The Dynamics of Credibility and Leverage

Posted on February 15, 2012 | Filed Under CredibilityLeveragePrinciples of International Negotiation | Leave a Comment

This is the third in a series of blog posts The Principles of International Negotiation: Finding Universal Value in a Complex World.

"You lied to us."

That was what we heard from across the table on the opening of our fifth consecutive negotiation meeting during a Japanese engagement. The actual issue was minor, having only to do with the meeting’s start time. But tensions were high. Days one through four had started at eight a.m., usually stretching until two or three a.m. the following morning. The man making the accusation was a key Japanese negotiator from the customer’s procurement organization. He had been difficult, not because he was hard to work with, but because he was detail-oriented – and often right. In the preceding days he had used good logic and persuasion to push costs of the deal onto our side.

In New York this issue might have been resolved with an apology and a mild expletive. Then everybody would have gotten back to work. But this wasn’t the case in Japan, where a tremendous credibility problem had been created when our teammate was attacked in front of 40 people. Marked as a "liar," she would have real difficulty operating in a culture where partnership and relationship are critical to an agreement. To complicate things, she was one of our two top negotiation leaders, and knew the deal inside and out. What to do?

We reverted to facts. The actual issue was that she had made a side agreement to change the start time with the speaker’s management, and they had neglected to tell him. When this became known, her credibility (and by extension, our whole team’s credibility) was preserved. We could continue our negotiation.

But there was an important follow-up step. A major accusation, in a public forum, was a real "face" issue for our team. We prevailed on the Japanese accuser’s management for a suitable public apology in the same forum. On their own, they removed him from any future negotiating session. His credibility was now gone, as he had embarrassed his own team. We closed the deal – good for both sides, but in some ways better for us than if their team had kept one of their stronger players.

Preparing yourself for negotiation success with a company from another country or culture can seem overwhelmingly complex. There are many layers to the process to consider. In later chapters we will discuss the tools and techniques for systematically analyzing and managing all the variables.

But at the core of the process are universal dynamics that, like Newton’s laws, are the same in any country. Among these are the dynamics of credibility and leverage. When both are managed well, the chances are high for a favorable deal. Whether we are training companies how to negotiate or engaging with them as negotiation partners, we begin here.

Credibility

In short, credibility is the ability to inspire belief. It determines the likelihood that someone will act upon what you are saying. That’s because credibility has two components. You are credible when you are not only trustworthy but when you have proven yourself as capable by reliably doing what you have promised to do. Credibility is what makes persuasive value arguments believable and compelling. As we explained in the last chapter, being a good listener is the basis of generating credibility. Without it, your ability to illuminate roadblocks to the deal and express the value that you deliver is severely compromised.

For you to win wisely at the negotiating table, what you say must be understood, valued, and believed. Think of a few people whom you find extremely credible. Do the things they do to earn your trust and belief line up with the list above? Beginning with P&L (Patience & Listening), credibility is the cornerstone of effective communication. Hand in hand with leverage, credibility is a formidable asset.

Leverage

The concept of leverage originally comes from physics, referring to levers in a pulley system; the more you have, the more easily you can move objects of heavier mass with less force. In negotiation, leverage is the ability to move people closer to your way of thinking. Your value arguments are your levers. The more credible value arguments you have, the more easily you can move people closer to your point of view voluntarily, and thus with less force.

negotiation leverage

What exactly is leverage? At K&R Negotiations, we’ve developed the concept of the Leverage Slope, defining the relationship between the buyer and the seller. The buyer wants the optimal solution at the lowest possible price, and the seller wants the best price for their product. A good negotiator in a sales organization will convince the buyer that these are the same thing.

The seller’s leverage is driven by the unique characteristics of the value they provide to the buyer. It is influenced by incumbency – if the buyer already has had a good experience with you, you should have an advantage. At the bottom of the Leverage Slope are commodity products or solutions. These are relatively undifferentiated – both in their descriptive characteristics and the value they provide – and available from a number of vendors. With a commodity product, the main purchasing factor is price, which competition naturally drives down.

Further up the slope are competitive products, which have some uniqueness and value that separates them from the other alternatives. A seller can negotiate a higher price by successfully articulating some kind of unique value as a competitive advantage. However, keep in mind that there is usually a price point at which the buyer will look for less optimal solutions.

The peak of the slope is the seller’s best position. This “transactional monopoly” is where the buyer’s clear best choice is to go with that offering because of the value it provides. Sellers in this position have a lot of leverage. As a seller in this position, use that leverage wisely by explaining your value fully, so that the buyer feels good about their decision and the relationship. This will pay off in later transactions, when you may not have that degree of negotiating strength.

Sometimes the concept of leverage has a negative connotation. People can view it as a weapon used against somebody in a disadvantaged position. When people view leverage this way, the expectation is that the person with leverage will use it arrogantly and refuse to "negotiate." This is misused leverage, and likely to damage otherwise profitable relationships over the long term. The best leverage is not born of intimidation. It comes from a clear, mutual understanding of value. As a good negotiator, it is your job to reveal and express this value to your counterpart.

There are many additional sources of leverage – both for the buyer and the seller. Certain common buying tools, such as RFPs or reverse auctions, are intended to move solutions to the buyer-preferred (lower) end of the leverage slope. Incumbency with good performance provides leverage for the seller. But even incumbency with average (or in some cases poor) performance can provide leverage if the cost of change is high. Almost no one changes cars mid-lease, for example – too much leverage for the seller is in play. External events create leverage as well. Y2K fears drove a lot of actions. Laws such as Basel III, because they set dates for compliance, also create leverage, particularly as those dates get closer. A good negotiator will look at as many sources of leverage as can be identified – for both sides.

In most business negotiations, however, value to the buyer is the positive force that shifts positions and gets the deal done. We’ll focus on that as we go forward in our series.

The 7 Line Rule

Posted on November 7, 2010 | Filed Under CredibilityK&R WorkshopsPersuasionSellingValue | Leave a Comment

A client made us aware of this “rule” recently, which seemed worth passing on. Why? Because the rules for getting someone’s attention have changed. The rule: Do you have a key message for a client (or for your manager)? Keep the heart of it to 7 lines or less. Because these days, that is how much of the message a Blackberry™* will show without scrolling. If your message isn’t compelling by then, the reader will never scroll to read the rest of your message.

You can stop here – this is line 7.

I often start a negotiation skills training session with this message. “I’m going to cut 20% out of your email workload over the next 2 days. Turn off your phone. I believe you will find that 20% of the “urgent” problems that you would have responded to will fix themselves before we leave.” Most people laugh, but why? They laugh because they know it is true.

Remember the days of actual memos? You know, with paper? Circa 1980? One of our colleagues used this method to manage responses: he put the physical memo in a “hold for one week” folder. At the end of the week, if nothing happened, put it in “hold for a second week”. After week 2? Discard it (and ignore the action). Why did he do this? “Too much mail, too many cc’s.”

A recent CEO profile in the NY Times quoted a CEO who basically said that if he was only on a cc list, he immediately erased the email as not important to him.

We all know the problem – too much email, and not enough time. So if you want to get answers, make it compelling…within the first 7 lines.

* Blackberry™, Android™, iPhone™… (td)

Got a question? Email a K&R negotiator directly at ask@negotiators.com.

The FCC and Harvard Medical School

Posted on March 24, 2010 | Filed Under CredibilityPersuasionValue | Leave a Comment

A short time ago, we wrote about news of a study done by the Harvard Medical School concerning the value of computerization in US hospitals.  A Computerworld article led with the headline: “Computers don’t save hospitals money”.  The article stated that in spite of promises to the contrary, IT improvements in hospitals do not improve care, and they don’t improve costs.  Now the FCC has gotten into the act, saying that broadband access will improve health care and save money. Do you believe Harvard, or the FCC?

First, as a negotiator, why do you care?  In short, it’s about credibility.  If you sell products, services, or ideas your credibility is directly tied to your success.  So if Harvard Medical School and the FCC disagree, it’s a credibility battle of titans.  When you are in a sales situation, your credibility has to hold up against alternative positions, or you may win the sale, but at a severely degraded price.

Let’s look at what the FCC has to say.  In Chapter 10 of their National Broadband Plan the FCC lists 11 recommendations related to health care.

Interestingly, one of the claims is that 61% of Americans are overweight or obese, which can lead to medical complications.  The cynical among us would argue that we need less broadband and more exercise to attack this problem.  Make us go to the library for research instead of looking it up on Wikipedia at our desk, and we’ll all lose a couple of pounds.  So let’s cut back on broadband as a national re-engagement with exercise.

OK, that’s not happening.  Moving on…

One of the things the FCC says is: “In its traditional role, the FCC would evaluate this challenge primarily through a network connectivity perspective.  However, it is the ecosystem of networks, applications, devices and individual actions that drives value, not just the network itself.”  This is a classic problem known to anyone that delivers infrastructure services or software.  What they sell (or in this case advocate) doesn’t solve any problems.  It only makes the system better able to incorporate problem-solving solutions.  This makes it harder to create a convincing value argument.  Your position becomes that by starting with your recommendation, and then putting other things on top, the client receives benefits that outweigh the investment.  However, you have to pay for the infrastructure now, with no guarantee that anything else will follow.  This is a tough sell.

The FCC goes on to say: “Health IT supports these priorities by dramatically improving the collection, presentation and exchange of health care information, and by providing clinicians and consumers the tools to transform care. Technology alone cannot heal, but when appropriately incorporated into care, technology can help health care professionals and consumers make better decisions, become more efficient, engage in innovation, and understand both individual and public health more effectively.”  The real issue here is credibility.  Do you, or do you not believe that these benefits will accrue?  Unless the belief is there, no progress will be made on the FCC’s proposal.

It’s all about two things.  First, the FCC needs credibility.  Then they need to make a convincing argument of value (benefit).  It is just like any other sale.   (td)

Got a question? Email a K&R negotiator directly at ask@negotiators.com.

The Trouble with Value

Posted on December 17, 2009 | Filed Under CredibilityLeverageRiskSellingSix Principles™Value | Leave a Comment

A recent Computerworld article covered a study done by the Harvard Medical School about the value of computerization in US hospitals.  The article led with the headline: “Computers don’t save hospitals money”.  This is not good news if you’re a seller of Information Technology solutions.

First tip: Be prepared1. You can expect to hear about this, certainly if you are selling in the health industry, but generally if you are selling the value of Information Technology to people who either have trouble believing in the value of IT, or for whom it is disadvantageous to admit it (for example, buyers in procurement roles).  The article will be used in attempts to undermine your value arguments, and thereby reduce your prices.

For those of you who regularly read our articles, or are familiar with our teaching, you know that we consistently find that sellers who focus on and deliver unique business value win more often, close their sales faster, and sell at higher prices. Sellers who do not have this focus and/or delivery are more often commoditized, have sales which drag on, and lose more to competition if they are not the low-cost seller.

Second tip: If you think you’ll hear about this from a client, consider reading the full article from The American Journal of Medicine®. It’s the only way you can really be ready to talk about this. One thing that stood out to me was that the article appeared to treat all costs in the same way – all costs were attributed to the attempts to save money through computerization.  If true, that’s clearly an overstatement.  In the United States, anyone who has gone to a doctor in the past several years knows that the 1996 Health Insurance Portability and Accountability Act (HIPAA) has significantly altered the recordkeeping landscape. Primarily a privacy and recordkeeping law, it was not driven by a need for efficiency or effectiveness in healthcare.  It would seem there are HIPAA implications in the computerization topic. Penalties for lack of compliance are strong motivators to action in cases like this. Significant HIPAA regulations implementation occurred during the study period. No matter what the case is, your personal knowledge of the Harvard publication will be important if this study is used against you.

Third tip: There is the concept in sales of a “loyalty gap”.  This gap occurs when business value is projected for a project at the beginning, but no one ever goes back to the clients who supported the decision with a report of the actual values that accrued.  In the absence of this feedback, the sponsor understandably doubts the result, and in doubting feels a “loyalty gap”. When your projects complete, whether the value is fully delivered or not, make sure that you let the sponsor know what happened.  If you do not, they assume the worst, and you get a “loyalty gap”.

Last tip: Why is our title “The Trouble with Value” if we are such strong believers (and we are) that IT projects provide value, and that emphasizing that value is the most persuasive way to sell?  It’s a catchy title. However, it isn’t the value that creates the trouble.  If you sell the value of your offering to your clients, you should reasonably expect them to question it, and you should be prepared to back it up with references, rational arguments, and joint work with your client to confirm the expectations.  Then, you should execute strongly, and follow-up to see if the value accrued or not.  Realistically, we know that most business value projects are just as strongly (if not more strongly) influenced by client performance as they are by seller performance.  But you cannot afford to just ignore the business output metrics, and move on to the next sale.  Selling is a persuasion business, and persuasion is a credibility business.  You need to have both to succeed.

The real trouble with value is the follow-up and execution by the seller – lacking that, you risk your value prediction becoming an empty promise that hurts your credibility going forward.  And that’s trouble.

1 One of the K&R Six Principles™ is: Get M.O.R.E. Preparation is Key to a Winning Negotiation

T-Mobile Credibility and Leverage… Again

Posted on November 17, 2009 | Filed Under CredibilityLeverage | Leave a Comment

You may recall our October article about T-Mobile’s Sidekick user data loss problem, or may have read some of the 25 or 26 million references available via a search for “T-Mobile data loss”. It is a simple, real-world example of how loss of credibility can hurt your business.

T-Mobile’s public statements allow us to make some estimate of the business value of this temporary service loss, and the  long-term credibility loss that goes with it.  Add these up:

It’s a big deal.  Next time your credibility is on the line, remember what’s at stake, and protect it.  How quickly you respond, and how effective you are, can add up to a lot.  (td)

More on Lose Credibility, Lose Leverage

Posted on October 19, 2009 | Filed Under CredibilityLeverage | Leave a Comment

Well, after last week’s “Lose Credibility, Lose Leverage” story about T-Mobile, Microsoft and the Sidekick, we can barely keep up.  Hitting the news this week: Microsoft and T-Mobile recover (sort of), IBM and the state of Indiana, “Balloon boy”, Raj Rajaratnam arrested, Energy Star© appliances that are not actually more efficient…

Where will it all end?  Google those, and get the scoop.  All of these fall into a fundamental category of credibility and the impact credibility has on leverage.  Will Rogers said, “Rumor travels faster, but it don’t stay put as long as truth.”  There is plenty of opportunity in the interim to feel pain, and if the rumor and truth coincide, the long-term outlook can be grim.  Preserve your credibility. (td)

Lose Credibility, Lose Leverage – Another real-life example

Posted on October 10, 2009 | Filed Under CredibilityLeverage | Leave a Comment

Well, we hope you didn’t have to read this, “Sidekick customers, during this service disruption, please DO NOT remove your battery, reset your Sidekick, or allow it to lose power.”  That’s the message from T-Mobile and the Sidekick data services provider after a reported “cloud computing” failure, which is expected to cause clients to lose their contacts, calendar entries, and photos.

We now have the latest in a long line of real-life “credibility and leverage” scenarios.  T-Mobile is scrambling to regain credibility and the satisfaction of T-mobile clients.  As part of that scramble, they have offered credits to affected clients.

You may expect to see their competition start advertising something like this: “Your personal information is safe on your phone, and is backed up when you use our service.”  Lose credibility, lose leverage.  The fallout will probably come at contract renewal time for those customers who were hit, who have to decide: Renew, or move to a new carrier?  (td)

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