Investigative negotiation and reverse auction strategy

HBR September 2007 has a fascinating article on investigative negotiation and is a must read for buyers. Investigative negotiation aims to deliver better results for both parties by “encourag[ing] negotiators to enter talks the same way a detective enters a crime scene: by learning as much as possible about the situation and the people involved.” In simple terms: in a negotiation you are best served by not assuming anything and instead getting the other party to explain their motives and objectives.

Negotiations and reverse auctions are both such pivotal elements of a buyer’s day to day activities, yet sometimes buyers consider the two as antithetical approaches. In this post I’ll summarise the authors’ definition of investigative negotiation and offer some ideas as to how it can dovetail with your reverse auction strategy.

  1. Don’t just discuss what your counterparts want – find out why they want it. Once you understand “why” you are in a better position to resolve apparant impasses.
  2. Seek to understand and mitigate the other side’s constraints. Perhaps you are able to obtain better shipping costs than your supplier. If so then you may be better off negotiating prices without shipping costs and arrange shipping yourself.
  3. Interpret demands as opportunities. If your counterpart is looking for penalties for late completion this means they value on time completion – so you should look to balance penalties for late completion with bonuses for early completion.
  4. Create common ground with adversaries. Don’t assume other parties are adversaries. If you understand their needs and objectives you may be able to achieve a better deal than otherwise would be the case.
  5. Continue to investigate even after the deal appears lost. If you can keep talking and understand why you lost the deal you may even be able to make a counter-offer. At the very least you will gain some knowledge you can use in the future.

None of this contradicts reverse auction strategy – in fact reverse auctions can even help. Buyers must address all these 5 aspects during their sourcing exercises. If they do address these 5 aspects then they can leverage even better results with auctions – and without necessarily needing to use particularly complex systems.

Reverse auctions particularly help with points 2 (Seek to understand and mitigate the other side’s constraints) and 5 (Continue to investigate even after the deal appears lost). For example:

  • Setting up a reverse with multiple what-if scenarios can allow suppliers to offer pricing against different delivery terms or even different specifications during the reverse auction itself – assuming, of course, that the buyer has looked to understand the supply market’s constraints.
  • Reverse auctions also offer instant feedback to suppliers. So a supplier can see instantly if the deal appears to be slipping away … and can modify offer as appropriate. This is beneficial to buyers because any modification a supplier has made to their bid is instantly relayed to other suppliers – so they can then make their own counter-offers if necessary.

In short – professional buyers who are managing robust sourcing processes will find that reverse auctions fit very well into their overall sourcing processes. But a successful reverse auction strategy can only fit within a robust sourcing strategy.

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