Procurement Negotiations - Movius Consulting
Procurement Negotiations - Movius Consulting
Procurement Negotiations - Movius Consulting
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NEGOTIATIONcase studyspreadingthe messageWPP and the Consensus BuildingInstitute (CBI) have been workingtogether for three years, exploring howvalue-creating negotiation can assist inbuilding sustainable client-supplierrelationships. During this time, CBI hasdelivered tailored negotiation training toover 600 senior executives from WPPmarketing and communicationsagencies around the world.In turn, the WPP commercial andprocurement services team plays aleading role in internal workshop designand facilitation, and offers “beginner toimprover” level negotiation training andtrain-the-trainer programmes to WPPagencies in all geographic regions.This team has delivered 50commercial workshops each year for thepast three years. Thousands of WPP staffhave attended at least one of theseworkshop programmes.The procurement leadership team inWPP is regularly called upon by agencieswithin the group as negotiation advisersand process coaches.executives, on the golf course or overlunch, which somehow threatens procurement’sattempts to manage supplierstransparently and fairly. These concernscan be particularly acute during a pitchprocess. However, all business leadersintuitively know and understand that thereis enormous value in relationships andopen dialogue with key advisers and suppliers.In the world of business andcommerce, it’s often trusted relationshipsthat enable major deals to get done or significantproblems to be resolved.We therefore have an obvious disjunction.On the one hand, business leaderswho want to be able to sit down and talkfreely with their counterparts, shapingdeals and exploring potential options. Onthe other hand, we have procurementattempting to constrain dialogue within aprocess that it insists on controlling,seemingly fearful of the very relationshipsthat business leaders want to cultivate. Itis therefore not surprising that CPOs oftenfind themselves and their staff excludedfrom the really key supplier relationshipsand the vital strategic discussions anddecisions. Equally, it’s not surprising thatprocurement’s efforts to release valuefrom strategic supplier management activitiesoften fall short, largely as a result ofits inability to switch seamlessly from atraditional strategic sourcing approach toa less familiar situation where it has to beable to think and act effectively outside thenormal process boundaries.Imagine a better wayImagine a better (or at least different) way,where CPOs and senior procurement managersview themselves (and are positionedand recognised within the organisation) asvalue-creating commercial specialists firstand foremost, and procurement functionalspecialists second. Where procurementteams are expected to use strategic sourcingprocesses where it is appropriate to doso, but are also encouraged to experimentwith different approaches and to embraceand explore the value of relationships.Where price, while still important, is onlyone of several metrics of value with whichto assess the overall impact of a supplierrelationship. Imagine what the potentialof procurement might be then.We advocate the following major areasof opportunity for CPOs.1 | Change the trainingNegotiation training is often viewed aslargely generic in terms of content, whichis then applied generically to all procurementstaff, irrespective of role or seniority.In addition, much existing negotiationtraining for procurement is more aboutharnessing and applying power and winningthan recognising that value can becreated for both parties. So, careful selectionof a negotiation training providerand process of negotiation is key, followedby segmentation of the right kindof training to support a variety of procurementroles.However, training procurement itself isonly the beginning of what could be a largeuntapped opportunity for CPOs to play adifferent and much broader commercialrole. As procurement raises its own negotiationgame and is seen to do so throughactions as well as results, our experienceis that many other functions within a typicalorganisation will start to ask the CPOfor help in a variety of ways:••Requests for procurement to design anddeliver negotiation training events to therest of the organisation.••Requests to deliver negotiation train-thetrainer,to enable individual business unitsto be self-sufficient with their own negotiationtraining programmes, while deliveringa consistent, centrally developed negotiationmessage and philosophy.••Requests to coach others as they preparefor, or even during, important negotiations(with the emphasis on negotiation processcoaching rather than on content expertise,which is specific to the situation).••Requests to organise joint training sessionswith key suppliers or clients.Each of these has the added benefit ofopening up a new constituency of seniorbusiness contacts for procurement whileclearly positioning the CPO in the role of avalued commercial partner – one who canhelp facilitate a better outcome for clientand supplier organisations alike. This hascertainly been the experience at WPP inrecent times (see Case study box).2 | Deal with organisationalbarriersMany CPOs will have encouraged andinvested in negotiation training for procurementteams in the past, only to bediscouraged that months or years later littlehas changed in the way that negotiationsare carried out, with individual behavioursappearing to be struck in a traditionalmindset. Organisations that send individualson training programmes, nomatter how entertaining, will not positionthem to change the way they negotiate. Webelieve that moving in the direction of amore value-focused process requires ashift in thinking, away from negotiation asan individual competence to negotiationas an organisational competence.We suggest three areas for attention:••At the strategic level, there may be scopefor the CPO to describe a broader commercialvalue proposition for procurement,propose a new strategy of alignment withother functions or leaders within theorganisation, create a new value-basedway of measuring success, or better alignstaff rewards with the desired outcomes.••At the structural level, it might mean reengineeringthe negotiation preparationprocess, so that procurement negotiatorsroutinely seek input and sign-off from abroad range of stakeholders and expertsprior to the negotiation, spend much moretime thinking about interests from bothsides, and are granted increased authorityto invent options at the table and fullyexplore alternative deal shapes.••At the level of individual learning, itcould mean teaching a clear negotiationmodel, process and language, providingopportunities to practise difficult negotiations,creating a learning organisationwhere negotiation experiences – good orbad – are shared, and promoting negotiationas a journey of learning.3 | Give staff permission toexperimentThis is a tough one for CPOs, who for yearshave been espousing consistency andpurity of application of process to drivecost reduction. However, as outlined earlier,the unintended consequences ofprocurement’s process-led approach riskdestroying more value than it creates. Ourrecommendations are:••Give procurement teams permission tostep outside the strategic sourcing processwhere the situation warrants it.••Encourage pilots of new approaches – forexample, instead of issuing an RFP, bring insome valued strategic suppliers and encouragea dialogue about joint aspirations,interests and ideas for the relationship.••Encourage suppliers to challenge theprocess – suppliers can only innovate ifgiven the space and opportunity to do so.••Reward and celebrate procurementteams and suppliers that take a few risksand deliver incremental value as a result.••For strategic services or products, keepthe primary focus on optimisation of theoutput value to the buying organisation, asopposed to the primary focus being theinput costs. Yes, input costs will always beimportant to procurement and rightly so,but may be trivial when considered againstthe broader commercial picture. Gettingstrategic supplier relationships right candeliver so much more.checklistthe value-creating approach1234567Spend time up front compiling a list of interests (the kinds of things thatbusiness stakeholders care about) and think clearly about the other party’s interests.Engage internal stakeholders in assessing and agreeing the rank order ofyour interests, and attempt the same thing for the other party’s interests.Spend lots of time at the negotiation table clarifying your interests andunderstanding the other side’s interests, capabilities and constraints.Agree to delay conversations about benchmarks and “fairness” untilinterests and options have been elicited and understood.Declare a period of “inventing without committing”, to brainstorm options orpackages that meet their interests well and your interests very well.Construct “nearly self-enforcing agreements” – agreements in whicheach party has an interest in living up to its commitments.Use contingent commitments to spell out what will happen in the event offuture events or performance (“if X… then Y…”).4 | Define success differentlyWhile recognising that traditional savingsreporting will always have a role for procurement,we advocate that CPOs take thelead in designing and advocating a differentapproach to measuring the success of strategicnegotiation and supplier relationships.We make the following observations:••The debate should start and end with keybusiness stakeholders – this is a businessissue, not one solely for procurement.••Whatever measures of value are chosen,these should be consistent with existingbusiness objectives for client and supplier.••Measures should reflect a commitment tolong-term value, in the form of innovation,quality improvement, customer satisfaction,revenue growth, cost management,risk management and other key goals.――• ❖ •――<strong>Procurement</strong> processes today tend to belinear and tightly controlled. There is arisk that strategic sourcing has becomeover-specified and therefore, paradoxically,extremely wasteful. When there isno process for creating value, based onexploiting the differences in the kinds ofthings each side cares about, then procurementpredictably becomes anexercise in making demands, demonstratingmarginal short-term savings andignoring the operational, financial andrelational problems that occur downstreamwhen value is compromised.In this article, we have deliberately triedto be challenging – perhaps even controversial– with the specific intention ofchallenging CPOs to take themselves andtheir procurement teams out of a processcomfort zone and towards making a morestrategic business contribution, both personallyand functionally.The key to making this transition is awillingness to leave behind some of theprocess baggage that procurement hasaccumulated over the years and place moretrust in the power of relationships and ina set of softer skills and techniques thatare more in tune with value creation andless focused on process and price.FURTHER READING¹ IPLF, Business Relationship Management: TheFour Faces of Building Value With StrategicSuppliers, 2008 (available to download atwww.futurepurchasing.com)² See Jules Goffre, “Comparing apples withoranges”, CPO Agenda, Winter 2006-07, pp32-36;and Jon Hughes and Lars Mikkelsen, “Negotiatingwith strategic partners”, CPO Agenda, Autumn2007, pp30-35³ Hal <strong>Movius</strong> and Lawrence Susskind, Built to Win:Creating a World Class Negotiating Organization(Harvard Business Press, forthcoming)54 CPO AGENDA | Autumn 2008 www.cpoagenda.comwww.cpoagenda.com Autumn 2008 | CPO AGENDA 55