One Negotiation, Three Small Mistakes, and Resulting Litigation
Updated: Jul 13, 2019
Imagine a relationship where two informed parties persuasively communicate their needs. They planned and considered the choreography of the deal and anticipated both the internal and external drivers required for success. Both sides foretasted acceptable probabilities to ensure mutual performance. The deal closed in a short period of time, the contract was fully performed, repeat business followed using the exact same strategies, tactics and operations. This relationship became strategic and transaction costs plummeted between these aligned parties.
Now consider the typical reality in corporate negotiation. Strategically parties either have no plan or an overly flexible one, the negotiators do not know typical tactics and how to personally react to them and operational elements of the negotiation that are powerfully persuasive are invisible to those who are influenced by them.
Consider, the contract in my example: it looked great for the seller, but not too good to be true. The sales engineer looked at the prospect’s requirements and met them point-by-point in the request for proposal (RFP) process. The buyer needed the solution and it was well within the budget. There were slight changes to the requirements during the negotiation as requested by the buyer, however, the seller had a global install-base of the exact solution the buyer demanded. The seller was flexible and agreed quickly. The customer was willing to pay a premium and various negotiation terms were reviewed and edited by the general counsel’s office. It was legally sound but this last minute up-sell lacked a risk analysis and statistical method to determine how the changes impacted potential loss and value of the contract. The typical strategic negotiation plan the seller used worked, but one strategic element was unknown given the new requirement. That planned strategic negotiation element was knowledge of the buyer’s current technological state. No data supported the buyer’s probability of enjoying the benefit of the bargain. The unknown question was: could the buyer install, exploit and organizationally adopt the solution? But after all, they should know their own business – caveat emptor and all that, it was not the seller’s issue. This was on the buyer’s side as they had the first hand knowledge, these were sophisticated parties. None of this would ever come back to the seller.
During the negotiation, a member of the procurement team in charge of the deal had a bad habit. This individual reacted in a certain way when she felt anxiety at the negotiation. Not well versed in tactics, when her authority or experience was questioned (a common tactic), she would habitually defend her position fiercely, backtrack and make a concession.
Conversely, a team member on the sales team had a different anxiety-triggered tactical blind spot; he liked the sale, the potential commission and genuinely liked people. But when the buyer would pause speaking for a minute or so, the sales engineer would wait, squirm and after a minute the anxiety would overcome him – was he was losing a sale and the good will of this great new contact he liked? He began to negotiate against himself, filling the silence with concessions at the table or following the concession escalation process of his organization. He was better at influencing concessions within his own organization as opposed to those across the negotiation table.
The operational side of the negotiation was typical, but not optimal. While the RFP specified a single point of contact, it was not exactly followed. The engineering team spoke to the engineers, the sales team and procurement teams were out of the loop. Much of the consensus was engineer to engineer and the contract was silent on the outcome of these side discussions, nobody bothered to tell legal to draft the new performance criteria clauses or the new deliverable. The controllers had no data on the cost or value of the new deliverables.
Other operational anomalies were overlooked. The seller noticed that the buyer’s requests for concession would be made late in the morning or late in the afternoon – but paid no attention. The procurement lead would bump into the seller on the morning at the coffee house in the lobby and she would buy the sales engineer a latte. That was nice. At closing the buyer hammered out a few last minute concessions from the seller and there was no acknowledgment of any concession. The deal now looked like it was imposed on the seller.
No negotiation is perfect and these facts may be recognized by those who work in high pressure legal, sales or procurement teams. Negotiation may be a creative process as many negotiation schools tell us. The parties did “create” a deal during the process. However, this transaction ended in litigation, the result in the cumulative impact of a number of small blind spots in the strategic, tactical and operational negotiation subsystems.
As the Kellogg School researcher Thomas Lys, a Getting to Yes critic reminds us,“It’s not what you create that matters it’s what you take home.” Negotiation processes are developed on the anvil of analysis, experience and litigation and it is the burden of every organization to ensure their teams hold the skills, data and knowledge required for success. The culture adopting the organization habit of negotiation is the means. It is communication on a whole new level.
Near perfect negotiation performance translates to near perfect market performance. Following the process, knowing the objective costs of missed steps, clauses or concessions, and forecasting irrational human behavior to anticipate reality will enable organizations to obtain near perfect market performance.