The continuation of a relationship is all too often used by negotiators as a threat to secure more advantageous concessions, rather than as a true basis for shared profitability.

By

Tony Shepherd LL.M.(SYD),A.S.D.A.,A.T.C.L.

 

In the context of negotiating outcomes and agreements, when is the relationship between negotiating parties not a relationship? The answer seems to be when one party uses the threat that they will withdraw from the relationship if additional concessions or accommodations are not granted.

Negotiating terms on which products or services are to be provided to multinational corporations or indeed, governments, is becoming a major challenge. As these large bodies understand and flex their leverage and purchasing power, they often seek to pressure providers and depart from accepted doctrines of mutuality. The use of procurement teams has made the problem worse for they often pursue a mandate of securing cost concessions without fully comprehending the subject matter of the negotiations.

 

The Negotiator’s Dilemma

Services Inc. won a 2 year contract to provide technology services to MegaCorp, a multinational corporation. A term of the agreement was that throughout the contract, Services Inc. would conduct 2 day intensive training sessions for MegaCorp staff, as required, at an agreed cost of $5,000 per session. Sensibly, Services Inc. won inclusion of a cancellation clause in the original contract whereby if MegaCorp booked a session but cancelled within 7 days, the full $5,000 would be payable.

All went well with the agreement, including the conduct of several training sessions, until eight weeks out from the expiration of the initial contract period (and Services Inc. hoped the agreement would be extended) when MegaCorp booked then cancelled a training session one day out from the nominated presentation date. On learning of the purported cancellation Services Inc. did everything possible to offer MegaCorp a range of collaborative alternatives to avoid cancellation – Could other people within MegaCorp attend? Would a switch of venue help? MegaCorp simply said “No, due to events within MegaCorp which weren’t foreseen at the time of booking it doesn’t suit us to have our people attend. Sorry”. Services Inc. gingerly raised the previously agreed cancellation fee.

MegaCorp’s response was interesting. They indicated that given the possible continuation of the deal for a new term, if Services Inc. truly valued the “relationship”, they should waive the fee. MegaCorp went on to point out they were not guaranteeing renewal because they were committed to retender, but waiving the fee would put Services Inc. “in a very positive light”. They also indicated they were in all respects more than happy with Service Inc.’s performance to date. Unanimous wisdom within Services Inc. was to drop the fee.

Services Inc. retendered and lost the renewal to a generic, lower cost competitor. Did they do the right thing in waiving the fee?

 

Two Kinds of Interests – Substance and Relationship

In their seminal work “Getting to Yes” Fisher and Ury neatly identified two kinds of interests negotiators must balance – the substantive terms of the deal (eg fees, security, intellectual property protection) and relationship issues flowing from the interaction of the negotiators (eg that the parties treat each other respectfully, be accessible, etc.)

The modern conundrum exemplified by the above example is that many negotiators, especially large corporations, intentionally or unconsciously confuse these two kinds of interests. As soon as they are presented with a substantive term that does not suit them, they pressure the other party to concede or vary the term as a sign of their “commitment to the relationship” especially where they perceive the other party wants to continue to provide their product or services to the corporation.

What is ironic in all this is the lack of reciprocity these parties offer. Surely relationship is a two way thing. Where was MegaCorp’s wise and ethical voice saying, "Look, we unilaterally and without notice cancelled the session and we agreed to pay if this happened. In recognition of our agreement and relationship with Services Inc, we should pay the fee.” One can only wonder.

What is advocated is to encourage negotiators like Services Inc. to bear in mind and practise an objective relationship test. The subjective “happiness” of the other party is unworkable as a relationship test, especially where substantive and relationship interests are confused. MegaCorp’s confused logic seems to be that because they would prefer not to pay a cancellation fee (even though they agreed to it) and Services Inc. is not readily prepared to waive it, Services Inc. is not committed to the relationship and is inappropriately inflexible.

 

Setting Objective Relationship Benchmarks

To orient the modern negotiator in working towards and achieving true objectivity in managing relationship interests, three benchmarks are suggested:-

1.     Avoid Personal, Judgemental or Violating Behaviours

A negotiator should always communicate their best substantive outcomes or terms to the other party in a way that is not PERSONAL (attacking the individual), JUDGEMENTAL (confronting them with your assessment of their position) or VIOLATING (any behaviour that would threaten the other party). Services Inc. should have delivered the substantive outcome clearly to MegaCorp, “While we’re happy to be flexible on the training session arrangements, a fee of $5,000 is ultimately payable if the date is totally vacated as we originally agreed.”

MegaCorp probably won’t be happy with this, but their subjective happiness is not the test. The test is that Services Inc. has respectfully communicated and pursued their substantive outcome. Another way of expressing this is that a statement of fact eg the triggering of the cancellation payment, is not in and of itself personal, judgemental or violating. It only rises to an inappropriate level when the negotiator through language or conduct embellishes an otherwise legitimate outcome. A negotiator cannot be measured against the other party’s happiness with the outcomes offered, but they can be measured against their specific behaviours in communicating these outcomes.         

A quick example on a personal level is the employee who genuinely believes she is deserving of higher remuneration. Does she risk the “relationship” with her manager by asking for a raise and indicating if not granted, she will need to consider her options, including employment elsewhere? Many people spontaneously think “Of course it risks the relationship because the manager would be unhappy or uncomfortable hearing this.” Some would go so far as to frame this request as a form of blackmail.

Respectfully, the manager’s subjective happiness and/or comfort are not the test. As long as the employee has communicated her substantive outcomes (eg. Salary and benefit expectations) in a way that is not personal, judgemental or violating, she passes our objective relationship test. Let’s hold her responsible for her behaviours (which she controls) not the reaction of the other party, which she does not control.

2.     Avoid “Internalising”

Internalising is the psychological process of negotiating within and against ourselves to the point where lower outcomes are communicated to the other party. It is a simple social rationalisation aimed at falsely reducing perceived conflict – “If I ask for less, the other party will be happier and that improves the relationship.” David Messick, Kaplan Professor of Ethics and Decision in Management at Northwestern University’s Kellogg School of Management, uses the term “social heuristic” to describe a similar phenomenon – a psychological reflex to facilitate quick decision making with reduced conflict.

On our objective test, relationship interests are not enhanced by inappropriately lowering our substantive interests. Services Inc. internalised by waiving the cancellation fee without seeking something in return. The vain hope was to deliver good news to MegaCorp to secure potential future advantage.

Another possible example of internalising would be if Services Inc. had, on being challenged on the cancellation fee, agreed straight away to only charge its fixed costs for the training (eg. room hire of $1,000). This might be an option if Services Inc. ultimately trades with MegaCorp, but it would be a mistake to immediately discount the $5,000 fee provided for in the original agreement. Negotiators should always deliver their best substantive outcomes rather than some lower, internalised outcome which simply launches the negotiation process off a lower base.

3.     Trade Concessions, Avoid Unilateral Concessions to Preserve Relationships

A common principle of bargaining is to always seek something in return for a proffered concession. It is based on the premise that that which is received for free, is generally ascribed little value. This benchmark is particularly important in the context of balancing substantive and relationship interests where it is even easier to falsely justify a concession to “improve the relationship”.

Services Inc. fell into this trap. They unilaterally waived the $5,000 fee and secured nothing in return. Indeed, they even lost the renewal in the tender process. A wiser course of action would have been to make waiver of the $5,000 conditional on renewal of the agreement. A rebate arrangement could have been offered whereby if they won the renewal, they would rebate the cancellation fee. Alternatively, if the renewal was awarded to a competitor they would reserve the right to payment of the fee as per the original agreement.

A similar strategy would assist our employee seeking a raise. Perhaps her manager will respond - “Look, I appreciate you raising these expectations with me, but let’s leave it until the next formal performance review in 4 months’ time and we’ll see what we can do then.” To simply agree to this straight away would not advance her substantive interests. A trade-off may be to agree to this delay if at least one of her substantive outcomes is met - “I’d be prepared to wait if I can get my company car up-graded now. On that basis I’d be happy to discuss my other expectations at my scheduled review.”

Skilful negotiators appreciate the inherent reciprocity of relationships. Just as much as relationships require flexibility, understanding and collaboration, they are also the frameworks within which our substantive needs and outcomes must be communicated, negotiated and secured.

Tony Shepherd is an Australian Management Consultant and a leading Negotiation Specialist working and advising internationally. His contact is: This email address is being protected from spambots. You need JavaScript enabled to view it..