Sales organizations spend a great deal of time and money on negotiation skills training. Much of that investment is sub-optimal and in essence, sales teams are being trained on how to execute your company negotiation strategy. The problem is there is still a prevalent view that negotiation is a “soft skill.” When we execute training without a broader organization strategy improvement, we are, in substance, automating a broken process.
We recently consulted with a global account organization where their customers in France were bypassing their local account teams and buying from the German account teams as the prices and terms were better! This type of incoherence not only lowers margin, it creates a lack of trust.
“Companies rarely think systematically about their negotiating activities. Rather, they take a situational view, seeing each negotiation as a separate event, with its own goals, its own tactics, and its own measures of success. That approach can produce good results in particular instances, but it can turn out to be counterproductive when viewed from a higher, more strategic plane.”
Danny Ertel, Harvard Business Review
Harvard Business Review reported that the primary negotiation issue facing companies was not with customers, or against competitors, but rather the “internal negotiation.” Specifically, a lack of coherent cross-functional agreement on negotiation parameters, desired outcomes and processes. Think! Inc.’s own research suggests a more coordinated approach to organizing and managing negotiations can greatly optimize deal approval process, sales rep’s success, and competitive gain. Executives need to move away from the situational view of negotiation, stop seeing it as a soft skill, and understand that negotiation can be managed as an institutional capability.
Training to provide better skills on how to negotiate is crucial, yet if we fail to address a coherent negotiation strategy before training, we improve only half of the negotiation infrastructure for your company. Negotiation Strategy (where we want to go) followed by a Negotiation Process training (how we get there one negotiation at a time), provides the one-two punch needed for ideal improvement.
But are all negotiation strategies are created equal? In our experience, we typically see one of two versions of a negotiation strategy at work in our client companies;
- Highly centralized where all deals need approval. This approach reduces deal variance but is often cumbersome, slow, and strips power away from those closest to the customer.
- Highly decentralized where those closest to the customer (sales rep or account manager) make all the deal decisions. This approach gives more power to those closest to the customer but can result in hugely inconsistent outcomes and wide deal variance.
Neither a ‘bureaucratic hand-cuffed’ nor a ‘wild, wild west’ approach is ideal. Instead, we endorse a highly centralized strategy with highly decentralized execution that employs a negotiation strategy created by the cross-functional leader team, and is executed by the sales team real-time and one deal at a time.
In summary, the purpose of a Negotiation Strategy is to develop organizational best practices that guide, and track, the process and outcome of a negotiation. Simply stated, “What’s a great deal look like and how do we consistently produce them?” Negotiation aptitude should extend beyond an individual negotiator’s skill set and become an organizational competency.
LEVERAGING VALUE AND COMMERCIAL TERMS SIMULTANEOUSLY
Related, is the missed opportunity of tying commercial terms together with value. Our experience coaching over $1b in negotiations coupled with training 20,000+ salespeople in 47 countries over 21 years has led to a second and perhaps more important issue for negotiators. We constantly observe, even with the most seasoned and experienced sales reps, reactive negotiation discussions about commercial terms separate of the value discussion.
We define value as “how you meet customer needs with higher confidence and lower risk than the alternatives,” yet according to our primary research, 85% of organizations we surveyed are not making negotiation pricing and risk decisions based on this definition! The often-missed goal for sellers and deal approvers is to proactively change the conversation, far earlier in the sales cycle, from price of products to value of solutions.
Having a discussion with a customer about “it costs too much” without also talking about the value of “it” results in lower margin and higher risk in contracts.
OUTPUT OF A NEGOTIATION STRATEGY
The results are a shared expectation, language and process for negotiation, applied both internally and externally. Specifically, we measure results in two categories;
- Business Impact: What behaviors and deal terms do we want more and less of (leading indicators) to achieve our intended measurable business results (lagging indicators), i.e. – revenue, margin, etc.
- Process improvement: We look at improving the effectiveness and efficiency of the deal governance and deal review process threading through the customer, salespeople and cross-functional stakeholder perspectives.
- Leveraging your value during the commercial terms discussion.
The cross-functional leader team will define a set of success metrics and specific deal governance guidelines intended to signal the sales team how they should negotiate deals. Further, management will define structured steps for the internal deal review process. Once the negotiation strategy is developed, it will get implemented by the sales team using the Negotiation Blueprint Process. Our proprietary SalesForce.com integrated cloud technology houses the “real-time,” and shifting, priorities of the cross-functional stakeholders and is readily accessed by the sales team.
The process for developing a negotiation strategy is largely headlined around deal governance. That is, the structured steps salespeople and internal stakeholders take to get deals approved. The current process is mapped, and an improved desired state process is recommended. Work will include a “value analysis” used to determine your competitive position and can also be used to inform how aggressive to be on commercial terms. This work patterns the above definition of value: “how you meet customer needs with higher confidence and lower risk than the alternatives.” Available commercial terms and trades will be assigned a high and low range for each and a prioritized order, all with approval from the stakeholders who own them. These terms and ranges will comprise a library to be accessed by reps and managers.
There are very few opportunities to create significant competitive advantage and combining negotiation strategy and process is one of them. Nearly 85% of the organizations we surveyed do not have a formal organizational negotiation strategy. Most are strategy by default. When combining both internal strategy and external process for negotiation sales teams are better prepared than customers or competitors. The outcomes in terms of process improvement, margin and risk sharing and ultimately your brand are powerful.
Find out more about a negotiation strategy in this Strategic Account Management Association (SAMA) Velocity article.