We were called in on a negotiation recently that had gone all kinds of sideways. Our Client had started a competitive negotiation for developer software, but quickly “decided” to sole source with the incumbent after the vendor convinced them that the Client’s developers loved the incumbent’s tools so much that their entire development staff would immediately quit if another tool were even considered. This all but eliminated the Client’s ability to negotiate with the incumbent, because it eliminated all competition (which is exactly what the vendor wanted). The vendor just dug in their heels and refused to really negotiate…because they no longer had to.
Welcome to the Seprio Blog, a place where you will (hopefully) find pearls useful in protecting your business priorities, where we tell stories and talk about best practices in vendor management, negotiating, and contracting better. I’m your host and Seprio Master Certified Negotiator, Patrick Bohnenkamp. Today’s post is the first in a three-part series on the tenets of best practice negotiating.
As we learned in the opening story, negotiating like a superhero eludes many people. Best practice negotiating is simply not natural. It’s a learned skill requiring a defined approach and a lot of practice. And of course, with every best practice approach comes an acronym. With that in mind, to achieve the best results in negotiating, it’s time to POWW!
Some of you may be harkening back to the old TV show Batman, with Adam West, like we did when we coined POWW. I have very vivid childhood memories of the screen lighting up during a fight scene with “POW!” or “BAM!” At Seprio, it’s actually become part of our culture to celebrate Client wins with a company-wide email titled “POWW!”
Holy Heart attack, Batman! What’s our Strategy?
Ok, so let’s get right to it with the first part of becoming a superhero negotiator: Preparation. At the core of preparation is establishing a negotiation strategy. Whether negotiating a vendor agreement on behalf of yourself, your team, or your company, use the following cornerstones in your preparation:
1. Understand the landscape.
Part of the due diligence for any deal is understanding the landscape in which the negotiations will occur. This includes market intelligence and understanding the current relationship between your company and the supplier.
- Are there competitive products or services?
- Where does our preferred supplier sit in the marketplace (industry leader, up-and-comer, steady performer)?
- Do you buy other products or services from that supplier, or might you in the future? Have past services been good or bad (either can be useful in negotiations)?
- Has there been a falling out that may need to be addressed?
- Finally, it’s very useful to understand the other party’s motivation.
- Is their quarter- or year-end coming up?
- Are they badly needing customer references, or a pilot customer, for a new product?
Salespeople are trained to use relatively mundane conversations to gather key information to use against you in negotiations. Your job as negotiator is to do the same thing. Casual conversations with them might allow you to gather intelligence that works for you—something they don’t often expect, or even recognize is being done to them. All things being equal, the party with the most knowledge wins.
2. Create a team…early.
Back to the opening story...the incumbent vendor had our Client convinced that if they switched tools, there would be a mass exodus of developers. Well, when Seprio joined the team, we confirmed that the developers would in fact not leave if they were provided a tool that was equal or better than the one they were used to. Had someone from the development team been involved in negotiations from the start, the incumbent vendor would not have been able to wield so much early negotiating leverage.
Especially with complex deals, input from different internal groups is not just a good idea, it’s an absolute necessity. Depending on the nature of the deal and your own internal structure, you’ll likely need participation from legal, finance, risk/security, IT, and potentially others. Ensuring representatives of the necessary areas are part of your team early in the process and establishing clear roles and responsibilities (including locking down what team members are responsible for decision-making), allows you to iron out many issues before they arise, and be better able to respond when the unexpected occurs. There aren’t many things more frustrating than finding out, at the 11th hour, that there is no budget for the purchase because finance wasn’t involved, or that legal or IT/security needs you to add language to the contract that you just finished, because they weren’t given the opportunity to provide input earlier.
Once you’ve assembled that team, together you establish the priorities. And by having a diverse team to weigh in on what priorities are highest and what priorities are lowest. That allows us to maintain objectivity, which if you remember is the O in POWW and the topic of our next blog post.
3. Establish Your Priorities Early… What you need AND what you want.
Most negotiators think in terms of identifying your ‘requirements’, whereas Seprio frames it as identifying your ‘priorities’. No negotiation is ever purely about what you ‘need’…it always includes some aspects of what you want, whether you’re buying something in your personal or professional life. Ignoring what we want sometimes can become a bigger issue as negotiations progress.
The key is to set your priorities early. Once agreed upon by the team, which we’ll discuss later, they serve as the foundation for your negotiation strategy. If you fail to define your priorities early, then you run the risk that you’ll be chasing a moving target as negotiations progress. And if you find yourself without a clearly prioritized bunch of wants and needs, you can bet that the ‘wants’ will trump the ‘needs’ once emotions get high during the heat of negotiations.
4. Maximize leverage – which requires competition.
Back to our opening story one more time…once the incumbent vendor clearly understood that the Client could and would switch vendors if they didn’t play ball, the negotiations were in full swing, and the Client’s advantage was finally becoming a reality.
Leverage = motivation. Negotiating with a party who is not motivated is always a slog, and frequently ends up just being about trying to lose as little as possible. On the other hand, negotiating with someone motivated to complete negotiations is one of the very best situations negotiators can be in. And the best way to motivate? Competition. Competition is the embodiment of a willingness to consider options, and nothing motivates suppliers like knowing that a buyer will consider options (and nothing cripples negotiations like having no other options). Introducing competition can take many forms, including RFP, concurrent negotiations with two or more parties, or merely letting a supplier know that you have options if an agreement on pricing and terms can’t be reached quickly. And it is imperative to remember that all the benefits of establishing competition can be lost in an instant if someone on your project team tells the supplier that they’ve already been chosen, so managing communication is integral to maintaining the leverage that you’ve created.
Funny story to illustrate this point... We were in negotiations on a multi-million-dollar telecommunications deal. The vendor was tough…and willing to exploit every advantage in negotiations. We had painstakingly worked to create and retain leverage, and finally were starting to see progress in negotiations after quite a long period of deadlock. We had finally found the formula to motivate this vendor. Then, one Sunday afternoon in April we were watching the Masters golf tournament on TV. As we watched the golfers walk off one of the holes past a huge hospitality tent, what did we see? Our Client CIO laughing merrily with the CEO of the very telecommunications vendor with whom we were negotiating. When we got back to work Monday, everything that we had won in those negotiations was off the table. We don't know what was said exactly, but we know we lost our leverage, and that negotiation turned into a matter of us merely trying to minimize how much our Client lost. The lesson here? While it's obvious that leverage is critical, it's also fragile. Protect it by avoiding unnecessary social engagements designed to take it away from you.
POWW! Holy Hurricane, Batman! What’s next?
O for Objectivity is next...part two in this three-part series on the tenets of best practice negotiating. Also, check out the companion podcast here.
Thanks for joining us at the Seprio Blog, a place to find pearls useful in protecting your business priorities, where we tell stories and talk about best practices in vendor management, negotiating, and contracting better. I’m your host and Seprio Master Certified Negotiator, Patrick Bohnenkamp. Questions or comments? Let us know in the comments sections or email me directly @ Patrick.Bohnenkamp@Seprio.com. Also, let us know you value the content with your likes and shares!