Negotiation Techniques

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Hector Weaver
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1 Slide 1 Negotiation Techniques Welcome to this module on Negotiation Techniques. Slide 2 Module Overview Here are the topics we are going to review in this module: Issues of relative power Opening the negotiation Principles for assembling the team Managing the team Maintaining consensus Handling changes or conflict Slide 3 - Getting Prepared One of the major problems we encounter in most corporations is the difficulty of coordinating internal resources to reach an agreed negotiation strategy and plan. Functions and individuals have conflicting motivations and interests. Success depends on not only understanding these, but working to overcome the obstacles in a positive way. Negotiation can be defined as the process by which parties come to terms on a particular matter in which they have corresponding or complementary desires. Both selling and negotiating are about getting others to agree to your ideas and the key word here is persuasion. To achieve your goals you must have understood relative strengths and weaknesses and have an appreciation of theories of human motivation. This understanding and appreciation matter as much in marshalling your own side as they do the other side. Indeed, the internal negotiation can be more complex due to the lack of willingness by key players to cooperate. Slide 4 - Understanding Motivation Motivation is therefore a key element in negotiation that is, the inclination to do or not to do something. People generally want to achieve balance which is why they react badly if they feel pressured to move on something they regard as unnecessary or undesirable; or if they feel the proposition they are being asked to accept is fundamentally unfair. There are positive and negative factors in all things that motivate us and in most business deals, they operate in combination. In general, better and lasting results are achieved through positive motivational influences. Slide 5 - Understanding Motivation We should take into account the personal needs of self-actualization the need to fulfill oneself, to grow and use our skills and knowledge optimally and creatively. Challenge: the perception that others have of your / their role, contribution and capabilities (personal and function) It is this force that often frustrates the professional contract manager when faced with (in their opinion) the restricted view of the sales representative or business manager. We sometimes forget that they view us as similarly restricted or one-dimensional in our view. Other factors leading up to this primary need (and therefore less important) are safety and security (protection and stability in day to day events), social (the need of affection and sense of belonging in one s immediate community) and esteem (the need for respect, prestige, recognition and personal sense of competence and mastery). IACCM 2015 Page 1

2 Slide 6 - Persuasion Persuading others in the company to work cooperatively, involving others and spending time on the issues they view as important, is often a challenge. Many Contract Managers complain that either they are not involved in the team to their full capacity or that they are brought in too late. Yet involving the right experts is critical to effective negotiation preparation and planning. Based on the needs outlined above, we can all see that there are approaches we take, or reactions we give, that may be counter-productive in gaining acceptance for our viewpoint and influencing the outcome. And of course other approaches may be productive in gaining our involvement and achieving our goals. While of course we always try to rise above personal feelings or esteem issues, it might be useful to think for a moment about the sort of incidents or approaches that elicit negative reactions and why this might be. Slide 7 - Understanding Responsibility In any complex bid, answers to the multitude of questions are gleaned from many sources. The negotiation team leader should coalesce the facts and information and be in command of developing strategy and tactics. Remember, while other participants may have access to some of the facts and have developed strong positions based on these, it is ultimately the responsibility of the team leader to make decisions and be accountable for them. Think for a moment about the negotiations that occur within your company. Who typically controls: strategy process the agenda The physical negotiation Going beyond this and testing your answer who is truly accountable for negotiated outcomes? And test once more, if there is accountability, what are the metrics used to gauge success or failure, when are measurements made, and who makes them? The truth is, in many companies, there is no clear responsibility for the negotiated outcome; good and bad results are often based on primitive scorecard metrics, or on a more general Did we win? Slide 8 - Division of Responsibility The IACCM benchmarking study aggregates responses from sales and procurement contracts professionals, representing over 100 companies ranging from small and mid-sized corporations to among the worlds largest. When looking at how negotiations responsibilities are divided, contracts professionals generally control setting strategy and leading the negotiations team, with other groups having scattered responsibility for these elements. At the pricing level, responsibility is more evenly split between the contracts organization and the business unit or sales organization. When we look at what parts of the contract the contracts organization negotiates, less than half are responsible for all terms. Responsibility is generally shared based upon what group has authority for a particular term. It is always critical to understand whether we are leaders or influencers and behave accordingly. Let s take one of these areas the question of team make-up. This is often contentious. Some people are anxious to be included maybe for entirely legitimate reasons, but also sometimes because of power or control issues. Others who maybe should be there may not want to attend, viewing themselves as too busy to devote time. IACCM 2015 Page 2

3 Slide 9 - Introducing Experts We are going to think about the introduction of experts to the team and I would like you simply to list the pros and cons of having experts participate. Imagine for a moment that you are the negotiation team leader and think of the factors you would be weighing in making the decision on team composition. Here we outline some of the factors that generally arise. Some of the advantages of having an expert on your team are: - They can provide in-depth knowledge resulting in reduced risk in their area of expertise - They can take firm position on your behalf (without compromising your relationship) - They are able to align with experts on other side - They may bring information or knowledge that supports positions in other areas of deal - They may assist in speeding up the process, through direct communication Slide 10 - Introducing Experts In the text box on the left type in some of the cons of having an expert participate. Separate your answers with commas. Click submit to continue. Slide 11 - Introducing Experts Let s take a looks at the Cons: - They may be hard to control - They often adopt a positional stance because of lack knowledge or authority in other areas - They must buy-in to overall negotiation strategy or can put total deal or other aspects of deal at risk - They can add to complexity and duration Now, where do you fit when it comes to a negotiation team or opportunity leader weighing these decisions? Think about all the things we have discussed so far and what you might do to change the balance and encourage your early involvement. Slide 12 - Dealing with Negotiation Power Negotiation power can be defined as "the ability of the negotiator to influence the behavior of another. Commentators have observed a variety of aspects and qualities of negotiation power. It is important to take note of these: Negotiating power is relative between the parties; Negotiating power changes over time; Negotiating power is always limited; Negotiating power can be either real or apparent; The exercise of negotiation power has both benefits and costs; Negotiating power relates to the ability to punish or benefit; Slide 13 - Negotiation Power Negotiating power is enhanced by facts (such as legal, regulatory or official statistics), personal knowledge, skill, resources and hard work; Negotiating power is increased by the ability to endure uncertainty (potential risk) and by commitment; Negotiating power is enhanced by a good negotiating relationship; Negotiating power depends on the perceived BATNA (Best alternative to a negotiated agreement); and Negotiating power exists to the extent that it is accepted IACCM 2015 Page 3

4 Slide 14 - A Measure of Power A useful measure of power in negotiation is the amount of cooperation one side needs relative to the other. Given that the other side realizes you need their cooperation more than they need yours, they have power over you. Here the blue lines intersecting the two power axes represent the respective needs for cooperation of the negotiating parties. The party represented by the vertical axis because it requires more cooperation has less power than the other side. Slide 15 - A Measure of Power to equalize the power the side with less has two choices, represented by the blue arrows. It can lessen its own need for cooperation, for example, by acquiring a better batna represented by the downward arrow, It can argue that the other side is really more dependent than it realized, for example, by showing that what the other side wants can only be provided by it, or that only its quality is sufficient to the other side s needs represented by the horizontal arrow. Slide 16 - Sources of Power Within a negotiation, information is probably the most common source of power. Power derived from expertise is a special form of information power. It refers to masterful use of information, Resources can be many things, and the capacity to give them or withhold them from someone is an important source of power. Resources include money, supplies, manpower, time, equipment, and critical services. Location in an organizational structure Influence within the structure Introduction of incremental value Slide 17 - Negotiation Tactics - Openings Two vital and interrelated questions for negotiators are: Who should make the first offer? What form should the first offer take? Slide 18 Negotiation Tactics - Openings Many negotiators try to avoid making the first offer; or begin or respond with exaggerated offers or positions. What form should the first offer take? Three common ways that negotiations are opened are: Soft high (the maximalist opening), claim to be soft and yet open; set an extreme target in the hope that the other side will quickly move to a point within the bargaining zone Firm reasonable (the "equitable" opening), claim to be firm and that the opening offer is an equitable i.e. fair offer Problem solving, suggest that the negotiation is to solve a common problem via objective assessment Slide 19 - Openings Of course, each opening has advantages and disadvantages and is appropriate in differing situations. It is essential that skilled negotiators: Know how to open by any one of these three methods. Even though they may have a preferred style, are able to use all three openings with confidence. Practice in damage-free simulations using alternative methods, assessing probable roadblocks/results Establish through understanding of the other party which of the three forms of opening is likely to be most effective. In some situations, this may not become apparent until the negotiation is under way. IACCM 2015 Page 4

5 Be able to articulate openly the well-known advantages and disadvantages of each form of opening. Slide 20 - Openings Openly or by known coded messages identify to the other side which of the three openings appears to have been used. For example, negotiators use a number of codes to indicate a high soft opening: On the current facts, we would be prepared to settle for... Our client is claiming... Each of these invites a counter that may establish different facts or considerations thereby also revealing some of the other side s thinking and rationale. Whichever route you choose, use logic to sell your ideas. Logic is seductive people don t really want to appear irrational or unfair. Slide 21 - Strategies and Ethics The current interest in studies of negotiation and systemization of negotiation behaviors arises partly out of the realization that knowledge is power. And where there is access to power, there can be abuse of power. So there is also considerable interest in ethical standards and maintaining discipline in reaction to negotiating behaviors. While ethical standards will continue to be debated, some professional negotiators and researchers have attempted to systemize a range of strategies to use in anticipation or response to dirty tricks such as: Lying and exaggeration; Bluffs and threats; Stalling; Non-disclosure; Add-ons; Obscurantist behavior about facts or precedents. Slide 22 - Strategic Questions Let s look at some of the Important strategic questions include: Who should "open" the negotiations? What style of negotiation is appropriate to the transaction or conflict? When should negotiation styles be changed? When and how should litigation run parallel to negotiations? When should negotiation be (temporarily) terminated? Slide 23 Strategic Questions Take a moment to complete the task on screen. Slide 24 - Four Basic Rules of Negotiation The Center for Dispute Resolution at Pepperdine University proposes four basic rules for negotiators: Begin reasonably. Retaliate whenever the other party is unreasonable. Communicate clearly and constantly. Forgive, but never forget. Slide 25 - Physical/Logistical Considerations Creating an environment conducive to a negotiated agreement is also important (again, the counter to this is to recognize when the environment either by design or lack of thought is not conducive to a good agreement). IACCM 2015 Page 5

6 Make sure the room is arranged so that no one s chair is at the head of the table, unless a facilitator or arbitrator Don t have anyone sit or stand in front of the door (barrier to exit) Make sure the room is comfortable sufficient space, seating, not too warm, cold, noisy or drafty. Try to have the parties sit together, facing the problem in the form of a whiteboard, chart etc., rather than facing each other. Dress conservatively; avoid loud colors, especially red or orange Use a low, moderate tone of voice; have someone honest advise you of tones you maybe adopt that seem abrasive, impatient or condescending Objectify the issue and separate it from the participants. Slide 26 - Psychological Distance: Realities of Negotiation Today The psychological distance model is intuitive but also well explained by applying the principles of Neuro-Linguistic Programming. According to the NLP model, people experience the world differently because each person develops his or her own map or model of the world through information received through the senses. Different people favor different senses: Visual, Auditory, or Kinesthetic. The theory also holds that we can be more effective communicators and negotiators by understanding how others best receive information. People give off subtle clues regarding their communications preferences. The closer and more direct the environment, the more complete our understanding of others preferred communications channels the better we can respond. Face to Face Face-to-face negotiations offer the best opportunities to achieve value since we can most easily read others visual, auditory and kinesthetic cues. We can also sense the attitudes of all people in the room. Video Conference Video conferencing, while better than the telephone or internet because body language can be read, falls short in that subtle cues are hard to read, and our view is limited to what the camera is pointed at. Telephone The telephone supports auditory communication, but masks visual and kinesthetic cues. In telephone negotiations people feel remote and may take positions particularly aggressive ones that they would never take in person. Computer The computer removes all sensory communication, leaving only the words. All nuance is lost. Significant security issues exist with both telephone and Internet negotiations. Tools such as video conferencing, telephone and Internet communications can be effective cost and time savers but should only be used once relationships have been founded in face-to-face encounters. The trust that develops in early face-to-face meetings can carry over to other media for more routine discussions. When issues heat up as the negotiations progress, it may become necessary to bring the parties together again under one roof. In today s environment global deals, constraints on travel, reduced staffing levels, expectations of response times we are all having to adjust to a variety of negotiating formats. It is incumbent on each of us if we wish to be successful to adjust to the varying forms that communication now takes. We must change our message; we must test feelings or thoughts in new ways; we must find approaches that build rapport and relationship without necessarily involving physical contact. One key to this is to ensure personality comes through; just because you are not in a room together, don t let social niceties and IACCM 2015 Page 6

7 introductions disappear. While we maybe using technology, WE are still people not computers! Be sure the other side doesn t lose sight of that. Slide 27 - An Alternative to BATNA BATNA (Best Alternative to a Negotiated Agreement) has traditionally been used as a means to assess and establish power within a negotiation. While this can be effective in many types of negotiation, it is frequently less useful in business-to-business situations, especially in typical sales / purchasing arrangements. BATNA is OK for buyers but rarely works for sellers According to work by Think! Inc., rather than considering alternatives, another and often more revealing approach is to consider the consequences for each party if no agreement is reached. What is it that they would lose; what is it that they would have to do as a result; and what would the consequences of this be, for example in terms of: Costs (price, resources, cash flow) Benefits Time or speed implications Additional or changed risks Resource or skill implications Credibility, image (of the business or individuals) Short term Longer term In this business-to-business environment, it is rare that there is not an alternative vendor or an alternative customer. So this assessment of the effects of not reaching agreement is much more meaningful. It should of course take account of both the positives and negatives for each side. These consequences provide clues regarding POWER and VALUE Slide 28 - An Alternative to BATNA As a result of this analysis, the parties may emerge with a very different view of their respective power or influence over the negotiated outcome. They may also find previously unspotted opportunities to add value for example, by packaging additional elements or guarantees into the deal that respond to an identified area of need or weakness. This could be something like the following: In your analysis, you realize that the time-frames sought by the buyer will be severely threatened if these negotiations break down. Rather than just exploit this by holding out on other issues, you maybe able to turn this into a trade. Since you know that you can meet the time-frames, you perhaps emphasize this by offering some sort of guarantee and in return look for concessions in other areas of the agreement. So in this example, we see an opportunity being used as a trade for something else of value. Parties should never concede they should always trade. If you simply give things away, you: imply it has little or no value change the base-line for future negotiations This reinforces the point that parties especially the weaker party should never negotiate one item in isolation. This prevents trades and automatically compromises your potential outcome. IACCM 2015 Page 7

8 Slide 29 - Developing Trades Understanding the other side: Seller Wants Incremental revenue Eliminate competitor Greater security in account Image from leading edge Buyer Wants Fix technical issues Fix support issues Control costs Augment skills Reduce risks and consequences (of failure) Never concede, always trade. Slide 30 - Making a No Agreement Analysis Section 1: Define / describe the item(s) being negotiated Buyer Wants / Seller Wants In this section, focus on what you know to be the primary purpose(s) of the agreement and the goals (likely settlement ranges) of the parties Buyer is interested in / Seller is interested in In this section, focus on secondary needs, interests or opportunities that are important to, or may influence, either party. Specify the range relative to each party e.g. if timing of delivery is significant, buyer may want in 1 6 months, seller may prefer to deliver in 0 3 months; if there are secondary products or services that could be included, each side is likely to perceive a monetary value.) These items give you an idea of the win-win settlement range on each item; and they also give you ideas for trades, so that you avoid getting into concessions. In order to trade, items and their value must be measurable hence the requirement to specify ranges above. Slide 31 - Planning the Best Alternative Understand your options Estimate your cost of no agreement Estimate their cost of no agreement Write down the areas where you can trade Write down the areas where you think they may want to trade Test Assumptions: When you meet with the other side, have a plan that will enable you to test your assumptions listen, ask questions. Note the indicators of value and interest to determine a) are your current assumptions correct and complete; b) are there items you should add? Determine areas where you can create value : Following that meeting / discussion, determine areas where you can create value propose trades, create package options that improve on the cost of no agreement, design win-win options. Packaging your solution: You may want to consider packaging your solution in several different ways including different chips of value or outcomes into two or three alternative but broadly equivalent deals. If they say no, ask which they like least. That way, you start to understand IACCM 2015 Page 8

9 the different values they place on the potential trade items and can therefore focus on the areas you have discovered are most important. Avoid getting stuck into negotiation on a single item always try to maintain your flexibility by having a multi-item package to negotiate. Slide 32 Next Steps This concludes our Module. Please take the time to complete the Module Feedback. Once you have completed the Module Feedback, we recommend that you go to the Attachments to review the additional information. A Module Test is available for you to take in order to check your understanding of the material or practice for the Certification Exam. The required pass rate for all Module Tests is 80%. You may take this test as many times as you wish: please allow 24 hours between each attempt. Once you have passed all the Module Tests with at least 80% you will be invited to take the Certification Exam. IACCM 2015 Page 9

Housekeeping. What We Will Cover. Make sure you have your workbook printed out and in front of you

Housekeeping. What We Will Cover. Make sure you have your workbook printed out and in front of you Housekeeping Make sure you have your workbook printed out and in front of you What We Will Cover 1. Why You Need Persuasion & Negotiating Skills 2. The 15 Most Powerful Psychological Triggers 3. Keys to