Nolan Martin :
What was your greatest challenge that you had to overcome and how can listeners who relate to your challenges take steps to improve as well?
Why Negotiation Is a Science, Not an Instinct [00:06]
Keld Jensen :
I think my first challenge was actually understanding that negotiation is a science. I was invited to speak at a business school in Europe just one week ago, and I accepted. I thought that was great. It was a great opportunity to do that. And I was asking the management of the school, the class, is that elective or is it required? And they said it’s elective and it’s an executive MBA class.
So I said, why is it elective? And they said, because the people, the students attending are very experienced executives. And I was thinking, oh God they got it so wrong because we have this misunderstanding that if somebody is an experienced executive, just back to my story, they are great negotiators as well. And that is not the case. Negotiation is a skillset we need to learn and train. Just like being a lawyer or technician or army officer, what have you.
It’s not just something you do automatically, but for whatever reason, don’t ask me why. A lot of executives, just like I did believe that is something you can just do automatically and where that belief is coming from, I have no idea.
Aram Donigian :
Yeah, it’s interesting cause I think that leads into a, just teach me the tips and the tricks and that’s all I need because there is no science to this. And you push back on that you have this SMARTnership approach that you’ve developed. Don’t want you to give away all the secret sauce. But could you share some of the key principles of this approach that you’ve successfully launched globally?
Inside SMARTnership: The Science & Collaboration Behind Smarter Negotiation [01:25]
KJ :
Well, first and foremost I would challenge what you just said, just a tiny bit. I do believe that negotiation is somewhat a science because you can sit down and study it. Now, there’s often, some people call negotiation the art of negotiation. Some call it the science of negotiation. I would call it the science and art of negotiation, because if it was purely an art, you could be born into being a great negotiator. If you’re a great artist, you have a natural skillset.
Just naturally, you’re a great painter, a great singer. What have you, can you excel that? Can you improve that of course you can, but there’s a science to negotiation as well. We have now been studying negotiation for so many years that we know the requirements, the basics, the checklist, what you have to know, what you have to prepare.
And the second we have developed that rule and checklist and order of doing stuff, we can actually put it on a recipe and call it somewhat a science. So I think there’s a lot of science and knowledge within negotiations today. What you are asking, what SMARTnership is really just partnership version 2.0.
I would rather explain why we came up with it because I’m a true believer in collaborative negotiation. I’m not ruling out that we should never negotiate in a more positional or serious way. There are certain situations where we should, but in general, I believe we get more value out of collaborative negotiations.
Now, having said that, we studied partnership and I’ve been working with so many clients. When I’m asking them, what is your official approach to negotiation, they say oh it’s partnership. We’ve been doing partnership with our clients and so partners as and suppliers for years. And then when you dive in and look at the details, what they’re really doing is this long term zero sum negotiations.
You know, they’re just repeating positional negotiation over and over again with the same counterpart, but when they’ve been doing it for six years, they call it partnership, but that’s not a true partnership. That’s something completely different. So first and foremost, I learned many years ago that people are abusing the word partnership.
They actually don’t know what partnership in reality is. So we have to understand first and foremost what is a positional negotiation and what is a collaborative negotiation. The reason we added stuff to partnership and call this SMARTnership is because we identified four things that separates the really great negotiators with the average or the lousy negotiator.
And just to list them very quickly, and it’s not in any specific priority, but one of the things we learned very quickly was that the skilled, successful negotiator has an official negotiation strategy. We might have time to dive into a little bit what that is all about, but you need to have a negotiation strategy as an organization.
And the fun part is that, you know, I love to tease people. So when I’m stepping into a new organization, I often ask the top executive. Could I please have a look at your official negotiation strategy just for a moment? And the majority of organizations, when I asked that question, they acquired for about 10 minutes and then some of them goes ahhh because they haven’t got any, most of them haven’t got an official negotiation strategy. So that’s the one. We need a negotiation strategy to be successful.
The second one is what I call trust currency. And that’s just the two words, trust and currency are put together. And the reason for that is trust is a monetary value. Listen carefully. If we have a high level of trust in any kind of relationship, our transaction costs will go down and our profit will increase, alright?
So that means if we actually able to be transparent and work with trust and it is not as easy as it sounds, both you and I will be more profitable in any commercial business deal. So trust is step two that separates SMARTnership from a traditional partnership.
Step three is the rules of the game. And now I’m saying something. I know it sounds really awkward, but you have to negotiate on how to negotiate before you start negotiating with your counterpart. And the reason for that is very simply, we perceive negotiation differently. So you might come into the conference room and think negotiation is like playing chess. And I may be coming into the negotiation room thinking negotiation is like playing tennis, right?
So I’m standing there with a racket and you’re sitting there moving your pieces on the chess board around, it’s going to be a really entertaining game, isn’t it? Because you’re playing a completely different game than I am.
AD :
I love that imagery, by the way. Sorry, Keld. Love that beautiful imagery.
KJ :
Yeah. And the scary part is this is happening all the time.
As we talk right now, you are having meetings out there where negotiators are doing exactly that, they’re playing two different games. So we have to address before we start negotiating how we want to negotiate. Nolan, do you wanna negotiate in a collaborative way? Or do you want to negotiate in a more positional orientated way, do you wanna be transparent about your cost and values?
Do you want to list your variables that we should negotiate? And on goes that list. And the final point that separates SMARTnership from partnership, and I’m sorry about the long answer here, but there’s obviously a lot. There’s a lot of stuff in it. The last part is what we call NegoEconomics and NegoEconomics is an award-winning mathematical model.
I created that basically, identify the asymmetric value between you and I. It’s negotiation economics, and it’s very simple. It basically look at the difference between your cost and my value, or my cost and your value. Quick example, if we are negotiating. One of the variables we are negotiating could be terms of payment.
Instead of just sitting there arguing back and forth and heckling where you say I want a 30 days line of credit. And I say, we can’t give you that. We can only give you 10. And then we are doing that, and then we end up in a compromise somehow, and I give you 20 days. Instead of wasting time doing that, which by the way is not negotiation at all, I should be asking you what’s your cost of capital?
And you might be answering, well, I’m happy to share that with you if you’re willing to tell me what your cost of capital is. And I said, sure, I can do that. My cost of capital is 3%. What’s yours? And then you said my cost of capital is seven. Great. We just learned a lot. The one who have the lowest cost of capital should finance the deal.
So I might be saying, do you know what I’m happy to give you a longer line of credit. Then even the 30 days you are asking for, because my cost of credit is lower than yours, but in return I want a 6% price reduction or whatever we are talking about. So the concept of NegoEconomics, we have hundreds of variables in every single negotiation where we can identify this asymmetric value.
And we have actually identified that up to 42%. I repeat 42% of values in a negotiation are often not realized, capitalized or identified. So I know a lot of negotiators. Who are saying, I hate numbers and I hate mathematics, and I’m sorry to bring it out here, but you know, commercial negotiation is about one thing.
Value, it’s about numbers. Otherwise, we are not negotiating. So negotiators who are scared of numbers should not be negotiating on behalf of their company. That’s it.
NM :
Absolutely, and I think that’s a great point that you talked about there. I was hoping to ask you, so how has the SMARTnership approach helped your client avoid some of the common mistakes and challenges in business negotiations? What examples can you share?
How SMARTnership Drives Measurable Results in Real-World Negotiations [07:54]
KJ :
Actually, just taking a step back to what I talked about, what we typically do when we are working with a client is that before we do anything else, we have to establish a negotiation strategy. So the organization, and the phrase that water runs downwards, right?
So we have to start at the top. It doesn’t help that we start working with procurement ourselves a project or what have you, because they’re only, a one brick in the wall. So we have to start at the top. So we have to implement a strategy. The organization have to embrace the phy, the philosophy, and understanding how important negotiation is.
When we have done that, then we can actually look at very concrete cases with the counterpart. And I would say the main thing where we help the most is basically improving the bottom line. And the great thing about negotiation is it’s measurable, if you change something. It’s just like in sports, right? I love watching sports because you can make small changes and immediately see an impact.
In business life, it is harder to make a small change and immediately see an impact, but in negotiations it is so easy to measure and improve how much more profitable you might be by changing a few tools and, pull a handle. When we work with a client, we are basically looking at a certain problem with a certain counterpart, and then we’re implementing the tools just to see how can we, for instance, increase the number of variables.
It’s a very simple technique, a very simple tool I would love to share with everybody. Most of our listeners right now are negotiating on too few variables, and obviously that’s provoking. I’m saying that because I don’t know our listeners, but it’s just a general fact. Most negotiators are negotiating on too few variables.
They’re negotiating on the typical usual suspects, right? Delivery time, price, warranty, right of return, blah, blah, blah, what have you, 7, 8, 9, 10 commercial variables. And I know a lot of people will be shocked right now when I tell them there might be 40 or 50 or 60 or 70 variables that you need to negotiate on, and if you’re able to expand that pizza.
Just stop talking about more variables. You can also generate more profit. So as, again we could talk about just this question for hours and hours, but typically what we are doing is that we are sitting down with a client identifying what other variables should you negotiate on?
And then back to my thing about how to engage into negotiation. Then we have to reach out to the counterpart, the supply or the client and say, how do you wanna negotiate? We’re going to meet Thursday next week. Do you wanna do the positional game that we’ve been doing for years? Or do you want to try and spice it up and actually make some more money?
Because we are here to help you reduce your cost and your liability, and we expect you to arrive at the table helping us reducing our cost and our liability.
NM :
Thanks Keld. Really appreciate it. So that is it for us on today’s podcast. If you haven’t already, please rate review and subscribe to the Negotiate X Podcast and we’ll see you in the next episode.
