“In business as in life – you don’t get what you deserve, you get what you negotiate” – Chester Karrass.
Negotiation is a tool. Just as a hammer is useful for driving in nails, but not for driving golf balls, negotiation is useful for resolving some but not all disputes. It is useless, for example, if the parties have nothing in common to motivate settling their differences.
Negotiation is the right tool to solve the commercial “dispute” about the terms on which goods or services are bought or sold. It is the right tool, because negotiation is all about trading what you have for what you want, and in this case the buyer has the money and the seller has the goods.
To be an effective negotiator, you need to master the three different aspects of negotiation:
- Process – at the heart of negotiation lies a process which begins with preparation, moves through the four steps of negotiation and ends with implementation.
- Elements – these are all the different things that need to be taken into account when negotiating. They are strategic in nature and need to be considered carefully.
- Tactics and ploys – these are the things that get played out in the heat of the negotiation event itself, when there is little time to think and plenty of time to make mistakes. The line between legitimate tactics and unethical tricks is not fixed; it depends on the circumstances: what you are negotiating and with whom you are negotiating.
- Involve and align all internal (and additional external) stakeholders.
- If buying, then make sure you specify what you want to buy, take time to read bids, and score them using objective criteria.
- Form an appropriate relationship with the seller.
- Take time to pre-condition the seller’s expectations, and watch out for how the seller will try to pre-condition yours.
- Always try to look at things from the other party’s point of view as well as from your own.
- Aim high, and make sure your objectives are SMART.
- Align your own team, and find out as much as you can about the other party’s.
- Find out as much as you can about the market and the competition.
- Decide where the power balance lies and think of ways to increase your power. If you feel powerless, remember that you always have more power than you think – you do not know how the other party feels, and power can lie in unexpected places.
- List your options, create tradables and assign a value to them. Remember that price has little to do with cost and that value can have little to do with price.
- Separate your interests (what you really want) from your positions (the means of getting to what you really want).
- Know your LDO – Least Desirable Outcome: your bottom line – and stick with it.
- Have a BATNA – a Best Alternative to a Negotiated Agreement.
- Plan ahead as far as reasonably possible, and re-plan frequently.
Step 1: Open
- Let both parties set the scene.
- The opening position of the seller is often their bid.
- In disputes or claims, either party can set out their opening position first.
- There is some evidence that the party that states their position first has the advantage.
- State your opening position clearly.
- Aim high, but do not lose credibility.
Step 2: Exchange information and debate
- Ask plenty of questions.
- Listen carefully.
- Understand the other party’s viewpoint.
- Test your assumptions by asking questions.
- Summarise to check for understanding.
- Use signals to show what you might be prepared to trade.
Step 3: Propose and bargain
- Brainstorm to create more options and tradables if necessary.
- Try to trade something that has a low value to you for something that has a high value to you, remembering that what has a low value to you may have a high value to the other party.
- Make proposals using the, “if you do this…, then we will do that,” format.
- To begin with do not be too specific with your proposals.
- Steadily become more specific and convert proposals into bargains by making concessions.
- Never make unilateral concessions – always get something in return – and never accept the first offer.
- Make your concessions small and hard to get.
- Legitimise your bargains if possible, by appeal to precedent, higher authority or universal standard.
- Move from signals to proposals, to bargains to agreement.
- Link all your bargains into a final package – nothing is agreed until everything is agreed
Step 4: Close and agree
- Know when to close: not too soon – leaving value on the table; not too late – giving value away.
- Know how to close, and use the appropriate method.
- Hold your nerve, and look out for last minute tricks and traps.
- Summarise what has been finally agreed, and get agreement from the other party.
- Write down what has been agreed as soon as possible.
- Make sure you have the authority to reach agreement, and that the other party does too.
- Carry out an internal review, to learn from the experience, so that you can perform better in the future.
- Get approval from the stakeholders.
- Change an informal agreement into a formal agreement, contract or purchase order as soon as possible.
- Keep your contracts simple and SMART, so that everyone feels committed to implementation.
- Get your contract signed by the right person at the right level of authority, and make sure the other party signs too.
- Store the contract in a safe place, from which it can be easily retrieved.
- Make sure the right people are in place to manage the implementation and the on-going relationship.
- Change happens – be prepared to renegotiate the contract.
Who has the power, or at least perceptions about who has the power, will affect the negotiation. Make sure you understand how much power you have; take steps to increase your power; and try to reduce the power of the other party. Power can be very subjective, but it does have rules and you should remember the “rules of power”. If you feel powerless: think again – you nearly always have more power than you think. If you feel you have power: think hard before you use it – do not abuse it. Power only works if you accept it: do not confuse power with bullying.
Interests and positions
A position is what is actually expressed as a want during a discussion about an issue. Prices are mostly positions and are therefore mostly fictitious; it is only when they have been paid that they become real. Interests are what lie behind positions and express the real wants of the party. You should try to see beyond the positions and discover the interests of the other party.
Alternatives and BATNA
Not all negotiations succeed. It may not be possible to achieve what you want on acceptable terms, and you should be prepared for this. You should consider alternatives, perhaps on an interest by interest basis, and you should also have a BATNA – a Best Alternative to a Negotiated Agreement. If you cannot negotiate a deal better than your Best Alternative, then walk away and use your BATNA.
A negotiation has more chance of success if there are many issues to negotiate, because the possibility for trading across issues is higher. You should talk to your colleagues, listen with an open mind to the other party, think “out of the box” and do some brainstorming to come up with options – different ways of doing things – that lead to more issues to discuss and more trades to make. Having options creates value by leading to more creative deals.
Behaviour, personality and culture
At a basic level there are three types of behaviour at play in a negotiation: aggressive, passive and trading. They all have their place, and you should a) know when to use these yourself and b) recognise their use by the other party. Personality affects behaviour as does culture, but the basic process of negotiation remains the same. You should observe behaviour, try to understand it and then adapt your response as appropriate.
Relationship and trust
Building trust and creating good working relationships is valuable and should lead to the creation of better deals. There is often a trade-off between relationship and outcome when outcome is measured in the narrower sense of price. You should be aware when relationship is important to a deal and when it isn’t, and you should also be aware that trust can be fragile in a complex rapidly-changing environment. The best deals are those entered into dispassionately by people and organisations that have their eyes wide open to the ways of the business world.
Legitimacy and fairness
The words fair and reasonable mean different things to different people, and are sometimes used to support dubious arguments by an appeal to the emotions. Don’t worry too much about what is fair, but do look for ways to support your arguments by legitimate comparisons with external standards, norms and codes of practice. Be careful, however, about how your actions are perceived: the use of your power to enforce an agreement on your own terms may lead to an abuse of power and a feeling of unfairness and resentment, and you should think hard before you do this.
Negotiation is all about communication, not only with the other party, but also with your internal stakeholders. You should learn to communicate well, knowing the basic principles of purposeful messaging. You should put the right questions in the right way and listen attentively to what is being said, observing body language but not setting too much store by this unless it is in conflict with what is being said. You should use influence and persuasion to guide the other party towards your point of view.
A negotiated deal, until it is implemented and working, is just a set of promises. You should make sure that you negotiate a SMART deal: one which is realistic, one that is capable of being implemented and one that will be implemented with good intent and in good spirit. To do this, you need to gain the commitment to make the deal work from both parties and their respective organisations
3. Tactics and ploys
During the negotiation event there are various tactics that can be used. On the positive side these include:
- Avoiding mistakes – you should learn to recognise the common mistakes, and practise avoidance.
- Setting aside – you could set aside difficult issues for discussion later.
- Adjourning – you could adjourn, in order to seek more information, consider your options or realign your team.
- Managing conflict – negotiation starts with conflict and ends with agreement. You should ensure that emotions are controlled, and that conflict does not escalate.
- Managing deadlock – deadlock happens; it is neither good nor bad, so long as you have a means of managing it and moving beyond it.
- Informal meetings – can be a good way of solving issues away from the negotiating table.
- Escalation – you could escalate “difficult” issues to a higher authority. But be careful: this can destroy your credibility.
- Conditioning and pre-conditioning – you could send “messages” to the other party about expectations and/or limitations. But be careful: if the messages are not true, then is this ethical?
Ploys, tricks and traps
On the negative side, there are also a number of ploys, tricks and traps which can be used – some more legitimate than others. You can play these yourself, but is this ethical? And you should watch out for these as played by the other party. Most people act in good faith but make sure you know how to handle hostile negotiators.
You should learn to recognise the common ploys and practise defences. Chester Karrass lists a formidable number in his book “Give and Take: The Complete Guide to Negotiating Strategies and Tactics”. Here is a selection:
- Intimidation – psychological destabilisation by sitting too close, leaning across the table, sitting in a bigger chair, making the other party wait, not offering refreshments etc.
- Non-negotiables – excluding certain issues at the start by saying they are “not negotiable”.
- Good cop, bad cop – the good cop gets incremental concessions as a way of appeasing the bad cop.
- Grinding down – continuous repetition of the same demand, regardless of the response, unless it is “yes”.
- Pickpocketing – deliberately taking something extra, often post agreement.
- Salami – slicing thing up to reach agreement issue by issue, leaving no scope for cross-issue trades.
- Last minute nibble – demanding a concession just before the agreement is to be signed, just when you have the greatest emotional attachment.
- Bogey – Karrass’s word for expressing real love of the product and then asking for a discount because of your (lack of) budget.
- Final offer: take it or leave it – often a bluff.