Many books available on the business book shelfs describes the art of getting to deal in negotiations. Only few of those address what happens once the contract is signed. Have you ever found yourself in the need of going back to the negotiating table because either the contract wasn’t fit for purpose or the situation has changed?
My experience on turning back to negotiations taught me a lesson of not to let go a purchasing project until the contract’s execution is over. Two cases described in this blog, tackle with recurring negotiations. Case one - media house (media buying), case two - software house (business process management tool) will introduce the “old school” approach of “my goals first” in negotiation.
Negotiations of a contract NOT fit for purpose
Common belief that “contract is being signed for bad times not for good times” was taken far too seriously in the first case study. One of my ex- employers tendered for media house company once.
I led the procurement part. Marketing stakeholders decided to include a Media Auditor in the tendering process as well. The Auditor’s role was to support us in understanding the complexity of GDPR buying and to benchmark an uneasy term sheet.
The goals primarily set up for tendering were as follows:
- to increase of sales leads due to call to action advertising
- to improve the ROI on media budget and conversion to direct sales
- to start the long-term partnership with media house based on transparent and open periodical communication (meetings, calls, mails, etc.)
Having agreed the goals and the KPIs to meet them, both parties found themselves stuck in a long process of negotiation on penalties. Penalties, if treated fairly, are generally desirable part of a contract. But the trap is, when you focus too much on one-sided penalties, you lose sight on the business goals. That was the case here. Focused on not to lose what we “won” during tendering, we almost “killed” the relationship with our Partner. With the help of Media Auditor, we created a one-sided contract with no motivation for our business partner to execute it. We’ve simply chosen the wrong way focusing on “my goals first” approach instead of “our goals first” one. The contract was signed, but after half a year we sat down to negotiation table again. Why? Goals were far from being achievable and our relationship with Media House turned into the bang and blame situation.
Focused on not to lose what we “won” during tendering, we almost “killed” the relationship with our Partner
In the recurring negotiations I took the role of a mediator. While preparing to it, I focused on what went wrong within six - month period after the contract was signed. I investigated both parties in terms of communication, term sheet execution, minutes from the working group meetings, etc. My findings were mainly around miscommunication, lack of understanding and losing the sight on mutual business agenda. Media House was afraid of being penalized therefore acted conservatively and inefficiently. My marketing colleagues were clearly unsatisfied from lack of sales conversion and meeting KPI’s; therefore, they were close to decision of re-tendering.
Finally, we agreed that the contract we signed is not fit for purpose and luckily, we changed it into more flexible and motivating for our Partner. With the mindset change on “our goals first” approach we renegotiated KPI’s, bonus scheme and penalties paragraphs. In addition to that, I advised some improvements into feedback sessions and more focus on the mutual business agenda and check upon it during each meeting.
What is the new role for procurement professionals in recurring negotiations?
Procurement professionals tend to think that once contract is signed, their role is over. The described cases show evidently it is a wrong thinking. If situation change and both parties cannot find a solution and compromise, before it goes too far, it’s better to invite procurement professionals to negotiations than the lawyer. Lawyer’s presence (one or both sides) is like an announcement of a formal path that leads to the court.
Procurement professionals can switch from the role of negotiator to mediator effectively when the situation change after contract is signed. I strongly advise to take advantage of your negotiation skills. You gain the control over the contract execution and assurance that your negotiation efforts will not be wasted. You enhance your role into strategic internal partner for business in managing relationship “in crisis” with your strategic supplier.
Esteemed as it is, a switch from negotiator to a mediator for procurement professionals, consume an enormous amount of time and energy. All that could be spent on new projects instead of recurring negotiations. Therefore, the question is:
How to avoid recurring negotiations in future?
The verified way is to focus from the start on "our goals first" approach and mutual agenda of business goals to be achived. Negotiating the true nature of the relationship with the supplier under mutual agenda mindset means that parties move out of the usual tit-for-tat cycle of tradeoffs. Instead, parties consciously establish an atmosphere that depends on collaboration and cooperation through the fair principles
Part 2 of this blog will reveal some more traps of negotiations based on "my goals first" approach. Case study described in the next part will refer to performance based contract.
Stay tuned, we come back soon!
Passionate about working with people, reinforcing their competencies, and sharing knowledge and expertise. With an extensive practical experience, spanning 20 years, of working for international corporations, she runs workshops as well as consulting projects on topics related to strategic purchasing and supply chain management in organizations, negotiations, team management, leadership, team crisis management, and contract risk management. A lecturer at post-graduate courses at the Kozminski University in Warsaw. Regular speaker at national supply chain related conferences. Co-initiator of a dialogue between representatives of the suppliers (marketing communication) and corporate purchasing. She provides mentoring sessions for students running logistics programs as well as procurement professionals. Currently Member of the Board of the Polish Supply Management Leaders Association (PSML), that represents supply chain professionals: procurement and logistics.