Defining Negotiation Success
Most companies still focus primarily on financial metrics such as lowest price when defining negotiation success. While financial terms are clearly a key success factor, there are other types of value at stake in negotiations and without a mechanism for giving weight to these other kinds of value, they are likely to be neglected.
Best in class organizations develop clear measures for determining the success of a negotiated outcome and a preferred method for conducting this evaluation is via the balanced scorecard. The balanced scorecard provides a set of financial and non- financial measures that measure performance against all key stakeholder objectives which are in turn delivered by following a rigorous standard negotiation business process.
The Balanced Scorecard:
A balanced scorecard approach enables companies to evaluate negotiation performance against all the key categories of a negotiation outcome, which for many organizations are likely to be:
And whilst the specific metrics and key categories will vary based on a company’s goals, these four categories provide a strong framework for considering appropriate and robust measures of success.
When designing the balanced scorecard the companies that consistently achieve superior negotiated results typically keep three critical design points in mind:
- Systematic and robust preparation: “success requires planning” by developing preparation templates and tools, implementing management reviews of preparation, reviewing negotiated outcomes against the preparation plan, and holding negotiators accountable for having prepared.
- Consider the relationship as well as negotiated terms: “ understand the personalities in the negotiation” in healthy relationships, damaging issues such as breakdowns in trust, reputation or communication must be discussed – rather than ignoring them or attempting to resolve them by making unnecessary concessions on substantive issues.
- Walk away strategy: “know your BATNA” negotiators who understand the when and how to walk away alternative and whose organizations support their decision to exercise that alternative give themselves a competitive advantage during negotiations over their counterparts who do not.
When developing a differentiated negotiation strategy, once a balanced scorecard approach has been developed that is appropriately matched to the negotiation goals, it must align performance metrics with those goals.
Process vs. Output Metrics:
Process metrics measure the performance of the process used to arrive at the targeted outcome and aim to optimize individual performance. So whilst experience enables you to recognize a mistake when you make it again – and again – and again, process metrics enable you to recognize a potential mistake before you make it.
Output Metrics measure the effectiveness in delivering the targeted outcomes and is aimed at optimizing the business objectives. So whilst output metrics will always be key to senior management, process objectives are key to both senior management and those executing the negotiation, as the process will best enable them to achieve the targeted output. Therefore, by combining both process and output metrics the task of negotiators is to “reach a targeted outcome based on successful application of the process.”
Determinations of negotiation success or failure therefore should be based on whether the outcome is the result of a thorough, informed and well executed negotiation process. Organizations would also be well advised to keep in mind that “metrics drive behaviour” and therefore: “What gets measured gets done.”, both good and bad. Metrics must therefore be aligned to the overall business strategy and in turn incentives to metrics.
Aligning Incentives to Metrics:
Aligning incentives to metrics is key to changing individual behaviour. Rewards and incentives should therefore be tied to the key categories of negotiation performance in the balanced scorecard, and evaluated at a formal debrief after a negotiation, to promote:
- learning, to facilitate improved results in subsequent negotiations
- sharing of experiences across the organization
- translate experiences into improving the negotiation processes
Some favourite quotes on metrics:
“A strategy without metrics is just a wish. And metrics that are not aligned with strategic objectives are a waste of time”
– Emery Powell
“If you don’t keep score, you’re only practicing”
– Tom Malone
Defining Negotiation Success
A final word:
World class organizations understand that negotiation is not just the by-product of individual skill-building, but a critical organizational capability. These organizations understand that negotiation success is defined by behaviours and outcomes, and that these are most likely to change only when an organization commits to move beyond training individuals, by bringing negotiation into the framework of the organizations formal strategies, structures, processes and incentives that will enable them manage negotiations from a higher strategic viewpoint.