The Corporation as a Negotiating Entity – Part 3
The last in a three part guide for CEO’s, CFO’s and purchasing leaders on developing a corporate level capability to negotiate
Part #3: “Dealing with Backdoor Selling”
What’s in it for you? Ensure your company is organized and equipped to maintain the upper hand in negotiation by controlling information to maintain power and maximise negotiating outcomes.
Reading time: 10 minutes
If your organizations procurement has not been radically overhauled during the last 10 years, then the chances are that a large portion of your supply base will have been exploiting you for years, and without the resolve and skills to tackle these suppliers they will be intent on continuing to exploit you.
One of the ways this exploitation occurs is through “backdoor selling” which suppliers deploy to undermine procurements and the buying organizations leverage during negotiations and sourcing programs. The impact of backdoor selling aggregated over all an organizations negotiations can have a considerable impact on both its bottom line and the value it delivers to its customers. Unfortunately many organizations have little or no idea that they are involved in pre-negotiation “combat”.
At the heart of any corporate level negotiating capability building program therefore, should be steps to manage and control “back door selling”. Here in the final part of a three part series, we discuss back door selling and how organizations can tackle it at a corporate level to protect and improve their negotiation leverage.
What is Back Door Selling?
It is “combat”, because information is power and controlling information flow is critical in gaining and maintaining power in a negotiation. Back Door Selling therefore occurs when a supplier mindfully bypasses the procurement function to obtain information they would otherwise not expect to receive, or to influence the buying process to improve their negotiating leverage with the buying company. They do this by asking carefully crafted, innocent sounding questions to gain answers which undermine the buying companies negotiating leverage!
What is its Purpose?
Supplier goals in “back door selling” include:
- Increase its leverage and/or lock the buyer into the seller by forming strong relationships with none procurement personnel
- Divide the technical/operational and purchasing people
- Promote fear of change amongst stakeholders
- Obtain information to win the negotiation before they sit down in formal discussions
- Create dependency and lock in the buyer
How is it Done?
In organizations where procurement is not very sophisticated, suppliers often have stronger relationships with the company’s technical and operations staff than with members of the company’s procurement function. Suppliers use these relationships to “back door” procurement by; going to stakeholders to promote fear of change and new ways of doing things, to protect the status quo and also to gain access to sensitive information which they can leverage during negotiations.
It’s not that these relationships are bad per se. However, they can be extremely damaging if organizations do not get the balance between stakeholder relationships and their procurement functions right. Astute sales personnel will capitalize on situations where they are able to “back door” procurement by engaging in key stakeholder relationship building tactics designed to influence procurement decisions.
Identify the “Chumpions”?
Sales personnel target internal stakeholders to build relationships designed to neutralize procurement. Indeed, these stakeholders have even been labelled “chumpions” in the sales world. (See the sales blog on http://www.sellbetter.ca/blog/?p=41). Once the seller has built such a relationship with key stakeholders and earned their trust, procurements role becomes much more difficult and the seller has gained significant advantage. Procurement must identify the “chumpions” in their organization.
With the use of carefully chosen ‘back-door’ questions suppliers gain information from their “chumpion” to win a negotiation before it has started. This is the silent combat engaged in every day in businesses worldwide. Even in this age of partnerships and alliances information is power and by giving information away carelessly, negotiation outcomes can be decided before the formal discussions get started.
At a simple level examples of such questions may include:
- “Who are our competitors?”
- “Who else received a request for proposal (RFP) besides us?”
- “How does our quality measure up?”
- “How’s business?”
- “When is delivery really needed by?”
- “Is our price in the ballpark?”
- “What’s your budget?”
- “Who are the decision makers?”
Naive unguarded answers to these questions can inadvertently build the seller’s leverage and significantly weaken your own.
At a more sophisticated and more dangerous level, many suppliers will seek to develop senior level relationships which can be used to control the process, pace, and outcome of negotiation through decisions made by people not within the formal negotiating team.
Salespeople are trained to build relationships and ask these questions in the most informal, unsuspecting manner, so as not to give the vaguest clue of the devastating impact it can have on your company’s negotiation position. So be mindful of the consequences of letting your suppliers have uncontrolled access to senior management and other stakeholders when they visit your facilities.
Dealing with it:
One of the key factors for procurement is the presence of a clear and precise sourcing process which is actively supported by senior management. The presence of such a process makes it much more difficult for the seller to influence the sourcing process; however, it is still likely to be ineffective if it is applied incorrectly.
In the absence of a well co-ordinated sourcing process, technical and operations staff frequently become the initial contacts in the sourcing process, long before procurement is involved. In such a situation, information can be unintentionally disclosed during early supplier conversations that undermine the company’s negotiating leverage. The application of the sourcing process therefore, requires a cross-functional team approach where procurement is involved fully from the beginning to the end.
Companies can take important steps to address leakage of information through back door selling that will serve to “shut out” attempts by suppliers to “back-door” procurement by:
- Securing active support from the executive team.
- Ensuring clear roles and responsibilities
- Separating the decision makers from the suppliers during the sourcing process.
- Speaking with one voice to suppliers.
- Developing a supplier code of conduct specifically addressing back door selling, or cover this in a separate supplier engagement policy.
- Educating and training people to raise awareness
Whatever the format of the policy, it must be monitored and it must have teeth. This means obtaining full executive support and it means penalizing suppliers who circumvent the proper sales channels. Its purpose is to improve the effectiveness of working practices, commercial behaviours and purchaser / supplier relationships, and should address the following stages in the procurement lifecycle:
- Forecasting and planning all activity up to the point of soliciting bids
- All sourcing activity up to the point of contract negotiations, including elimination of bidders
- Negotiating agreement of contract terms, implementation and contract management throughout the life of the contract
- Monitoring and Evaluation of the policy
The supplier code of conduct is clearly just one aspect of a much wider subject; supplier relationship management (SRM), and must be written within an SRM framework.
Education & Training
Both negotiators and none negotiators should be trained in meeting with and responding to suppliers by helping them understand:
- The concept of ‘Information is Power’ in supplier relationships
> Each time you speak with an outside supplier, you are engaging in the negotiation process.”
> What information should you provide to suppliers?
- The value of knowledge and what ‘Share information on a need-to-know basis’ implies
> What information can be held back without inhibiting the problem solving process?
- The implications of ‘responsible sharing’ of company specific knowhow
> Promote awareness of the need to design and source products intelligently
- Their role and responsibility towards a supplier
- Tactics suppliers might use in order to strengthen their position
- Use of a repertoire of possible reactions to the tactics used by a supplier
- The use of asking different types of questions in order to strengthen your own position.
Executives must become aware of the devastating impact “back door selling” can have on their company’s negotiation outcomes and that this can directly impact their bottom lines and value delivery to customers.. To control back door selling executives need to develop more sophisticated procurement organizations, processes and controls. Also, they need to promote greater awareness of “back door selling” through better training to reduce the chances of sellers targeting “chumpions” in their organization. By taking these steps executives can neutralize seller’s attempts to undermine their company’s negotiating leverage.