Ideas for Leaders #103

Win-Win Negotiation to Create Long-term Value

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Key Concept

Negotiations need to be about more than just money. By playing ‘hardball’ businesses can do irreparable damage to long-term relationships and destroy trust that has taken years to develop. There is a change in approach amongst large organizations looking to create long term value by creating true partnerships with suppliers and customers.

Idea Summary

By squeezing suppliers and customers hard, particularly in difficult economic times, you can get results very quickly. But it does have a cost of consequences.

The last five years have seen a spike in instances of hardball negotiation, with companies exerting very aggressive, often manipulative techniques.

Whenever there is a crisis businesses tend to look at negotiations as a quick cost-saving opportunity. People get fearful because end-of-year results are not looking promising and they try to scrape value from wherever they can. This may be understandable and it might be an easy way out of short term financial pressure, but trading long-term value for small short-term gain is misguided and unsustainable.

In the late 1990s, a European beverage company, number one in its market, squeezed suppliers so hard on price that a glass manufacturer with strong supply links to the company went bankrupt. The tough stance backfired. When the market took an upturn a few months later the beverage company, with limited bottle supply, could not feed demand and fell from number one to number two in a market of just three or four players.  The company lost more money in that one year than its aggressive procurement techniques had saved in ten.

A shift in negotiation
Bigger companies, manufacturers of fast-moving consumer goods and agriculture products in the western world and Japan, Singapore and Korea are looking for a different approach; one that creates long-term value by selecting a few suppliers, the ones that add more to their product chain, and developing true partnerships.

The automotive industry, historically one of the most hardball of all manufacturers when it comes to squeezing their suppliers, are among those rethinking techniques, realising that saving 20 percent off the bottom line in costs does not necessarily translate into value for their company. US and European manufacturers, faced with competition from cheaper Chinese cars on the market, are concentrating on maintaining or improving quality and developing innovative products. 

Business Application

Change of approach required: Switching from aggressive win-lose negotiation tactics to the more value-driven win-win partnership approach is not easy.
As Horacio Falcão explains “You need to be able to say ‘I need better innovation, I need better on-time delivery, I need better inventory, I need better quality and I also need a better price. This is a very difficult combination to get. You have to work really closely together. Of course you expose yourself a little more to this other person, but they’re exposing themselves to you as well so the balance of power doesn’t necessarily shift.”

Co-invest in innovation: Companies do not have to overpay to win. There are other ways of meeting suppliers needs, co-investing in innovation projects has the double benefit of keeping the supplier happy and preventing him providing that innovation to competitors.

Negotiation skills: Time, patience, a genuinely inquiring mind, and a belief that working through issues will lead to better outcomes are important characteristics of a good negotiator. Hearing what the customer or supplier wants and looking at ways in which you may be able to give it to them. By asking more questions and making diagnostic decisions all the time you are able to draw out information and try and understand where the other person is coming from and at the same time let them keep the door open for future possibilities.
Some people enter negotiations with the theory if it is a repeat game ‘I have to collaborate’, if it is not a repeat game ‘I should compete’. This is too quick a decision as it underestimates the ability of the negotiator to change the game.

Negotiation across cultures: Win-win strategies help negotiators avoid mistakes when operating in an increasingly global world where managers are expected to be sophisticated negotiators in many different cultures. “It’s impossible to learn to negotiate with the Russians today, the Chinese tomorrow, and the Japanese the day after and so on. There are too many cultures and too much change. What you need is a system that allows you to learn (about the potential partner) as you go and win their trust.” says Falcão.
Win-win brings openness, transparency, ethical behaviour and a more socially conscientious approach to negotiation. You are not just trying to take at any cost - you are generating better - not just shareholder value - but stakeholder value and better results for the company.

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Authors

Institutions

Source

Idea conceived

  • 2013

Idea posted

  • March 2013

DOI number

10.13007/103

Subject

Real Time Analytics