How to Turn Paper Agreements Into Durable Relationships
At last, the deal is done. After 18 months of negotiation, eight trips across the country, and countless meetings, you’ve finally signed a contract creating a joint venture with a Silicon Valley firm to manufacture imaging devices using your technology and their engineering.
The contract is clear and precise. It covers all the contingencies and has strong enforcement mechanisms. You’ve given your company a solid foundation for a profitable new business. As you file the contract, a question dawns on you: Now what?
It will take more than a well-written contract to produce those devices on time, under budget, and up to specifications. To do that, your two companies will need to develop an effective working relationship.
“Once the contract is signed, we put it in a drawer. After that, what matters most is the relationship, and we’re negotiating it all the time.”
Whether you’re manufacturing audio components in China; providing data-processing services in Chicago; or constructing a cement plant in Cheyenne, Wyoming, the quality of your relationship with a contractual partner is often the difference between a successful deal and one that falls apart.
In this article, the Program on Negotiation will show your how to turn that contract you just signed into a relationship that works.
Relationship Building Blocks
Here are some essentials for a good working relationship:
• Two-Way Communication
Too often, negotiators assume that communication will occur naturally once they begin working together.
But the development of effective communication is anything but natural.
• A good working relationship between deal partners requires that information flow easily in both directions. At the time executives negotiate a deal, they should address the modes of communication they’ll use after the contract is signed.
Parties to a long-term transaction can communicate in person or on the phone, or through faxes, video teleconferences, email, and so on. While each mode may be an effective means of passing on desired information, some are more conducive to building and managing business relationships.
Face-to-face meetings are usually the most powerful tool, allowing parties to convey information and learn more about each other. Visits may lead to brainstorming about new projects and business ideas. They also demonstrate the visitor’s dedication to the relationship.
A good working relationship is one in which the two sides are committed to each other and to their partnership.
Commitment requires more than just signatures and handshakes, however.
Your partner will judge whether your commitment is genuine based on your behavior over the course of the relationship.
• To test the other side’s degree of commitment, try structuring your transactions to require increasing levels of effort, capital, and cooperation.
For example, your deal to manufacture imaging devices might stipulate that the other side will increase its capital in the venture once the first batch of devices succeeds in the market.
An important basis for trust, reliability has two dimensions.
• First, a business partner’s conduct should honor promises and commitments made to the other side.
A business partner who submits reports two months later, fails to show up for meetings on time, and responds slowly to emails will soon be viewed as unreliable.
That judgment will inevitably become an obstacle to developing a good working relationship and eventually may lead to the abandonment of the deal. On the other hand, if your Silicon Valley partner judges you to be reliable, it will quite naturally turn to you to develop other business concepts.
Creating respect in a relationship begins with the principle of equality between parties – the sense that each side recognizes that the other brings something valuable to their common enterprise and that both sides deserve to be heard.
Like communication, respect is a two-way street.
Too often, the partner with more advanced technology in a joint-venture will attempt to dominate the relationship by lauding its superior knowledge and belittling the other side’s ability and experience.
Show genuine interest in your contractual partner’s viewpoint. You may think you know more about the deal, but your partner could surprise you by improving it with valuable information and insights.
With these building blocks in mind, now consider some concrete guidelines for fostering a strong relationship between negotiating partners, which is drawn from The Global Negotiator: Making, Managing, and Mending Deals Around the World in the 21st Century by Program on Negotiation faculty member Jeswald Salacuse.
1. Start forming a relationship before you sign the contract.
While negotiators must necessarily be concerned about a deal’s contractual provisions, they should also lay a solid foundation for a business relationship from the very start of talks.
• Unfortunately, many dealmakers do not. In one survey, American executives were asked whether their primary negotiation goal was to reach a contract or start a relationship. Fifty-four percent were focused on hammering out a contract. Their chances for a successful deal would be far better if they thought of themselves as relationship negotiators, not just contract makers.
• Before sitting down at the bargaining table, you might also consider hiring a consultant to develop and guide a program of relationship-building activities that could include joint workshops, get-acquainted sessions, and retreats for executives from both sides.
2. Select the Right People to Manage the Relationship
Launching a business relationship requires diplomacy as well as technical expertise.
To lay a solid foundation for the relationship, each side should select people with appropriate interpersonal skills, knowledge, and sensitivity.
Indeed, these qualities may be more important in the long run than the technical knowledge of engineering, marketing, or finance. Just as diplomats must be vetted by the receiving state, parties to alliances might agree that executives appointed to manage the relationship should receive the approval of the other side.
3. Closely Involve Negotiators in Implementation
Too often, companies signing a long-term contract assume that a solid working relationship will develop automatically.
For example, General Motors negotiated a series of joint venture that ran into trouble once GM and its international partners began working together.
• Why? Because the teams that negotiated the deal were not involved in implementing it. After GM negotiators formed a joint venture, they’d move on to the next deal, leaving other executives with the task of figuring out how to make it work. Within the company, this became known as throwing it over the wall – that is, negotiating a deal and leaving it to others to make it work.
During negotiations, both sides gain an enormous amount of information about each other and the deal. In the process, they may very well form a positive relationship.
To mobilize these valuable assets, the negotiators themselves should play a role in implementing the transaction, at least in the beginning.
4. Work to Keep Leaders Involved and Interested in the Relationship
Many deals are formed with the active involvement of the companies’ leaders, whose personal relationship becomes a foundation for the relationship between the two organizations.
After the contract is signed, it’s important to find ways to maintain management’s visible interest.
Try scheduling periodic meetings for leaders to review together the evolution of the relationship between their companies.
• For example, your deal to produce imaging devices might call for semiannual meetings between the heads of your two firms, alternating between San Jose and Boston.
5. Educate Company Personnel About the Deal
Don’t assume that others in your firm will become as enthusiastic and knowledgeable about the deal as the negotiators are. Indeed, others may view involvement with another company – whose culture and business practices they may not understand – as a burden, or even a threat.
Inevitably, those implementing any deal will encounter difficulties, such as delivery delays, failed technologies, and miscommunication. Both sides will be better able to overcome these problems if their employees know and trust one another than if they view the other side with suspicion and hostility.
To overcome resistance within their organizations, deal advocates should plan educational efforts that bring employees from the two firms together, such as meetings, retreats, seminars, site visits, and jointly produced memorandums, and newsletters. Remember: organizational relationships begin with personal relationships.
6. Meticulously Plan and Oversee Initial Joint Activities.
Just as opening moves in a negotiation can either facilitate or hinders the steps that follow, initial joint activities between contractual partners can either ease or obstruct the creation of a productive working relationship.
Consequently, the two sides should carefully define and supervise the first moves in their relationship. Don’t assume that everything will flow smoothly from the contract terms. It may be better to start small, with actions that are sure to succeed, before moving on to more ambitious projects.
Before beginning full-scale production of the imaging devices, for example, you would certainly want to make and test a prototype.
7. Agree on a Schedule of Meetings to Review the Progress
Although a business relationship is organic and evolves over time, this doesn’t mean that the two sides should not consciously shape it.
To guide the evolution of a sound relationship, both companies should adhere rigorously to a regular schedule of meetings, rather than just meeting from time to time or when the need arises.
When you download the New Conflict Management: Effective Conflict Resolution Strategies to Avoid Litigation you will learn how wise negotiators extract unexpected value using an indirect approach to conflict management.