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NegoEconomics: A Vital Corporate Leadership Competency

May 7, 2012

ImageBusinesspeople in all service and manufacturing sectors are facing the harsh economic reality of margins being squeezed and profitability being eroded by the increasing cost of component parts and ancillary services. There are very few places corporate executives can go in search of bottom-line impact. In twenty-first century economy, reducing the acquisition costs of component parts and service modules yields meaningful bottom-line results. The supplier is being squeezed by the same market forces as the manufacturer and the distributor. Labor costs are skyrocketing. The cost of raw materials is escalating at an exponential rate. Credit terms tariffs, and taxes are posing additional challenges, even after a deal is made. Senior-level executives are becoming increasingly aware that the capacity to effectively negotiate is a key factor in their ability to deliver shareholder value.

Vast resources are left untouched in business dealings across the planet because the current of business negotiations measures success through the lens of win-lose or a zero-sum transactional model. Competitiveness, combat, and lack of trust foster a negotiation climate that leaves as much as 42% of the value of the relationship unexploited. If the zero-sum model is abandoned in favor of a culture on trust, cooperation, and mutual gains, billions of dollars of added value will be infused into the global economy. I call this NegoEconomics-optimizing the value of a transaction through negotiation.

NegoEconomics is an approach that enables the parties to calculate the gains that result from a negotiated transaction The SMARTnership strategy offers deal makers techniques to access mutually beneficial solutions that cannot make their way to the bargaining table absent a positive negotiation climate based on trust and cooperation. A SMARTnership is a relationship between business entities where the two parties are working together seamlessly in informed cooperation. NegoEconomics encourages negotiators to gain trust, and value, and build a SMARTnership, which enables the delegates to expand the potential that lies within the deal and broaden the vision of what is possible within the business relationship.

Traditional approaches to corporate deal making result in half-baked solutions yielding sub-optimal results. Deal maker who are stuck on the traditional path define success as concluding a transaction at the cheapest possible acquisition cost. This approach takes only two variables into account- price and quantity. Haggling for the cheapest price is really not negotiation at all. Haggling for the deepest discount eliminates the magic ingredients that expand the room to negotiate and, consequently, the range of variables the delegates have to work with in order to make the pie bigger. These magic ingredients are trust and cooperation.

Most expert negotiators agree that the maximum amount of value in any given negotiation is rarely ever accessed. NegoEconomics revels the underlying potential for greater benefits that lies hidden within a commercial transaction that can be uncovered only when the delegates bargain from their power positions creatively, unearthing profitable components that were not previously in play. When the added is suddenly obvious, both parties see opportunities for mutual gain, and the focus of the negotiation shifts to how the added value should be divided between them.

Are Negotiators Rational?

February 20, 2012

Cautious Concessions: Part II

November 29, 2011

In last week’s post, we examined how one unilateral concession can wreck an entire negotiation. Unilateral concessions are usually made when the negotiator is panicking—so the first and most obvious way to avoid making this mistake is to stay calm. When pressure becomes excessive, the surest way out is to ask for a break. Whether you have been negotiating for five minutes or five hours, you’re not required to give any reason for the break. Simply say, “Excuse me, I need to stretch my legs for a few minutes.” In the course of the break, you can calm down and think of an alternative to the unilateral concession.

So how can you get back on track? As I mentioned earlier, don’t panic. The worst possible thing to do is to become visibly flustered—the other party will sense this, and in an instant, you’ve sacrificed your power position. You may have already presented the other party with a concession, but there’s still time to salvage the deal by making it a cautious concession. A cautious concession:

• Demonstrates good will by letting the other party succeed in a certain area of the negotiation. Never surrender your power position, but allow the other party to shine to foster feelings of good will.

• Reduces the insecurity of the other party. In my past blog posts, I discussed how combat in a negotiation usually grows out of insecurity. By reducing his insecurity, you’ll also dramatically decrease the risk of combat threatening your negotiation.

• Leads the other party to let its guard down. When you eliminate combat and insecurity in a negotiation, everyone at the negotiating table is undoubtedly much more relaxed. Use this relaxation to your advantage and present a concession that considers the needs of the other party but also guarantees something for you and your delegates.

• Speeds up the negotiation process. This is the most important characteristic of the cautious concession, yet it is also the one that involves the most risk. A cautious concession speeds up the negotiation by giving into the other party’s demands—but not all of them! Choose your terms wisely and never, ever give away more than you’re getting.

Ultimately, the skillful negotiator knows just how much a concession of any kind can threaten a deal. And realize that there are times in a negotiation where a concession is completely unavoidable, but during those times it’s important to remember to make it a cautious concession. It shows personal strength to be able to concede to having made mistakes in a negotiation, but it shows real skill to be able to recover from these mistakes.

 Do you have any personal experience during which a cautious concession turned your negotiation around? Please feel free to share your own experiences in the comments section.

This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.

Cautious Concessions: Part I

November 21, 2011

In our blog last week, we discussed how to cope with combativeness in a negotiation. While most negotiators are aware of how quickly combat can threaten the success of a deal, few are aware of how concessions, the opposite of combat, can just as quickly ruin a negotiation. In order to be a truly skillful negotiator, it’s important to recognize the value of compromise. Choose your battles wisely– you will be amazed by how smoothly a negotiation progresses when both parties are willing push combativeness aside for compromise.

A key component of compromise is concession. Before you begin any negotiation, it’s important to identify which components of the deal are non-negotiable, and which components you are willing to compromise on. While this step admittedly creates additional work for you, it will prove to be invaluable in the grand scheme of the negotiation. What happens if you choose to skip this step and plunge headfirst into a deal? You’re putting yourself (and your delegates) at risk. Lack of preparedness in a negotiation leads many negotiators to commit one of the cardinal negotiation sins: the unilateral concession.

Imagine that you are the main negotiator of a deal that has the potential to make your company a tremendous amount of money. In your eagerness to begin the negotiation, you fail to identify which parts of the negotiation are open to compromise and which parts are ironclad. In a meeting with a representative from the opposing delegation, the following dialogue occurs:

Buyer: I’m sorry, but we’ve ultimately decided that we can’t use you as our supplier. You’re just too expensive.

You: There isn’t a lot I can do about the price. Are you looking for a discount?

Buyer: Well…that’s a good place to start. What can you give me?

You: Um…I can let you have… maybe 3%?

Buyer: Three percent? I’m afraid that’s not enough.

You: I’m not authorized to go beyond 5%.

The entire deal has been threatened. Blinded by panic, you’ve committed a major blunder: you’ve made a unilateral concession. The unilateral concession offers a solution that demands nothing in return. The buyer recognized the fact that you had not considered the possibility of a discount, and he took full advantage of your unpreparedness. In an effort to save the deal, you cracked under pressure and offered a solution that will yield nothing for your delegation. While you’ve temporarily stopped the negotiation from crumbling, you’ve also made some costly mistakes:

1. You made no effort to find out what the buyer meant by saying that the price was too expensive. Too expensive compared to what? How much should it be? Has the buyer produced a cost calculation?

2. You negotiated the price instead of discussing total costs. In your panic, you made up your mind about the price without knowing what the buyer thought about the delivery time, volume, quality, warranties, performances, or other conditions.

3. By emphasizing the fact that you weren’t authorized to go beyond 5% , you signaled that there was a greater discount that your boss could potentially approve.

Don’t dwell on your mistakes– even the most skillful negotiators slip up. The most effective way to recover from your mistakes is to learn something from them. In next week’s installment, we’ll explore how you can recover from unilateral concession-making and get the negotiation back on track. In the meantime, please feel free to share your own stories about your experience with concessions in the comments section. Have you ever had a similar conversation? How did you recover?

This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.

Combative Negotiators: Part Two – Responding to Bullies

November 14, 2011

Last week we explored the various signals that combative negotiators often send. Now that you’re able to identify a combative negotiator, you need to know how to respond to those childish antics.

Above all else, keep calm and do not let yourself be provoked into hasty emotional reactions. If you feel like the pressure on you is getting to be more than you can handle, take a break. Forcing yourself to continue will only put you and your team at risk of falling directly into a trap. Before you choose a response, analyze the reason for the combative stance. Is it conscious or merely a subconscious defense reaction on the part of the other party? Are you overreacting to his choice of words or tone of voice? Are you frightened by his harsh demands?

Once you identify the reason behind the combat, you’re ready to choose your response:

1. Silence: First respond with silence. Don’t let your emotions govern your actions. Even if the other party is wrong, avoid confrontation. In this way, you can keep clear of the attack-and-defense spiral of gambits and countermoves that deteriorates negotiations and causes relations to fall apart over a very short period of time. Remember that the combative negotiator is powered by adrenaline. He will not listen to you until he has finished speaking.

2. Questions: Ask questions to test the other party and  make clear the dangers of continued combat. Break the pattern of one-way communication. If you can initiate two-way communication, you’re on your way back to productive negotiations.

3. Delay: If your silence or questions do not yield the desired result, you can delay the negotiation. Suggest scheduling another session and make it clear to the other party that you think it is counterproductive to continue negotiating at the moment. This is a method that lives up to one of my favorite adages: be mild in manner, but firm in substance.

4. Substitution: Sometimes two people just aren’t suited to work together. Switch negotiators if you suspect any personal conflicts or if you think the personal chemistry isn’t working you and the current delegate.

5. Naïveté: Pretend to be naive. Intentionally misunderstand, ask counter-questions, and ask for the other party to repeat all their arguments. Not only will you wear the other delegation down, but you might even get them to see their absurdities by having them reiterate their argument over and over again. Although this can be effective, I do not recommend that this be your first response to bullying tactics. Remember, I advocate trust – and honesty has a lot to do with that.

6. Combat: If your own position is strong and if you are able to pay the price, fight fire with fire. Be combative! A warning, though: this is only recommended after you have tried all other strategies and only if you do not want anything to do with him in the future. Combative negotiations may lead to a positive short-term outcome, but they don’t do much for long-term relations.

 Sometimes combative negotiations are simply unavoidable. If you find yourself in the middle of one, take a deep breath and remember that you have the skills needed to come out on top. Every negotiator is different—what works for your delegates may not be your preferred course of action, and that’s okay. The key to your success lies in remembering that, unlike your combatant, you do not need to rely on harsh words or underhanded tactics to succeed. Use your knowledge of combative characteristics and techniques to counteract combat and you will undoubtedly have the upper hand in any negotiation.

Have you personally dealt with a combative negotiator? Did your tactics yield a positive result? Feel free to share your experience and how you handled it in the comments section.

This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.

Combative Negotiators: Part One – Identifying Bullies

November 4, 2011

Human beings were made to survive in a tough world. Aggression has long been a precondition for survival and, according to the process of natural selection, only the strong survive. Combative behavior has been recognized and accepted as a natural, albeit emotional, response to personal conflict for centuries. Increasingly, however, combative behavior has become more and more prevalent in response to professional conflict— especially within negotiations.

In the first part of this blog series, I’ll show you how to identify combative behavior at the negotiating table. Next week I’ll conclude with tips on how to deal with these difficult types.

Novice negotiators might think that they can easily identify combative behavior at the negotiating table, but PowerBargainers know that combat is often cleverly disguised. It may present itself  through aggressive communication, threats, or a lack of interest in listening to the other party. Combat also occurs when the other party listens carefully but masks his true intentions to give the only the impression that he wants to understand. Before showing his true colors, this wily negotiator will have made sure that the other party has already revealed too much.

Don’t get caught in a combative negotiator’s trap. First, it’s essential to recognize that the combative negotiator intentionally aims to make you feel insecure and inferior – he knows that a stressed counterpart will more likely flee or give in. A typical combative negotiator makes expensive demands without verifying or explaining them. You might find yourself lacking important information, but nevertheless forced to make a decision because you are put under  pressure. The culmination of these factors may make you feel insecure in your power position. In addition to tough demands, his behavior likely leads you to view him as aggressive or manipulative, thus weakening the overall trust in the negotiation. Consequently, relations between you both deteriorate rapidly and the entire negotiation may be at risk.

Combative negotiators are really nothing more than bullies and their ruse can indeed fluster even the most skillful negotiators. Sometimes their tactics lead negotiators to see only two solutions: to cave in, or to get angry and end the negotiations after you’ve had enough of the games.

Next week you’ll read about how to counteract combative tactics, but in order to do that, you need to be able to recognize the symptoms:

• One-way communication: Numerous arguments, demands, and threats that are often difficult to verify are presented. Questions are met with silence and argumentation is based on orchestrated facts or lies. The mode of communication is usually aggressive and the messages are terse.

• Provocations: The combative negotiator uses arguments to provoke and stress out the other party. Personal attacks and disparaging remarks are frequently used.

• Hidden intentions: This is perhaps the combatant’s most lethal weapon. The intentions behind the negotiation are kept secret. The non-combatant is duped in order to gain trust, to obtain information, and to get him to lower his guard. The negotiator may initially be very pleasant; however, combatants are often wolves in sheep’s clothing.

 Have you seen these happen in your negotiations? Share your stories – and how you handled it – in the comments. Then, be sure to come back next week to learn some effective strategies to one-up combative negotiators.

 This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.

Compromise: Every Negotiator’s Secret Weapon

October 26, 2011

In negotiations, compromise is often considered a “bad” word and dismissed as an ineffective negotiation tool. This dismissal occurs for good reason, too: effective listening skills are usually absent from attempts at compromise, which are instead rife with biased and even dishonest argumentation. I’m sure you can see what comes next – confidence breaks down on both sides of the table and the negotiations take a turn for the worse. 

Inexperienced negotiators often make the mistake of engaging in “spurious compromise” wherein a negotiator will demand something that belongs to the other party, and later agree to relinquish a portion of that demand. In other words, spurious compromise tends to be unilateral; one side gives, the other takes. However, if you ask me, both parties are still losers. For one thing, trust among the negotiators disintegrates from all of the manipulation and bluffing that are almost always present in these kinds of talks. On top of that, in situations like this the parties sometimes avoid looking for new solutions or alternatives entirely and instead deadlock negotiations. They might even postpone their talks without ever addressing what each hopes to gain. In the worst cases, stubbornness will stop negotiations all together. This is when you know that power-positioning has infected your negotiation.

How can you avoid falling into the trap of spurious compromise? Counteract it with a genuine compromise, of course! Mastering the art of genuine compromise will not only give you control of the dealing– it will also give you the upper hand. Remember these simple tips and you’ll be well on your way to Power BargainingTM:

• Establish a friendly negotiation climate free of threats or the harsh attitude to which we’ve become accustomed.

• Create two-way communication by listening and asking and answering questions.

• Chart not just your needs, but also those of your opponent. You’ll avoid fighting simply by understanding what everyone’s looking to take away from the talks.

 As you can see, compromise can truly be your secret weapon, just be sure not to unleash it for the wrong reasons.  For instance, if you find yourself in a position of inferiority or if the negotiation has been infected by power-positioning, trying to compromise may only worsen the situation. Compromise only works when both parties play on a level field.

If you start to see the power shifting to one side of the table – perhaps you notice the other party isn’t pursuing a constructive course or you’re kept in the dark about the other party’s requirements – you are facing a compromise negotiation, which, in many respects, looks like combat. Don’t panic—use your knowledge of how a genuine compromise is structured as your defense. If you want the other party to abandon his demands, you can try to say yes, but as a skilled negotiator you know that the most effective method is to offer alternatives. Try to accommodate the other party on the points where compromise is possible, but always demand something in return. This is Power BargainingTM – mild in manner, firm in substance.

This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.