A negotiation process is made up of different phases, which chronologically build on each other. The most challenging and risky phase, for example during a corporate acquisition, is the period following the dealmaker’s moment of glory. It is the transition phase right before the realmakers are in charge, when the contract has been signed but execution has not started yet. In this phase, lawyers are clarifying details, HR experts are conducting exploratory talks, and employee representatives are forming new committees. In this phase of reorientation, companies tend to lose their best people.
Phase of the Dealmakers
Dealmakers want a deal because that is what they are being paid for. The typical approach of Dealmakers has four components:
Dealmakers push for a quick deal. Milestones and schedules are created, some invented, others real. Dealmakers know that time works against them. The longer the deal remains unsigned, the more complex the situation becomes. Competitors come into play, more information flows to the opposing party, and new players join the stage. In short: the negotiation become more complex.
Dealmakers try to gain an information edge. Generally, they strive to collect as much information as possible whilst disclosing as little information as possible themselves, internally as well as externally. Restricting the external flow of information is no issue, but restricting the internal information flow can quickly become a problem.
A Key Account Manager in the automotive industry, running out of time, felt compelled to modify an offer he had already submitted. At a late stage in the project, the unit requested by his customer was suddenly required to be ten grams heavier than initially agreed. The Key Account Manager would have had to conduct another internal round for the modified unit – inquiring with the purchasing-, cost-control-, quality assurance department, etc.
That would have meant that the initial project deadline would not have been met. He therefore withheld the information internally, signed the contract and passed on the discrepancy about ‘those few grams’ to the product manager only after the signing. Unfortunately, there had been a sharp rise in commodity prices over the preceding months for the material of which “a few grams” were needed. Calculating the cost based on a production volume of millions of units over the course of seven years, the difference of a few grams suddenly added up to a 7-digit sum.
The dealmaker’s principle of ‘speed above accuracy’ can also pose danger when it comes to the evaluation of new information. Thus, they tend to introduce newly acquired information into the negotiation quickly without verifying its accuracy.
Number of people
The Dealmaker tries to keep the circle of persons involved to a minimum. They know about the danger of passing on information externally, and about the tendency for discussions in bigger groups to cost a lot of time. Excluding important internal people, however, can become a problem. In corporate takeovers, for instance, it is not uncommon for Human Resources (HR) Managers to be kept out of the negotiation for as long as possible. Dealmakers have had the experience that an entire deal can succumb to HR matters and their related complexity. That is why they take challenging negotiating issues out of the agenda and raise them only after the contract has been signed.
This is where we come to the fundamental fallacy of Dealmakers: the intentional withholding of critical issues. Why do so many corporate takeovers fail? Why are there so many surprises after the contract has been signed? Because the Dealmaker has intentionally held back critical issues because they did ot want to risk legal and content -related issues costing significant additional time.
During a lengthy M&A process, the selling company raised the requirement to incorporate several hundred employees into the new company with an employment guarantee. This guarantee was a crucial issue on their list of demands. The Dealmakers knew the danger of this critical issue and gave their assurances for the employment guarantee. The corporate US-headquarters had not provided explicit written provisions on this as it was clear to every manager that new employees could not be given an advantage through employment guarantees. This resulted in a vast number of legal problems - at the expense of the Realmakers rather than the Dealmakers.
The phase in which neither Deal- nor Realmaker are in charge is the most dangerous for your organization. After the Dealmakers have withdrawn, the first surprises usually come to light. The Realmakers have no choice but to take over and tidy up the mess. This phase is so precarious because there no one person is in charge. For instance, sales managers have made promises without putting them in writing and the product manager will be confronted with the promises made.
The product manager will likely raise the matter to the decision maker for resolution. Should they adhere to the supposed verbal agreements between sales managers and customers or stick to the written agreement? They wait forever for a response. This phase has little to do with the actual negotiation - this uncertain phase poses a leadership challenge for all parties involved. Interestingly enough, executives like to withdraw during this phase. A common comment heard during this time is «I’d rather say nothing than say something wrong».This attitude results in increased uncertainty for all parties, especially for employees, and is the breeding ground for rumours and speculation.
Phase of the Realmakers
Following this intermediate phase, the Realmakers can finally take over. They will be able to turn everything the Dealmakers said and did on its head again. As the decision maker you should bear in mind one fundamental point ahead of a negotiation: be aware that giving a mandate to Dealmakers will likely result in surprises after the signing. If your main priority is to close the deal, then Dealmakers are the right pick. If long-term security is of greater importance to you, then link the success of the deal to its execution and implementation. This is the only way to ensure that important information is brought up and negotiated during the Dealmaker-phase. In addition, it makes sense to only grant bonuses for the attainment of previously negotiated targets.