Conducting Renegotiations: Put Yourself in Your Customer’s Shoes (and Vice Versa)

Spend Matters would like to welcome a guest post from Vantage Partners. See previous posts in this series here: Part 1, Part 2, Part 3, and Part 4.

  • It's tempting to... use tough tactics
  • But think about... putting yourself in their shoes, and thinking about overall implementation

When renegotiation is a threat, both buyer and provider are on the defensive. The name of the game is protection and preservation. People naturally presume they'll have to get tough, even at the expense of the working relationship. They see a choice: be tough and get a good deal while doing some damage to the relationship or be soft and get worse results but maintain the relationship. This tendency is only ampli?ed when out¬side negotiators are brought in and the parties assume a haggling process, as illustrated in Figure 1 of Part 4 of this series.

In reality, this choice is false. When renegotiation is an opportunity, buyer and provider leverage what they have learned about one another and their strong personal relationships to create a better deal. "Implementability" is the focus -- the key purpose for renegotiating is to strike an arrangement that is even better than the previous deal once operational. Rather than pushing for a "win" or trying to hurry up and get a deal signed that doesn't give up too much, the parties share their interests and concerns and come up with good options that meet both sides needs -- options that can be made operational in practice.

This approach requires buyers and providers to put themselves into one another's shoes and attempt to learn about interests and priorities, perceptions, and ways of operating. And by taking advantage of that learning opportunity and really trying to understand, rather than defend, the parties can create better deals while simultaneously improving their relationship.

The renegotiation of one IT outsourcing deal provides a good illustration of how putting yourself in the other side's shoes can help generate better results. After months of arguing about the price and scope for a deal that included network management, the provider's relationship manager was exasperated. He described how, in the midst of renegotiations, his buyer counterpart had hired an outside consultant to perform a network upgrade -- a service his organization would have performed for free. This meant that the provider had to remove their network monitoring and security tools, which left the buyer with a vulnerable network and paying for network monitoring services they weren't receiving.

At first, the provider's relationship manager said, "See, they're crazy! They want to give scope to any other provider as soon as possible and don't care at all that we invested in getting them where they are today. They were a mess when we took over, now they just want to farm everything out to the lowest bidder. They won't even let us do the work they're paying us for!" But then he tried seeing the situation from his counterpart's, the IT Director's, perspective. He asked himself, if he were the IT Director, what might he consider, and how would he see his choice? When the relationship manager really tried to think like his customer might think, he came up with the table below.

Having delved into how the IT Director might see the situation, he then brought the picture back to the customer, asking, "Is this how you see the upgrade?" The IT Director was stunned that his counterpart had taken the time to consider how he perceived the situation. And rather than arguing about why the IT Director was wrong for seeing it as he did, the relationship manager shared his view, which ended up being the key that unlocked months of protracted renegotiations. Armed with a way to better understand one another's interests and perceptions, buyer and provider were able to come to agreement in principle on a new scope and associated pricing within just a couple of weeks.

This relationship manager saw renegotiations as a learning opportunity, a way to get into his customer's shoes and better understand their interests and concerns so that they could strike a better deal.

Once a deal is renegotiated, it is tempting to move on quickly. But the two next steps in the renegotiation process are to debrief and ensure a careful transition. The next and final part of this series will discuss these two important -- yet easily disregarded -- steps in renegotiation.

- Sara Enlow, Principal at Vantage Partners

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