Solutions

Inc.
 Negotiation:
Organizational
Alignment of
Strategy
and Execution
Process

by
Brian J. Dietmeyer
and
Samuel R. Tepper

In conjunction with

Strategic Account
Management Association
(SAMA)

Society for Sales and Marketing

Training Professionals (SMT)
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TABLE OF CONTENTS

page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

The Emergence of Organizational Negotiation Strategy and Process

. . . . . . .4

Negotiation Process Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

The Elements of Negotiation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Key Elements of Negotiation Process

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

The Consequence of No Agreement (CNA) Filter . . . . . . . . . . . . . . . . . . . .12

The Trade Filter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Organizationally-Aligned Negotiation Strategy and Process

as Strategic Market Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Results Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Appendix

Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Detailed Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

 INTRODUCTION
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It’s not at all uncommon for today’s organizations to have established sales
strategies and processes. In fact, only 4.8% of all organizations polled have no
written and formally communicated sales strategy and only 14.5% had no step-by-
step sales processes to execute that strategy. This emerged as a necessity when
corporations realized that a repeatable, measurable, improvable sales process
would enable them to increase revenues in a structured way that relying on the
human relationship skills of the sellers could not. Rather than attributing a drop in
sales in the previous year simply to its being a "bad year," having a process
enabled them to determine, for example, that sales dropped because they hadn’t
gotten access to key decision makers. In other words, having a process would
allow them to see the problem and do something about it rather than simply relying
on increasing the number of sales calls. These ideas seem common today
because they’ve been espoused for more than 20 years.

The situation is not the same, however, when it comes to negotiation strategy.
82% of all organizations polled have no written and formally-communicated
negotiation strategy (alignment on organizational agreement on the process to
execute that strategy) and 81% had no step-by-step negotiation processes to
exe-cute that strategy. This is surprising with 74% reporting more professional
buyer influence and 91% reporting more customer demands for concessions.
Despite the tremendous impact negotiation has on how an organization is
viewed by the market, as well as on the bottom line, more often than not it is
seen as tactical and reactive rather than process-oriented and proactive.

When we began conducting research for this paper, we believed there were
changes taking place in the market that were making it imperative for
companies to alter the way they look at negotiation. At the same time, we
recognized that we couldn’t state unequivocally that there was a need for a new
approach to negotiations without first determining if it was true. We needed to
know if market factors in today’s economy were changing, and if corporations
were noticing that change. We also needed to know if, given those changes,
corporations were ratcheting up their negotiation effectiveness. Finally, we had
to ask ourselves whether or not a fundamental paradigm shift in the way we
think about negotiations was warranted.

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In order to answer these questions, we studied a variety of corporations in a
number of different industries, and discovered that there have indeed been very
important changes taking place in the marketplace. One of the most important is
that professional buyers are increasingly thinking of negotiation as a process,
which gives them an advantage over the salespeople who are still thinking of it
as a series of tactics. Moreover, in some cases these professional buyers are
grouping together to create buying consortiums to increase their buying
influence, and in others the industries themselves are consolidating, leaving
fewer and fewer options for the seller.

In response to this, there’s been a substantial increase in irrational marketplace

behavior (67% of respondents reporting this trend) and yet 85% of respondents
have no proactive strategy for response. Competition has gotten fierce as many
sales forces, reacting to buyers’ tactics, lower their prices, throw in free goods
and services in order to entice sales, and in the process reinforce the
effectiveness of buyers’ tactics. And there are, unfortunately, numerous
examples of this kind of behavior. One airline lowers its fares, and all of the
others follow suit. Mitsubishi begins showing commercials touting interest-free
loans and no payments for one year, and Ford and General Motors follow suit.
Not only are professional buyers putting the bite on margins, sales executives
are doing it to themselves! Although it might seem necessary in the short term,
the long-term consequences are truly detrimental.

Add to this the fact that internal negotiations are becoming more complex (85%)
as sales organizations increase in size and sell total solution packages. This is
especially true when organizations have a number of "silos," each with its own
various product lines and product managers who have their own numbers to
reach. It can be made even worse when the various silos are competing
internally for resources or if deals done by one group affect those of another. In
addition, when organizations try to package their deals across product lines they
sometimes have problems getting the product managers to agree to the total
solution. 71% of respondents say that even with increased internal negotiation
complexity internal negotiations are still not well-aligned.

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As a result of all these factors, the complexity of deals in general is increasing
dramatically, and sales forces really have their work cut out for them. Because of
that, if they don’t have a sales process in place, it’s going to be extremely difficult
for them to compete in the marketplace. But even if they do have a sales process,
without a corresponding negotiation process they will still be hard-pressed to get
the most out of their deals. A natural bridge exists between sales and negotiation
processes as one builds on the other. The need for a strong negotiation process is
just as prevalent, as the need for a strong sales process.

The results of our own study were confirmed in "The Future of Purchasing and
Supply: A Five- and Ten-Year Forecast," a 1998 study conducted by NAPM, the
Center for Advanced Purchasing Studies (CAPS), A.T. Kearney, Arizona State
University and Michigan State University. According to the study, "the negotiation
process will become more complex and sophisticated because it will move
toward more win-win relationships, relying on total cost as a criterion." The
purpose of the study was to determine if there was an increase in negotiation
needs, whether or not organizations being studied currently had a negotiation
strategy and process, and the impact, if any, of having such a strategy and
process had on the companies’ negotiation effectiveness.

The results indicated that negotiation was becoming more difficult, and that although
many organizations were able to effectively sell "value" and "solutions" using a sales
process, rather than applying such processes in their negotiations, they were
reverting back to a reactive posture in which they negotiated discounts in response
to buyer demands or irrational competitor decisions. As a result, rather than
purposefully using their negotiations to influence how they wished to be perceived,
such organizations let the market know who they were by accident.
In other words, instead of having a strong strategy to guide them in executing
their negotiation process, they let their tactics dictate their strategy.

The study found, that unless companies had an organizationally-aligned, formal

negotiation strategy (organizational agreement on negotiation guidelines and
outcomes) and process (organizational agreement on the process to execute that
strategy), they were not only sending inconsistent messages to their customers and
their competition, they were leaving money on the table. Moreover, it found that,

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in the ever-increasing rigors of the business world, an organizationally-aligned
approach to negotiation strategy and process leads to a substantial increase in
negotiation effectiveness. Perhaps most important, it also found that, as with the
sales process, a negotiation process is improvable, repeatable, and measurable.

THE EMERGENCE OF ORGANIZATIONAL NEGOTIATION STRATEGY AND PROCESS

At one time a good salesperson was thought to be born, not made. Sales was
considered an art, and the most successful salespeople were prized for their
expertise in human relations and their knowledge of the subtle art of persuasion.
But when they fell into a slump, it was like the end of the world. The
unsuccessful salesperson, as Arthur Miller said in Death of a Salesman, is "a
man way out there in the blue, riding on a smile and a shoeshine. And when
they start not smiling back — that’s an earthquake."

Since selling basically was persuading, people were driven to learn persuasion
techniques in order to increase their sales effectiveness. Books on selling began to
appear as early as 1913, hoping to capitalize on the salespeople’s desire to
increase their prowess. By the late 1920s and early 1930s the books began to shift
from soft tactics to a more scientific approach, focusing on sales principles that
were common to successful salespeople. These were, however, still experiential in
nature, concentrating as they did on such things as talking one’s way to success
and increasing sales by finding commonalities with sales prospects. Soon people
came to believe that, even though good salespeople were born, others could to a
certain extent mimic those behaviors that made them successful.

Not much changed in the way people thought about sales until the mid-
1960s, when social psychologists began studying persuasion scientifically
and sales people began to blend the art of selling with the psychologists’
burgeoning science. In the mid-1970s books began emerging that discussed
a kind of "salesmanship" that combined the art of sales with a scientific
approach to such things as closing sales and picking the right prospects.
Behavioral training companies were formed to instill this in organizations
even more deeply, but there was still something lacking.

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By the end of the decade things began to change. Sales began being thought of not
as a group of techniques but as a process. One of the pioneers in this movement,
Harvard professor Thomas V. Bonoma, showed that by combining the psychology
of buying behavior with that of sales process, sales effectiveness increased. He
described a systematic method for gathering information in order to increase the
probability of the sale, and in doing so, coined such terms as buying roles,
gatekeepers, and influencers. Most important, he showed that by repeating his
step-by-step methods salespeople could decrease the variance in closing rates.

Suddenly, selling was no longer a matter of art or luck. If salespeople lost a sale,
they could look back and analyze the situation rather than merely shrugging
their shoulders and hoping for the best the next time. They could know, for
example, if a gatekeeper had blocked access to the decision maker. They’d be
able to tell if they’d incorrectly ascertained the buyer’s priorities and picked a
strategy that was incongruent with their needs. Alternatively, when they made a
sale, they wouldn’t merely ascribe it to being "in the zone," or say that everything
just "went right." Instead, using the process, they could examine the reasons for
their success, and then repeat it. Ultimately, sales variances could be
decreased, and companies could more easily measure leading indicators, or
behaviors, and their subsequent effect on lagging indicators, or business results.

Sales training firms then heavily marketed these ideas. If all the sales people in
an organization began behaving the same way, they argued, selling could be
monitored, and a uniform underlying structure for each sales event could be
established and maintained. The idea of a "sales process" swept through
organiza-tions, and virtually everyone came to believe that in order to increase
sales quality it was necessary to establish such processes. In fact, sales process
is now accepted as a reality, and no one thinks twice when the term is used.

Negotiations can and should be thought of in the same way. By adopting a

negotiation process, behaviors can be measured, repeated, and performed step-by-
step each time so that variances can be decreased. When such a process is used,
negotiators would recognize that they hadn’t lost a deal, for example, because the
"stars weren’t aligned" but, rather, because they misdiagnosed the other side’s

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 alternatives. This is why negotiation process is emerging today, much as sales
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Negotiation Solutions process did twenty-some years ago. It adds immediately to the bottom line.

As in sales, in the beginning, good negotiators were seen as being born rather
than made — individuals with a knack for capitalizing on situations, using tactics
that got them more of the money on the table, and even resolving situations that
appeared to be unsolvable. Thinking began to change in the early 1980s when
Fisher and Ury introduced the concept of win-win in their book, Getting to Yes,
but even then there was a strong emphasis on the peripheral aspects of a
negotia-tion. Human behaviors, verbal posturing, and whose office you sat in
were still being used to provide easy — and incorrect — explanations for the
real, structural reasons that a negotiation "went well" or "didn’t go so well."

Descriptions of negotiation as a set of tactics to attain one’s goals have actually

been around for centuries. Treatises on the subject, most of them Machiavellian in
nature, can be seen as far back as the 1600s. It wasn’t until the 1960s, however,
that social and experimental psychologists began studying negotiations in an effort
to determine how people truly behaved when they negotiated. It was at that point
that they began asking "What are they actually doing, and why are they doing it?"
These studies made it clear that the more successful negotiators — those who got
more of the pie than their competitors or, in many cases, their customers — were
more aggressive, able to control the negotiation situation, and able to get what they
wanted by taking advantage of the other party.

The obvious problem with this sort of skill set is that, even when it works, it
doesn’t promote long-term relationships, which are essential in maintaining
business. Taking this into account, in the mid- to late-1970s social scientists
began examining business deals more closely in an effort to determine both the
traits of good negotiators and the components of the deals they negotiated. By
the 1990s, pioneers at the Harvard Business School such as Howard Raifa and
later, Max H. Bazerman were describing negotiations based on their underlying
structure rather than on the behavioral qualities that made for good negotiators.

But even today, training companies — and those they train — are still focusing on
long lists of tactics rather than seeing negotiation as a process. In fact, sadly, not

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much new ground has been covered in business negotiation literature since
Getting to Yes was published in 1981 (second edition, 1991) and
Bazerman’s Negotiating Rationally in 1992. The evolution of negotiation
past, present and future, then, can be described as follows:

• Pre-1980s: A focus on win-lose and beating the other side

• 1981: Getting to Yes with a focus on win-win

• 2018: Structured process designed to deliver true business value

NEGOTIATION PROCESS TODAY

Although every business deal has an underlying structure, it has not been
measured and taught to salespeople. Negotiation must be seen not just as an
art form to be nurtured or a set of reactive, tactical skills to be honed, but as a
set of elements that must be placed in their correct sequence in order to find the
keys to negotiation success. This view of negotiations as a process, a business
factor, and a strategic market influence is gaining ground, and negotiations are
undergoing a serious transformation today. Just as sales process took hold in
the early 1980s, negotiation process is taking hold now. Just as having a sales
process in place yields numerous benefits to corporations, so too does
establishing a negotiation process.

But neither a sales nor a negotiation process can work unless it’s tied to a
strategy. What good does it do if you know how to get somewhere but you don’t
know where you’re going? Today, most sales forces have both a sales strategy
for where they want to go in the market and a sales process that dictates how
they’re going to get there. This not only enables them to more fully understand,
measure, and tailor their actions to affect their revenues, but also to take a
consistent approach to their business.

But a sales strategy and process are only part of the battle. While companies may
be adept at selecting, targeting, and selling to particular customers, what happens
when it’s time to actually close the deal? How do they know if it’s a good deal?

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 How do they know if — and how — that deal fits in with all the other deals the
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Negotiation Solutions company is doing? Shouldn’t they have a strategy and process for the way
they do deals?

A clear negotiation strategy — knowing how ideal deals should look — greatly
enhances a company’s ability to affect the deals it does and the revenues those
deals bring in. This strategy should, in turn, determine the process by which the
company goes about doing its deals, which in turn dictates the tactics that are
used in negotiations. As the graphic below shows, sales strategy and process
build up and align with negotiation strategy, process, tactics, and the deal
closing. Each construct is guided by the one above it, which is why no one
element can be taken out of the mix. They must all work together.

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 THE ELEMENTS OF NEGOTIATION STRATEGY
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A global data management supplier with 30 account managers was negotiating

an average of 3 deals per year in 7 countries with one of their largest
customers. The buyer in Germany had pushed harder on negotiation and
finalized a better deal than buyers in the other six countries. Buyers for that
same customer began sourcing in Germany as they could get the same
product cheaper. Other account managers matched the German price. The
buyers lost trust in their respective account managers but at least began
buying in their respective countries again, until local competitors beat the new,
lower price and ignited even deeper global give-away wars.

This example could have happened just as easily with New York and California
divisions of the same US based customer organization. Organizational
agreement on the guidelines for negotiation or, a negotiation strategy reduces
the probability of this common event happening.

Organizationally-Aligned Negotiation Strategy Defined

Being a relatively new concept, we will define what a negotiation strategy is,
how it is enacted, and its overall benefits.

Negotiation Strategy is defined as "Organizational agreement on negotiation

guidelines". Each time we negotiate, we are messaging our customers and com-
petitors. Without a negotiation strategy, this messaging in inconsistent. The result
of inconsistent messaging to customers is typically a lack of trust. The result of
inconsistent messaging to the competition is typically market irrationality.

What is an Organization Level Negotiation Strategy?

There are typically three elements to a Negotiation Strategy:

• Why we need one

• What the specific "guard rails" for negotiation are
• How we will measure results

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 How To Build Organizational Negotiation Strategy
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The most key element to building organizational strategy is stakeholder

involve-ment. Negotiation is seen as a very intuitive set of skills and applying
a more consistent process orientation requires a high degree of human
change manage-ment. Using valid samples of stakeholder groups in strategy
design leads to a higher probability of adoption. This process is relatively easy
and involves the following steps:

1. Defining all internal stakeholders involved in the negotiation process.

2. Interviewing a sample of stakeholder groups on the three aspects

of negotiation strategy.

3. Writing the first draft of the strategy and presenting it to

stakeholders for input.

How Organizational Negotiation Strategy is Used

Formally communicate the strategy, make it visible and available. It is then used
nationally and/or internationally over the defined period (for example, 6 months to 1
year) to guide the behaviors and desired outcomes of individual negotiations.

The Benefits of Organizational Negotiation Strategy

The organization has agreement and subsequent variance reduction on where

you want to go, how to get there and what the results will be. Reducing
variance in negotiations sends more proactive and consistent messages to your
customers and competitors. Consistency avoids creating customer lack of trust
and irrational competitive wars. Ultimately, measuring the leading indicators
(behavior change) and lagging indicators (financial business results) is the true
motivation for the initiative.

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Partial Example of An Organizational Negotiation Strategy
WHY (motivation for behavior change)

• Irrational competitor pricing behavior is on the rise

• There is too much internal negotiation misalignment and bureaucracy
• Professional buyers are trying to make our product a commodity
• We have margin pressure
• Our sales process has us selling solutions and we end up negotiating price

WHAT (what specific behaviors will change)

• We will not go below a .10 pricing decrease without a trade for

something of greater value
• We will eliminate free licenses
• We will include new service "x" in every negotiation
• We will use CNA analysis prior to reacting to irrational competitive
movement (CNA analysis explained in the next section)
• We will not concede on any item – we will always trade

HOW (what the results will be)

Leading Indicators:
• All salespeople and sales management need to be trained in the
new negotiation process
• Any negotiation over $100,000 in the global customer organization
needs to have a negotiation process worksheet completed

Lagging Indicators
• Discounts deeper than .10 will be reduced from .30 of deals
to less than .05
• Free licenses will go from .14 of deals to zero
• Requests for price reductions to match competitors will go to
zero without full CNA analysis
• Zero sum concessions will go to zero in lieu of value creating trades
• Internal and External customer satisfaction around
negotiation will increase .10

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 Organizationally-Aligned Negotiation Process Defined
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The negotiation process is the step-by-step approach that guides

implementation of the company negotiation strategy, one deal at a time.

It’s a measurable, internally communicated and implemented, step-by-step

method for negotiating. It results in defining the underlying structure of each
business deal and, more importantly, how to analyze the deal based on that
structure. The process is the basic blueprint of business negotiation, and
learning how to read the blueprint and fill in the gaps leads, over time, to greater
consistency in a company’s dealings.

KEY ELEMENTS OF THE NEGOTIATION PROCESS

While researchers might disagree about the terminology for the elements that
underlie each business deal, there’s no real argument regarding the fundamental
structure of every negotiation. All deals must be analyzed through two filters,
which we call the Consequences of No Agreement Filter (CNA) and the Trade
Filter. When implemented properly, sales process ensures that the fundamentals,
e.g., identifying key buying influences, what role the buyers play etc. are more
consistently executed. Likewise, negotiation process ensures that these two key
fundamentals are more consistently executed.

THE CONSEQUENCE OF NO AGREEMENT (CNA) FILTER

As its name suggests, the Consequences of No Agreement Filter basically

concerns what happens if the deal falls through. The most common buyer threat,
"I can get the same thing from your competitor better, faster, and cheaper," is
quite an effec-tive tactic, and many salespeople make concessions at this point
in order to win the business. What the buyer is saying is that if our deal doesn’t
close, I can do better elsewhere. In fact, though, if the two parties don’t reach
agreement, there are actual consequences for both sides. For that reason,
analyzing the CNA, for both sides, is the first step in the negotiation process.

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A world-class negotiator understands, researches, and analyzes the CNA for both
sides in advance — the soft and hard costs and benefits over both the short and
long term. By enabling a negotiator to determine what will happen should the two
sides walk away, this analysis shows who has more power in the negotiation. The
side with the better CNA — that is, the one that has less to lose if the deal falls
through — naturally has more power. When this analysis is done correctly, tactics
based on posturing, bluffing, low-balling, and the like suddenly become useless.
Since the CNA filter shows what the consequences actually will be, if a buyer says
that he or she can get the same things elsewhere better, faster, or cheaper, the
salesperson will know if it’s true and be able to respond accordingly. Without this
analysis, although the salesperson would still have to respond, that response would
just be a shot in the dark. More often, out of necessity, the salesperson would take
the buyer’s "tactic" as fact regardless of whether or not it was true.

Most sellers assume that the buyer has more power in every deal simply because
it’s the buyer who is paying the seller in some fashion for goods or services. As a
CNA analysis shows, however, this is not necessarily the case. If, for example, the
sales organization has an incumbent product, the cost to the buyer of switching to
another supplier might be prohibitive, in which case it’s the seller who has more
power. This type of analysis should be completed for each deal individually,
because the people, the context, or the issues surrounding every negotiation
are different every time. There are no "market level" analyses, but rather,
only those at the deal level. We could give numerous examples of how the
buyer doesn’t always have the power in the negotiation, but the point is that
without this analysis, there’s no way of knowing.

THE TRADE FILTER

Unlike CNA, which analyzes the potential outcomes of a failure to come to

agreement, the Trade filter assumes that the deal is going through and enables
negotiators to determine what the ideal deal might look like. This filter consists of
analyzing what both sides want in the deal, what both sides want kept out of the
deal, the order of priority of the items in question, and their weighting, or relative
importance. It makes it possible to determine, for example, what the customer’s
top four items will be, or what three things the seller wants in order

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to make the deal more profitable. It provides a means for each side to get a
prioritized list of items from the other side. And once those lists are
established, by trading on those things that one side values more or less than
the other, measurable business value can be created.

The Trade filter can also create even more value than either side might have
expected going into the negotiation, in effect expanding the pie before it’s divided. In
fact, the well-seasoned negotiator understands that his or her goal should be to
create joint value and then divide it taking into account concerns for fairness in the
ongoing relationship. This filter allows him or her to do that. If, for example, the
buyer places great value on direct store delivery and the seller already has a route
that covers the area, the seller can provide the delivery at very little cost.
He or she can then easily trade this item for something that the other side
has, such as a higher price or less stringent service requirements.

Both the CNA and Trade filters cover most tactics that professional buyers use in
negotiating. But not all buyers do this kind of analysis, and if the salesperson does,
it gives her a decided advantage. It’s possible, for example, that a buyer will
believe that she can get the goods or services better, faster, and cheaper else-
where, even though it’s not true. Of course, just because the buyer believes it
doesn’t make it so. But when the buyer makes this kind of claim to the seller,
if the seller’s done the analysis and knows it’s not true, she can
diplomatically educate the buyer about it.

In fact, buyers who haven’t done this analysis haven’t properly prepared for the
negotiation, and as a result might not completely understand their own side or
realize what could happen if the deal falls through. By using the CNA filter,
worldclass negotiators will know the buyer’s CNA better than they do themselves,
and will rarely if ever be surprised by something that the other side throws at them
or brings up in the course of the negotiation. If, for example, the buyer throws
a new item on the table late in the negotiations, the proper Trade analysis will
enable the seller to determine how important the item really is, and whether
or not it’s being demanded as a ruse.

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The point is that, although tactics can be quite effective even without a
process, they are rendered much less so when there’s a good analytical
method in place. Using the process of sifting things through either the CNA or
Trade filter (or both) enables negotiators to analyze the tactic and then respond
appropriately. When tactics can be placed in the context of the overall deal,
they can in effect be neutralized. What this means in practice is that spending
a lot of time trying to understand how seats should be arranged at the table,
what different personality types will do during a negotiation, or even how
culture affects who asks for what, all become far less important when one has
a firm process in place for understanding and analyzing the deal itself.

ORGANIZATIONALLY-ALIGNED NEGOTIATION STRATEGY AND

PROCESS AS STRATEGIC MARKET INFLUENCE

One of the major benefits of companies’ taking an organizational approach

to negotiating, and incorporating a negotiation process into their framework, is
that it makes it possible for them to strategically influence the marketplace. If
the marketplace knows who and what a corporate entity is by virtue of the
deals the company does, it makes sense that by taking greater control of the
process the company can make sure that the marketplace sees the company
as it wants to be seen. Companies seem to fall into two camps, negotiation
constraints are so tight that the sales force is not empowered to make
decisions or parameters are so broad that inconsistent market decisions are
made. Alignment of negotiation strategy and process allows for centralized
planning (strategy) and decentralized execution (process). Those closest to the
customer are making faster and more effective negotiation decisions.

In the May 1, 1999, issue of the Harvard Business Review, Danny Ertel wrote, "I
have found that companies rarely think systematically about their negotiating
activities as a whole. Rather, they take a situational view, seeing each negotiation
as a separate event, with its own goals, its own tactics, and its own measures of
success." Further, he wrote, "That approach can produce good results in particular
instances but it can turn out to be counterproductive when viewed from a higher,
more strategic plane." In other words, organizations without a negotiation process
and strategy are letting their tactics and deals present a picture of who they are

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Negotiation Solutions
in the marketplace by accident rather than by design. Establishing the kind of
strategy and process we’ve discussed enables companies to present
themselves as they want to be presented. A significant benefit of negotiation
alignment is organizational learning. Specifically, when companies implement
negotiation process, an organizational database is built around the two key
elements of CNA and Trades. CNA data include the gaps in total value
proposition between ourselves and key competitors. Trade data include, the
most common items we trade for and the most common items requested by
customer and product type. Organizations benefit from such learning in that
they are prepared to counter anecdotal claims by buyers or irrational
competitive behavior. This organizational memory allows for groups of people
to begin behaving more effectively and consistently.

Unfortunately, relatively few companies have adopted a negotiation strategy or

process, and as a result are far from effective in their negotiations. This is an
indication of a considerable gap in their business acumen, and leaves money on
the table in the long term. In fact, not having such a strategy and process means
that they must continue taking the kind of reactive, tactical viewpoint that will
disable them from capitalizing on their existing relationships or focusing on
building the long-term relationships they’ll need in order to prosper in the future.

RESULTS OVERVIEW

The analysis of the data from the study we conducted basically conformed to
predictions, but it also yielded a number of interesting findings. (Details of the
methodology and statistical analyses are in the Appendix.) As expected, we
found that having a standardized, written, and organizationally-aligned
negotiation strategy and execution process are tantamount to successful
negotiating. As already noted, the results also clearly showed that deal
complexity is increasing and that the marketplace is changing and growing
more difficult. We also found that deals have become more multifaceted, that
they involve more issues that must be agreed upon, and that negotiations are
taking place with long-term highly strategic customer relationships in play.

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Our study also showed that negotiation is no longer just about agreeing on
price. Price is negotiated, of course, but so are licensing agreements, services,
legal clauses, risk-sharing, payment terms, contract scope, and others. Buyers
are merging and consolidating, as are sellers, resulting in an increasingly
smaller number of players. Because there are fewer players, at the same time
that the actual number of transactions has gone down, the size (and strategic
and financial importance) of those deals has gone up. As a result, buyers and
sellers are far more dependent on one another.

Many old school buyers also have a process in place that dictates a tactical
approach to negotiating in which they try to hammer their suppliers on price and
take as much of the pie as possible. Of course, while this is expedient in the
short term, its negative long-term effects are well-known. Economic modeling
shows that when you continue to squeeze suppliers’ margins, more and more
suppliers go out of business until those that remain hold a monopoly, at which
time they start raising their prices again.

In August 2000, Purchasing Today asked "What is the fate of the traditional
purchaser who has been trained and is skilled at mere price haggling?" And their
answer was "They, like many other professionals who do not make the shift to
strategic supply management, will find a world where their services might not be
needed. However, those who do make the shift will find that relationship-based
negotiation skills will be put to use extensively." In fact, the latest MBA tracks
in Strategic Sourcing include teaching long-term value modeling, as well as why
buyers should take a more rational and less combative approach to their negotia-
tions with their suppliers. Partnering between buyers and sellers actually provides
benefits to both sides. It instills trust, creates more goodwill, allows for flexibility
and fairness as they move forward, and enables both to make more money
in the long run. Perhaps this is why the largest healthcare Group Purchasing
Organizations are suddenly changing the way they go about their business. Even
though this sounds like a kinder and gentler approach to negotiation, the implica-
tion for sellers is that buyers are taking a much more strategic view of negotiation
and will be well armed with data to leverage "tactically trained" sellers.

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The results also showed that while companies that have a sales strategy and
process do slightly better at negotiating than those that don’t, those that have
both sales and negotiation strategies and process negotiate most effectively.
There is a natural flow between the two. In addition, the study indicated that
negotiators are less effective when competitors are behaving irrationally if they
have no predefined strategy for dealing with the situation. Similar problems
were also reported in those companies where there is a great deal of internal
negotiations and a lack of alignment between sales and other departments.

The problem, then, is that without an organizationally-aligned negotiation strategy

and execution process, these companies will continue to face serious hurdles in
their efforts to achieve organizational efficiency and long-term success. Add to this
the increase in negotiation complexity, the interdependence of buyers and sellers,
and the fact that there’s been little change in negotiation approaches, especially on
the sales side, since the idea of win-win was espoused more than two decades
ago, and it becomes clear that organizations must make efforts to attain the
negotiation effectiveness they so obviously need.

That effectiveness can be garnered by properly analyzing the structure of

each business deal. As already noted, the specifics of every deal are different
because those specifics depend on context, the people involved, and the goal
of the negotiation. But the underlying blueprint or structure of every deal is the
same, and by performing thorough analyses, negotiations can be not only
handled but even controlled. In this way, negotiations can become less
contentious, more focused on building relationships, and ultimately provide
greater benefits to both sides.

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 CONCLUSION
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Negotiation Solutions

There is a high level of need for a more strategic approach to negotiation and
cur-rently a low level of organizational effectiveness given that need.

Need-Based Factors

• More professional buyers using analytical negotiation process

• Increased irrational competitive behavior
• Complexity of internal negotiation on the rise
• Buyers/sellers merging and making negotiation larger with a
higher degree of impact
• Relationships are longer term
• Increased pricing pressure

Effectivness-Based Factors

• Low level of organizational strategy and process around negotiation

• Limited strategies to deal with irrational competitor negotiation
• Departments not well-aligned on internal negotiation
• More reactive vs. proactive approaches to negotiation
• Low connectivity between sales and negotiation strategy and processes

An organizational strategy or organizational guidelines for negotiation, coupled

with a step-by-step process to execute that strategy yields several benefits:

• Strategy defining tactics instead of the reverse

• Tightened variance and more consistent market messaging
• Higher degree of customer trust
• More rational competitive behavior
• Common negotiation goals, language and process
• Higher degree of organizational learning around negotiation
• Selling and negotiating both value and solutions
• More profitable business deals and negotiation effectiveness

page 19 ©2018, Think! Inc. All rights reserved.

 — APPENDIX —
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Negotiation Solutions

METHODOLOGY

A survey questionnaire designed to gauge negotiation needs and effectiveness

was administered to two groups. The first group (N=77) was made up of
individuals randomly selected from Fortune 1000 companies and conducted via
telephone. The second comparison group (N=88) was made up of individuals
randomly selected due to their membership in three professional organizations
— Strategic Account Management Association (SAMA), Professional Society for
Sales and Marketing Training (SMT), and the NIU (Northern Illinois University)
Sales Advisory Board. All these organizations are designed to increase skill sets
and best practices in sales and implement organizational change. Individuals
queried in the second group were also from Fortune 1000 companies. The
sample sizes were deemed correct and acceptable for a 2x2 between-subjects
design (Hi/Low negotiation needs, Hi/Low negotiation effectiveness).

Both groups were made up of individuals ranging in age from 35 to 65. Sixty
percent were executives within their respective organizations (VPs and Directors of
Sales, Marketing, Sales Training, with a number of Strategic Account Managers,
Global Account Managers, National Account Managers, Key Account Managers)
and 40% were at the field level (Account Managers and Sales Representatives).

Interviews for the second group, the professional organization (PO) group,
were conducted via telephone survey as well as via hard copy survey
administered at the SAMA annual conference.

The data was collated via a web-based survey system (except seven hard copy
SAMA surveys that were manually entered by Think! Inc. staff) and translated
into SPSS for analysis. All questions were either ordinal or interval in nature and
analyses were conducted appropriate for such data. A factor analysis was done
for each group on the interval-level data to ensure that questions were loading
on the assumed aggregate variables, i.e., negotiation needs, negotiation
effectiveness, and corporate demographics and statistics. The factor analysis
yielded results as expected, with the above distinct factors (sig. level of .000).

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 Questions used to gauge these factors were, in brief, all on three- to four-
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Negotiation Solutions point scales:

Strategic Negotiation Need Questions

• If respondents’ negotiations were more commodity-like to complex

• If their customer relationships were shorter to longer-term

• If they saw major consolidations on the buyer-to-seller side

• If there was between almost none and a great deal of internal

negotiations within their organizations

• If they were facing more professional buyers

• If their markets were increasingly price-conscious with more

pricing pressure

• If they faced more irrational competition

Strategic Negotiation Effectiveness Questions

• If they had sales and/or negotiation strategies and processes in place

• If there was internal alignment between their sales and other

departments in regard to negotiations

• How predefined their reactions to irrational competition were

• How proactively they managed their negotiations

• How effectively they traded in exchange for customer demands

• How effectively they planned for negotiations

• Whether there was connectivity between their sales and

negotiation processes.

A variety of demographic questions were also asked to gauge respondent

levels within their organizational structures, size of companies in terms of
revenues and number of employees, and size of their sales forces.

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 DETAILED RESULTS
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Negotiation Solutions

A comparison of the two groups was undertaken to see if there was a

difference between companies actively seeking to improve their behaviors by
having membership or affiliation with a professional organization versus those
with no such professional affiliations. Independent-Samples T Tests were
conducted to gauge any differences. Interestingly, some differences were
noted, all with a significance level of _=.05 (or better).

Specifically, those in the professional organization group (PO) saw the market-
place as tougher than the corporate group with no professional associations
(CO), and the CO group were doing better at negotiating than the PO group.
Further, the PO group saw slightly more consolidation in the marketplace on the
buyer side whereas those in the professional organization group saw slightly
more consolidation in both buyer and seller sides. The PO group saw slightly
more internal negotiation hardships than the CO group. The PO group also felt
they were facing slightly more professional buyers, and more irrational
competition than the CO group. Interestingly, the CO group had more highly
developed sales strategy, negotiation strategy, and negotiation process in place
than their PO counterparts.

Given that the CO group saw the marketplace as an easier place in which to do
business, and claimed to have a more highly developed sales strategy (both groups
had the same level of implemented sales process), negotiation strategy, and negoti-
ation process, one would think that their level of negotiation effectiveness would be
higher than their counterparts. This was definitely the case. The CO group had
significantly higher ratings when it came to their negotiation effectiveness. This
group had sales and other departments better-aligned, had predefined strategies for
reacting to irrational negotiation by competition, more proactively managed their
negotiations with their customers, effectively traded in exchange for customer
demands, had more scheduled planning sessions for upcoming negotiations, and
had a clearer connection between their sales and negotiation processes.

This supports the notion that a tougher marketplace leads to higher negotiation
needs which, in turn, affect negotiation effectiveness. The CO group’s view of the

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Negotiation Solutions
marketplace was slightly better than that of the PO group, and they had a better plan
for implementing their sales and negotiations, which led to higher negotiation
efficacy. In other words, since the PO group did not have as good a negotiation
strategy and process as their counterparts, it makes sense that they didn’t negotiate
as well. This is where the gap lies. What is surprising, however, is that the group that
was affiliated with professional organizations designed to increase corporate skill
levels to best practices had lower ratings on these scores. Perhaps this is why they
sought out the affiliations and memberships, in order to do just that, and get their
knowledge base and skill set to a best practices level.

When accounting for the variability in the two groups, the data set as a whole
behaved as predicted. Crosstab analysis showed significantly at _=.05 (or better)
that those organizations with a written and internally-communicated negotiation
strategy and process in place did much better at negotiating than those with only an
implied process and strategy or none at all. Crosstab analysis also generally
showed that facing a tougher marketplace negatively affected negotiation effec-
tiveness. This was far more pronounced when there was no negotiation strategy
and process in place. Having an implied negotiation strategy and process in place
exhibited results only slightly better than having no process and strategy at all.

In general, all data sets reported a high degree of complexity in their

negotiations (55%), a focus on long-term relationships (63%), major
consolidation on both buyer and seller sides (58% — only 18% saw no
consolidation), moderate to high levels of internal negotiations (84%), more
professional buyers in the marketplace (74%), more customers demanding price
concessions (91%), and more irrational competitor behavior (67%).

Only 4.8% reported having no sales strategy in place with 61% having a written
and internally communicated one. Fourteen and a half percent reported no sales
process in place, and 52% a written and internally-communicated one. This was
expected given that sales strategy and process are popular and widely accepted in
the marketplace. Surprisingly, 18% actually said that they had a written and
internally-communicated negotiation strategy (44% had an implied one and 38%
had none at all), while 19% said they had a written and internally-communicated
standardized negotiation process (32% had an implied one and 49% had none).

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Negotiation Solutions
This was surprising because the authors had expected the incidence of
negotiation strategies to be slightly lower. Our conjecture is that respondents
simply did not have a firm grasp of what negotiation strategy and process is
given it’s lack of existence in the marketplace.

These results are consistent with the idea that most organizations take a
situational approach to negotiating while they take an organizational approach to
sales. It’s also interesting that many sales organizations take a solutions-
oriented approach to selling, yet tend to negotiate price per product line items as
opposed to those solutions and/or packages/bundles they sell.

Finally, 19% of the respondents had teams on different pages when it came to
negotiating internally between sales and other departments. Fifty two percent
said they were often on different pages, but worked fairly well together, while
less than one-third (29%) reported being well-aligned. Only 15% reported having
a well thought-out strategy for reacting to irrational competition, 69% said that it
wasn’t predefined but they took the time to plan before reacting, and 16% merely
reacted quickly with no plan. As expected, far more respondents (58%) were
more reactive in their negotiations, and 54% did not effectively trade in exchange
for customer demands. It was surprising, however, that a full 46% reported that
they rarely gave anything away without trading something back. It was also
surprising that 63% reported having scheduled account planning sessions for
upcoming negotiations. Only 38% reported integration between negotiation and
sales processes with 45% having a sales process not clearly integrated with their
negotiations.

<
Think! Inc. is a global negotiation consultancy founded by Dr. Max Bazerman,
a professor at the Harvard Business School and Co-Author of Negotiating
Rationally.

©2018, Think! Inc. All rights reserved.

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