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Adversarial Negotiation & The Winds Of Change

January 20, 2011

“Negotiations are becoming more adversarial”. That was the consensus view at an executive dinner hosted by IACCM in London. Heads of Procurement, General Counsels and Commercial Directors reported increasingly dogmatic behavior and ‘unreasonable’ demands.

At times of great uncertainty, conflict increases. Relationships come under pressure as confidence in the future declines.

One of the problems we face is that the tools and methods we are using to form and manage relationships are no longer approprriate to the needs of the market. Adversarial negotiations and battles over contract terms are an inevitable symptom of this mismatch. We can keep trying to address the symptoms (more resources, desperate attemtps at accommodatrion etc.) or we can use those experiences as part of the diagnostic. Contracts and negotiations can be leading-edge, or trailing-edge.

Commercial strategies face a period of dramatic change. The networked world, and the global economy it has created, operate at unprecedented speed and volatility. Traditional relationships have been undermined, but we still try to use many of the tools that were applicable in that old world of more stable, more predictable conditions. The perceived need for ever-lower prices is in conflict with the actual need for increased quality and relaibaility. The desire to have flexibility is at odds with expectations about the allocation of risk. The demand for short-term savings is inconsistent with  the requirement for long-term successful outcomes. And it is these inconsistencies that become evident in the negotiation and the resulting contract terms. We are frequently attempting to reconcile the irreconcilable – and that is frustrating for both sides. It is easier to blame the counter-party than it is to recognize the fundamental incompatibility of our goals.

The real point we must address is the consequences of uncertainty. We need to recognize the fact that supply and demand are increasingly volatile; and that our business goals and long-term capabilities are often unclear or unknown. Even when we know what we want, we are often unsure about how it will be achieved. This environment creates a heightened level of risk. They are risks that are exacerbated by today’s contracting practices, which are traditionally driven by long-term agreements with committed volumes or outcomes, in return for heavily discounted prices and ‘penalties’ for non-performance.

In an uncertain world, it is clear that such contract models do not work. Customers want all sorts of termination rights and  they want the ability to flex their requirements, yet at the same time they want their suppliers to be fully committed to meeting whatever demands they may have. They see ‘collaboration’ as a one-way street – I demand, you collaborate.

But suppliers are also often their own worst enemy, sending out a sales force that is motivated by quick wins and shallow commitments. For all the talk of ‘relationship selling’, most sales organizations remain motivated by commissions based on contracted revenue. They have limited interest in exploring true business needs or undertaking an honest evlauation of outcomes.

Therefore both sides – buyers and sellers – tend to enter negotiations with unreasonable expectations that are driven by historic trading and commercial models. Small wonder, then, that there is increased adversarialism.

In the next few days, I will address the question of what form the contracting and commercial models of the future should take. I think the changes are relatively clear and that there are already some excellent examples emerging. Through their advocacy and adoption, the contracts and commercial community can offer an exceptional value to their business.

  1. Negotiation needn’t be adversarial. The world is such an uncertain place that we all need deal partners to make us less vulnerable. Partners still want the best outcome for themselves but they also listen to each other, take an interest in each other’s needs, explore creative options, focus on common ground. This is how the world’s most effective negotiators operate. If deal-makers treat each other as potential partners (rather than just saying that they will do that), then they can still get more of what they want without appearing adversarial.

  2. haward permalink

    Negotiation is not a single point activity , nor a single situation activity. In any deal negotiations go on inside and outside the deal room , the negotiation starts before an ITT is developed and goes on after the deal seems to have been concluded. At times partners interests converge and at times partners interests diverge. The tone of the negotiation may be set by that factor. On the other hand it is not unknown for buyers to stress test a relationship by turning up the heat during negotiations to see how the partner operates when this happens , happen as it will once the ink is dry on the deal. So in any one deal one may have nice easy relaxed negotiations in one forum and table thumping in another…..perhaps , indeed , it should be like that. Most relationships are non linear

    • Haward, the point you make is very valid. All relationships thrive on a certain level of tension and disagreement. I guess the key point is whether those tensions lead to creative or destructive outcomes.

Trackbacks & Pingbacks

  1. Post-award contract management becoming more adversarial « Contract Lifecycle Management
  2. Top Articles of 2011 « Commitment Matters

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