Some concepts are better expressed using an example. Our client was at a crucial juncture with their customer — a European bank. In just three months, the time frame was expiring on an agreement to provision identity access management. That project had been running for three years, and had progressed substantially as forecasted. So a renewal to continue with the work was being discussed, plus, our client wanted to extend the scope of services for 24/7 identity and access management, which they believed the customer could use.
This project was extremely complex, and it was incumbent on our client to express the value delivered to that point. This is extremely important: Nobody owes you recognition of your value. You have to make the case!
Being successful in this situation meant deriving leverage from that value. The concept of leverage originally comes from physics – as Archimedes said “give me a lever long enough and… I will move the world.” In a pulley system; the more levers 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.
This is a far cry from the coercive connotations that some people attach to the term leverage. At K&R, we see leverage as a positive force towards mutually beneficial agreement. In this case, we saw that our client’s key point of leverage was “incumbency,” or the fact they were already doing the work, backed by a substantial cache of existing knowledge.
How did our client recognize and use this leverage? By making the case for their value, which their banking customer acknowledged. Our client could document that they had delivered valuable services and have it affirmed by the customer. Negotiation teams often make the mistake of assuming that the client understands all the things you can see in plain view. They don’t. It must be presented and either challenged, clarified or affirmed. This gave our client confidence and set the stage for the expanded 24/7 service offer.
Three other key principles were in play that supported the value argument:
No unprincipled concessions: Explaining the value of price and terms took time — we advised our client not to make unprincipled concessions trying to close before year’s end. At one point, their customer wanted to shorten the delivery period without otherwise changing the terms. Our client granted it — with the caveat that the price would go up. Because the value was previously acknowledged by both parties, there was no significant challenge to a reasonable raise in the customer’s investment.
Negotiations are a continuous process: In the service of building lucrative, long-term relationships, no single negotiation should be viewed as “the end of the story.” How we conduct ourselves and manage the process will inform everything that follows. In this case, the customer knew going forward that our client would only act in a principled way based on client value. This made the relationship more valuable in turn.
Management buy-in and patience: One of the most challenging aspects about complex negotiations is when “pressure from the top” causes us to rush a deal, erode our own leverage and degrade the gains. In this case, we were successful in getting management’s approval for a diligent and principled approach guided by longer-term value, not quarterly numbers.
When an agreement was reached, revenue had improved by $740K over the initial value of the deal. Our client used their incumbency and track record to create a value argument that made the buyer feel good about the decision and the relationship. This not only protected our client’s target price; it will give them negotiation capital that will pay off in later transactions.