Business Negotiation - The Pyramid of Power

Negotiating power and account positioning are tethered together in both seen and unseen ways. How we position ourselves can be the springboard or the anchor in our path to achieving maximum negotiating effectiveness. My perspective is that everyone reading this article has negotiated deals in their life. In fact – if I asked if you were an effective negotiator - you would in all likelihood say yes. As a guest speaker at a recent business conference I gave a presentation titled, Business Negotiations – A Strategic Imperative. I began my presentation by asking a simple question: “Will everyone in the audience who has negotiated and won a deal raise their hand?” Every hand in the room went up. “Great,” I said. “Now, raise your hand if you ever experienced the feeling that you left money or opportunity on the table after you finalized an agreement?” Almost every hand in the room went up again. There were also a variety of red faces, nodding heads, and break-out conversations. This phenomenon is called The Winners Curse. The Winners Curse is that state of mind that you won the deal; yet feel that you paid dearly for this outcome. The Winners Curse has been the source of many business articles and the focus of specific research at Harvard University’s Project on Negotiation. Most experts agree that it results when one side has more real or perceived power than the other side in the negotiation. The side with the power almost always gets the better of the deal. The side with less power gets that nerve-fraying feeling of winning and yet having been taken advantage of at the same time. The term buyer’s remorse has also been used to describe this experience. This article explores business negotiation and who has the power. The Pyramid of Negotiating Power was designed to show the relationship between how we are positioned in accounts and negotiating power. The Pyramid of Negotiating Power is a metaphor for business, sales and negotiating effectiveness. How a client perceives your firm, your services, and yes you . . . has a direct correlation to business effectiveness, results, and contract terms. The four classifications represented in the Pyramid of Power are Vendors, Problem Solvers, Business Resources and Trusted Advisors. At different times in our careers we have positioned ourselves or clients have positioned us in these categories. There are real negotiation consequences associated with each role. At the bottom of the pyramid are vendors. Vendors compete on a grid where price and availability are the key considerations. The harsh reality is that very few of us view ourselves as vendors. We view ourselves as problem solvers, business resources, and ideally trusted advisors. However, the defining point is not our perception . . . but the client’s perception. In business perception is reality. If a client perceives that you are a vendor or supplier, you are. In fact the way that you articulate your value proposition often earns you the classification of vendor. You are a vendor when you receive unexpected RFP’s. You are a vendor if your point of access in an account is with people with titles such as purchasing managers or technical evaluators. These people are classic gate keepers. They often position themselves as having all of the power. You are at their mercy. If fact you are facing a variation of the prisoners dilemma. You are trapped in a game where they appear to have all of the power and you are a substitute product offering away from being replaced. It is their game and their rules. If you go above them you risk inviting their wrath, alienation, and potentially being thrown out. This is the classic vendor trap. As a vendor you have minimal power. Typically vendors experience a win/lose negotiation outcome that is characterized by priced-based competition, thread-bare margins, and irrational competitive behavior. The second level of the pyramid represents problem solvers. Problem solvers have solutions to their client’s business requirements. They satisfy demand with differentiated product and service offerings. In most cases problem solvers operate at a tactical, operational level. They have more power than vendors. They aspire to move beyond win/lose and move up to win/win negotiated agreements. The third level of the pyramid represents a business resource. This is a more value- oriented role and begins to approach a strategic relationship. Business resources focus on complex business issues usually within a time horizon of the current business cycle. Business resources have more negotiating power based on having more executive relationships, a process orientation, and a focus on making a measurable business impact. Operating as a business resource represents a more powerful negotiating position. The business agreements usually embrace an expanded win/win negotiated solution. The top level of the pyramid represents trusted advisors. Trusted advisors are value creators who are invited to participate in intermediate and long range initiatives (and by default short range projects). They are in a position to not only recommend and implement best practices, but to create new ones. This results in writing higher margin business by creating and claiming value. Working at this level establishes competitive immunity. Trusted advisors often act as value creation negotiators. Their final agreements tend to be long term contracts that increase the size of the business opportunity and expected outcomes for both sides. This article’s intent was to provide a fresh perspective and focus on the organizational dynamic of positioning (organizational alignment) and negotiating power. The conclusion to be drawn from this article is that we want to operate at the top of the Pyramid. We want to position ourselves and be perceived as trusted advisors. The organizational alignment implications are that we focus on working strategically with senior executives to apply appropriate processes and solutions to create real, measurable business impact. When we do this we establish a strong base of negotiating power that translates into structuring value-driven, long term business agreements that often exceed the original expectations of both parties. Operating as a trusted advisor is the ideal business scenario. But what should we do when we are already positioned as a vendor . . . a problem solver . . . or a business resource? The next article in the Zen series of sales and negotiation effectiveness will explore how we can maximize our effectiveness as negotiators in all four classifications in the Pyramid of Power. All Rights Reserved: Richard Dodd 2006