Give me six hours to chop down a tree and I will spend the first four sharpening the axe.

Transcription

1 Give me six hours to chop down a tree and I will spend the first four sharpening the axe. ABRAHAM LINCOLN PART 1 SCOPING

2 06 PART 1 SCOPING WHY IS SCOPING IMPORTANT? We all run the risk of falling into habit and bad-practice traps when we prepare for a negotiation perhaps because we are busy, or because we are experienced, or even because we believe that this negotiation will be sufficiently like the last that it is not necessary to spend the time to consider if there is a different, or better, way. Effective scoping of our negotiation enables us to consider new or different perspectives, introduce and understand the impact of external changes on our negotiation and ensure that all interested parties are aligned on the preferred outcome, as well as the possible alternative results. It is vital that we identify the real objective and properly challenge this; that we write it down in as few words as possible and gain everyone s alignment to it. Scoping allows us to prioritize our actions and sequence our negotiations to achieve this agreed objective and optimize the final outcome. Scoping in practice We were working with a client to develop a price increase strategy. They were operating in a duopoly market in which it was the received wisdom that the retailers held all the power. As we developed the scoping for the negotiation and analyzed the reality of the situation, it became clear that this misperception had driven supplier negotiation behavior for many years. In fact, both retailers were obsessed by the activities of the other. Realizing this, we developed a plan which played to the strengths of the supplier and allowed us to influence the retailers to accept a significant, but critical price increase.

3 PART 1 SCOPING 07 CASE STUDY: IMPLEMENTING A COST PRICE DECREASE The director of procurement was presented with a challenging directive from his board. The commercial and trading conditions were such that the business was required to implement a significant cost cutting exercise with its suppliers. With a savings target of more than $13 million and a supplier base running into the hundreds, this project required an exceptionally high degree of proficiency and rigor throughout. Of three cost reduction projects planned, the first two ran concurrently one focused on a single buying category, the other on indirect procurement. The biggest potential uplift was however identified as being with the direct suppliers, which was why, six months later, the third project targeted the entire supplier base. This third initiative presented significant risks. The buyers had recently gone through challenging negotiations with the suppliers; they were now being asked to do so again within a short timeframe. As such there were legitimate concerns around whether any more value could be realized while maintaining healthy business relationships with the supplier base. SCOPING: LAYING FIRM FOUNDATIONS In order to address these risks, it was critical that they got internal stakeholder buy-in to ensure a strong and consolidated approach. To do this they ran a project scoping day with the entire buying team to explain the project drivers and projected uplift that success would bring. Making the objectives and rationale clear equipped buyers with the belief and resilience to go back for the second round. THE GAP PARTNERSHIP

4 08 PART 1 SCOPING BUSINESS STRATEGY AND OBJECTIVES It is surprising how many negotiations are initiated without a clear alignment of leadership requirements. These can be incomplete or worse, contradictory, so a negotiating team is risking failure, or finding themselves spending more time negotiating internally than with their external counterparties. The team worked to establish a clear understanding and prioritization of all the issues that needed to be addressed so that they could develop a comprehensive negotiation plan. TIMEFRAMES AND KEY MILESTONES As we all know, time is power in our negotiations, so the team created a timeline which maximized their opportunities to influence the outcome. The timetable ignored traditional but artificial deadlines which are so often driven by the corporate financial calendar, because the long-term prize was sufficiently valuable to extend the negotiation sequence beyond their fi n a n c i a l y e a r e n d. IDENTIFY ALL AVAILABLE OPTIONS It would have been convenient and comfortable to operate within the boundaries that they had always set and the variables that they had always used when they embarked on this negotiation. Instead they chose to explore possibilities created by re-baselining, instead of incrementing from previous deals. That s non-negotiable is a phrase that is regularly used in negotiation, but is it really? If the alternative is no deal or loss of a critical partner, it is helpful to think again and consider what you would need in return to make that variable negotiable. ASSESS RISK FINANCIAL, OPERATIONAL, COMMERCIAL Risk, like power, is perceived. We all have different attitudes to risk, both individually and organizationally. We also have a tendency to incorrectly assess real risk and this significantly changes our behavior. Consider air travel a source of significant fear for many individuals. The data shows that commercial flying is nineteen times safer than traveling by road, but we still fear flying, while most of us happily jump into our cars. In order to manage risk, we need to assess it objectively and understand how that affects our approach to negotiations.the buyers performed a thorough, objective risk assessment and mitigation exercise, which enabled them to better plan the approach that they were going to take with each supplier group. The next phase ascertained relative importance and level of spend per supplier, allowing them to group suppliers into one of four segments e.g. high risk/high spend meant a supplier was business critical. For each segment they were then able to build specific negotiation strategies based on their importance to the business.

5 PART 1 SCOPING 09 DATA AND FINANCIAL MODELING REQUIREMENTS They needed to understand the financial impact of every element that they were to negotiate and the interdependencies between the variables. Data analysis uncovered some surprising options, which they were able to utilize to further optimize their approach and engage the suppliers in a more creative discussion of options. IDENTIFY TEAM ROLES AND RESPONSIBILITIES, INCLUDING PROJECT MANAGEMENT An expertly planned and managed negotiation is much like a business project in its approach and composition, so they assigned a project manager. They also assigned, and stuck to, team roles. They developed messaging before and during the negotiation phases, ensuring that everyone was clear how the messaging would play out. THE RESULT The plan had been to achieve $13m of cost reductions. The result was cost efficiencies totalling $26m. Furthermore, the company divested one of its business units for a significantly higher value than originally envisaged. Scoping sharpens the axe and prepares your organization for the stresses of the negotiation to come. It is often overlooked in our rush to get things done. Taking more time at the beginning saves us time and money at the end. What s more important? THE GAP PARTNERSHIP