In this VUCA-based world of volatility, uncertainty, complexity and ambiguity many commercial managers are unable to confidently negotiate a contract with assurance that the arrangement with be static for more than a few months.
A few approaches have merged. Some negotiators will wait for all of the uncertainties and variables to come to rest, unfortunately realizing that there will never be the clarity and stability they are seeking. This approach delays the negotiation and yields sub-optimal results. The negotiator loses value – either in the form of lost revenue, lost savings or both. Other negotiators are proceeding with their negotiations, anticipating that the contract will be re-negotiated sometime in the near future.
These latter negotiators approach negotiation as a process – spanning the initial negotiation to a series of renegotiations. To be effective in both negotiation and renegotiation, the negotiator needs to develop a broader negotiation strategy. Many are embracing a “lose the battle, but win the war” approach. To them, their measure of success is not on the initial negotiation, but on the renegotiation.
There are a few trends and leading practices which exist in the renegotiation domain.
- Ensure your strategy is broadened to the renegotiation phase. Do not simply renegotiate because “everyone is doing it”. And avoid renegotiation requests from your commercial partner unless you are certain that you can preserve or increase the value from your contract.
- Consider whether there is any difference between your negotiation and renegotiation toolboxes. If there is a difference, then evaluate why that difference exists – is there justification?
- Data and Documentation. Ensure you have collected data and documentation to enable your renegotiation success. This should not be an afterthought. Rather, the data and documentation should be collected as part of the overall strategy.
- Financial Equivalents. Whenever possible, calculate what the financial equivalents are for every concession you seek and concede. Do not renegotiate any commercial point without understanding whether it would have changed to initial decision to enter the contract.
- Stakeholder management. Track your stakeholders. Are they the same stakeholders who were impacted by the initial negotiation? If there has been stakeholder turnover, determine whether the initial contract would have been entered if the subsequent stakeholder was in place. If the answer is “no”, then determine how you can ensure that the renegotiated contract will be ratified by the current stakeholder. We do not want to invest our efforts into a renegotiation, only to hear the stakeholder say, “I would have never endorsed the initial deal and I am certainly not going to endorse this modified deal either.”
- Change management. In renegotiating parameters of any contract, one must always consider the change management challenges. With a renegotiation, there needs to be an additional level of analysis over whether the renegotiation will be implemented without causing too much confusion, resistance or inefficiency for those who will need to effectuate the change.
- With the proliferation of Contract Lifecycle Management software and related technology, there are significant opportunities to integrate these resources into your renegotiation model. One should always ask, “Does the other party have such a tool, leaving me in a disadvantaged position?”.
With these considerations addressed, the commercial contract re-negotiator should be fairly well positioned to renegotiate.