How to overcome Power Imbalance in Negotiations

This is a short account of a real life situation which illustrates how communications and conflict management skills can help you succeed in seemingly desperate situations.

Why we got involved

One of the largest automobile manufacturing companies subcontracted our client to design and build a sophisticated and specialized component to install into a particular high end car that was in production. The project was successful beyond any initial estimation and the working relationship between the auto manufacturer and our client was good.

As the initial contract was about to expire, the company engaged our client in talks to potentially renew the contract for phase two but started exerting enormous pressure for better price, terms and conditions which would have exposed our client to unacceptable risk and very low margins.

Our client’s dilemma

Our client very much wanted the business, but they found themselves caught between a rock and a hard place. They felt that they were at a severe disadvantage in negotiating with the “Giant of the auto industry” and had no leverage with which to negotiate a better deal. Should they accept any deal just to retain their customer? What about risk exposure? What about very low profit margins? What about the precedent it may set?

They retained us to advise and prepare them to negotiate a deal that would help them manage their exposure to risk conservatively; preserve satisfactory profit margins; and maintain the good relationship with their customer. My initial response was to tell them that although we are excellent at what we do, we are certainly no magicians, snake-charmers or sorcerers!

From experience however, I have learned that things are not always what they seem. Often, with thorough and careful preparation, new information is developed and innovative strategies devised.

We accepted the challenge!

How we solved our client’s problem

We dedicated one entire day to coach and prepare the negotiation team. During this session we did some very careful and rigorous exploration of alternatives that would be feasible for the auto manufacturing company if our client decided to walk. The turning point came when we analyzed the pro’s and con’s of each path they could conceivably take and none appeared to be more attractive than the original terms and conditions that our client was offering them. For example were they to go to a competitor at this stage, it would mean forging a new relationship, establishing trust, and a steep learning curve for the competitor. Furthermore, better terms were still not guaranteed and neither was quality or performance assured. Self performance was another potential alternative for our client’s customer, albeit a far fetched alternative which also had serious con’s associated with it. When it became clear that the customer had very limited realistic choices, the perceived power imbalance suddenly evaporated. The confidence level in the negotiation team became palpable as they felt ready and armed to convince the customer about the con’s associated with any alternative that they might present as a means to pressure the team. Finally. we advised them to put together a proposal that would meet their needs and address their concerns, to present it to the other side and say: “Here is a proposal that we think is decent and fair. We invite you to consider it against all your alternatives and we feel very confident that you will conclude that this is the best deal for both of us!”

Our client used our strategy with confidence and aplomb. After a very tense waiting period of ten days, their customer acquiesced.

What we can learn from this

  • Never be overly concerned about initial unreasonable positioning and posturing. When one engages in the dialogue of negotiation and applies the process with practiced discipline, new information is developed and the outcome is usually very different to the initial presenting positions and very much more acceptable to all parties.
  • Appreciate the importance of preparation for important high stake negotiations. It is a wise investment of time and worth hiring an expert to help devise strategy, and to prepare and coach the teams
  • Always carefully consider choices that the other side faces should the negotiations fail and try to find the weaknesses in those choices. This will allow you to persuade them of how unwise or costly it may be in the event that they threaten you with those “alternatives” and why reaching an agreement with you makes more sense. At times, you may feel that your counterparts have overwhelming power in a negotiation, but after careful preparation and analysis you will realize that the power imbalance is not what it seemed.

Comments

  1. It’s hard to come by experienced people for this subject, but yyou sound likke you know what you’re talking about!

    Thanks

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