Negotiating Relationships for Lasting Returns
The art of the deal includes sustaining the relationship. Yet this is often overlooked.
March 30 2010 by Melanie Billings-yun
Most companies treat negotiation as a discrete and improvised transaction. Sales people, procurement agents, account managers, division heads, lawyers, even bosses and employees negotiate in virtual isolation, given a free hand to secure the “best deal” The results all too often are a mishmash of promises that cannot be fulfilled and/or damage to business relationships that ultimately reduces cooperation, eats away at profits, and may even lead to lawsuit. To see a vivid example of this we need look no farther than the current mortgage crisis, brought on by agents who got signatures on contracts they knew would never be honored, their only goal being to get the deal.
This transactional approach to negotiation springs from two fundamental misperceptions. The first is that getting a deal equals getting results, that once you get to yes the money will begin flowing in of its own accord. The second is that negotiation is separable from the organization’s core values, reputation, and relationships: that the memory of behavior, threats, or unwritten promises made to secure agreement will be wiped clean after the deal is concluded.
In fact, the opposite is true. The challenge is not in getting people to make promises, but in getting them to carry out those promises fully, willingly, and consistently. You can’t expect people to carry out agreements faithfully when one moment you call them valued partners and the next you treat them as mere tools, or obstructions, in your quest for short-term profitability or convenience. Rather, the organizations with the most sustainable negotiation success are those that focus not on deal making, but on building honest and mutually committed relationships with the people who will be carrying out those agreements.
Unlike a transaction, negotiating relationships is a process with no clear beginning or end. Nor, like a contest, does it have a winner and a loser. The goal is to reach an agreement to work with another party in the future, under conditions that enable both sides to prosper. Through focusing from the start on honest and open communication, problem-solving, and creating synergy, negotiation becomes a platform for generating immediate and lasting gains for all parties by:
- building trust
- maximizing value
- gaining acceptance
It never pays to assume that you’re too powerful to need strong business relationships – or that you are so efficient on your own that you don’t need the synergies that those relationships can bring. That lesson was learned painfully by the Port of Singapore in August 2000 when its single biggest customer, Maersk Sealand, announced that it was moving all of its operations from Singapore to the Malaysian Port of Tanjung Pelepas (PTP), an overnight loss of 10 percent of Singapore’s harbor terminal business.
The world’s busiest port with no competitors in the vicinity, the Port of Singapore accounted for around 3.5 percent of the city-state’s GNP. The port’s management arm, PSA, held a virtual lock on the regional shipping market, so it could call the shots, paying little attention to the requests of the shipping lines that used its berths. PSA pursued a single-minded policy of providing facilities that were among the most high-tech and efficient – and therefore most expensive – in the world, regardless of the acute cost concerns of its customers in the wake of the Asian financial crisis.
Faced with a severe economic slowdown, the shipping lines complained that PSA’s high price was cutting away their already slim profits. They were willing to sacrifice premium service, they said, in exchange for a lower price. Dismissing the shippers’ concerns, PSA held firm to its high quality–high cost policy. Even when Malaysia announced that it was opening its own port just across the strait, PSA remained confident that it could hold onto its customers as no competitor could match its size, quality, or value-added services.
Maersk, on the other hand, saw the challenge posed by the PTP as an opportunity to get in on the ground floor and develop a mutually beneficial relationship with a more customized port. While PSA rested secure in its position, Maersk management experts and engineers set to work with PTP’s planners to develop the facilities and service menu the shipping line wanted. In exchange for a 30 percent equity stake in PTP, Maersk negotiated the right to dedicated berths so that it would no longer lose money waiting offshore for the next available slot (a request that PSA had consistently refused in order to maximize use of its terminal resources), as well as the right to manage its own terminal operations and to employ its own procedures and systems. The new arrangements reduced Maersk’s costs by 30 – 40 percent.
PTP’s willingness to look beyond the deal and negotiate a mutually profitable relationship with Maersk enabled the upstart to do the unthinkable. By working with Maersk to reduce its costs and speed service, PTP not only got Maersk’s business but also benefited from the company’s expertise and ideas for improving the port facilities, boosting productivity, and reducing its own costs. The knowledge and skills PTP gained from this partnership attracted other customers. In 2002 Evergreen Lines, the world’s second-largest shipper, moved its operations from Singapore to Malaysia as well – another 5 percent loss to PSA’s business. Yet, as big a coup as that was, it was not the most surprising moment. That came in 2006 when PTP beat Singapore for the coveted Lloyd’s List Asia award as “Container Terminal of the Year,” recognized for having the highest recorded productivity among global ports as well as for its value, customer service, facilities, and overall efficiency.
Psychologists have found that about half of all people base their decisions on feelings more than on rational calculations and that everyone combines the two to some degree. In other words, any decision is based on a combination of emotional benefits (Do I enjoy doing business with you?) and tangible benefits (What will I gain materially from this relationship?). Moreover, we look to receive the emotional benefits first, as any tangible profit will be realized only after the negotiation is concluded. Even if the potential profits are high, in other words, if we feel emotionally accosted we may never reach agreement. We are simply too engaged in defending our position to consider solutions. However, when we feel our business partners are working with us – even though we may still have different interests or perspectives – our minds relax, creativity flows, and we are able to concentrate on maximizing value.
Whole Foods Market includes maintaining strong relationships with its suppliers among its core values. As a result, it has developed an enviable track record in persuading growers and vendors to experiment with methods for reducing production and distribution costs, adopt greener technologies, even develop new crops. Equally, by building long-term relationships, Kim persuaded the Korean government to go to the great expense of changing its military aircraft systems in mid-stream and PTP convinced Maersk to give its business in the busiest shipping region in the world to an untested newcomer.
Naturally, these great benefits don’t come free. Relationship-based negotiation does demand a greater investment in time, communication, empathy, patience, and self-control than do the old transactional methods. Yet, it is an investment that will be repaid many times over: creating more productive, cooperative, and sustainable working relationships; encouraging the reliable and complete carrying out of agreements; building loyalty; reducing conflict and the high costs of dispute resolution; and leading to future business.
In this extremely competitive business environment, leaders would increase their chances of long-term success by instilling a climate of relationship-based negotiation throughout their organizations.
Melanie Billings-Yun, Ph.D., is an international negotiating consultant and author of Beyond Deal Making: Five Steps to Negotiating Profitable Relationships.
Nirmalya Kumar, “The Power of Trust in Manufacture-Retailer Relationships,” Harvard Business Review, November 1996.
E. W. Larson and J. A. Drexler Jr., “Barriers to Project Partnering: Report from the Firing Line,” Project Management Journal, 1997, pp. 46–52.