May 25, 2010
by Simon Brown
Read article one here.
Read article two here.
According to Paul T Steele in It’s an Even Better Deal, negotiation “is a process in which parties move from their initially divergent positions to a point where agreement may be reached.”
The concept that it is a process is a fact that is lost on many individuals.
Negotiation is in many ways a mini change project. You, on behalf of your organization, are entering a process with a whole range of needs, as are the supplier’s representatives. Change has to happen. If negotiations were called change projects, companies would seek out experts, develop plans and approve budgets—the whole process would likely be highly orchestrated.
So how should you go through the change process of negotiation? I believe you should follow six steps: planning/preparation, opening, testing, moving, closing; and reviewing success.
Phase one: planning/preparation
The planning and preparation process starts with establishing a goal. Objectives should be planned and prioritised: they are the goals you set yourself in order to call the negotiation successful, and they are aligned with the aims of your organization.
As part of the planning, you will need to work out your own position in terms of supply positioning (see Profitable Purchasing Strategies by PT Steele and BHCourt for more on this).
You should also make the best assumptions possible about the supplier’s likely position. This will suggest appropriate strategies and tactics, but will also almost certainly reveal significant gaps in your knowledge. In nearly 20 years of receiving supplier briefings from internal colleagues my experience is that they all had significant challenges related to missing or misunderstood information.
Don’t assume you know it all—make a clear distinction between what you know and what you only think you know. Always check the assumptions contained within any briefing and approach the first meeting with the supplier with an open and questioning mind.
You can’t have too much information, and the more sources you derive it from, the better. A lot of information is freely available online. Annual reports and accounts are of course essential. Credit checks and other reports from agencies can be very useful, as can and talking to existing customers—preferably not just the few offered up as “satisfied clients.” For high-risk, high-value negotiations you may want consult specialized market intelligence and analyst reports.
There are other issues you need to plan in advance as well. Believe it or not, the physical environment in which the negotiation takes place is very important. Negotiators who are cramped, uncomfortable, cold or thirsty are unlikely to give their best; indeed, they are likely to become distracted and unable to truly engage with your message.
Often there are advantages in negotiating on neutral ground—perhaps a local hotel—away from the office or factory and its inevitable distractions.
Sometimes it may be beneficial to hold the meeting at the vendor’s premises; this can keep their more extravagant claims about stock availability or the excellence of the production facilities in check. If your organization is investing in sending you out of the office, you owe it to conduct a thorough and rigorous review while you are there. Develop a checklist to gather information about the supplier’s facilities and capabilities.
Another factor that warrants advance consideration is the question of whether the negotiation is to be carried by a single individual or by a team. A number of influences may be at work here: the size and complexity of a deal may require the presence of functional specialists. Cultural influences may play a role—at Japanese companies, for example, negotiation between teams is the norm and one-on-one negotiating may be regarded as worryingly individualistic. Even if you are proposing to negotiate solo there may be advantages in having a colleague present to take notes and observe.
If you have to work with a team—and sometimes it is unavoidable—it is essential that everybody understands who is in charge, the extent of their own responsibilities and contributions, how their own concerns are being addressed and, crucially, how to support the overall team objectives. If possible, bring the team together before the meeting and brief them on the major points and how the negotiation is likely to proceed.
With all the preparation done, objectives clear, arguments rehearsed and facts at fingertips, the urge to get on to the main part of the negotiation can be almost irresistible.
But you must resist this urge. A well-conducted negotiation goes through a number of distinct phases before any trade-offs are made. Ignore these and the resulting deal is almost bound to be sub-optimal—if it happens at all.
Phase two: opening
The opening is a distinct phase of the negotiation, representing an opportunity that is frequently wasted. Too many executives charged with negotiating regard the preliminary stages of the negotiation as mere formality or window-dressing, but they are wrong. The opening phase—and the testing phase that follows it—condition the whole basis of any negotiation.
Conditioning doesn’t cease with the first handshake. Almost everything you do throughout a negotiation is in part aimed at altering hopes and expectations of the other party—and not necessarily just about the current deal. The end of the current negotiation could be the beginning of the contract renewal process in one, two or five years.
So the opening phase of any negotiation is critical in establishing your criteria, while at the same time starting or continuing the conditioning process. What does this mean in practice?
Once you meet, introductions and chatting give you both a chance to see the other in a relatively relaxed condition. If behaviour changes later, that tells you something.
There is a lot of useful information you can glean in five or ten minutes at the beginning, which may be exploited later: shared interests or common ground, general views on economic and commercial conditions and—especially if the person or the firm is new to you—background information, which may effect the way you move forward.
In the opening phase, you’re also letting them know the extent of your options. You can refer to other quotations, alternative sources or new technologies. You can point out how much you know they’re interested about your inventory reduction plan/vendor cost reduction scheme, or how you know they are as concerned as you are at the weakness in the market or the strength of overseas competition.
And don’t ignore the ritual exchange of business cards.
The status and authority of your opposite number is just one assumption that you will have made, and you may now need to question it. In fact, a large part of your preparation for this meeting is probably based on assumptions. The opening phase of your meeting is where you start to understand which assumptions take you forward and which need to be modified based on the facts.
Similarly, you may feel entitled to assume that the other party has interpreted your request for quotation (or whatever the negotiation m
ay stem from) in the sense in which you wrote it. This may not be so, and you must both test out your assumption and allow the other side to test theirs.
Phase three: testing
At root, testing means questioning assumptions. Asking questions (and, just as crucially, listening to the answers) is far more important than merely eliciting information. Asking questions, actively listening to the response or reaction and summarising at frequent intervals is how you take and retain control of the pace and direction of a negotiation.
There are a number of reasons for this, but the most important concerns the flow of information. Every time you speak in a meeting you are liable to give information away—deliberately and accidentally. Every time you keep quiet and let the other person talk (don’t forget body language), you will receive a wealth of information—much of it unintended.
And if you can’t think of the right question or response, say nothing! Silence is incredibly powerful. There is a human instinct to fill the gap, and so people start talking.
The testing out of assumptions is a necessary preliminary to serious attempts to move the other party’s position. In practice, testing—and the next phase, moving—is an iterative process; you probe some aspect of the deal, move things as far as you can at that time, use an adroit question to shift the focus, probe again, move again, and so on. At every stage it is invaluable to summarise.
Phase four: moving
In the moving phase, you are seeking to move the other party through the judicious use of the five great persuaders detailed in last month’s column (emotion, logic, threat, bargaining and compromise, in that order of preference) through repeated questioning, listening and summarising.
In this phase, the right questions—especially hypothetical ones—can address bargain and compromise. But questions can also be framed to exploit those cost-free persuaders: emotion, logic and threat. Questions starting with “How do you feel about…?” and “Where do you see us going…?” can drum up emotions in the other party and encourage them to give up more information, especially in a relationship-heavy negotiation. Being asked for your opinions is always flattering.
By contrast “Wouldn’t it be a shame if…?” is a useful, warm-but-tough way of veiling a threat.
Whatever combination of persuaders we use, eventually we will reach a position where the deal on the table looks about as good as it’s reasonably going to get.
Phase five: closing
In the closing phase, always shake on an agreed summary and exchange it in writing as soon as possible thereafter. It is also important to ‘write up’ your notes as quickly as possible; it provides legal protection and serves as a tool to learn and improve.
Phase six: review successes
Once the deal is done, review what went right and what went wrong. Were you in control? If so, how did you find yourself discussing volumes when you had been determined to save that for a later meeting? Were you properly prepared? Why had you completely misunderstood the supplier’s view of your business?
In particular, review the negotiation against the aims and objectives you had set beforehand. Were they appropriate? Were they achievable? Did you achieve them?
Ultimately, negotiation is not checklist driven: it needs to be flexible. Beneath these articles lies a solid structure: a rigorous and flexible change planning process.