Improve Contract Negotiations with Relationship Management

Posted: 07/10/2019 - 06:24

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In this episode of the Sourcing Industry Landscape, Dawn Tiura interviews Danny Ertel. Danny Ertel is a Founding Partner with Vantage Partners located in Boston, Massachusetts. He joins the podcast to explain how procurement and supply chain teams can do more for the organization by aligning with the businesses that they support instead of acting as the “procurement police” and focusing only on enforcing policies.

Dawn Tiura: Folks, I'm real excited to introduce you to my guest today. It's Danny Ertel, and Danny is one of the founding partners of Vantage Partners, LLC. But on top of that, he's just an amazing educator and relationship builder. I've had the pleasure of working alongside Danny for about 15 years, and seeing him interact with our members has just been a fabulous experience. He's also probably one of the most experienced negotiation training and consulting person you'll ever meet. If you have any needs like that, I recommend you reach out to Danny. But Danny, welcome to the podcast.
Danny Ertel: Thank you, lovely to be here.
Dawn Tiura: I'm so glad to have you here. I've known you for years and you're so humble and approachable. It's hard to believe you went to Harvard undergrad and Harvard for law school. I mean, that's an amazing accomplishment in and of itself.
Danny Ertel: Well, it was a long time ago, and as I tell people, don't hold it against me. I also haven't practiced law in a long time, but a once upon a time I thought that's what I wanted to do and that was the place to go learn how to do it.
Dawn Tiura: That's fantastic. So, you did work for a law firm for a while.
Danny Ertel: I did, I did.
Dawn Tiura: Then, how was that experience and what did that do for the type of consulting you do now?
Danny Ertel: Well, I kind of got introduced to and hooked on the world of negotiation and relationship management while I was in law school. I had the opportunity to work with a and be a TA for and collaborate with Roger Fisher, one of the authors of Getting to Yes; and Roger was just this phenomenal, generous, welcoming guy, terrific mentor and teacher. He actually tried to persuade me to not go and clerk. I was scheduled to go clerk for a federal judge in the DC circuit court of appeals right after law school. I thought, "No, really, I made this commitment. I should go do that." But, he wanted me to come and play in his sandbox and do conflict management work. Then I clerked for Justice Harry Blackmun on the Supreme Court.
Dawn Tiura: Wow.
Danny Ertel: After having done that for a couple of years, I thought, "Well, I've spent all this time getting ready to be a lawyer, so I should go see what that's like." I went to a law firm for a while in DC. After a while at the law firm, I sort of decided that really what I wanted to get back to doing was what I had been doing with Roger and law school. I came back to the Boston area, and I was originally splitting my time, some of it in academia at the Harvard negotiation project and some of it working on the complex international disputes through a nonprofit called Conflict Management Group. So I worked on the Salvadorian peace process and on violence reduction in Columbia and some other things.
Dawn Tiura: Wow, oh my gosh, I didn't know this about you.
Danny Ertel: Yeah, and a piece of what I did back then was also commercial and it's, you know, probably 90% of what I do now, but work with mostly large organizations on some of their most important relationships.
Dawn Tiura: Boy, if you can negotiate those type of international agreements, that says a lot, I mean, just for your capability of understanding people, but you also, you train so well. I mean, every time you have done a workshop, people have come away just blown away. You know, with an ego that goes with an attorney, you don't seem to have that. With an ego that goes with Harvard, you don't have that. How is it that you learned to really understand people so well?
Danny Ertel: Well, my wife also went to Harvard and that helps keep the ego in check. But, you know, the things that we do in the classroom, and training is a about half of our business advantage, and the things that we do in the classroom require us to help people reflect on and then change their own behavior, right? Acquire skills and not just acquire them and put them on the shelf, but acquire them and apply them. We spend a fair amount of time trying to get people to see what makes them more effective, what makes them less effective, and to provide them with some tools techniques for doing a better job.
Danny Ertel: One of the things I learned very early on in my career is that, if you are trying to teach, to train, to help people, for example, focus on interests in a negotiation instead of the positions. Right? So, ‘what are we solving for’ instead of what I'm demanding at the table? Then, you couldn't very well stand in front of them and get positional about how they should negotiate. You had to understand their interests and persuade them to think about a different way of doing things.
Dawn Tiura: Interesting, so your ‘Getting to Yes’ methodology has been used and taught all the time, has ever since I was going to business school, people have been talking about it. Is that something that you actually, you're an author on that book, correct? I thought your name was written right on it. Not just a collaborator.
Danny Ertel: I coauthored a followup book with Roger called Getting Ready to Negotiate, and it's really about how do you prepare for negotiation. One of the other things that I've learned the hard way is that you negotiate like you prepare, and if you prepare by thinking about, what am I going to offer and what's the least I'll take, then that's what you do in the room. If you prepare by thinking hard about, what are we solving for, what are they solving for? What are some different ways to do that? How are we going to explain this deal based on what benchmarks or precedents or milestones? What happens if we don't reach agreement… What kind of a relationship do I need to have with them? What does it take to implement this deal and who are the stakeholders that get involved in the implementation? If you think about those things in your preparation, then that's how you negotiate.
Dawn Tiura: Interesting. But, you also have to work on personalities sometimes, don't you? Is it ever that someone just needs coaching on their personality skills, or maybe their EQ or something like that?
Danny Ertel: Absolutely. We're all human beings. We are hardwired to feel things, and there are things that we do that trigger negative emotions in people and things we do that can trigger positive emotions in people, and being aware of those and having that be part of your repertoire—not pushing those buttons you don't want to be pushing—and building bridges by creating some affiliation with someone by appreciating something that they have done they didn't have to do, by respecting those things that you imagine they are proud of having accomplished. All of that makes us a little bit closer as people and makes it easier to then turn to problem solving, because that's really what negotiation is. Negotiation is joint problem solve.
Dawn Tiura: Except, so many people still think negotiation is about winning.
Danny Ertel: It is, and some people think that by taking a word that they haven't fully defined, like winning, because what does it mean to win in the negotiation, and saying it twice, calling it ‘win-win’ necessarily makes it clearer. I think that one of the biggest mistakes negotiators make is they don't stop and think, what does success look like for me? What am I really trying to accomplish? When you do that, you often recognize that success for you doesn't have to mean lack of success for them. Right?
Dawn Tiura: That's a good point.
Danny Ertel: If you can really bundle a little bit, tease out what you're trying to accomplish and what they're trying to accomplish, there's often room for both of you to get something done and it doesn't mean compromising or splitting the difference; it means actually solving the different problems that the parties bring to the table.
Dawn Tiura: I see. Within Vantage Partners, what year did you start that company?
Danny Ertel: We started Vantage in 1997, but Vantage was really a sort of a spin-off of a prior firm where those of us who started Vantage had been partners together for eight or nine years. You know, as you can imagine, my partners and I, we kind of finish each other's sentences. We've been working together a long time, and sometimes I walk around the halls and I say, "Wow, we have like a hundred people here. How did that happen?"
Dawn Tiura: Well, you've been so successful. Tell me: what kind of contract negotiations do you see today? Are they changing dramatically with the advent of artificial intelligence or augmented intelligence and RPA and all that? Is that becoming a new tool set that you have to be up to date on?
Danny Ertel: Well, so first, just to take a little bit of a step back, a lot of what we do is not purely focused on negotiation. We bring, sort of, the tools of the trade from negotiation and problem solving and conflict management, and we apply it to a bunch of different things. Some of what we do helps organizations align internally. For example, the supply chain team and their internal clients, because procurement and supply chain can do so much more for the organization when they're well aligned with the businesses that they support than when they're just being, you know, the procurement police and trying to enforce policies.
Danny Ertel: But, we also help align organizations with their key external partners, so buyers with key suppliers and sales people with their customers. We also help align an organization's strategy with what it takes to actually execute it. Lots of organizations say, "Oh, we need a more agile supply chain," or "we need to be innovative," but they don't think about sort of what are the skills and cultures it takes to actually do that. We try to help them put those things in place.
Danny Ertel: Now, specifically on your question about sort of, what does automation or AI do, how does it change negotiations, I mean, I think it changes the nature of the things that people negotiate about. If you think a little bit about the supply chain organization of the future and the things that they have to get themselves ready to do, a lot of the rote transactional work is getting automated away. Right? You don't really need...
Dawn Tiura: Yeah.
Danny Ertel: You don't really need smart men and women to do things that macros and robots and automation can do for you. At the high end, AI is taking on the task of detecting some patterns, and we don't need people to do some of those things. Both of those are about things that have happened many times before where there's a lot of supporting data. I think what we need people to do is to innovate; to use human intuition; to solve problems; to influence others; and those things can't be automated.
Danny Ertel: When we work with a supply chain team and try to help them improve their capabilities, we tend to be focusing on some of those skills. How do you develop category strategy that actually meets the needs of your business and that actually will work with what you're trying to get done with different suppliers? When you're trying to put together an SRM program, what do you do to become a preferred customer of some of your most important suppliers? Those things can't be automated. The data that you need to do that can be automated, but the interaction requires people.
Dawn Tiura: The concept of having a supplier see you as a preferred customer is, large companies say of course we are, because we have all the power. How can a smaller company become a preferred customer to a large organization?
Danny Ertel: So, first of all, just being big and having power doesn't make your preferred customer; it makes you a customer you have to tolerate.
Danny Ertel: That doesn't necessarily get you the A team. It doesn't necessarily get you the inside track on innovation. It gets you the best price that fits with your volume levels. I think small companies can become preferred customers, partly going back to what you were saying before. First of all, there's the human side: How do we treat our suppliers? How do we work with them? Do we respect them? Do we put ourselves in their shoes and solve problems together?
Danny Ertel: But second, the first thing I generally advise an organization that's trying to improve their relationship with some key suppliers is, look inside and figure out what are some ways that we can become a little bit less expensive to serve. Right? Every customer causes expense, often unneeded expense on the part of the supplier. If you can figure out how to eliminate some of that unnecessary expense, then you've got a little pot of money that you can work with and you can either say, "Well, the supplier can have it," or, "we're going to pocket it," or, "we're going to split it," or, "we're going to jointly invest it in something." But, it gives you the opportunity to negotiate and problem solve about a surplus rather than about scarcity or a shortage. That always tends to be more effective.
Dawn Tiura: I recently ran into a company in a conversation the other day that had contracts that were written for 10 years out, and they're in a panic right now because obviously that was before everyone was using AI and, you know, automation and different things like that. They don't know how to get out of that contract. What do you tell people that have these really long term contracts about, do you recommend going in and renegotiating an existing contract, or finding an exit clause?
Danny Ertel: I think it depends a little bit on the kind of relationship you've built with the counterparty in those contracts. If you have a very adversarial ‘if it's in the contract it happens and if it not it doesn't’ kind of a relationship, it's a little bit harder to renegotiate. You have to look for the exit clauses and you have to look for what gives you the leverage to bring them to the table. If you've got a more positive relationship, then there's probably some things about that contract that are causing them some pain, and sitting down and trying to work through both of those and finding the way to make to reshape the relationship and the contract so it's better for both of you, is often quite successful.
Dawn Tiura: You do a lot of business transformation. Can you just sort of give me your take on the whole digital transformation? Do you see that as just the latest buzzword? You know, first everyone was going through transformation, now it's a digital transformation. How do you see that in today's era?
Danny Ertel: I think that, in any transformation you got to really figure out and be really clear about the why. So, if why is because it's a fad, then it's likely going to be painful and it's not going to be very productive. We're working on a fun sort of big transformation project for a very large global company right now, and we're doing a little bit of what we were just talking about, which is trying to build a preferred customer relationship with key suppliers. We're connecting that to also trying to help them build a preferred supplier relationship with their key customers.
Danny Ertel: When you put those things together, and by the way, digitization makes it a lot easier to do that and makes the whole value chain flow a lot more smoothly. When you put those things together, then the things that you learn from your customers make you a much better customer of your suppliers, and the things that your suppliers enable you to do because you're a preferred customer of theirs, make you a much better supplier to your customers. Those two things are tremendous engine for sustainable competitive advantage, because it's very hard to replicate that or to break apart those relationships once you've built them. A digital strategy can be a very effective way of trying to implement that. But, if you just say, "Well, we're going to be digital because it's the fashionable thing to do," then standby for spending a lot of money on another fad and regretting it couple of years out.
Dawn Tiura: I agree. So I'd like the way you take it all the way through the organization though, from our supply chain to then our customers that we serve. That means we have to be in touch with our frontline folks, the sales people, the people that sell to our customers and the people that deliver to them. Do you think a procurement organization can reach out and build those kinds of relationships so that we can see end to end? We're a good customer and we're good to our customers.
Danny Ertel: Yeah. What I always recommend for a procurement organization is that you think not only about your internal customer, right, the business that you're serving, but your internal customer's customer. When you understand what the business unit is solving for, you can do a lot more than just get some cost savings out of your suppliers. Right? If you learn that what your internal customer's customer really values is somebody who's first to market with a new idea or somebody who's got more ease of customization on a locality basis or somebody who's more environmentally sensitive, or whatever it is that is important to your internal customer's external customer, then as a procurement person you can talk about those things with your suppliers. You can figure out, how do we meet that interest, that need that our business unit is having in a cost effective way?
Dawn Tiura: I like that. In other words, and if I have a bunch of millennials, let's say, that are buying from my company and they very much believe in climate change or want us to be more sustainable and green, I never thought about the fact that we should be reflecting that immediately in our conversations with all of our business units because supply chain can do so much to help our reputation that way. So, that's interesting, yeah.
Danny Ertel: Absolutely. Supply chain can add top line value, not just reduced cost. But, we can only do that when we understand the business unit strategy and what they're trying to accomplish with their customers.
Dawn Tiura: Danny, you've had a fantastic career, it's not over yet. But, if you were to look back and talk to your younger self, let's say the gentleman who was in law school, what would you have wanted to do differently, or what do you wish you had learned?
Danny Ertel: You know, there are lessons that I sort of keep learning over and over again Dawn, and-
Dawn Tiura: The same one?
Danny Ertel: There's a couple, but I wish I'd started learning them earlier. Maybe not because I would have stopped learning them now, but I would have had more iterations. But, you know, one of the most important things I find in my job is I have to get curious.
Dawn Tiura: Yep.
Danny Ertel: When I am in disagreement with someone, when I am being surprised, when I am frustrated with someone, I need to not sort of have that little voice in my head just dismiss them. I need to wonder, why do they think that? Why are they behaving that way? What do they think it gets them? I find that to really get curious, I also have to get a little humble. I have to question whether I know everything I need to know about this person now because of how I've seen them behave in the last 30 seconds. So, getting a little curious, getting a little humble about, what's my ownership of the truth, I think makes a huge difference in everyday interactions, and it also makes you a better strategic partner for someone.
Dawn Tiura: Oh, and I think curiosity is just absolutely necessary to evolve in the industries that we're in right now. If you're not curious, you're going to get left behind so quickly.
Danny Ertel: Absolutely.
Dawn Tiura: What's next for Danny Ertel? Do you have any books in the offing? Are there any big things that you want to announce? What are we going to see next?
Danny Ertel: I've been reflecting on a handful of engagements over the last, I don't know, 18 months or so with one of my partners, John Hughes, and we're trying to capture some of the lessons learned from those negotiations where it really felt like we were dealing with a much more powerful adversary, and whether we were counseling someone on the buy side or somebody on the sell side, or was it a joint R&D relationship, whatever it is, but where it really felt like we had a big mountain of power imbalance to overcome. Trying to think a little bit about, how do you help somebody think strategically through some of the choices that they can make that can make a difference in that kind of a situation.
Dawn Tiura: That sounds like a book.
Danny Ertel: It might be. It might start as an article, work its way to a book. We'll see.
Dawn Tiura: Well, we would love to publish anything that you write, so please let us know. Danny, I could talk to you all afternoon. I've always enjoyed getting to know you and spending time with you. Folks, this is Danny Ertel. He is one of the founding partners at Vantage Partners, LLC, and he specializes in negotiation, relationship management, and organization transformation consulting. As you can hear from the conversation, he's also a very approachable, wonderful man. Danny, thank you for your time today.
Danny Ertel: Thank you Dawn, I appreciate it.
Dawn Tiura: Thank you.

About The Author

Danny Ertel's picture

Danny Ertel is a founding partner of Vantage Partners. A leading authority on negotiation, relationship management, and conflict management, Danny is the coauthor, with Mark Gordon, of The Point of the Deal, recently published by the Harvard Business School Press. Danny leads the Outsourcing practice area at Vantage and focuses on helping buyers and providers alike improve the way they negotiate and manage complex outsourcing arrangements. In addition, Danny is Chairman of Janeeva, Inc., a software company focused on creating tools for Outsourcing Relationship Management, and he chairs the Governance Chapter of the International Association of Outsourcing Professionals (IAOP).

Prior to founding Vantage Partners, Danny was a Senior Researcher at the Harvard Negotiation Project, taught negotiation at the University of Toronto Law Faculty, practiced law with Debevoise & Plimpton, and served as a law clerk to the Hon. Justice Harry A. Blackmun on the U.S. Supreme Court.

Danny's first book, Beyond Arbitration (1991) (co-authored with Ralph Ferrara) was selected by the CPR Legal Program as the winner of its 1992 Book Award. He is also the co-author, with Roger Fisher, of Getting Ready To Negotiate; (1995), and editor of Negociación 2000 (1996). Danny has written for and has been quoted in the Harvard Business Review, the Sloan Management Review, The Economist, Purchasing Today, and Financial Executive among others.Danny is a graduate of Harvard College and Harvard Law School, where he was Managing Editor of the Harvard Law Review.