Strike A Deal
Leaders Who Adopt Multisource Can't Afford to Overlook the Importance of Developing and Fine-Tuning Negotiation Skills
by Peter Fretty
Now part of the business lexicon and adopted by companies both large and small, the outsourcing trend is rapidly giving way to multisourcing—or the divvying up of pieces of a project to multiple external providers. Bringing together multiple vendors to work for a common goal requires flawless negotiation skills and careful planning. But done well throughout the entire project life cycle, multisourcing controls risk, increases competition and allows firms to concentrate the majority of their energies and resources on core competencies.
Current deal sizes are a telling signal of multisourcing's growth. “There are far more $5 [million] to $50 million deals, and nowhere near as many $5 billion dollar deals,” says John Bostick, CEO of dbaDIRECT, a data infrastructure management firm based in Florence, Kentucky, USA.
Ultimately, the success of multisourcing depends on an organization's ability to manage outsourcing with the most appropriate, best-practice service providers. “The next iteration of multisourcing will move into a very special dimension where decisions will be based increasingly on emotional factors and social fit,” Mr. Bostick says. “‘Is the outsourcer one of us?’ ‘Do they fit our culture?’ This is where the best-of-the-best will succeed and the others will start to get commoditized.”
NEGOTIATIONS HAPPEN all the time. You discuss salary when being offered a new job. You compromise with friends when there's a difference of opinion concerning where to eat. And you may even debate with your children about the proper bedtime.
But get in the boardroom and, understandably, the negotiation process becomes far more complicated. When an organization starts divvying up its project work among a bunch of different vendors, negotiating can become tricky for a leader who lacks experience striking the right deal.
Effective multisourcing requires seamlessly bringing together several suppliers that complement—rather than compete with—each other, says Jen Skrabak, PMP, principal with Thousand Oaks, California, USA-based Amgen Inc., a therapeutics and biotech company. And that requires masterful negotiation.
“Careful planning needs to be performed to ensure there are no gaps between service providers, roles and responsibilities are spelled out, the scope of work is detailed and inclusive, and ongoing negotiation of issue resolution exists,” she says. “Bringing together outsourcing services from multiple suppliers requires careful planning and rigorous project management skills throughout the project delivery life cycle.”
But regardless of the matter at hand, negotiation centers on expressing and agreeing upon what is required for each side to proceed to the next level. Although the actual needs are often quite clear—especially for mature organizations—the wants tend to create caveats that can play an instrumental role in determining long-term viability.
Inherent or Acquired?
Navigating the negotiation process sometimes requires trusting instincts. “Your gut guides you on when to push more versus getting more information or to even walk away from the deal,” says Denise DeCarlo, PMP, president of Mindavation Inc., a project management training and consulting firm based in Denver, Colorado, USA.
But intuition is only part of the required skill set. Although certain aspects of negotiating are inherent, it's always possible to improve upon other areas. “It takes a firm commitment,” says Adam Hsu, PMP, vice president and technical project manager with financial service firm JP Morgan Chase, Tampa, Florida, USA. “There is no question that negotiation skills are something that can be improved upon, but it takes determination and practice.”
Project leaders should never avoid negotiating simply because they feel they lack confidence. “You'll only get better at [negotiating] by doing it and learning from what worked and what did not work through the negotiation process,” Ms. DeCarlo says.
She suggests taking a course to practice your skills or approaching a mentor whom you believe is a good negotiator—as she did—for guidance. “Ask them for tips and work to incorporate their knowledge into your technique.”
Prior to following her mentor's advice, Ms. DeCarlo says her negotiation skills were mediocre at best. “I stressed out before most negotiations and usually gave in too quickly during the negotiation process,” she says.
Her mentor's words of wisdom? “Everybody needs or wants something, and it's just a matter of how or if it can be accommodated,” she says. Today, she balances getting what she wants with listening to the other party's needs.
Leaders also should be willing to modify their tactics based on lessons learned. “Good negotiation skills are honed over years, but only if we learn from our successes and failures,” Ms. DeCarlo says. She believes in a combination of participating in training courses and postmortem sessions after the negotiation process.
When it comes to brokering multisourcing deals, leaders must account for the multiple vendors involved and all of their different needs. “Since these deals are frequently multi-year [ones], due diligence is critical,” Ms. DeCarlo says. “Therefore, cross-dependencies and relationships between the vendors need to be identified up front and documented to ensure accountabilities for each party are clear and understood by all.”
These cross-dependencies can be compiled in a spreadsheet and, at the very least, should include a general description of what is to be provided, vendor company name and contact name, planned due date and actual completion date, Ms. DeCarlo says. For larger deals, communication paths between vendors should be mapped to help manage expectations between the various parties.
Good negotiation skills are honed over years, but only if we learn from our successes and failures.
—Denise DeCarlo, PMP, Mindavation Inc., Denver, Colorado, USA
Once all parties are accounted for and documented, individual needs must be considered. Focusing too much on cost and not enough on relationships can lead to a breakdown. “Price is understandably important, but it really should be secondary,” says Laura Blackmer, senior vice president, OnForce, a marketplace for contract IT service professionals in New York, New York, USA. Executives who squeeze the negotiating partner too far on price may ultimately put themselves in a negative position. “When firms take this approach, they tend to find their operations overly dependent on an unrealistically deflated low price that is no longer feasible in the open market,” she says. “Unfortunately, this can be detrimental to any size project.”
Concentrate on the relationship, and proceed with a noticeable level of transparency, says Scott Petty, group executive, services, with Dimension Data, an IT services and solutions provider in London, England. “When you hide cost and margin, you create misconceptions and hassles,” he says. “[Being upfront and honest] fosters the development of more relationship-based discussions.”
When multisourcing also includes offshoring, cultural understanding must be brought to the negotiation table, says Alexander Matthey, PMP, managing director of 3PM Experts, a project management training provider and consultancy based in Vich, Switzerland. “Just understanding what someone says is rarely enough, and it can cause problems in the negotiation process,” he says. “After all, a business culture includes self-consciousness, politics, thousands of years of thinking, among many other aspects. As a result, people should accept the importance of spending time establishing relationships.”
Get What You Need and Want
According to Jen Skrabak, PMP, Amgen Inc., master negotiators remain cognizant of the five Cs:
Credible. Know what you're talking about and be prepared. This means doing your homework before coming to the table.
Creative. Being flexible and looking beyond the obvious is often the key to developing the best solution.
Clear. Frame the discussion in terms the other party can easily relate to and understand.
Concise. Long arguments will lose your audience. If you can't sum it up in a sentence or two, it's probably too complicated to understand. And if it's not understandable, then you will not get agreement.
Compelling. Always know what's important to the other party and what will drive them to action. Tease out the underlying need versus the stated need. Understand and know your bottom line, and theirs.
Executives must proceed with caution not only concerning potential vendors, but their own employees as well. “When companies decide to source out various components, they need to know how this decision impacts their organization,” Mr. Petty says. Implementing a multisourcing approach may require a change in work culture or daily operation processes, or even internal staff positions.
Just understanding what someone says is rarely enough, and it can cause problems in the negotiation process. … People should accept the importance of spending time establishing relationships.
—Alexander Matthey, PMP, 3PM Experts, Vich, Switzerland
Mr. Petty says one of the key elements in multisourcing is ensuring a solid cultural fit between the company and the service providers. Oftentimes, the delivery team will involve people from both organizations. “As such, it is really important the executive involved consider culture and the ongoing well-being of the teams,” he says. “This is not a time to think about getting rid of resources. Rather it is a time to keep the team members at the forefront, and look at how best to tap into and utilize all of the talents available.”
Closing the Deal
In the end, negotiators must establish contracts that are fair, clear, thorough and effective for all parties involved. With this in mind, negotiating doesn't need to be a miserable experience, Ms. DeCarlo says. “By learning to feel more comfortable with the process, it is easier to simply focus on the end goal, which is achieving a contract that is fair to both parties and clearly delineates deliverables, accountabilities, roles and responsibilities, successful completion criteria and interdependencies.”
But there is no such thing as the perfect way to seal the deal. “We need to modify our negotiation style and tactics based on the person on the other side of the table,” she says. “What works with one person may not be the most effective technique with another.”
Before closing the deal, Mr. Hsu recommends negotiators on all sides ascertain that everyone fully understands what is required to fulfill the project needs before proceeding. “The solution needs to fit and support the project's deliverable. Determining this during negotiations could help lessen project failure rates,” he says.
It's also important to remember that successful negotiations are a beginning, not an end. “Negotiation is an ongoing and continuous process on all projects,” Ms. Skrabak says. “Unfortunately, we tend to forget that the key purpose of negotiation is to start something—a new project, new scope of work, new team—and that it sets the tone and pattern for the ongoing project.”
Leadership 2008 / www.pmi.org