Negotiating Value in Contractual Relationships: Part 2

• Part 1: We’re Not Aligned on Value
• Part 2: “Negotiation” Could Be So Much More
• Part 3: Value Management – “Negotiation” In Action

Our friends at WorldCC regularly produce a report on the most negotiated contract terms, comparing and contrasting them with the contract terms considered most important.

The latest edition of this report got us thinking about “negotiation” and how Value Management supports and enables it in its widest sense.

In this second part, we look at what needs to change, beginning with reconceiving of negotiation as being far more than just a specific phase of the contracting lifecycle.

Last time, we saw how contract negotiations are failing to cover what is most important, and how this leads to the Things That Matter not being clear and aligned.

We also saw the shocking impact on relationship outcomes and concluded that something needs to change…

…and that something begins with embracing contracts for what they’re good at, which is the more tangible and objective Things That Matter, but then looking beyond them for the rest.

After all, warranties, intellectual property rights, liquidated damages, and so on, are important.

But it’s things like values, perceptions, effectiveness of communication, and behaviours that primarily affect contract delivery, and that determine the quality of the relationship.

Contracts can’t adequately capture or help manage these things.

Going Beyond Contracts

Here’s a graphic that maps how we might look to manage our relationships beyond contracts, and it shows a spectrum of formal approaches (typically more top-down and mandated, tending toward rigidity on the left) through to more organic approaches (typically more bottom-up and guided, tending toward flexibility on the right):

Contracts are typically the most top-down, then standards, then toolkits and methodologies – which are usually a bit looser in how they’re used – and then broad principles for managing relationships, before ultimately the value of each relationship itself.

Let’s now flesh this out with some examples – again, how they’re typically used – and we can see that there are lots of different approaches, all reflecting a growing awareness of the need to embrace but to extend contracts, and all with valuable things to contribute:

The Challenges

However, the graphic reveals some real challenges, with the first being that there’s obviously a gap when it comes to leading the relationship by value, and the second being the relative adoption of these approaches:

Also, as the two-way “From outside the relationship” arrow above the circles shows, all of these approaches come entirely or mostly from outside the relationship.

Finally, they’re mostly about how to do the relationship – the efficiency of AI, for example – more than what the relationship is about.

Now, we could debate some of the positioning or the relative sizes of the circles, but the general picture is clear: more rigid approaches dominate, and this only makes the gap around Value on the right even wider:

• Standards and the like are usually especially far off here: they’re often too exhaustive and get used in a wasteful, ‘one-size-fits-all’ way.
• AI, and other technology, also largely attempt to pin-down, control and “solve” relationships, without truly getting to grips with the softer, subjective side.
• And whilst workshops can help here, they’re difficult and costly to run on a regular basis, and they also only engage a subset of the people involved.

So, what we currently see is that conversations and intuition try and do the heavy lifting here – conversations one-to-one, or in account meetings, and the intuition that comes with experience about what matters most:

But that places a huge burden on individuals – no wonder operational overload is such an issue – and how do you spread or scale personal conversations or intuition?

Clearly, something else is needed to fill that gap… But what…?

Where Negotiation Comes In

This is where negotiation comes in.

Let’s begin by considering how we currently think about “negotiation”, and that’s usually very much bound-up with contracts, as we’ve seen.

The purpose of “negotiation” is to arrive at the precise legal terms of the contract, and the contract is then limited to what gets negotiated in this way, with “negotiation” therefore currently a specific phase in the contract lifecycle:

It’s done at a particular point in time to capture that point in time, whether that’s at the initial negotiation or at a later re-negotiation, and it’s done by specific people that have, as Liam Neeson might put it, “a very particular set of skills… skills acquired over a very long career”.

And there’s a really important truth here: negotiation of contracts is critical, bargaining and compromise are central, and achieving all this well is an art form, where training and skills are absolutely essential.

But, there’s a lot more we could – and should – be thinking about when it comes to negotiation…

“Negotiation” as a Verb

This all begins by realising that how we currently see “negotiation” – as the inverted commas indicate – is, as we saw in Part 1 with “value”, as a noun.

It’s a specific phase; a specific task to get done.

But we need to also, perhaps primarily, see “negotiation” as a verb.

When we do this, the first thing we realize is that negotiation is ongoing and constant.

All of us are always negotiating: weighing-up, bargaining and compromising between our individual priorities, between the priorities of our role, sometimes even between those two sets of priorities.

The same is then true at an organizational level, too, between the parties in a relationship.

And every decision made – whether by an individual, a group of individuals, or between organizations – involves a prior “negotiation”.

“Negotiation” is ongoing and constant.

The Other Meaning of “Negotiation”

But there’s then a second, and complementary, verb meaning of negotiation, and that’s in the sense of navigating situations

“He negotiated that tight corner really well…” or “She did a great job negotiating the questions in that interview”.

More profoundly, organizations need to negotiate the various challenges facing them – in particular, the accelerating change on all fronts.

Putting this all together, there are several implications.

The first is that we need to loosen the conceptual grip that contracts currently have on “negotiation”: negotiation is never less than contract negotiation, but it’s a lot more.

Second, contract negotiation runs the risk of becoming inward-looking and narrow. Not least because of the need to reach legal precision, it tends towards the specific, and it also tends to focus primarily on the dynamic between the two parties.

However, “negotiation” in the wider senses we’ve just looked at is broader; it’s more outward-looking; it brings back into focus the outcomes of the relationship, and the end customer (all of which – as the WorldCC reports showed us in Part 1 – are all too easy to lose sight of).

Third, “negotiation” is something we all do, and that means we all have a part to play: we all have something to contribute; “negotiation” is for everyone.

And finally, and back to the lifecycle, what we’ve been talking about with negotiation is something that happens throughout:

The intensity may vary, and there will be periods of relative “business as usual”, but the need to reach agreement and make decisions – and the need to navigate the road ahead – are continuous.

But we’ve seen how contracts at best only give us a very incomplete road map here – and we’ve seen the limitations of the existing approaches for extending beyond contracts – so how do we make this happen?

How do we truly negotiate Value in contractual relationships?

That’s what we’ll look at next time.