It has been reported that the NHS may have been overpaying by up to £1 billion pounds for medicine ranging from basic vitamins through to cancer treatment drugs. With the public sector facing continuous and growing demands to make cost savings and to ‘do more with less’ this figure will be incredibly alarming to the Department of Health and tax payers alike.
There will be a number of reasons why NHS might not be getting the best possible deal from its negotiations. At the lower end of the spectrum, for example basic vitamins and aspirin, it may well be that the procurement function of the NHS is simply not pushing for the best possible deal due to a lack of awareness that pennies left on the table quickly add up into pounds (and potentially millions of them). At the other end of the spectrum it is difficult to negotiate a good deal when you are up against the sole supplier of a generic drug that is essential in the treatment of cancer. These sole suppliers have been placing increasingly high and increasingly frequent price increases on these drugs, leveraging the balance of power that comes with being the NHS’s only option.
Whilst recognising that there will be some market complexities we do not know about (or in some circumstances can do little to influence without changes to legislation) there are still areas the NHS, or indeed any business or organisation, can implement to achieve greater savings or increase profitability in their negotiations. The following three principles can make a huge difference to the effectiveness of your people when negotiating (and in our experience are not always adopted or properly understood by those negotiating both in the public and private sectors):
‘Opening ambitiously’ - On the buying side, this involves offering less than the budget you have and on the selling side asking initially for more than you would ultimately accept. Why go through this process at all? Well, by opening ambitiously it enables the negotiator to have ‘wriggle room’, this does a few important things:
o By moving from your opening position, you are indicating a willingness to engage in the negotiation and send the message that you are serious and are there to agree a deal
o Moving also provide the other party with satisfaction as they feel they are getting something from you, especially if you make any movement reluctant and hard to obtain.
o It allows you to effectively explore just what the other side could agree to (as we can often misjudge this)
DON’T FORGET: Ensure that you open ambitiously but credibly. If you open too ambitiously you may well lack credibility and the other side may become annoyed, frustrated and difficult to engage with. Getting the balance right will require you to do your research and know your market or product.
Set a ‘breakpoint’ – This is your worst-case scenario. On the buying side, it is the most you are prepared to pay, on the selling side, it is the least you are prepared to accept. Don’t lose sight of the fact that whilst you are prepared to settle on your breakpoint you would rather secure a better outcome. It is not your target to aim for…it’s the worst-case scenario that you know you should not break. It is for this reason best viewed as a safety net. The best outcomes will actually be secured by identifying what the other party’s breakpoint may be and then trying to get as close to that as possible. Once you have set your breakpoint and considered what theirs may be, you then have the parameters in which you can negotiate.
DON’T FORGET: Even the brightest, smartest minds can lose focus when the pressure is on during a negotiation. Make sure you have identified your breakpoints for every variable in the negotiation prior to it commencing. That way if you become stressed or nervous you will have a clear route map of how far you can go on every point.
Understand the Balance of Power - Expert negotiators know it is essential to do a full analysis of the balance of power before every negotiation. Factors that can affect the balance of power include:
o Level of dependency between parties
o Market trends
o Number of businesses you could buy from/sell to
o Power of your/their brand
o Competitor activity
Recognising how much power you have in the negotiation will help you understand the negotiation options open to you. If you can source a like for like product elsewhere for a similar price, you have a great deal of negotiating power. If you are purchasing from a sole supplier you are going to have to think very carefully about the variables you can trade and how and when you are going to trade them.
DON’T FORGET: Many of us suffer from a phenomenon called ‘power bias’. This means we will often focus heavily on our own weaknesses and underestimate those of the other side. By mapping out all of the issues in the negotiation that could impact the balance of power, and also by seeking the opinion of someone less invested in the outcome, you can start to get a clearer picture of what the balance of power actually is and how you might shift it.
The NHS is certainly not alone in not struggling at times to secure the best deal possible in its negotiations. However, the sheer number and volume of negotiations it undertakes on a weekly basis mean there are huge savings to be made… and huge consequences if they cannot get it right.
The advantageSPRING team have experience of supporting various sections of the public sector in improving their internal negotiation capability. To find out more e-mail firstname.lastname@example.org.