5 Steps to Negotiating Better Agreements

Negotiating better agreements involves treating negotiation as an organizational capability, so that decisions about negotiations are not left largely to the last minute, or to individual intuitions. In my role helping leaders negotiate better agreements, I’m struck by the effort that leaders put into negotiation skills training, without focusing on other (often less costly) moves that would enable their people to negotiate better.

Even experienced negotiators are prone to powerful tendencies that hinder their ability to negotiate better deals. Much research suggests that negotiators: fail to prepare adequately by thinking through how the other party sees the problem and their alternatives; fail to create as much value as they could; believe they have claimed most of the available value (when they haven’t); believe that others will choose and interpret data in the same way they will; and fail to recognize ways in which the situation powerfully shapes their behaviors and thought processes.

But these shortcomings affect other judgments and intuitions as well. For example, people have undue confidence in their ethical invulnerability. In one study of medical residents, only 1 percent felt that sales reps from drug companies had impacted their prescription choices, but reported that 33 percent of their colleagues had been influenced. Among physicians, 61 percent claimed they had not been influenced—but only 16 percent felt that their colleagues had been similarly immune. We all imagine our best intentions will guide our decisions, but the evidence suggests otherwise.

Do Five Things

Leaders must do five things to enable better decision-making in negotiations:

1. Recognize that negotiation is not just an individual skill, but an organizational capability. When I am asked by leaders to design training programs in negotiation, I first suggest that they conduct a negotiations audit. A systematic evaluation and assessment based on confidential interviewing can do three things: 1) analyze where current deal preparation and decision-making practices are falling short, and why; 2) how training must be tailored to address those specific problems; 3) what leaders must do alongside training to ensure that new skills and learning will be deployed.

More leaders are recognizing that efforts to improve require key sponsorship; mechanisms for knowledge capture and continuous learning; and realignment of processes and incentives where needed. The results of thinking more holistically are not trivial. In 2008—a year when the net income of the Global 2000 fell by 31 percent—companies ranked in the top quartile of negotiation posted an average increase in net income of 42.5 percent!

2. Specify the criteria that define a successful negotiation. It is not enough to articulate company values. Too often people assume that negotiations fall into some nether world where values-based behavior does not apply. In worst cases, trumpeting values like trust and collaboration create cynicism in business partners when negotiation behavior (driven by short term goals) is more dictatorial than collaborative. Creating a list of criteria, and scorecard for measuring against them, ensures that in negotiations, people will balance shortterm financial targets with other longer term interests (risk, deal stability, trust, reputation, time spent negotiating).

3. Embrace negotiation as a core capability. Many leaders remain nervous about helping their people to negotiate better. Leaders in one Fortune 200 company readily admitted that conflicts were routine, and that resolving them was critical to success. "Just don’t use the word negotiate," they pleaded. "We’re very collaborative." (Their counterparts told me a different story.)

In spite of books like Getting to Yes—which argues that negotiations can take the form of joint problemsolving—the word negotiation still suggests to some deception, exaggeration, manipulation, and even threats. No wonder leaders remain wary. But leaders should not let the word negotiation deter them from focusing helping their people get better at reaching agreements.

4. Create opportunities—through coaching, training, and leadership development experiences—for your people to confront their own emotional barriers to conflict. Most executives can tell stories about key team members avoiding conflict because they don’t want to be seen as obstacles to success. But conflict that goes underground can create much bigger problems later.

Leaders should seek to normalize conflict on their teams among people who are paid to care about different things. Even normalizing conflict does not guarantee that people will have the emotional intelligence or courage to confront different interests, perceptions, beliefs, or priorities. It’s easy after the fact to condemn others for failing to have acted courageously by "speaking up" or raising issues that might "cause problems." It’s harder to be the person in the room, actually facing the situation. Effective leaders recognize how hard it is for people to voice disagreement.

5. Recognize that negotiations are a potent source of feedback regarding strategy. Leaders often tell me, "We perform a high-value service, but in negotiation we’re treated like a commodity." When pushed, however, they can’t explain how their services are different or better that what their competitors can provide. They can’t point to examples of boosting their client’s top or bottom lines in ways that justify a higher price.

If you can’t articulate convincing arguments about the value you add, you can expect to be treated as a commodity at the negotiating table (and the rise of Procurement reflects this reality). Yet this is principally a strategy problem, not a negotiation problem. Leaders who use negotiations as feedback are more likely to address the fundamental problems that lie at the heart of the negotiation, rather than sending their people to negotiate with the hope that there is some "magical tactic" that will rescue a favorable deal.

Leaders who manage negotiations well are process designers, coaches, and role models. By moving in these five ways, you can expect dramatically better results in your organization.

First appeared in Leadership Excellence www.leaderexcel.com