It is beyond question that
negotiation skills are essential in doing business. In today's multi-connected
social media, the market is becoming increasingly competitive, and the ability
to negotiate effectively is more crucial than ever.
Basic principles apply to
all negotiations. The initial offer is usually the most important, but not the
most fruitful. However, it will be the benchmark by which all alternative
offers will be judged and compared. An organisation will never get what it needs
if it does not ask for it, so the first offer should be bold and aggressive.
The asking price for a
service or product is just that, and typically includes a margin to give away
during negotiations. An organisation wants to take all that and hopefully more,
so starting at a lower price than the supplier expects gives room for manoeuvre.
An organisation should not be worried about insulting the other party if their
offer is not ridiculous. The other side will continue the negotiations, hoping
to settle on a better offer to accept.
An organisation should never
disclose its budget or other limitations in its negotiating position.
Suppliers' favourite ploy is to reshuffle the service or product specification,
delivery schedule, or other parameters to sell an inferior product or service
and increase profits. The buying organisation wants the best product they can
get for the money they have to spend, so employing an approach that maintains
the possibility of spending less than planned initially is always a good ploy.
In most negotiations, an
organisation should have something to give away without hurting its negotiating
position. When a supplier submits a price proposal to a customer, the supplier
should consider areas that can be renegotiated to find a solution that
satisfies both parties. For example, if an organisation is bidding on a
construction project, it should consider other value areas that are not
critical to the project's success, yet may be more rewarding to both parties.
An organisation could also
include spare parts that may or may not be needed for the service or products
that are the subject of the negotiation. If the customer takes those items out
to reduce the overall cost, the organisation keeps everything, which may help
the customer reach their price target.
Such distractions will help
to divert the supplier from attacking the meat of the organisation's proposal.
However, employing this strategy must be viewed in the context. Considering
what other bidders may be doing if an organisation knows that the only way to
win the bid is to provide a barebones cost, there may be a different strategy
to consider when negotiating.
According to a study by the
UK's Chartered Institute of Purchasing and Supply, around £9 million is lost
every hour by UK businesses due to poor negotiating skills. The study also
concluded that UK organisations could increase their profitability by up to 7%
annually if they could negotiate more effectively. Negotiating skills are
increasingly important and are imperative for the following reasons:
- A Negotiation Mindset is
Beneficial: While
the ability to negotiate is an integral part of organisational meetings
before agreeing on contract terms, the benefits extend far beyond deciding
on the generic terms of an agreement or contract. Negotiation skills
become invaluable when discussing the needs and demands a new supplier
will need to fulfil, and can ensure that both parties understand precisely
what is expected of the other.
- Creates Win-Win Situations: Negotiation skills are about
something other than beating the opposition out of everything of value.
The best negotiations are the ones that develop the ability for a win-win
situation, in which both parties walk away from the talks without thinking
that the deal is a bad one. While the ability to assertively get what one
party wants might seem like a victory in the short term, the lack of
goodwill generated by this scenario can cause problems further down the
line. Negotiating a deal that both parties can agree on is often
difficult, which is why it is highly valued.
- Good Negotiating Improves
Profitability:
A negotiation aims to get the best deal possible for an organisation,
improving profitability. For example, if an organisation can reduce its
overhead costs by 10% due to effective negotiation, that money goes
straight to its bottom line. However, to generate profits with a 10%
reduction in costs, a significant increase in sales might be needed to
match the cost reduction's value.
- Ensures an Organisation Can
Negotiate Confidently:
Confidence is essential to the negotiation process. Walking into a
necessary negotiation with the fundamental knowledge that an organisation
knows what it must achieve means that it can focus on the critical aspects
of the deal itself instead of worrying about whether the supplier is
outmanoeuvring it. The ability to confidently present and provide offers
or counteroffers has resulted in better negotiation outcomes as the
negotiating process becomes less about the posturing of egos. Emotions are
taken out of the process, pride remains intact, and the result of the
negotiation becomes the primary concern of both parties.
- Negotiation Builds Respect: Respect is essential to the
business process. An organisation's staff must respect their management
team to get the most productivity out of them. It is just as crucial that
an organisation's suppliers do not withhold respect for the negotiation.
Not respecting the negotiating process may result in an organisation being
unable to negotiate the best deals possible, resulting in its failing
financial performance.
The impression that an
organisation leaves after a negotiation can have a lasting effect, impacting
everything from future negotiations to its reputation within the industry in
which it operates. The critical point of negotiating, often forgotten, is that
"it is far better to be an assertive and forceful negotiator than to be
looked at as a pushover at the negotiating table."
However, far from being a
roadblock in future deals, the ability to negotiate will make suppliers want to
work with an organisation. Good negotiations significantly contribute to
increased business success, as they:
- Help to build more robust
relationships.
- Deliver long-term, quality
solutions rather than poor short-term ones.
- Assist in preventing future
problems and conflicts.
An organisation should
create a courteous and constructive interaction with its suppliers that is a
win-win for both parties, as negotiating requires give-and-take. A successful
negotiation is where an organisation can make concessions that mean little to
them, whilst providing something to the supplier that means a lot to them. This
approach will enhance and improve the goodwill of both parties.
Regardless of the
differences in each other's interests, a successful negotiation leaves both
parties with a sense of fulfilment and eagerness to do business with each
other. The negotiation process includes the following stages:
- Preparation: Before any negotiation, decisions
need to be made about when and where a meeting will occur to discuss the
problem and who will attend. Setting a limited timescale can also prevent
a disagreement from continuing. This stage involves both parties ensuring
that all pertinent and vital facts surrounding the negotiation are known
to clarify their position and ensure that everything is included before
the meeting. Ascertaining the facts would involve understanding how both
parties want to engage in the negotiation and the terms of success from
each party's viewpoint. An organisation may have policies to which it
can refer in preparation for the talks. Undertaking preparation before
discussing any disagreements will avoid further conflict and unnecessarily
wasted time during future meetings if both sides understand each other's
points of reference in the negotiations.
- Discussion: During this stage, individuals or
members of each organisation present the case as they see it, i.e., their
understanding of the situation. Critical skills during this stage include
questioning, listening, and clarification.
Sometimes, it is helpful to
take notes during the discussion stage of a negotiation to record all the
points put forward in case they need further clarification. Listening is
essential. When disagreements occur, avoiding divulging too much and not
listening enough to what the other party has to say is imperative. Each side
should have an equal opportunity to present their wants and needs.
- Clarifying Goals: Both sides' goals, interests, and
viewpoints must be ascertained from the negotiation discussions. It is
essential to list these factors in order of priority. Through this
clarification, identifying or establishing some common ground is often
possible. Clarifying what each party needs is critical to the negotiation
process. Without this, misunderstandings become more likely, increasing
the barriers to reaching a beneficial outcome for both parties.
- Negotiating a Win-Win Outcome: This stage focuses on a 'win-win'
outcome so that both parties feel they have gained something positive
through the negotiation process. Both sides think that their point of view
has been considered, and a win-win outcome is usually the best result. Although
this may only sometimes be possible through negotiation, it should always
be the goal. Alternative strategies must be considered to achieve the
highest benefits for all, rather than both parties holding to the original
positions, potentially creating a win-lose scenario.
- Agreement: An agreement can only be achieved
once an understanding of both sides' viewpoints and interests has been
considered. To reach an acceptable solution, everybody involved must keep
an open mind. Any agreement must be made clear so both sides know what has
been decided.
- Implementing a Course of Action:
A course of action must be executed from the negotiation process to ensure
the success of the agreements or contractual obligations. On this basis,
future working relationships will be decided, and the success of the
negotiation will be judged. The most successful negotiations are based on
each party having a complete understanding of the outcome of the talks and
the actions required of them to fulfil the other party's requirements.
- Failure to Agree: If the negotiation process breaks
down and an agreement cannot be reached, rescheduling a further meeting is
called for. This takes the emotion out of the negotiation process and
prevents the parties from becoming embroiled in heated discussions or arguments,
which wastes time and potentially affects working relationships.
Subsequent meetings and negotiations should follow up on any innovative
ideas or opportunities. The situation should be reviewed from a fresh
perspective. Looking at alternative solutions or bringing in another
organisation to mediate at this stage.
During negotiation, an
organisation must be aware and look for clues such as body movement, speech
patterns, and reactions to what they say. It must also be prepared to suspend
or cancel the negotiations if the negotiating organisation feels things are getting
nowhere or the other party seems stuck in a specific position. An indication of
an organisation's reluctance to continue under those conditions can make the
supplier wonder if the organisation is ever returning to the negotiations.
When suppliers are caught on
the hook to agree on a deal, they will feel pressured to move. However, an
organisation must be patient even if the supplier needs to secure the best
terms. This can be incredibly difficult for those with a passion for instant
gratification. However, the last thing an organisation wants is for a supplier
to think they are under the gun to finish the negotiations quickly and to
accept an offer which is not sustainable for either party or that has the
potential to provide a focus for future disagreements should working
relationships fail.
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