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Powerful Tips on Commercial Negotiations

Business is fundamentally about successful relationships. However, relationships aren’t simply made, like any form of interaction they require work and effort. They must be maintained. Different parties will most likely have different wants or needs and there is always scope for relationships to breakdown due to cultural differences, misunderstandings, or simple miscommunication. Negotiation forms the central core of these relationships – new ones and older, more established ones – they all revolve around the process of negotiation. This process may be overt- i.e. a formal negotiation process where different parties meet and decide outcomes prior to entering into a commercial contract, or it may be subverted – i.e. it may not appear to be a negotiation, it may appear to be quite an informal interaction, but nevertheless it is. It is also important to point out that neither particular approach above mentioned is any more powerful or less effective than the other. Different techniques work in different environments at different times.

Planning, conducting and analysing the outcomes of commercial negotiations are key elements of successful business. Developing the skills of commercial negotiation is a demanding, valuable and often personally challenging task. The outcomes of commercial negotiation are often difficult to assess; such as the impact on the short‐ and long‐term buyer/seller relationship and the negotiator's personal and organizational development, hence the need to identify, understand and develop commercial negotiation skills. Commercial negotiation is explored from three perspectives; process, the respective parties' objectives and bargaining. The need for planning, the foundation of any process, in a commercial negotiation is detailed.

Big Deal negotiation team should, at a minimum consist of four people, consist of four people: a deal director, financial or pricing strategist, commercial or legal strategist and solutions specialist. It is advisable to get this group of people to stay together and participate through the entire course of the commercial negotiation. A big part of the decision-making goes on behind the scenes during the negotiation preparation, where everybody brings a unique perspective.

Good commercial negotiators, proficient in cross-cultural communication are experts in managing a situation to reduce massive disconnects between parties and within parties.

Key steps to a non-positional negotiation approach :

  • Acknowledge the customer’s concern – Understanding the customer’s pain is a way to start off on the right foot.

  • Do not endorse the customer’s concern – Do not agree to an opposing position, but disagree tactfully.

  • Highlight the situation – Being honest and having empathy leads to more concessions than anything else does.

  • Focus on customer issues (discovery and resolutions) – Focus on customer issues and figure out how to alleviate the pain.

  • Focus on customer (personal) gain – Learn in a tactful way what these executive are measured against and then craft your solutions to those parameters.

  • Seek genuine help in championing your effort – Understand what the other side is attempting to achieve, and ask them to help you develop a mutually satisfactory solution.

10 Tips for Successful Contract Negotiation :

  1. If it doesn’t seem right, don’t do it - If people are asking for things that don’t make sense, or if they bluster when asked for information about their organisation or ultimate owners, there is probably a hidden agenda.

  2. Keep it simple and conventional - Simple, straightforward deals that everyone understands, even if they don’t achieve all the subtle advantages (eg tax or liability) that are obtained by more complex arrangements.

  3. Agree the main elements of the contract before drafting a written contract – Only main elements such as work, price & the like and don’t get bogged down in details. If you are using a term sheet, it should be no longer than 2-4 pages.

  4. Involve your lawyers - Successful contracts are a team effort. Choose high quality, user-friendly lawyers and involve them at an early stage. They bring useful skills, such as clear and accurate recording of the commercial terms of the deal, and they may have experience that will assist you in the negotiations.

  5. Manage your lawyers - To get best value from your lawyers, and best value for money, you need to give them proper instructions and guidance.

  6. Manage your colleagues - In some organisations, the commercial leader will seek input from colleagues in different departments, e.g. finance, sales, patents, tax. The commercial leader needs to ensure that the organisation speaks with one voice and can take rapid decisions.

  7. Think a few steps ahead - Some commercial leaders don’t plan ahead; others are very good at planning. If you want to hold a negotiation meeting on a particular date, think backwards to how long before the meeting a draft agreement must be prepared, and whose approval or input will be needed for the draft.

  8. Give yourself time and space to negotiate the final contract - Sometimes, a client’s commercial representative is so eager to get the deal done that they make concessions too early (assuming that the other party will reciprocate), or take other unwise decisions.

  9. Understand the other party’s point of view - Work out what the other client wants from the negotiations. Ask lots of questions. Don’t assume they have the same objectives as your organisation.

  10. Don’t lose focus when you think the deal is done - There is an understandable tendency, when the last negotiating point has been discussed, agreed, and struck from the list, for parties to relax and start making assumptions about the contract process. If it is important, discuss and agree everything, down to when the final version will be prepared for signature, who will be signing it and when.

Sources: Christopher Lennon, Stephen Ashcroft, Anirban Dutta, Hetzel W. Folden and Mark Anderson

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