The December edition of the Harvard Business Review carries an interesting item on research estimating the cost of a range of “people problems”. This included the cost of difficult negotiations.
Researchers surveyed senior executives at a range of US and International firms. These executives estimated the daily costs to their firms associated with various people related challenges. Out of a list of 20 potential problem issues, poor negotiation with clients or customers ranked second. The estimated cost impact was just over $8,000 per day, i.e close to $3 million a year.
The only problem area that ranked higher (but not by much) was bad hires. Issues such as unproductive meetings or uninspiring leadership (which I take to be a polite way of referring to ineffective or poor leadership) ranked close but behind negotiation related issues.
The source of this research is an interesting book called: Stop spending, start managing: Strategies to transform wasteful habits, by Tanya Menon and Leigh Thompson.
The basis of this research is limited, involving just 83 senior executives, mostly in the US and Asia. It does however provide an interesting perspective on the economic damage of poor negotiation competencies. As only about a quarter of those responding were from services related firms, it is safe to estimate that the cost of poor client negotiations for professional service firms is significantly higher.
Unlike most of the other issues raised, improving negotiation capabilities will have a direct, tangible, positive impact on the profitability of firms. Better client negotiations will also improve client or customer relationships for reasons mentioned in earlier blogs (click here for details).
The curious question that the research poses is: why are so few firms within the PSF sector (and elsewhere) still reluctant or unable to invest effectively in improving critical competencies that generate tangible financial and non-financial benefits?
