Nobody sets out to fail. In fact, generally, people try everything they can to avoid a failing. So once a negotiation has begun, it can be easy to become focused on achieving an agreement at all costs. To walk away without an agreement would be a failure.
However, without careful analysis of the situation, this desire to avoid failure can lead to agreements which are not in your own best interests. And that is a real failure!
A story of failure
I was working with a client who wanted some guidance over a negotiation that had been going on for some time. My client was a senior executive at an IT consulting company. The company had been working for a government department for several years, providing services in a specialist area. A year previously, my client had started negotiations with the department to take over all of the department's IT needs. After a year of ongoing negotiations and significant resources being deployed on chasing the deal, he was feeling stressed that he would have to report a failed negotiation to his bosses. He sought my advice on how to close the deal.
We started by considering the interests of each party. My client had individual KPIs to reach and ultimately, wanted to ensure a deal which was profitable and long-term for his employer. The department wanted strong, consistent service with minimal disruption to the business. There were of course, also budget considerations.
Next we considered alternatives. We knew that if no agreement was reached, the department was likely to continue using the incumbent supplier. My client told me that the incumbent supplier had a long history working with the department and that as far as he knew, the department was satisfied with the service it was receiving. Based on the information he had, the competitor’s pricing was aggressive and below what he could offer within his KPIs.
As for the client’s alternatives, he told me that the market was relatively buoyant. While there were few contracts the size of the department’s, he was confident that it would not be difficult to secure three or four clients bringing in equal revenue. Given that the department was happy with the current service, it was going to be very difficult to convince the department’s procurement team to accept a deal for the same services at a higher price.
After a thorough analysis of the situation, my client collated a report to management, justifying why the negotiation should be ended. Rather than reporting a 'failed negotiation" he reported a success. Time spent in the negotiation had built a strong relationship with the department, positioning the company well for future opportunities. The company had also learned a lot about the departments needs and the competitor's offering during the process. This was valuable information to build in to the company's strategy. Closing the negotiation allowed the team to focus on winning other, more profitable deals in the short term.
Without having taken the time to analyse the situation in a structured way, the company could have continued to divert resources to a deal that wasn't going to succeed, missing valuable opportunities along the way.
Lessons learned
So what key lessons can be drawn from this example?
Be careful how you define success - Success is not just about getting an agreement but is must be and agreement which is better than your best alternative.
Applying a structured analysis to your negotiations will assist you in mitigating biases and blindspots in your negotiation and lead you to a better outcome.
For more information about how to negotiate effectively, or for assistance with your next negotiation, contact us for a no obligation discussion.