10 June 2010 | Andy
Moorhouse
Organisations
that have a planned approach to negotiation are generally more successful
financially. So why are buyers so reluctant to create a system for it, asks Andy
Moorhouse
Most purchasers
judge themselves excellent negotiators. Perhaps this is why many seem to resist
the bureaucratic straitjacket of a formal negotiation planning process. As one
global head of procurement sums up: “Pieces of paper don’t help to win
business.”
Individual talent is
important, but it’s not enough. A Fortune 500 director complains: “If only we
could pick up all the money we are spilling in negotiation. It’s a huge amount,
definitely in the tens, if not hundreds, of millions [of pounds]. We don’t have
a consistent approach and lack the negotiation infrastructure to support
complex deals.”
Purchasing leaders
have struggled to take negotiation from the realm of the individual and make it
a corporate capability. Yet there is increasing evidence that an organisational
approach to negotiation improves bottom-line performance. This was reinforced
in a study of 124 Global 2,000 firms by Huthwaite International and the
International Association for Contract & Commercial Management.
During the tough
economic climate, the total net income of the Global 2,000 fell by 31 per cent.
In contrast, companies rated as having “world-class” negotiation capabilities
increased their net income by an average of 42.5 per cent. It may not be
possible to claim absolute cause and effect, but the anecdotal evidence seems
compelling. A procurement director surveyed pointed to a saving of $37 million
(£25.5 million) on a single deal following the introduction of a planning
process for the negotiation: embedding early cross-functional, team-based
planning for any deal over $5 million (£3.5 million). A similar process
dramatically reduced the average negotiation cycle time on complex projects for
another organisation. From a previous average of 18 months, 75 per cent of
those deals are now done in less than eight weeks.
If it works so well,
why doesn’t everybody do it? First, there is a lack of data. Also, most
organisations focus on training – indeed, there are some estimates that
organisations spend $1.3 billion (£900 million) annually on improving
individual negotiation skills. Yet the biggest hurdle remains that in most
organisations nobody “owns” negotiation. Who has heard of a negotiation
director?
Negotiation
performance improvement is being ignored. The first step to addressing it is to
think beyond basic negotiation training. The Huthwaite study identifies 10
areas to address, including: developing efficient approval and escalation
systems; measuring negotiation success; documenting common negotiation
standards; and integrating the negotiation planning tools within the formal
buying methodology.
You’ll also need
senior executive support. Recruit internal champions and measure improvement.
Generate some internal success stories. The key is embedding the structures,
systems and processes that help to transform negotiation from an individual
competence to an organisational capability.
Key points
• A corporate
approach to negotiation improves business performance
• Think beyond
individual training
• Get executive
support and generate internal success stories – otherwise you won’t change the
way people work
ANDY MOORHOUSE is a research consultant for Huthwaite
International
The report, Improving corporate negotiation
performance, can be downloaded from www.huthwaite.co.uk
