While many negotiations experts advocate a win-win approach to deal making, just as many regard this as a mistake. I put this question to a number of experts, and most of them were wary of the win-win idea. Sure, it looks nice on paper, but as Prussian general Helmuth von Moltke pointed out, “No battle plan survives first contact with the enemy.”
If you’re focused on everyone feeling warm and fuzzy with the deal, while your negotiating partner would sell his own mother down the river to save a buck, a win-win approach would be naive at best and a disaster at worse. The polarity doesn’t have to be dramatic. Negotiations often spark strong emotions — excitement for a new project, pride in a new product, fear of getting ripped off or having to start over, and on and on.
“Taking a win-win approach, wherein each side is seeking to maximize the value of the deal for each other, sounds great as a way to keep the focus on value and away from the emotional element. However, there is a fundamental flaw in that approach. Winning is in the eye of the beholder, and neither party is ever likely to be so open and transparent in the process as to tell the other what ‘winning’ actually means to them,” said Matt Podowitz, Executive Director, Business Advisory Services, Grant Thornton LLP.
Needing an up-sell vs. demanding a discount
The example Podowitz used to illustrate this point involves two negotiators with very different goals ; goals that each would be unlikely to disclose to the other. On one side of the table is the vendor salesperson, Bob. Bob is $265,000 away from making the all-time quarterly sales record and gaining a fat bonus. A week before the end of the quarter, he is on the verge of closing a $250,000 contract. He’s desperate to up-sell an additional $15,000 of something — anything — to beat the record and land that meaty bonus check.
On the buyer’s side of the table is Mary, who is authorized to spend up to $275,000 but knows she should fight to get an additional 10% off of the list price or an equivalent amount of free add-ons in order to appease a CFO who is already uncomfortable with such a large technology investment. Mary, though, needs to make this purchase for her own good. The technology will drive future projects that would guarantee her job security.
“With Bob and Mary not sharing any information about what ‘winning’ means to them, a traditional win-win approach here would be a disaster,” Podowitz said. Bob would be doing everything in his power to increase the price tag of the contract, which would make him seem unnecessarily greedy and pushy, while Mary would be working equally hard to whittle it down, making her seem stubborn and cheap.
“Neither party is likely to wind up happy, and if emotions run too high (excitement and greed on Bob’s part, and fear and pride on Mary’s) the negotiations could grind to a halt,” Podowitz said. “In reality, there probably is an easy compromise: Bob offers meaningful concessions that bring the contract value up to $295,000 and Mary agrees to a price of $265,000.”
A win-win negotiating approach is unlikely to arrive at that compromise, however. Due to human nature, a clash between Bob and Mary could well be inevitable. However, Podowitz counsels that in situations like these, one way to break the impasse is to step back and refocus on your organization’s (rather than your) goals. Both organizations want a deal to get done, and the truth is that anything between $250,000 and $275,000 is a win-win for each organization. It’s the negotiators and their personal win-win definitions standing in the way.
When a win-win is a must
While win-win may be a flawed negotiating tactic in scenarios like the one above, it’s important to remember that there are plenty of negotiations that rely on a win-win deal, or at least some semblance (or perception) of one. If you “win” against a vendor but push them to the point where they see little to no margin, you set yourself up for future risk.
“Rest assured, the vendor will look for ways to cut corners,” said Steve Martin, a partner at third-party outsourcing advisory firm Pace Harmon.
The vendor may simply walk away from the deal, but even if the deal is signed, you can expect them to under-invest in the relationship and perhaps take other cost-cutting measures related to customer service or maintenance. If this is a one-time purchase and the vendor is desperate, you may get away with it. If the deal is simply the first step in a long relationship, it’s in your best interest to make sure the vendor gets a deal that they value and will work hard to retain.
“For companies involved in deals that rely heavily on human resources, such as application development and maintenance (ADM) deals, the results can be catastrophic as the vendor may swap out more qualified and experienced personnel for fewer and/or lower-quality resources,” Martin said.
In general, win-win strategies work best when both sides have a strong incentive to achieve mutual success.
“CIOs I’ve worked for like win-win for ERP deals, as they are more interested in a successful implementation than beating the last cent out of the deal,” said Brian Sommer, president of tech-research firm Vital Analysis. “They realize that if they drive most of the profit out of a deal, the vendor may see little incentive to put their better people on the project or care whether the project succeeds or not.”
The vendor may also decide that paying service level credits (penalties for service level agreement violations) economically outweighs servicing the customer with the best possible resources. “We’ve seen too many situations where a customer feels good about the deal that they negotiated on paper but ends up losing in the long run,” Martin added.
When win-win equals lose-lose
According to Bruce Hurwitz, president and CEO of executive staffing firm Hurwitz Strategic Staffing, a win-win is really just another phrase for “lose-lose.” The difference: people have different feelings about the two.
“Think about it,” Hurwitz said. “If we both leave the negotiations feeling good and thinking, ‘Okay, I didn’t get everything I wanted but I got the best deal I could and so did the other guy,’ we have a ‘win-win.’ If we both leave saying exactly the same thing but not feeling good about it, it’s a ‘lose-lose’.”
Hurwitz cautions that win-win scenarios fail when matters of principle are involved. If you are defending a principle, but fall back on win-win strategies so the deal doesn’t completely fall apart, you may earn a reputation as someone too willing to compromise. You risk being seen as weak and treated as such in future negotiations.
Yet, if pretty much everything is a matter of principle to you and you feel like you have to win at everything — the stereotypical hyper-competitive personality — you’d be well served to keep win-win principles in the back of your mind to keep you in check. Otherwise, you’ll gain a reputation as someone who is unyielding and impossible to work with, which again could damage future negotiations.
When win-win means being rolled
Vendors do their best to keep margins hidden from customers. They have wildly different pricing schemes and, for something like a complex technology, actual necessary margins are easy to hide or fudge.
We all have examples in our heads of products with excessive markup, such as printer toner. This is true of many commodity products. Purchases of commodity hardware such as basic servers, printers and cables are often not properly scrutinized because they are so basic. It’s not as exciting to negotiate over your organization’s printers as for a complex CRM system; thus, many organizations fail to do their due diligence and get lousy deals.
“Paying a higher price for these goods is generally not warranted unless the payment of a premium will help ensure prompt delivery of an item,” Sommer said.
In any negotiation, even for complex technology, the buyer must be careful not to cede too much. The ideal result is a commercially aggressive deal with incentives for the vendor to perform well and make a reasonable ROI on their products or services, but not necessarily a dollar more.
According to Martin of Pace Harmon, a best-practice approach during negotiations is one that identifies the top two or three priorities of each side, such as service levels, price, relationship and quality of service. “Keep them top of mind while negotiating the entire deal to keep things in perspective,” he suggested. Otherwise, your win-win strategy could guarantee that you lose.
Jeff Vance is a freelance writer and the founder of Sandstorm Media, a copywriting and marketing services firm focused on emerging technology trends. If you have ideas for future stories, contact him at [email protected] or visit Sandstorm Media.