A negotiation model that will help you stay focused on creating value for your business through closing successful negotiations.
In The New, New Thing, Michael Lewis refers to the phrase business model as “a term of art.” Some businesses have a clear business model and many, less successful ones, do not. Business models help leaders tell the story of how their business works, how it will make money and add value. There are other types of models that we use in business, though they serve the same basic purpose. A negotiation model, for example, is used to tell the story of how to plan and execute a successful negotiation process. A negotiation model provides a high-level view of how negotiations work and steps that need to be taken to optimize the negotiation process to ensure desired outcomes and foster mutually beneficial relationships.
You are negotiating every day. But how often do you take the time to plan, to model your negotiation approach to ensure you have a successful outcome? Great business negotiators have a unique ability to make or save their organization a great deal of money. It is their value proposition. Even the most experienced and skilled negotiator understands the importance of using a negotiation model to guide them through the negotiation process and successfully close a deal. This model is second nature to practiced negotiators who appear more casual and conversational. With practice, you can make this negotiation model work for you as well, moving through the process as a matter of habit.
Years ago, in my previous life as the VP of Information Technology for a large manufacturing company, I found myself in the position to negotiate a deal with an impact of $30 Million in savings. This is the negotiation model I used then, and still use today:
Negotiation Model Step #1: Prepare
Knowing what you want out of the deal is a crucial first step that many negotiators overlook. Clearly defining what you need, and why you are entering into a relationship with the other party is an important first step. Without this step, your risk is high that you will be entering into an agreement that does not satisfy your needs.
Preparing for the negotiation with this potential vendor, I identified what my needs were and my best-case scenario. I carefully prepared my approach and my language and aligned with my team. We were all clear on our roles in the meetings.
Negotiation Model Step #2: Know
Successful negotiations require research into the other company, their needs and capabilities, their team members, etc. This research can be done in a variety of ways and you should employ as many different research channels as possible. While working on this vendor negotiation, we went through almost a year of due diligence to prepare our support approach, service level agreements, and relationship building with the team who would ultimately be our support team. This research included a series of discovery meetings in which we both communicated what our key needs were and the areas that were most important to both of us. These meetings helped build a strong working relationship that was key to enabling the actual negotiation to go smoothly.
Negotiation Model Step #3: Create
In almost any negotiation situation, concessions and alternatives need to be made to create a win-win scenario that builds the relationship. In this step of the negotiation model, create as many alternatives to your best-case scenario outcome that you defined in step #1.
Using your knowledge of the other party that you have gathered from step #2, brainstorm and map out as many possible alternative scenarios. Think in terms of, “If this piece of the agreement doesn’t go exactly the way I want it, what are the possible alternatives or reasons the other party might bring forward?”
During this step, I developed 3 BANTAs (Best Alternative to a Negotiated Agreement), and I formed clarity on potential areas of concession; if I gave on this, I would want that.
Get creative on how you will address each of these routes and what alternatives you can present. This step helps you stay in control of the negotiation process, even as it shifts and takes alternate turns. You are never surprised, because you have already modeled the potential moves.
Negotiation Model Step #4: Give & Get
This is the step of the negotiation model that represents the actual negotiation event. Even the most experienced and skilled negotiator prepares to give and get concessions to create a valuable, win-win scenario. It is a common misconception that, in every negotiation, one side must win and the other side must lose.
When you think about the negotiations that you have participated in, how many have been with another party that you will never have to work with again? Particularly in your professional life, that answer is likely very few. We negotiate with current and potential clients, vendors, and employees and colleagues on an almost daily basis. Your goal in these negotiations is to create value for your business while building the relationship with the other party. A hardline approach to the negotiation is rarely the correct answer for achieving this goal. Here are a few negotiation tactics to incorporate during the Give & Get Step:
- Be patient: Many people dislike negotiating so much that they would rather simply take what is offered to them and end the conversation. This is a mistake. There is always room to negotiate, and having the patience to stick with it can produce a better deal for you and your business. This is an opportunity for you to create real, tangible value for your company. Don’t throw it away!
- Use an agent of higher authority: Always have a “higher authority” that you have to report to if specific aspects of the negotiation are not going the way you would like them to go. Many people confuse authority with power, thinking that they have power in a negotiation if they have the ultimate authority to make final decisions. In reality, it is often the opposite. Your authority can be used against you! In my case, I employed this negotiation tactic by communicating that I did not have the authority to go over a specified amount, I simply was not allowed to.
- Don’t get stuck in the weeds: While patience is a virtue in negotiation, don’t get that confused with digging your heels in and getting stuck in the weeds. Negotiation is a give and get process, where both sides need to understand each other’s needs and come up with creative solutions to creating a win-win scenario. If you are stuck in one area, try to get creative to find other solutions that mitigate this sticking point. Or, agree to “parking lot” it for later discussion and move on.
- Show respect and use emotional intelligence: Again, in most negotiations, building the relationship is an important part of the overall goal. Build the relationship by being professional and respectful at all times, even if the conversation is getting heated and emotional. Using emotional intelligence goes a long way in negotiations. EI will help you recognize and empathize with the other party, while managing your own emotional reactions. Ensure you are asking the right questions.
- Don’t negotiate when you are tired: It is so much easier to be patient, to be creative, and to manage your emotions and the negotiation conversation when you are well-rested. Don’t go into an important negotiation tired. If possible, schedule negotiations with enough time after traveling or other big events to feel well-rested. If you are travelling to a big negotiation, particularly if you are travelling a long distance, arrive a day or two ahead of the meeting to give yourself time to recover from jet lag and become a bit more comfortable with your surroundings.
Negotiation Model Step #5: Conclude
You might be surprised by the number of times people leave a negotiation without concluding on a standard, written set of agreements. Always make sure that the terms of the agreement are clearly communicated, written if possible, and agreed to by both parties before leaving the negotiation.
At the conclusion of our negotiation, I was able to successfully close a 7 year $300 Million global outsourcing agreement that resulted in over $30 Million in savings for the organization. This impact on the business created real, tangible value that helped us continue working toward achieving our overall growth goals.
You may have noticed that ⅗ of my negotiation model are focused on preparation before the negotiation takes place. This is because preparation is the ultimate key to successful negotiations. You cannot properly use common negotiation tactics and tips if you have not prepared yourself with goals, knowledge, and information that those tactics rely on. Successful negotiation does not work with quick tricks. It requires preparation, clarity, and commitment to goals to create real, bottom-line value for your business.