This article is written by Ramanuj Mukherjee.
There is hardly any doubt that negotiation skills are an important part of doing business. In today’s hyper-connected and increasingly competitive market, the ability to negotiate effectively is more highly valued than ever before. Lack of good negotiation skills can cripple a company far more quickly than losing key customers. While most negotiating strategies seem like common sense, it’s not uncommon for people to get caught up in the emotion of the moment and ignore their basic instincts. Things such as overt emotion and luck have no place in a successful negotiation.
While creating a course on contract drafting and negotiations, we spoke to many successful managers about their experience of contract negotiations and the big wins and losses. It was quite an enlightening experience. Most of the time managers are left on their own to learn and get good and negotiations, a skill on which a lot depends. It is also quite rare for managers to make a special effort towards learning either legal or technical aspects of contract negotiations although it can significantly increase their competitive advantage.
The onus of negotiations lies primarily on the shoulders of managers. Most of the times, when contract end up in disputes, and negotiations break down, the blame too lands on the managers involved in the immediate task. However, how are they supposed to learn the skills involved and improve their performance?
Here are 5 common pitfalls that managers frequently fall into while negotiating contracts.
#1 Unclear terms
Parties involved tend to get lost in the midst of the negotiation and lose sight of what they set out to achieve owing to half-done preparation work. This makes things unclear at the negotiation table, which then leads to either side going home unhappy at the end of the day. Effective planning is the most important tool at a manager’s disposal on the negotiation table. Often, in a hurry to get things over with, people take the preparation period lightly and find themselves without contingencies during a negotiation. As a contract stands for an agreement between another party and self, over a definite period of time, it is important to make adequate inquiries beforehand. Or as is the case, you might find yourself stuck with someone who doesn’t meet your requirements or is costing you way above other competitors in the market.
Too many clients simply want a price for your services without defining the specifics of their program or their requirements for the project. Unless you have a clearly specified scope which reflects the details and challenges of the project, you and your client shouldn’t begin a negotiation.
What you can do to avoid this pitfall
Preparation is key. As a manager, you have to take up the reins of any and all negotiations and make sure that planning is done accordingly. Firstly ensure that both parties understand exactly what is expected of the other.
a) Review the contract
If you’re going into contract negotiations, you need a working understanding of the document and its language so that you can discuss it knowledgeably and modify it to fit the needs of both parties to the agreement.
b) Define your goals
In order to negotiate effectively, you have to be thoroughly sure of what your company’s goals are and why. As you must know already, a contract negotiation usually has just one or two major goals and the rest are secondary issues.
c) Identify your interests
Successful negotiations focus on both parties’ interests, rather than just on the positions taken. Your interests are all the underlying concerns or needs, factors that will motivate you to take a certain position in a negotiation.
d) Establish your alternatives
Not all negotiations are successful, and you need to plan for this possible outcome. Consider all alternatives and viable choices regardless of any negotiation.
e) Analyze the other party
To be able to maturely handle a negotiation, you have to see through the eyes of the other side. The issues surrounding them can make substantial difference with respect to your negotiations.
#2 Perception is reality
It goes a long way to realise that perception is more powerful than fact. Negotiation is about perceived value. People act upon what they perceive to be true. Contract negotiations are the same way. A party is perceived to have power if they have access to resources that the other requires. In a negotiation, that power keeps shifting, so a good manager must keep the perception of self, above reproach.
It is important to remember that at the end of the day, negotiations are between individuals. No matter who they represent or seek to represent, it all comes down to that one individual sitting across from you. Usually, managers tend to forget that and hence fail to adapt accordingly.
What you can do to avoid this pitfall
You have to have the ability to create perceived value of yourself, your company and your product in the minds of the people, with whom you are negotiating. Point out the value and benefits of doing what you want done. Educating others is a critical negotiating skill. Compare interests and assess leverage accordingly.
- Be fully aware of yours as well as your company’s worth.
- Be prepared to handle the risks and the liabilities on either side of the contract.
- Be ready with proof of quality as well as quantity to match the contract.
- Be precise with your terms and never set unrealistic term limits.
- Expand the issues in a negotiation
As any executive or manager in a company, you already know the number of third parties that you have to deal with on a regular basis. It becomes imperative to make sure you come from a position of power and have the appropriate leverage. Never let a negotiation narrow down to a single issue. Any negotiation that tapers down to a single issue becomes more of a confrontation than a negotiation. They tend to involve strong emotions and leave no room for concessions. Always leave room for multiple options and choices so as to create the opportune bargaining moments.
#3 Adversarial attitude
As they say, “You don’t get what you deserve; you get what you negotiate.”
Respect is an essential part of business. A major part of negotiations lies in the way people present themselves. It is important that your employees respect you if you want to get the most productivity out of them, and it is just as important that anyone else you are negotiating with respect you too. Clients and vendors alike, should have faith in you, slightly fearful but overall respectful.
The impression you leave after a negotiation can have a lasting impression, which can impact everything from future negotiations to your reputation in your industry. This is a place where a lot of people fall back in. They tend to get into the negotiations without the necessary tact and ultimately fall flat. This can lead to problems throughout the process of negotiation as well as leave room for bad blood later. Things like that don’t make for the most suitable workplace environment.
What you can do to avoid this pitfall
It is far better to be a somewhat intimidating character due to your negotiating skills than it is to be looked at as a pushover at the negotiating table. Instead of being a roadblock in all of your future deals, your ability to negotiate well and fairly will make people want to come back and work with you. However, be ready to adapt according to every individual as that will take you much farther.
a) Confrontational negotiation
Avoid it at all costs. Find common ground with the other party. You have to learn to visualize negotiation as a search for unequivocally acceptable solutions to the problems. Always try to see things from their perspective by figuratively, if not literally, stepping to the same side or sitting in their seat when you negotiate. Any and all confrontation escalates conflicts in the workplace and forces people to seek allies and in the end breaks the workplace into groups. Treat a negotiation as mutual problem solving. Ask, “How can we work together to find a solution to this problem?”
b) Long-term relationship
Look forward to the long term. Bargaining tough is usually a good way to get a good deal, but if you consistently insist on doing so, it may damage the working environment. Whenever people are forced into the corner with respect to unworkable agreements, they spend all of their resources trying to get out of it. Either way, as a manager responsible for your company’s well-being you stand to lose. So, pay attention to building a long term relationship and assign extra value to it. You can never go wrong with making the other party go home thinking they got a better than fair deal. It is what build repeat business.
#4 Unconditional concessions
When the other person asks you to give them something, ask for something in return. For example, ask “If I do this for you, what can you do for me?” Trading concessions is an expected and accepted practice in negotiation. It works for managers, too. People perceive a concession as more valuable when it costs something to get it. Use concessions from the other party to increase the value of what you are giving them.
Sometimes the other party will ask, “Would you be willing to take X?” This is an inquiry without a specific offer. Your response should be, “Are you offering X?” Otherwise, you are committing yourself to accepting something without getting something in return.
What you can do to avoid this pitfall
Negotiate from interests, not positions. A common problem in negotiation is deciding what conditions you will or will not accept before you do any negotiating. When that happens, you dig into your positions and defend them at all costs. An alternative is to identify the real interests and needs behind the positions and look for other ways to satisfy those needs. Listen to learn the other person’s interests and needs. Yes, really listen to what the other person is trying to tell you. Explore why the person wants what they are asking for and what it will do for them if they get it.
- Find ways to trade things that are of low value to you, but of high value to the other party. In return, get them to give you what is of low value to them, but highly valued by you.
- You need to have a good understanding about the value of your services. It goes down very dramatically after the product or service has been delivered. Always negotiate beforehand and you won’t be disappointed by any performance issues on either side later
#5 Willingness to walk away
General rule of thumb: Whoever is bound by circumstances and needs to the tenth degree and must reach the given agreement has the least leverage and power in the negotiation. If you have to make a deal at all costs, you are not negotiating. You might be groveling, begging or pleading, but you are not negotiating. Many managers, although adept at browbeating an opponent into submission, fail to see the right moment to jump in or pull out of a deal. This leads to undue friction. People unable to work or deliver according to the set terms just act like dead-weight having to be pulled by the rest of the team. Many times, managers in their haste to fulfill a contract term, fail to see the liabilities attached and end up risking themselves and their company in the longer run. Ultimately, the goal of a negotiation is to get the best deal possible for you and your organization. And to do so, you have to be open to walking away from a bad deal.
What you can do
Determine what you will do if you cannot negotiate an agreement, and use that option to evaluate potential deals. If you are not able to reach an agreement that is fair to all parties concerned, walking away from that negotiation might just be the best option.
We understand that contract negotiations are generally tough, take a copious amount of time and are literally responsible of making or breaking a project. You have to keep in mind that usually, everything is negotiable, but bigger companies almost always have the upper hand. So if you are a manager for a bigger company, you will be able to get away with a lot of things. You will find vendors bending over backwards to please you, accommodate your needs just to get your business. On the other hand, if you happen to work in a smaller company or a startup, you will face much worse. Working with big established vendors would usually mean taking in onerous agreements. Regardless, if you wish to do the best for your company, negotiation is the key.