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Thu 11th Feb 2010

Millions Lost Through Ineffective Negotiations

Dramatic revelations about the importance of systematic business negotiations have recently been published in a report entitled 'Improving Corporate Negotiating Performance' compiled by Huthwaite International, a sales consultancy, and the International Association for Contract and Commerical Management, a not-for-profit membership organisation. The report was put together after a year of intensive research. Ineffective negotiations are reported in this document to cost business millions of dollars every year. Yet the vast majority of companies were seen to 'ignore, neglect or inefficiently address' the task of improving Sales Negotiation Skills.

The research revealed that 80% of companies have no structured negotiating formula. The emphasis was commonly placed on individual skill rather than clearly defined company wide prerogatives, belying the facts of good negotiation. Success is actually achieved by an open dialogue with the other party and an intimate knowledge of the companies capabilities. Individual negotiators who decide upon their own rules often spend more time negotiating with internal staff rather than the other party, this leaves too much room for misapprehension and mistrust; ultimately it has often been proved to be more time consuming and far less effective than open and clear structured negotiation.

Inhospitable trading conditions over the last few years have left many companies suffering; the average net income loss for the 2000 most profitable businesses worldwide (as listed by Forbes) is said to have been 30.9% in 2009. When broken down this figure reveals some startling results. The companies that were regarded (by this report) to have reached negotiation maturity recorded, on average, net income increases of 42.5%, those that had no firm negotiating structure at all averaged a net loss of 63.3%.

Naturally the variation between these figures cannot be solely attributed to negotiating ability, although it does stand as an indication of what constitutes good practice. The keys to successful negotiation, adequate planning, preparation and a knowledge of behavioural psychology, must be intimately understood by negotiators before any active participation in business deals takes place. Appreciation of these seemingly obvious business tools will inevitably lead to improved performance.

Whilst this is primarily a report looking at the success of negotiators in business there is a clearly defined necessity for managers to actively implement good practice and create company wide policies that reflect the capabilities and needs of the business. Despite the fact that it is difficult to quantify a good deal, without knowledge of other similar deals that have taken place, the relative success of negotiations must be analysed. The definition of a good deal is not necessarily a 50/50 split but both sides leaving the negotiating table happy.

Managers and negotiators are advised to undertake negotiation skill training and Management Trainingto be able to reap the benefits of improved negotiating strategy; evidently it can result in significantly increased profitability.