Managing power in negotiation Change Behaviour. Change Results. 1
Contents I Managing Power in Negotiation Contents 3 Power is in the head 4 Situation Building power through differentiation 5 Information Managing the flow 6 Skills Face-to-face power 7 Size, status, reputation and charisma Getting your mind right! 7 Summary This document is the copyright work of Huthwaite International and may not be reproduced (in whole or in part, in any form or by any means whatever) without its prior written permission. SPIN, Huthwaite, the Buying Cycle, Living Sales and the Company logo are trademarks and are registered in many countries throughout the world. The copyright notices and trademarks on this document may not be removed or amended without the prior written consent of Huthwaite International. 2
Power is in the head I Managing Power in Negotiation Power is in the head You may think this is simply a cliché that contains a grain of truth, but is of little practical help in improving the outcomes of your negotiations. Next we ll be talking about the power of positive thinking. And we can t blame you for your cynicism, because when the average negotiation trainer or consultant says, Power is in the head, what they really mean is I don t understand power; it s something vague, subjective and mystical, so I can only talk about it in vague, subjective and mystical terms. At Huthwaite we take a more objective view. We begin our approach to managing power in negotiation with the statement, power is in the head, simply because we ve proved it hundreds of times. In training simulations we give a negotiation case study to a team of buyers and a team of sellers. We allow them adequate time to prepare and plan and then, immediately before the face-to-face negotiation, we ask each team for an assessment of the power balance 50/50, 60/40, 70/30 etc. When the negotiation is concluded we again ask the teams, without conferring, to assess the power balance. In virtually every case we find: before the negotiation the power claimed by the two teams totals to more than 100%; one team, for example, will claim 50% and the other 70% clearly a logical impossibility after the negotiation at least one and usually both teams perceptions of the power balance has changed after the negotiation the power claimed by the two teams still does not total to 100%. From this simple, but revealing experiment we can make several important deductions: power is in the head. It is a perception. There is no absolute reality the way negotiators analyse, prepare and plan for a negotiation can affect their perception of the power balance perceptions of power can and do change during the face-to-face negotiation. So if we wish to manage the power balance to our advantage, we have to manage what s going on in the other party s head. The questions we have to answer are: what are effective negotiators doing to maximise their power in preparation for the negotiation? what are successful negotiators doing to affect the power balance at the negotiating table? Preparing for Power There are many factors that may affect the balance of power in a negotiation, but to make discussion manageable we group them under four broad headings: the situation in which the negotiation is taking place, as perceived by both parties, including issues like market conditions, business priorities, competition, and the uniqueness or availability of the sellers product information which can affect the buyers perception of the situation, and which can be either withheld or strongly emphasised, as is tactically appropriate size, status, reputation, charisma of the buying company or individuals on their negotiating team the skills the sellers use and the effect they have on the buying team. 3
Situation I Managing Power in Negotiation Situation Building power through differentiation Many facets of the situation are beyond the control of the sellers they are merely facts. This does not mean, however, that facts are neutral in their impact. Competent sales negotiators will analyse the situation and decide which facts should be reinforced because they support the sellers case and which should be minimised as we will see below when we look at the use of information. The major concern of skilled sellers as they approach the negotiation phase of a sale, however, is to optimise one facet of the situation over which they have considerable control: the perceived differentiation of their offering. Why? Because the largest single determinant of power in a commercial negotiation is each side s fallback position: the best alternative course of action available to them if this negotiation fails completely. That s why buyers are often assumed to have more negotiating power than sellers. It is in the buyers interest to convince themselves and the sellers that the purchase under negotiation is a commodity. That gives the buyers a very strong fallback position, because they can potentially get the same solution to their needs from a number of different suppliers. Price becomes the major issue and the sellers can find themselves in a Dutch Auction, where the lowest bidder wins the business. Stated as a general principle, we could say that the buyers negotiating power is inversely proportionate to the perceived differentiation of the product or service under negotiation. In a complex, competitive sale, differentiation can be defined as the superiority of the fit between the customers Buying Criteria and the sellers offering over the fit between the customers Buying Criteria and competitive offerings. So how, in simple language, do effective sellers optimise their fit and thereby maximise their differentiation and their negotiating power? In research, we ve observed a four-stage process: question the customer team about the ranking of their Buying Criteria after all, if they re prepared to discuss their needs with you, they shouldn t be reticent about telling you which are crucial and which are incidental nice to haves rank your own perceived capability against each of the Buying Criteria, on a scale from strong to weak rank the perceived capability of your strongest competitors against each of the Buying Criteria on the strong-to-weak scale optimise your fit with the Buying Criteria by: - changing the buyers perception of their Criteria rankings - changing the buyers perception of your and your competitors offerings - changing the specification of your offer. Obviously the process is not linear and this description is a gross over-simplification Managing fit with the customers Buying Criteria requires very high-level analysis, tactical planning and persuasion skills. But the issue of maximising differentiation is so vital both in winning strategic sales and negotiating profitable, Win-Win agreements that Huthwaite has created an advanced training course and published an eponymous book on the subject. For more information see the overview and the book: Account Strategy for Major Sales. 4
Information I Managing Power in Negotiation Information Managing the flow Fallback and differentiation may be the single most important factor affecting power perceptions, but there may be literally dozens of other factors, which also play a part in establishing the power balance. A Streak analysis is a simple and effective tool, which helps negotiators organise their tactics for controlling the flow of information to their advantage. Streak analysis is half a SWOT, an analysis of each side s Strengths and Weaknesses in the current negotiation. In practice, the opportunities and threats become obvious once the strengths and weaknesses are identified. We encourage sales negotiators to keep the Streak form handy and enter new factors of strength or weakness that arise as they follow the Huthwaite model for preparing for the negotiation. The first payoff that most negotiators report is an enhanced confidence and a feeling that they have more power than they originally believed. This is because most sales negotiators, although they would deny it, are natural pessimists: they tend to focus on their weaknesses and the buyers strengths. A Streak analysis forces them to explore their own sources of strength and to realise that the buying team may also be coming to the negotiating table with a number of monkeys on their back. A completed Streak analysis is the basis for the effective negotiator s communication strategy. It tells them what information to exploit and what to suppress. Specifically, they must develop a plan to: emphasise our strengths hide or rationalise our weaknesses minimise their strengths expose their weaknesses. One of the key tools in this exercise will be Pull Style persuasion, a question-based technique, which is covered extensively elsewhere in Huthwaite s literature on negotiation skills. Streak analysis example Ours Theirs known Theirs possible Sources of Strength 1 - We re the largest customer - Future over-supply (new Spanish plant) - Delivery by dedicated pipeline 3 - Pipeline delivery - We need them almost as much as they need us 5 - Could Spanish market price rise short-term? (check this) - Has there been a delay opening Spanish plant? Sources of Weakness 2 - We need the deal no-one else can supply the whole volume - We need to keep them in business to preserve at least two suppliers 4 - Future price trend will be downwards due to oversupply - Only alternatives are Spain or sell as fuel in financial difficulties 6 - They may have the brief get the business no matter what - They may have lost an existing customer? 5
Skills I Managing Power in Negotiation Skills Face-to-face power Imagine you re in a tennis tournament and you re drawn to play a match against a total stranger. The first service comes over the net in excess of 100mph, pitches in and hits the back of the court before you can move a muscle. How do you feel? Intimidated, outclassed? Your expectations have certainly changed. Winning the game is no longer an issue; you ll be glad to win a few points to save face. Interactive skills have the same effect in sales negotiation. The effective negotiator wins the respect of the other party, and in doing so reduces their expectations the classic example of power being in the head. And a sales negotiation gives many opportunities to demonstrate a range of skills: skill in creating needs for the seller s product or service skill in managing the customers Buying Criteria to optimise the differentiation of the seller s offering skill in analysing and managing the flow of information skill in persuading the buyer to accept the seller s negotiating position skill in bargaining to create Win-Win, non-zero sum trades. But in addition to this wide range of skill sets, some of which we have discussed in this article and some that are covered elsewhere in Huthwaite literature, our research revealed one more slightly surprising face-to-face tactic being used by effective negotiators. We believe that it is yet another way that top performers build their power and we refer to it as chairing behaviour. What this means, in simple terms, is that the sales negotiator subtly begins to adopt the behaviours normally used by the person chairing a meeting. By doing so they assume the mantle of authority, which is naturally associated with the chairing role and, as a happy by-product, gain greater control over the negotiating agenda. Described in terms of Huthwaite s Behaviour Analysis, the specific chairing skills are: Procedural Proposing making suggestions about the process of the negotiation, like, I think it would be useful if we moved on to discuss delivery terms now Testing Understanding and Summarizing traditional responsibilities of the chairperson, to maintain clarity and ensure that no key issues are fudged Seeking Information to explore agenda items fully, especially those where the buyers may be hiding a weakness Reduced levels of reacting behaviour the chair of a meeting is supposed to be impartial, so skilled negotiators often reduce both supporting and disagreeing behaviour. This deprives the other party of feedback about their offer and frequently has a disorientating effect. 6
Size, status, reputation and charisma I Managing Power in Negotiation Size, status, reputation and charisma Getting your mind right! Huthwaite s view of these issues is that there s not very much you can do about them not if you re negotiating with a very large and commercially strong organisation so it s more productive to concentrate on those areas of preparation, planning and skill that you can control, and try to ensure that you re not unreasonably overawed by the size, reputation, etc of the other party. We give two practical tips to help negotiators get their minds right, one serious, one more tongue-in-cheek (but good for a smile to lift your spirits if you re feeling under pressure). benefit in doing business with you. If the negotiation fails they are deprived of that benefit. So you always have the ultimate sanction of walking away from the deal even though that might hurt you, it is a better outcome than a Pyrrhic victory. If you really feel they re abusing their power, try a period of deadlock to signal to them that you re very close to a walk away. Remember a piece of what the Americans call Cowboy Wisdom If you get to thinkin you re a person of some influence, try orderin somebody else s dog around! Remember They have only as much power as you wish to give them. They are negotiating with you because they see a Summary Power in negotiation is intangible and variable, but it is not mystical. Our mission at Huthwaite is to give our trainees understanding, an analysis and planning process and a toolkit of skills, which will enable them to manage the power balance in their negotiations. The key points to remember are: recognise that power is in the head and it is your job to influence the buyers perceptions and expectations win respect through effective use of your selling and negotiating skills, and keep control of the negotiation with chairing behaviour maximise your differentiation, so that you reduce the buyers fallback position and build your power base before the negotiation make a Streak analysis and use it during the negotiation to control the information flow to your advantage remember that they have only as much power as you wish to give them make tactical use of deadlock and be prepared to walk away rather than do a bad deal. 7
Huthwaite International Headquarters Hoober House, Wentworth, S62 7SA, South Yorkshire, UK Tel: +44 (0)1709 710081 I Fax: +44 (0)1709 710065 Email: info@huthwaite.co.uk I Web: www.huthwaite.co.uk 8