Monday, November 29, 2010

“A little knowledge is a dangerous thing”

The rationale for this idiom is that people who only have a little knowledge of the subject matter often make big mistakes because they think they know more than they actually know. If there is one place where the idiom proves itself each and every day, it’s in Procurement negotiations.

To be a solid negotiator there is a substantial amount of knowledge that you should have as a foundation to work from. If you are going to negotiate cost, there is a substantial amount of knowledge about cost you need to understand. If you are going to negotiate contract terms, not only do you need to understand the terms, you also need to understand why they are important and the costs and risks they are designed to protect against. If a Supplier is proposing changes to a term, you need to understand the impact of that change, how it affects their commitment and how it impacts your costs and risks. If you are going to negotiate for products and services in a specific commodity, you need to build knowledge of the commodity, the suppliers, the market and any idiosyncrasies. If you are going to prepare for a negotiation, you need to know all the things you should be doing in preparation. If you will manage the negotiation you need to know what to do and how to do it. There is also a significant amount of general knowledge and skills needed to negotiate successfully, which if you don’t have you need to build.

When you look at the vast majority of books and training on Procurement negotiation or negotiation in general, the focus is on either tactics or negotiation strategies. There is very little time spent on the knowledge you need to be a strong negotiator. Tactics don’t help much if you don’t know what you are negotiating or how to negotiate it. Having the right negotiation strategy also doesn’t help much if you don’t have the knowledge or tactics.

Individuals that have been part of the Harvard Negotiation Project have written a number of books on Negotiation. Most were focused on strategy. One of the most recent books is called “3D Negotiation” (written by David A Lax and James K Sebenius).  The first thing I liked about the book was the fact that they observe that most people think of negotiation in one or two dimensions – tactics and strategies.  Their additional dimension (hence the  “3D” title) is deal design and deal set up.  Most procurement negotiations may not involve significant deal design because of limitations in flexibility that may exist. For a buyer or junior negotiator you simply don’t give them much flexibility in structuring the deal. Deal design and deal set up is higher level knowledge that you need to build should you ever have the flexibility to structure a major deal and set it up for the negotiation.  That type of knowledge is toward the end of the knowledge spectrum.  There is a lot of knowledge you need to build before you get to that point.

The best negotiators I’ve met are those that operate off a solid foundation of knowledge. They use that knowledge in conjunction with the right strategies and tactics to structure and create the deal they want.  I believe that building knowledge is so important that I’ve taken concepts that I’ve learned and a number of materials I’ve developed over time and have generated both a book and blog on negotiation that is focused on helping build the knowledge you need to negotiate effectively. I welcome your comments, suggestions and thoughts.

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