Negotiations play a vital role in shaping outcomes and fostering mutually beneficial relationships, and in our post-pandemic world of disruptions, this is more important than ever before. To gain valuable insights into effective negotiation strategies, two industry experts, Nicolas Walden and Vineetha Jayaram, share their perspectives on the subject.
As seasoned professionals in their respective fields, their expertise offers valuable guidance for organisations seeking to optimise their negotiation practices.
Negotiation is an art, and some may even venture to call it a science. But like every skill set, there is some necessary level of strategy involved. But why do organisations need to be strategic when it comes to their negotiation strategies?
Nicolas Walden, Associate Principal and UK & Europe Practice Leader, Procurement Advisory at The Hackett Group, emphasises the significance of strategic negotiations in achieving win-win outcomes. He states, "Strategic negotiations allow both parties to win, and we do this through using facts to understand, then to shift each parties' interests, to a joint position where each party receives a benefit or gain. This strategic, interest-based approach is preferred over more traditional position-based approaches where one party to the negotiation wins and the other loses as we attempt to shift people to our preferred position."
Vineetha Jayaram, Global Supply Manager at nVent and expert in contract negotiations and high-pressure environments, expands on the importance of strategic approaches. She explains, "Negotiations including formal business agreements are never straightforward transactional discussions. By adopting a strategic approach, organisations are able to proactively assess the different variables in the negotiation including the issues, opportunities, and potential setbacks to derive the maximum value and the most favourable outcomes.”
She says this is especially beneficial in contract negotiations and in high-pressure high-stakes environments. “Developing a strategy related to the agendas, and interests of the other party, aligning on the risk-mitigating solutions for the points of contention, and clear communication of those solutions to the counterparties is crucial to build trust during the negotiation process and achieve the best results for both parties."
Challenges in developing a strategic approach
Both Walden and Jayaram acknowledge the challenges that organisations face when adopting a strategic negotiation approach. Walden points out, "Hackett survey data shows that buyers are only fully prepared for negotiations around 70 percent of the time. Moreover, around 75% of the time, it is inadequate preparation time that is the driver of this gap. It is essential to allocate sufficient time and effort to adequately prepare for the negotiation, and following key negotiating best practices helps us to prepare adequately and confidently."
Jayaram adds, "The primary challenge is the additional investment in time and resources required in developing the strategy for implementation during the negotiation. It is crucial to determine the negotiation tactics and styles to be applied which are aligned with the personality profiles of the team members and the opportunities in the relationship to significantly improve the upside or limit the downside.”
She believes the other issue in developing an effective strategy is not having clear goals for the outcome of the negotiation that is detailed enough to eliminate ambiguity and is also delivering value to the counterparty involved.
“Another obvious hurdle,” she says, “is not having enough data or information about the counterparties' perspectives, interests, and bottom line. Inadequate preparation and planning can be a serious setback for defining and executing a negotiation strategy."
The fundamentals of negotiation
When it comes to negotiations, both Walden and Jayaram emphasise certain fundamental principles that contribute to successful outcomes.
Walden thinks that suppliers will likely invest significant resources and time into developing their negotiating approaches, tactics and communications. He says buyers must also allocate time to prepare, analyse and plan in order to generate improved outcomes.
“Fundamental activities include mapping out the key issues and discussion points; using data and insights to understand buyer and supplier positions and personalities; determining suitable negotiation targets and opening positions; developing a specific negotiation plan with structured interactions; planning the different roles and subject matter experts needed as part of the efforts; and documenting the final agreements on each of the issues."
Jayaram further elaborates on the fundamentals of negotiations:
Communication: "It is crucial to focus on body language and listen carefully prior to speaking in the negotiation process," Jayaram advises. Other actions include "anchoring" and "framing" the discussion, going first when it is time to make an offer or proposal, asking both clarifying and open-ended questions on the primary points of contention, and summarising the key outcomes at the end of the negotiation.
Relationship Focus: Prior to the negotiations, Jayaram suggests, " there should be a careful examination of the type of relationship to be established and maintained." In an interest-based negotiation, emphasis should be placed on maintaining trust and decorum during interactions to arrive at mutually beneficial outcomes for both parties involved.
Interests: To ensure a collaborative and creative negotiation process, Jayaram emphasises the importance of clear alignment on the goals and desired outcomes of both parties. She advises posing clarifying "why" questions related to the counterparty's interests during the negotiation.
Options: Exploring and sharing possible deals that provide value to both parties is essential. Jayaram emphasises the need to highlight the value of anything offered or given up to achieve a win-win deal.
BATNA: Both Walden and Jayaram stress the significance of identifying alternatives. Jayaram explains, "Identify your alternatives including Best Alternative to a Negotiated Agreement (BATNA) and those of your counterparty to determine your walkaway threshold to ensure you are not accepting a deal that does not meet your expectations."
Standards and Commitments: Jayaram emphasises the importance of justifying proposals and utilising objective criteria to measure the value and fairness of the agreement. It is crucial to understand the counterparty's rationale and legitimate issues. However, she warns against negotiating against one's own interests. Additionally, clear understanding of the commitments that both parties are willing to make with the agreement is vital.
Types of negotiation
Walden explains, "There are two main negotiation types." The first is position-based, where one party wins while the other loses. What Walden calls “position-based” is referred to as “zero-sum” in game theory and economic theory.
Walden says, “It is subjective and individual-oriented, aiming to shift the other party to a preferred position. The second is strategic or interest-based, where both parties can win. This type of negotiation relies on facts, expertise and understanding to reach a joint position where both parties benefit.”
Negotiation best practices
To ensure successful negotiations, Walden suggests several best practices. He advises organisations to ensure that any must-haves or pre-qualification requirements are already satisfied ahead of the negotiations. Obtaining buy-in from leadership to the negotiation strategy in advance provides further clarity on positions and interests.
Walden emphasises the importance of forming the negotiation team with absolute clarity on roles and responsibilities, as well as any subject matter experts needed. Planning the negotiation approach in a structured manner, considering interests, key terms, and issues to be negotiated, tailored to the personalities of the people involved, is crucial. Lastly, documenting positions and updating them as the negotiation progresses allows for agile responses to offers and avoids misunderstandings.
Tools and technologies for negotiations
Walden suggests utilising a range of tools and technologies to support negotiations. He mentions that at the low-tech end, simple templates can be used to map out interests and consider different approaches and counters.
At the higher-tech end, game theory AI simulation apps and tools enable teams to practise and refine strategies and tactics in safe environments. He also mentions the existence of "negobot" technologies used by some companies to haggle with suppliers and deliver additional savings value.
The Future of strategic negotiations
Considering the challenges and the importance of strategic negotiations, Walden highlights the need for proper investment in strategic partnerships and relationships.
He also emphasises the significance of improving strategic negotiations to navigate challenges successfully, since strategic negotiation strategies empower organisations to go beyond mere transactional discussions and foster mutually beneficial outcomes. By embracing a strategic approach, organisations can navigate complex negotiations with confidence, build stronger relationships and achieve long-term success.