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When Winning Isn’t Winning
Posted by Rich Crowley in management, Negotiating
Many years ago, I had the opportunity to work with a seasoned executive who had run a tech company and who had orchestrated that company’s sale to a larger tech company, making lots of shareholders of the former very happy. It turned out that I had been one of the initial users of his company’s flagship product many years before. It was a wonderful product and was arguably the crown jewel that ultimately triggered the purchase of his company.
What I found interesting was that all those years later, this exec was quite vocal about his unhappiness of how his company was treated by my former employer, who was the first licensee of his product. He outlined how they were already a successful (yet fledgling) software company when they brought their new product to market. However, my employer, which was a large company, really bargained hard and pounded his much smaller company into licensing terms that were quite a bit less reasonable than he felt was justified.
He acknowledged that his company had needed the sale and didn’t really have much leverage in the negotiation. However, he went to great lengths to explain how he felt it actually negatively affected my employer as well. The negotiations were much longer than if they had just paid a bit more money. It affected future licensing discussions when product renewals were in play and it affected professional services contracts that were likewise negotiated later.
He suggested one of the reasons for the difficult negotiations was that the manager at my employer responsible for the deal, was trying to prove themselves a good negotiator with their boss, with a lesser concern for just getting what was obviously the right software for the job available internally as soon as it was needed. He felt very strongly that this was a business relationship that was best consummated with a long term, win-win focus in mind (both companies were from the same community). He argued that any relationship where one party has power over the other and is willing to use it to its individual advantage is one that was destined for failure.
As I remembered this experience from my professional past, it also triggered a memory from my days in business school. In my first year “Intro to Biz 101” course, there was a section of the course on industrial relations where we had to role play. Teams of 4-5 people were established with pairs of teams assigned to negotiate a new management-labour agreement for a fictitious company.
I remember being on the management side and how our team intentionally tried to “extract” as much as we could from the labour side. When the exercise was over, and results were compared across teams, it was interesting that we did get a very good deal from our labour counterparts compared to other team pairs. However, I also remember the beaten look our labour counterparts had and I remember the discussions that followed about whether we had really been successful as a management team. With a beaten-down labour force, was our company really better off in spite of the obvious short term financial positives it gained from these negotiations? The answer felt like a resounding no.
Be careful when you try to win so big that you only obtain a Pyrrhic Victory.