"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.

• Listen carefully
• Deliver what they promise
• Treat people as individuals, not stereotypes
• Have the facts
• Do not automatically reject what others say
• Anticipate the effect of their speech
• Accept responsibility for what they say

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.

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.

In its essence, good negotiation is good communication. When the person across the table from you is from a different country, you’ll see and feel just how critical good communication is!
In K&R’s world, negotiation is the interaction between people to reach agreement. To reach that agreement your job as a negotiator is to understand exactly what everybody wants out of the process. You will succeed when you reach an agreement with terms that satisfy all involved. In subsequent posts, we will discuss the mechanics of articulating value. But for now, let’s focus on negotiation as communication.

In most international negotiations the role of communicator bears huge responsibility. If this responsibility falls on you, remember the two most important qualities to bring to the table: P&L. For many businesses, P&L means Profit and Loss. In negotiations, it means Patience and Listening.

• Patience means showing composure, having grace under pressure, and taking the time to work through the whole negotiation process. This is especially important when negotiating internationally, because already-complex details may take longer to communicate. Misunderstandings may be easier to create and tougher to unravel. People from other countries may also do business at a more deliberate pace than you are used to. Patience is the rock upon which all good negotiators stand.

• Listening means hearing with thoughtful attention. It means focusing on what the other person is saying rather than thinking of your own response. Good negotiators hear and capture every detail that will help them to understand hurdles to the deal and to form persuasive arguments. If you’re not a good listener, you can’t be a good negotiator, period.

Poor Listening Habits

These two bad habits can hamper your ability to create the credibility and leverage that are needed to win big deals.

Pseudolistening:  You look like you’re paying attention, but your mind is far away. Negotiation is the time to tune out all distracting thoughts and focus! If you are negotiating with someone whose first language is different than yours, it’s easy to miss or misunderstand an important detail if you let your mind drift.

Self-Centered Listening:  Self-centered listening means that you’re rehearsing your answer in your mind before the other person has even finished speaking. Let the other person finish, then begin thinking about your answer – every time. This is not easy, but it’s essential.

Effective communication begins with patience and listening. Why? Because patience and listening get you information, which gives you knowledge. And knowledge gives you credibility. We’ll discuss the principles of credibility in our next post.

With dazzling new opportunities come more potential pitfalls. Even without the culture variable, negotiating in business is already a complex process. Culture, language, and fundamental, unspoken approaches to business can all make international negotiations more complex than domestic negotiations. While acting in a way that would normally create a good impression in your culture, you may inadvertently create the opposite in someone else’s culture. For example, setting an agenda for a meeting with someone you don’t yet know may be appropriate in the U.S., while some Japanese may view it as arrogant and presumptuous.

However, this boggling diversity also yields rich opportunity. The "win/win" outcomes that we train our clients to achieve can sometimes develop more naturally in countries where social harmony and stability are valued as highly as profit. While two American companies may take the "winner/loser" view of dividing profits, negotiation teams from other countries may value employment of the extended corporate family more than profit. This can create room for win/win scenarios that don’t necessarily involve contention.

Nurturing these global opportunities requires rigorous preparation and forethought. Our goal in this series of blog posts is to help you prepare on two levels:

• By showing you the universal, bedrock principles of negotiation that K&R Negotiations executives and associates have used to close hundreds of millions in transactions across the globe

• By helping you consider the international dimension of these principles and to share with you what we have learned – sometimes the hard way – over years of serving our global clients and partners

No matter how much faster and smaller the world gets, all players at the table want to walk away with a clear understanding of the value they have received and delivered. Making that value clear and removing the roadblocks to the deal – whether institutional, financial, or cultural – is the job of the negotiator. In the posts to come, we will try to make that job easier, hopefully turning the wild new world of global business into an arena where you and your team can consistently close better deals and create longer, more profitable relationships – wherever your business dealings are conducted.

Thank you for reading.

Mladen Kresic
CEO, K&R Negotiations

Have you ever heard this from a customer during a discussion? "We’d like an additional 10% discount. If you give this discount to me, we can close the deal." Sellers hear this all the time. More often than not, sellers concede immediately in the interest of getting the fast close. But is this the correct response? Let’s consider the advantages. As a seller, if the deal really closes after you give the quick discount, you can count the revenue and move on to the next deal. And maybe the client likes you for that moment.

But how do you know it will close? Your customer might start thinking, "This was too easy. I should have squeezed them for more." All-too-common scenarios like this are the reason that "Concessions easily given appear of little value" is one of our foundational six principles for successful negotiations is As a result, they may stop the process and look for more. This delays the deal, and probably further erodes your price and terms.

Even if it closes after you give the quick concession, what is the customer thinking? Do they like you for that moment, and then have "buyer’s remorse": "They made that concession so quickly, maybe I should have asked for more." Or, "That was too easy. I guess they were just trying to rip me off with the original proposal."

And what about next time? Will they believe you when you give them a "good" proposal?

Consider this: What would have happened if you answered differently when the customer made their discount request? You might have said:

Ultimately, the customer may have an answer – in fact it could go something like, "Well, we feel that your competitor is offering better pricing for substantially the same solution." You should welcome this response because it triggers a meaningful value conversation.

You can then offer a response like:

In either case there is a potential that you will focus the customer back on the value-based justification to sustain a higher price and better terms.

But even if you don’t succeed in differentiating the value of your solution, it is much more likely that the questions about your credibility that arise by giving the "instant" discount will not arise. The customer will be satisfied and respectful of your principled approach. And you will have integrity with your next proposal. In a relationship, the expectations of the customer are built over time, as is customer satisfaction and, ultimately, business respect that means a more profitable relationship over time.

Relentless and thorough preparation is where negotiators on the vendor side shortchange themselves. It’s a major point of focus during our negotiation training, and one of the most critical aspects of this is considering the various groups of stakeholders across the table that need to understand and buy your value argument. Crafting your value argument – the ultimate answer to the question, "What’s in it for us?" – can fall flat and jeopardize the deal if your argument is presented with only one kind of stakeholder in mind.

The diagram below shows the relationship between roles, motivations (measurement concerns) and relative numbers of people that are typical at many lines of business.

Note that IT, where many sales calls are made, has significantly different motivations from the rest of the business. If a seller only focuses on IT’s motivations, their ability to drive faster closing and higher prices will be severely compromised.

The thought process for you as a negotiator is similar to that for your internal negotiations: Identify goals by individual, using their measurement systems as appropriate. Customers may set up conflict between their team and yours as a negotiating strategy (e.g. limiting contact of your team to their procurement side). Adjust your value arguments to the motivations of the person or people you are meeting with. Recognize that they may also have internal conflict. Do the proposed solutions support the desired relationship?

Typically less is known about the motivations externally than internally, at least at first. P&L (Patience and Listening) are key to determining the set of values that you must deliver to get the agreement. When value arguments are challenged by participants on the other side, make sure you meet the needs of the ultimate decision maker. Planning is every bit as important externally. Many diverse sources of information can help you uncover and consider your potential customers’ motivations.

Remember that the higher you go in a customer organization, the greater the span of control. As a result, getting sponsors at those levels gives you greater leverage in closing agreements. Research shows that senior executives get very involved in the decision process for major purchases. But that involvement is typically early and late in the cycle.

In the middle, delegation proceeds first to implementation staff, then (often) to Procurement for negotiation, then back to implementers before the executives are heavily involved again. (Source: "Selling to Senior Executives" survey, conducted by OnTarget™ with the Kenan-Flagler School of Business.)

To be a "Trusted Advisor," a seller must remain involved with the buyer team throughout the cycle, not just in proximity to when the agreement closes.

Executives perceive a "loyalty gap" when benefits that are discussed early in the "Problem/Vision" part of the cycle are not re-visited after the project concludes. If they don’t get feedback in the result, they assume that it did not meet the targeted benefit.

To be successful you have to be ready to make a valuable argument to each responsible party in turn. Leaving one out will only lead to stalling your agreement when that party is in charge – and lessen the likelihood of closing the deal you want.

While at the negotiating table, sometimes the rush to provide a client with whatever he or she has requested without discussing the value of the request is a study in blown opportunities. This is illustrated by a recent discussion we had with a client regarding the case scenario below.

Our client was in negotiations with a customer about adding some content to an existing contract. The sales team wanted to close it by end of May. The customer’s procurement organization was involved. In the first week of May, the procurement director stated: "We might be interested in closing before the end of the month." The sales person responded: "That sounds good. What will it take to get that done?"

Is this a good response? Not in our view. It automatically puts the sales person in a compromising and defensive position and devalues the customer’s request. Even if the customer isn’t fishing for a discount, you almost guaranteed that they will be unhappy to close without getting one.

A slightly better answer is "Yes, we can do that." Even that devalues the customer request. While the client could be "fishing" for a discount, it is also possible that there is a value to them by closing early. By telling them that you can close early without inquiry, you miss an opportunity to understand that value. Then, if you do close early, you will not get the benefit of providing value to the client. It becomes the equivalent of an unprincipled concession – giving something away for nothing.

The best answer is to ask the client why they are interested in closing early. If the customer has reasons that are valuable to them, you will get credit for providing that value by closing early. And no concessions will be required! If the client is indeed "fishing," it puts them in the awkward position of trying to justify the request. Even if they are bold and say, "Because we would expect a discount from you for closing early," you could then have a principled discussion of what closing early means to you and the client. You will gain an opportunity to establish value in the process. And the customer will know that any requests in the future will need to be justified and will not be dealt with in an arbitrary manner.

There are at least three lessons here:

Lesson 1. Think inquisitively about the question before you answer. Why are they asking? Simply asking this question can begin establishing value. Responding yes or no usually doesn’t do that. A no sets up unnecessary contention and yes foregoes the opportunity to establish value for a client request.

Lesson 2. Think about the client first. In the first response, you may be thinking: "What do I have to do to get them to close early?" In the second, we may be thinking: "Great, both of us want to close early." Only in the last are we definitely thinking about the customer first, by asking why they want to close early. And this is where we actually avoid having to make unprincipled concessions.

Lesson 3. There are few opportunities to get the client to ask for what you want or can easily provide. Asking "why" puts the customer in a position to justify their request based on some value to them. In that case they are less likely to ask for a concession to make it happen. And the double win is – it’s of value to you.

Lesson 4. Let the customer earn your concession. Asking "why" makes sense even if the client is offering to close early because they are fishing for a discount. By asking why and discussing the merits of any "compromises," you establish that you will not discount or concede without some business justification. Now you must find that business justification related to value. Remember: principled concessions are concessions made for good business reasons usually related to value to one side or the other!

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. In negotiation, it’s 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.

What exactly is leverage? At K&R Negotiations, we’ve developed the concept of the Leverage Slope, defining the relationship between the buyer – who wants an optimal solution at the lowest possible price – and the seller, whose goal is the best price for their product.

Sellers’ leverage is driven by uniqueness, and heavily influenced by incumbency. At the bottom of our slope is where they’re essentially selling a commodity, a relatively undifferentiated product available from any number of vendors. With a commodity product, the main purchasing criteria is price, which competition naturally drives down.

Further up the slope are competitive products, which have some uniqueness or value that separates them from most of their alternatives. A seller can negotiate a higher price by successfully articulating some kind of unique value as a competitive advantage. But there’s a price point where the buyer will look for less optimal solutions regardless.

The peak of the slope is the seller’s best position, a "transactional monopoly" where the buyer’s clear best choice is to go with that offering. Sellers in this position have a lot of leverage.

Use that wisely by explaining your value fully, so that the buyer feels good about their decision and their relationship. This will pay off in later transactions, when you as the seller may not have that degree of negotiating strength.

Ridgefield, Conn. – October 27, 2011 – K&R Negotiations, which provides professional negotiation training and consulting for both mid-sized and Fortune 200 companies around the world, today announced the addition of operations manager Valerie Pacini. Pacini will focus on driving operational efficiencies, global administration of client experience, ROI-focused analytics, and business development.

Prior to joining K&R, Pacini served for 13 years at Atlas Air Worldwide Holdings, the last seven years as Senior Manager of HR Information Systems, where she was responsible for system administration, application management, benefit and compensation operations, process engineering, audit and compliance. Val Pacini attended the University of Colorado, Denver.
"Positive negotiation outcomes and more profitable relationships for all players are central to our mission and culture. Teammates like Val Pacini help us deliver on that promise every day," says Mladen Kresic, CEO of K&R Negotiations. "Her depth of experience and high performance standards will be an asset to every company we help. We’re excited to have her on the team."

About K&R Negotiations

K&R Negotiation Associates, LLC, is a consulting firm specializing in structuring and negotiating business transactions around the world. The company is comprised of professional negotiators, sales executives, and business attorneys. K&R professionals average over 20 years of professional negotiation experience and apply a results-driven methodology to change negotiation behaviors and improve negotiating success. K&R’s clients include Fortune 200 companies such as IBM, EMC and Xerox, as well as smaller companies such as Bristol Technology (now part of HP), Priceline, SEI and others. For more information, please visit www.negotiators.com.

For more information please contact:
Nate Warren
720.244.4734
nwarren@fusionmarketingpartners.com

But in reality, there are very few dealbreakers in negotiations. More often than not, the true problem is that people in negotiations have trouble breaking down the issues and organizing them in matter of importance. Either as partners in the negotiation process or during our negotiating seminars, we help our clients break down each issue on the table so they can identify and separate means (how we’ll get there) and ends (the desired destination). Once ends and means are untangled, it is amazing how many seemingly intractable issues are suddenly neutralized.

People speak naturally in terms of means. "Can I have a glass of water?" is more expedient than saying "I am thirsty and want to relieve my thirst. What do you have to drink?" However, there’s a downside to this; the former way of stating the request already assumes your preferred solution: water. However, if they know that you are thirsty, they may have all kinds of beverages that can satisfy your thirst. Separating the means from the ends is crucial to understanding what people really want and need. You can then identify creative ways to satisfy their needs. That’s why the K&R MID™ Chart of Goals is crucial to our negotiator training.

Separating and Understanding Means and Ends: Mandatory, Important and Desirable (MID)

While we are simplifying the nuances of the MID Chart for purposes of this post, the purpose is to break down all the requests and stated positions on both sides of the table so that you can:

Not all deals can be made – or should be made. MID analysis forces you to determine what problem you are really trying to solve. This is especially important when you are facing a conflict over goals that appears unsolvable. MID analysis can light the way forward or help you determine when to cut your losses and move on.

K&R Negotiations co-founder and CEO Mladen Kresic recently penned a guest column for the Hartford Business Journal’s Talking Points section. The guest post discusses Kresic’s recent encounter with Congressional Medal of Honor recipient Paul Bucha, who was a captain of the 101st Airborne Division during the Vietnam War and, later in life, a successful business leader and chief cexecutive.

While accompanying his son’s Cub Scout troop to hear a talk given by Bucha, Kresic was struck by how the principles of leadership described by the speaker were indispensable qualities for a good negotiator.

Kresic goes on to explain how these qualities are critical to the negotiation process. You can read the rest of the piece by following the link above. Thanks to the Hartford Business Journal and editor Norm Bell for including us.

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