AI startup: We've removed humans from business negotiations
It's not every day that a startup of eight people, founded just a few months earlier, announces that it's working with the one of the world's biggest companies.
But that is exactly what happened in late March this year when Estonian startup Pactum, which provides an AI-based commercial negotiation tool, was engaged by Walmart to automate negotiations with part of its global supplier network.
Artificial Intelligence
The co-founder of the company is the former founding managing director of Estonia's e-residency program, Kaspar Korjus.
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He tells ZDNet that machines will move from a supporting role to the driving seat in business worldwide sooner rather than later, and Pactum wants to be a frontrunner in that shift.
"Our vision is that in the future people can focus on strategic work while machines do the implementation," he says.
"We see that on Mondays, when you come to work, you open the dashboard and see that 1,000 new negotiations were initiated during the week, 600 new deals were closed and signed, and ERP systems are already updated. You go on with the next strategic steps and let the machine turn your ideas into a sustainable business."
Pactum's AI-based negotiation tool starts the process by interviewing the customer, recording all the required information surrounding the negotiation, and determining the value for each possible tradeoff in the contract for the customer. Pactum's team then builds the negotiation flows. When conducting the chat-based negotiation, the system gets to know the partner or supplier.
"Besides the best-practice negotiation strategies, the system uses what it learned and all the available information to strike a win-win deal," explains Korjus, adding that although the system can operate in a fully autonomous mode, it can also be configured to loop in a human, depending on the customer's needs.
By improving the way that suppliers are managed without human involvement, companies should see financial benefits, he argues: "Fortune Global 2000 companies have immense long tails of suppliers that go unmanaged because there are so many of them."
The idea for an AI-based business negotiation tool was conceived by Pactum's second co-founder, Martin Rand.
In 2016 Rand sold his farm-management startup Vitalfields to Monsanto and started to work as the commercial lead in Europe for Monsanto's subsidiary, Climate Corporation. His work included countless negotiations with international partners, but cultural differences in cognitive biases did not make it easy.
He came up with an idea to create a global network of people to practice multicultural negotiation. After discussing it with Kaspar Korjus and his brother Kristjan Korjus, this idea evolved into a system that negotiates deals fully autonomously and thus Pactum was born.
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In the current economic situation, it seems likely that global supply chains will go through a lot of changes in the near future, and Korjus views that as an opportunity.
"According to an article in The Economist, a humble cup of coffee requires 29 firms to collaborate across 18 countries. So imagine what it takes to assemble a car or an iPhone," he says.
"Supply chains are immensely complex and making changes requires a lot of negotiations. We see more of that being required in the upcoming months."
The first major coup for Pactum was getting Walmart on board. The whole process started with a lucky pitch and about six months later the partnership was announced.
"It all started when an Estonian company named Cleveron organized a meeting of Walmart executives in Estonia. We went along and pitched the idea. It clicked with them and we took it further," says Korjus, who declined to disclose any additional information about the partnership.
"All our large customers like Walmart have big suppliers for long tails. We helped to make those deals more efficient for both sides."
As the company is still small, one of the main challenges for Pactum has been convincing big companies to trust them with the confidential information that's needed for the automated negotiations to work.
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Korjus argues that the company has been very aware of the need to be super-diligent with information from the very beginning. So it's built up its whole infrastructure with that in mind from day one.
"This results in a more auditable and neater solution than many older and larger companies have," he says.
"We're using all the best practices and know-how gained by our team, who have worked for Skype, TransferWise, the Estonian government, IBM, Monsanto, and many other companies that have very strict security standards."
Although Pactum has an office in Tallinn, Estonia, and clients across Europe, its headquarters is in Mountain View, California, because the company see the US as its biggest market.
In Korjus' opinion, the potential for growth is high, especially because they don't yet have any direct competitors.
"So far we haven't recognized another company conducting commercial negotiations with AI," he argues.