Improve Results & Improve Relationships through Better Negotiations

Transcription

1 Improve Results & Improve Relationships through Better Negotiations

2 The Purchasing Imperative 69% 22% 4% % of revenue that manufacturers spend on purchased goods and services* Increase in net margin achieved by companies with top performing purchasing teams** % of companies that believe they have achieved excellence in management of third party spend*** Purchasing becomes a source of competitive advantage for companies with high performing teams. Source: * Extrapolated from: Building Deep Supplier Relationships (Harvard Business Review) and Get More From Your Non-Core Spend (Everest Group) ** 2013 Chief Procurement Officer Study, IBM Institute for Business Value *** KPMG The Power of Procurement Report 2

3 Our Focus Areas People Technology Execution Enhancing the capabilities of your purchasing team Unlocking savings with big data analytics for purchasing Implementing projects that improve the bottom line Purchasing Placement (direct hire or contract) Buyer skill development training: Strategic negotiations Commodity leadership Understanding and managing costs E-sourcing tool simplifies quoting and supplier management Develop should-be cost models for side-by-side quote comparison Identify opportunities for savings based on variance analysis of supplier quotes Savings roadmaps with specific cost savings actions for each commodity Should-be cost model development Strategic sourcing implementations for sustainable savings Customized solutions; There is no one size fits all approach.

4 We Help Clients Implement Knowledge- Based Cost Management in Three Ways Turn-key projects that provide 1 the maximum leverage of our expertise and time 2. Execute-and-Mentor where we 2 deliver the early stages and guide the client s staff to complete the project while internalizing capabilities 3. Technology transfer approach 3 that relies on the client organization to execute

5 Training Training Companies come to us because they feel their organizations are capable of achieving higher performance through strategic commodity management, application of costing methods and negotiations. Partnered with Western Michigan University Targeted to manufacturing Improve Purchasing Performance Develop Employee Retention Focused on: Understanding cost Strategy development and deployment Collaborative negotiations 5

6 Three-Step Training Low High Purchasing Skills 1. Understanding and Managing Material Cost Outcome: Upgrades knowledge of cost drivers and increases utilization of proven cost management tools. 2. Strategic Commodity Leadership Outcome: Builds advanced capabilities for developing and communicating commodity strategies that deliver key organizational objectives. 3. Strategic Negotiations Outcome: Transforms buyers and sellers of manufactured goods and services by improving their Preparation, Power and Aspiration the three crucial elements for maximizing negotiation results. Low Strategic Commodity Management High 6

7 Course Objectives Strategic Negotiations provides processes and insights for obtaining better results in competitive and collaborative negotiations. Our specific objectives: Understand differences between Competitive and Collaborative Negotiations. Learn how to lead successful Collaborative Negotiations and how to choose the best approach. Appreciate the impact Power, Aspiration and Preparation have on negotiations. Learn techniques for raising personal Power, Aspiration and Preparation and lowering their opponents. Be equipped with take-away tools to implement techniques learned. 7

8 Reference Materials The Negotiating Game Karrass, Chester Louis. The Negotiating Game. New York: World Pub., Print. Getting to Yes Fisher, Roger, William Ury, and Bruce Patton. Getting to Yes: Negotiating Agreement without Giving in. New York, NY: Penguin, Print. 8

9 Course Objectives What is the benefit to my company if I am a better negotiator? What will be the benefit to you in your career if you are a better negotiator? 9

10 Negotiation Defined The process used by two or more parties to come to agreement or determine mutual disagreement on allocation of resources/services or resolution of an issue. Process Agreement... 10

11 Buyer and Seller Options Order Placement Fixed Price Sales Shopping Negotiation Zone 11

12 Buyer and Seller Options Order Placement Shopping Competitive Fixed Price Sales 12

13 Buyer and Seller Options Order Placement Shopping Competitive Fixed Price Sales Collaborative 13

14 Comparison Soft Participants are friends Competitive Hard Participantsare adversaries Collaborative Participants are problem- solvers The goal is agreement Make concessions to cultivate the relationship Be soft on the people and the problem Trust others Change your position easily The goal is victory Demand concessions as a condition of the relationship Be hard on the problem and the people Distrust others Dig in to your position The goal is a wise outcome reached efficiently and amicably Separate the people from the problem Be soft on the people, hard on the problem Proceed independent of trust Focus on interests, not positions 14

15 Comparison Soft Make offers Competitive Hard Make threats Collaborative Explore interests Disclose your bottom line Accept one-sided losses to reach agreement Search for the single answer: the one they will accept Mislead as to your bottom line DemandOne-sided gains as the price of agreement Search for the single answer: the one you will accept Avoid having a bottom line Invent options for mutual gain Develop multiple options to choose from; decide later 15 Insist on agreement Try to avoid a contest of will Yield to pressure Insist on your position Try to win a contest of will Apply pressure Insist on using objective criteria Try to reach a result based on standards independent of will Reason and be open to reason; yield to principle, not pressure

16 In a Winning Negotiation Competitive Collaborative Winning Negotiation Results: You understand and achieve the best possible results. Relationship: Your relationship is left as you want it. 16

17 Competitive Negotiations 17

18 Competitive Negotiations Do s Shut-up/Listen Leave room to negotiate Major/Minor Concede slowly Watch size of concessions Manage Deadlines Don ts - Concession Rules Split the Difference Tit for Tat Concede without doing the math 18

19 Shut Up Control the flow of information Positional negotiations are like Texas Hold-em poker games. Shut up don t show the remainder of your cards. Shut up your company. Engineers and plants can undermine a negotiation in seconds. 19 I like to listen. I have learned a great deal from listening carefully. Most people never listen. Ernest Hemingway ( )

20 Leave Room to Negotiate Establish aggressive positions but do not go too far. What is the best outcome you can defend? Look at a different way. What is the best outcome you can defend? 20

21 Concede slowly As a buyer or seller a counter offer is the 1 st concession as it represents an intention to buy or sell. Get the other party to move 1 st. I can t see us reaching an agreement with that price. You ll have to do better. I can t take this to management, you must do much better. 21

22 Major - Minor Each party in a negotiation will place a different value on each item to be negotiated. It is important to understand the value each party places on an issue. Items that can be negotiated and options. Value to Us Value to the Other Party

23 Major - Minor Initially, try not to concede at all. Then, trade items that are Minor to you but Major to the other party for items that are Major to you. Do not give away Minor items as a sign of goodwill. This only communicates that you are weak and raises the other party s aspiration levels. 23

24 Concede Slowly Avoid the quick yes even on Minor issues It leaves the other party feeling as if they could have done better. It will raise their aspirations for the next negotiation. Do not concede without doing the math. 24

25 Watch Size of Concessions Move in small increments. Avoid tit for tat. After they move first don t move or move at much less than their rate. There is a tendency to increase the size of concessions especially as time deadlines approach. Don t fall into this trap. 25

26 Manage Deadlines Best case: They have a deadline before you. How to get to best case: Negotiate your internal deadline. Set joint expectations that become the other party s deadline. 26

27 Avoid Splitting the Difference If the other party offers to split the difference they have already agreed to a 50% concession. Is there more to be had? Instead of saying yes or no: Acknowledge the concession I appreciate your ability to provide the service at $1 but there is no way... 27

28 Don t: Tit for Tat Instead of: We give something; they give something; We give something; they give something Instead of: They give something; they give something; They give something; we give something 28

29 Don t Concede without Doing the Math Overestimate Underestimate 29

30 Competitive Negotiations Do s Shut-up/Listen Leave room to negotiate Major/Minor Concede slowly Watch size of concessions Manage Deadlines Don ts -Concession Rules Split the Difference Tit for Tat Concede without doing the math 30

31 Competitive Negotiations Prepare: Brainstorm, understand and cost Positions (major minor). Include Stakeholders Develop concession strategy and tactics. Leverage the team. Negotiate: Shut/Up Listen Learn Majors Minors DGAD BREAK Follow concession guidelines. Immortalize: Ensure agreement includes method for tracking compliance. 31

32 Collaborative Negotiations Nothing astonishes men so much as common sense and plain dealing. Ralph Waldo Emerson ( ), Art,

33 33 Can we afford all of our business relationships to be competitive?

34 HOWEVER Competitive or collaborative: Objectives conflict, issues arise, prices need to be established. 34

35 Collaborative Negotiations We must strive to achieve our interests while building relationships; Not sacrifice our interests in order to build relationships. 35

36 Purpose of Collaborative Negotiating: MAXIMIZE RESULTS BUILD RELATIONSHIPS 36

37 Collaborative Agreement-Goals 1) A wise agreement if agreement is possible; Interests of both parties are improved Resolves conflicting interests fairly Durable 2) Should be efficient 3) Should improve, not damage the relationship 37

38 Collaborative Negotiations Separate PEOPLE from the problem Focus on INTERESTS not position Invent OPTIONS for mutual gain Insist on using OBJECTIVE CRITERIA 38

39 Separate People from the Problem 1. Deal with the issues; do not personalize into he said / she said. 2. Listen and probe their perspective. 3. Present your perspective and statements of fact that can be supported by data. 4. Get them involved in the process that leads to conclusions. 39

40 Listen and Probe - Perceptions Their perceptions are their realities. Understanding perceptions: Builds Knowledge Power Builds Relationships Helps identify their interests Facts only matter if they can change perception to change perception you must know the perception. 40

41 Listen and Probe - Perceptions 1. Ask for their perceptions. - - Listen 2. Probe: - Listen Why do you propose this? What are you trying to accomplish? What other alternatives did your company consider? 3. Look for facts behind their perceptions: Listen What lead you to believe this? What data supports this? 4. Show that you understand by repeating what you have heard and ask Did I miss anything? 41

42 Listen and Probe - Perceptions Understanding their point of view is not the same as agreeing. After they are sure that you understand their perceptions they will be open to listen to yours. 42

43 Questioning Strategies Myth you have to talk to control the conversation. Fact Questioning strategies lets you control the conversation and gain valuable information. 43

44 Education Curve Un-educated Phase Professional Phase $ales Amateur Phase Time 44

45 Education Questions Did you mean? Tell me more about? Help me I don t understand I don t suppose I don t remember. Let s review Did we discuss? Oh? I m confused What? Let me see if I have this straight 45

46 Reversing Answering a question with a question 46

47 Reversing Questions You must be telling me that for a reason. And you re pointing that out because? Why did you ask me that just now? When you say you are unhappy with our service, Bob, what does that mean? Is that a big concern for you? If we could provide that feature, what would be the next step? I get the feeling If you were me, what would you do? Supposing I said Am I the only one feeling uncomfortable? We have a problem, would you like to talk about it? Complete the sentence 47

48 Why reverse? Control of the conversation >> questions determines the direction of the conversation. Causes the other party to redefine the question or approach it from a different perspective. Either way, he inadvertently provides you with additional information. Flatters the other party, because it shows that you are interested in him. Helps you to gain insight and understanding. 48

49 Softening Statements Good question why did you bring that up just now? That s an interesting question and the reason you asked is? That makes sense and that s important because? A lot of people ask that. Can you tell me why you asked that just now? I m glad you asked suppose I said I could deliver this to you in two weeks? I understand. If you were me, what would you do? That sound important to you. If we could provide that feature, what would be the next step? That s an excellent question. I really want to make sure I understand what s important to you. So, please give me an example of what that looks like around here. 49

50 Other types of Questions Chinese Menu do you propose this because of a, b, or some other reason? Repeating statement as a question So you need to improve your profit margins? The Pause Do not respond to a statement, just sit silently. If nothing happens use a repeating statement as a question. 50

51 Questions Gather information. Helps you identify interests. Helps them let off steam. Prepares them to listen to you. After they are sure that you understand their perceptions they will be open to listen to yours. 51

52 Collaborative Negotiations Separate PEOPLE from the problem Focus INTERESTS, not positions Invent OPTIONS for mutual gain Insist on using OBJECTIVE CRITERIA Negotiations are not about positions but about the conflict that occurs between interests. 52

53 Interests and Options A supplier is coming in to ask for a price increase. List 5 reasons why the supplier may be asking. Only 1 can be tied to changes in the costs of labor and materials used in production. Interests 53

54 Position - Interests The Position The What The price increase request The Interest The Why Why the increase is needed. 54

55 3 types of interests Company Individual Issue 55

56 Collaborative Negotiations Separate PEOPLE from the problem. Focus INTERESTS, not positions. Invent OPTIONS for mutual gain. Insist on using OBJECTIVE CRITERIA. 56

57 Invent Options for Mutual Gain Now that you understand their interests what options are out there for meeting them?? 57

58 How do we? How do we meet the interests of both parties? Supplier Interests Our Interests 58

59 Interests and Options Price Increase Options That Meet the Interests of Both 59

60 Collaborative Negotiations Separate PEOPLE from the problem Focus on INTERESTS, not positions Invent OPTIONS for mutual gain Insist on using OBJECTIVE CRITERIA 60

61 Objective Criteria Objective criteria are used to measure and select from the options that have been identified. 61

62 Objective Criteria Exercise: Salesman from a Supplier Asks For A Price Increase 1. Let s identify criteria for our price increase options 62

63 Objective Criteria How do you develop objective criteria? How do you use them? 63

64 Objective Criteria Objective criteria should be: Fair The other side must agree that they are fair. They should apply to both sides. 64

65 Objective Criteria Objective Criteria - Some examples Core company values/judgments Market test / Cost models Industry best-in-class measurable Cost estimates Precedent Industry profit Customer Targets Others? 65

66 Objective Criteria How do you use objective criteria in negotiating? Frame the issue search for joint criteria. Reason and deal with reason on what standards apply. Do not yield to pressure only principle. 66

67 Collaborative Negotiations Separate People from the issue Listen, really listen to the other side. Ask questions. Restate what you have heard. Explain your perceptions. Separate them from statements of fact. Focus on Interests Identify positions taken to date. What are the higher level interests and priorities for both parties? Which interests are mutual, which conflict? Develop BATNA Invent Options for Mutual Gain Brainstorm options. Evaluate options: Do they satisfy the interests? How desirable are they? Avoid: Judging prematurely Searching for a single answer Assuming a fixed pie Thinking that their problem is their problem Use objective criteria that are fair and apply to both: Market Test results. Cost models. Precedent. Industry bestin-class measures. 67

68 Which to Use Competitive Collaborative 68

69 Competitive Collaborative Competitive Negotiation Collaborative Negotiation Review the commodities you identified on your power matrix: Are they presently competitive or collaborative? Where should they be? What can you do to move them? 69

70 How to Switch Gears 1. Identify the type of relationship you desire and ask if the other party desires the same. 2. Acknowledge how you have negotiated in the past and the negative impact it has had on the relationship. 3. Start using the process. 4. See if they come along. 70

71 How to Switch Gears 1. Identify the positions taken to date 2. Identity Interests: 1. Behind the positions 2. Beyond the positions 3. Validate Interests 4. Identify Options 71

72 If They Won t Switch Gears Focus on what you can do Start using the process Don t assume they won t change Don t fall into old habits 72

73 After two weeks, we retain: 10% of what we read 20% of what we hear 30% of what we see 50% of what we hear and see 70% of what we say 90% of what we say and do 73

74 Next Step As a buyer or seller, what specific action can you take to in the next two weeks to implement what you have learned? As a manager what specific action can you take to in the next two weeks to see that your group implements what you have learned? 74

75 Make Purchasing a Competitive Advantage