Negotiation skills

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Strategic Alliances and Joint Ventures

2013 April 12 by Mike

In 2005, Thomas L. Friedman wrote the bestseller: The World is Flat: A brief history of the twentieth century. He analyzed the globalization, primarily in the early 21st century.

The book raised my curiosity and interest in understanding the dynamics of global economies and their implications. I observed that since late 80s, early 90s, these dynamics have been driving a surge in structured business relationships between firms in several industries, domestic and abroad.  These relationships range from simple joint selling to mergers & acquisitions (Figure 1). Each one of these relationships represents different degrees of risk, scope, involvement, capital investment and potential returns.

Figure 1



While there is this spectrum of business relationships, the use of Strategic alliances and Joint Ventures has been and still is growing with an increasing number of multi-national entities. I am identifying my view of the fundamental difference between a strategic alliance and a joint venture in figure 2.

Figure 2



Strategic alliance is an arrangement between two or more firms to work together in any part of the value chain, from basic research to after sales support. Joint venture involves creation of a separate, independent entity.  Both of these business arrangements have certain advantages and some special challenges.

       What are the benefits?

Companies have several and varied reasons to form alliances. Most of the times, the potential partners see synergistic effect due to perceived complementary strengths. They expect to leverage the relationship to gain a competitive and/or differential advantage, access a new market, mitigate or share risk, realize economies of scale and scope, share expertise in one or more areas such as technical knowhow and decrease resource costs (labor, material, logistics etc.).

If a company intends to enter a foreign market, it may face local government requirement for a certain percent of local ownership. This can generally be accomplished through a joint venture arrangement.

While Joint Venture and Strategic Alliance participants share the gains, they also mitigate and/or share the risk of loss and failure. The attractiveness of these arrangements, therefore, increases if the business endeavor presents a risk to the “balance sheet”.

Economies of scale and scope can be realized when two or more entities combine their resources and strengths. They can optimize efficiencies and drive innovation. This may allow them to effectively compete against one or more entrenched industry players.

Creating alliances can also fill in existing gaps, for example, a large telecom company did not have sufficient knowledge and expertise in the area of electronic miniaturization. It gained such an expertise by forming an alliance with a small European company. Subsequently, it led to the acquisition of the smaller company.

Firms from countries with highly developed economies form relationships with entities in developing countries to realize huge cost savings in labor, material and many times logistics. Businesses in developing countries benefit from advanced technical and operational know-how and access to capital.

       What are the fundamental requirements for partner selection?

Finding and selecting the right joint venture or strategic alliance partner can be quite challenging. The strategic objectives of the potential partners must be complementary and synergistic. The objectives need not be exactly the same, but they cannot be in conflict for the venture to succeed. This requires a clear and complete understanding of each other’s goals. The challenge is that the parties may not always share this information clearly and completely. Why? This is because the concerned parties may be afraid of being exploited.

The potential relationship must also be synergistic in terms of skills and competencies. Most frequent areas for such skills and competencies match are managerial expertise, technical know-how, resource access, geographic and political access and production facilities.

All parties involved must establish mutual trust and commitment to the venture. No matter how well all other aspects mesh, without trust and commitment, the venture will either fail or stagger. One key requirement for establishing trust and commitment is to share information related to objectives, intents and organizational culture.

       What are the typical organizational structure alternatives?

The organization and management structures in such business arrangements vary and are generally customized to each venture. Typical structures used are:

  1. Parent – Child  - – - The “Parent” company is generally the majority owner or brings the most valuable resources to the table
  2. Shared Management – - – Both parent companies share decision making responsibilities. In some situations, it is accomplished by having equal number of managers in controlling positions such as board of directors. In many other situations, the number of managers will vary with the functional group or area of expertise.
  3. Arm’s length – - – This is where the management of joint venture acts independently of either of the parent company. This is generally not the case in new joint ventures unless the parent companies agree to recruit managers from outside the companies.
  4. Rotating structure – - – This is a situation where the companies forming an alliance and/or joint venture agree to rotate key management positions between the firms. The key executives are assigned definite and fixed term lengths.

There are numerous and varied reasons for companies to form strategic alliances, joint ventures or other cooperative business relationships. All of these, however, have one item in common, that is, they are all expecting to create synergies for better market and financial performance.

 

 

 

 

 

 

 

Difficult people behave that way because it’s getthing them what they want

2012 May 16 by Mike

Dealing with Difficult Negotiators

People are often difficult because they’ve learned that their bad behavior gets them what they want. In some cases they’re difficult because they believe that you or your organization or your country has wronged them in some way.  And sometimes they’re just awful people.  It doesn’t matter; you should not adopt or contrast their style. When negotiating with these type of people, your job is to teach them that they will get nothing from you unless you get something from them. Decide what you want from them and put it in the form of  IF YOU . . . THEN I WILL . . . to get what you want – including a change in their behavior! You don’t have to shout, swear, intimidate, or behave in any fashion that would cause you embarrassment should the details of your behavior become public the next day.

It Is Time For Politicians To Start Betting

2011 September 8 by Mike

American citizens can break the gridlock in Washington D.C. and give both parties what they want.

It turns out that our politicians don’t need to “get along”; they just need to be confident enough to place a bet on the policies that they propose. And American citizens
should start insisting on that kind of integrity from both parties.

I know that “placing a bet” and integrity aren’t always used in the same sentence.  But they should be in Washington D.C. Republicans want to lower (or eliminate corporate taxes); they say doing this will create jobs – okay, who knows?It is just an ”Opinion”.  Democrats disagree; they say corporations will pay themselves bigger dividends and bigger bonuses with the money – okay, who knows?   Again, just an Opinion. The stage is now set for an argument that will never be won and never end, unless someone’s willing to place a bet.

If Republicans would be willing to place a bet by proposing legislation that reduces and eventually eliminates the corporate tax only for those corporations that meet or exceed the job creation targets, then the risk for the Democrats is substantially eliminated and the Republicans can deliver on the promises that they’ve made to their constituency.  There’s no need to argue about corporate tax cuts creating jobs anymore because nothing is going to happen unless corporate tax cuts create jobs. A bet creates the integrity that Americans need from their elected officials. Of course, it takes real belief in your position to place a bet; that’s where the integrity happens. And all the parties are free to place bets with the American people and with each other.

Business does this all the time.  The buyer says to the seller, I’m going to buy lots of your product so give me your very lowest price.  The seller isn’t convinced but doesn’t want to start an argument or damage a relationship with a customer.  So rather than argue, the seller offers the buyer tiered pricing that lets the buyer have the low price only if the buyer winds up buying as much as he says he’s going to.

The truth is that it doesn’t matter what either party says or thinks; it’s just their opinion.  Until they’re willing to place a bet on it, we shouldn’t trust their opinion.  Let’s insist that they start betting.

A piece of advice: When arguments get to the point where progress is stalled or relationships are at risk, it’s time to think about placing a bet.  If we start supporting the politician who is willing to bet on her positions, then all sides can be comfortable and we’ll know that the politician truly believes in what she’s selling.


Sales Executive to improve performance quickly

2011 June 27 by Mike

A sales executive’s guide to: Spotting an opportunity to improve performance quickly

The ability of a sales executive to differentiate between whether the organization has a selling problem or a negotiating problem can mean the difference between delivering the performance expected or not.

The truth is that a skilled negotiator (with the emphasis on “skilled”) will produce a good deal where a skilled sales person may not. And a skilled negotiator will do it without damaging the relationship. Negotiating skills are not “super” selling skills; there is a difference between the two that creates more ability to close good business. Negotiating skill is next lever to pull when the current approach isn’t working. Having skilled negotiators in your organization will improve performance measurably. For example, we know that the investment made in our workshop will produce a ten-times ROI in the first 90 days as a start. One client improved margins from 9% to 29%.

To diagnose whether or not your organization needs to improve their negotiating performance, look for some of the signs and symptoms:

SIGNS AND SYMPTOMS:

  1. Our salespeople don’t get enough back for what we give away to our customers. In some instances, our customers have come to expect that we give things away to
    them without getting any real value in return and we’re setting bad precedents in the marketplace.
  2. When our salespeople get resistance from the customer, they attempt to persuade the customer. If their ability to persuade fails, they react by lowering the price.
  3. Customers for whom we are “bending over backwards” to please, and meeting their demands, are becoming even more demanding and more difficult instead of showing their appreciation for what we have done.
  4. As a manager or executive, I am asked more frequently than I would like to become involved in a negotiation, or I feel like I need to be involved in the negotiations. This takes up more time than I would like devote because I have other competing priorities.
  5. When we run into trouble and the salesperson wants to give in to the customer, the excuses are either: 1) our “value proposition” isn’t strong enough, or 2) the
    customer is only focused on price, 3) a “difficult” personality on the other side that we need to “keep happy” and maintain a “good relationship”.
  6. Generally, our salespeople believe that they have little power and so their actions and recommendations reflect their belief.
  7. We don’t get access to the right influencers and stakeholders.
  8. Our negotiations take a too long to conclude which lengthens the sales cycle.
  9. Generally, the strategy that our salespeople take is focused on skillfully convincing the other side, perhaps with needs-based selling technique, and being prepared to
    address objections and defend the company’s position.
  10. We have a lot of salespeople that rely too heavily on “relationship selling”.
  11. It’s possible that our salespeople could do deals that were at least 5% more favorable to us and that would make a significant difference to our performance.
  12. Our salespeople tell us that it would help if the negotiating training that they receive was more realistic to their real world.

If any of the above statements are true in your organization, you have some need to improve negotiating performance. If more than one is true, the need is likely hindering your organization’s performance.

There are also systemic signs and symptoms that indicate that the organization needs to better understand how to support its negotiators. Here are some questions to ask:

  1. Is  there a common understanding across the organization of what effective  preparation looks like and what deliverable it produces? Or is it common
    to hear, “everyone has their own way of doing things”.  If it’s the latter, then it’s very  difficult to manage the quality of preparation across the organization or
    to be able to quickly review any particular preparation and discuss prior  to the meeting. Management must “hope” that salespeople are preparing  effectively. And, of course, they usually aren’t.
  2. Are  salespeople not using  preparation tools or methods because it takes too long?
  3. Do the  salespeople have approved list of “tradables” that they can use to  negotiate with the customer? Does it have at least thirty items on it? Are  they using them?
  4. Are  salespeople acquiring valued business objectives in exchange for any  concessions they make?
  5. Are  the salespeople confident of where the walk-away positions are for each  issue that they may have to negotiate?
  6. Have  all the internal parties involved in negotiating a customer contract  and/or approving any proposals or contracts been trained in the same  negotiating methodology? Does everyone speak the same negotiating  language?
  7. Has  the senior executive in Sales and his or her staff received the  appropriate levels of training to support salespeople; is there an internal  infrastructure (expert system) built around the negotiating process that’s  designed to cause good negotiating behaviors and decisions throughout the  entire organization?  Does the
    system allow negotiation to be managed at the corporate level?  Does the system provide for the whole  organization to learn and benefit when any one individual learns from  experience?
  8. Do  managers understand how to coach the skill and support the salesperson in  front line negotiations?
  9. Has  negotiating excellence been identified as a core competency for  salespeople?

Skilled negotiating performance can mean the difference between exceeding goals and not meeting them; strong negotiating performances also help salespeople demonstrate that they make a real difference for the company in difficult times; that builds job satisfaction, morale and excitement in the group.  Having a common approach builds a sense of team and can be used to leverage talent across the team. When the approach is driving results, it builds commitment to the leader. For example,
one of our clients recently improved their profit margin from 4% to 19% in less than 12 months by applying our approach. The VP who diagnosed the problem and
provided the right support is now a company hero. She changed how business is done by the sales organization and has recently been promoted to EVP – Operations. So, if any of the signs or symptoms outlined above are there, providing the support necessary for salespeople to be effective negotiators is the right place to focus resources for fast performance improvement.
Mike Milich is Partner at Swift L.L.C. and can be reached at +1 913.851.4327, or, mike@swiftnegotia.com