The Art of Negotiating

1
The Art of Negotiating

• ISSA / IDA
• Spring, 2004
• Michael E. Workman, PhD
• mike_at_mworkman.com
• www.mworkman.com

2
The difficulty lies not so much in developing new
ideas as in escaping from the old ones.
(John Maynard Keynes)
3
Aoccdrnig to a rscheearch at Cmabrigde
Uinervtisy, it deosn't mttaer in waht oredr the
ltteers in a wrod are, the olny iprmoetnt tihng
is taht the frist and lsat ltteer be at the rghit
pclae. The rset can be a total mses and you can
sitll raed it wouthit a porbelm. Tihs is
bcuseae the huamn mnid deos not raed ervey lteter
by istlef, but the wrod as a wlohe.
4
SEQUENCE IS CRITICAL
You need to understand the economics of a
business before you have a strategy, and you have
to understand your strategy before you have a
structure. If you get these in the wrong order,
you will probably fail. And, if you limit a
company by its structure or people, you will
limit the full potential of that business.
Structure should come last, not
first. Michael Dell
5
Introducing Change

• Stress
• Risk
• Loss
• Change normally occurs when the pain to change is
  less than the pain to stay the same.

6
NEGOTIATION IS NOT
PERSUASION CLOSING OVERCOMING OBJECTIONS DISCUSSIO
N ACCOMMODATING GETTING THE ORDER OFF THE
STREET BLOWING THE COMPETITION AWAY
7
NEGOTIATION IS
INFORMATION EXCHANGE AND ACTION PLANNING THAT
RESULTS IN A MUTUALLY BENEFICIAL EXCHANGE OF
RESOURCES
8
Whats So Tough About Negotiating Today?

• Identifying Key Decisions Makers Is Difficult
• Decisions Are Not Permanent
• Measurements Are Elusive
• Technology Implementation Is Incomplete
• Process Standardization Is Slow
• Relationships Are Uncertain
• Resources Are Stretched
• Agreements Are Complicated Political

9
UNDERLYING FACTS ABOUT NEGOTIATING
You are negotiating all the time. Everything you
want is owned or controlled by someone
else. There are predictable responses that you
can count on in the negotiating process. There
are three critical factors in every negotiation -
power, information, time. The proper mesh of
circumstances is important to the negotiating
success.
10
Negotiation Levels

• One Dimensional / Tactical
• People and Processes Communications
  Hardball Listeners, Persuaders, Tacticians
• Two Dimensional / Positional
• Deal Design Value Creation Innovative,
  Creative, Deal Designers
• Three Dimensional / Ongoing
• Redefine the Game - Setup Scope - Sequence -
  Issues, BATNAs Strategists, Open, Aware,
  Innovative

11
Negotiation Effectiveness

• Why?
• What?
• When?
• Where?
• With Whom?

12
Negotiation Styles

• Win - Win
• Win
• Win - Lose
• Lose - Win
• Lose - Lose
• Win Win or No Deal

Survivor
13
Transparent Relationships
Supply Chain Management - Preferred Pricing
Reverse Auctions
Alliances - Pure Partnerships - Functional
Pricing, Cost/Profit Driven
Integrated Supply - VendorReduction, Integrator
(Tier 1) Manages the Process, Cost Reduction
Driven
The Buyers Perspective
Objective Relationships
System Contracts - Evergreen, Cost Plus Pricing,
Measurement Driven
Long Term Contracts - Expired Annuals, High
Leverage for Customer, Tenuous
Annual Contracts - Fixed Price, Fixed Term,
Service Level Specific
Subjective Relationships
Bid Buy - Price Driven, Costly Way to
Buy, Predominantly Bureaucracies
Relationship Selling - Service, Price, Response
14
Planning for Negotiations

• Strategic Plans
• Administrative Plans
• Tactical Plans
• Measurements

15
ISSA /IDA
NEGOTIATIONS PLANNING SHEET
NAME DATE
PARTICIPANTS TITLE ROLE
US
CUSTOMER/SUPPLIER
16
PURPOSE STATEMENT STATEMENT THAT REFLECTS THE
DESIRED RESULT OF THE NEGOTIATIONS
US
CUSTOMER/SUPPLIER
ISSUES
OBJECTIVES
THOSE ITEMS WHICH ARE UNDER DISCUSSION OR IN
DISPUTE
MEASURABLE STATEMENT OF AN ISSUE
US
CUSTOMER/SUPPLIER
US
CUSTOMER/SUPPLIER
SETTLEMENT RANGE
TARGETED AREA OF MOVEMENT IN WHICH AN AGREEMENT
CAN BE REACHED
US
CUSTOMER/SUPPLIER
GAMBITS
STATEMENT(S) OR ACTION(S) INTENTIONALLY UTILIZED
AS A PREAMBLE TO IMPLEMENTATION OF LOGISTICS OR
TACTICS
US
CUSTOMER/SUPPLIER
17
TACTICS INTENTIONAL ACTION TO AFFECT A DESIRED
RESULT
US
CUSTOMER/SUPPLIER
FALL BACK / REMARKS
CHANGING THE SHAPE OF THE DEAL
PROCESS FOR GENERATING ALTERNATIVE OPTIONS /
SOLUTIONS
US
CUSTOMER/SUPPLIER
FALL BACK / REMARKS
CONCESSIONS
ANY ITEM WHICH IS GRANTED OR YIELDED TO OBTAIN A
RESULT
US
CUSTOMER/SUPPLIER
BATNA
INTENT OF THE EVENTS
US
CUSTOMER/SUPPLIER
LOGISTICS
THE IMPLEMENTATION OF PHYSICAL AND/OR
ENVIRONMENTAL CONSIDERATIONS TO ACHIEVE AN
OBNECTIVE
US
CUSTOMER/SUPPLIER
18
ADDITIONAL BATNA(S)
COMPETITOR(S)
THEIRS
OUR STRATEGY
19
ISSA / IDA
POWER BALANCE SHEET
NAME CUSTOMER LOCATION DATE
This document is designed to organize information
and levels of power, promote analysis and suggest
utilization. The process consists of five steps
as listed below. Continued analysis would carry
the user beyond these five steps and further
magnify the value of this instrument.
Identify and note any significant points
concerning the holder or holders of that power.
These points should be appropriately entered.
STEP 1
Consider the remaining organization(s) and note
their relative position on that point of power.
Be sure to analyze all three touch stones of
Customer, Competitor and Company.
STEP 2
STEP 3
Areas that need additional information will
appear. These must be dealt with before a sound
evaluation may be made. Note these deficient
areas of information on the back page.
Ideas may arise concerning actions which would
impact the balance of power. These, too, should
be recorded on the back page and considered for
implementation.
STEP 4
There will be some obvious ways to utilize these
points of power and some not so obvious. All
ideas should be captured on the back page for
future consideration.
STEP 5
20
POINT OF POWER
CUSTOMER/SUPPLIER
PERMORMANCE
(QUALITY, RELIABILITY, DELIVERY, SERVICE LEVEL,
ETC.)
PRODUCT
(SOURCE, NEEDED FEATURES, TECHNOLOGY, PRODUCT
BREADTH, ALTERNATE EQUIVALENT, ETC.)
PRICE
(HISTORY, MARKET, COST MODEL, COST OF
PROCUREMENT / OWNERSHIP, ALTERNATIVE(S), ETC.)
PEOPLE
(STYLE, AUTHORITY, KNOWLEDGE, HISTORY, STRENGTHS,
WEAKNESSES, ETC.)
TIMEFRAME
(IMPOSED PRESSURE, TACTICS, DELIVERY
REQUIREMENTS, RESPONSE, ETC.)
UNIQUE POWER CHARACTERISTICS
(ORGANIZATIONAL SUPPORT OF DIRTY TRICKS, STRONG
EXECUTIVE RELATIONSHIPS, STRATEGIC SUPPLIERS,
ETC.)
21
US
ALTERNATIVE(S)
NAME
22
ADDITIONAL INFORMATION NEEDED
IDEAS TO IMPACT BALANCE OF POWER
WAYS TO UTILIZE KNOWLEDGE
23
Pressures

• Buying
• Selling
• Relationships
• Results

24
Basics for Negotiations

• Ask
• Triangulation
• Patience
• Authority

25

• Cost Breakdowns
• Buying
• Selling
• Deadlines
• Quotations
• Concessions
• Shape of the Deal

26
Currencies

• Time
• Information
• Reputation
• Performance
• Position
• Power

27
Currency Enhancement

• Bogeys
• Closes
• Habits
• Big Pot Theory
• Funny Money
• Changes
• Futurity of Current Commitments

28
Negotiation Staying Power!

• Empathy
• Focus on Real Issues
• Tact
• Emotional Control
• Creativity
• Listening Skills
• Instant Evaluation Skills
• Expectations

29
THE BIG THREE
Avoid narrowing negotiations down to just one
issue Different people want different things in
the same organization Price is not always
all-important
30
WHAT ABOUT PRICE??
If it comes down to one issue, PRICE, and yours
is too high, then you lose.
Cosmic Law of the Universe
31
THE BASIC TRUTHS OF PRICING

• Your customers always say your prices are too
  high.
• You know your customers lie, but youre not sure
  how much.
• You get competitive information to compare
  prices.
• You know your competitors price list is wrong,
  but youre not sure how much.
• Your suppliers always swear that your costs are
  the lowest in town.
• You know your suppliers lie, but youre not sure
  how much.
• You think that when your products sell, its
  because your prices are too low and when they
  dont sell, its because youre too high.
• Youre wrong!
• You know youre in the dark.
• You know youre losing sales.
• Youre right!

32
The Secret Of Any Successful Business Is The
Intelligent Loss Of Sales
Gary Hoover,Founder of Books Inc. Hoovers On
Line
33
Long Term Negotiations
Separate People from Problems Focus on Multiple
Interests, not Positions Invent Options for
Outside Involvement Insist on and Provide
Objective Criteria Share Pertinent
Information Dont Do Sequential Negotiations
34
ONE DIMENSIONAL RULES
Never say Yes to first offers Dont be the
first to name a price Make your offers low but
flexible Make a big deal of any concession you
make, and get a counter-concession for each
one Know that both sides are under pressure, so
dont feel intimidated If you have a deadline,
Never reveal it Never offer to split the
difference. Get your opponent to make that
offer to you or split it on your side. 80 of
concessions are made in the last 20 of the time
- so dont leave details until later The
person under the greatest time pressure generally
loses in negotiations. Make sure the situation is
at least WIN / WIN !
35
Two Dimensional Skills
BOLDLY Go Where NO ONE Has Gone
BeforeCreativity INTEND To Be Helpful - NOT
JUST WIN Take Personal Responsibility Ask Often,
How do we know itll work? ALWAYS Query
Objectives if Resistance is Offered NEVER Have a
Good Idea Yourself ALWAYS Meet Your Obligations
(NO EXCUSES) ALWAYS Declare the Other Party the
WINNER...
36
Three Dimensional Skills

• Negotiation is a Continual Process
• Skill comes from Practice Follow up
• Planning Determines the Outcome
• Scenarios should be Broad Minded
• Patience is The Supertactic
• NEVER Negotiate Alone
• ALWAYS Begin with the End in Mind

37
FIVE CHARACTERISTICS OF SUCCESSFUL NEGOTIATION
Both sides feel a sense of accomplishment Both
sides feel the other was prepared Both sides feel
the other side was fair Each side would deal with
the other again Each feels the other will keep
their word
38
Emerging Sales Competencies

• Self Appraisal Continuous Learning
• Listening Beyond Product Needs
• Align Customer / Supplier Objectives
• Orchestrate Internal Resources
• Establish A Vision for Relationships
• Understand Financial Impact of Decisions
• Consultative Problem Solving

Business Horizons
39
Summary
Changes Occur in Small Steps Price and Value
Rarely Correlate Sensitivity to Profits Drives
Results Asset Leverage is Necessary Measure
Whats Important Performance and Opportunity
40
THANK YOU !!