by Paddy Barr, Managing Partner, Barr Performance Coaching and IMI associate
Knowledge is power in a negotiation; if you lack knowledge, you may well miss significant opportunities. Unequivocally, the most important aspect of a negotiation is the preparation and planning that is done in advance. This preparation is all about increasing your knowledge, and then deciding how and when you will use that information.
You will encounter many different types of negotiation in your career. Negotiation is fundamental to some roles, such as sales and procurement but you may also find yourself involved in negotiations as you encounter the following scenarios:
There are three key aspects to any negotiation: knowledge, timing, and strategy.
For any negotiation, you need to understand the following:
- Your needs;
- The other party’s needs;
- Strength of your negotiation position.
You need to know what success looks like from a negotiation. Be very clear on what it is you are hoping to achieve.
- What would be an ideal outcome?
- What would be an acceptable outcome?
- What is your bottom line? Are you prepared to walk away if you do not achieve your bottom line? Do you have a viable alternative?
Anticipate the sticking points, so that you can respond to them. Decide what you are willing to concede and what you want in return – a good principle is to never offer a concession without knowing what you want in return. To help you work this out, it is important to know the value of the concession to you and to your third party (for example, is there something relatively meaningless to you that would make a big difference to the other person? Or is there something big you are considering offering that actually wouldn’t add much value to them?). It is also important to consider when to make the concession in the negotiation process – giving away too much too early means that you are likely to give away more.
Going into the negotiation you need to be able to satisfy the following:
- Be very clear on your needs and the rationale that underpins those needs. This should be supported by facts.
- Be consistent in the prioritisation of your needs.
- Be fair: If one party leaves a negotiation feeling hard done by this may have future ramifications – be wary of a short-term ‘win’ that causes losses in the long term.
- Integrity and trust: A negotiation requires both parties to trust the other and for both parties to act with integrity – again, watch out for a short term ‘win’ that leads to a longer-term loss at the cost of the relationship. For example, say you are negotiating with a vendor or supplier; it could be tempting to use confidential information about one of their competitors – or you may even accidentally give it away. This would impact your integrity in the other person’s eyes: after all, you might give away some of their confidential information in the future.
- Strategy: Consider your strategic needs as well as your immediate needs, and how these fit together. For example:
- How important is your goal, need, or purchase to the business? (Is it a crucial product or service purchase? Is it winning the business of a critical client? Is it a project deadline that will make a difference to your company’s reputation if missed? Will whatever it is impact the long-term success of the business? )
The Other Party
Just as you have identified and thought through your own needs, it is helpful to spend time thinking through your partner’s needs. Good negotiators will spend time early in the negotiation asking questions of the other party – these questions will be specifically designed to gain a better understanding of the other party’s position, and to seek out areas of common ground. However, you can also try putting yourself in their shoes beforehand, too – try asking yourself some of these questions:
- How valuable are you to the other person? If you are a customer – what proportion of their revenue and profit do you account for (the latter being more important)? If they are your boss – are you a high performer, or an average performer? If they are a peer – do they rely on you or your work, or do you rely on them and their work?
- How is your relationship – do they view you positively, or as a nuisance?
- Are there any factors that you consider low value, but they may consider to be high value?
- How might their timescales (such as financial year and annual business patterns) be affecting their needs? For a supplier – when are their quiet periods? If you can schedule your buying for a quiet period, they may give you a better deal. For a boss or peer – are there conflicting priorities due to a financial year-end, or particularly stressful time? When are the annual performance reviews in relation to your ask – does this matter? Is there a project deadline to consider? For a customer – do they need your service or product immediately, or can they spend time shopping around?
- Is the person you are dealing with empowered to make decisions? What are the limits of their authority?
- Are there cultural factors that you need to be aware of in the negotiation? Different attitudes and styles of negotiation, or particular cultural differences that may affect your conversation? For example in some cultures conflict is considered to be rude so you have to be subtle in presenting your point of view.
- What can you do to engineer it for the other person to make a concession without ‘losing face’? Nobody likes to leave a negotiation feeling that they have “lost”, so how can you ensure that outcomes are a ‘win-win’?
How can you help the other person to help you? What can you do, in regard to considering their needs, to make sure they are able to see value in the negotiated outcome? If they cannot see the value or benefits for them, it will be much more difficult for them to come to an agreement with you.
Considering your negotiation partner’s needs can also help you to manage any emotion and tension in the discussion; by having spent time thinking about their needs, you will be more aware of any potential tense moment. You can plan to take breaks to allow participants to calm down (if things have become heated), and make considered decisions or reflect on discussions.
If things do start to get heated, it can also help to try and remember: it’s not personal. Never take the negotiation personally – any negotiation in a business setting is a business discussion. Even when it feels very personal; like negotiating your pay or workload, or negotiating the purchase of critical supplies for your big-dream-start-up company, or negotiating flexible hours to spend time with your family – the other person in this scenario is paid to get the best deal possible for their company.
Strength of Your Negotiation Position
The answers to the questions in the previous two sections will help you determine the strength of your negotiation position. The strength of your position will help determine how you approach the negotiation.
If your position is strong, you will need to act responsibly to secure a favourable deal, but not act in a manner that excessively exploits your strength. If you drive too hard a bargain, it can lead to long-term losses, such as a supplier taking quality or safety short cuts, or going out of business; an employee quitting; your boss seeking to replace your role; or colleagues and peers forming negative opinions of you that contribute to a poor reputation in your field. If you over-wield your strong negotiation power and take advantage, the other person will almost certainly take action to ensure that they don’t get taken advantage of again – including replacing you in whatever capacity they can do so.
If your position is weak, it may be best to plan long-term. You will need to develop a strategy that will lessen your reliance on the other person, as much as possible. Try using the following:
- Change your specification/ adjust your needs;
- Broaden your reach for another supplier, a wider network, more diverse customers, other managers or colleagues, more and diverse employees;
- Identify the dealbreakers – what ties you to this person?
Have you set the negotiation at a time that is advantageous to you? We touched on this a little when considering the other person’s needs, but you don’t want to schedule the negotiations at a time of year that causes you problems. For example, have you left this late enough that you are be running out of alternative options?
You are looking to create an environment whereby you will have viable options, so make sure that you have thoroughly vetted the options in advance of the negotiations taking place. In the event you are dealing with a monopoly supplier, you may have to get creative about using alternative products. Or if you are dealing with your ultimate boss, you may need to consider that your alternative options may mean getting a different job. These things are all affected by your timing, to make sure you plan carefully.
Set a timeframe for the negotiation process and agree the closing date for the process with the other party. You need to allow enough time for both parties to think creatively and to reach a mutually beneficial solution. You should be able to track progress in terms of resolving open items – this will also help ensure that you are not being ‘strung along’.
In a negotiation you want to enable the other party to help you reach a successful outcome, but how open should you be with information? By definition, you will have to share some information with the other party, but you should use the filter of “usefulness” – will the information enable them to give you a better deal, or will the information help the other party see the benefits to them?
There is always a trade-off in giving information – is it more beneficial to give the other party enough information well in advance to help them give you what you want, or do you provide the information at a later point in the process? Ask yourself: when is the best time to give the information? If the information is of value to the other party, it might be worth holding it and ensuring you get something in return for it.
The principles of effective negotiation can be applied across all types of relationship and goal. However, there are some additional specific tips that may help you when making a purchasing decision, or negotiating with a supplier or vendor.
- Cost modelling: You need to understand the cost components that make up the product or service you are buying. Remember, approximately 75% of the cost is designed into the product or service you will purchase: what determines the majority of cost you will pay is the thing you need, not who supplies it. You also need to understand if you have any requirements that will drive up the cost for the supplier, such as a unique component that differs from their other customers, as this may cause you to lose out on the benefits of volume discounts. Be sure to ask the supplier what specifications they are using for other customers.
- Customer Flow: Have they recently lost or gained a large customer? If they have gained a customer, you need to be wary of capacity constraints. On the other hand, they should now be able to gain economies of scale and spread their overheads over a larger volume, so reducing the unit price to you. Alternatively, if they have lost a customer, you want to make sure you don’t end up paying more of their overheads and indirect expenses.
- Information outside the negotiation: Be careful not to undermine yourself between negotiations. For many supplier relationships, there may well be annual or bi-annual negotiations; sometimes what is said between these times can have a detrimental effect on the next negotiation. For example, boasting to a supplier about profitability increases, or lavish award ceremonies and pay increases. This only serves to encourage the supplier to seek a larger price increase as they now know you can afford to pay.
Tips, Tricks and Takeaways
- Who is doing the talking? Good negotiators ask questions and listen – if you find yourself doing all of the talking in a negotiation, it is probably a sign that things aren’t going well.
- Likeability: People will adopt various styles in a negotiation, but if you really want something from the other party there is a better chance of you getting it if they like you. This is particularly true if you are dealing with someone who has a significant amount of power, like your boss, or a monopoly supplier.
- Listen and clarify: Much time is wasted in negotiations when individuals misunderstand the needs of the other party. Good negotiators will ask more questions and seek to clarify their understanding of what they are hearing.
- Unintended consequences: Driving a bargain that exploits the other person will only encourage them to take action that may add risk to you in the long term, such as cutting corners on quality, using a different business in the future, or passing you over for a promotion.
- Confidentiality: Never divulge information to a supplier about one of their competitors. It is imperative that you retain your integrity. If you divulge information about a supplier’s competitor, the supplier will assume that you will divulge their information to others and as such won’t trust you with critical information.
- Document: Write every major decision down and share the notes with the other party – it is important that all critical points are fully understood by both sides, including any collateral impact that may arise as a consequence of a decision.