Lack of trust in energy industry hurts negotiations: Global study

Source: press release, 18 February 2020

illustration: Scotwork
illustration: Scotwork

Swathes of executives in the energy sector have their hands tied by senior management while striking deals worth millions of pounds, according to the world’s most comprehensive study into business negotiations.

The Scotwork International Negotiation Skills Survey explores the tactics employed by over 5,000 executives in some of the world’s largest organisations across 31 countries and 51 industries. Those that took part control billions of pounds in corporate buying power, with over one in three routinely striking deals worth over £1 million.

With annual investment in the global energy sector topping USD 1.8 trillion, the Scotwork study lifts the lid on how energy businesses across the world approach negotiating. It reveals four major findings:

  • Energy negotiators are not trusted to strike deals autonomously: over 80% of energy industry executives in negotiating positions reach a point where they have to seek permission to continue or have to refer changes of strategy to a superior. Some 38% never or only occasionally feel supported by a trading mindset – this is 12 percentage points higher than the global business average. Consequently some 29% never or only occasionally feel empowered to strike deals.
  • Energy negotiators focus on long term value: one in three negotiators in energy always strengthen relationships and create long term value for their businesses when negotiating – substantially higher than the global average of 21%.
  • Poor preparation could still result in bad trades, with 26% of executives in energy never or only occasionally having a fallback plan if things go wrong. 64% frequently or occasionally have no time to prepare before they begin.
  • The average negotiator is a poor negotiator: 48% of energy executives in negotiating positions do not always know what the best outcome of a negotiation would be; they act selfishly and don’t trade when they should.

Richard Savage, director of Scotwork UK, says, “One of the most important components of a successful negotiation is flexibility, whether that is to shift strategy or to compromise in order to secure benefits for your company. Our study suggests many in the energy sector are negotiating with one hand tied behind their back, with autonomy and trust frequently lacking. Whether it is lost revenue, missed opportunities or damaged relationships, getting negotiating wrong hurts a business like little else.”

“The most common mistake is to pursue as much of what you can – typically money – in exchange for nothing. If companies fail to see the value of exchange, of trade, they are missing out in ways that far exceed pounds and pence,” Savage continues.

The Scotwork report also reveals the lengths all negotiators will go to in order to influence the power balance during negotiations. These include:

  • Lying: 46% of buyers have been lied to during negotiations.
  • Threats: 37% of sellers say buyers have delivered veiled threats.
  • Misdirection: over half make false claims, set false deadlines or refuse information.
  • U-Turns: 60% of sellers have reneged on an agreement to suit their cause.

Richard Savage adds, “Commercial negotiations are not for the faint-hearted and our study demonstrates just how prevalent cut-throat tactics are. The fact you might encounter challenging approaches makes it all the more important to have clarity on what value you wish to secure from the negotiations in advance. It is therefore all the more concerning how few businesses have this clarity before they sit at the negotiating table.”

Note: The Scotwork International Negotiation Skills Survey had two components. Firstly, a general survey of 4,693 recipients, who completed a 75-question study into the methods employed during a negotiation. Secondly, these responses have then been cross-referenced with 704 additional responses from buyers and sellers, which explore the motivations and outputs from the negotiating process. The study is continually updating each month with responses collected so far between July 2017 and August 2019. Data was gathered over a 2-year period in a variety of different businesses and industries spread across 31 countries and 51 different sectors and industries.