Thursday, January 03, 2008

Negotiating a joint venture isn't like buying a used car

For most people, the prototypical negotiation is buying a used car from an untrustworthy dealer. And the negotiating strategy for this situation can be summed up in two words: Caveat emptor.

But as more and more business becomes collaborative and partner-driven, a new kind of negotiation is becoming common. Sometimes it is called "win-win," or "implementation-oriented." At any rate, it is not a transaction that ends with signing papers and handing over money. It is one that begins that way.

Examples include joint ventures, channel agreements, long-term outsourcing contracts, and long-term purchasing commitments.

An important feature of these types of arrangements is that the contract cannot include everything needed to make the deal successful. The parties must also work in good faith after the contract is signed to create the value anticipated by the agreement. And given that the arrangements last years or decades, the parties must also build in flexibility to adapt to market, regulatory or other changes. Such thinking is the polar opposite of the used-car negotiation.

Such types of agreements are the subject of the new book "The Point of the Deal," by Danny Ertel and Mark Gordon, an expansion of their 2004 Harvard Business Review article called "Getting Past Yes: Negotiating As If Implementation Mattered" (link - $$).

Ertel and Gordon, from the consulting firm Vantage Partners, discuss at length how traditional negotiation approaches--such as using surprise, withholding information, entrusting negotiations to specialists, and pressing for quick closure--frequently undermine long-term arrangements.

For example, the authors say this about limiting the information disclosed to the other side in a negotiation:

Traditionally, negotiators have treated information as a precious commodity, to be preserved and protected and not given away freely.... Many negotiators assume that the more information they disclose, the weaker they become; that it is up to the other side to do their due diligence and discover whatever information they need.... Such behavior[, however,]...tends to lead to lots of surprises when the parties turn to implementation.

If you're encountering more negotiations of this type, where the old rules don't work well any more, you'd be well advised to read "The Point of the Deal."

Some other negotiation resources:
Barbara McFadden podcast
Negotiation Genius review
HBR podcast with Danny Ertel

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Hans said...

Indeed many business deals involve some kind of vertical integration between supplier and customer, with joint-ventures being an extreme form.

In such setting, sales people are figureheads of the marketing team of the supplier, but at least partially they should think about the best interests of their customer.

The same applies to purchasing people.