The Planning Process
Readings- Lewicki Chapter 4 Essentials of negotiation and It’s a Deal Chapter 6 p58-67 Steele
Negotiation is just like a major sporting event. The game is usually won or lost in the planning and preparation stages. Negotiation plans should be prepared with company colleagues and should include details of the objectives, roles of the individuals in the team, assessment of the other side's goals, concessions that might be demanded or given and an assessment of your own strengths and weaknesses.
During the planning process, it is possible that data to support the negotiation or further planning will be identified. These data collection tasks and the timescale will need to be allocated during the planning process.
Without doubt the most error is a failure to PREPARE well enough for the negotiation. i.e.
- Not allowing sufficient time.
- Not using the time available properly. -Being distracted during the time set aside. so,
- Allow adequate time (3:1 Ratio?).
- Ensure conditions are right for preparation. -Manage the preparation effectively.
- “playing it by ear" is asking to be "led by the nose"'. Or failing to plan is planning to fail.
Lewicki states effective planning needs hard work on the following points:
A.Defining the issues
B.Assembling the issues and defining the bargaining mix
C.Defining Interests
D.Knowing limits and alternatives
E.Setting targets and openings
F.Assessing constituents and the social context of a negotiation
G.Analyzing the other party-Learning the other’s issues, preferences, priorities, interests, alternativesand constraints is almost as important as determining one’s own.
H.The other party’s reputation and negotiation style.
I.The other party’s likely strategy and tactics
J.Presenting issues to the other party
K.What protocol needs to be followed in this negotiation?
In more detail
L.Defining the issues
1.Usually begins with an analysis of what is to be discussed in the negotiation.
2.The number of issues in a negotiation, along with the relationship between the negotiator and the other party, are often the primary determinant of whether one uses a distributive or integrative strategy.
3.In any negotiation, a complete list of the issues at stake is best derived fromthe following sources:
a.An analysis of all the possible issues that need to be decided.
b.Previous experience in similar negotiations.
c.Research conducted to gather information.
d.Consultation with experts in that industry.
M.Assembling the issues and defining the bargaining mix
1.The combination of lists from each side in a negotiation determines the bargaining mix.
2.There are two steps a negotiator can use to prioritize the issues on an agenda:
a.Determine which issues are most important and which are less important.
b.Determine whether the issues are linked together or are separate.
N.Defining Interests
1.Interests may be:
a.Substantive, that is, directly related to the focal issues under negotiation.
b.Process-based, that is, related to how the negotiators behave as they negotiate.
c.Relationship-based, that is, tied to the current or desired future relationship between the parties.
2.Interests may also be based on intangibles of negotiation.(see lecture 1 notes)
Bailey & Farmer refer to the 2 basic areas of negotiation as the corporate issues and the human issues.
Similarly Lysons and Gillingham refer to explicit and implicit objectives
O.Knowing limits and alternatives
1.Good preparation requires that you establish two clear points:
a.Resistance point – the place where you decide that you should absolutely stop the negotiation rather than continue.
b.Alternatives – other agreements negotiators could achieve and still meet their needs. Alternatives define whether the current outcome is better than another possibility. BATNA
P.Setting targets and openings
1.Two key points should be defined in this step:
a.The specific target point where one realistically expects to achieve a settlement
b.The asking price, representing the best deal one can hope to achieve.
2.Target setting requires positive thinking about one’s own objectives.
3.Target setting often requires considering how to package several issues and objectives.
4.Target setting requires an understanding of trade-offs and throwaways.
Q.Assessing constituents and the social context of a negotiation
1.When people negotiate in a professional context, there may be more than two parties.
a.There may be more than two negotiators at the table. Multiple parties often lead to the formation of coalitions.
b.Negotiators also have constituents who will evaluate and critique them.
c.Negotiation occurs in a context of rules – a social system of laws, customs, common business practices, cultural norms, and political cross-pressures.
2.“Field analysis” can be used to assess all the key parties in a negotiation.(see slide)
a.Who is, or should be, on the team on my side of the field?
b.Who is on the other side of the field?
c.Who is on the sidelines and can affect the play of the game? Who are the negotiationequivalents of owners and managers?
d.Who is in the stands? Who is watching the game, is interested in it, but can onlyindirectly affect what happens?
e.What is going on in the broader environment in which the negotiation takes place?
f.What is common and acceptable practice in the ethical system in which the dealis being done?
g.What is common and acceptable practice given the culture in which the negotiationis conducted?
R.Analyzing the other party
1.Learning the other’s issues, preferences, priorities, interests, alternativesand constraints is almost as important as determining one’s own.
2.Several key pieces of background information will be of great importance, includingtheir:
a.The other party’s resources, issues, and bargaining mix – investigate:
(1)Other party’s business history or previous negotiations
(2)Financial data
(3)Inventories
(4)Visit or speak with the other party’s friends and peers
(5)Question past business partners
What other sources could we use?
......
CIPS suggest a market analysis is undertaken to support negotiations by carrying out a PESTEL analysis. This analysis is an external assessment (of the macro environment) of the other parties that establishes key Opportunities and Threats. PESTEL is a tool/model not a theory.
b.The other party’s interests and needs.
(1)Conduct a preliminary interview including a broad discussion of what the other party would like to achieve in the upcoming negotiations.
(2)Anticipating the other party’s interests
(3)Asking others who know or have negotiated with the other party
(4)Reading how the other party portrays him/herself in the media.
c.The other party’s limits (resistance point) and alternative(s).
(1)Understanding the other party’s limits and alternatives is important because it will provide information as to how far you can “push” them.
d.The other party’s targets and openings.
(1)Systematically gather information directly from the other party
e.The other party’s constituents, social structure, and authority to make an agreement.
(1)The most direct impact of the broader social context is on the other negotiator’s abilityto make binding agreements.
(2)The negotiator needs to know how the other party’s organization makesdecisions to support or ratify an agreement
f.The other party’s reputation and negotiation style.
(1)A negotiator’s typical style (integrative or distributive approach) is an important determinant of how to approach the otherparty in the negotiation.
(2)One’s impression of the other party’s reputation may be based on several factors:
(i)How the other party’s predecessors have negotiated with you in the past.
(ii)How the other party has negotiated with you in the past, either in the same or indifferent contexts.
(iii)How the other party has negotiated with others in the past.
g.The other party’s likely strategy and tactics
(1)Informationcollected about issues, objectives, reputation, style, alternatives, and authority mayindicate a great deal about what strategy the other party intends to pursue.
S.Presenting issues to the other party
1.What facts support my point of view?
2.Whom may I consult or talk with to help me elaborate or clarify the facts?
3.Have these issues been negotiated before by others under similar circumstances?
4.What is the other party’s point of view likely to be?
5.How can I develop and present the facts so they are most convincing?
T.What protocol needs to be followed in this negotiation?
1.The agenda
2.The location of negotiation
3.The time period of negotiation
4.What might be done if negotiation fails?
5.How will we keep track of what is agreed to?
6.How do we know whether we have a good agreement?
The negotiator(Burt et al, 2003) must:
- Possess or gain a technical understanding of the item or service to be purchased
- Analyse the relative bargaining positions of both parties- that is establish the seller’s bargaining strength and the negotiator’s bargaining strength
- Have conducted a price or cost analysis
- Know the seller
- Be aware of cultural nuances
- Be thoroughly prepared- knowledge is power.
See handout on SWOT
Bailey and Farmer state that having assembled and analysed the necessary information it is necessary to:
- set objectives for the coming negotiation
- develop strategies/tactics in order to achieve those objectives
- prepare relevant data for easy reference
- if more than one person is to be involved, to develop a method of working which is understood by all
- make the necessary arrangements for the meeting phase
Steele distinguishes between preparation and planning.
“Preparation is concerned with researching the issues to be negotiated…
Planning is where you look forward to the negotiation, imagine how the session will proceed and plan your strategy, much like an athlete plans a race strategy.”Negotiation – continued
The 4 main negotiation situations are where:
- An established supplier wants to increase price.
- The buyer wants an established supplier to reduce price.
- A potential supplier wants to get the business and oust the established supplier :
- There is no regular supplier and this is a new purchase.
PREPARATION OVERVIEW
A successful negotiation is where the outcome is acceptable (not necessarily the most satisfactory or profitable) to both parties.
Every negotiating situation is different. Collect all available information beforehand. This may include;-
(a)Full specification and tolerances with alternatives or modifications that may desirable.
(b)Complete cost details. Percentage cost breakdown of materials, target prices the justification both from the suppliers and the buyers point of view.
(c)What is the total Need for the material. How firm is the forecast? Is it growing or decreasing/
(d)Information on the supplier e.g.
Financial-accounts, credit rating, financial ratio analysis, ability to finance expansion.
Present Order Book-What is the track record on quality, delivery
price and information service. What is his VENDOR rating?
Are there any existing contracts
Research and development-What new innovations are there? Are there patent restrictions?
Services-What are they and are they of use?
Management expertise- how do we measure it and assess those with whom negotiate?
(e)What market opportunities exist elsewhere in the Supply Market. What are the underlying economic and political considerations? What are general labour rates movements. PESTEL analysis will be a useful tool to use.
In gathering this information we must try to establish;
OUR STRENGTHS
OUR WEAKNESSES
THE OTHER PARTIES STRENGTHS
T'HE OTHER PARTIES WEAKNESSES
The buyer will be in a strong position when;
(a) Demand is not urgent.
(b)Suppliers are anxious to obtain the business.
(c)There are many potential suppliers.
(d)The buyer is in a MONOPSONISTIC or semi- monopsonistic position. i.e. the only, or one of a few firms requiring a particular item.
(e)Demand can be met by alternatives or substitutes.
(f)Make as well as buy option is available.
(g)The buyer has accurate "Cost-.analysis" information.
(h)Is well prepared for the negotiation.
Theseller is in a strong position when
(a)Demand is urgent.
(b)Supplier is indifferent about accepting the business.
(c)Supplier is in a monopolistic or semi-monopolistic position.
(d)Buyer may wish to deal with the supplier because of his reputation on quality, reliability e.t.c.
(e)The supplier owns the tooling or special purpose machinery.
(f)The supplier is well briefed regarding them buyers negotiating position.
Another important feature of preparation that is the necessity to differentiate between facts and "assumptions”. A sound procedure involves
(i)Specifying the key assumptions which are implied at the preparation stage.
(ii)Giving them some weights of probability which helps signal the level of necessity to develop alternatives; and
(iii)Testing these assumptions, particularly in the introductory stage of the negotiations.
Clearly the strengths and weaknesses we have deduced may be based on assumptions.
Strengths and weaknesses may also be applied to the negotiating team.
Are they experienced?
Are they skilled?
Have they the status?
Planning Summary-Ashcroft,2004
The need for planning, the foundation of any process, a commercial negotiation is crucialto its success. The “off the cuff” approach, picking up the subject file and then enteringinto negotiation arena would not be recommended.The following elements are typically needed to be taken into account inplanning.
Objectives must be set for all aspects of the negotiation. This is a critical part of the planning on which much of the success depends. The objectives must be as realistic as possible.
An agenda is required, based upon the tactical plan for raising each point and their impact
on psychology and business considerations.The other party’s reaction should be considered carefully and possible responses prepared. Each item must be timed, taking due account of the other party’s involvement.Many negotiations fail because people run out of time. Poor time management can lead to misunderstandings and a failure to resolve the detail. Planning requires appropriate time and resource.
The negotiator will have prepared the“opening speech”. This is a particular difficult task for inexperienced negotiators to grasp –writing the speech and rehearsing it may be seen as unnecessary. A faltering, hesitantdialogue gives an advantage and confidence to the other party. The opening speech is a crucial, conditioning statement that should include clarity of the benefits of the contract on offer, the fact that the seller must deal with each point as requested and a summary of the proposed contract and its subsequent operation.
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The negotiator must prepare and create an environment within which the negotiation will
take place. It is possible to create a hostile or relaxed atmosphere, but the ideal situation is were there is no doubt that it will be purposeful and businesslike.
The other party’s authority must be established. If it emerges that they haveno negotiation authority the meeting should be terminated, unless key information can be obtained which can help the buyer. In establishing levels of authority the otherparty may have to be asked to leave and also requested to arrange for the person with theauthority to be made available. An able negotiator has excellent questioning skills.
Some people are uncomfortable asking direct questions, e.g. Do you have the authority to
negotiate this contract? It is sometimes an embarrassment to ask questions and persist until the question is answered. Such actions may be perceived by some negotiators to demand great courage.
Introductions should be made to ensure that names, titles and organizational roles
are known. This will aid identifying decision-makers and enhance theunderstanding of the actual jobs carried out. Identifying and understanding decision-maker and influencer roles within the other party requires continued probing to ensure no assumptions are made.
The meeting room layout and all associated facilities need to be professionally organized.
Many buyers propose that negotiations take place at their premises for no other reason than they feel comfortable and confident. However, it must be recognised that the seller’s frequent working environment is the buyer’s premises. Perhaps more value and the opportunity for access to data could be gained from negotiations at the seller’s premises? Further, a neutral, third partylocation may be deemed appropriate, particularly to introduce some neutrality.Wherever the negotiations take place the value of the location must be carefully considered.
There must be an early emphasis on plugging gaps of information and clarifying
uncertainties or use of jargon. This can be tedious task but it needs doing with persistence and patience.
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