Negotiation tools & methodology

Introduction to negotiationtools, methodology and tacticsStockholm2011-04-05

Negotiation IntroductionThe negotiation is a dialogue with the intention to come to amutually agreed solution  A dialogue between two or more parties, with the intent of coming to a mutually agreed solution, because each party has something the other wants  A communication process between two or more people in which they consider alternatives to arrive at mutually agreeable solutions or mutually satisfactory objectives © 2011 Gravity Sourcing AB 2

Negotiation IntroductionDo not confuse Negotiation with Bargaining  Do not confuse Negotiation (focused on VALUE) with Bargaining (focused on PRICE)  The success of the negotiation depends on its preparation  A golden rule: play the winner/winner game BARGAINING NEGOTIATING  Focus on PRICE  Consider the total of all CLAUSES  Act with FORCE  Act as a PARTNER  CONVINCE through strengths of personality  Base arguments on FACTS  Not having PREPARED your documents  Base arguments on prepared ANALYSIS  Think SHORT TERM  Think MID OR LONG TERM © 2011 Gravity Sourcing AB 3

Negotiation IntroductionDepending on the scale of the deal, some preparation may beappropriate for conducting a successful negotiation 1. Collect information; the more information you have, the better you will be able to negotiate (information to generate alternatives, strategies and ”convince” the other party. Information about the other party, market information, trends, technologies, published standards, guidelines, etc.) 2. Define your own LAA (Least Acceptable Agreement), MDO (Most Desired Outcome) and BATNA (Best Alternative To Negotiated Agreement) and do the same for the other side Your own and your suppliers’ negotiation clauses, objectives, least acceptable, arguments, tradeoffs, alternatives, consequences etc. 3. Handle the climate in the negotiation (Climate Management) 4. Prepare your team and individual roles 5. Understand the different styles to be used in relationship- and substance based negotiations 6. Be aware of how to behave, how the other part behave and what tricks you may be faced by from the other party during the negotiation © 2011 Gravity Sourcing AB 4

Collect InformationOur own process collects key information, step- by stepthroughout the strategic sourcing project Key information at the fingertips of the negotiation team Total Cost & Supplier Purchasing Suppliers Needs Market Bids Analysis Strategy suggestions Analysis Analysis Buyer Objectives  ... … …  Definition of negotiation clauses Knowledge  ...  Work out the negotiation session Acquired - define the roles Supplier Objectives - drive of the forecasted profile of  ... the discussion … …  ... © 2011 Gravity Sourcing AB 5

BATNAMDO and LAA determine our boundaries of the negotiation Our needs Our wants Most Desired Outcome (MDO) Least Acceptable Agreement (LAA)  Minimum price in the market  Maximum accetable price that meet profit goals  Shortes delivery time possible  Market advantage delivery time  Performance exceeding specifications  Product performance to meet specifications  Longer term price guarantee  Price firm for one year © 2011 Gravity Sourcing AB 6

BATNAThe Best Alternative To a Negotiated Agreement (BATNA) is ourcontingency plan if we cannot come to an agreement  BATNA is what we will carry out if the other part is not willing to accept our needs (LAA), i.e BATNA is not the same as our (LAA)  The more attractive your BATNA is compared with the proposals you receive, the more Power you have  BATNA should take all considerations into account, such as relationship value, time, value of money and the likelihood that the supplier will live up to their side of the agreement. These other considerations are often difficult to value, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors  BATNA help us to – Value more realistically our power of negotiation – Assure that we do not achieve prices at any cost – Evaluate the different perspectives of any of the considered © 2011 Gravity Sourcing AB 7

BATNAAnalyzing your own and your suppliers MDO, LAA and BATNA willhopefully identify a “Zone Of Possible Agreement” Overlap between our LAA and supplier LAA enables a deal our MDO our LAA “ZOPA” supplier LAA supplier MDO Deal possible within “ZOPA” Zone Of Possible Agreement Our Supplier Without overlap the deal will break and the contingency plan (BATNA) will be realized our MDO our LAA supplier LAA supplier MDO BATNA Our Supplier © 2011 Gravity Sourcing AB 8

BATNAThe communications with a specific supplier should be preparedexploiting our levers and their needs Our Supplier AREA MESSAGES MDO LAA MDO LAA BATEF X X X X X X X X X X X X X X © 2011 Gravity Sourcing AB 9

Climate ManagementThe key factors to consider in Climate Management during thenegotiation are Time and emotional Tension 20-25 subjects/clauses to be negotiated Breaking point (I can’t!) Important clauses X Agreement TENSION LEVEL (“I want it at this price”) Climate Management TIME © 2011 Gravity Sourcing AB 10

Climate ManagementThe negotiation clauses could be listed and evaluated taking yourLAA, MDO and BATNA into account WEIGHTING Number CLAUSE BUYER SUPPLIER 1.  Reduction of administrative charges for order processing 3 3 2.  Indexing of the prices based on Raw Materials 2 2 3.  Elimination of the quality control costs at receipt 1 2 4.  Guarantee on the delivery time (penalties on delays) 1 2 5.  Awareness of the forecasted volumes 3 1 6.  Transportation costs to be charged to the customer 3 2 7.  Weekly deliveries, stocks at the supplier’s warehouse 1 1 8.  Partnership with the customer for the development of new 2 3 9. products (building customer’s loyalty) 10.  Long term contracts 2 3 11.  ... 12.  ... 1 = clause on which it is almost impossible to give up 2 = exploratory clause 3 = very negotiable clause © 2011 Gravity Sourcing AB 11

Climate Management Know the conflict areas and the “give-aways” 3 Gift Area Trade Area Buyer 2 Exploration Area 1 Break Area Gift Area 1 2 3 Supplier1 = clause on which it is almost impossible to give up2 = exploratory clause3 = very negotiable clause © 2011 Gravity Sourcing AB 12

Climate Management Foresee and drive the profile of the discussion The sequence of the clauses: The climate during the negotiation  begin with clauses 3 -3 to “break the ice" 1-3 1  progressively increase the break risk, 1-1 leaving the break high risk clauses (1-1) for the final phase  the trend can fluctuate (see dashed line) Buyer 2-1 2-2 2 3-3 1-2 3-1 3 3 2 1 Supplier1 = clause on which it is almost impossible to give up2 = exploratory clause3 = very negotiable clause © 2011 Gravity Sourcing AB 13

Roles & ResponsibilitiesA successful negotiation requires a preliminary agreement on theroles of the players of the Buyer side  The professionalism is mainly measured in the first meeting “There is never a second chance to make a good impression  Nothing is more “appreciated” by a supplier than two colleagues who – do not speak the same language – do not share the same objectives – are both “good” or “bad” © 2011 Gravity Sourcing AB 14

Roles & ResponsibilitiesSpend some time to define Roles and Responsibilities of theNegotiation Team and make sure to unify all members  Unity within the team is the most important attribute Prior to entering into a negotiation, all members of the team should understand the subject (agree on BATNA etc.)  Decide which information you are going to reveal during the negotiation, and which information should never be revealed  The chief negotiator has to be articulate, a good team player and posses good presence of mind  Preferably the entire team has some past experience in negotiation  All the members in the team should posses at least one of the following qualities: – Technical Knowledge – Relationship Skills – Patience – Observational Skills – Behavior Analyzing Skills © 2011 Gravity Sourcing AB 15

Style and behavior during the negotiationIt’s important to understand the difference between relationship-and substance based negotiations HIGH ACCOMODATE COLLABORATE ”Build friendly relationship” “Problem solving aiming for win-win”  Promote harmony  Search for common interests  Avoide substansive differences  Problem solving behaviors  Give into pressure to save relationship  Recognizing both parties’ needs  Place relationship above fairness of the  Synergistic solutions CONCERN FOR RELATION outcome  Win-win becomes the main purpose COMPROMISE ”Split the difference”  Meeting half way  Look for trade offs  Reduce conflict rather than problem AVOID DEFEAT ”Take whatever you can get” ”Be a winner at any cost”  Feeling of powerlessness  Win- lose competition  Indifference to the result  Pressure/intimidation  Resignation, surrender  Adversarial relationships  Take what the other party is willing to Defeating the other becomes a goal for the concede negotiator LOW CONCERN FOR SUBSTANCE HIGH © 2011 Gravity Sourcing AB 16

Style and behavior during the negotiationBody language may make a difference Confidence, cooperation Evaluation Suspicion / Dishonesty Uncertainty / Indecision and honesty  Leaning forward  Nodding  Touching nose while  Cleaning glasses  Keeping arms and palms  Maintaining good eye speaking  Looking puzzled open contact  Covering mouth  Putting fingers to mouth  Maintaining great eye  Tilting head slightly  Avoiding eye contact  Biting lip contact  Stroking chin  Crossing arms/legs  Tilting head  Placing feet flat on floor  Touching index finger to  Moving body away  Sitting with legs uncrossed lips  Smiling Boredom / lack of Submission / Disagreement / Anger Dominance / Power interest Nervousness  Failing to make eye  Getting red  Move restlessly  Making piercing eye contact  Pointing a finger  Making minimum eye contact  Playing with objects  Squinting contact  Putting hands behind head  Staring blankly  Turning body away  Touching hands to face, or neck  Picking at clothes  Crossing arms or legs hair etc.  Placing hands on hips  Looking at watch/door  Using briefcase to “guard”  Standing while body counterpart is seated  Clearing throat © 2011 Gravity Sourcing AB 17

Style and behavior during the negotiationSome general guidelines in how to behave during a negotiation…  Be willing to negotiate in the first place – Some people may be too shy to talk about money  Dont get emotionally involved – Keep calm, patient and friendly, even if the other person starts losing their cool – Make sure you leave any pride or ego at the door  Never be the first person to name a figure – You may be surprised to discover theyre offering a better deal than you thought were possible  Ask for more than you expect to get  Never set an absolute fixed deadline for when to finish the negotiation  Let their impatience beat them  Use the low key approach, i.e. dont act too interested  Dont leave the other person feeling as if theyve been cheated. © 2011 Gravity Sourcing AB 18

Style and behavior during the negotiationTricks commonly used in negotiationsAlways behave in a professional and ethical manner  The Monkey On The Back – "I have only got €10,000 in my budget"  The Use Of Higher Authority – "I need to have this agreed by my Board of Directors"  Nibbling – You are very vulnerable as the other side reaches for their pen to sign the order form, "Oh, by the way, this does include free delivery, doesnt it?”  The Good Guy And The Bad Guy – This is a tactic designed to soften you up in the negotiation  The Use Of Silence – During the negotiation, you may make a proposal and find the other party remains silent  The Vice – "Youll have to do better than that"  The Power Of Legitimacy – People believe what they see in writing.  Take it or leave it – This is the salary we are offering for the position. If it is unacceptable, then we will have to select someone else for the position.“  High Ball / Low Ball – "We will offer you $100,000 for the house (when it is worth $250,000).“  Pre-Conditioning – "Dont bother coming if you are going to tell me about price increases – Waiting in reception, leafing through competitors brochure, uncomfortable low chairs © 2011 Gravity Sourcing AB 19

Negotiation tools & methodology

by fredrikfranzon

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