5 Steps to a Collaborative Supplier Agreement

If your recent experiences with contract negotiations are something like visiting the dentist for a root canal, there is a much better—and pain-free!—way to go about wrangling that strategic agreement.

It’s called Getting to We—a five-step process for crafting business relationships with the intent to drive collaborative partnerships. (The process is described in the book, Getting to We: Negotiating Agreements for Highly Collaborative Relationships.)

There are plenty of negotiation ”how-to” books out there. So, what is different about the Getting to We methodology? Simply put, Getting to We puts the focus on negotiating the foundation of the relationship, not just on getting to a deal. You still get to a contract, but how you get there is vastly different.

Getting to We starts by changing the way you approach your negotiation to embrace a “what’s-in-it-for-we” (WIIFWe) philosophical mantra, forming the structure of a collaborative and trusting relationship.

Negotiating the true nature of the relationship under a WIIFWe mindset means that the negotiating parties move away from the usual tit-for-tat cycle of tradeoffs and concessions; instead, they create a negotiation atmosphere that encourages cooperation.

So, how do you do it?

Five Simple Steps

  1. Getting ready for WIIFWe

The first step is to candidly discuss three foundational elements for a successful collaborative relationship: trust, transparency and compatibility. Completing this step helps the parties to understand to what extent they can build the foundation for their relationship. The more trust, transparency and cultural fit between a buyer and supplier, the more the parties will be comfortable making investments in the relationship, innovations and continuous improvement opportunities that can benefit both parties. 

For example, let’s say that you traditionally negotiate an annual contract renewal with an incumbent that has been a trusted “strategic” supplier for the last five years. You have a good cultural fit and work well together, but have operated under a conventional transaction-based business model with limited transparency. This year, you decide to host a two-day offsite meeting to discuss the art of the possible with the relationship; the agenda starts with a discussion about ways to improve trust, transparency and compatibility. The conclusion? You can make a good relationship great by being more transparent, which will enable the parties to work collaboratively to reduce total ownership cost and not just the “price.”

  1. Jointly agree on a shared vision for the partnership

The second step is to discuss and create a shared vision for the partnership. Each party naturally enters the discussion with their own vision. But then, the parties transform those separate approaches into a shared vision, giving the partnership its purpose far beyond a series of transactions. Further, this will guide the partners, not only throughout the negotiation process, but throughout the term of the relationship.

  1. Collaboratively negotiate the guiding principles for the partnership

The Getting to We process demands that partners establish highly collaborative relationships based upon a foundation of six common social norms or guiding principles. It makes sense, when you think about it. After all, being trustworthy means being open about how the organizations interact with each other.

The guiding principles establish a behavioral foundation for a trusting and productive relationship—provided that they also act in accordance with the parties’ expressed intentions. They are “social norms” or values that the parties use to guide behaviors while building a trusting relationship. In short, the six guiding principles are the foundation and substance of a high-performing collaborative relationship. They are summarized below.

Reciprocity: Reciprocity obligates the parties to make fair and balanced exchanges. If one party accepts a business risk, the other must be prepared to do the same. If one party commits to invest time and money in an important project, the other must be prepared to reciprocate. They decide what is fair and balanced through the negotiation conversation.

Autonomy: Committing to the principle of autonomy means the parties will abstain from using power to promote one’s self-interest at the expense of the other. At the individual level, autonomy refers to the ability to act based on reasons and motives reflecting the individual’s own values and convictions. The same applies to business relationships. People want to make their own decisions, free from the power of another; they want to work as equals and they want to be part of a process that allows them to make decisions in sync with the group.

Honesty: A Getting to We relationship cannot function without honesty. “Honesty is the best policy” is as true for collaborative business relationships as it is for personal relationships. Fundamentally, honesty obliges the parties to tell the truth, both about facts in the world and about their intentions and experiences. It follows that individuals and organizations should call out dishonest activity immediately. That’s because if dishonesty—rather than honesty—becomes a social norm in day-to-day business practice, the partnership is in trouble and can’t survive as a collaborative enterprise.

Loyalty: The previous guiding principles—reciprocity, autonomy and honesty—are not quite enough for a WIIFWe mindset. Loyalty is vital because it requires the parties to be loyal to the relationship, meaning that the relationship—or “relationship first” thinking—becomes an operating norm when the parties’ interests are treated as equally important. It’s not loyalty simply for the sake of being loyal—the parties must view the relationship as its own entity with its own set of interests, such as lowering costs, supporting innovation and promoting growth. It is not about sticking together no matter what. Loyalty is about loyalty to the relationship as a single entity.

Equity: Businesses and business people tend to view a relationship in balance sheet terms: each side should be equal. This is especially true in Western societies, wherein equality is a fundamental social norm. The principle of equity, however, obliges parties to look more critically at the distribution of resources. It might be easy to split things 50/50, but it might not be the fairest approach for the relationship as it moves forward. Equity has two equally important components: proportionality and remedies. Proportionality means one party may get a larger distribution of rewards than the other to compensate that party for taking greater risks or making investments. An equitable remedy allows the parties to come to a fair resolution when the contract itself may otherwise limit the result or be silent on the matter. Equity is important to maintain harmony and trust in a relationship. Equitable decisions prove that a party is trustworthy and trusting at the same time, precisely because the decision is not some arbitrary 50/50 split.

Integrity: Integrity is the reputational glue for high-performing, collaborative relationships. The principle of integrity refers to past events when the parties were involved in similar situations. Simply put, integrity means consistency in decision making and in actions. Integrity is essential to get to the WIIFWe mentality and to remain there. Integrity preserves the relationship, because it promotes trust between the parties. It also means that parties are trusting and trustworthy at the same time. To act with integrity is to show trustworthiness, which strengthens the foundation of the relationship. Integrity promotes predictability, since what has happened in the past says something about what can be expected to happen in the future. Thus, complexity is reduced.

  1. Negotiate as We

Now that you have laid the foundation for the relationship, it’s time to negotiate. But before you dig into the details of the deal such as the scope of work, pricing, and terms and conditions, you need to first establish the mechanisms you will use negotiate those details. This includes agreeing on the “negotiation rules,” the strategies and tactics, and the methods for ensuring that the deal is fair and balanced, especially when it comes to ways that the parties deal with risk allocation and value creation.

A good example of how to think about negotiation “rules” is for each party to make a list of negotiation strategies and tactics that will be acceptable, versus those that will be off-limits. It sounds silly, but it is powerful when parties jointly and purposefully agree to forbid adversarial negotiation tactics such as “good cop/bad cop,” “stonewalling,” “bluffing” and “spreading misinformation.”

Once the partners have agreed to the negotiation “rules,” they will then and only then begin to negotiate actual deal specifics such as the scope, metrics, pricing approach and other key contractual terms and conditions.

  1. Living as We

At this point, the partners have gotten to what is a far less painful approach to negotiate the details of a contact. However, they are not done. Step 5 includes negotiating the ways that the parties will continue to maintain the relationship after the contract is signed. Simply put, this means defining the governance mechanisms that parties will use to help them “Live as We.”   

Including governance in a formal contract is essential, because relationships are dynamic. Face it; business happens. And when business does happen, it is important that partners choose to focus on relationship management by taking actions and measures required to keep the relationship highly collaborative through what might be tough times.

The Getting to We method includes six governance mechanisms that can help you sustain a relationship over time. While deep detail on these governances is outside of the scope of this article, the steps include:

  • Creating a tiered governance structure
  • Establishing clear roles
  • Establishing peer-to-peer communications protocols (referred to as “two-in-a-box” or “Reverse Bow Tie” approaches)
  • Developing a communications cadence, tempo or rhythm
  • Establishing a transparent performance management program to foster feedback
  • Developing a process to maintain relationship continuity

Conclusion

It’s way past time for a new approach and mindset for contract negotiations. The next time you face contract negotiations, stop and think about the purpose of the negotiation. If you simply need to get to a deal, perhaps “Getting to Yes” is good enough. But if the purpose of your deal is to build a strong, healthy supplier relationship, perhaps you need to make the shift to the Getting to We five-step process, where the relationship becomes the focus of the deal, throughout the life of the deal.

The bottom line is that Getting to We is a paradigm shift that takes business agreement negotiations far beyond signing on the dotted line. And it works.

 

Read more by Kate Vitasek about succesfully navigating the supply chain:

 

Kate Vitasek is a faculty member of the University of Tennessee’s Center for Executive Education. She is the principal author of The Vested Way: How a “What’s in it for We” Mindset Revolutionizes Business Relationships; Vested Outsourcing: Five Rules That Will Transform Outsourcing; The Vested Outsourcing Manual; Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships; Getting to We: Negotiating Agreements for Highly Collaborative Business Relationships, and most recently, Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement. See the Vested library for more information. Ms. Vitasek can be reached by email.

University of Tennessee Center for Executive Education