In-Depth

Best Practices: Learning to Love the Deal

Top-notch negotiators aren't born with that talent; they develop it by practice. Here's how to sharpen your own skills before you ever sit down at the table.

• By Fred Bayles
• October 01, 2006

The talks had come to the usual negotiation roadblock: money.

QuickStart Intelligence Inc., an Irvine, Calif., Gold Certified Partner that offers IT training and certification, had made a proposal to a client for a custom class. The client then shopped around and found another firm that offered a more prepackaged training session for two-thirds the price quoted by QuickStart. The class was less than the customer wanted, but the lower price was a bargaining chip.

"Our response was that we were talking about a custom class with more value," says Hicham Semaan, QuickStart's president and CEO. "Then we tried to find ways for them to cut down the cost without cutting that value."

Semaan and the client determined that they wouldn't need courseware for everyone taking the training. They decided to move to the client's facility to further cut costs. In the end, vendor and client were able to collaborate on a plan to trim more than $6,000 from a $50,000 contract. To use the well-worn phrase, it was a win-win outcome. The customer got the custom program it wanted at a more budget-friendly cost. QuickStart received good value for its work and a continuing relationship with a client.

"The most important part of negotiating is to understand what matters most to the person you're working with," says Semaan. "If you ask the right question, you get a good feel for how they [weigh] the different options."

Sounds simple. But for many people, deal-making is anything but easy. Although most of us spend a lifetime in negotiation -- from wheedling a second cookie out of Mom to working out that complicated treaty called marriage -- few of us enjoy the process when it comes to the business world.

"It is akin to the fear of public speaking. There's a barrier that many people have when dealing with someone they don't know," says Grande Lum, author of The Negotiation Fieldbook: Simple Strategies to Help You Negotiate Everything (McGraw-Hill, 2005).

As founder and managing director of Accordence Inc., a Burlingame, Calif.-based consulting and training firm specializing in negotiation, Lum sees many people come in with the idea that negotiation is all about confrontation. "It's the notion that the other person will take advantage of them," he says. "You expect the worst and, in some ways, you can create that situation by anticipating it."

The other general misconception is that negotiating skills are innate to some and inaccessible to the rest of us. Michael Wheeler, a professor of management practice and a negotiation expert at the Harvard Business School, says few negotiators are naturals.

"People assume you're either a born negotiator or not," he says. "We can demonstrate over the years that people's effectiveness can be improved."
The improvements also come to those who think they're natural negotiators -- but who, in fact, come off as too aggressive. "In some cases, confidence needs to be brought down a little bit," Wheeler says.

Wheeler's students sharpen their skills through mock negotiating sessions. They study game theory and psychology. They analyze research that identifies best practices. While we can't presume to offer a Harvard MBA course in negotiation, what follows is a primer on some winning negotiation practices followed by the experts, including Microsoft partners.

More Than Money
If the experts agree on one thing, it's the mistake many negotiators make when it comes to money issues. That's the notion that any deal can be cut by finding a middle ground in respect to the bottom line.

"The biggest misconception that I've encountered is that most people think negotiation is about concession or splitting the difference," says Robert Bordone, director of the Harvard Law School's Negotiation and Mediation Clinical Program. "If you have a customer saying $80,000 when you're saying $150,000 and you start by trying to get somewhere in between, you're just haggling. If, instead, I ask 'Why $80,000?' I might learn things that could lead to a better agreement for both of us."

Bordone uses the example of a company that wanted to pay less for a machine than the supplier was asking. However, it wasn't a simple case of wanting a lower price. The buyer was concerned that the machine would fail within three years, cutting into the value of the purchase.

"Instead of fighting over the bottom line, you could set up a contingency contract that says, 'Pay me something lower than I'm asking, but pay me another $150,000 in the fifth year if you're still using the machine,'" Bordone explains. "By doing something creative like that, you're being attentive to the relationship. It's ultimately not good for business if I get an extra dollar at the cost of creating tension with a customer."

Lum says the same is true for other forms of negotiation, such as arriving at a salary package for a job prospect. "People see money as a measure of value and self-worth," he explains. "That's where you try to find substitutes, such as [a better] job title or less-expensive perks."

There are other substitutes for money: stretched-out payment schedules, timetables of the delivery of services or goods, contingency agreements for successes and failures.

"You might establish that time frame is most important," says Semaan. "It might cost the customer more, but that might be more important than cost. There are a lot of variables that you learn through experience."

Preliminary Work
The best negotiators, say the experts, are the ones who have done some preparation in anticipation of the issues. A key step in that direction: Do some research to understand the other side's point of view. What do they need out of the deal? What is important to them?

"You should write down a list on what you think might be important negotiating points. What goals are shared? What issues are non-competing?" says Bordone.

He cites the case of a health-insurance company that wanted to renegotiate a contract with a hospital. The main sticking point in the previous agreement was the time in which invoices for services had to be submitted to the insurer. The existing contract required filing within 90 days. The insurer wanted to cut down the time to 45 days. The hospital wanted to extend the deadline to a year.

The numbers weren't arbitrary. The insurer wanted a quicker turnaround to allow for better, timelier budgeting decisions. The hospital wanted more time to allow for flaws in its accounting systems.

"The insurer had just installed a new, more effective accounting system and I suggested they lend their people to the hospital to help fix its problems," Bordone recalls. "At first the insurance people said the hospital would never do it. There had been a history of contention. They said 'They don't like us.'"
As it turned out, the hospital was grateful for the help. The deal cost the insurer a bit upfront, but the agreement had long-term benefits for both sides, including a better accounting system for the insurer, quicker, more accurate billing for the insurer and a closer relationship between the two that eliminated some of the division and created something closer to a partnership.

"These are the kinds of things you want to be doing," Bordone says. "Whoever winds up paying for it, it is worth more than money."

Bordone says this example shows how you can save time and aggravation by being open about your goals. "You need to first discuss: What are the concerns in respect to the issues?" he says. "You can make more progress if you understand each others' positions."

Still, it can be a tricky process to get both sides to open up about their real worries. Bordone says it takes work for people to develop enough trust to share information with people across the table.

"People don't often do that when they negotiate," he says. "People are so concerned that they are going to get taken advantage of that they don't want to give up information. It's only when you're able to put yourself in the other side's shoes that you can make real progress."

A Step-by-Step Approach
For the IT world, negotiations between customer and client are more likely to be over consultation and services than products. That makes negotiating even more complicated. Once an agreement is cut for a quantity of widgets, the deal is done. But service agreements can cover months, if not years, and change with each step.

"With goods, there's a finite end to the deal. Services are ongoing," Wheeler says. "There's a stronger relational dimension to negotiating service agreements. There are surprises and understandings to work through."
But these longer-term relationships also offer new opportunities in negotiations.

Ken Ryder, vice president of Systemgroup Inc., a Mississauga, Ont., Gold Certified Partner that specializes in application development and integration services, tells of working with a Canadian health insurance company that was looking for someone to help set up a billing and claims management system.

Instead of the tough, time-consuming task of laying out a soup-to-nuts agreement, the two sides took a step-by-step approach with an initial $30,000 contract for a proof of concept. That first step led to others and eventually a $3 million relationship that lasted more than two years.

"If you break down a project into manageable chunks, it reduces the risk," says Ryder. "You develop a roadmap to get you to a destination with a couple of steps along the way. Often, as you move forward, you can earn a trust that makes it easier as you move through the next step of negotiations for the project."

This step-by-step approach also means that other members of your staff outside the sales department may find themselves involved in negotiations.
"There are times when your consultants are the real sales force -- the ones that keep the sales going," says Jonathan Edmett, vice president of sales and marketing for Solutions Consulting Group Inc., a San Diego-based Gold Certified Partner specializing in enterprise resource planning and customer relationship management. "A lot of business is done outside the earshot of the sales guys."

Edmett uses the example of a step-by-step contract with a major West Coast insurer that wanted to replace an antiquated system. He helped negotiate the project's first $30,000. After that, the continuation of the business relationship fell squarely on his project managers' shoulders. It was that staff, not the sales department, that was instrumental in negotiating the next phases of the contract, which was worth in the neighborhood of $750,000.

"A vast majority of the time spent with customers is spent by the project managers," Edmett says. "The customers look to them to solve their problems and sometimes consultants are afraid to tell them the truth. But if you teach them to paint an honest picture, let them know what you're thinking, you develop a good relationship that leads to easier negotiations on the next phase."

These slow-motion negotiations help in preparing a customer for the realities of the magnitude and cost of a job you're bidding on. Edmett says some of his clients initially want to pay $500,000 for work that would cost his company $750,000 to deliver.

"Customers have a tendency to underestimate jobs because they don't know [how much] work [is] involved," he says. "It's our job to educate them about it. That's why we don't refer to it as 'negotiation.' We call it 'managing expectations.'"

7 Tips for Negotiators There's no shortage of books on negotiation. Among the best known: Getting to Yes (Penguin Books, second edition, 1991), written by members of Harvard Law School's Program on Negotiation. The program's Web site is also a fine resource. Meanwhile, here are some tips for handling the mechanics of negotiation: 1. Unclench those fists. Forget the notion, made popular in some how-to books, that negotiation is a battleground where you wear down opponents. Instead, focus on the idea that bargaining isn't a zero-sum game. A good deal for one side doesn't necessarily mean a lesser deal for the other side. 2. Research the other side's position. You'll be better prepared to negotiate if you understand what's driving the other team. Have the last few quarters left them feeling flush or frugal? Are they facing a deadline that makes time a major factor in negotiation? 3. Stay flexible. Don't go in with a rigid plan of attack that offers no wiggle room. There can be surprises in any negotiations and you should be prepared to respond. Some top negotiators have been compared to jazz greats for their ability to improvise on the spot. 4. Consider the other side's budget. The days of limitless cash ended with the dot.com bust of a few years ago. Controlling costs is everything these days. Be realistic about the cost of the deal to your team and theirs. 5. Manage expectations. You know more about your goods and services than your customer does. Negotiations move more smoothly when you communicate the realities of what you're offering before haggling about the cost. 6. Break negotiations into steps. It's easier to negotiate a complex project in stages. Start with a detailed proposal or feasibility study may help smooth the way when you get to negotiating implementation. Along the way, both sides develop levels of knowledge and trust that can enhance long-term partnerships. 7. Involve your entire staff. Your salespeople might be the prime movers in getting a deal rolling, but almost everyone on your staff has an impact on further discussions. Encourage project managers and consultants to communicate with clients in ways that help move deals to their next phase. -- F.B.

From Adversaries to Partners
In any negotiation, remember that the person you're dealing with must report to superiors, just as you must likely do. That is why it's so important to develop a good connection with your counterpart in negotiations.

"A good individual negotiation helps with the web of negotiation that follows behind," says Lum. "You have to focus on building rapport and developing a relationship. You can then have that person be an advocate."

And don't make the common mistake of revealing a chip on your shoulder when dealing with someone from a bigger company.

"When you're a small business, you can get intimidated by working with someone from a much larger corporation," Lum says. "You might be more aggressive than you realize and create a negative situation."

Lum suggests taking a cue from the way world-class athletes handle competition. "The best are able to be more relaxed when the stakes are higher," he says. "You can't let psychological barriers get in the way. Like a good athlete, a good negotiator has to stay in the moment."

But he cautions that sometimes a little hardball is necessary.

"I think there are times when you can't get away by holding hands and singing, 'We are the World.' There are instances when you have to be very assertive, and there are times to walk away from the table," he says.