Negotiation Success Range (NSR)™: Understanding Walkaway Positions so Neither Side Walks Away

Winning Negotiations Strategy

One of our tools for helping clients prepare a winning negotiations strategy is the Negotiation Success Range (NSR)™, which identifies the conditions under which both parties will be satisfied. And if those conditions satisfy both sides, but our side likes them more than theirs? That’s OK: A winning deal is never perfectly even. In business, especially when forging long-term relationships, the NSR is critical because the deal should work for both sides, and both sides need to feel like they have won.

This is easier said than done. As an example, during negotiation planning the seller’s price and the buyer’s cost are often crucial factors in the deal. In fact, price is often a deal maker or a deal breaker. (The impact of price considerations on your deal can be ameliorated with value articulation.)

While the NSR example we’ll discuss relates to price, the tool works with any negotiation term that has a range. Read more

K&R Success Stories Published

K&R Negotiation Associates has published a few representative success stories on the K&R Web Site.  Here are excerpts and links to more information:

  • K&R’s client turned a $150K annual loss into a $50K annual profit, while at the same time raising their own client’s satisfaction with the service. (more)
  • K&R’s client realized 6.7M€ of revenue in their current fiscal year, and 60.2M€ additional revenue within two years. (more)
  • K&R’s client benefited between $13.5K and $250K. The ultimate buyer saw a clear ROI from the total $837K investment in our Client’s products. Both our client and our client’s client were rewarded through the application of K&R negotiation principles. (more)
  • K&R’s client did not offer expensive guarantees and rebates as part of their services package. This will positively affect profitability as the agreement executes. The result was generated by carefully understanding client needs before offers were made. (more)
  • K&R’s client closed $2M higher than expected, using a few simple K&R principles. (more)
  • K&R’s client benefited by up to $65K, and began the process of breaking a pattern of discounting with their client, which will repeat in every transaction. Our client’s client was satisfied, because they understood the value of what they were buying. (more)
  • K&R’s client closed for $1.6 to 2.1M more than they expected to, using K&R’s value principles. (more)

SOAP

In our recent rounds of negotiation consulting for our Clients’ year-end transactions, we saw one practice from a US-based sales executive that we admire greatly (both the practice and the executive).  You can use it, and if you are as successful as she is, you’ll be happy. It’s called the “Summary On A Page” (SOAP).

Maybe she got it from her children’s 6th grade English class, but a good idea is a good idea regardless of the source. For some reason, when we described this in Spain, our client there called it a SOAP. Maybe everyone knows this practice (although no one we discussed it with seemed to), or maybe this is an interesting case of cross-language acronym usage.  So SOAP it is.

If you recall our recent article “Procurement Gets a Ferrari“, you know that many buyers come in with “spend less than last year” as their goal. This is influenced by a couple of common negotiation facts:

1.    While a new agreement is often closed with the Line of Business and then with IT, the follow-up agreement is often managed by Procurement as an extension or an amendment.

2.    Procurement is often measured by cost savings.

Enter SOAP.  Many sellers are not familiar with the term “loyalty gap”.  A loyalty gap exists when executives that were promised a benefit, never hear about the results that accrue from their investment.  Since they never hear, they tend to think that the benefit was under-realized.  It creates a loyalty gap to you, the seller.

In the context of the loyalty gap and the amendment-via-Procurement, SOAP provides a simple tool that addresses both. Create a single page that describes, at a high level, what the client bought from you and which business initiatives each of those purchases supports.  In the best case, add to it the actual business value that was achieved through use of the purchased solution.  That’s a SOAP.

The first goal of this is to avoid the creation of the loyalty gap.  By reporting on the actual achievement of value (better or worse than promised), you will gain trust and loyalty from the people who bought from you.  It will earn you credibility going forward, and that improves your odds of success.

The second goal is that the client should not take what they got for granted.  In a recent real-life example, one of our clients told us that the solution they provided was entirely responsible for the tracking, billing and collection of €9B of revenue for their client.  The solution never failed, was 100% accurate, and every invoice was timely.  Yet, when their client wanted more of the same, the seller was struggling with how to lower the price.  The revenue that the solution collected represented 100% of the revenue for that company.  The buyer took it for granted, and since they never thought about the value, 10% cheaper was a good target to them.  A simple SOAP can change the perspective from “cheaper is better” to “must have at any cost”.

Create a SOAP, and use it to open every presentation from every member of your team.  Don’t let your buyer forget your value.  (td – with admiration for LHT)

BEA and Oracle (Part 3)

When last we looked, BEA had asked for $21/share, Oracle had offered $17, and key shareholder Carl Icahn was threatening the BEA board with a lawsuit to force action on the offer.  Now everyone is in agreement at $19.375.  What happened?  It’s negotiation leverage and the Negotiation Success Range™ (NSR™) in action.

Disclaimer: we know nothing from the inside. We just read the news, and view it with an expert negotiator’s perspective.

First, some background: BEA needed to restate earnings for 3 fiscal years as a result of an “options problem” and their stock mostly lingered below $15 for five years.  Oracle made an offer to buy BEA for $17/share.  BEA countered with $21.  Icahn said the company should be auctioned and he would take the decision to the shareholders, with or without BEA board cooperation.  In our last BEA/Oracle article, we discussed the concept of the NSR™, and how these positions and actions may have been used to either establish the price range for discussions, or be an attempt to shut them down.  Without inside knowledge, we can only suggest alternative interpretations.  In most negotiations, this is the case — the parties involved have different sets of information and different motivations — no one knows the thoughts of both sides. (And we don’t know the private thoughts of either side.)  That’s why they call it “negotiating”.

What did BEA do?  Made a deal with Icahn to show him the books, so that he would be more supportive of the higher price.  Subsequently, they got him to agree to actually delay their shareholder meeting by a month, and drop his lawsuit.  This removed Oracle’s leverage to use a member of the BEA “team” (Icahn) to pressure the BEA board to accept the lower offer.  Next, they announced significant profit growth (on slightly declining revenue), bolstering their argument that $17 was not enough.  Finally, in either a response to an approach from BEA, or for another reason, HP said they had “no interest” in acquiring BEA.  This weakened BEA’s position, since it removed HP as a “bidding competitor” against Oracle.  As an interesting side note, HP may have made the statement because of unrelated motivations.  While they have a relationship with BEA, they also have similar relationships with other vendors who compete with BEA.  One result of the HP announcement could be to calm the fears of HP’s other partners that they might be disadvantaged if HP bought BEA.  It is often the case in negotiations that the actions of the parties are driven by unrelated motivations.

Back to BEA.  Having competitive bidders does not change the value of BEA.  However, BEA is valuable in different ways to different bidders.  So, Icahn’s desire to have an “auction” will generally work to raise the price – if there are willing bidders.  One mistake BEA apparently avoided – publicly, they never said, “Well, if not $21, how about $19.95?”  This could be a signal that they lacked confidence in their position.  And, unless they give a business reason for the change, the discussion changes from a negotiation to “haggling”.  The way out of this is to change your position with a business rationale.  For example: “Our revenue and profit projections were being revised , and we didn’t want to err on the low side.  Based on our released projections, we believe that $19.95 is a fair price.” That is an example of a Principled Concession™ — one related to business value.

What did Oracle do? October: offered $17. November: we are “happy to pay” $17.  Later in November: “we will no longer pay” $17. December: Oracle’s CFO says, “no friendly deal can be done with the current BEA board at a price and terms acceptable” to Oracle. January: the gavel bangs at $19.375.  There are several lessons here.  First, the CFO may have hurt his personal credibility and Oracle’s credibility.  Why?  Because his public positions about the “fair price” didn’t match the end result.  This may have been a considered strategy – testing the resolve of the BEA board.  Good negotiators may do such things.  We only suggest that the decision to take strong public positions and then alter them should be done with the implications and risks in mind.  (Remember this if Oracle makes an offer for your company.)  If BEA had rushed down to $17 through lack of confidence, it would have been seen entirely differently.  An alternative approach would have been to say, “I am very pessimistic that a friendly deal can be done (and so on).” It leaves room for a change in position.  There is both art and science to negotiations.

What does all this demonstrate?  Negotiating is often complicated, but some principles apply again and again:  K&R’s NSR™, the concept of negotiating leverage, the use of Principled Concessions™ when you change your price or terms, the importance of your credibility as a long-term asset, and bringing your team together.  The result for BEA was a 14% improvement in the offer price within 90 days — that’s a pretty good ROI. (TD)

BEA and Oracle (Part 1)

In recent articles, it was reported that BEA “spurned” a $6.7 billion offer from Oracle to purchase the company.  It amounted to $17 per share.  BEA countered with a statement that $21 per share would be a more reasonable figure.  These actions established a “Negotiation Success Range™” (NSR™).  Negotiation skill will determine at which end of the range the deal closes (if it does).  Beyond skill issues, BEA also may feel pressure to answer to stockholders who may find the offer attractive as a share price.  So BEA’s counter-offer could have one of several meanings, including:

  1. A deal can be struck, probably at some intermediate price between $17 and $21.  The parties must find compelling arguments to make the other side move closer to closing.
  2. BEA may have no intention of accepting.  If a seller makes an offer that is too high, buyers often walk away, and BEA might want this.  It depends on BEA’s knowledge of their own value.
  3. BEA may need to convince their shareholders that BEA’s value is far above the offer.  In this case, the counteroffer may be more an argument to convince their shareholders than a real counteroffer.

In the same article, Oracle was reported to give BEA a deadline to decide, or Oracle would directly approach the shareholders.  This is an attempt, common enough in negotiations, to apply pressure by escalating to a “higher power” (shareholders, in this case).

These tactics are the same ones that are used in everyday commercial negotiations: escalation, creation of an NSR™ within which a deal can be struck, and appealing to people with different motivations than the ones you are presently dealing with.  You should be prepared to see them in your negotiations.  We can help.  We bring superior knowledge of negotiations to add to your superior knowledge of your negotiating counterpart at your client or supplier. (TD)