Why Technology Negotiations Are Different
by Lawrence Susskind
Technology negotiations are complex and many managers are left with a sense of unease. Am I getting the best deal? Will the ERP system I buy today be obsolete tomorrow? Lawrence Susskind offers keys to help you avoid the pitfalls. FromNegotiation.
Executives are increasingly faced with the task of negotiating in a realm that many know little about: technology. Whether you're bargaining over the purchase of a new companywide network, coping with a possible infringement of patented technology, or seeking better customer service from a software supplier, technology negotiations have become a fact of managerial life. How do such negotiations differ from those that are less technologically complex? You can anticipate four specific problems to crop up more often in the technology arena:
1. Complexity. Negotiations over new technology require sophisticated knowledge of hardware or software that's beyond the scope of most managers. If those trained in science and technology assume that others at the table speak their language, serious misunderstandings can result.
2. Uncertainty. When highly complex systems are at stake, no one can be sure whether they will perform as promised when configured for a particular business environment. Different estimates of how a technology will perform can lead to negotiation battles.
3. Egos. Those who design or advocate for a new technology often become additional players when they have a vested interest in the outcome of a negotiation. Technology advocates—and their egos—can complicate otherwise straightforward talks.
4. Organizational change. The various organizational changes required by negotiated agreements can provoke conflict between parties during implementation. Staffers may have trouble maintaining or repairing new technology, accessing its intellectual underpinnings, or acquiring replacement parts.
Negotiators embroiled in a high-tech deal must take purposeful steps to avoid these pitfalls. Through our executive teaching on the topic, my colleagues Hal Movius, director of assessment coaching and training at the Consensus Building Institute; Tracey Brenner, founder and president of Wolfsdorf Brenner; Joel Cutcher-Gershenfeld, senior research scientist, MIT Sloan School of Management; and I have identified three primary ways of sidestepping these difficulties: (1) avoid communication errors and build trust, (2) manage complexity and uncertainty, and (3) prepare for strategic realignment. I'll open with a case study, created by Movius, that illustrates the particular difficulties of technology negotiations, and then detail our advice.
Negotiating technology: The Hexiglass caseCremtech Corporation, which develops and manufactures leading-edge glass and ceramic products, was considered the industry leader in terms of innovation and profits for many years. For several years, however, Cremtech has faced growing competition, and its profits have slipped. The company's CEO has asked senior management to eliminate technologies that have not found significant markets or applications. Such technologies drain production capacity and create heavy handling, shipping, and customer-support costs.
Advanceramics, a Cremtech competitor, recently offered $2.5 million for Cremtech's Hexiglass line of extra-durable glass products. Hexiglass, which has only six customers who order twelve different products, is manufactured and sold by twelve employees. If selling the line isn't feasible, Advanceramics is willing to license the production technology for two years.
Three senior managers at the facility where Hexiglass is produced have been asked to negotiate the product's future: the product line manager for specialty ceramics, the VP of R&D, and the plant manager. Not surprisingly, they have different ideas about whether to accept the offer from Advanceramics. The R&D VP, who also invented Hexiglass, is strongly opposed to selling the technology. He wants to mothball Hexiglass, store it on site, keep the team in place, and test new applications until demand skyrockets, as he is convinced it will.
The product line manager wants to accept the Advanceramics offer. The sale of Hexiglass, she believes, will bring in cash and increase short-term productivity. In addition, she hopes to impress the CEO with her ability to pull the trigger on a good deal.
The plant manager doesn't want to lay off veteran employees; he favors licensing Hexiglass technology for a short-term cash infusion and keeping the team together. If demand grows rapidly, as the line manager predicts, Cremtech will be ready to restart production immediately. Notably, the legal department is worried about the intellectual property risks associated with any licensing agreement.
Though this negotiation is among people working for the same company, it exhibits the four problems salient to technology deals—and, as it happens, the same problems that would arise in talks between Cremtech and Advanceramics. First, the varying extent to which the negotiators grasp the complexity of the technology is likely to color their views of the three options—sell, mothball, or license. Second, uncertainty surrounds long-term demand for the product, as well as the question of whether shutting down Hexiglass production will increase plant efficiency. If demand truly will skyrocket, then mothballing the technology makes sense. If the R&D VP is wrong, Cremtech may never get another bid on the technology. Third, ego becomes a factor, as the R&D VP may be blinded by "inventor's bias"; similarly, the line manager's major objective seems to be impressing her boss. Fourth, temporarily licensing the technology could lead to unanticipated organizational realignment as staff reassignments and the need to build a new relationship with Advanceramics create additional demands. If the competition ends up launching its own version of the product, further changes will be required.
Given these complications, how should the managers proceed with their negotiation? The following three strategies will help them navigate these difficulties—and can guide your next technology negotiations as well.
1. Avoid communication errors and build trustBecause of their added complexity, technology deals are rife with miscommunication. Negotiators tend to make assumptions about a technology—how it will work, what its future demand will be—that color their messages and leave them more liable to hear what they want to hear and block out the rest.
Negotiators can avoid miscommunication about technology by agreeing on explicit procedural ground rules before getting down to substantive business. For example, the three Cremtech negotiators might agree that: (1) they can present their arguments without interruption, (2) one person will draft a summary of each discussion for review before speaking to others about what transpired, and (3) they will use specific criteria to assess alternatives. Procedural ground rules not only promote understanding but also improve the odds of reaching a creative agreement that responds to each party's key concerns.
To better understand one another, the Cremtech managers should find out all they can about the rationale behind the other parties' proposals. This is best done by asking lots of questions and listening carefully to the answers. In addition, they should use different language to make the same point and supplement their statements with visual aids. Finally, rather than merely observing others' reactions, they should ask for elaboration on any disagreements.
Often, the advocate for a particular system (whether the person designed it or not) becomes blind to the weaknesses of that technology. The R&D VP's ego, for instance, could make it hard for him to listen without defensiveness if a message appears to threaten his identity or reputation. To neutralize "inventor's bias," bring in an impartial expert for an independent judgment on the technology's strengths and weaknesses. Similarly, the Cremtech negotiators might seek an independent financial analysis from a consultant who is less concerned than the product line manager with impressing the boss.
Whenever technical complexity threatens to impede communication, it's important to emphasize trust-building measures. Technology negotiations often require multiple rounds of give-and-take, as parties check with their legal departments or superiors in response to unexpected proposals. Trust can break down quickly during these interactions—for example, if one party reneges on a previous offer. How can you build trust? Quite simply, by saying what you mean and meaning what you say. Don't sugarcoat bad news, and don't make commitments that you're not sure you can keep. Once trust is lost, it's incredibly difficult to rebuild.
2. Manage complexity and uncertaintyPrior to a technology negotiation, it's in all parties' interest to learn all they can about the technology to be discussed. This may require a substantial investment of time. Even if you're planning to bring a technical adviser to the meetings, you'll still need a rough sense of the technical or scientific principles involved, the options available, and the obstacles to effective implementation.
Negotiators also need to make time pressures and ambiguity work for them. The idea of mothballing the Hexiglass technology until the market catches up may well be a smart response to market uncertainty. By contrast, leasing the technology might bring in short-term revenue, but even the strongest contract won't eliminate the possibility that a competitor will use its access to formulate its own version of the technology. Both ideas respond to uncertainty, but with different downside risks.
In our research, we've discovered that those who can live with ambiguity for as long as possible are more likely to reap substantial benefits than are those who seek to quickly eliminate it. One novel way to accept uncertainty is through contingent agreements—promises that negotiators add to a contract to reduce risk. An agreement might include a table that accounts for many future scenarios, including different prices, deadlines, and obligations to perform. Contingencies add complexity and incur the wrath of general counsel; they also make it difficult to book the value of the deal (and allocate bonuses) when the agreement is signed. Nevertheless, when uncertainty is high, parties will be best served by spelling out "who gets what" under a variety of scenarios.
3. Anticipate the difficulties of strategic realignmentAlmost any agreement the Cremtech negotiators reach will require ongoing organizational realignment. New staff members probably will have to be trained, while longtime employees must be let go. Managers may need to reassign responsibilities, adjust reporting lines, and impose performance guidelines. The company may have to alter supply chains and invest in retraining. Such strategic moves will disrupt relationships and work patterns—and make a lot of people uneasy. And while most negotiators expect organizational change to be difficult, technology agreements rarely take adequate account of the necessary strategic realignment.
When technology negotiations imply changes in organizational structure, values, and procedures, you'll need to approach them with a clear understanding of the organizational—and not just the personal—stakes involved. Specifically, follow three "before, during, and after" steps. First, consult in advance with anyone likely to be affected by potential changes. Second, stay in touch with those individuals during the negotiation, and consider giving them a say in the final outcome. Third, make sure your promises about what you will and won't accomplish in the near future are realistic.
Merely insisting on or promising organizational change is unlikely to produce the desired results. When you're altering systems, strategy, or values, resistance is almost inevitable. Getting people to change what they think, what they do, and how they do it is usually a grueling exercise. In addition, someone must be responsible for managing technological change and guaranteeing the resources needed to get the job done.
[Lawrence Susskind is Ford Professor at MIT, founder of the Consensus Building Institute, and co-leader of the Program on Negotiation's technology negotiation executive course.]
Executives are increasingly faced with the task of negotiating in a realm that many know little about: technology. Whether you're bargaining over the purchase of a new companywide network, coping with a possible infringement of patented technology, or seeking better customer service from a software supplier, technology negotiations have become a fact of managerial life. How do such negotiations differ from those that are less technologically complex? You can anticipate four specific problems to crop up more often in the technology arena:
1. Complexity. Negotiations over new technology require sophisticated knowledge of hardware or software that's beyond the scope of most managers. If those trained in science and technology assume that others at the table speak their language, serious misunderstandings can result.
2. Uncertainty. When highly complex systems are at stake, no one can be sure whether they will perform as promised when configured for a particular business environment. Different estimates of how a technology will perform can lead to negotiation battles.
3. Egos. Those who design or advocate for a new technology often become additional players when they have a vested interest in the outcome of a negotiation. Technology advocates—and their egos—can complicate otherwise straightforward talks.
4. Organizational change. The various organizational changes required by negotiated agreements can provoke conflict between parties during implementation. Staffers may have trouble maintaining or repairing new technology, accessing its intellectual underpinnings, or acquiring replacement parts.
Negotiators embroiled in a high-tech deal must take purposeful steps to avoid these pitfalls. Through our executive teaching on the topic, my colleagues Hal Movius, director of assessment coaching and training at the Consensus Building Institute; Tracey Brenner, founder and president of Wolfsdorf Brenner; Joel Cutcher-Gershenfeld, senior research scientist, MIT Sloan School of Management; and I have identified three primary ways of sidestepping these difficulties: (1) avoid communication errors and build trust, (2) manage complexity and uncertainty, and (3) prepare for strategic realignment. I'll open with a case study, created by Movius, that illustrates the particular difficulties of technology negotiations, and then detail our advice.
Negotiating technology: The Hexiglass caseCremtech Corporation, which develops and manufactures leading-edge glass and ceramic products, was considered the industry leader in terms of innovation and profits for many years. For several years, however, Cremtech has faced growing competition, and its profits have slipped. The company's CEO has asked senior management to eliminate technologies that have not found significant markets or applications. Such technologies drain production capacity and create heavy handling, shipping, and customer-support costs.
Advanceramics, a Cremtech competitor, recently offered $2.5 million for Cremtech's Hexiglass line of extra-durable glass products. Hexiglass, which has only six customers who order twelve different products, is manufactured and sold by twelve employees. If selling the line isn't feasible, Advanceramics is willing to license the production technology for two years.
Three senior managers at the facility where Hexiglass is produced have been asked to negotiate the product's future: the product line manager for specialty ceramics, the VP of R&D, and the plant manager. Not surprisingly, they have different ideas about whether to accept the offer from Advanceramics. The R&D VP, who also invented Hexiglass, is strongly opposed to selling the technology. He wants to mothball Hexiglass, store it on site, keep the team in place, and test new applications until demand skyrockets, as he is convinced it will.
The product line manager wants to accept the Advanceramics offer. The sale of Hexiglass, she believes, will bring in cash and increase short-term productivity. In addition, she hopes to impress the CEO with her ability to pull the trigger on a good deal.
The plant manager doesn't want to lay off veteran employees; he favors licensing Hexiglass technology for a short-term cash infusion and keeping the team together. If demand grows rapidly, as the line manager predicts, Cremtech will be ready to restart production immediately. Notably, the legal department is worried about the intellectual property risks associated with any licensing agreement.
Though this negotiation is among people working for the same company, it exhibits the four problems salient to technology deals—and, as it happens, the same problems that would arise in talks between Cremtech and Advanceramics. First, the varying extent to which the negotiators grasp the complexity of the technology is likely to color their views of the three options—sell, mothball, or license. Second, uncertainty surrounds long-term demand for the product, as well as the question of whether shutting down Hexiglass production will increase plant efficiency. If demand truly will skyrocket, then mothballing the technology makes sense. If the R&D VP is wrong, Cremtech may never get another bid on the technology. Third, ego becomes a factor, as the R&D VP may be blinded by "inventor's bias"; similarly, the line manager's major objective seems to be impressing her boss. Fourth, temporarily licensing the technology could lead to unanticipated organizational realignment as staff reassignments and the need to build a new relationship with Advanceramics create additional demands. If the competition ends up launching its own version of the product, further changes will be required.
Given these complications, how should the managers proceed with their negotiation? The following three strategies will help them navigate these difficulties—and can guide your next technology negotiations as well.
1. Avoid communication errors and build trustBecause of their added complexity, technology deals are rife with miscommunication. Negotiators tend to make assumptions about a technology—how it will work, what its future demand will be—that color their messages and leave them more liable to hear what they want to hear and block out the rest.
Negotiators can avoid miscommunication about technology by agreeing on explicit procedural ground rules before getting down to substantive business. For example, the three Cremtech negotiators might agree that: (1) they can present their arguments without interruption, (2) one person will draft a summary of each discussion for review before speaking to others about what transpired, and (3) they will use specific criteria to assess alternatives. Procedural ground rules not only promote understanding but also improve the odds of reaching a creative agreement that responds to each party's key concerns.
To better understand one another, the Cremtech managers should find out all they can about the rationale behind the other parties' proposals. This is best done by asking lots of questions and listening carefully to the answers. In addition, they should use different language to make the same point and supplement their statements with visual aids. Finally, rather than merely observing others' reactions, they should ask for elaboration on any disagreements.
Often, the advocate for a particular system (whether the person designed it or not) becomes blind to the weaknesses of that technology. The R&D VP's ego, for instance, could make it hard for him to listen without defensiveness if a message appears to threaten his identity or reputation. To neutralize "inventor's bias," bring in an impartial expert for an independent judgment on the technology's strengths and weaknesses. Similarly, the Cremtech negotiators might seek an independent financial analysis from a consultant who is less concerned than the product line manager with impressing the boss.
Whenever technical complexity threatens to impede communication, it's important to emphasize trust-building measures. Technology negotiations often require multiple rounds of give-and-take, as parties check with their legal departments or superiors in response to unexpected proposals. Trust can break down quickly during these interactions—for example, if one party reneges on a previous offer. How can you build trust? Quite simply, by saying what you mean and meaning what you say. Don't sugarcoat bad news, and don't make commitments that you're not sure you can keep. Once trust is lost, it's incredibly difficult to rebuild.
2. Manage complexity and uncertaintyPrior to a technology negotiation, it's in all parties' interest to learn all they can about the technology to be discussed. This may require a substantial investment of time. Even if you're planning to bring a technical adviser to the meetings, you'll still need a rough sense of the technical or scientific principles involved, the options available, and the obstacles to effective implementation.
Negotiators also need to make time pressures and ambiguity work for them. The idea of mothballing the Hexiglass technology until the market catches up may well be a smart response to market uncertainty. By contrast, leasing the technology might bring in short-term revenue, but even the strongest contract won't eliminate the possibility that a competitor will use its access to formulate its own version of the technology. Both ideas respond to uncertainty, but with different downside risks.
In our research, we've discovered that those who can live with ambiguity for as long as possible are more likely to reap substantial benefits than are those who seek to quickly eliminate it. One novel way to accept uncertainty is through contingent agreements—promises that negotiators add to a contract to reduce risk. An agreement might include a table that accounts for many future scenarios, including different prices, deadlines, and obligations to perform. Contingencies add complexity and incur the wrath of general counsel; they also make it difficult to book the value of the deal (and allocate bonuses) when the agreement is signed. Nevertheless, when uncertainty is high, parties will be best served by spelling out "who gets what" under a variety of scenarios.
3. Anticipate the difficulties of strategic realignmentAlmost any agreement the Cremtech negotiators reach will require ongoing organizational realignment. New staff members probably will have to be trained, while longtime employees must be let go. Managers may need to reassign responsibilities, adjust reporting lines, and impose performance guidelines. The company may have to alter supply chains and invest in retraining. Such strategic moves will disrupt relationships and work patterns—and make a lot of people uneasy. And while most negotiators expect organizational change to be difficult, technology agreements rarely take adequate account of the necessary strategic realignment.
When technology negotiations imply changes in organizational structure, values, and procedures, you'll need to approach them with a clear understanding of the organizational—and not just the personal—stakes involved. Specifically, follow three "before, during, and after" steps. First, consult in advance with anyone likely to be affected by potential changes. Second, stay in touch with those individuals during the negotiation, and consider giving them a say in the final outcome. Third, make sure your promises about what you will and won't accomplish in the near future are realistic.
Merely insisting on or promising organizational change is unlikely to produce the desired results. When you're altering systems, strategy, or values, resistance is almost inevitable. Getting people to change what they think, what they do, and how they do it is usually a grueling exercise. In addition, someone must be responsible for managing technological change and guaranteeing the resources needed to get the job done.
[Lawrence Susskind is Ford Professor at MIT, founder of the Consensus Building Institute, and co-leader of the Program on Negotiation's technology negotiation executive course.]
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