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Make it a group effort

ANDY MOORHOUSE is a research consultant for Huthwaite International
Andy Moorhouse is a research consultant for Huthwaite International
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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


 

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