How can you tell if your front-line negotiators are on track or if they’re running a big risk of messing up?
This question is especially important early on for managers, when they may want to revise their team’s strategy and/or just avoid wasting their team’s time and effort pursuing deals destined to fail.
Here are my recommendations:
• First, establish corporate negotiation best practices.
Rely on the negotiation research to ensure your folks work strategically and don’t wing it. (See “Managing Negotiators: Implementing Best Practices,” phoenix.bizjournals.com/phoenix/stories/2006/10/09/smallb4.html).
• Second, manage to those best practices.
A big part of this involves tracking the strategic elements your team uses, which you can do with regular reports. (For a list of these strategic elements and corporate best practices, see my column cited above).
• And third, recognize where your folks might be running afoul of your best practices.
In effect, identify where red flags should be raised.
What red flags should you look for so you can step in with critical guidance when and where necessary? Here are my top four.
1. Widely differing goals and moves.
The greater the difference between your goals and your counterparts’ moves, the bigger the red flag.
What should you do? Track your counterparts’ moves relative to your goals and evaluate the extent of the difference.
Let’s say you’re a purchasing manager for a financial services firm and your team’s goal is to spend only $500,000 to develop some internal software for your support staff. So your firm sends out a request for proposal Feb. 1 to five high-quality vendors with a Feb. 15 due date.
By Feb. 15, your colleague has received five bids — all exceeding $1 million. Time to intervene. Because all the bids were more than 100 percent greater than your goal, you should re-evaluate your goal. This assumes it is highly unlikely in this industry for initial bids to be so different from your goal.
But if all five bids come in around $550,000, there’s probably little utility in stepping in at that point.
2. Unusually bad alternatives — and really weak leverage.
The weaker your alternatives to an agreement with the other side, the weaker your leverage and likelihood of achieving success.
What should you do? Track your alternatives and constantly evaluate them.
Let’s say — in the above example — Feb. 15 rolls around and you only have one response, a $700,000 bid. You now have only two alternatives to an agreement with that bidder: 1) don’t get the software, or 2) develop it internally. Both are bad.
Time to intervene. Perhaps have your team member solicit additional bids from other vendors, a way to potentially increase your leverage. Or perhaps suggest she or he contact those who didn’t bid and find out why.
3. Unreasonable standards underlying moves, if any.
The bigger the variation of your counterparts’ moves with the standards in your industry (such as market value, precedent, experts’ opinions, tradition, etc.), the bigger the red flag.
What should you do? Track the standards — if any — used by your counterparts to justify the reasonableness of their offers. And intervene if their moves appear totally unreasonable and/or unusual relative to those standards, or if they totally ignore realistic standards.
Let’s say — in the above example — your team member negotiates a $500,000 price with Vendor A and receives the company’s “standard” contract. And Vendor A tells your colleague that it always includes Provision A and takes a hard line on it.
But your colleague’s research indicates it is highly unusual for a software vendor to insist on Provision A. And it’s significant. Time to intervene.
Perhaps request the “standard” contract from Vendor B, who bid $510,000, and see if it also includes that provision.
4. Atypical offers and concessions.
The more unusual the offer or concession relative to what typically occurs, the larger the red flag.
What should you do? Track the parties’ moves in terms of when they occur and their size. Then evaluate each move relative to your industry’s general patterns.
Let’s say — in the above example — you receive three bids at $550,000 and each vendor tells your team member its bid is “final.”
But you know that traditionally software vendors have incorporated a 10 percent to 20 percent movement factor into their “first offers” from start to finish.
ime to intervene. Have your team member contact an expert consultant in the software industry and see if the vendor likely is bluffing or if standard practices have changed. Respond accordingly.
It’s tough to manage negotiators, given the almost unlimited number of variables floating around many negotiations. But it can be done effectively if you break it down to best practices, manage to them, and keep your eyes and ears peeled for those red flags.
Published March 2, 2007 The Business Journal