In last month’s blog, Value Creation in Labor Negotiations, I focused on identifying opportunities to create value. In this blog, I dig deeper, exploring how to find the less obvious, but often significant, sources of value creation. We will also explore how to position opportunities to get both sides engaged in making these new prospects a reality.
In the value creation approach to negotiations, building trust is a vital element. Steven Covey, in his book, The Speed of Trust, shared that trust is made up of the perception of both character and competence. Competence is demonstrated by finding opportunities to create or improve processes that enable the business to provide the customer with something they value. This requires a thorough understanding of the business and the ability to integrate that knowledge to explore and identify opportunities.
Let’s look at one example. In talking with a sales leader, you learn how the markets have recently changed so that a significant amount of incremental business opportunities arise, but with only a very short window to respond. You build on this opportunity by working with business leaders to determine the potential value that might be captured at various reaction times. This speed/value matrix guides you as you consider the cost of various options and their impact on cycle times to deploy additional resources.
You determine the optimal solution lies in a situation where a third party creates a bench they can deploy with a phone call. If you can work through the details of this approach, this solution would allow for business to now be captured that is currently being turned away. Most negotiators have the labor relations savvy to identify and address contractual barriers. Some negotiators have the talent acquisition expertise to devise cycle time reduction schemes. However, few negotiators have demonstrated the business acumen to discover and capture the value from the market change in required responsiveness.
In my experience, several value creation opportunities will present themselves at every negotiation, but you must start preparing early enough and then get very curious about how you can help improve the business. A few things I suggest you to do to prepare:
- Review the strategic and annual operating plans, and follow up with marketing, sales, and business development resources to gain additional perspectives.
- Discover what would make the locations(s) you are negotiating for more attractive to current business, as well as future investment, and how these locations would help increase capital.
- Gain a deep appreciation for the customer’s needs, competitors’ strategies, and how our products bring value.
- Learn about substitute products, new global competitors, or capacity coming on line.
- Understand the growth plans for your products and where they are in their life cycle. For example, what new products are being developed, and what is the biggest obstacle keeping this plant from attaining them?
- Use a blank sheet line of questioning to understand potential true game changers. Often business leaders cannot imagine the union agreeing to a certain change, so they fail to point out a critical opportunity.
When you understand the business at this level of detail, you can identify and articulate how these value creation opportunities can impact the future of the business. Moreover, when you outline the potential for new business by making changes in responsiveness, you build trust through your competence. You are actually creating value versus merely shifting costs.
Finally, when you talk about how this value can be shared between the parties, you are building trust through your character. Greater volumes typically improve margins by absorbing fixed costs, and both of these factors increase job security. When union committee members are able to see how a specific change would be better for them personally, they are much more engaged then when you tell them about how their efforts will increase shareholder return. You also build credibility and trust by sharing all your business learning’s with the local committees.
Most employees, on both sides of the table, have a large interest in protecting the viability of the plant. If they trust in your intent or character, they usually become engaged in trying to find solutions that work for all.
Years ago, I was leading negotiations at a cottage cheese plant. The prior negotiations had ended with a strike, and relations were very strained. The union was quick to dismiss all the company proposals with a curt “no interest.” Undeterred, I opened each day by sharing detailed information on market trends and discussing R&D efforts on new products, as well as the results of several unsuccessful marketing campaigns to gain new, younger customers. We passed around articles about the plants that had closed because of excess capacity in the industry. We created a map showcasing the company’s 12 plants. We shared charts demonstrating capacity utilization trends and labor cost comparisons so they could see they were among the higher cost producers.
Suddenly, the implications about the future became clear. Now, there were questions about the company’s proposals, and not only did the value creation proposals provided by the company become very attractive, but serious consideration was given to many of the proposals struck over three years ago. The value creation approach built trust by demonstrating competence and character. It changed the nature of the conversation and provided a result both sides agreed was far better than they anticipated. The discussion now turned to how much change can we make and still get a ratification vote, and what is a fair way to share the value we created.
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