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Negotiation capabilities

If you are in business, you are negotiating!

The link between the two is so tight, that business in Spanish is called "negocios", derived from the Latin roots of "neg" and "otsia" literally translating into "no leisure". In  practical terms today, a negotiation is a dialogue between two or more parties with the intention to reach an agreement. In a functional context in an organisation, this may be called trading, procurement, sales etc. In the end, it amounts to the same task of reaching an agreement with another party to help you reach your company's objectives.

Negotiations can be anything from very simple to highly complex. Mostly, in B2B situations, they tend to be complex. For this reason a number of strategies, processes, tools and organizational setups are being deployed. Ironically, this introduces new complexity as a kind of collareral damage.

On a high level we can consider two types of negotiation philosphies: DISTRIBUTIVE and INTEGRATIVE negotiations.

The zero-sum negotiation, or splitting the pie, is the typical price-negotiation scenario, where the agreed price is a compromise between what the buyer and seller wanted respectively. It is called zero-sum, because in order for a party to gain 1 the other party has to lose 1. This approach is quite common, because it easy and fast to execute. When time is in short supply and complexity is high, this is one way to get around it.

The integrative approach on the other hand aims to include more parameters in the negotiations and to negotiatie on the basis of the respective interests of the parties. When more parameters are included a wider range of positive outcomes of the negotiations can be explored and the overall value of the deal increases, hence expanding the pie. This approach is more complex and more time-demanding. It is a key factor behind the value of partnerships, preferred suppliers etc. This kind of negotiation is also called win-win. 

B2B negotiations

Companies may find themselves with very large product portfolios for their combined direct and indirect spending needs. If everything is put together in a demand plan it may generate a table with tens of thousands of product lines and hundreds of suppliers as illustrated below. Both product lines and suppliers may be categorized according to specific criteria as illustrated by A, B and C categories here.

The complexity of this task is enormous, which is why it is generally broken down into more manageable subtasks. Depending on the situation in the market (types of products, number of suppliers, other factors) the task can be split on key account managers and/or category managers. It may further be simplified by short-tailing or short-listing. 

Another way of simplifying the negotiations is to run specialized processes like reverse-auctions. These auctions narrow the negotiated parameters down to essentially one - price - based on all other specifications being equal across the possible suppliers, which also brings the negotiations into the distributive domain.

The purpose of these strategies (and others, not mentioned) is to overcome complexity within the timeframes generally available to businesses. The price is a new kind of complexity given by organizational silos (complexity of coordination) and short-tailing, which leads to missed potential value in the long-tail.

With the Rational Assistant technology complexity becomes manageable in a completely different way, which opens for new strategies and business processes.

Digital transformation in the business processes open up new opportunities for deploying new advanced technologies. Read more about how we see digital transformation here.