It is beyond questionable that negotiation skills play an essential part 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.
There are basic principles that 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. A favourite ploy of suppliers is to reshuffle the service or product specification, delivery schedule or other parameters to sell an inferior product or service to increase their 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.
It is helpful in most negotiations for an organisation to have something to give away without hurting its negotiating position. Where a supplier submits a price proposal to a customer, the supplier should consider areas that can be re-negotiated 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 has kept everything, but it 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 Purchase 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 that 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 the profits of 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 an organisation's 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, as 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 negotiation. 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 put forward the case as they see it, i.e. their understanding of the situation. Critical skills during this stage include:
o
Questioning
o
Listening
o
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 for both parties to 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: Agreement can only be achieved once an understanding of both sides' viewpoints and interests has been considered. It is essential for everybody involved to keep an open mind to reach an acceptable solution, as any agreement needs to be made clear so that 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 agreement's 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 may also be helpful.
During negotiation, an organisation must be aware and look for clues such as body movement, speech patterns and reactions to what they say. They must 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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