The Art of Negotiation

Intense conversation, manic offers and worthy opponents in the bidding circle might, at first, conjure allusions to Sun Tzu’s Chinese masterpiece The Art of War. But any skilled contract warrior knows that the power of negotiation lies not in brute strength, but in subtle, confident strokes of word-play and monetary offers, making it more like the patient art of Chinese calligraphy.

Negotiation is not about dominating your opponent. Instead, effective negotiation presumes you are entering into a long-term relationship with your counterpart, where constant interaction is necessary to the success of both parties. Negotiation is a process where each party wins or, as one contractor put it: “When the deal is done, both parties are a little disappointed.”

Much like the fluid brush strokes of a Chinese character that reflects a spiritual experience, negotiation is seen in nearly every segment of life. On the business side, suppliers, customers and employees are all seeking to improve their monetary position. How much more profit can a supplier squeeze out of you? For customers, it’s all about getting something for nothing, and employees invariably believe they are worth more than their competitive wages.

Most utility contractors have learned to negotiate through trial and error. Negotiation is a primary ingredient to your business survival; yet, apprentice and professional association programs spend little time, if any, teaching the basics. Like many business skills, negotiation is learned on the job and employed with varying degrees of success. But it takes a focused negotiation artist to apply the delicate strokes on the bidding canvas.

Canvas, Brush, Ink (The Art of Organization)

Do you know what constitutes a good deal for you? Too often, individuals enter negotiating sessions with a singular driving objective in mind and ignore any other ramifications of a deal. In many cases, they are unaware of the impact of other variables in their decision-making process. In the hands of a keen negotiator, these neophytes are easy prey.

Young contractors usually fall victim to this trait when negotiating a new project. Their objective is to win the job — at any price. Unscrupulous customers, intent on making low price the only variable for a project win, use this knowledge to drive low bids down even further. The young contractor holds firm to his or her singular objective (to win the project) and ignores any other factors including price, time and liability. While the contractor may win the project, they will eventually lose their firm.

The key to preventing this situation is to understand the various dynamics that impact any deal. Again, for a project bid, a host of variables comes into play, including time frame, delivery dates, quality control, staffing, raw material availability and pricing. When negotiating a deal, your counterpart may want a concession on pricing. What is your counter proposal? How can you accommodate any movement on your price and still ensure a profitable transaction? The answer revolves around the interplay of the other project dynamics. For example, you may be able to give a little on price if the project time frame is moved to accommodate a slow period in your firm — a period when you will have idle resources.

Empathetic Negotiations (The Art of Listening)

It is common during complex negotiations to eventually reach an impasse where neither party is able to achieve movement. When this occurs, the best solution is to place yourself in the position of your opponent. This empathetic approach will help you understand your opponent’s objectives. Once understood, you can modify your negotiating position to play up the benefits of your bid inline with your opponent’s objectives.

This dilemma typically occurs during employee compensation negotiations — seldom a pleasant experience for the owner of a contracting firm. By nature, employees believe they are worth more than their current compensation and, periodically, try to push their advantage with the owner. Owners, on the other hand, may view employees as a necessary evil — never truly delivering on the full value of their existing compensation. Inevitably, battle lines are drawn.

Beyond the traditional conversation that occurs during these sessions (the employee wanting more and the owner not budging), there is a better solution. For the employee, ask what impact on business revenues can be realized through improved work habits. For the owner, determine what employee work efforts would need to change to justify an increase in compensation. How can the employee and owner work together to achieve higher productivity from the employee that results in higher revenues for the company and, accordingly, higher compensation for the employee?

Power Comes from Doing Nothing (The Art of Patience)

Silence can be an intimidating negotiating tool. People are uncomfortable with silence and feel a need to fill the noise void. This is especially true for people negotiating from a position of weakness. They feel that by filling the communication space with a number of different thoughts, something of value will be unearthed — hopefully changing the mind of the other participant.

Another powerful negotiating tool is to walk away. It signifies that you are willing to leave the negotiations and kill any potential deal. The impact on your opponent is immeasurable. It lets them know that any new negotiations will have to be initiated by them.

For contractors, this is an effective tactic when negotiating supplier agreements — especially for commodity inventory items. Personal supplier relationships have long been an inventory distribution structure linking manufacturers, contractors and end-consumers. Unfortunately, the supplier chain has been broken. Large-scale box stores (i.e., Home Depot) have taken the position of being a supplier (and sometimes the contractor). Because of their sheer size, these box stores are able to negotiate pricing agreements with manufacturers that are far more favorable than local supply houses.

Contractors, like any consumer, are price conscious.

Because there are alternatives to the local supply house, contractors can use the simple tactic of walking away to signify their interest in pursuing other supplier options. Suppliers, frantic to hold on to their customer base, will nearly always seek to modify their pricing structure. The power of action, not words, makes the difference.

Tactical Dispositions (The Art of Relationships)

On occasion, you may not have enough knowledge to formulate a strong negotiating position. For example, you may be trying to enter a new market, develop a new supplier relationship or hire for a new employee position, leaving you without enough facts to understand what parameters should be expected.

How do you gain knowledge quickly and not get bested in your negotiating session?

Obviously, relationships with other contractors may be the first stop in your education process. Professional associations provide a good backdrop for establishing and maintaining relationships with your peers and, in most cases, serve as a useful forum for leveraging their personal experiences. In addition, your peers are typically willing to share their knowledge to help you overcome an obstacle. However, let’s say you are not a member of a contracting association, and you are forced to educate yourself in some other way. When this occurs, another option is to “test drive” the deal, walking through the transaction with real vendors and using the experience to gain value.

Office technology is one area where many contractors feel they have inadequate knowledge to make an effective decision. For instance, assume you are forced to buy a new accounting system for your business. Like any good consumer, you start the process by “Googling” accounting systems for contractors. The result — more than 2 million hits and approximately 40 to 50 potential accounting systems that theoretically could meet your needs.

In this situation, a “test drive” is recommended. Invite a number of accounting system vendors (no more than five) to your office for a pitch demonstration. At the end of their demonstrations, ask them what variables you should use to evaluate accounting systems. After listening to several vendors, a list of common variables will appear (i.e., auditability, ease of upgrading, maintenance, etc.). These variables now constitute your deal components, allowing you to more effectively make an informed decision. You are now in a position to negotiate!

Next, begin the accounting system acquisition process all over again. This time, you can review a broader range of system alternatives and more quickly eliminate vendors from further consideration using the information gleaned during your “test drive.” Congratulations — you are now a more informed consumer with a stronger negotiating platform.

Negotiation, for the most part, is an untaught skill — something that most of us have to learn on the job. When done correctly, negotiation is an art form — two skilled artists working to find a common ground where both can watch their project vision come to life. It is really spellbinding to watch the very best work their craft.

Brad Dawson is the managing director of LTV Dynamics and has over 27 years of management consulting experience. He is a frequent lecturer to international entrepreneurial businesses and has clients in U.S., Russia, China, Mongolia and Latvia. He can be reached at BLDawson@LTVdynamics.com.