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Why do we spend so much time negotiating the wrong things?

March 14, 2016

IACCM has been undertaking a series of industry studies on the values and experiences of contract negotiators from both a customer and supplier perspective. Our studies are increasing understanding of the approaches used by the best-performing organizations and how they are creating a framework that increases the chances of not only reaching agreement, but also realizing long-term value from their trading relationships. It points to the fact that success is highly dependent on the organizational framework, rather than the personal skills of a specific negotiator.

Negotiation is supposed to help us reconcile perspectives and interests. A simple definition is “a formal discussion between people who are trying to reach an agreement”.

Based on this definition, a high proportion of business-to-business negotiations must be considered successful. They do indeed reach an agreement – though whether that agreement was really worth having and whether it actually delivers the benefits the parties hoped for is, of course, a different matter.

There is a massive amount of research and writing on the topic of negotiation, much of it highlighting the extent to which value is missed or lost as a result of typical approaches and behavior. IACCM research has been focused on the practical barriers and looks beyond the skills of individuals, to examine the broader challenges of organizational design.

Our findings suggest that most business-to-business negotiations suffer from some (apparently fatal) defects. Among these are:

  • a lack of coherence
  • unclear goals
  • rigid rules and standards
  • lack of confidence in capabilities and process
  • inconsistencies of culture or value which negotiators make little effort to understand

How do these manifest themselves? The findings here are interesting. For example, negotiators on both sides claim that they value a sense of partnership – yet in most cases, neither feels the counter-party offers this. Indeed, on digging further, you find that negotiators are generally not confident about the behavior or performance of their own organization, so they are understandably hesitant in what they will commit, even though they expect full commitment from the other side.

Also, each side looks for ‘responsiveness’ and hopes for a ‘single point of contact, empowered to make decisions’. Yet again, they consistently feel this is something the counter-party lacks or – ironically – if they find a counter-party with these characteristics, they don’t believe what they are being told!

Flexibility is another key value – but is once more something that each side feels is missing. They criticize each other for the use of standard agreement templates which either reflect the wrong type of relationship or introduce an adversarial focus on legal and financial risk allocation. Often this is tied to issues of culture and the different attitudes to risk – yet there is little evidence that the parties seek to explore those differences and address their respective concerns.

Ultimately, many negotiations suffer from a lack of clear ownership and leadership. The interests of competing stakeholders make coordination extremely difficult and the growth of ‘specialism’ is making that increasingly difficult. As a result, negotiations are often quite fragmented and decision-making may be inconsistent. Desired characteristics like ‘partnering’ and ‘collaboration’ are lost in the more fundamental challenges of skepticism, cynicism and absence of trust.

When I was presenting recently to a group of senior supplier relationship managers, one of them posed the question: “Hands up if you think all suppliers are evil?” Every hand was raised.

In an environment of growing complexity and increased interdependency, the need for organizations to work together in relative harmony has never been greater. Right now, the framework and approaches to negotiation are clearly not helping. Yes, we reach agreement – but at what ultimate cost and with what loss of opportunity?

 

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