Your boss’s boss just gave you the mandate to procure equipment, components, and raw materials for development and production of a new vaccine. Your goal is to get those as soon as possible — in addition to securing a massive volume for the future.
You and your company are in the spotlight, and under significant pressure to deliver. You simply cannot fail. Yet many other players in your industry find themselves in the very same situation. Demand is exploding, and the supply chain is broken because your supplier finds itself in the same position as its suppliers. You have no time to think or analyze. You absolutely need those components and raw materials on time. You don’t want to lose face, and you are afraid of getting ripped off. You feel that you have no power.
Does that sound like the best environment in which to conduct a successful negotiation? It feels more like trying to navigate a hurricane without capsizing your boat, which is a very stressful environment to be in, even for the most seasoned professionals. Being in control during a negotiation is critical for success. However, trying to control things is challenging under stress, which generates strong emotions. At times such as this, we find it hard to think clearly, and we make bad decisions. When we are emotional, we lose control of ourselves and of the conversation. Few negotiators perform at their best under stress.
COVID-19 has exacerbated already stressful business conditions and created a “perfect storm” for failure. The pandemic is a conflict caused by external factors, and we have no other choice but to deal with it. Also, as with any other conflict, our present-day circumstances fuel emotions that complicate the negotiation process. You might be anxious about the unknown, including your personal financial situation. You are likely to be concerned about your family getting sick or frustrated that you can’t see your family in person. Meanwhile, you could be overwhelmed by the amount of work you have to do and challenged to be emotionally capable enough to do it well.
Even before you initiate your negotiation process, you find yourself in the highly volatile COVID-19 environment, which is likely to provide more challenges than any other negotiation in which you have been involved. But you have no choice because you have been given a mandate.
I would argue, however, that even if you feel the urge to rush through negotiation, you need to stop and plan. After all, this is a high-stakes process, and you need to detach yourself emotionally from the outcome if you want to succeed. It is best to approach negotiation as calmly and rationally as possible. Doing that would help to diffuse the pressure of having to prove yourself and deliver materials on time.
Simply put, what worked for you in the past under “normal” circumstances is not likely to work now. However, the time that you invest in developing a thorough action plan will help you to be more effective down the road.
Developing an Action Plan
Assess Your Organization’s Priorities:
You might think that price is the most important criterion. I would argue that price is secondary in a COVID-19 environment. What would be the impact on the organization if you negotiated a reasonable price with a supplier but couldn’t get the product on time or if the raw material didn’t meet your company’s quality requirements? With mounting government and public interest in the biopharmaceutical industry’s response to the pandemic, the pressure you are facing will only grow, with people asking tough questions and pointing fingers.
Your focus should revolve around four variables — and determining which ones are most critical for your organization’s success:
- time to delivery
- product quality
- scale-up potential
- price.
On-time delivery and quality of raw material would seem to be a must. The ability to scale up is important but not as critical as achieving the other two. A reasonable price would be great as well, but it is definitely not a deal-breaker.
This is what I mean when I talk about being emotionally detached from your negotiation: You might focus on price because your bonus is linked to that metric or because it is the raison d’être of procurement. But by prioritizing price over other variables, especially during this extraordinary time, you risk positioning yourself in a way that doesn’t get you what you want.
Analyze the Power Balance for Your Source of Leverage: You might go into negotiations thinking that you don’t have any power, so why bother analyzing it? That might be true if you are looking only at price. However, your ability to shift the power balance resides in bringing other variables to the mix.
Most negotiators use persuasion as their preferred tactic to influence the balance of power. But persuasion alone rarely is enough to do so. Trying to persuade someone who is perceived to have more power than you won’t get you what you want. It is even less effective during an emotional time such as ours, when each side is there to win.
To introduce additional variables, we need to understand what constitutes the notion of power. Your source of leverage originates from a combination of incentives (what you can do to entice the other side to agree) and sanctions (what you can do to them that they won’t like). To be successful in this exercise, you need to put yourself in the other party’s shoes — a simple concept that unfortunately is not well used by many negotiators. It is difficult to agree when we don’t consider what might be a “win” for the other side.
If you were in your supplier’s shoes, what could be of interest? How about additional business, shortened payment terms, current-contract extension without going through a request for proposal, introduction to other divisions within your organization, or recommendations to people outside of your organization? This is an exercise in creative thinking. It is not about preparing to defend your position, but about finding elements that could be of interest to the other side. There are no right or wrong answers here. Until you test those elements, they are merely assumptions.
Once you have completed that part of your power-balance analysis, think about what you can do to your supplier in the event of trouble: insist on longer payment terms, threaten to take business away, or generate bad press in social media. These are what we call sanctions.
In my experience, procurement people are more comfortable using sanctions and threats than incentives to get what they want. However, incentives usually offer more robust leverage because people react more favorably to incentives than they do to sanctions or threats. Incentives fuel the creation of value for both parties and help to build trust.
In this time of crisis, you might be tempted to negotiate the best possible deal without considering your relationship with a supplier. Getting the best deal is desirable, but getting the best deal at the price of a new or existing relationship is a different matter. Negotiating an agreement is not easy. Executing a contract when the relationship has soured might not be the best tactic if you end up needing a favor from your supplier down the road.
When you have completed a power-balance analysis, go back to your variables and define your starting point and limits. The starting point should not be your ideal set of conditions. You are coming to your vendor in a market dynamic that favors suppliers. Starting with your ideal could thwart your chance to negotiate because the other party might feel that you are wasting time. Your limit represents how far you are prepared to go. You might not want to set a limit for your variables, especially if you think that you have no power. In reality, establishing a limit ahead of time will help you to feel more in control and will give you more power when you are pushed to that limit — or beyond. Keeping limits in mind during negotiation provides you with a guardrail, and you can shift the power balance just by telling the other side that you didn’t plan to go that far and need to speak with your team. That tactic prevents you from being caught up in the pressure of having to accept any deal — especially if it is a bad deal.
Come Up with the Right Negotiation Questions: Everything that you have derived from your power-balance analysis is an assumption that must be tested. There is nothing wrong with making assumptions as long as you verify whether they are factual.
Strong negotiation questions are open-ended: They force the other person to think before answering. Most negotiators don’t write questions on their preparation sheets because they believe that it will be easy to come up with them during the meeting. It is easy to formulate good questions before you meet with your counterpart and without the pressure of the negotiation itself. However, Coming up with good open-ended questions is difficult in the heat of the moment. Under stress, you might ask, “Do you have any room to move?” or “Can you offer me better terms?” Such questions require nothing more than yes-or-no answers and raise a high risk of the other person saying “no.” Then you have backed yourself into a corner.
Plan for Tradable and Hypothetical Scenarios: Tradable scenarios are nice for you and for the other side. They are used when you must move away from your intent. They also are useful when you are at your limit and need to sweeten a deal. Again, being creative is easy during preparation but challenging during a negotiation.
Planning for different outcomes also helps to reduce your stress level. What will you do if the other side is inflexible? What if they arrive with a completely unrealistic proposal? Although you can’t plan for everything that might happen, having some prepared answers can help you navigate a negotiation that doesn’t go as planned.
In the Meeting Room
Be Curious: Now that you have put yourself in your supplier’s shoes, you should continue with that approach. Now is not the time to persuade. Your job is to ask questions and be curious about your supplier’s drivers, motivations, and constraints, all of which will influence the organization’s priorities during and after our current crisis.
COVID-19 is not a normal circumstance. Rest assured that business needs will remain when the pandemic is behind us. The more you know about your supplier, the more power you will have and the better position you will be in to make a proposal that the company’s agents will be interested in hearing. Being curious is the only way to prevent a “price-only” conversation. The meeting is a time to test your assumptions and explore potential paths forward.
Just Suppose: Whenever the other team makes a proposal or expresses their company’s needs, you want to be careful about how you respond. Saying “yes” takes your power away. Saying “no” may close the door to a deal. What is the best way to respond? Noncommittally, to test the water. “Just suppose I can do what you are asking. Will you be agreeable to x or y?” Or, “Suppose I can present your proposal to my team. This is what I would need in exchange.” This strategy can buy time, remove the pressure of saying “yes” in the moment, and enable you to think about what you need in exchange. It is a huge power source to contemplate an option while letting the other side know that you need something in return for such a concession. The foundation of negotiation is trading something that you really want for something that they really want but that is of lesser value to you. Your priorities, in this case, are time and quality, not price. Your supplier’s priorities, constraints, and drivers are what you are trying to offer in exchange for your priorities. You can’t do any of that if you have not already asked questions and tested your assumptions.
Be Flexible: Being flexible with your negotiation approach isn’t a sign of weakness. It doesn’t mean that you are giving in. It means that you and the other side are putting your heads together to find a creative solution to a conflict. You can butt heads with persuasion or introduce multiple variables that will create flexibility without taking power away.
Don’t Reward Aggressive Behavior: If you find that the other party is inflexible and bullying you into accepting conditions, don’t reward their aggressive behavior. Don’t ever give in under pressure when you are in the moment. If you do, you are telling them that it is acceptable to bully you. You want to take time to think about the conditions so that you are not showing even a hint of desperation and then accept the deal — but in exchange for one of your small tradables. “If you agree to [insert your small nice-to-have here], then we have a deal” would be an assertive way of closing. In this way, you regain some respect, and if you need to negotiate in the future, that team will know that aggressive behavior doesn’t work with you.
Detachment Despite Turbulent Times
If you are facing the pressures described above, you can negotiate a tough deal by being emotionally detached. But if you find that to be too difficult, then you can ask for support to prevent becoming emotionally involved — especially in the midst of a pandemic. Such a strategy will prepare you and your organization well for the future.
Gaëtan Pellerin is regional vice president at Scotwork North America, 1 Pluckemin Way, Suite 100, Bedminster, NJ 07921; gaetan.pellerin@scotwork.com.