“How can we evaluate the negotiation ability of our managers, sales people and others who negotiate on behalf of our company?” I was recently asked by a client.
“After all, we only rarely get the opportunity to really find out what they left on the table. Few of their counterparts will ever tell us what they were truly willing to do.”
“It’s difficult,” I responded. “Especially as just closing the deal may not be so great if they could have achieved better results by using more effective negotiating strategies.”
It is critical for companies to evaluate their employees’ negotiation skills given their impact on companies’ bottom lines.
So how can you evaluate your employees’ negotiation abilities?
1. Employ and track proven negotiation strategies.
In the past 25 or so years, there has been a proliferation of well-designed studies that have tested the effectiveness of negotiation strategies. It’s now fairly clear what techniques work and what don’t.
Companies now can evaluate and improve their employees’ negotiation effectiveness by a) setting up a strategic negotiation process, b) training them in it, c) tracking and evaluating the extent to which their employees implement those strategies, and d) measuring and comparing their results.
2. Analyze the leverage situation.
One critical area to track relates to leverage. Specifically, your success in any deal often will be directly related to what you would have done if you had not reached agreement with your counterpart.
Thus, one relatively objective way to evaluate a crucial element of negotiation success is to compare the terms of your final deal with what you initially would have done if you had not negotiated it. The difference will be the relative impact of your negotiation effort.
Assume John at ABC Corp. has been asked to get the best deal he can for 100 hotel rooms for ABC’s annual conference. He contacts three quality hotels and is quoted the following rates: Hotel X, $13,000; Hotel Y, $13,500; and Hotel Z, $14,000.
John subsequently negotiates a rate of $12,000 at Hotel Y. How can you measure John’s negotiation ability? Compare ABC’s best alternative at the start of the process with ABC’s deal after John has completed his negotiation. This $1,000 difference is attributable to John’s negotiation effort.
3. Evaluate the result vis-à-vis objective standards.
Another critical element to track is your employees’ results relative to objective standards such as market value, efficiency, costs/profits and expert opinions.
Let’s say Linda is the hiring partner at a 20-lawyer law firm that has decided to hire a three-year lawyer. So she hires Sally at a $100,000 annual salary.
If most three-year lawyers receive offers at about $100,000, that salary is market rate, Linda’s negotiation effort was average. But if Sally agreed to $90,000, a below market rate, Linda’s effort was above average. Linda’s partners might also evaluate her effectiveness by:
• Comparing Sally’s compensation to the firm’s precedent — what it pays other similarly experienced lawyers in its firm.
• Asking a human resources expert to evaluate the relative nature of Sally’s compensation package.
• Comparing Sally’s compensation with her eventual ability to generate profit.
Many companies may find resistance to these ways of evaluating negotiation skills. Employees become accountable for their negotiation effectiveness. Some will welcome this. But many will resist.
That’s a negotiation worth winning.
Published August 6, 2004 The Business Journal