Keep talking. Why every organization needs a chief negotiator

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Milan Prilepok, Partner in Operations, McKinsey & Company & Spurti Kumar Chivukula, Knowledge Expert in Operations , McKinsey & Company


  • The craft of negotiation in procurement is a powerful tool for the bottom line, but also to make bolder, measurable commitments toward ESG efforts.
  • In some sectors where suppliers can account for up to 80% of carbon emissions, negotiating annual reductions can help meet ESG goals across the value chain.
  • By investing in dedicated negotiation deal teams committed to building skills, organizations can develop and incorporate a form of negotiation DNA into standard procurement practices.

If discussions over everything from pandemic-relief bills to trade agreements and return-to-work plans tell us anything, it’s that the future welfare of businesses and individuals alike will be contingent on the craft of negotiation.

Yet even though artful negotiation is often the key to unlocking value in commercial contracts, CEOs and CFOs tend to stick to M&A agreements or financing deals. But there is substantial added value from broader world class negotiation maturity.

In an environment where change has become the only constant, procurement has been buffeted by disruptive supply-chain forces that are increasing margin pressure. At the same time, organizations are facing increased pressures from customers, consumers and investors to make bolder, measurable commitments toward ESG efforts.

Better, more accurate, and faster procurement decisions have never been more urgent—with the craft of negotiation becoming a powerful tool for generating impact not only for the bottom line, but also for communities and society as a whole.

CEOs and CFOs know it too. In new research from McKinsey & Company, 93% of business leaders of companies with more than $1 billion in revenue reported “great interest” in introducing a new role to improve negotiating results: that of chief negotiation officer. Furthermore, 70% agreed that a “negotiation centre of excellence” would have a broad impact on negotiation outcomes for their suppliers, customers and M&A efforts.

While introducing a new C-suite position or creating a centre of excellence won’t happen overnight, 75% felt a CNO role will materialize within the next three years. There are also steps senior executives can take today for positive business and ESG impact tomorrow through better negotiations.

Know when and where to intervene

With disruptions becoming more frequent and severe, I find that innovative, experienced negotiators—those able to pivot artfully in navigating unpredictability—prove especially valuable, capturing cost savings of 10% or more even in the most difficult circumstances.

In some sectors where tier one, two and three suppliers can account for up to 80% of an organization’s carbon emissions, negotiating annual reductions in carbon emissions and waste with suppliers can help meet ESG goals across the value chain.

Negotiation experts can deliver other sources of value as well, including higher quality and service levels, greater access to innovation, shorter lead times, and more flexibility in contract terms. CEOs and CFOs have the opportunity to shape larger collaboration through negotiations, for example negotiating across their value chain with their suppliers, customers, and JV partners to collectively invest in more robust blockchain technology for enhanced materials or product tracing.

Negotiations deliver results. Image: McKinsey & Company

It should come from the top

Not surprisingly, 96% of the CEOs and CFOs we interviewed suggested that the world-class negotiators in their organizations could raise earnings before interest and taxes by 3% or more, while the majority still believe the potential of at least 5% EBIT improvement. Yet we find that few companies are truly at the top of their game in essential elements of successful negotiations.

Why? In more than 20 years of working with companies across sectors and sizes around the world, the procurement function seldom looks to the C-suite for help, leaving CEOs and CFOs unaware of issues they could help solve.

CEOs indicated they would and could weigh in more to support procurement on negotiations and suggested that procurement could take a more direct approach in requesting targeted support. Indeed, our research and observations confirm that this is the primary reason why the top team is not involved more frequently in procurement negotiations. On the flip side, few of these C-suite offices explicitly make themselves available as a resource.

While it would be unrealistic for a CEO or CFO to spend time with every supplier, a little time can go a long way to build stronger relationships—96% of respondents said that their involvement is seen as high value by their teams. A CEO or CFO who speaks with 15 critical suppliers creates a foundation for future negotiations led by the chief procurement officer and supporting staff—74% indicate that significant value can be created when they reinforce consistent messages and expectations with suppliers.

Deploying these top executives effectively means focusing on only the most urgent issues. Answering just a few questions can help determine which suppliers the CEO or CFO should speak with, and why.

  • Is now the right time to negotiate? Is my company facing shifts in demand, supply, new environmental regulations or finances that make renegotiating right now imperative?
  • If negotiating now, what should I focus on? Which deal terms form the largest source of value, and how bold should my aspirations be?
  • What’s the right balance between short- and long-term goals? Is it possible to balance pricing concerns with deepening a strategic-supplier relationship?

Building world-class negotiation skills throughout procurement

Both to support top executives effectively and sustain impact from the supplier conversations that CEOs and CFOs lead, procurement practitioners will need highly developed negotiation skills and strategies.

That goal is achievable if a company commits to a few measures and conducts a quick review of the historical investment in training budgets, gauging spend for procurement compared to other departments.

Underinvestment is often stark: our research shows that on average, sales professionals receive at least five times as much negotiation training as their procurement counterparts. Furthermore, by investing in dedicated negotiation deal teams committed to building skills, institutions can develop and incorporate a form of negotiation DNA into standard procurement practices—from preparation (such as data collection, analysis and negotiation strategies) to execution of supplier negotiations.

As businesses continue their restart over the next twelve months, their ability to get the most from their supply contracts could determine whether they can seize the potential for new growth and new relationships. By making the appropriate investments, procurement can be an engine to jump-start the entire enterprise for a profitable and more sustainable future.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How global trade can save lives and livelihoods – and help protect the planet

From philanthropy to profit: how clean energy is kickstarting sustainable development in East Africa

Would you want to live to 150? Top quotes on what it means to grow old

Saudi Arabia: UN experts push for prompt release of women human rights defenders

EU ready to relinquish its internal tax havens

The megatrend that will shape our working future

Why people with disabilities are your company’s untapped resource

Time to say goodbye to the plastic straw. But what’s the best alternative?

Can Obama attract Iran close to the US sphere of influence?

How COVID-19 is helping Oman develop a future-ready workforce

Africa-Europe Alliance: EU boosts pan-African Internet connectivity with €30 million

This US city put an algorithm in charge of its school bus routes and saved $5 million

Why the financial scandals multiply?

Heading back to the cinema, theatre or a concert? Here are 3 ways the arts are adapting to COVID-19

Russia – US in Syria: Selling Afrin to Turkey but facing off ruthlessly for Ghouta

‘A trusted voice’ for social justice: Guterres celebrates 100 years of the International Labour Organization

Europe slammed by Turkey’s shaky Erdoğan; both playing with immigrants’ agony

America writes-off Iran, blocks Europe’s Tehran talks

Amazon indigenous groups want to create a nature sanctuary the size of Mexico

4 steps towards wiping out cervical cancer

Stepped-up efforts needed to combat pneumonia; save nearly nine million children’s lives

Built by a woman: supporting the dreams of mum entrepreneurs

Sustainable Development Goals: making the world a better place

European Accessibility Act: Parliament and Council negotiators strike a deal

Inclusion, empowerment and equality, must be ‘at the heart of our efforts’ to ensure sustainable development, says UN chief

Libya: €2 million in humanitarian assistance to cover basic needs

Ditching plastic straws isn’t enough. Here’s how to achieve zero waste.

Commission Work Programme 2019: Delivering on promises and preparing for the future

COVID-19: A coordinated EU health strategy needed, say MEPs

Turkey: Commission continues humanitarian support for refugees

Do we need a new Marshall Plan to rebuild Europe after COVID-19?

European Youth Forum demands immediate action & binding agreement on climate change

FROM THE FIELD: Conversations about Conservation

Monday’s Daily Brief: UN chief talks climate action at G7, WFP official visits camp in Central African Republic, Deadly violence at Lesvos migrant centre, Security Council meets on AU-UN Darfur mission

Alice in Colombia

Will the Greek economy ever come back to growth?

ECB’s €1.14 trillion again unifies Eurozone; Germany approves sovereign debt risks to be pooled

Alcoholic drinks: Commission tables update of rules governing alcohol excise duties

Vaccination campaigns are wars against fake news

“ASEM: Global Partners for Global Challenges”, a Sting Exclusive by China’s Ambassador to the EU

This is what’s happening to the Amazon, according to NASA

3 reasons why data is not the new oil – and why this matters to India

World’s Press Calls on the United Kingdom to Address Press Freedom Concerns

Britain in and out of the EU

State aid: Commission approves €2.9 billion public support by twelve Member States for a second pan-European research and innovation project along the entire battery value chain

Dangerous Trumpism in the Middle East with an anti-European edge

First seat projections for the next European Parliament

European Business Summit 15th year: Controversy and Constructive Ideas

3 cognitive biases perpetuating racism at work – and how to overcome them

President Michel’s MFF proposal not acceptable for Parliament

Why Sweden’s cashless society is no longer a utopia

Brexit: reciprocal visa-free access for EU and UK nationals

China-EU Trade and Economic Relations in Numbers

Britain declares trade war on mainland Europe

How governments can redesign support for entrepreneurs after COVID-19

Ozone on track to heal completely in our lifetime, UN environment agency declares on World Day.

5 milestones in green energy

Mergers: Commission prohibits proposed merger between Tata Steel and ThyssenKrupp

After swallowing effortlessly the right to be forgotten time for Google Ads now to behave

New Zealand can improve well-being through better policymaking and reforms to housing and migration policy

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s