“How can we more efficiently negotiate our deal terms and conditions? It can take months for our lawyers to go back and forth on the documents, and the business teams get frustrated. We’ve even lost some deals as a result. Can’t we do this more efficiently?”
A large corporate client recently asked me this – and the answer is yes. But it’s not easy, and it involves additional risk. Here is how to do it and the risks involved.
To start, however, some strategic context: there are largely four reasons that parties usually take a long time to negotiate and exchange comments and redline documents.
One, the process provides the parties with sufficient time to explore their true interests, and craft creative and often mutually beneficial solutions. A shorter time period might not allow this.
Two, the parties may be extremely busy with a ton on their plates.
Three, the back-and-forth negotiation “dance” gives frontline negotiators – and their bosses – the psychological feeling that they negotiated a good deal by feeling that their counterparts conceded on numerous issues over a significant period of time.
Finally, in part due to these reasons, it’s often a longstanding pattern for these negotiations to take a long time. Tradition is a powerful force.
As a result, parties are often reluctant to urge their counterparts to “cut-to-the-chase,” as this runs counter to the tradition and makes them seem desperate. This weakens their leverage.
All these reasons are important. So how can parties accelerate the process and still largely accomplish their goals?
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1. Evaluate your pattern and understand the risks
Assuming your negotiations follow this lengthy pattern for these reasons – and many but not all do – any effort to short circuit this risks that you will not achieve one or more of these elements.
In other words, by developing a much shorter process, you might:
- Fail to provide your negotiators time to creatively develop mutually beneficial solutions and craft the most effective terms;
- Reduce the parties’ psychological sense of satisfaction (your counterpart might feel you forced them into it), thus weakening the quality of the deal by harming the relationship; and/or
- Weaken your leverage by signifying more desperation than would otherwise be communicated.
If you weigh these factors and decide the value of a much more efficient process is worth these possible downside risks, here are my suggestions.
2. Implement a consistent policy with deadlines
It’s crucial to initially change the parties’ expectations of the process – both internally with your negotiators and externally with your counterparts. One way to do this is to develop a formal corporate written policy specifying a much shorter time period in which deals must close.
Elements to consider in such a policy include:
- Make it CEO or board-driven, companywide and relatively inflexible. Exceptions will communicate that it is more form than substance and undermine its impact;
- A public pronouncement of the policy to future possible counterparts (like ongoing vendors, suppliers or partners), giving them time to modify their expectations;
- Deadlines for each deal to close, with positive incentives for the parties to close on time and negative incentives if it is late (and perhaps incorporate these into the initial letters of intent or term sheets); and
- Different standard time periods for different types of deals. Some will be more complex and will require more time.
3. Set a time-based deal agenda in advance
Based on the policy-based close deadline, develop an agenda that incorporates a series of aggressive but realistic shorter deadlines under which the parties will exchange redline drafts. Perhaps also include telephone negotiations or in-person meetings in this agenda.
In doing this, make sure that the parties will have time to provide a meaningful exchange of ideas and interests and will gain some psychological value from the give-and-take part of this process.
4. Consider a “negotiation close”
Set a final face-to-face or video conference session in which the parties can negotiate the last issues in an accelerated back-and-forth process. Make this shortly before the formal close, so the positive and negative incentives to close on time kick in.
Many excellent negotiators do much of this already, especially when outside forces create inflexible deadlines (like an end-of-year tax law change that would harm both parties). The key here is to develop these into a structured, formal process that gives parties the same benefit.
Of course, this will take time and effort to develop. But it will hopefully save a lot more time in the end.
Latz’s Lesson: More efficiently negotiating can save time but at a cost in terms of effectiveness. To go down this path, weigh the risks and rewards and do it strategically.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com