Negotiation: Time To Change Mindset and Approach? Part 1

This advisory post comes to us from Christo Zeller, Principal, at Efficio, the procurement consulting firm. Part 2 follows tomorrow.

Picture the following scenario: a supplier has just left a negotiation session having just been told they are uncompetitive -- effectively their cost is too high or capability not high enough. How do you think this supplier is feeling? Discouraged, demotivated, uninformed? Sound familiar? Here is where the scenario becomes unfamiliar. The supplier is feeling anything but that! They feel motivated, encouraged and informed! So what caused this unfamiliar reaction? Something different happened in this negotiation.

More often than not, traditional negotiation has been viewed with a confrontational mindset: arm wrestle or poker game-like; give little away, less is more. “Supplier, your price is too high.” In order to join the procurement leaders this mindset needs to change. Leading negotiation is characterised by being more collaborative (despite the process often being competitive); give more to get more. “Supplier, your cost is too high, here is why and this is what you can focus on to get the total cost lower, service level higher and maintain both over the longer term,”

The mindset is relevant to private and public/OJEU-imposed scenarios, as well as both competitive and non-competitive situations. Once you have adopted this mindset you are half way there and can then focus on running an effective negotiation process. If you do not change the mindset the negotiation process and results may be compromised.

Changing the process – doing the ordinary in an extraordinary way

Traditional negotiations have focused on giving as little away as possible and problem solving together in a room in the shortest time possible. Leading negotiations do the complete opposite, they provide a large amount of facts and allow suppliers to problem solve away from the room and with sufficient time. It’s all about doing the ordinary in an extraordinary way. So what makes a leading negotiation less ordinary?

We believe there are six main strategies to consider: more Planning, Cross-functional strategic sourcing, less emphasis on Characters, granular fact-based Feedback, the right Tools, and Problem Solving. Following we extrapolate on each, covering the first two today and the second three tomorrow.

  • Planning

All good negotiations involve a great deal of preparation -- even the traditional ones. A leading negotiation involves preparation from the category strategy phase (i.e. part of a rigorous strategic sourcing process). Essentially you are planning for the negotiation from before the supplier request went out as opposed to when receiving the first supplier response. For example if you need to provide detailed feedback to a supplier from an RFP process, the structure of the RFP (e.g. commercial pricing structure) will determine the level of granular feedback that can be provided to the supplier. This is something business stakeholders often fail to understand. They believe Procurement are great negotiators and can be involved late in a sourcing process. Without the right tools / information at their disposal even the greatest negotiators may be less effective.

  • Cross-functional 

Leading negotiations are typically a result of a highly effective cross-functional strategic sourcing process. The cross-functional nature of the process needs to continue into the negotiations with procurement and the business working side by side and in unison. It is important not to give the message that only procurement is involved in the negotiation. It limits leverage. A one-team approach needs to be evident to suppliers. Having the business providing commercial feedback or visibly endorsing the feedback is highly powerful.

Look out for the other change areas tomorrow ...

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