Understanding what types of deals machines are better at negotiating is key to unlocking value in commercial contracts.
We’re not far from the day when AI will negotiate commercial deals in most large organizations.
Why? Because every large corporation has thousands of neglected vendor deals that are set up to be automatically renewed when they expire, without anyone ensuring they maximize value. Research by KPMG shows that 17%–40% of value in deals is lost due to inefficient contracting. A value increase of even 400 basis points in supplier deals represents at least tens of millions of dollars for a typical Fortune 500 enterprise—and AI can help unlock that value.
The key is knowing which kinds of deals should be negotiated by humans and which by machines.
The Hidden Advantages of Machine Negotiations
Negotiation is at its core an optimization task between two parties. Many deals are actually perfect negotiation tasks for machines, which aren’t affected by human emotions.
The obvious advantages of machine negotiations include:
The Best Kinds of Deals to Negotiate Using AI
Given the above advantages, there are certain types of contracts that machines are much better at negotiating than human teams are. These include:
The Best Kinds of Deals for Humans to Negotiate
Biological intelligence has distinct benefits over the artificial sort and some kinds of deals are still best negotiated by humans. These include strategic negotiations, which benefit from human sensitivity. For example, people can anticipate cultural differences, get a gut feeling about the other party and back-channel information to save a deal that is at risk of going south. Machines cannot negotiate things that are not officially on the table—only people can think outside the box.
The key to any successful negotiation is focusing on strategy. Parties have to know what they want and where it will get them. They need to know, for example, who their contact might influence in the organization to improve future deals and what synergies there may be between a product line offered currently and a future one that a supplier is looking to sell. That kind of strategic thinking is something that machines have not yet mastered.
How to Best Prepare an Organization for AI Negotiations
For a corporation to maximize an early-mover advantage in adopting AI for negotiations, it must be willing to think like a startup and foster innovation. Companies that can appoint a big-picture thinker who can also execute well to lead innovation and then assign teams to specific projects—while giving them the freedom to experiment—will be ahead of the game.
Enterprises should also be mindful of the structure and quality of their data. “The world’s most valuable resource is no longer oil, but data,” as The Economist put it a few years ago. Ensuring that data is not siloed in specific systems or parts of an organization and investing in the business intelligence tools needed to compete are critical.
Finally, corporations should find the neglected value in their organizations. That may lie in a long tail of thousands of unmanaged suppliers or contracts that are renegotiated too infrequently, perhaps only once every several years. Business events such as changing commodity prices or fluctuating consumer demand might also hold hidden value that companies can tap through AI.
Understanding what types of deals machines are better at negotiating is key to unlocking additional value from existing contracts. This value is already there, just waiting to be revealed and leveraged once AI systems are deployed.
I’m the CEO and cofounder of Pactum, an AI system that unlocks value for enterprises by automating commercial contract negotiations. Previously, I served as Product