By Milan Prilepok
Expectations for procurement and supply management professionals have reached new heights, driven by the confluence of global supplier networks, increasing supplier performance expectations, expanding definitions of value, and disruptive digital and analytical capabilities. When these trends overlap, they drive unprecedented complexity in commercial agreements and negotiations. Complexity is hard enough on its own; it adds stress to supplier relationships as well.
One effect is a trend of failed or unsatisfactory negotiations. When negotiations fail, it is easy to blame the economics of the deal — that is, there was not enough common economic ground to support a zone of possible agreement (ZOPA). This is by far the most frequent excuse.
However, research from McKinsey & Company confirms what the most seasoned practitioners postulate: that “process” and “people” problems account for most failed deals. In particular, more than 70 percent of deal discussions fail to materialize due to these two non-content dimensions. What do we mean by “process” and “people”?
●Process includes actions related to the negotiation, including the overall schedule of negotiations, interaction cadence, meeting locations and agenda, and escalation provisions.
●People includes the behaviors of individuals or teams, including tactics and gambits deployed during negotiation; the approach toward cooperation and exchanging information; the responsiveness to the counterparty’s requests; general mind-set regarding empathy and understanding the others’ needs; and other related factors.
A second significant finding from McKinsey’s research is a corollary of the first. Specifically, negotiation teams frequently compromise on economics when they could (or should) have solved for process and people. The results are avoidable value loss and, in the longer term, unsustainable deal terms on lead times, quality, intellectual property ownership, volume guarantees, exclusivity provisions, termination clauses and the like. And, of course, the critical process and people issues remain unaddressed — a threat to the next negotiation.
Why do negotiation teams avoid these two critical dimensions? In most cases, it is to avoid conflict or to stay out of “the soft stuff.” By contrast, great negotiators confront and control these factors throughout a negotiation. Here are five core techniques that practitioners can use to get started.
●Improve communication. Increasing the volume and quality of communication with your counterparty helps to avoid misunderstandings and provides a channel for trust-building techniques, including active listening, deferring judgement, “playing back” what you hear and demonstrating empathy where appropriate. The quality of communication is conditioned on behaviors that help to isolate (rather than conflate) points of disagreement. For example, by using temperate language and tone, focusing on questions rather than accusations, and providing opportunities for the counterparty to explain, reason, and describe its expectations, assumptions and the like. A familiar example in this category is avoiding adverbs like “never” and “always,” which tend to be too absolute.
●Take perspective. Putting yourself in the shoes of your counterparty requires authentic curiosity about its needs, interests and motivations. And it can be the fastest way to remove biases in your own thinking and accurately anticipate your counterparty’s next moves. The objective here is to understand your counterparty’s real interests — as opposed to its positions. A questioning attitude and desire to understand not only improves your chances of doing so, but might engender mirroring behaviors from the other side of the table.
●Eliminate unnecessary escalation. Having a short fuse can complicate any situation. It usually increases the risk of slipping into a downward spiral of negative countermoves, the highly destructive “tit-for-tat” cycle that presages a failed deal. Avoiding the first step in that cycle means staying away from even the suggestion of a punitive course of action. It can also be helpful to think ahead of time whether moves intended to be neutral might come across as punitive. For example, stating that senior stakeholders should become involved or consulted can, under some circumstances, imply a threat to escalate over the counterparty’s head.
●Uncover issues sooner rather than later. When you suspect that an issue or question may be sensitive for either party, delaying a discussion of it only intensifies the urgency when it is finally addressed. Furthermore, if some dimensions of a solution have already been decided in earlier stages of negotiation, one or more parties may feel cornered or deliberately maneuvered into a foreclosed position. Whether intentional or not, this raises the probability of an angry counter-response. An effective negotiator takes the time to identify and address the most sensitive issues early in the process.
●Hit the pause button. When all else fails (and it will), the best course of action is to take a break. Budget substantial time for breaks and use all of it — whether it’s 15 minutes, four hours or four days. A break should give teams time to reflect and reconstruct what they have experienced, as well as decide on new behaviors and practice them.
The value at stake from mastering the process and people dimensions of negotiation are high. To get started, practice specific behaviors that control conflict, with the objective of securing both better economics and improved relationships with your suppliers.
Milan Prilepok is a senior negotiations expert at McKinsey & Company and lecturer at The Wharton School at the University of Pennsylvania. He is based in New York.