Thursday, April 4, 2013

Profit Envy

In my experience in contract negotiations, price and cost drive the foreground discussion while the background hidden issues (of value and quality) become the detective work of the team.  Both sides are attempting to optimize their economics - create the greatest profit for their side.  Consequently any change in  agreed price will either increase my profits or decrease your profits.  This is why negotiators attempt to find other issues that will add value to your profits.  This means finding attributes that don't "cost me anything (relatively)" that you need  (will add value)  and "will lower your cost or risk". 

What I have found is there are some people in business that have "profit envy".  Regardless of the value they are receiving (and the profits they are accruing), they become more concerned about the profit you are making (and are obsessed with knowing your cost).  This attitude is either driven by their greed to increase their profits, or an obsession with controlling your business (all in the disguise of "let's be fair and share in the benefits").

Yet this same person will not reveal his costs (and therefore his profits).  Consequently his "profit envy" becomes "profit greed" and reverses into your "profit envy" about him.   This vicious circle of wasted discussion extends negotiations endlessly. 

When negotiations focus on "profit envy" they are doomed to failure.  A refocus to value delivered will always save the day.

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