Negotiations are an important and often-misunderstood component of business success. When you fail to successfully negotiate a potentially good deal, or negotiate a poor deal, the results can have a dramatically negative impact on your company over the long term. Moreover, your inability to negotiate can give your rivals the opening they need to gain a competitive edge over your company. All they need to do is be better at negotiating than you are. In this article, we will focus on why business negotiations so often fail, and is intended to help you be more successful as the CEO or manager of your company.
The fact is that you need to be a great negotiator if you want your business to reach its full potential. You should have a commitment to be equal to or better than your competition in every area of business that matters—including negotiations. That requires the strategy to be best in class, and skillful execution of any business strategy can only be achieved with knowledge, sound preparation, and tireless effort.
Some great leaders seem to be born with an innate instinct to lead whenever the situation demands. In like manner, there are great negotiators whose instincts for negotiation overcome their lack of formal negotiating training. We must recognize, however, that such natural-born negotiators are a rare breed indeed. More importantly, even they can become better negotiators through additional skill development and improved preparedness. That is why it is so vital to promote training to build and develop that negotiation skill set.
It is critical to understand that there are many pitfalls in the negotiation process that can lead to tremendous frustration, disappointment, and missed opportunities. By learning more about why negotiations fail, you can improve your odds of avoiding those pitfalls.
lack of preparation
Many negotiations fail because they are not taking place within the zone of possible agreement (ZOPA). Basically, this means that both parties come to the negotiating table with nothing but excitement and the hope that a deal can be made—even when the evidence suggests that there is no real possibility of reaching a deal even in the best of circumstances. Often, this type of negotiation occurs when one or both parties are desperate for a deal, unprepared for the process, or under-prepared. Only later do they realize that there are too many obstacles between them to justify a serious negotiation.
To avoid time-wasting negotiations that have no chance of success, it is important to do the necessary due diligence beforehand. Do not commit to formal negotiations unless there is an identifiable and realistic path to achieving your aims.
lack of a framework of understanding
Other negotiations fail due to a failure to clearly communicate and understand issues of material importance. Too often, this occurs when there is no established framework and a checklist to manage key issues, goals, and objectives.
When you are initiating a negotiated deal, it is important to establish a framework of general understanding right away, so that this common understanding can be clearly communicated to all relevant parties. Invite input and feedback to ensure that you minimize surprises that could turn out to be deal-killers. As the negotiator, you should also think through the best-case and worst-case scenarios, including the possibility of a bottom-line walk away.
failure to build a relationship
Another common factor in failed negotiations is a lack of rapport. It is crucial to establish some sort of common ground early, so that the negotiating parties can build a solid relationship. In business, as in life, it is always preferable to build friendships and promote mutual interest than to allow you inherent self-interest to hold sway in our dealings with others. Great rapport helps to cultivate understanding and flexibility, and creates a more favorable environment of mutual interest that makes it easier to resolve outstanding issues.
Moreover, when you create great rapport throughout your negotiating process, it is easier to iron out a detailed implementation plan once the deal is done.
lack of trust and respect
As you might expect, it is difficult to negotiate in an environment where trust and respect are in short supply. When it comes to negotiations, that lack of trust and respect all too often leads to stalemate and abandonment of the discussions.
The problem is that trust and respect are essential for fostering productive engagement. When they are absent, both parties are always on their guard, fearful of hidden intentions and misrepresented claims. That leads to bad feelings and an unwillingness to collaborate or reciprocate. Rather than focusing on resolving big issues, the parties spend time arguing over trivialities—which leads to even more conflict and confrontation.
no longer a good deal or not as good as represented
Sometimes, negotiations simply fail because the deal is not as good as it first appeared, or economic and other conditions change in ways that make the deal less attractive. While doing your homework can help in many other areas, it is also important to recognize that sometimes the factors that derail a deal are outside your control.
Egoistic and confrontational negotiators have killed many deals. They create a combative environment that makes it difficult to reach a compromise or concession. When a negotiator is focused only on strength and ego, it creates a poisonous ‘win at all costs’ atmosphere. Always remember: a bad deal is far worse than no deal.
In business, a strong negotiation skill set is a valuable tool, especially when it is coupled with the right personality. Fortunately, anyone can learn to be a better negotiator, with the right knowledge and mindset. Do your due diligence, remember the reasons why negotiations typically fail, and approach each negotiation process with trust, respect, and integrity.
As the CEO or manager of your company, be mindful that one or two areas of competency are not enough to succeed; the true measure of your competitive superiority can only be found in the total of all your scores in every aspect of your business. To be best in class in all things that matter, you need a good negotiator on your team. Focus on creating win-win relationships that provide mutual benefit to all parties, and your negotiation skills will grow by leaps and bounds.