There is a commonly held belief that conflict is an essential part of every great negotiation, and this permeates through practice in the procurement community. As a result, the ‘Negotiation Rottweiler’ has become the hero and something to aspire to – exactly what companies need to send in to get the deal. Indeed, many procurement professionals receive their training from companies whose sole approach is built upon conflictual negotiation. The majority of negotiation training programs aimed at procurement professionals were designed for salespeople and so place the emphasis on managing ‘the negotiation event’. In procurement, taking part in sales-based negotiation training focused on power and conflict only gets us so far, but generally tends to fall short.
Bad dog!
There are four main reasons why the traditional, sales-based, ‘Rottweiler’ negotiation approach leads to sub-optimum outcomes:
- We can only fight – mirroring the ‘big stick’ approach of our opponent does little more than make negotiations a fight. Only one can win while the other loses.
- Process and planning are key – this is essential if our primary focus for being good at negotiation is our performance in the negotiation event. We don’t want to miss the crucial need for rigorous planning, research, and a process to move towards an agreement.
- Procurement personality traits – in general, there is a key difference in personality types. Those in procurement tend to have a wide and varied mix of traits, whereas those in front line sales and account management roles are typically selected for their specific ability to lead client-facing interactions, and for their competitive ‘will to win’ traits. Teaching procurement people to be Rottweilers, especially where it conflicts with their natural personality traits, can limit potential and allow for failure in recognizing key talent.
- The Corporate Social Responsibility agenda – a Rottweiler negotiation that leverages a great deal for our business might, on the face of it, seem like a great win. However, the world is changing, and shifting consumer expectations, together with a range of emerging legislation, means certain industries and organizations need to consider the impact of their actions beyond the transaction.
Corporate Social Responsibility is firmly on the boardroom agenda and there are growing implications for negotiation, with large global organizations increasingly being required to demonstrate that their negotiation approaches are fair and transparent. Increasingly, governments and industry bodies are seeking to better govern how giant corporates drive negotiation practice and many who have only known the Rottweiler method are finding themselves wondering how to adapt.
In the dog house
There is a key role for the highly experienced hard negotiator, however, there are alternative negotiation approaches that could be used instead. One that is the complete opposite is the negotiation Labrador – a dog that just wants to be your friend, will look after you and do anything for you.
Is there a place for a highly collaborative form of negotiation, where both parties not only care about their outcome, but also the outcome of the other secures? Yes, there is, yet this very idea is likely to sound completely alien to anything many procurement practitioners would think could be good practice.
To illustrate how collaborative negotiation works let’s consider the famous ‘win/win’.
The problem with win/win
Win/win can be found in close personal relationships, ones where we care about the other party long term. However, such a concern for the opponent is rare in business which means that across a typical business, the conditions where a true win/win is possible or desirable are in fact quite limited.
The art of a good negotiator is to make the other party feel they are securing a win/win deal so that they walk away happy. ‘Win’ is in fact not necessarily a real position, but a perception. If we can create the perception of a win in our opponent, we can, in turn, secure the outcome we need. It feels like a win/win, but it is, in fact, a WIN/win (big win/little win). Both parties have agreed to an outcome and both walk away feeling like they have gotten a good deal.
While a win/win is real it really only exists where there is a personal relationship that we care about, with a long-term consideration, or where there is a need for our actions to be sustainable. For everything else, win/win is an illusion and the real game is maximizing our win but making them feel good about it.
Claiming or creating value
There are essentially two types of negotiation: value claim and value create. If we set out to claim value, this is like we are dividing up a pie where the size of the pie represents a fixed amount of value. The negotiation is centered around where we make the cut. What we give up, the other gets and vice versa, and our objective is only to maximize the size of our portion. Such approaches tend to compel us to seek a WIN/win on our terms, whilst working to make our opponent believe they have secured the big WIN and such a negotiation may well be best handled by our Rottweiler.
In contrast, we could elect to create value. Here we worry less about how the pie is split but instead put our efforts into working with the supplier to grow the pie so that we both secure a bigger amount, and how it is divided becomes less important. This is a job for the Labrador. So which dog makes the best negotiator?
Every dog has its day
To be good at procurement negotiation sometimes we need to be Rottweilers, sometimes Labradors, sometimes Bernese Mountain Dogs and sometimes nothing at all.
For procurement practitioners, there is no single winning negotiation approach, but rather a variety of approaches open to us. The key skill required for a good procurement negotiator is to be able to determine, plan and deploy a unique negotiation approach in each case according to factors such as:
- Market difficulty and our degree of choice or ability to switch suppliers (and therefore the alternatives that might give us power in a negotiation)
- The degree to which a good negotiated outcome could significantly impact our organization’s profit
- The strength of our position in the market and how much leverage we may or may not have, considering factors such as how much we spend, dependency, current relationships, time and future opportunity
- How important the supplier is to us now and in the future, and the degree to which we might want or need a long-term relationship with them
- Our individual personality types (Rottweiler, Labrador, etc.) and whether our natural style is suited to this specific negotiation and if not, how we must modify our behavior to negotiate well.
One key tool used in strategic procurement is Portfolio Analysis, based upon the work of Peter Kraljic (1983). We can use this tool to determine our unique negotiation approach according to the nature of what we are sourcing.
Considering the axis, market difficulty is the degree to which our choice in the market is curtailed. Impact on profit is the degree to which a small improvement in say, unit cost, quality, value or risk exposure, could have a significant positive impact on our firm’s product. This axis is often replaced with ‘spend’ to make the model easier to understand and apply, and this works in the majority of situations but not all. To determine the optimum negotiation approach, we start by classifying what we are buying, i.e. the category of spend, into one of the quadrants according to the axis. This then helps us to determine our overall sourcing strategy from which we can determine how best to approach our negotiation.
If we are in Leverage, then we have the power. The market is easy and we hold good leverage with the potential to make a significant difference to our firm’s profit. Here our negotiation approaches should seek to claim as much value as possible with a WIN/win outcome in our favour. This is where the Rottweiler can run free, held back only by any CSR considerations around unfair use of power.
In contrast, if we are in Critical the supplier has the power and the market is difficult. We cannot switch suppliers easily or at all, and we lack leverage with little potential to impact our firm’s profit. Still, so long as we need to source this area of spend, our negotiation has to be around finding ways to make us appear attractive to the supplier so that we reduce the risk of price hikes, lack of interest in our account, or worse, the supplier ceasing to want to supply to us at all. The Rottweiler cannot be allowed anywhere near this negotiation. Instead, we need someone who will seek to build a relationship with the supplier if they will permit it and find ways to keep them interested in us, at the same time as finding alternatives that we could source that are not in Critical.
In Strategic we need the Labrador to create value. This is the only place where we might find the true win/win outcome with a collaborative negotiation that is part of an ongoing long-term relationship, where parties have a shared destiny and mutual benefits.
In Acquisition we simply need the easiest negotiation approach, if any. Ideally, spend and categories in this quadrant are sourced on a transactional basis with little or no intervention. It is also preferable that there is no negotiation, and no need for a relationship with the supplier, despite what they might seek from us – we just need the right stuff at the right price, delivered on time.
Dog agility
Effective procurement negotiation is about ‘dog agility’ – the ability of skilled procurement practitioners to determine and deploy different negotiation approaches, according to what and from whom we are buying, using our strategic procurement tools and insights to guide our negotiation strategy. Portfolio analysis, together with thorough research and preparation, a repertoire of suitable tactics, and a good grounding in core soft skills around body and spoken language, enables procurement practitioners to secure great outcomes. Furthermore, if these individuals are self-aware of their natural personalities and can learn to adapt behaviour where needed, it will command great results from any negotiation. The negotiation Rottweiler is not dead, but equally is not the only dog in town. It is considered and planned agility that makes procurement negotiation successful.
This post includes excerpts from “Negotiation for Procurement Professionals” written by Jonathan O’Brien and reproduced by permission of Kogan Page Ltd.
References:
Kraljic, P (1983) Purchasing must become supply management, Harvard Business Review, 61 (5), pp 109–117