Wednesday, January 23, 2008

Don't let negotiating counterparts overcommit

The most useful part of Danny Ertel and Mark Gordon's recent book "The Point of the Deal," to me, is this lesson: in a negotiation, if you convince the other side to do more than it can reasonably deliver, you have not won anything. More likely, you have set up the project for failure.

It's easy to say "it's their problem" when the counterpart agrees to a concession that you demand. But if the concession causes long-term issues for the counterpart, eventually your company will suffer.

Here's an example: when I was a product manager, we sold a usage-data collection product to a large wireless telecom carrier. It turned out that the service level that the customer insisted on added costs that made the deal unprofitable for us.

We agreed to the service level, and certainly made serious errors. I made some optimistic assumptions about future customers we could sign on, cost efficiencies we would gain with experience, etc., that didn't occur. We really needed that anchor customer, and stretched too far to get it.

But the point is that, while the customer had a couple of years of getting more service than they were paying for, our problem eventually became their problem. Our company looked at this money-losing account and said, "Something's got to change," and they insisted on a price increase. The customer refused--they had not been previously aware of the cost issue. The contract was not renewed, the product was pulled out--even though it was adding value. Goodwill evaporated.

Ertel and Gordon recommend the following steps to ensure that the other side doesn't overcommit:

  • Avoid extracting pointless overcommitments
  • Adopt an implementation mindset
  • Take the "80/20" hindsight challenge (identify with your counterpart, while negotiating, the 20% of decisions and commitments which in the future you will wish you had clarified further)
  • Engage with all the key implementation stakeholders

(Photo: "Overload" by brage)

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