all', the most effective negotiator will seek to create an atmosphere in which the two parties are working together to solve a joint problem.
Thus, wherever the true balance of power may lie at the outset, by exercising restraint and creating a spirit of 'we're in this together', the result is much more likely to be a win/win as the basis of a mutually beneficial trading relationship longer-term.
Easy to say, much harder to achieve if the other party is determined to achieve a win/lose outcome. Whether buyer or seller, when everything else goes out of the window in the face of mounting costs and disappearing margins, the only tool left is your inter-personal negotiation skills.
Thus, within the sales process, negotiation is the critical part of any commercial relationship. It is the process which concludes a major sale and determines its profitability for each party: however, it is also the process by which, through renegotiation, commercial partnerships either evolve to mutually profitable maturity or break down in acrimony.
Research undertaken by my company, Huthwaite over many years has identified four key elements which are necessary for negotiation success.
First, whether buyer or seller, it is essential to define the business's strategic objectives. This places much greater emphasis on the long-term, consideration of the impli-cations and a 'their shoes' approach to anticipating the other side's position.
Second, before entering any negotiation, each party should adopt a systematic approach to analysing and managing the power balance, with an emphasis on tough no-go decisions.
And, again at the planning and preparation stage, each should explore a wide range of possible trades and linkages and, importantly, how they are to be negotiated.
The negotiating table
Most importantly of all, however, top negotiators require first-class face-to-face skills. This incorporates a surprisingly consultative style based on understanding needs, maintaining clarity and building trust, while dealing firmly with aggressive or unreasonable behaviour from the other side.
Historically, the standard interactive skill adopted in teaching negotiation skills was to make proposals in the 'conditional' form: "If you do this we will do that." Though such an approach still has its place in encouraging trading - in particular to avoid unilateral concessions - it should be seen as only one part of a more complex skills model.
This model comprises certain behaviour which skilled negotiators use heavily and others that they avoid. Critically, the best negotiators ask lots of questions - more than twice as many as the average negotiator. This is designed to achieve a number of important objectives including testing understanding, identifying and probing reasons for the other party's position, and summarising at key stages of the negotiation.
The most common use is to uncover the other party's position and explore its underlying rationale. Ask enough questions and they will often realise that their position is untenable and make a concession: in this way, seeking information, reasons, feelings and proposals represent important skills in the persuasion process.
Average negotiators, by contrast, attempt to persuade the other side by bombarding them with information and reasons to support their case. As we all know from personal experience, such attempts at 'persuasion' rarely succeed in having a positive influence on any negotiation.
Also, effective negotiators are not poker-faced but, in fact, talk readily about their feelings or emotions. This is supported by psychological research, which suggests that such sharing of feelings encourages openness and creates a climate of trust.
Finally, skilled negotiators regularly check understanding of the latest stage of negotiation. Ensuring that both sides' ideas are understood and frequently summarising the position adds clarity and increases the chance of a successful implementation of the final deal.
One reason for this is that average negotiators seem happy to fudge contentious issues and fine details rather than clarifying and resolving them. The problem is, of course, that they do not go away and, if left to fester, can cause greater problems later in the negotiation.
Behaviours to avoid
At the same time, the most skilled negotiators avoid other behaviours. These include such irritators as gratuitous self-praise and condescending or patronising behaviour. Two simple examples: offers prefaced by such phrases as, "this is a fair and generous offer" or, "with the greatest respect, young man", will almost certainly damage the climate of the negotiation, yet are commonly used by average negotiators.
Similarly, counterproposals do nothing to advance the negotiation as they are typically perceived as disagreement or blocking tactics rather than a serious proposal.
Also, it is important to avoid diluting one's argument. Our educational culture has taught us to present as many arguments as possible to support our case: skilled negotiators, however, use one strong argument and repeat it as necessary. Only if it is undermined will they introduce a second reason to support their position. They refuse to dilute a strong argument with a weak one.
With effective planning and preparation - determining possible trades and linkages - together with analysing and managing the power balance and adopting an essentially consultative face-to-face negotiating style, negotiation is no longer a damage limitation exercise but a true 'meeting of equals' as the basis for a mutually acceptable deal.
Changing behaviours will change results. The bottom line is that the cynics are wrong: a systematic approach to negotiation works, has a low failure rate and, critically, keeps both sides happy. That's win/win.