For the past few weeks, I was writing on how scientific and business research shows that human thoughts and beliefs have an effect on the physical world. In this article, I am going to explore further on how businesses deal with communications both within their organizations and outside clients and vendors in relation to greater profitability and productivity. Sales ability determines your gross revenues, but negotiating ability determines your profit! As a result, most business leaders, at least in Western cultures, think it’s a foregone conclusion that aggressive negotiation with suppliers will yield the highest profitability. Although it’s a common belief that obtaining the lowest price should be the goal, regardless of the impact to the other party, business research and scientific discovery indicate otherwise.
When Wal-Mart sneezes, everybody catches a cold. For the fiscal year ending January 31, 2011, Wal-Mart, the world’s largest retailer, reported a net income of $15.4 billion on $422 billion of revenue with a 24.7% gross profit margin. With its single-minded focus on “EDLP” (Every Day Low Prices) and the power to make or break, a partnership with Wal-Mart is either the Holy Grail or the kiss of death for the suppliers, depending on one’s perspective. There are numerous media accounts of the corporate monolith riding its suppliers into the ground. The concept of win-win bargaining is a good and powerful message. And, what happens when you encounter someone with a great deal of power, like Wal-Mart, who is also the ultimate non-negotiable partner? Let’s look at how Proctor & Gamble executive Tom Muccio pioneered a new supplier-retailer partnership between P&G and Wal-Mart. Built on proximity (Muccio relocated to Wal-Mart’s turf in Arkansas) and growing trust (both sides eventually eliminated elaborate legal contracts in favor of Letters of Intent), the new relationship focused on establishing a joint vision and problem-solving process, information sharing, and generally moving away from the “lowest common denominator” pricing issues that had defined their interactions previously. From 1987, when Muccio initiated the changes, to 2003, shortly before his retirement, P&G’s sales to Wal-Mart grew from $350 million to $7.8 billion.
Another great example is the automotive industry. There is a huge difference between the manner in which the US Big 3 automakers – Ford, GM, and Chrysler – negotiate with their suppliers, compared with Toyota-way doing things by Toyota. The Big 3 aggressively pursue the lowest cost in negotiations and have created adversarial relationships with their suppliers. In contrast, Toyota-way is all about creating collaborative relationships with the suppliers. They believe in creating close-knit networks of vendors, where all companies prosper. In essence, they commit to co-prosperity.
When we have important ongoing relationships with people, it’s generally appropriate not to play a competitive game and instead play an alternative game: a collaborative, compromising, or even avoiding or accommodating negotiating game. Collaboration is the opposite of competition in most ways (see the 3rd article of this series for more on collaboration vs. competitive): you share information instead of concealing it, you focus on the other side’s concerns over your own, and you sit side by side instead of negotiating at arm’s length. Collaboration requires rich, ongoing communication, and it relies on joint problem solving. They talk more, they listen more, they ask a lot more questions, and they make a lot fewer declarations. They are also more forgiving about waffling and take-backs, since they want to get at the real underlying issues and understand that these may not be apparent to the other side at first. The negotiating game is very different when the goal is to make sure both sides win.
Win-win negotiations are the lifeblood of business success in most organizations. Anyone you work with is a candidate for win-win negotiating, including coworkers, team members, employees, bosses, suppliers, customers, regulators, and boards of directors. The payback of win-win negotiation can be seen in traditional terms in that your partners will be more willing to cooperate better and accommodate for future concessions. However the payback can also be considered from a scientific perspective, when considering what new science is teaching us about how we shape our experience.
The implications of the physical effect of our consciousness on our world are that when a business has a consciousness based in abundance rather than scarcity, events unfold in a manner that brings higher abundance, or profitability. Businesses demonstrate a belief in abundance when they adopt win-win negotiation styles, by showing they believe there is enough for all parties to win. Chance events then occur more frequently in favor of the business, such as customers being attracted to it more strongly and employees being more likely to hit upon the next big innovation.
The implications of the research and science are that adopting a win-win mindset can lead to higher profitability, so rather than fighting to retain the most dollars in each transaction, it’s wiser to work towards ensuring that all parties win.
An important caution is that negotiation with a belief in abundance does not mean letting vendors take advantage of you. In any negotiation, always negotiate strongly, while holding the view that all parties could win.