Chapter 12: AnOrganizational Approach to Negotiation

In the first chapter I discussed how, in today’s business environment, sellers are facing more complex negotiations, more professional buyers, more irrational competitive behavior, and more internal negotiation, all of which, of course, make negotiating more difficult. As you’ve now seen, however, using the Strategic Negotiation Process to blueprint individual negotiations can be enormously helpful in countering the effects of these changes. But as beneficial as using the process is for individuals, it’s most effective when it’s part of an organization-wide negotiation strategy. The purpose of this closing chapter, then, is to provide management with a brief overview of how companies can develop and implement such strategies.

AN ORGANIZATION-WIDE NEGOTIATION STRATEGY

What is an organization-wide negotiation strategy? In its most basic form it can be defined as “organizational agreement on negotiation guidelines and outcomes.” In this context “organizational agreement” means the development of a consensus among all stakeholders in a company regarding how negotiations are to be conducted and what the results of those negotiations will be. These stakeholders include not just the field salesforce but also people in the legal department, product management, sales management, and even senior management.

Note that what the stakeholders must agree to are guidelines, not rules imposed on them by headquarters. Imposing centralized corporate constraints on negotiators in an effort to counter the effects of changes in the business world doesn’t really solve the problem. In fact, when salespeople have to go through a pricing committee or some similar corporate group, the sales process becomes slow, bulky, inflexible, and non-customer-friendly. And it often results in losing sales to more creative competitors. At the other extreme, when salespeople are essentially allowed to do whatever they want, it invariably results in inconsistent customer and competitor messaging as well as inconsistent profits.

So even though having general agreement on a particular way to negotiate deals is beneficial to the entire organization, individual negotiators must have the flexibility to address their own situation as appropriate within those guidelines. Having a negotiation strategy developed by the appropriate stakeholders provides an organization with what we think of as a radically centralized strategy but radically decentralized execution. Once the stakeholders agree on ranges for what can be negotiated, they have the ability to move within those ranges and must go to management only in exceptional situations. And there are very few such exceptions when all of this is done right because of the creativity and flexibility built into the strategy.

But why should you establish such a negotiation strategy? There are several very good reasons, not the least of which is that it provides a means of successfully addressing the changes in the business environment that have made negotiation so much more difficult. When consensus exists in an organization about where you want to go in negotiations, how you’re going to get there, and what the results will be, the result is inevitably a reduction in internal conflict and external variance. Reducing variance sends more proactive and consistent messages to both your customers and your competitors. And consistency enables you to avoid creating lack of trust in your customers and irrational behavior in your competitors. Ultimately, of course, the advantage of establishing a negotiation strategy is that these behavioral changes have a positive effect on the bottom line.

The process for designing and implementing an organization-wide negotiation strategy is essentially composed of five steps:

1. Identifying all the company’s negotiation stakeholders

2. Training the stakeholders in the Strategic Negotiation Process

3. Writing the negotiation strategy

4. Distributing and implementing the strategy

5. Measuring the outcomes

Each of these steps takes from a few hours to a few days to accomplish, but once finished, you will have a complete process in place that will provide you with a considerable advantage over your competitors. Bear in mind, though, that the following is not intended as a comprehensive explanation of the process but, rather, an executive summary to give you a good general idea of how the process works.

Identifying All the Company’s Negotiation Stakeholders

The key to establishing a successful negotiation strategy is stakeholder involvement. That’s why the first step is determining all the members of the company’s internal negotiation system. Again, this means not only the field salesforce but all those in the legal department as well as in sales, product, and senior management who are involved in negotiations. It’s essential to include these groups for several reasons, perhaps the most important of which is that they all have their own particular roles in the process, their own methods, and their own interests in the outcome.

Salespeople, for example, are looking to make their quotas, while legal types are primarily interested in lowering risk. Sales managers are concerned with generating top-line sales revenues, while product managers are typically interested in the margins for their particular products. And senior management’s most important priority is shareholder value. In addition to these unique concerns, these individuals are likely to have equally unique negotiation strategies and tactics. And unless those strategies and tactics are coordinated, the inevitable result is a great deal of internal misalignment and external confusion. All of this can be avoided, however, by involving them in the process. Involving them also has an additional benefit—it ultimately leads to a higher probability of adopting whatever strategy evolves from the process.

It’s important to bear in mind that at this step it’s not necessary to identify every single stakeholder. All you need to do is determine who all the stakeholders are and select a valid sample from each stakeholder group. If, for example, there are five lawyers, it’s necessary to involve only one at this point. Similarly, if there are three salesforces—inside, regional, and national—that together amount to 1,500 salespeople, you need to choose only a few members from each of the salesforces to subsequently be involved in establishing a strategy.

Training the Stakeholders in the Strategic Negotiation Process

The next step in developing an organization-wide negotiation strategy is providing the individuals you selected to represent each of the stakeholder groups with training in the Strategic Negotiation Process. This may seem like an odd time to do this, but the timing is actually very important. Think about what you’ve just learned about blueprinting deals using the process. If you started talking to your sales manager about it tomorrow, would he or she understand what you were talking about? If you explained it really clearly, the sales manager might have a pretty good idea, but you’d still essentially be speaking what could just as easily be another language. If, though, your sales manager had read the book as well, he or she would have not only a complete understanding of the process, but also an appreciation of its benefits. Providing the stakeholders you’ve selected with this training will guarantee that they’re all on the same page, and that they all understand both what needs to be done and why. In addition, our experience has shown that the two days we usually spend in this training tends to bind the participants together in a way that enables them to work more effectively as a group when they go on to the next step.

Writing the Negotiation Strategy

It’s best to get to work on drafting a negotiation strategy as soon as possible after the stakeholders you’ve selected have gone through their training in the negotiation process and are still focused. Regardless of when they start, though, there are essentially three questions that they have to answer:

1. Why do we need a strategy?

2. How will we measure the results of the strategy once it’s implemented?

3. What specific guidelines should be included in the strategy?

Why do we need a strategy?  Step One is about the motivation for developing a strategy in the first place, the reason for making a change. It’s been said that people don’t change unless the pain of staying where they are is greater than the pain of changing. What you have to do at this point, then, is to make it clear to all those involved that, at least in this case, the cure is not worse than the disease. You do this by asking the stakeholders what kinds of problems they’ve encountered in the negotiation process. It’s likely that they’ll come up with a fairly long list, but it’s best to pare the list down to the three to five most important issues. After going through this process, some of the answers companies typically arrive at include:

• Irrational competitor pricing is on the rise.

• There is too much internal negotiation, misalignment, and bureaucracy.

• Professional buyers are trying to make our product/service a commodity.

• We have margin pressure.

• Our sales process has us selling solutions, but we end up negotiating price.

No doubt you’ll recognize that some of these problems are a result of the changes that have taken place in the negotiating environment. However, in many of the organizations in which we’ve been involved in this process, we’ve seen the effort to answer this question reveal that the real problem has nothing to do with negotiating. Rather, the real problem is the result of a nonexistent, broken, or poorly executed sales process. If, for example, salespeople are selling the wrong thing to the wrong buyers at the wrong level, developing a negotiation strategy—no matter how good—isn’t going to even come close to eliminating the problem. And if the problem is in the sales process, it must be dealt with before any strategic negotiation initiative can be successful.

How will we measure the results of the strategy once it’s implemented?  Having determined why you need a strategy, the next step is to determine how you’ll measure the results of that strategy after you’ve implemented it. The rationale behind determining outcomes first is that, by deciding where you want to go, you’ll be in a better position to determine what actions you need to take in order to get there. We’ve found that the best way to express the desired outcomes is by establishing lagging indicators, and that, in doing so, there are three things you should bear in mind. First, to be useful to those negotiating deals on the street every day, you need to focus only on the most important negotiation issues, not all of them. Second, you have to remember that this is just about negotiation. There’s a tendency during this process to bring up all sorts of business issues, whether they’re service related, product related, or sales process related, and it’s essential that you stay focused on negotiation. Finally, you have to be wary of including items that are extremely difficult, expensive, or time consuming to measure. It’s all well and good to come up with great success measurements, but unless there is available benchmarking data on them, they’re not going to do you much good.

An excellent way of establishing realistic lagging indicators is to say to yourself, “It’s a year from now, our negotiation initiative has been very successful, and our results are as follows. . . .” But how do you fill in the rest of that sentence? Again, you do it by asking for input from your stakeholders. As with the question about why you need a strategy in the first place, the group will probably come up with a long list of answers. And like the answers to that question, it’s best to focus on the three to five items that are most important in the negotiation process. In fact, once you have the list, a good way to pare it down is to ask your stakeholders to answer the following questions:

• What types of salespeople control the highest-margin deals?

• What types of customers generate the highest-margin deals?

• What are the 20 percent of deals that drive 80 percent of our revenues?

• What two or three things that adversely affect margins should we stop doing?

• What two or three things that positively affect margins should we do more of?

• What is our time frame for measuring these results?

• What aspects of the strategy are difficult and expensive to measure?

• What aspects of the strategy cannot be influenced in the negotiation process?

But there’s also another good reason for paring down the list in this way. Our experience has shown that when you start implementing an organization-wide negotiation strategy, it’s best to start small by using the process for only your highest-margin deals; and after you’ve achieved some success with it, extend your efforts to the entire organization. In other words, it should be evolution rather than revolution. Answering all these questions should provide you with a clearly targeted group of high-margin, high-profile deals to which you should start applying your negotiation strategy.

Some of the lagging indicators we’ve seen used by companies to measure the success of their negotiation strategies are the following:

• Discounts deeper than 10 percent will decrease from 30 percent of all deals to no more than 5 percent.

• Free licenses will decrease from 14 percent of all deals to zero.

• No request to reduce prices to match a competitor’s will be considered until a full Consequences of No Agreement Estimation has been completed.

• Zero-sum concessions will decrease to zero in lieu of value-creating trades.

• The average customer satisfaction rating for negotiations for both internal and external customers will increase from 73 percent to 83 percent.

What specific guidelines should be included in the strategy?  Having determined why you should establish a negotiation strategy and the means by which you will measure its success, the third and final step in drafting the strategy is to decide exactly what guidelines it will include. The way to do this is to look at the lagging indicators you established in the last step and again with the input of your stakeholders group, develop a specific action, or leading indicator, that will enable you to achieve it. Leading indicators can be divided into three groups: CNA related, Wish List related, and process related.

For example, one of the CNA-related lagging indicators I listed earlier was “No request to reduce prices to match a competitor’s will be considered until a full Consequences of No Agreement Estimation has been completed.” One way to achieve that would be to establish a leading indicator stating that “A negotiation process worksheet must be completed for any global account deal over $100,000.”

Similarly, one of the Wish List–related lagging indicators I cited was “Free licenses will decrease from 14 percent of all deals to zero.” A good way to address that problem might be to provide this leading indicator: “A request for a free license will be granted only when the customer is willing to trade something of equal value.”

Finally, I mentioned this process-related lagging indicator: “The average customer satisfaction rating for negotiations for both internal and external customers will increase from 73 percent to 83 percent.” Appropriate leading indicators to match this would be “All stakeholders will be trained in the negotiation process” or “For all global account deals over $100,000, multiple stakeholders will be involved in any negotiation planning prior to a customer meeting.”

A complete negotiation strategy might then look like this:

Why Do We Need a Strategy?

• Irrational competitor pricing is on the rise.

• There is too much internal negotiation, misalignment, and bureaucracy.

• Professional buyers are trying to make our product/service a commodity.

• We have margin pressure.

• Our sales process has us selling solutions but we end up negotiating price.

What Specific Guidelines Should Be Included in the Strategy?

• CNA-Related Guidelines

• A negotiation process worksheet must be completed for any global account over $100,000.

• We will conduct a review of a Consequences of No Agreement Estimation before reacting to irrational competitors.

• Wish List–Related Guidelines

• We will not decrease our prices by 10 percent or more without trading for something of greater value.

• We will eliminate free licenses.

• We will include new service X in every negotiation.

• Process-Related Guidelines

• All stakeholders will be trained in the negotiation process.

• For all global account deals over $100,000, multiple stakeholders will be involved in any negotiation planning prior to a customer meeting.

How Will We Measure the Results of the Strategy Once It’s Implemented?

• No request to reduce prices to match competitors’ prices will be considered until a full Consequences of No Agreement Estimation has been completed.

• Zero-sum concessions will decrease to zero in lieu of value-creating trades.

• Discounts deeper than 10 percent will decrease from 30 percent of all deals to no more than 5 percent.

• Free licenses will decrease from 14 percent of all deals to zero.

• The average customer satisfaction rating for negotiations for both internal and external customers will increase from 73 percent to 83 percent.

Distributing and Implementing the Strategy

Only after you have a version of a negotiation strategy that’s satisfactory to all the stakeholders is it appropriate to start implementing that strategy. And the first step in that implementation is training your staff in the Strategic Negotiation Process that’s the centerpiece of any successful strategy. By this point you will have already trained the sample group of stakeholders who were involved in developing the strategy, so this is when you extend the training to the rest of the staff. Again, though, it’s important to note that by the word staff I don’t mean only the field sales staff. Valuable as that training is, it can’t in itself solve your negotiation problems. In fact, it’s essential that everyone involved in negotiation in your organization be trained in how to blueprint deals—including sales management, product management, legal staff, and even senior staff—for two very good reasons. First, if only the field salesforce receives the training, its members will essentially wind up speaking a language different from the rest of your internal negotiation system. And, second, because those who haven’t received the training won’t really understand the process, they’ll have little reason to reinforce the salespeople’s new skills. As a result, it will be difficult, if not impossible, to make any real changes in your organization.

Of course, making changes in an organization, even under the best of circumstances, is always difficult. For that reason, as I mentioned earlier, even after you’ve had all the appropriate staff members trained, it’s best to not move too quickly. You should start by using the process for only your most important deals, and then, after 6 to 12 months of success with them—once everyone in the organization can see how well it works—you can start applying the process to a wider sales audience and a wider range of negotiations. When you do, though, bear in mind that even at this point it may be necessary to revise your strategy. The competitive and customer landscape changes all the time, new products and services come and go, and a negotiation strategy must be fluid enough to take these changes into account. It may, in fact, be necessary to adjust your strategy as often as three to six times a year.

Even after all the appropriate staff have been trained, it’s essential that you make sure that everyone knows about the strategy, understands it, and is capable of carrying it out. You can do this by both auditing and coaching your leaders and implementers. Auditing, of course, is just making sure that the strategy is being used to guide every new negotiation. Coaching is providing help to anyone who doesn’t understand the strategy or process and is having trouble implementing it. Again, this is extremely important because by including everyone in your internal negotiating system in the process of defining the problems that need to be solved, determining how to solve those problems, and training to accomplish that end, you will substantially increase the likelihood of bringing about organizational change.

Measuring the Outcomes

The fifth and final step in establishing an organization-wide negotiation strategy is measuring the results. Of course, if you’ve taken all the previous steps correctly, the results should be exactly what you expected them to be. If, however, you find that despite your efforts you still haven’t achieved the goals you set out earlier in the process, you need to go back and see what went wrong. It might, for example, be that you didn’t properly identify all the company’s stakeholders or you didn’t determine reasonable and realistic goals. Our experience shows, however, that when goals aren’t achieved, more often than not it’s because the guidelines, the leading indicators, you established weren’t followed. Correcting this may require additional auditing and/or coaching, but once you’ve provided those, you should find that you’ll be able to consistently meet whatever goals you set for your organization.