When is it time to stop negotiating?

negotiating, negotiation

Nobody intends to fail. In fact, most people will go to any length to avoid failing. Once negotiation has begun, it is easy to become obsessed with reaching an agreement at any cost. Walking away without a deal would be a failure.

However, if the situation is not carefully assessed, this desire to avoid failure can lead to agreements that are not in your best interests. That is a colossal failure!

A failure story

I was working with a client who needed some advice regarding a long-running negotiation. My client worked as a senior executive for an IT consulting firm. For several years, the company had provided services in a specialised area to a government department. My client had begun negotiations with the department a year before to take over all of the department’s IT needs. He was worried that he would have to report a failed negotiation to his bosses after a year of ongoing negotiations and significant resources being deployed to pursue the deal. He wanted to know how to close the deal.

We began by considering each party’s interests. My client had individual KPIs to meet, and he ultimately wanted to ensure a profitable and long-term deal for his employer. The department desired strong, consistent service with the least amount of disruption to the business. There were, of course, also financial considerations.

We then looked at alternatives. We knew that if no agreement could be reached, the department would most likely continue to use the incumbent supplier. My client informed me that the incumbent supplier had a long history of working with the department and that, as far as he was aware, the department was happy with the service it was receiving. Based on the information he had, the competitor’s pricing was aggressive and lower than what he could offer while staying within his KPIs.

In terms of my client’s alternatives, he said the market was relatively buoyant. While there were few contracts the size of the department’s, he was confident that securing three or four clients bringing in equal revenue would be simple. Given that the department was pleased with the current service, convincing the department’s procurement team to accept a deal for the same services at a higher price would be difficult.

My client compiled a report for management after conducting a thorough analysis of the situation, justifying why the negotiation should be terminated. Instead of reporting a “failed negotiation,” he reported a “success.” The time spent negotiating had resulted in a strong relationship with the department, putting the company in a good position for future opportunities. During the process, the company also learned a lot about the department’s needs and the competitor’s offering. This was useful information to incorporate into the company’s strategy. The team was able to focus on winning other, more profitable deals in the short term after the negotiation was completed.

Without taking the time to conduct a structured analysis of the situation, the company could have continued to divert resources to a deal that was doomed to fail, passing up valuable opportunities along the way.

Learning experiences

So, what are the key takeaways from this example?

  1. Be careful how you define success, it must be an agreement that is better than your best alternative, not just an agreement.
  2. Applying a structured analysis to your negotiations will help you mitigate biases and blindspots and lead to a better outcome.