Posted 17th Mar
In our continuing series on negotiation, we’re exploring a whole series of issues surrounding the world of negotiation. In our last blog, we looked at the role of stakeholders in negotiation, and we’re extending that to explore an immediate consequence of stakeholder involvement.
For Procurement folk, there is an elephant in the room when it comes to negotiation: the actual scope being negotiated.
On a regular basis, we hear people saying that they could have had a great negotiation, except for the issues caused by another part of the organisation having already had a negotiation with the supplier. The most frequent example is where a technical team has selected a supplier for a particular feature they offer, and then presented a fait accompli to procurement to sort out. However, this happens with other areas as well; there is often a post negotiation legal review of the contract, which can end with changed terms; a finance review of payment terms; a change in specification after the negotiation; and you’ll have other examples as well.
The net result is that the negotiation with the supplier is spread over a whole series of different individuals, none of whom are maintaining a clear picture of the complete negotiation or of the effects of changes in one area upon other areas. As such, it should not be a surprise when the outcomes of a negotiation are compromised or the fundamentals agreed change during the execution of the final contract.
Once we’ve identified this as an issue, we need to see what we can do to change the position. In essence, we need to reach a high degree of organisational clarity about how the negotiation is going to be carried out, how the various elements are going to be dealt with and most importantly to get a clear view on which areas are being negotiated and what the required or expected outcomes are going to be.
This means that, rather than individual elements of the business aiming to have separate negotiations with a supplier, there needs to be a team based approach which gets agreement on the different areas up front before key parts of the negotiation happen. Where this is achieved, there is typically a very high degree of effectiveness in the negotiation, both in terms of timescale but also in terms of outcomes being achieved.
There is a challenge in this of course; we need to get different parts of the organisation to recognise the effects of poor negotiation and the contributing factors to it. This means that we have to get even better at analysing negotiations and understanding the issues which caused the challenges. Once we have that picture of our own organisations issues and challenges, we need to get to an organisational feedback approach which seeks broad improvement for negotiated outcomes.
This is where the concept of negotiation as an organisational skill comes in. It’s often thought to mean that many individuals in the organisation need to be broadly experienced negotiators. However, it is more appropriate to think of this as an organisation skill set in that the organisation as a whole needs to recognise the things that must to be done to reach a successful commercial conclusion with a supplier.
Of course, it is possible to negotiate with a limited scope (perhaps just pricing). If this is going to happen, then we still need to develop a clear picture of the other relationships which will impact upon the price and the effects of post price negotiation adjustment.
In our overall approach to negotiation, we establish the negotiation scope as one of the earliest stages of the whole process, as that will determine the actions needed across the rest of the negotiation preparation. We’d be happy to talk with you more about the impact of this step.
If you have examples of negotiations derailed by other parts of the business, we’d be happy to hear from you!
In out next negotiation blog, we’ll be looking at the role of supplier conditioning in negotiations.
Tagged by topic: Negotiation