Navigating The Negotiations Gap in the Procurement Process

Posted on November 27, 2010

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This post is from the Contracting Intelligence Blog

At any instant in time during the negotiation process, “gaps” can be attributed to any number of factors, including different goals and objectives, failure of the parties to clarify their respective understanding of terms and how they are used in particular industries or business segments, or perceptions stemming from communications gaps and a lack of agreement or understanding (or one-sided understanding) of the fundamental conditions that would make the proposed business arrangement a great success for all. It is through the open good faith exploration of these issues by the parties seeking to learn about each others’ motives, objectives, expected benefits and risk mitigation factors, that the negotiations’ gap is narrowed and the desired benefits of value-driven strategic relationship are achieved.

from the paper Strategic Relationship Negotiation Methodology

In a previous post I had made reference to Nobel Peace Prize winner Thomas Schelling whose utilization of game theory principles during the Vietnam war did not successfully make the transition from conceptual promise to the real-life desired outcome.

Of course a big reason for the disconnect was (and is) not necessarily an inherent flaw in the game theory principle itself, which seeks to understand the adopted strategy of all stakeholders and the influence this has on the decision-making process but, its perversion as an adversarial tool in which one party ultimately succeeds at the expense of the other. A zero sum mindset if you will that over time – at least in the procurement process – has led to significant problems such as supply base erosion and increasing supplier cynicism.

While the key intent of the game theory is to mathematically capture behavior in strategic situations and in the process learn to predict and ultimately influence outcomes, the challenge with the approach is that the starting point for understanding the attributes of a successful negotiation must already be in place. In essence, if the foundational principles or assumptions relative to stakeholder motivation is flawed, then the model itself becomes ineffective. Refer to Operation Rolling Thunder where Schelling’s graduated bombing campaign against the North Vietnamese in 1965 failed to “alter the behavior of the North Vietnamese or Viet Cong in the slightest” as an example of the ineffectiveness to which I am referring.

In the world of purchasing, assuming a similar adversarial position (which unfortunately is the order of the day in far too many situations), means that the focus is on clubbing the supplier into being compliant with your organization’s objectives at their expense. One such heads I win – tales you lose proposition was shared by IACCM’s Tim Cummins during a recent roundtable discussion in which he talked about the heavy-handed and inequitable manner in which buying organizations seek to onerously off-load risk onto the shoulders of the supplier.

While inequitable risk sharing with one’s supply base produces questionable results at best, the key point here is that buying organizations should seek to understand the objectives of suppliers in any negotiation as a means of working toward a collaborative and collective best result outcome versus gaining an upper hand.

Specifically, and starting on the buying side of the equation, an attempt to navigate the ”negotiations gap,” (which is the difference between the positions of the various parties involved in the business arrangement), with the intention of bridging or eliminating this difference in a manner where all parties can achieve their respective objectives should be the primary goal of the negotiation process.

Until this fundamental principle is universally understood and liberally applied, then the relationship between buyer and seller is likely to remained strained and the corresponding results uneven and largely unrewarding for all stakeholders.

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Posted in: Commentary