We finally have a deal! It is almost the common expression on negotiation tables, usually after a considerable amount of strategic effort, effective deal-making and time. But, are signatures enough to secure the good implementation of the deal in the time ahead? Or More importantly, what about value creation during the deal implementation?
At last, the deal is done. After 18 months of negotiation, eight trips across the country, and countless meetings, you’ve finally signed a contract creating a joint venture with a Silicon Valley firm to manufacture imaging devices using your technology and their engineering. The contract is clear and precise. It covers all the contingencies and has strong enforcement mechanisms. You’ve given your company a solid foundation for a profitable new business. As you file the contract, a question dawns on you: Now what? It will take more than a well-written contract to produce those devices on time, under budget, and up to specifications. To do that, your two companies will need to develop an effective working relationship. “Once the contract is signed, we put it in a drawer. After that, what matters most is the relationship, and we’re negotiating it all the time.” Whether you’re manufacturing audio components in China; providing data-processing services in Chicago; or constructing a cement plant in Cheyenne, Wyoming, the quality of your relationship with a contractual partner is often the difference between a successful deal and one that falls apart. In this article, the Program on Negotiation will show your how to turn that contract you just signed into a relationship that works: Relationship Building Blocks, Two-Way Communication, Strong commitment, Reliability, Mutual Respect, Relationship Rules.
Equally important is the way, you build a deal. The most usual choice for negotiators is for small or secondary issues to be negotiated first. By following that approach you create the necessary trust conditions between the parties involved and through small steps and mutual value creation you can gradually touch on more important issues:
Most big deals are built on a series of smaller ones. That’s true of megamergers, major sales, infrastructure projects, and even some UN resolutions. These deals are the culmination of many focused negotiations among various parties, each with its own concerns. Most deal-making advice addresses how to choose the right tactics for each piece of the puzzle. Absent from the literature is guidance on how best to put the pieces together, let alone how to identify them in the first place. This leaves a glaring gap. Consider the case of Mittal Steel’s takeover of Arcelor, Europe’s largest steel company—an intricate deal ultimately worth $33.1 billion. Suppose that founder Lakshmi Mittal had simply set up a meeting with Arcelor’s chief executive to hammer out an acquisition. However persuasive Mittal’s pitch, Arcelor would have rebuffed it; indeed, the company’s board and CEO were, according to numerous accounts, dead set against the sale at first. Instead, Mittal and his son Aditya, the firm’s CFO, undertook what we call a “negotiation campaign” involving multiple financial agreements; extensive shareholder and political dealings in Luxembourg, France, the Netherlands, and Canada; and regulatory accords in Brussels and Washington. These separate negotiations allowed Mittal to build sufficient support to overcome and even convert potential blockers. The Mittal deal involved high stakes, but many small-scale deals play out on multiple fronts as well. The champion of a new product, for instance, has to orchestrate complex internal negotiations across individuals and departments in order to secure support and senior executive approval. Founders of a new venture must weave a web of mutually reinforcing deals: raising money on the right terms from the right sources, persuading credible figures to join the board, forging agreements with critical employees, working out contracts with strategic partners, and so on. Each component deal in these situations presents a tactical challenge “at the table.” This kind of direct negotiation is familiar terrain to deal makers. Less familiar is how to address the more strategic challenge that unfolds away from the table: sequencing the individual component deals in a way that allocates scarce negotiation efforts toward achieving the target outcome with enough support to make it stick. We have come to think of the process as a campaign, frequently conducted on multiple fronts, each typically involving many parties. On the basis of our analysis of and experience advising dozens of complex deals—and drawing on insights from sales, marketing, political, and even military campaigns—we have developed concepts and tools to help executives conduct such campaigns. In this article, we lay out the process, offering advice on how to identify the relevant parties, define and sequence the fronts, and orchestrate the complex set of deals that build a winning coalition.
On the other hand, when we talk about money how can we deal with this issue during business negotiations or proper deal-making..?
“More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” -Warren Buffett I’ve had the opportunity to negotiate some significant transactions. I’ve bought companies, organized partnerships, and sold large contracts. Each of these situations is a “deal,” where value is negotiated, and every deal is made up of the same underlying principles. Here’s how I view deal-making, along with some lessons I’ ve learned. The anatomy of a business deal is comprised of three basic components: the expected return, upside potential, and downside risk. Another way to describe this is to ask, “What do I expect to happen? What is the best possible scenario? What is the worst possible scenario?” The goal is to have a fair expected return, a huge upside, and very little downside. Not Zero-Sum: To get a good deal, most people believe they must “win” and the other party must “lose.” If the only thing being negotiated is money, then yes, it’s a zero-sum game. But I’ve never been part of a negotiation where money is even close to the No. 1 interest of either party. The goal of creating a good deal for both parties is not only possible, but the only sustainable way to do business. It produces the best long-term returns for everyone involved.
Finally, it is a common belief and close negotiation practice that the signatures on paper are the starting point of effective deal making!