Negotiating

Stephen Covey, author of The Seven Habits of Highly Effective People

2 Lose-lose. When both parties refuse to move, when it was in both their interests to do so. Neither side achieves its objectives nor do the two parties generate solutions to their problems. This leads to total disillusion and frustration with the negotiation process and a danger of souring long-term relationships through a loss of respect and trust. When they come to reflect on this after the event, both parties are likely to regard it as an opportunity missed and will not be proud of themselves.

3 Win-lose. When movement is predominately one-sided. The side that did not move ‘wins’ whilst the side that did all the moving ‘loses’. In a win-lose situation, individuals are usually more concerned with victory rather than relationships. Too much effort is put into achieving short-term goals rather than long-term objectives. A ‘them and us’ attitude is created and the long-term relationship between the parties is jeopardized.

4 Win-win. The experienced negotiator will work towards creating two-way movement that is felt to be reasonably split between the two sides. Movement is aimed at bridging any gaps between them. During the negotiation, channels are developed and kept open for two-way communication. With an emphasis on flexibility, solutions are proposed that enable both sides to achieve their objectives. Satisfactory decisions are arrived at and long-term relationships are enhanced. There is a perception that both parties have demonstrated reasonable movement, the lifeblood of negotiations. Once the meeting is finished, there is a spirit of partnership as the two parties set about making the agreement work.

If you want to do business with someone in future, aim for a win-win result from every negotiation.

1.6 Learn to deal with different cultures (#ulink_45f37e7b-2219-5616-8fe0-ce70803fdb6a)

I would define culture as ‘the way we do things around here’. What is meant by ‘around here’? It means wherever in the world you are doing business. To succeed as a negotiator you need to understand where the other party is coming from.

It is very dangerous to generalize on the subject of culture – you could say there are as many cultures as people you deal with. The important thing is to be prepared for others to think and behave differently from you. The usual advice for dealing with the Japanese is to be very, very patient. Yet no culture is entirely predictable, so don’t be surprised when you encounter some Japanese who expect you to hurry up!

case study The Japanese have a very special approach to negotiating. In my experience they are very difficult to read (like good poker players) and frequently need the approval of their colleagues on key issues. I have negotiated with Japanese agents over substantial supplies of aluminium sheet for making freight containers. As negotiators, they are not aggressive, but patient and firm. The specific Japanese approach that I would like to share with you is their tendency to go over the same ground again and again. Once at 6:00pm, I felt we were minutes from agreement. We had been hard at it for three hours. I should have known when they said “can we just check on the specification” that it would take another four hours!

“If you negotiate with Japanese clients, ask questions. When you think you understand, ask more questions”

John L Graham, professor of business, University of California

Nor can you make generalizations about gender differences. When men are negotiating with women, some feel a gentle approach is called for, but many women will object to being patronized in this way. Some women want to prove themselves better than men, and will therefore prove as combative as any man.

Some businesses have reputations for being aggressive in everything they do – in employing people, in buying, and in selling. If you deal with them, your tactics need to be adjusted to suit theirs – with an aggressive first offer for instance. Other companies that you will deal with have an approach that is very much concerned with respecting the rights of their employees or their suppliers. You simply have to know who you are dealing with!

Your negotiating partner’s behaviour may be very different to your own, so be prepared to allow for this.

Prepare clear objectives (#ulink_e7701f8f-d613-5565-800d-0d28ff7d1e1b)

The old maxim ‘proper preparation prevents poor performance’ is as crucial in negotiating as it is in presentations, sales visits and other areas of business. This chapter provides you with a preparation framework that allows you to define your objectives, anticipate the other party’s approach, and develop your own strategy and tactics. Thus prepared, you have a much better chance of reaching an agreement satisfactory to both sides.

2.1 Plan your approach (#ulink_e298aff8-ac2d-59ea-87c6-db95b02ed64e)

A clear understanding of your objectives is essential when negotiating. You should be ready to propose a package that is challenging but credible. Your preparation should end with you deciding on your ‘Desirable’ list and using it to form the basis of your first proposal. Use these steps to prepare.

1 List the things on which you can give and take. These are called your negotiating variables. If it is possible to give and take on something, list it as a variable.

2 For each variable, list the ‘Desirable’ (best you can hope for), ‘Probable’ (most likely) and ‘Worst’ (worst that you would want to finish up with) outcome from your point of view.

3 Put a value on the difference between ‘Desirable’ and ‘Worst’. Now you have identified what the most valuable items are from your point of view. Price and volume are obvious values, but sometimes it is more difficult to put a value on a variable.

4 List all those things on which you are not prepared to give and take. You are effectively saying they are non-negotiable.

5 Look at everything done so far from the point of view of the other party. Ask yourself what they will be looking for on each variable – and what variables they will be looking at.

6 Consider where you will have areas of agreement, and where there will be disagreement. If your partner wants to negotiate on the things that you have considered to be non-negotiable, you may struggle to reach agreement.

7 Having weighed up the situation, you should be prepared to propose your first package (see chapter 4) as the ‘Desirable’ set of objectives, although the Discussion (chapter 3) may cause you to modify your first proposal.

Example list of negotiating variables

This table shows how selling a family business looked when listed in the way described. Your preparation will always give you maximum support if you finish up with this sort of five-column table.

Prepare a detailed list of variables and assess their importance to both parties.

2.2 Anticipate the other party’s approach (#ulink_2fe9a4ad-0ce0-58a9-8a0f-24be3cab6787)

In your preparation, it is important to consider the likely reaction of the other side (your negotiating partner). There is a need to display empathy – to put yourself in the other person’s shoes.

You are not negotiating in a vacuum. You have to work out an agreement with other people, who have their own objectives, problems and emotions! Here are some of the things to consider:

Priorities. What’s important to them is what has the most value to them. So it is important to be aware of their likely gap between ‘Desirable’ and ‘Worst’. You can’t be sure of this until the discussion stage, but you can think about relative importance as they will see it.

case study A buyer is negotiating the purchase of a batch of components for a machine. The buyer’s position is as follows: ‘Best’ price £6.44 each; ‘Worst” price £7.37. The seller’s position is: ‘Best’ price £7.80 each; ‘Worst” price £6.80. Here the negotiating issue is price. Somewhere between ‘Desirable’ and ‘Worst’ limits is a potential negotiated settlement for both parties. The area of overlap is a price between £6.80 and £7.37. If there is no overlap on another issue (say, payment terms) there would be a potential disagreement and failure to agree. This will only be overcome by one or both parties being flexible.

“If you are to put on another man’s shoes you must first take off your own”

Mark Twain, American author

Wants. You need to consider ‘wants’. What they want and what you want. ‘Wants’ are crucial in any negotiation because you trade/exchange what they want with something that you have.

Monkeys. Does the other party have any serious ‘monkeys on their back’ – things that restrict their ability to move and to be flexible? If they have, you need to understand this, bring it into the open, and help them understand why this is a barrier to both. (I often find companies make credit terms non-negotiable. This can be a real obstacle to agreement, and movement on this issue need not be expensive.)

Behaviour. On every aspect of the negotiation keep asking yourself “How should I behave?” and “How will they behave?” Only then, for example, can you make a good decision about whether your ‘Desirable’ package is the appropriate place to start. And only then will you be ready for their ‘Desirable’ package.

When you prepare, put yourself in the other party’s shoes as well as considering your own position.

2.3 Use a framework to guide you (#ulink_0ca32fc5-ffa8-55d1-8d4a-3a38a612efbb)

From your preparation in 2.1 you have a framework which tells you how many variables you have – how many items there are on which you can give and take. You have an idea of what are the most important items to you and to the other party.

Use your framework throughout the negotiation, to allow you to control the result. Here are some of the ways you can do this:

1 Focus early discussions on the variables you are more likely to agree on. This sets a constructive tone, but does not mean you agree on one or two items – see 4.5 ‘Don’t get salami-ed’.

case study I helped in a negotiation that involved providing consignment stocks of fans for a customer building air-conditioning units (consignment stocks are buffer stocks, usually held on a customer’s premises, but only invoiced when the customer draws the stock out). On the face of it, the variables on which we could give and take were the number of items, the quantity, the price and payment terms. The more we prepared, however, the more variables we identified – the period of the agreement, obsolete stock/write off arrangements, carriage, currency changes, insurance costs, ownership of goods, and how to control damage. We considered the value of each of these variables, and this allowed us to negotiate with confidence.

2 You have identified the most valuable variables. Use this framework to calculate the value of any concession that you might be about to make.

3 Use the framework to assess the cost of concessions on one variable with the cost of concessions in another area.

4 Use your framework to decide whether you will hold back discussion on any of your variables. In other words, hold back on one item and use it as one of your final cards when you are wanting to come together and agree.

5 When you negotiate, be prepared to use this framework to re-assess what variables are most important to your negotiating partner. Remember, you want to do repeat business with them.

6 Be ready to use your framework to assess the value of any new variable that crops up in the negotiating process.

Don’t leave your preparation at home! Build on your prepared framework throughout the negotiation.