This is the fourth post in a series entitled: The Principles of International Negotiation: Finding Universal Value in a Complex World
In our two previous posts on international negotiation, we discussed the importance of P&L (Patience and Listening) and the dynamics of credibility and leverage. One is a practice, the second is a conceptual understanding. They are interlocking and dependent. Patience and listening yield trust and information. Trust and information help us generate credibility and leverage – the two things you must have if you want to negotiate successfully.
What are some other ways to generate credibility and leverage? Over decades of collective experience as international negotiators, K&R has formulated six principles that serve as a guide to the fundamentals of negotiating. In following posts, we will discuss tools and techniques for defining value, negotiation priorities and managing the negotiation process. They all revolve around K&R’s Six Principles™.
These principles align with our core philosophy of negotiation. We believe that it’s more important – and in the long run, more lucrative – to build “Win Wisely™” situations where both parties can leave the table with their major objectives met and be satisfied with the value they have received. The Six Principles are your guide for creating these situations.
Principle 1: M.O.R.E. – preparation is key to a winning negotiation.
Lack of preparation is one of the top causes of poor negotiation results. Preparation means rigorous information gathering, not only about the transaction at hand, but about the other side and their likely motivations. In international negotiation, this also means studying your counterparts and considering how national, or even regional, cultural differences may come into play.
The M.O.R.E. acronym outlines three necessary elements and their outcome when preparing for a successful negotiation.
Thorough preparation requires that we probe and gather information to gain a more complete understanding of both the customer’s and the seller’s motivations and objectives. Why are they acting as they do? We also need to understand why we, including our team, are acting as we do. The relationship between motivations and objectives is simple. Motivations are the “why,” and objectives are the “what.”
Why is a buyer taking certain steps to improve their business? Why is the seller motivated to get cash up front or not? Usually the answers to the “why” questions come from looking at the current state of the person, their business and their history. Experienced negotiators do their research and host planning sessions to gather this kind of information early in the negotiation process. This information is used to build a solid foundation of knowledge that reduces the possibilities of surprise.
One common preparation error is to assume that the other side is “like us.” It is easy to do – we filter our information unconsciously to match the way we are used to seeing it. The tendency for humans to discard information that does not fit our own mental model is well known. When working internationally, you need to be careful not to let unfamiliarity with local standards cause you to discard important negotiating information.
Here’s a negotiation example from a recent situation where a better understanding of motivations and objectives could have resulted in a better deal.
An emerging market buyer wanted to obtain a technology license. They kept increasing their offer just to get a deal done quickly. “Time to close” was their objective, which was a revenue-based business motivation. The American licensor kept saying “no,” and the buyer kept offering more and more money in an attempt to get the license. The licensor said “no” because their major fear was that the buyer would compete with them. This was a misunderstanding of the buyer’s motivations. In turn, if the buyer had done some research, they would have found that the licensor was burned once before by a buyer that became a competitor in another market. Rather than increasing the price, an offer that included a non-compete provision would have been a lot cheaper, and closed a lot earlier!
Have you considered all the factors that influence the behavior of the people with whom you are negotiating? Buyers are often motivated by specific weaknesses in their business, and the objectives they seek are steps to remedy those weaknesses. To them, a deal that does not address those objectives becomes low priority. Vendors may be motivated by seasonal cycles, so cash may be key to them when they need to build inventories to address those cycles.
For buyers, a winning proposal is expressed in terms that are relevant to their motivations. If they are worried about risk, factors like the vendor’s track record and market position will have a strong influence on their behavior.
Early time spent understanding possible motivations can save substantial time in closing the deal at the end of the process. In the end, motivations drive actions in negotiations.
These are your and the other side’s true goals. What is the outcome they seek? Revenue and profit are two common business objectives. Determining the true objective of the other party – what the problem really is – is critical to developing the proper requirements.
Fundamental questions at this step of the process will explore what both parties are seeking to achieve as a result of the relationship or the contract. Credible value statements are more powerful if they link to the measurable objectives of the other side. For publicly traded companies, the objectives are often aligned with statements and promises management makes to shareholders. Vendors or buyers that align with a company’s corporate objectives usually will get to closure sooner, and with better terms. For public entities, offers that address fundamental mission goals will be more successful.
While motivations are the “why” and objectives are the “what,” requirements are the “how.” In other words, the requirements in a negotiation are the steps agreed to by the parties to achieve the objectives. Most proposals should clearly outline the objectives and focus on requirements. Either I am telling you how I will achieve your objectives, or you are telling me.
Miscalculating or cutting corners on the objectives will usually produce inaccuracy in the requirements and eventual disagreement on whether a deal is successfully fulfilled. For example, we often hear that IT projects disappoint because there is clear understanding of neither the expected deliverables nor the division between customer and vendor responsibilities.
Cross-culturally, requirements can cause problems. A simple example: while in the US the regulatory obstacles to layoffs are relatively low, in the E.U. it can be quite expensive to downsize. In Japan, it may be culturally impossible. A requirement statement in a negotiation that mandates downsizing to generate savings will be received very differently in each of these three geographic locations, and have different financial outcomes.
Understanding of Motivations and Objectives, and then outlining the Requirements, is critical to effective deal-making.
Gaining the E in M.O.R.E. is getting the edge, or advantage, by putting due diligence into the M, O, and R.
It is imperative that internal and external planning and fact-finding activities for either side be comprehensive, leaving as little to chance as possible. A business entering negotiations with a potential customer will plan early and often, engaging a competent, cross-functional team to explore as many questions as possible about the motivations and objectives of both parties. Not only does a seller need to understand the buyer, but a buyer also needs to understand the motivations and measurements of the seller. This way they can understand what the seller needs to make the sale successful for them.
In our next post in this series, we’ll discuss Principle 2: Protect your weaknesses, utilize theirs.