Our Proven Negotiating Approach – When to Negotiate, When Not to, and How to do it Right
“It’s our own ability to have an idea and to go after the idea and make it happen. That’s what at the end of the day defines us.” – Satya Nadella
All Consulting projects are initiated on the foundation of an idea for improvement, problem-solving, in pursuit of growth or excellence. In this article we will focus on the Top 3 areas in the agreement, essential in negotiating that will determine the success of your project.
Your agreement negotiations will start once you narrowed down the shortlist of potential suppliers to one or two contenders.
So what do successful negotiations entail?
Wondering what precisely are the differences between Internal and External consultants? We think there are seven distinctions, so let’s explore them a bit more closely now.
1. Preparation Stage for Successful Negotiations –
Before you enter the negotiation process, you should be clear on where you stand:
- What would you like to achieve?
- What are the key elements of value to you?
- What are the parts where you can be more flexible?
- Decide who will negotiate.
You are looking for the best deal for you and your organization, and so does the Consulting firm, let’s try to envision how this can unfold and benefit both parties.
The first step is to decide if you will have a team or an individual approach. When you opt for the former, make sure you allocate the roles and ensure the appropriate level of expertise will be present.
The composition of the team will vary depending on the project size and strategic importance to the company. However, as a rule, you should include in the negotiation team, the same person that prepares the RFP, in particular, the procurement lead, the project manager, and the project sponsor. For larger and more strategic projects, you can broaden the team to the primary stakeholders, Finance, and Strategy.
It is important to separate people from the negotiation itself to avoid mixing personal feelings. Even though you have an excellent personal relationship with the partner of a Consulting firm, you might have conflicting objectives when negotiating a contract. If you are in that situation, you should consider bringing another person to the table.
You can also decide the strategy and tactics for the actual negotiation, including who will start the discussions and who will be the escalation person. Think about the impact of the concessions to be made, for instance, on the price and the quality. Anticipate what their likely reactions to your tactics would be, and what their tactics might be.
2. Cost, Deliverables, Pay-off Matrix, and Modifications You Might Like to Do –
This is where you need to focus on your negotiations. The three main areas of the project are: What will the Consultant deliver, How will they deliver it; How much will this cost?
As with many intangible services, almost everything in a Consulting proposal is on the table for negotiation. Of course, you don’t need to negotiate everything. When you decided what proposal is the best fit for your needs, you have identified parts that were good or excellent. You probably want to keep them that way. There were also aspects where the proposal scored poor to average. It is where you should focus.
How is the price calculated?
The interesting outcome of a relevant competition between Consulting firms is the price intelligence information you can collect. When a few Consulting firms equivalent in size and reputation offer notable differences in pricing, you can sense that the firm with the significantly higher bid is in one of the following situations:
- They have overestimated the work to be done.
- They are not interested in the project, and it’s their polite way to decline the project.
- They are confident they will win the project even if their offer is higher because your company tends to always work with the incumbent.
What will the consultants deliver?
Defining what the project is about in the RFP, in other words, the scope and the deliverables are often a high-wire exercise. So is building a proposal to answer an RFP. It is no surprise that the consultants sometimes end up slightly off-track. Besides, the scope can evolve during the sourcing process. You might have realized while discussing with consultants that your description was too narrow or too broad.
Modifications to the Scope examples:
- You decide to focus on Gas Distribution in Western Europe, rather than Energy in all of Europe,
- You want the deliverables to be more granular than a high-level SWOT,
- The final deliverable does not include the knowledge transfer and the way forward.
How will the consultants deliver?
The delivery model also has a tremendous impact on the success of a project. It covers the approach, the timeline, the governance, the team staffing, the phasing, or the balance between on and off-site work.
Modifications to the Delivery Model examples:
- You want to change the number of workshops in North America,
- The Governance proposed does not fit your internal decision-making process,
- The timeline of the project doesn’t meet your internal deadlines,
- You want a more senior project manager,
- You think there are too many part-time experts in the proposal.
How much will the project cost?
The last dimension is the price of the project. There are several ways to look at the price. First, you can see the overall cost and compare it with your budget for the project. You can examine the cost structure in terms of daily rates, or type of fees used. The cost allocation on the different phases can also be of interest.
Modifications to the Price examples:
- You expect a 15% discount on the overall cost,
- You want to link some part of the fees to the performance of the consultant on the project,
- You feel the daily rate for junior consultants is too high,
- You prefer an all-inclusive flat fee, or you want to cap the out-of-pocket expenses,
- You don’t agree with the cost allocation to the different deliverables/phases.
Note that the above dimensions are intertwined. Changing the scope will have an impact on the delivery model and the price of the project. Likewise, modifications on the timeline of the project or the staffing will alter the scope and the cost.
Keep in mind your pay-off matrix.
Instead of focusing too heavily on the people and the ground you stand on, your interest and pay-off matrix is more important. The value of the project dictates how and what you want to negotiate. Examine all the orders around the table and ensure alignment with overall strategy/priority of the project.
The first step in the process is to understand how much value the project can bring you and measure the gap between the expected value and the price of your preferred proposal.
You can start by building your pay-off matrix where you have two strategies: negotiating and not negotiating.
When to negotiate and when not to?
Let’s apply this to a project that generates 100 in value for the client. The Consultant has given a price of 50 for the project. When none of the actors are negotiating, both parties capture 50 in value.
Pay-off Matrix Example 1
It is always in your best interest to negotiate because the other party is expecting you to do so. However, the amount of discount you expect cannot be decided as a general X% rule but preferably would be based on the context of the project.
For instance, if each week spent in negotiations, and back and forth costs you 5 in total value, then your pay-off matrix after two weeks looks like this.
Pay-off Matrix Example 2
If you compare it to the first week, you are on the losing end in all cases. Also, if the expected value is 10-fold the price of the project, is it worth your time negotiating the extra 5%? Shouldn’t you focus on securing the consulting resources and the deliverables instead? Do not look at the negotiations as a way to get the most advantageous contractual terms for your company or manage your liabilities. Forcing an unfair deal will only jeopardize the success of your project, or in the long run, your relationship with the Consulting firm.
As long as the price fits your budget, focus on the best possible outcome of the project, including the return on investment you aim for.
3. Win-Win Outcomes – Keep the Ultimate Goal in Mind –
Make sure that you foster the possibility of a win-win outcome. Winning in a negotiation does not mean the automatic fulfillment of the contractual terms or cheating the other party. It is about finding common ground that satisfies both sides.
- Assess the balance of power.
You need to understand the strengths of both sides to conduct an effective negotiation. It will give you a sense of the margin for negotiation. In other words, do you have the upper hand in the discussions or not.
- What is your level of dependency on the selected provider?
If you have organized a relevant competition, you should have several solid proposals to choose from, even though the depth of expertise might be narrowing the number of qualified consulting firms. That range of choice allows you to have serious alternatives if you cannot find a satisfactory agreement with your preferred choice.
- Are you willing to get your incumbent on their toes?
Another element that can change the balance is your willingness to work with new players. If your incumbent knows that you are seriously considering working with other candidates, they will be ready to compromise.
- Are you in a hurry?
Sometimes, the timeline for the project is extremely short, and it can make your negotiating position weaker. As much as possible, prepare and organize for projects in advance.
- Can you take advantage of the industry seasonality?
Interestingly enough, consulting is a seasonal industry. There are periods of the year where consultants have more capacity than during others. The last part of the year, for instance, is an excellent period to negotiate an extra effort on a project. Conversely, the first part of the year is often hectic, and the demand is higher.
Last but not least, make sure the negotiating party has the right decision-making authority.
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