A lack of negotiation skills is potentially costing end-user firms and suppliers millions in missed opportunities, according to a global research report by Huthwaite International.
Huthwaite found that very few of the 124 global sell-side and buy-side firms it interviewed performed at the highest level on its negotiation benchmark and few had organisation-wide procedures for negotiation in place. Instead, negotiation success typically depended on individual talent. It found that 80% did not have an overall negotiation process and 84% did not measure the success of a negotiation after a deal was signed.
Without standard procedures in place and with some individuals keen to make a deal at any cost, there’s a danger that too many concessions will be given away unnecessarily, costing firms potentially millions.
“The best negotiation happens when both sides are skilled and when the individuals going into a room understand negotiation. With skills and processes on both sides, you’re more likely to get an outcome that can stick,” said David Freedman, sales director at Huthwaite.
While the net income of the Global 2000 was found to fall by 30.9% over the last year, the report found that those firms that performed well on its negotiation maturity benchmark posted an average net income rise of 42.5%. In contrast, companies with no negotiation processes in place were found to suffer an average net income fall of 63.3% from 2007 to 2008. Acknowledging that it was too simplistic to draw a straight line between negotiation skills and profit, the research pointed out that having formal negotiation procedures was a common factor in successful companies.
“Companies that negotiate well and take time to plan, prepare and put processes in place and have people with good behavioural skills tend to be the companies with the better corporate performance,” said Freedman.
It’s a myth that good negotiators are born, added Freedman. Individuals can be taught the skills for good negotiation. The report suggested 10 critical areas that companies need to address to improve their negotiation process. Alongside obvious areas such as preparation, planning and training, the report called for standardised negotiation processes across the company and for there to be standard approval and escalation processes in place.
“At one end of the spectrum you have situations where people simply ask their manager if a deal is okay, or at the other where it is over-engineered. We dealt with one customer where someone had to gain approval from 160 internal people. If any one said no the deal would be off,” said Freedman.
The full report can be downloaded at Huthwaite’s website.
