It may not be negotiator’s remorse but at certain times you may feel sorry that – or at least wonder why – you ever closed a deal. In such a case, you’ll probably discover that you did the deal for the sake of doing a deal – not to build a sustainable, positive and productive relationship. These authors describe how to make sure that every deal delivers value.
Boom times cover a lot of negotiating sins. So long as no one has to worry about actually implementing the deals they close, they all look good on paper. Enron and AOL during the dot com boom, and more recently many sub-prime lenders, all congratulated themselves on the number of deals they closed, the size of those deals, and how quickly they got them done. So long as they didn’t have to worry about whether the power plants would ever come online, whether their dot com clients would be around to pay for all the ads they bought, or how many of those loans would default, none of those negotiators had any reason to worry about anything else.
Indeed, if you don’t care about what happens when the ink is dry, you may not find this article very interesting. If your deal is fully and completely done and its value realized when you shake their hands, sign on the dotted line, or click “send,” then you really need not worry about implementation. But, if you are like the majority of businesses who buy or sell goods or services, lease or license assets, or enter into different kinds of partnerships or alliances to pursue new opportunities, then chances are you need to do something useful or you need the other side to do something constructive for the deal to have been worthwhile. When simply getting them to “Yes” is not enough, a different approach to the negotiation is required. This article is about getting past “Yes” to real value.
Recognizing the problem with the deal-making mindset
In our practice and our research we have found that many negotiators end up with deals that don’t deliver the value they promise. Something like half of all mergers, joint ventures, and strategic alliances fail to deliver value; two out of three outsourcing deals end up having to be renegotiated; and about 85 percent of companies we surveyed think they fail to realize all the anticipated value from their supply contracts. But we don’t start from the premise that all those negotiators are either stupid or unskilled. There are plenty of smart and experienced negotiators out there. Why do so many of them get it so wrong?
The answer is that there is lots of conventional wisdom that serves them badly. The oft-repeated sound bites, as you would expect, have some merit to them and are based on grains of truth. But they come from a “close it at any cost” mentality and are based on a bundle of assumptions about the best way to get deals done. Those assumptions, in turn, produce behaviors that have led many negotiators to get to “Yes” only to find that they were unable to achieve the value they had bargained for. It’s never a good thing to enter into pointless deals; during an economic downturn, it can be especially costly, as you divert energy and resources into something that will inevitably disappoint.
We are not talking about “dirty tactics” or traditional win-lose negotiation. We are talking about some things that many negotiators think of as just basic common sense for doing deals. Examples of the advice that can serve us poorly include:
- Avoid disclosing information when you don’t have to
- Limit the number of people in the loop
- If you don’t have something nice to say, don’t say anything at all
- Keep them off balance
- Treat the negotiation process as distinct and separate from implementation
- Always be closing
- Create strong sanctions to ensure they will perform
The problem with much of the conventional wisdom is that it focuses on what may give you some temporary advantage in the negotiation. From our perspective, however, whether or not you think you should be trying to win at the other side’s expense is almost beside the point. When implementation matters, you have to look beyond the signing of the deal. And when you look beyond that point, most of those conventions don’t look so wise.
Think about it this way. If we told you we could give you some tactics that would give you temporary advantage in the negotiation, but that the advantage would not last through to the signing, you might well ask: what is the point? If my advantage is temporary and the tables would turn by the time we sign, what have I gained (and what might I lose) by using them? Precisely. Only now, extend your thinking beyond the signing to implementation. If the real value of the deal comes when you implement it, what is the point of using techniques that will get you some advantage during the negotiation, only leading to the reversal of that advantage and destruction of potential value during implementation?
The way you prepare – your behavior at the table, the role your stakeholders should play, and your need to “look out” for the other side even if they aren’t looking out for themselves…all change dramatically when the point of negotiating is not to reach an agreement, but to springboard from the signing or the handshake to actually doing something with your counterpart.
Consider the table below that juxtaposes how a “dealmaker” might approach the negotiation, with how a more implementation-minded negotiator might do so.
|Negotiation tactics||Dealmaker||Implementation Oriented Negotiator|
|Surprises and Disruptive Tactics||“Throwing them off balance helps me. They might agree to something they would not otherwise.”||
||“Surprising them puts us at risk. They may commit to something they cannot really deliver. It will come back to bite us during implementation.”||
|Closing techniques||“My job is to close the deal. It’s worth twisting some arms now and coping with their unhappiness later.”||
||“My job is to deliver real, not theoretical value. Investing a little extra time in making sure the deal will work in practice is worth the effort.”||
|Decision making and stakeholders||“Can’t afford have too many cooks in the kitchen. Get the deal done, inform them later.”||
||“There’s no point to getting them to say ‘yes’ if it is going to fall apart during implementation.”||
Recognizing the point of the deal
When business is tough, negotiators are often under tremendous pressure to deliver the goods. Yet it is precisely during such times that focusing on the quality of deals can be most critical. When times are tough, companies can ill afford deals that tie up capital, people, management attention, and deliver no value. When times are tough, management teams need to be able to pay attention to seeking out new opportunities, managing their costs, retaining the right people – not to putting out fires with customers, suppliers, or business partners because a deal is in trouble.
Negotiating as if implementation matters is quite different from just “doing deals” for the sake of reaching agreements. It means doing some things that go against common wisdom:
- Recognizing that the real purpose of the negotiation is not to sign a deal, but to accomplish something
Often this means working backwards from what it is you are hoping to accomplish, to determine what it is you really need your counterpart to help you do. Understanding what you and they need to do differently after the deal is signed will help inform how you should negotiate.
- Making sure stakeholders (yours and theirs) are aligned so that implementation can proceed smoothly
Typically, this requires consulting more, rather than less, broadly. When implementation matters, you need to involve more stakeholders, on your side and theirs, than might be strictly necessary to reach agreement. Leaving the implementers out of the negotiation makes it more likely that they will be unwilling or unable to live up to commitments made on their behalf.
- Recognizing that the way you deal with each other during the negotiation will impact how you work together during implementation
Whether we like it or not, the negotiation is the first, best example we have of what it is like to work together. We can use that opportunity to create a useful history of collaboration and problem solving, or we can waste it by posturing, withholding information, springing surprises, coercing, and damaging trust.
- Confronting the hard issues instead of repressing or minimizing them to get the deal signed
It is easy to bury your head in the sand and avoid raising difficult topics during the negotiation. After all, you don’t want to give offense, and besides, those problems “might not happen.” But ignoring risk doesn’t make it less risky. Addressing it jointly, however, gives us more opportunities to prevent potential problems or to mitigate their impact.
- Making sure your counterparts understand what they are agreeing to, and can actually deliver, rather than treating any ambiguity or potential difficulty in performing as “their problem”
Some negotiators measure success by the number of commitments they can extract from their counterparts. But commitments they can’t deliver on are hardly worth the paper they are written on. Relying on enforcing penalties in the contract later doesn’t get you a successful event when you need it.
- Paying attention to the transition from the negotiating table to execution
The deal is not done when it’s signed. Use what you learned at the table to propel you and your team right to successful execution. A fast lap in a relay race is useless if you drop the baton instead of handing it off smoothly. If there needs to be hand-off to others who have to take what was negotiated and act on it, don’t leave it to chance. Make sure the hand-off happens, that both sides are involved, and that it covers not only the words but the intent of the agreement.
Doing these things is hard. It runs counter to a lot of incentives that have been built into the jobs of some negotiators. It flies in the face of many things our culture teaches us about deal making. It requires some different skills, and it may cost you some deals that you might have closed if you had disregarded this advice. But if you have something worth negotiating, and if implementation matters, then doing deals any other way is just plain irresponsible and foolish.
Making every deal count: the role of leadership
It is easy to fall for the old stereotypes about supremely skilled practitioners who could persuade anyone to do anything without breaking a sweat. But, the reality is that negotiation is a discipline which can be practiced by an individual or by an organization. Negotiators take their direction from the organization’s leadership, its processes, and its culture. When an organization wants to ensure that its negotiators create deals worth doing, it must treat negotiation like any other critical business function, and seek to improve not only individual skills, but its processes, tools, and metrics.
Nearly ten years ago, when we started making this argument, it was somewhat controversial. Today there are lots of examples of entities in both the public and private sectors treating negotiation like the organizational capability it should be – from the majority of the top 20 global pharmaceutical companies who have mapped out detailed business development negotiation processes, to newly-founded Negotiation Centers of Excellence at organizations that range from Accenture to the United States Air Force.
But how does an organization build up its capability to do deals worth doing?
When it comes to influencing the behavior of individual negotiators – men and women who have been asked to take up the role of negotiating deals on behalf of the organization, either as their full time job or in addition to other responsibilities – organizations have a variety of ways of “telling” them to do or not do certain things, or to do them or not do them in a particular way.
- Develop a negotiation road map or blueprint
The “negotiate agreement” step in a sales or purchasing process should not feel like the Sydney Harris cartoon – a flow chart with a black box in the middle labeled “miracle happens here.” If it is important to your organization that negotiation results be well positioned for implementation, then make sure that negotiators have a clear roadmap of the steps and activities required to prepare well, and are effectively aligned internally. Work with your counterpart to address key issues creatively, create the necessary precedents for working together, and develop appropriate risk management plans, and jointly hand off the deal to the implementation team.
- Require managers to manage
Negotiation seems to be the last unmanaged function in business. Managers tend either to micro-manage the negotiation concession by concession, or to abdicate responsibility altogether, requiring accountability only for the results and not for the way the deal was negotiated. Neither is acceptable in most other business processes and it should not be in negotiation. Managers need to engage negotiators in thinking about their objectives and strategy, with implementation firmly in their sights, and to provide needed coaching and probing along the way. Managers can also provide a bit of necessary detachment from the heat of the deal, to help negotiators make good choices about when and how to bring negotiations to a conclusion.
- Equip negotiators with tools
Negotiators will find it a lot easier to prepare well for a negotiation if they are provided with effective preparation tools that help them think through critical issues from multiple perspectives. Negotiators will be more likely to consult necessary stakeholders effectively if they have available the means to map and sort stakeholders and a means for managing their participation. Negotiators will do a better job of engaging their counterparts in conversations about potential risks if they have an experience base to draw on and some effective models for how to raise nightmares with their counterparts.
- Create the right set of metrics and incentives
As much as we all recognize that metrics drive behaviors, and indeed are often intended to do so, few organizations have given careful attention to how their metrics affect what negotiators do. Whether it is a sales or procurement organization focused on how fast they close deals or the concessions won or given, or a business development group looking at the size and number of deals they’ve done, most metrics currently in use focus on whether the parties agree on something, not on whether that something was worthwhile or ever actually pays off. Some forward thinking groups are starting to recognize that compensation for negotiators should be based not solely on what the deal looks like on paper, but on how well it delivers, still paying on the basis of “results” – but results that involve real business value rather than just the potential value at signing. Even more interesting is when organizations start to think about how to measure and reward good decisions to walk away from bad deals, or to follow best practices during the negotiation.
- Make sure leadership walks the talk
Last, but surely not least, is the importance of making sure that adopting an “implementation mindset” for negotiations does not become just another slogan the organization espouses but fails to apply in any meaningful way. If the leadership says “make sure you consult broadly” or “remember to treat the negotiation as the beginning of implementation” but then at the first sign of trouble defaults to the deal-making common wisdom, negotiation teams will quickly learn what is truly expected of them. It is simply not enough to say that deals are a means to achieving some business objective rather than ends in and of themselves, or that the organization does not want to close deals that will fail during implementation, if executives do not then follow through and lead by example.
When times are tough, every deal counts. But deals that fail during implementation because of how they were negotiated count against you. When implementation matters, the point is not how many deals you close, but whether they were worth closing. And negotiating deals worth closing requires taking a fresh look at how you define your objectives, how you think about who needs to be involved in the process, what kind of history of working together you create with your counterpart, how you jointly manage and mitigate risk, how you make sure that the commitments you each make are worth the paper they are written on, and how you maintain the momentum of the deal as you launch forward into its implementation. Anything less and the deal will fail.