Long-term value suffers when bargaining is confused with negotiating

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DBoateng.JPGA relative lack of negotiation on the African continent is hampering region-wide service delivery, organisational value chain performance and competitiveness and broader socio-economic development, among other things. In the increasingly competitive supply chain environment organisations, businesses and individuals are continually seeking ways to ensure sustainability, competitiveness and growth. While numerous strategies and tactics are being implemented to achieve this, focus tends to remain on bargaining for short-term goals and price-orientated benefits, instead of negotiating for long-term value creation, Professor Douglas Boateng, founder and CEO of PanAvest International and Partners, tells SmartProcurement.


Drawing on a sample of approximately 64 international organisations, including Fortune 1000, FSTE 250, and JSE 100 companies, as well as state-owned enterprises and government departments, a recent PanAvest International and Partners-funded study investigated current opinions related to the importance of negotiation skills among supply chain professionals.


While the findings of the research indicate a significant appreciation of the role of negotiations in long-term value creation and noted widespread agreement that negotiation skills need to be a core strength of supply chain management professionals, they also highlight significant misunderstandings related to the difference between negotiation and bargaining.


Contrary to popular belief, and although often used to explain the same thing, bargaining and negotiation are two inherently different activities.


“One of the most important, but often misunderstood, aspects of supply chain management is negotiation,” notes Boateng. In this regard, he insists that organisations and supply chain professionals need to develop a knowledge and understanding of the purpose of negotiation in order to ensure long-term value creation.


“Appreciating negotiation’s strategic importance can assist with achieving win-win value chain agreements and subsequent contracts,” he notes. As such, supply chain professional’s understanding of the importance and place of negotiations in the supply chain plays an integral role in organisational growth and negotiations success.


But what is the difference between bargaining and negotiating?


To begin with, bargaining tends to focus on short-term price-chiselling and looks at who is right in a specific situation. Since bargaining is about ‘winning,’ it leads to win-lose relationships between competing individuals or organisations and does not take the long-term business and societal consequences of such relationships into account. Bargainers tend to focus on attaining goods or services at the cheapest possible price.


Adopting bargaining practices in the place of negotiation usually happens for one of two reasons: bargainers may enter engagements with a psychological belief that their organisation cannot afford the proposed price of the required product or service and, therefore, need to cut the price down. Or they may enter engagements in a state of financial desperation and bargain out of fear of losing a deal.


In comparison, negotiation involves engaging on equal terms for mutual benefit and focuses on what is right in a specific situation. Negotiation is not about ‘winning’ or ‘losing,’ nor is it about attaining cheaper prices. Rather, seen as the catalyst for building long-term win-win relationships, negotiation is about compromise.


Instead of focusing on price-chiselling, negotiation encourages mutually beneficial engagement and opens up opportunities for developing long-term business relationships and value chain gains. Negotiators enter engagements from a position of knowing the intrinsic value of what they have and what value they want for it. In addition to this, they enter negotiations with the potential value to be created for each party in mind and are driven by the long-term possibilities of future business relationships.


Unlike the developed world and selected countries in Asia (e.g. China), which negotiate for long-term benefits, tendering in the developing world is still largely focused on maximising price gains. “Bargaining rather than negotiation dominates the supply chain industry in these areas. Bargaining is a particularly popular activity among African governments, policy makers, and executives,” says Boateng.


This is essentially a result of product or service value underestimation, pressure to satisfy business shareholders and a focus on short-term price gains and benefits. Consequently, issues related to long-term sustainability, competitiveness and socio-economic development continue to abound on the continent.


In order to facilitate mutually beneficial change and create recognisable differences in current African supply chain value creation, organisations, executives and governments need to acquaint themselves with the differences between bargaining and negotiation, and focus on win-win, positive business relationships and long-term developmental engagements.


Meanwhile, government must make "hard economic decisions" about SA's infastructure development or face possible further unrest over service delivery, Consulting Engineers SA (Cesa) told Business Day.


Cesa's warning comes as severe project delays plague Eskom's new power stations, which along with violent strikes, underline the poor state of the civil engineering industry in SA.


Among the industry's main challenges was that state procurement of infrastructure was based on the best price and broad-based black economic empowerment status, with "little or no regard to functionality or quality," Cesa said. 


Contact Professor Boateng on dboateng@panavest.com

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