Strategic Relationship Negotiation Guide

Strategic Relationship Negotiation
Methodology

Strategic Relationships Sourcing Inc.
Strategic Relationship Negotiation Methodology – Version 4.2 Page 2 of 18
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Table of Contents
BACKGROUND............................................................................................................................................ 3
What is a Strategic Relationship?............................................................................................................... 3
NEGOTIATIONS GAP – DEFINITION....................................................................................................... 6
SRS STRATEGIC RELATIONSHIP NEGOTIATIONS PROCESS (SRNP) .............................................. 7
STEP I – GETTING READY ........................................................................................................................ 8
STEP II – GROUNDING..............................................................................................................................11
Negotiation Strategy..................................................................................................................................12
STEP III – NEGOTIATIONS .......................................................................................................................14
Negotiating Gap Elements.........................................................................................................................15
GUIDING PRINCIPLES...............................................................................................................................17

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Background
The SRS Negotiations Process (SRNP) is a step-by-step methodology to
negotiating significant and mutually beneficial business relationships. It is
intended for use with the SRS Strategic Relationship Model (SRM). The
SRM defines a framework for the sourcing, management and operational
alignment of strategic relationships.
What is a Strategic Relationship?
SRS defines a strategic relationship as “any close, collaborative
commercial relationship between two or more parties in which the partners
seek to achieve measurable benefits by leveraging their complementary
skills, assets and competencies for the mutual benefit of the parties.” This
may include the creation of strategic marketing or operational synergies,
joint development and exploitation of complementary strengths, products
and services, lower costs, enhanced operational performance, new market
penetration or other competitive advantages.
Traditionally, business arrangements embodied in the form of contracts,
were created to represent the roles, responsibilities, services, products,
levels of performance and the incentives or penalties associated with
over/under achievement. The accelerated rate of change in technology,
business cycles and operating conditions, and changes in the parties’
strategic directions in response to ever increasing competitive challenges,
strained these business relationships to the point where success was, and is,
limited to the very few. Further, and generally speaking, the structure of the

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traditional arrangements revolved around “what is to be done” and “how it
will be done”, defining the specifics of each of these in great detail and
structuring the complete procurement process around managing risks
associated with their achievement.
A “strategic relationship”, as we see it, is one that focuses on achieving a
set of value-driven results and therefore cannot be structured around the
“what” and the “how”. The SRS Strategic Relationship Model attempts to
free the parties from the uncertainty inherent in such arrangements. Aside
from the initial objectives the relationship is targeted to achieve, all other
aspects of the relationship are dynamic, continuously influenced and shaped
by forces of change, including business conditions, enabling processes and
technologies. The SRS Strategic Relationship Model (“SRM”) is a process-
centric framework that enables the structuring and management of strategic
relationships where continuous alignment with business and best practices
may be required on a continuous basis.
In other words, the SRM is a process-centric model that enables the
management and alignment of deliverables (projects, products, services,
etc.) with relationship objectives, while continuously measuring and
analyzing the benefits derived by deploying a specific set of enabling
technologies. Even the stated objectives or the desired benefits articulated
at the start are still subject to the forces of change and to the requirements of
continuous alignment throughout the engagement.
The SRS Negotiation Process (SRNP) begins with the assumption that an
Arrangement In Principle (AIP) has been arrived at by the parties involved.
Generally, the AIP is the result of a Sourcing initiative in the form of:
Direct Engagements – An organization has engaged another to investigate
potential benefits resulting from the supply of products and services. In

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these types of engagements a value proposition has been articulated and a
draft outline of the business arrangement including expected benefits has
been developed and agreed to by both parties.
J.V./Alliance – Parties have engaged in discussions, agreed on a go-forward
strategy, developed the alliance business case and business plan and have
signed a Memorandum Of Understanding.
Common Procurement – This type of an open competitive process is
usually centered on the construction of a Request for Strategic Relationship
Proposal (RSRP), receiving and evaluating vendors’ responses, creating a
short list of qualified vendors, and deciding to negotiate with the best
respondent(s). The RSRP content (including requirements, anticipated
results and Terms & Conditions) coupled with the vendor’s response
(written and oral) to the RSRP, is in effect an Arrangement In Principle.
The SRS SRNP can still be deployed even when the Sourcing process is
carried out by means of a traditional competitive RFP. This is true
particularly in the case where the RFP documentation and procurement
process allowed for flexibility of the final business arrangement. Such
flexibility may potentially impact business arrangement initial scope,
solution requirements, and business & governance models of the business
arrangement.

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Negotiations Gap – Definition
A ”negotiations gap” is the difference between the positions of the various
parties involved in the business arrangement. The goal of the negotiation
process is to bridge or eliminate this difference in a manner where all
parties can achieve their respective objectives.
At any instant in time during the negotiation process, “gaps” can be
attributed to any number of factors, including different goals and objectives,
failure of the parties to clarify their respective understanding of terms and
how they are used in particular industries or business segments, or
perceptions stemming from communications gaps and a lack of agreement
or understanding (or one-sided understanding) of the fundamental
conditions that would make the proposed business arrangement a great
success for all. It is through the open good faith exploration of these issues
by the parties seeking to learn about each others’ motives, objectives,
expected benefits and risk mitigation factors, that the negotiations’ gap is
narrowed and the desired benefits of value-driven strategic relationship are
achieved.

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SRS Strategic Relationship Negotiations Process (SRNP)
The SRNP is a three-step process designed to provide a workflow template
for negotiation activities:
 Getting Ready – preparing for negotiations
 Grounding – verifications of various negotiation positions
 Negotiations – process for reaching agreement on gap elements
The chart below outlines an overview of the SRS SRNP. The remainder of
this document will delve into the process, issues and guiding principles of
the SRS SRNP.

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Step I – Getting Ready
This is by far the most important step of the negotiation process. Each party
must fully understand its own objectives before entering into the negotiation
process and must be able to document its view of the arrangement that
would be most suitable to achieve the desired results.
Gap Identification – Depending on the procurement process used, and the
market testing completed, evaluation and selection, the party is required to
identify, understand and document the “base gap” as the difference between
the following two items:
 Desired business arrangement – base business arrangement at the
lowest level of detail possible; and
 Perceived business arrangement – what is perceived to date to be the
other position based on written and verbal communications, RSRP
response, evaluation and selection processes.
The gap should be documented in the form of a table showing areas of
difference as well as areas of perceived agreement. This will be used to
keep a picture of the complete deal in mind at all times as well as for
verification purposes described later in the process. Business arrangement
(deal) and gap elements should be categorized as follows:

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 Requirements/actions
 Base service levels/metrics
 Roles & responsibilities/division of responsibility
 Operations management
 Financial
 Relationship management/governance
 Terms & Conditions
The areas above are interdependent and will in the end form an integrated
business arrangement. However, and most likely, this interdependence will
be used as a leveraging factor to resolve complex issues at negotiation time.
Management Expectations – In a strategic sourcing engagement, the
requirements and evaluation criteria are the means to identify the other
party with whom a business arrangement is then negotiated to realize the
desired business benefits. As well, and in common procurements where
vendors are asked to come forward with creative solutions to a particular
problem, it is understood that different types of solutions may require
different business arrangement structures. In such cases, the negotiating
team may have the ability to alter the scope or rollout of the solution so that
overall risk of not achieving the desired results is contained.
For this reason it is essential to capture management expectations in terms
of the expected results and risk tolerance levels. Risk tolerance levels need
to be identified and clearly understood for each element of the business
arrangement and gap analysis. Interviews with senior functional managers
is one way of understanding management expectations and how far they are
willing to go on the risk scale.
Negotiation Team – The next step is to identify and secure the skills and
management roles required. The following guidelines should be carefully
considered:
 Negotiation teams require decisions to be made fairly quickly, and as
such, the presence of decision-makers with functional responsibility for
the business arrangement is ideal. Alternatively, a decision making
process is defined, approved and communicated to the other party. At a
minimum, the team should be composed of:
– Team Leader – the role of the team leader is to lead the negotiation
process. A team leader has a good vision of what the overall deal
will look like, understands the gap in all areas, possesses the
leadership, technical know how, and excellent communication
skills
– PE & PM
– Legal Counsel
– Financial Architect
– Functional Management or Decision making process or both
 Ensure that the Program Executive (management & P/L responsibility)
and the Program Manager (operational responsibility) are present. This
is very crucial to the success of the project. Significant numbers of
arrangements, and particularly during the first 18 months, suffer due to

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lack of understanding of what the “deal” is and how each party is able
to achieve its objectives under the structure of the arrangement.
 Inclusion of Subject Matter Experts. Outside of the core team, experts
in the areas of industry norms, and technical support should be readily
available to explore a particular technical issue in greater detail.
Preliminary Schedule – A preliminary schedule should be developed based
on the current understanding of what the gap elements are and how critical
or deep the issues may be. The final date for reaching an agreement should
be flexible. “Drop dead” dates are not recommended, since they could
potentially cause the process to take over completely and negatively
influence the team’s sense of objectivity.
Other Party PE & PM – Ensure the other party’s Program Manager and
Program Executive are present at all negotiation sessions. We estimate that
in 90% of the cases the relationship will suffer beyond repair should the PE
& PM be absent from the negotiating table. Their role is to continuously
apply the capability test and ensure all discussed changes are technically
feasible, manageable and fall within their P&L guidelines or corporate
policies.
Communication – Communicate Team Members and schedule.

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Step II – Grounding
The purpose of this step of the SRS Strategic Relationships Negotiation
Process (SRNP) is to establish a common understanding of what the ”gap”
really is. The analysis and preparations of the “gap” performed in Step I is
merely The best available estimate of what the difference in positions is
and, in most cases, does not reflect the real agreement or disagreement of
the parties in relation to specific elements of the gap.
This step is conducted via the first face-to-face meeting between the teams.
The following is a draft agenda for the first negotiation session lead by the
negotiations Team Leader:
 An overview of the negotiations process. Ensure that all members of
both sides are in agreement with it.
 An overview of the Schedule
 Describe the desired arrangement at very high level focusing on the
objectives and expected benefits
The next step is for the Team leader to walk through the documented Base
Business Arrangement and for each element:
 Obtain common understanding of the element
 Obtain acknowledgement of no issue if no perceived gap exists
 Obtain acknowledgement of the existence of an issue if gap is
perceived to exist

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 Do not engage in solving any issues at this time. It is too early to
put a cohesive strategy together that combines multiple issues at
this time. The objective is to obtain a clear understanding of what
the issues are.
Once the verification scan is completed, go back and jointly rank the issues
agreed to (to be issues) into: deal breakers, majors, and minors. In some
cases one may choose to conduct this process in parallel with the
verification scan exercise. In complex situations, we recommend the
negotiating parties to perform the ranking in a separate step as it will give
negotiation teams a chance to come back and revisit the areas of concern.
We believe you would receive a different, more reliable reaction or
assessment if done separately rather than in one single step.
It is recommended that a soft copy of the Business Arrangement be updated
in real-time and distributed at the end of each session.
The first session of negotiations is most likely where members of the joint
teams have met for the very first time. Scheduling a social function is a way
for members to get to know each other a little bit better. This will definitely
have a positive impact on the overall negotiation process.
Negotiation Strategy
Now that we know what the real gap is, the team (our team) will begin
putting together the Negotiations Strategy. For each gap element identify
what we will call the minimum and maximum tolerance or impact levels.
Gap elements could either be positive or negative. Positive if the other
party has already offered in their communications a level that is higher than
that expected at some level of additional effort or cost. Negative is clearly
when they fall short on the requirement.
Minimum – The furthest the team will go before the issue at hand would
begin to negatively impact the objectives or the results desired (unless
persuaded otherwise by the other party).
Maximum – The point where additional gains would add little or no value
to reaching the objectives or the desired results (unless persuaded otherwise
by the other party).

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For each gap element document the driving factors or rationale used to
arrive at the minimum and maximum tolerance levels. These will prove to
be instrumental during the face-to-face negotiation discussions.
Armed with this analysis the team can now build a real strategy. The team
will now develop an Enhanced Business Arrangement based on what the
tolerance levels are and keeping in mind what the real issues are.
This Enhanced Business Arrangement, developed in this phase is the deal
we really want. Now let’s go and negotiate it.

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Step III – Negotiations
This step of the process is carried out during face-to-face sessions and
individual team breakout sessions. At the first session an agreement among
joint team members would need to be reached as to what type of issues the
team will begin to address. There are two strategies that can be
implemented here.
 Begin with minors, majors, then deal breakers
This approach is typically used where small measurable steps have
great positive impact on the politics of the negotiations. It can be used
where the parties are negotiating an arrangement in which “trade offs”
are expected to be necessary to reach agreement, or where the parties
do not know each other and it is important to build relationships of trust
and confidence during the negotiation process. This is a “soft”
approach where the main purpose is building a collaborative strategic
relationship early.
 Begin with deal breakers, majors and trade off the minors
This approach is generally used when a party does have other options
or potential alternatives and where the prospect of not having a deal has
a greater impact on the other party. It is true that this team’s intent and
spirit is channeled towards a win-win result, particularly via this
process, however, the other party may still be adhering to old
negotiating practices. Removing the deal breakers early in this case
will provide:
– speed of negotiations
– signify required commitment
– a no-deal scenario is determined very early in the process
The risk with this approach is that it may strain relationships early
which may require greater relationship building attention later in the
negotiation process.

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Negotiating Gap Elements
For each element, attempt to understand the underlying reasons causing the
issue to appear as it is. Further attempts should be made to understand the
conditions driving the underlying reasons, which are in turn manifesting
themselves in the form of an issue. The superficial answer is always given
first either because people just simply don’t know (un-communicated
Corporate Policy), or do know but avoid the answer. One can’t resolve an
issue if this step is not undertaken. It is an attempt to open up and
understand the motives behind the issue.
Just as important, is “who” the issue is important to. For example: Is it a
technical or delivery issue? Is it a company deal approving body guideline
breaker? Or does it lie outside the risk envelope defined by management?
All these are possible reasons, but one will need to understand which part of
the organization is concerned with the issue at hand. This holds true for
both sides of the negotiating team.
The team now begins to develop mitigation strategies for the drivers of the
issue in the form of “what if we implemented an operational process to....”
or “what if we refrained from performing this particular function”. The idea
is to test the “what ifs” with the other team and gauge their level of support
for the mitigation strategy. This process continues until an agreement in
principle is reached, but decision is not yet made. If the issue is a stand-
alone issue then a decision can be made and the issue is then removed from
the gap list. Otherwise a formal decision may be delayed until other
relating issues are also agreed to.
Joint negotiation sessions are very intense and can be strenuous on the
people involved. It is recommended that more than half the time be allotted
for each team to re-group separately and engage in discussions with
respective management outside the core group. They may find many

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answers to a lot of questions at hand. The reason being, and in particular
large corporations, the policies and guidelines are numerous and executives
outside the core team can reflect on their experiences to assist the team in
reaching resolution to issues at hand.

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Guiding principles
Open communications – team members on both sides need to be open to
answering any questions, particularly those that attempt to go behind the
scene in order to understand the driving factors of a particular issue.
Positive orientation – team members on both sides need to keep in mind the
concept of “Sustained Mutual benefit”. Not every issue may be resolved
into a mutual benefit, but the complete arrangement must be seen and
understood to be mutually beneficial tactically and strategically for both
parties. If at the end of the exercise one party believes to have had the
better deal and cannot clearly articulate the benefits received or will be
received by the other party, then something went wrong along the way.
Understanding – “Seek first to understand then to be understood” from
“The 7 Habits of Highly Effective People” is key. Listening leads to
understanding, which will lead to resolution.
Apply the Capability Test – do not accept the resolution of an issue in your
favor until you fully understand that the other party has the capacity and
ability to deliver on it. Failing to do so is a sure path to failure. The other
party might be pressured by the political environment (the deal will help
their stock price, or improve their market image) to accept the resolution of
an issue knowing that they will have difficulty delivering it. The burden is
on the recipient of the service, product or solution to investigate and feel
comfortable with the ability of the other party to deliver.
Emotions – always deal with the issues, not the personalities
communicating the issues.
Social discussions – end every negotiation session with a social discussion
or event.

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Appendix A – Negotiation Process Presentation

Strategic Relationship Negotiation Guide

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