Strategy: Negotiation and deal-making

How to win!

CEO of Rich Futures Clive Rich asks how well we are prepared to negotiate on the international stage; and whether our deal-making with other countries suffers because of an inherent skills gap.

 

 

 

 

We live in a new ‘deal economy’ where everybody needs to make deals in order to succeed. Yet negotiation skills are seldom taught or practised. This can mean people either lack confidence when they negotiate, or they negotiate from gut instinct, not really knowing why it has worked when a deal goes well, or what went wrong when a negotiation doesn't work out.

Maybe that's you? Sometimes people assume that negotiation is very easy and there is nothing they need to learn about it. These attitudes leave UK Plc at risk of being left behind as the global ‘deal economy’ gathers pace and it becomes ever more important to have international trading partners.

Technology is partly responsible for the increasing importance of international deal-making skills. Technology has made the world a much smaller and more inter-connected place, so we all need deal partners to help us reach a potentially much wider, global audience. Technology also enables everybody to compete in everyone else's space, so we all need deal partners to help us compete effectively. Technology also means that we have to respond quicker than ever before to market opportunities before they disappear, so we all need deal partners to help us execute at pace.

The most successful people at creating these deal partnerships will be those who are the most effective negotiators. Yet, do UK negotiators have the key attributes of these individuals? If not, the UK potentially faces a ‘negotiating deficit’ which is just as significant as its current trade deficit. Indeed, the two are directly related. This negotiation deficit, if not addressed, will grow as China and India increase their negotiation strength, as emerging economies like Brazil become more powerful, as the demands of technology place an ever greater premium on effective deal partnerships, and as the lingering effects of recession and the credit crunch continue to squeeze the availability of working capital.

So, what is it that effective negotiators do differently from normal people? Firstly, smart negotiators tend to bring an effective attitude to the negotiating table. Research shows that good negotiators feel positive about themselves, and believe that they can win. Is that an attitude that is prevalent among UK negotiators, or are we generally a bit more fragile than that?

Top negotiators also believe that a win for the other side is as important. In any long term partnership, both parties to the deal need to feel like winners. So win/win is the most effective negotiating attitude. Variations to that approach tend to create negative outcomes. For example, if you play lose/win (where a win for the other side is more important than taking care of your own needs), then you are very unlikely to end up with what you want. If you play win/lose (where you don't care what happens to the other side), you will just create problems later on—nobody likes to feel like a loser. Sometimes people end up playing lose/lose (where it's more important to punish the other side than to worry about a win for either party). You can guess what kind of outcome that destructive attitude creates.

Bringing a win/win attitude to the table is often a function of properly understanding the bargaining power on either side. Who holds the aces? People often underestimate the bargaining power they have on their side by focusing exclusively on the ‘market power’ of the other side. Yet there are many other sources of bargaining power, including expertise, information, the power of numbers and access to influential networks. Marshal your bargaining power and you can feel positive about any negotiation. The UK's deal makers will increasingly need to do that in order to compete with both larger and emerging powerful economies.

Secondly, effective negotiators know how to manage the negotiation process. Most negotiations follow a set pattern, with a number of recognisable and distinct stages. If you know what stage you are at and how to handle that stage, then that automatically gives you an advantage over the side, who will generally be completely confused as to what is going on at any particular stage. The first stage is ‘preparation’. We all lead such busy lives that time spent on preparation can seem like something of a nuisance. In fact, however, it is an investment of time—fail to prepare and you prepare to fail. Good negotiators take the time at this stage to map out their approach in advance. They also consider what their ‘megawin’ position is (their ideal position, which will comprise their opening bid), together with their ‘bottom line’ position (the point at which they will walk away from the deal). The distance between these two positions gives them the space in which they can negotiate. 

The next stage of the negotiation will be ‘climate setting’. What's going to be the atmosphere in which the negotiation takes place? Effective negotiators consider whether they want the negotiation to be ‘warm’ (with a friendly atmosphere), ‘hostile’ (very pressurised and fast-moving), ‘cool’ (very objective and data-driven) or ‘wacky’ (fun and off-the-wall). Different climates suit different kinds of negotiation, and different nationalities.

The third and fourth stages of a negotiation are exploring ‘wants’ and ‘needs’. Good negotiators know that you can't expect to engineer a win/win outcome if this stage is skipped in the rush to get to the ‘haggle’. It's important that each party understands what the other side ‘wants’. ‘Wants’ are organisational requirements like price, quantity and delivery dates. It's even more important to understand what the other side ‘needs’. ‘Needs’ are the underlying emotional requirements that each side has from the deal. These are critical to understand, because they underpin the whole negotiation, and yet they are often unspoken. These needs will always exist and will need to be identified regardless of the nationality of the negotiators. Does the other side have a security or reassurance need? Are they desperate? Do they need to achieve something unique as a result of the deal? Do they need respect or esteem? Great negotiators are adept at working this out and using it positively.

Now the parties are ready to move on to the ‘bidding’ stage of the negotiation. This is where the offers come on to the table. Good negotiators know the importance of bidding high. Generally speaking, as a negotiator, the more you ask for, the more you get. They also know the importance of being convincing when you bid. Traditional UK reticence and politeness is not always what is required—“I want”, “I need” and “I require” are all far more effective than “Would it be ok if...?” or “Could I possibly have...?” Different nationalities will come from different cultures where they may be either more or less comfortable about being upfront in expressing their requirements, but good negotiators everywhere will be convincing when they bid.

The bids will reveal a gap in the parties' positions. This is when the ‘bargaining’ phase of the negotiation starts. What can the parties offer to each other in order to close this gap? Are there low-value concessions which one party can give which have a high value to the other side because they meet a personal need? These concessions —called coinage—are like gold dust in any negotiation. Are there incentives and pressures that either side can deploy? The effective negotiator remains super-observant and flexible in this stage, and never gives something away for nothing. How effective are UK negotiators in the heat of the haggle? Do they tend to sink or swim when the bargaining pressure is on?

If the parties can bargain successfully they will arrive at the final stage of any negotiation, ‘closure’. Skilled negotiators know how fluid this moment is. It must be bottled immediately before either party changes their mind, goes through a re-structure, or is impacted by new economic factors, or before a deal champion on either side leaves.

During the negotiation process, different behaviours will suit different stages and different opponents. The effective negotiator understands this and has the full repertoire of behaviours available—choosing the right behaviour for the right occasion, regardless of any cultural behavioural norms from their own country. Sometimes ‘push’ behaviour is called for—focusing on your own agenda. This is when it's important to state your expectations, use incentives and pressures and make proposals backed up by sound reasons. Push behaviour is especially useful at the ‘bidding’ or ‘bargaining’ phase of a negotiation. It's also very useful if you are dealing with ‘tough guys’. These are people who pile on the negotiation pressure—for example using threats, aggression, deadline tactics, or playing good cop/bad cop. These people need to be ‘pushed’ back by making it clear you know what they are up to. Sometimes ‘pull’ behaviour is required—focusing on the needs of the other side. This is when it's important to listen, explore and focus on common ground—all very useful in the early climate-setting and exploring stages.

Other behaviour options include ‘joining’—inspiring others to work with you on the deal; and ‘parting’—taking your energy out of the deal by calling for a break. Parting behaviour can be especially useful in the bargaining phase when the atmosphere can be pressurised and fast moving, and breaks enable the parties to re-group and re-energise.

The good negotiator knows that effective behaviour is not just a question of selecting the right behaviour for the right occasion, but also a question of modelling that behaviour effectively. Research shows that 93 per cent of the effect of what we say consists not of the words we use but of the ‘music’ and the ‘dance’. The music includes the way we use our voice—its pitch, rhythm, pace, tone. The dance is the way we use our body—our facial expressions, eye contact, gestures, the way we fidget. If UK negotiators find that their chosen behaviour doesn't work it may be that they are either out of tune with the required music or out of step with the required dance, so the impact of their behaviour is reduced.

Skilled negotiators also go out of their way to avoid negative behaviours, whether these are aggressive or passive. You will rarely see an effective negotiator use threats, or be sarcastic, patronising, presumptuous or dismissive. Nor will you see them model weak behaviours such as imploring, begging or avoiding. 

So, effective international negotiators know the importance of managing the three angles of successful negotiation—attitude, process and behaviour. They will be more equipped than anyone else to prosper in today's new internationalised deal economy. Much is made of the need to understand cultural differences when negotiating with the Chinese or Middle Eastern countries; and it is true that any intelligent negotiator would take these cultural differences into account. However, these three essential ingredients of effective negotiation underpin any deal, regardless of the nationality of the participants.

Still feel there is nothing more for UK deal makers to learn about negotiation?    

See Clive Rich talk about negotiation and deal making on YouTube: http://www.youtube.com/watch?v=7grkULA22eg. He can be contacted at www.cliverich.com