Open Menu

process

The need for process

In a normal commercial negotiation there should be clear objectives and the negotiator will try to spend as much time as possible studying the client and the culture in which he or she is negotiating. If the other party to the negotiations is an existing client and is located in the same country then the negotiations will normally get off to a good start. Such negotiations may be straightforward and may be seen as merely an extension of the sales process. If this is the case then the primary concerns of the negotiator may be directed to the internal processes of his or her organization; to ensure that such business is recorded properly and that it is generating the necessary margins. Concern may also be directed at the costs of bidding and pre-contractual technical work, to ensure that the organization is not only taking on profitable work but that bidding costs are under control. The Sales and Commercial Directors will be concerned to review the commercial processes.

Simple negotiations

Many of the "self-help" books on how to negotiate are aimed at salesmen and purchasing managers who wish to closing normal deals in as short a time as possible. These books often focus on maximizing, or minimizing, the price paid for goods or services. The requirements for an effective negotiation process may however be far more complicated, as a number of other issues may need to also be considered. Simple negotiations can be described as pragmatic, practical and time-limited.

Danny Ertel makes the point that organizations may need to divorce negotiations about individual deals from negotiations about long-term relationships, he says that trading-off value in a deal against the quality of long-term relationships, will be "flawed from the start" ["Turning Negotiation into a Corporate Capability" - HBR May/June 1999, reprinted in Harvard Business Review on Negotiation and Conflict Resolution].

Complex negotiations

In a complex deal, for example a new alliance, a major international contract or a corporate acquisition, a more complex set of processes will be at work. For example in the aircraft industry, where the size of deals may be in hundreds of millions, or even billions, the process of securing these deals is time-consuming and expensive. It is easy to spend your future profits on excessive bid costs, even if you get the business, and once the deal is secured the profit may lie in the long-term support contracts not in the initial price. Such deals are almost always alliance deals; Rolls Royce or GE may partner Boeing or Airbus, the manufacturers of the brakes, the APU, the avionics and other major sub-systems will tie their guarantees and performance warranties to the aircraft manufacturer's own undertakings. The banks, leasing companies and insurance agencies will all be part of the deal and the winning side will be very much a team. Success will come from the way in which the team operates together, like the All Blacks rugby team, not because of the performance of any one individual. In such a case the negotiator acts as the focal point for his team, like the conductor of an orchestra. The negotiator will also need to rely on the organization's own policies and objectives when conducting the negotiation; and the organization's commercial infrastructure needs to be clearly defined.

Continuous Negotiations

There is also a class of negotiation which is virtually a continuous process, for example labor/management negotiations in a large factory, marked by the milestones of particular agreements on pay and conditions, but the overall process continues, there is next year's pay round, changes in working conditions and so on. Political negotiations can also follow this long-term pattern, for example the relationship between India and Pakistan, where conflict over Kashmir has lasted over fifty years, the New York Times said on the 29 May 2002 that "Intractable though the conflict may seem, it has to be settled by negotiation, not war. There is simply no alternative." Such patterns of negotiation may not appear to be logical to the outside observer, they only need to be important to the parties concerned, and there may even be a ritual quality to the dialogue of the negotiations. There are also numerous examples in business where corporations are locked into long-term relationships with suppliers and/or customers. Corporations like Microsoft and Intel of necessity form long-term relationships, as do Boeing and Rolls Royce. Keeping Danny Ertel's point in mind such relationships may require special handling.

Face to face

The actual face-to-face negotiations will develop a process for dealing with all the issues. Draft contracts may be used for guidance (lawyers will always form a key part of the team, but their role is to advise) and a program will be developed for dealing with key issues, including major areas such as financial matters, technical performance, support, and operating costs. The supplier may be required to manufacture part of the aircraft in the client's country (China makes a lot of wheel bay doors as a result of such deals), or there may be technology transfers or sales of other goods to balance the foreign currency being spent on the aircraft. The parties may also take out foreign currency option contracts, or agree that payment will be in goods, rather than currency, for example UK arms sales to Saudi Arabia are oil-linked.

Partnership

Whether the actual negotiations are good-humored, or hostile, may not be important in the end provided a deal is done which both sides will live with and not attempt to overturn. In practice a complex deal will have a greater chance of survival if the parties see themselves as partners and allies, and that the deal is a win-win one. We have noted some of the problems that the parties face in a cross-border deal. A signed agreement is also only the beginning of the long-process of implementation and support, a successful negotiation is one which brings profit to both sides and also creates a real partnership on which further deals can be built.

Presidential Tactics

Writing in the New York Times 22 May 2002 David E Snager noted "that both the China talks and the Kyoto fiasco taught Mr. Bush some lessons on how to accomplish the abandonment of the 1972 Antiballistic Missile Treaty with Russia: Signal your moves, give the other side a lot of time to think about it, and coordinate the response."

Send us Mail
Go to Our Home Page