Negotiation Case Studies, Negotiation Strategies, Negotiation Research, Business Negotiation August 24, 2010

Does the economy impact negotiations?

According to the latest Pew Research numbers, more than half (54%) of Americans believe that the United States is still in recession. (You can read more about the survey here: http://pewresearch.org/databank/dailynumber/?NumberID=1054 ).

The latest move by the Federal Reserve and the high unemployment numbers seem to back up this viewpoint.

Does the sluggish economy affect business negotiations? Some argue that it does. In a 2008 Harvard Business Review article “Negotiation Strategies for a Downturn,” Danny Ertel and Mark Gordon say that the downturn can affect both the quality and the quantity of deals. They write:

“During a downturn, things change. As the frenzied pace of a frothy market slows, there are fewer opportunities, and every deal matters. This tends to make sales and business development negotiators more desperate and anxious to close deals and hit their numbers. Those on the other side know this and take advantage of their new leverage. Negotiations become more difficult, and pressure on the deal makers to deliver increases. In a downturn, there will be fewer deals, so each must be done more carefully to ensure it actually delivers value.”

The authors caution that in a bad economy, negotiators can fall into bad deals, because parties cannot honor their commitments or over promise in desperation to get the deal done.

(Read the article here: http://www.businessweek.com/managing/content/apr2008/ca20080422_046639.htm )

Certainly the tough economy means negotiators are working harder to reach good deals. The era of excess is over for now. New deals probably don’t have a lot of added bonuses, but concentrate on the bottom line, and on value.

Dr. Chester L. Karrass advises that worth analysis is more important than cost analysis. In determining the value of something, you can assess the risk you are willing to take to get there. Value becomes more important when dollars are tight.

Have you found that the current economy has changed the way you negotiate? Please share your thoughts in the comments.