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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.

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