INTRODUCTION TO NEGOTIATION

Transcription

1 INTRODUCTION TO NEGOTIATION 1 Advanced Purchasing Negotiation Training

2 Negotiation Process Though shown chronologically below, negotiations tend to be of an ongoing and cyclical nature. Remember, we are negotiating all of the time Preparation Analysis & Deal Opening Closure Documents & Planning Influencing making 1. Preparation & Planning Background research and fact-finding knowledge is power. Thinking through the situation from the other party s perspective Establishing your objectives, what you would like to achieve, what you should achieve and the minimum you are prepared to agree to. 2. Opening Initial pleasantries Building rapport Generally talking around the issues 3. Analysis & Influencing Questioning and listening Stating your needs and expectations Listening to the other party Taking in information Paraphrasing your understanding of the situation Confirming the key issues to be agreed upon 4. Deal Making Debating the key issues Bargaining Employing negotiation strategies and tactics Being aware of, and countering strategies and tactics used by the other party Trading variables 5. Closure Closing the deal Signing the paperwork Confirming next steps and any follow-up 6. Documents Minutes Records Contracts 2 Advanced Purchasing Negotiation Training

3 Basic Negotiation Skills Meeting management skills 1. Selecting Participants 2. Developing Agendas 3. Organizing Practicalities 4. Opening the Meeting 5. Establishing Ground Rules 6. Time Management in Meetings 7. Evaluating the Meeting Process 8. Evaluating the Overall Meeting 9. Closing the Meeting Listening skills Hearing can often mean little more than the fact that we are aware of noise or that someone else is talking. Listening, however, means that we not only hear but concentrate in order to understand. Questioning skills Open-ended question Closed-ended question Probing question Multiple question Echo question Leading question Reflective question Hypothetical question Basic influencing skills Use of emotion Use of power Use of logic Deal-making skills Bargaining Haggling 3 Advanced Purchasing Negotiation Training

4 TEN TIPS 4 Advanced Purchasing Negotiation Training

5 Ten Tips for Successful Negotiation The ability to negotiate successfully is crucial for survival in today's changing business world. Negotiation is fun if you know what you're doing. So for all you busy execs, here are Ten Tips for Successful Negotiating: 1. Develop negotiation consciousness Successful negotiators are assertive and challenge everything. They know that everything is negotiable. Challenge means not taking things at face value. It means thinking for yourself. You must be able to make up your own mind; as opposed to believing everything you are told. On a practical level, this means you have the right to question the asking price of that new car. It also means you have an obligation to question everything you read in the newspaper or hear on CNN. You cannot negotiate unless you are willing to challenge the validity of the opposing position. Being assertive means asking for what you want and refusing to take no for an answer. Practice expressing your feelings without anxiety or anger. Let people know what you want in a non-threatening way. Practice "I" statements. For example, instead of saying, You shouldn't do that, try substituting, I don't feel comfortable when you do that. Note that there is a difference between being assertive and being aggressive. You are assertive when you take care of your own interests while maintaining respect for the interests of others. When you see to your own interests with a lack of regard for other people's interests, you are aggressive. Being assertive is part of negotiation consciousness. 2. Become a good listener Negotiators are detectives. They ask probing questions and then shut up. The other negotiator will tell you everything you need to know -- all you have to do is to listen. Many conflicts can be resolved easily if we learn how to listen. The catch is that listening is the forgotten art. We are so busy making sure that people hear what we have to say that we forget to listen. You can become an effective listener by allowing the other person to do most of the talking. Follow the 70/30 Rule -- listen 70% of the time, and talk only 30% of the time. Encourage the other negotiator to talk by asking lots of open-ended questions -- questions that can't be answered with a simple yes or no. 3. Be prepared The Boy (and Girl) Scouts were right. Gather as much pertinent information as possible prior to the negotiation. What are their needs? What pressures do they feel? What options do they have? Doing your homework is vital to successful negotiation. 4. Aim high People who aim higher do better. If you expect more, you'll get more. Successful negotiators are optimists. A proven strategy for achieving higher results is opening with an extreme position. Sellers should ask for more than they expect to receive, and buyers should offer less than they are prepared to pay. 5 Advanced Purchasing Negotiation Training

6 5. Be patient This is very difficult for us. We want to get it over with. Whoever is more flexible about time has the advantage. Your patience can be devastating to the other negotiator if they are in a hurry. 6. Focus on satisfaction Help the other negotiator feel satisfied. Satisfaction means that their basic interests have been fulfilled. Don't confuse basic interests with positions: Their position is what they say they want; their basic interest is what they really need to get. 7. Don't make the first move The best way to find out if the other negotiator's aspirations are low is to induce them to open first. They may ask for less than you think. If you open first, you may give away more than is necessary. 8. Don't accept the first offer If you do, the other negotiator will think they could have done better (it was too easy). They will be more satisfied if you reject the first offer -- because when you eventually say yes, they will conclude that they have pushed you to your limit. 9. Don't make unilateral concessions Whenever you give something away, get something in return. Always tie a string: I'll do this if you do that. Otherwise you are inviting the other negotiator to ask you for more. 10. Always be willing to walk away! Never negotiate without options. If you depend too much on the positive outcome of a negotiation, you lose your ability to say no. 6 Advanced Purchasing Negotiation Training

7 NEGOTIATION PREPARATION & PLANNING 7 Advanced Purchasing Negotiation Training

8 Preparation & Planning Introduction Time invested in planning and preparation before the negotiation will substantially improve the outcomes. The old cliché of failing to plan means planning to fail is particularly appropriate to the negotiating context. Failure to plan properly often leads to unclear objectives for the negotiation, the use of inappropriate negotiating styles or tactics and a sense that a better result could have been achieved. Negotiation is a very structured piece of business. Never think that a negotiation is simply a chat about a deal. You ll be very vulnerable if you do that. Spend hours... maybe days...preparing and you ll never be surprised and you ll have an aura of confidence that will surprise the other party. Preparation & Planning come in several stages and distinct areas. 8 Advanced Purchasing Negotiation Training

9 1. Long-term Objective of Product/Category to be Negotiated Before starting the complex task of negotiating, it is necessary to be as clear as possible about what it is you want to do. This is not always as straightforward as it first might appear. Business objectives and goals provide the overall direction to help focus on the rationale and its expected results. In setting a business objective, one need to consider what it is they want to achieve in other words starting at the end point. Objectives help to provide a definition of the end point that can be used to monitor progress and to identify when success has been achieved. Good objectives are those that are clear, measurable and quantifiable. If they are not clear it is difficult to assess whether the objective has been met. Alignment is Key Business Goals Increase volume and market share through pricing/cost reduction Product Goals Reduce cost of goods by 20% Component Goals (Purchasing) Reduce purchase prices by 25% in twelve months Negotiation Objectives Discuss / negotiate cost levers to reduce price paid to supplier The first step of a negotiation preparation is the determine the business objectives and goals. They determine or have determined the product or category strategy. Some of the questions that should be answered in this stage are: Preliminary 1. How does this product relate to our Corporate Plan? 2. What is our policy on this product in relation to: a. single/multiple sourcing? b. source development? c. make or buy? d. alternatives / substitutes? 3. What are the cost implications for our products? Market Considerations 1. What is the nature of the market - monopoly / oligopoly. etc.? 2. What is the current and forecast level of demand and supply? 3. What pricing policies exist within the market? e.g. penetration, preemptive, etc. 4. What effect does any trade association have? What developments are in hand? Social, legal, technical etc. 9 Advanced Purchasing Negotiation Training

10 2. Negotiation Variables A variable or an issue is any assertion about which you and the other party disagree. In contrast, non-issues are assertions about which both parties agree. Differences occur because the two parties have different perspectives and interests in the negotiation. Because issues are the bases for differences between the two parties, you must identify the key issues that effect those positions before you develop your negotiation objectives. Based on the long-term objectives of your company and the product / category strategy, objectives need to be defined (at a later stage). There's a range of key considerations you need to bear in mind when it comes to listing variables of a negotiation. These might include: price value for money delivery payment terms after-sales service and maintenance arrangements quality lifetime costs of a product or service 10 Advanced Purchasing Negotiation Training

11 3. Probable Negotiation Approach of the Other Party You have identified issues and the objectives that will drive the negotiation. Now you need to learn more about the other party s objectives and the road map that the other party s negotiator will likely follow in attaining those objectives. Information on how the other party might approach the negotiation can come from a wide variety of sources. Some of the most important include the following: 1. The documentation and all information submitted (RFP / Proposal) should clearly explain the approach to contract performance and contract pricing. A well supported proposal may indicate that they expect to negotiate a contract close to the proposal. Minimal support may indicate that they not firmly committed to negotiating a contract. Poor support may mean that extensive negotiations will be required to attain a quality contract. 2. Historical or previous documentation (e.g. proposals and contracts) for identical or similar products may give you an idea about how flexible they are during negotiations. Many companies expect to lose a certain percentage of the proposed price during negotiations. To compensate, they may include "padding" in their proposals so that they can negotiate it away and still have an acceptable contract. 3. Predecessors, negotiators, and other employees who have had previous dealings with them can provide more personal information on the company's negotiating style and the approach taken by individual negotiators. 4. Information from exchange sessions may indicate where the other party s position is firm and were they may be more flexible. Key Questions to Consider: What objectives and priorities has the other party probably established for the contract negotiation? How will general business objectives and priorities affect the negotiation? How will the individual objectives and priorities of their negotiator affect negotiations? What negotiation styles and tactics will the negotiator likely use? What pressures and constraints will affect the other party s approach to negotiations? 11 Advanced Purchasing Negotiation Training

12 4. Power Balance Bargaining power has to be perceived by the other party to have an effect on negotiations. In fact, the power does not have to be real as long it is perceived. The following are some of the factors that you should consider as you assess the power (strengths and weaknesses) of each party involved in a particular negotiation: 1. Competition The availability or lack of competition may give one side the upper hand. Sellers enjoy more power when available sources or alternatives are limited Buyers enjoy more power when multiple sources or alternatives are available. Alternatives exist even during sole source negotiations. The buyer may be able to gain power by researching the practicality of other alternatives, such as: o Performing the required effort in-house o Changing requirements to encourage competition o Developing new source(s) by providing start-up funds to other suppliers o Postponing contract award until other sources become available 2. Knowledge The cliché "Knowledge is power" certainly applies to negotiation. The more that you know about the negotiation issues, objectives, priorities, and the parties involved, the greater your power. Thorough preparation is essential. 3. Time constraints Time constraints affect every negotiation (e.g., time available for negotiations, time available for contract completion, date when work must start, or the expiration of funding). Time constraints become a source of power when the constraint appears to affect one party and not the other. Do not be fooled though. A time constraint that appears to affect only one party may actually affect both. 4. Personal skills Some companies have personnel that specialize in negotiation. Their experience and expertise can give them both the perception and the reality of power. 5. Importance of the deal to each party As with other forms of bargaining power, perception is the key. If a negotiator perceives that a contract is more important to the other party, the negotiator may be less willing to make concessions. 6. Contract Risk Every contract involves risks and both parties have an interest in assuring that those risks do not preclude effective and efficient contract performance. However, one negotiator may gain power by taking action to reduce the risk exposure perceived by the other party. That power can be real, even if the negotiator taking the action does not perceive the same level of risk. 12 Advanced Purchasing Negotiation Training

13 5. Negotiation Objectives & Trade-offs If you re going to start negotiating you ll need to know the targets for each of the variables: 1. Rank potential negotiation variables in relative order of importance to your company. 2. After ranking, determine whether each issue is: Non-negotiable issues or "must points." These are the issues where you cannot make concessions because of their importance to your company s position. Issues open to concession or "give points." These are issues that have relatively low importance to your company but may be valuable to the other party. As a result, they are projected for probable concession during negotiation. Hopefully concessions on these issues will win concessions from the other party. Issues to avoid during negotiations or "avoid points." These are issues that you do not want to discuss during contract negotiations. For example, they may be controversial or weak areas in your position. Issues open to bargaining or "bargaining points." These are issues where you may be willing to make meaningful concessions in return for meaningful concessions by the other party. 3. Per variable, consider what you would Like to achieve, what you Intend to achieve and what you Must achieve (=LIM strategy). 4. Try to step into the shoes of the party you are negotiating with, and try to identify what their LIM strategy is. 5. Determine your walk-away alternative (BATNA = Best Alternative to a Negotiated Agreement) Like to achieve What is the most desirable result that you could reasonably expect to achieve on this issue? Define what you hope to achieve in respect of each. You should be thinking quantity at this stage! This is what you would Like to achieve in the very best of circumstances, if everything that possibly could go right did go right. Intend to achieve What result do you feel is most reasonable based on the available information? Recognizing that you are unlikely to achieve every one of these objectives, it follows that some of them will have to be abandoned or scaled back as a result of the negotiation process. This is only realistic. After all, if you assume that all of your objectives are essential and that the supplier will move, and they hold the same assumptions about you and your position, then the two of you are heading for certain deadlock. These objectives represent what you expect to achieve under normal circumstances i.e. those that you Intend to achieve. This is probably a much more realistic list, and you would still be pleased to gain agreement on these terms. 13 Advanced Purchasing Negotiation Training

14 For example, you might expect to gain agreement from your supplier for 75% of the components that you originally wanted (remember you were shooting for the moon, weren t you!). Perhaps these would be supplied at a 17% discount off list price (you were looking for 25%) and with a free maintenance package thrown in for the first year. You may have a considerable amount of flexibility in this area, especially when there are several variables with which you can flex your requirements such as price, quality, quantity, delivery lead time, delivery scheduling, add-on services, maintenance packages, training...etc. Must achieve What is the least desirable result that you would be willing to accept on this issue? So, having identified your 'Like to achieve' and your 'Intend to achieve' objectives, you now need to identify your bottom line. This is the package that is the absolute minimum that you would be prepared to settle for, and only then if you were really under pressure from internal customers or met with a strong resistance from your supplier. What is the very minimum that you are prepared to agree upon? Remember, there will come a point at which the business is simply not good business and it really is worth your while to walk away without a negotiated agreement. So, this is why professional negotiators talk of establishing their LIM strategy before entering into a negotiation. What they would like to achieve, what the very minimum is that they must achieve, and what they realistically think that they will achieve. Negotiation variables Like to achieve Intend to achieve Must achieve us them us them us them BATNA One of the most powerful contingent planning techniques is the use of the BATNA (Best Alternative To No Agreement). BATNA was invented by Fisher and Ury in Getting to Yes and they suggested that if you go into a negotiation with a means of surviving should the negotiation breakdown (No Agreement) then you'll have more confidence and more choices to make. In short...if the negotiation bursts into flames...do you have a fire exit? Having a well-developed and attractive BATNA is a source of great power in any negotiation. 14 Advanced Purchasing Negotiation Training

15 B A T N A Best Alternative To No Agreement Vigorous exploration of the options that might exist outside the current negotiation can tip the balance of power in a negotiation. However, attractive alternatives may not always be immediately obvious. Sometimes it will take time to identify what these alternatives are and more time again to make them attractive. This is almost always time well invested as having a strong alternative improves the ability to negotiate a good deal in the current negotiation. One of the main reasons for entering into a negotiation is to achieve better results than would be possible without negotiating. The stronger the BATNA, the greater the range of alternative courses of action. The stronger the BATNA, the greater the ability to walk away from an unsatisfactory negotiation. Paradoxically, one of the greatest dangers in a negotiation is being too committed to reaching agreement without sufficient consideration of one s BATNA! If you are unaware of your BATNA, you are in danger of entering into an agreement that you would be better off without. Before you begin a negotiation, know what your options are. Can you walk away from the deal? What other choices do you have? What are the pros and cons of each choice? Don't stop here. Also consider the BATNA of the other party. 15 Advanced Purchasing Negotiation Training

16 6. Overall Negotiation Approach Plan the order for addressing variables / issues Carefully plan the order in which variables /issues will be addressed during negotiations. There is no one right approach: One approach is to start with the least important issues and proceed to the more important ones. Concessions on several less important issues may limit or eliminate the need for concessions on a more important issue. Another approach is to address issues according to the anticipated ease of reaching agreement. Early agreements hopefully will create an atmosphere of agreement that will continue as you proceed to the harder issues. Normally, contract negotiations follow a building-block approach: o Basic contract requirements are addressed and resolved before contract price is addressed. o Tradeoffs between contract requirements and contract price are addressed after resolution of other technical issues. o Contract price is not finally resolved until all other issues are settled, because contract price must consider all the other elements of the contract. The result should be a fair and reasonable price for each contract item, not an element-by-element agreement on contract costs. Identify Potential Concessions Flexibility is vital to win/win negotiations. Negotiators expect to gain something as a result of their negotiation efforts. Refusing to make concessions will frustrate the other negotiator and may lead to a lose/lose situation, no matter how reasonable your position. A concession may be accepting a different interpretation of existing facts (e.g., accepting that production hours per unit will not be reduced as fast as you estimated in your previous pricing position) or it may be an action to change the facts (e.g., change the contract type). As you consider possible concessions, you should identify: Potential concessions that you would be willing to make in response to projected concessions from the other party. Concessions that you would expect from them in response to your potential concessions. Plan bargaining tactics Your selection of negotiation tactics should depend on your personality and the results of your research on the tactics that will probably be used by the contractor's negotiator. Avoid the use of win/lose tactics. Negotiators should always pursue a win/win outcome. Do not try to be someone you are not. A tactic that works well for another negotiator may not work for you. However, that does not mean that you should never try something new. The successful application of any negotiation tactic requires a great deal of planning. The negotiator must be prepared to respond in a manner that protects the own organization and makes progress toward agreement. 16 Advanced Purchasing Negotiation Training

17 7. Negotiation & Information Plan Create information plan If we re going to do some checking we need to find out what it is we know and what it is we don t know. A good model for this is the Johari Window. The first window has been around quite some time. In 1955, the window had just been described that year in a paper by Joe Luft and Harry Ingham of the University of California Western Training Laboratory. It's called the Johari Window. It s a great way to formalize your information seeking process. Johari Windows Known to me Unknown to me Known by others Open Hidden Unknown by others Secret Unknown Effective negotiators spend a great deal of time working through their knowledge and listing what they need to Ask because it s a secret at the moment and what they re prepared to Tell because it s currently hidden from the other party. The Unknown box is the box for future opportunity if both parties are able to exploit it. This box could also house the risks of the negotiation that may need to be unearthed before the deal can be finalized. Create a negotiation plan Contents may vary based on agency and contracting activity requirements, but the plan should include information such as the following: Background (e.g., contract, contractor, and negotiation situation); Major and minor negotiation issues and objectives (both price and non-price); Negotiation priorities and positions on key issues (including minimum, objective, and maximum positions on price); and Negotiation approach. 17 Advanced Purchasing Negotiation Training

18 8. Negotiation Team Normally, you should use the smallest team practical to efficiently and effectively formulate and attain the negotiation objectives. For smaller less complex contract actions, the buyer or account manager may be the only person participating in the negotiation. As the value and complexity of the contract action increase, you will likely need additional experts. However, a smaller team is normally better unless the additional member(s) can make an effective contribution. As the team size grows: Team control during negotiations becomes more difficult Team communications become more complex The personnel cost associated with the negotiation increases The table below identifies common roles in negotiations and potential team members to fill those roles. Note that the roles and potential team members are identical to those identified for face-to-face exchanges. However, you should also note that actual team membership on the two teams may be substantially different. Team Role Negotiation Team Selection Potential Team Member Team leader Contracting officer Contract specialist Technical analyst Engineer Technical specialist Project or requirements manager End user Commodity specialist Inventory manager Transportation manager Property manager Logistics manager Pricing analyst Auditor Cost/Price Analyst Business terms analyst Legal Counsel Administrative Contracting Officer Administration Specialist 18 Advanced Purchasing Negotiation Training

19 VARIABLES & CONCESSIONS 19 Advanced Purchasing Negotiation Training

20 Variables & Concessions A simple equation Price + Variables = Cost of Purchase Price + Variables = Value of Sale One of the things that separate the amateurs from the professionals is that the pros know that the real issue is the Cost or Value and not the Price. Don t get fixated on the price...it s the Cost or Value that really matters. You can tune up the left hand side of the equation to suit the purpose as long as the right hand Cost of Purchase or Value of Sale remains the same or improves. Tune up the deal A deal can be described like a graphic equalizer in a music centre. By moving the sliders and exchanging the variables we can tune the deal to create value for both parties. If there aren t any variables in a deal then there s only one to worry about and that s the price. Price negotiations are always difficult and prone to deadlock. If you can add in extra variables you provide flexibility and take the heat out of the issues of price. Finding common ground The 'room to manoeuvre' you have within any negotiation refers to the range of possible settlements open to you. It s important in your preparation that you clearly define your own limits and guess at those of your opponent. With some variables, the room to manoeuvre that you and the other party have will overlap. With some others it may not. However, agreement may still be possible if parties are able to agree on their principle objectives, and they are prepared to abandon other less important ones (secondary objectives) where the lines do not overlap. A range of solutions may be acceptable at or near the centre, the point of balance. The negotiation process is firstly about getting into the bargaining area. Once in the bargaining area it is about finding a settlement or agreement within it. The ultimate agreement will be determined by how skilled you are as a negotiator. The more skilled you are the more the other party will be drawn to settle close to your ideal and closer to their limit. We ve said that negotiation assumes that a point of balance will be found. We start at opposite ends along a number of variables, but must move towards something that we both regard as acceptable. Some variables will be out of balance for us, some for the other party, but overall, there must be a sense of balance for the agreement to be acceptable to all concerned. 20 Advanced Purchasing Negotiation Training

21 Personal Reflection: 1. What variables are you able to negotiate with in the negotiations in which you typically find yourself? List as many as you can. 2. For each of the variables you identified, how much room to manoeuvre do you have; how would you quantify it? Variables Room to manoeuvre 21 Advanced Purchasing Negotiation Training

22 Balancing Variables Beware of assuming that the negotiation is confined to one or two issues like price or quantity. Do not allow yourself to be sucked down avenues such as this too soon in the proceedings; otherwise they can become all consuming and seemingly huge intractable stumbling blocks. Negotiation is made possible because of the magic of variables. There are literally hundreds of variables, and you have already listed some of the more common ones that apply to your negotiation situations. Price Quantity Quality Delivery schedule Discount level Payment terms Extras, Guarantees Post-sales support Contract conditions Terms etc. Make sure you overlook nothing. Each variable has a value; each variable can be flexed and traded in order to reach a negotiated agreement. Some tips: Keep all of the variables in mind all of the time Keep searching for variables and remain flexible Do not wear your plan like a straight jacket Everything is negotiable. Know your opponent Try to uncover their needs / their shopping list Find out what s important to them. The Value of Concessions The seller prefers a higher price, the buyer a lower one. The seller prefers a large order, the customer smaller ones delivered just in time. What is a cost to one can be a net gain or benefit to another. Negotiation demands the trading of concessions, whether these are tangible, intangible (but nevertheless with value attached), major or minor. Remember - everything is potentially negotiable, and all variables have a value to both parties. 22 Advanced Purchasing Negotiation Training

23 NEGOTIATION PRINCIPLES (Harvard methodology) 23 Advanced Purchasing Negotiation Training

24 Distributive vs. Integrative Negotiation All negotiations involve two levels: a rational decision making (substantive) process and a psychological (emotional) process. The outcome of a negotiation is as likely to be a result of both. Most of us understand the need to grasp the substantive or rational aspects of negotiation. For many of us it is the psychological aspects that are more difficult: how comfortable each feels about conflict how each perceives the other assumptions each makes about the other trust how important is it to avoid conflict how much one likes or dislikes the other how important is it to not look foolish how important winning is Two types of negotiation are Distributive (win-lose) and Integrative (win-win) Distributive (also called competitive, zero sum, winlose or claiming value) one side "wins" and one side "loses" there are fixed resources to be divided so that the more one gets, the less the other gets one person's interests oppose the others the dominant concern in this type of bargaining is usually maximizing one's own interests dominant strategies in this mode include manipulation, forcing, and withholding information Integrative (collaborative, win-win or creating value) there is a variable amount of resources to be divided and both sides can "win" dominant concern here is to maximize joint outcomes dominant strategies include cooperation, sharing information, and mutual problem solving. This type is also called "creating value" since the goal here is to have both sides leave the negotiating feeling they had greater value than before It needs to be emphasized that many situations contain elements of both distributive and integrative bargaining. For example, when you buy a car, to some degree your interests oppose to the company you buy the car from (you want a lower price; he does not want to give too much discount) but to some degree you want your interests to coincide (you both want you to satisfy your interests-you want to be happy; the company wants to be happy). The options can be seen in the table below: Keys to Integrative Negotiation 1. Orient yourself towards a win-win approach: your attitude going into negotiation plays a huge role in the outcome 2. Plan and have a concrete strategy...be clear on what is important to you and why it is important 3. Know your BATNA (Best Alternative to No Agreement) 4. Separate people from the problem 5. Focus on interests, not positions; consider the other party's situation: 6. Aim for an outcome based on some objective standard 7. Pay a lot of attention to the flow of negotiation 8. Take the Intangibles into account; communicate carefully 9. Use Active Listening Skills; rephrase, ask questions and then ask some more 24 Advanced Purchasing Negotiation Training

25 1. Orient yourself towards a win-win approach Many studies support the view that how you approach a negotiation will play a key role in how the negotiation proceeds. You have a much better chance of coming to an outcome involving mutual gains if you approach the negotiation wanting to reach this kind of outcome. It is critical to constantly reinforce your interest in the other side's concerns and your determination to find a mutually satisfactory resolution. Even in what appears to be win-lose situations, there are often win-win solutions; look for an integrative solution. This includes trying to create additional alternatives such as low cost concessions that might have high value to the other person; frame options in terms of the other person's interests; look for alternatives that allow your opponent to declare victory 2. Plan and have a concrete strategy Before the negotiation, it is helpful to plan. Know whether you are in a win-win or win-lose situation. Be sure of your goals, positions, and underlying interests. Try to figure out the best resolution you can expect, what is a fair and reasonable deal and what is a minimally acceptable deal. What information do you have and what do you need. What are your competitive advantages and disadvantages? What are the other's advantages and disadvantages? Give some thought to your strategy. It is very important to be clear on what is important to you. Be clear about your real goals and real issues and try to figure out the other person's real goals and issues. Too many negotiations fail because people are so worried about being taken advantage of that they forget their needs. People who lose track of their own goals will break off negotiations even if they have achieved their needs because they become more concerned with whether the other side "won." Equally important is to be clear and communicate why your goals, issues, and objectives are important to you. The other side needs to know why issues are important to you, not just that they are important. It is important to be clear about your walk-away (also called reservation position or BATNA). It is important to know your competitive advantage-your strongest points. Also you need to know the advantages to the other's argument. Similarly, know your weaknesses and the other's weaknesses. In most conflict resolution or negotiation situations you will have a continuing relationship with the other person so it is important to leave the situation with both sides feeling they have "won." It is very important that the other person doesn't feel that he or she "lost." When the other person loses, the results are often lack of commitment to the agreement or even worse, retaliation. The most common failure is the failure of negotiating parties to recognize (or search for) the integrative potential in a negotiating problem; beneath hardened positions are often common or shared interests. 3. Know your BATNA (Best Alternative to No Agreement) Going into any negotiation it is important to be very clear on your BATNA or the course of action you would take if you do not reach an agreement. If you are negotiating over salary, your alternatives might include a specific job elsewhere, a longer job search, or remaining at your current job. This is important because the negotiation needs to aim to match or do better than your BATNA. The BATNA establishes a threshold for the settlement. 25 Advanced Purchasing Negotiation Training

26 Determining your BATNA or walk-away is not always easy. You have to establish a concrete value for various alternatives. For example, what is the value of keeping a current job or taking a new one at $5,000 higher salary that involves a move? In simple negotiations, there may be just one issue but often negotiations involve multiple issues making the determination of BATNA's even more difficult. In the planning process it is also important (and difficult) to estimate the other side's BATNA. A goal of negotiation is to come as close to the other person's BATNA as you can and you need to estimate the BATNA to do this. Skilled negotiators also often try to influence the other person's BATNA. This happens when you convince the other person that his alternatives are not as good as the other perceives them to be. 4. Separate people from the problem It is critical to address problems, not personalities and avoid the tendency to attack your opponent personally; if the other person feels threatened, he defends his self-esteem and makes attacking the real problem more difficult. Try to maintain a rational, goal oriented frame of mind: if your opponent attacks you personally, don't let him hook you into an emotional reaction; let the other blow off steam without taking it personally; try to understand the problem behind the aggression. Make sure you send signals that you know the conflict is about the issues at hand and not personal. This will help to prevent the other side from getting defensive. 26 Advanced Purchasing Negotiation Training

27 5. Focus on interests, not positions A key to success is finding the "integrative" issues--often they can be found in underlying interests. We need to be very clear about our interests and this may not be as easy as it would appear. Equally important is the need to find out the other person's key interests. We are used to identifying our own interests, but a critical element in negotiation is to come to understanding the other person's underlying interests and underlying needs. With probing and exchanging information we can find the commonalities between us and minimize the differences that seem to be evident. Understanding these interests is the key to "integrative bargaining." The biggest source of failure in negotiation is the failure to see the "integrative" element of most negotiation. Too often we think a situation is win-lose when it is actually a win-win situation. This mistaken view causes us to often use the wrong strategy. Consider a situation where your boss rates you lower on a performance appraisal than you think you deserve. We often tend to see this as win-lose-either he/she gives in or I give in. There is probably a much higher chance of a successful negotiation if you can turn this to a win-win negotiation. A key part in finding common interests is the problem identification. It is important to define the problem in a way that is mutually acceptable to both sides. This involves depersonalizing the problem so as not to raise the defensiveness of the other person. Thus the student negotiating a problem with a professor is likely to be more effective by defining the problem as "I need to understand this material better" or "I don't understand this" rather than "You're not teaching the material very well." 6. Aim for an outcome based on an objective standard Try to have the result be based on some objective standard. Make your negotiated decision based on principles and results, not emotions or pressure; try to find objective criteria that both parties can use to evaluate alternatives; don't succumb to emotional pleas, assertiveness, or stubbornness 7. Pay attention to the flow of negotiation Negotiation is a sequence of events, not an incident. There is a tendency to think about conflict or the negotiating situation as an isolated incident. It is probably more useful to think about conflict as a process, or a complex series of events over time involving both external factors and internal social and psychological factors. Conflict episodes typically are affected by preceding and in turn produce results and outcomes that affect the conflict dynamics. A negotiation usually involves a number of steps including the exchange of proposals and counter proposals. In good-faith negotiation, both sides are expected to make offers and concessions. Your goal here is not only to try to solve the problem, but to gain information that will enable you to get a clearer notion of what the true issues might be and how your "opponent" sees reality. Through offers and counter offers there should be a goal of a lot of information exchange that might yield a common definition of the problem. Such an approach suggests the importance of perception-conflict is in the eye of the beholder. Thus, situations which to an outside observer should produce conflict may not if the parties either ignore or choose to ignore the conflict situation. Conversely, people can perceive a conflict situation when in reality there is none. 27 Advanced Purchasing Negotiation Training

28 Next, once aware of the conflict, both parties experience emotional reactions to it and think about it in various ways. These emotions and thoughts are crucial to the course of the developing conflict. For example, a negotiation can be greatly affected if people react in anger perhaps resulting from past conflict. Then based on the thoughts and emotions that arise in the process of conflict resolution, we formulate specific intentions about the strategies we will use in the negotiation. These may be quite general (e.g. plan to use a cooperative approach) or quite specific (e.g. use a specific negotiating tactic). Finally, these intentions are translated into behavior. These behaviors in turn elicit some response from the other person and the process recycles. This approach suggests we pay particular attention to these generalizations: conflict is an ongoing process that occurs against a backdrop of continuing relationships and events such conflict involves the thoughts, perceptions, memories, and emotions of the people involved; these must be considered negotiations are like a chess match; have a strategy; anticipate how the other will respond; how strong is your position, and situation; how important is the issue; how important will it be to stick to a hardened position begin with a positive approach: Try to establish rapport and mutual trust before starting; try for a small concession early pay little attention to initial offers: these are points of departure; they tend to be extreme and idealistic; focus on the other person's interests and your own goals and principles, while you generate other possibilities 8. Take the intangibles into account The intangibles: other elements that affect negotiation. It is important to communicate very carefully. Subtle verbal and body language can make a difference in how your negotiation progresses. Spend more time listening than talking and make direct eye contact. Use the word "and" instead of "but." This helps to send the signal that you are interested in the other party and are seeking common ground. 28 Advanced Purchasing Negotiation Training

29 Intangibles are often the key factors in many negotiations. Some of these intangibles are: Communications: be careful about using the phone, , and other nonvisual communication vehicles. A lack of facial expressions, vocal intonation, and other cues can result in a negotiation breakdown. Constantly reiterate your interest in the other side's concerns and your determination to find a mutually satisfactory resolution Personalities: be conscious of aspects of your personality such of your own needs and interpersonal style as well as the other person's personality; these factors will play a key role and understanding yourself will be an important factor Your own personality and style: how much do you trust the person; how free do you feel with your emotions; how much you want to conceal or reveal Physical space: sometimes the place where the negotiation takes place can be important; are we negotiating in a space we are uncomfortable and the other is comfortable? Past interaction: if there is a history of conflict resolution with this person, think about how this history might affect the upcoming negotiation Time pressure: Think about whether time pressure will affect the negotiation and whether you need to try to change this variable? Subjective utilities: be aware that people place very different values on elements of a negotiation. For example, in negotiating for a job, you may place a high value on location and a relatively low value on salary; it is important to be aware of your subjective utilities and try to ascertain the other person's subjective utilities; it is difficult to know in advance or even during the negotiation what a particular outcome will mean to the other party. Finding out what is "valued" is one of the key parts of negotiation. Good communication skills are critical although it is easy to forget them in the "heat of battle." Try to avoid: focusing on the past, or blaming the other person. Use active listening skills Be an "active listener and test for accuracy: This involves continuously checking to see if you are understanding the other person. Focus on the future; talk about what is to be done; tackle the problem jointly. Constantly ask questions about whether you understand the other side; restate the other's position to make sure you are hearing him or her correctly 29 Advanced Purchasing Negotiation Training

30 From "win-lose" to "win-win" (or what if the other person doesn't play by these rules?) There are many advantages to trying to shift a win/lose situation to a win/win. Yet we will be in situations where the other person either doesn't wish to reach a "win-win" or doesn't realize it is in his or her best interest to achieve a collaborative solution. In these situations it is necessary for us to open lines of communication, and try to increase trust and cooperativeness. Sometimes conflicts escalate, the atmosphere becomes charged with anger, frustration, resentment, mistrust, hostility, and a sense of futility. Communication channels close down or are used to criticize and blame the other. We focus on our next assault. The original issues become blurred and ill-defined and new issues are added as the conflict becomes personalized. Even if one side is willing to make concessions often hostility prevents agreements. In such a conflict, perceived differences become magnified, each side gets locked into their initial positions and each side resorts to lies, threats, distortions, and other attempts to force the other party to comply with demands. It is not easy to shift this situation to a win-win but the following lists some techniques that you might use: reduce tension through humor, let the other "vent," acknowledge the other's views, listen actively, make a small concession as a signal of good faith increase the accuracy of communication; listen hard in the middle of conflict; rephrase the other's comments to make sure you hear them; mirror the other's views control issues: search for ways to slice the large issue into smaller pieces; depersonalize the conflict--separate the issues from the people establish commonalities: since conflict tends to magnify perceived differences and minimize similarities, look for greater common goals (we are in this together); find a common enemy; focus on what you have in common focus less on your position and more on a clear understanding of the other's needs and figure out ways to move toward them make a "yes-able" proposal; refine their demand; reformulate; repackage; sweeten the offer; emphasize the positives find legitimate or objective criteria to evaluate the solution (e.g. the blue book value of a car) 30 Advanced Purchasing Negotiation Training

31 Some Tricks that Skilled Negotiators Use We constantly trade-off in negotiations. An example is when a union negotiation trades wage gains for job security. An important ingredient of negotiation is assessing the trade-offs. In general, we start by identifying the best and worst possible outcomes, and then specify possible increments that trade-offs can reflect, and finally, consider how the increments relate to the key issues. If we pursue "integrative negotiation," we try to create gains for both parties. An example is offering something less valuable to us but more valuable to the other person (e.g., the other person may highly value payment in cash rather than through financing whereas we may be indifferent to this). The following are ways of creating joint gains. Negotiators look for differences. For example, if you buy a car price may be of most importance and timing may be of lesser importance. To the dealer, closing the deal today (the last day of the month) may be more crucial than making a profit on the sale. Negotiators look for items to trade off, items that may be more important to one side than the other and that can be traded for items in reverse preference to the other side. When to reveal your position: This depends on the other person. It is not a good idea to reveal your minimum position if the other person needs to feel he has worked hard to reach it; the other person may need to feel he or she has worked very hard to move you to your position. Other techniques you can use Broadening the pie: Create additional resources so that both sides can obtain their major goals Nonspecific compensation: One side gets what it wants and the other is compensated on another issue Logrolling: each party makes concessions on low-priority issues in exchange for concessions on issues that it values more highly Cost Cutting: one party gets what it wants; the costs to the other are reduced or eliminated Bridging: Neither party gets its initial demands but a new option that satisfies the major interests of both sides are developed. 31 Advanced Purchasing Negotiation Training