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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

Negotiations, by their seemingly obvious nature, require two sides, each with its own interests at stake. On its face, this seems to automatically set up a negotiation that requires hardline positions, best alternatives, score-keeping, and other tools to make sure that you’re not “losing.” It requires you to maintain as much leverage as possible by limiting the information you share, keeping multiple parties in the discussions, not tipping your hand, and keeping it “apples to apples,” so that in the end you pick the vendor with the highest marks on its scorecard. This might not be completely accurate, and there are many different variations on this theme, but you get the idea.

Deal processes that meet the criteria described above tend to be high on negatively induced leverage, low on relationship building, high on fatigue, and low in high-value discussions. This approach may be fine for products that do not require customer/provider interaction to succeed. But if the successful execution of the contract requires the parties to work together to drive results, these hardline processes can often backfire.

The negative-leverage process often doesn’t work well in the long run because the leverage position of the parties can shift in unpredictable ways once the contract is signed and the negative leverage goes away. The classic negative-leverage solution to this is to engage in a multi-vendor environment for the same types of services so that your new partners are always competing for business. This may be a good approach in certain situations, but in an environment where whole ecosystems are shifting, the opportunity costs of taking sledgehammer approaches to vendors who are potentially true partners in driving value can be profoundly counterproductive.

A collaborative approach works well in these situations, and feels really good to talk and write about. Plus, who could argue with collaboration? Yet, we’ve seen too many times where people sit down at a negotiating table, talk about being collaborative, how they’re collaborative as a company and expect their partners to be collaborative, and then proceed to conduct a negatively-leveraged procurement process and negotiation from hell. Not surprisingly, when it comes to collaboration, the old adage is true: actions do speak much louder than words. And these actions can have very tangible effects on the overall value of the deal.

Of course, there are at least two sides to every negotiation and every deal—but in complex transformational projects, it is much more nuanced than that. In this situation, alignment really is important, but the lingering question always is how to attain that alignment. For starters, thinking of the overall deal as an opportunity for both parties to create value for themselves and each other, and the negotiation as the tool to enable that, is very helpful. This sets the “deal” up as the end game, and the negotiation as an opportunity to solve problems and develop the opportunities that will make it work for both parties.

With that mindset, there are quite a few ways to foster a collaborative environment that will go a long way towards making this all work. Here are a few basic principles that we have found helpful and that could easily carry over into smaller, less complex deals as well:

  • First, if time allows, starting the process with a set of meetings to establish communications and get a feel for the vendor community can help set the tone start to establish positive leverage.
  • Try to be less adversarial in the RFP. The structure and language you choose as your first written communication to potential vendors will most likely set the stage for the negotiations and the relationship. Draconian rules and terms employed before you even kick off can start the discussions on a path that may not be easy to reverse later.
  • Imagine the negotiating environment as a mini-workplace. Building the right team(s), setting up the right communication streams, planning for higher-value discussions, and building an open and cooperative rapport can be invaluable in motivating the “workforce” to work together not only at the table, but also throughout the deal’s execution phases.
  • Remember that you are dealing with people who have real fears and concerns just like you do (see our post on Contracting for People here). If you identify these fears and address them, the negotiations should move along more efficiently and lead to a more open and collaborative negotiation and better results.
  • Collaborative negotiating should not be mistaken for weak or lazy negotiating; in fact, just the opposite is true. The process is rigorous, but can achieve better results when the people involved are given the space and time to think, to speak up, and be heard.

Negotiation dynamics is a fascinating topic and there are probably as many opinions about what makes a great negotiating environment as there are negotiators. We have a few places to get those opinions out there. First, if you have a point of view that you would like us to discuss, please feel free to shoot either of us an email. This topic is important to both of us and we would be happy to engage and may update this post to take your view into account (anonymously, of course).

We also conduct interactive contracting/negotiating workshops that address topics like this, and encourage everyone with a point of view to engage. We have one of these coming up in January 2019 in New York, and will announce it on this blog. We are also heading out to the SIG Fall Global Summit in October, and would encourage any of our friends from SIG who follow this to connect with us there. Ed and Val will both be in attendance, and Ed is speaking on a similar topic in a keynote with Kate Vitasek from the University of Tennessee and Lawrence Kane from Boeing.