The key stages which impact on the negotiation

process and outcomes

This podcast gives an overview of the key stages which impact on the negotiation process and
outcomes.

This section looks at pre-negotiation and the associated preparation that should be made.

Negotiation can be conducted by people on their own, by small teams or by large groups. This is
usually decided based on the scale and complexity of what is at stake: in terms of value or risk.

A single skilled negotiator can have a huge impact on a relatively modest departmental budget,
particularly where time or business resources don’t allow for a larger team.

The higher the value or the risk of the project, the more likely it is that a broad base of expertise
will be required in the negotiation, either in the meeting or behind the scenes. This is where
conducting a team negotiation has most benefit, because it contributes to good governance,
means each area is represented, which reduces the chance of something critical being missed,
and it means you’ll be able to match the supplier’s negotiating team.

However, many of the advantages of negotiating as a team can be eroded if the team have not
been trained or are inadequately prepared. Preparation should encompass understanding the
company strategy and the stakeholder requirements, as well as each person’s role within the
team, and how they are expected to support the lead negotiator. Individuals should be briefed
on the objective of the negotiation, the tactics that may be used, and the dos and don’ts of a
successful negotiation.

Untrained or underprepared team members may give away the budget price to the supplier,
discuss confidential elements of the project or go into too much detail at an inappropriate
moment. They may also lose sight of the business needs and negotiation objectives.

When choosing a venue for a negotiation, carefully consider the facilities that are required and
whether the venue can provide these, which may include IT facilities, a break-out room, and
refreshments. The relative convenience of the venue to both parties should also be factored in.
Negotiating in your own premises can give you an advantage, and meeting at a supplier’s venue
can put you at a disadvantage. A neutral venue can be used instead.

In high risk projects it’s vital that a full business need analysis is undertaken so that the
negotiation objectives can be set and made clear to the full team. If this isn’t done, there’s a high
likelihood that the negotiation will fail to meet its objective and your business will lose out. The
Business Need can be established by looking at the existing company strategy, meeting with key
stakeholders and referencing any immediate tactical requirements.

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There are many sources of intelligence that will help improve your knowledge before the
negotiation. You can undertake research yourself or buy it in from companies who provide in-
depth market insight. For example, you can obtain technical product or service performance
data or supplier profiles, such as profit and loss accounts, or analyse the competitive landscape.
In-house Procurement Analysts can often help in intelligence gathering.

The tactics for a negotiation should flow from the strategy rather than the other way around. A
rigorous analysis resulting in a proposed strategy can result in a much-improved tactical
planning session and a better overall outcome. The negotiating strategy needs to align with the
company strategy. You should consult with key company stakeholders about their long-term
plans for the product or service, and focus on what you want the situation to be in 12 months
rather than next week.

This brings us to the end of the section on pre-negotiation and the associated preparation that
should be made.

Now answer these questions to check your understanding. Pause the podcast to write down
your answers.

1. Give an advantage of negotiating in teams.

2. What can happen if a team is untrained?

3. What activities should be undertaken when preparing for a negotiation?

This section looks at negotiation, and the associated strategies, tools and techniques that can be
used.

Buyers and sellers are both driven by achieving business goals, understanding commercial
imperatives, and being the external representative of the company in the marketplace.

Understanding what drives the salesperson and the supplier can benefit the buyer in a
negotiation, and this is why supplier analysis should be undertaken when preparing for a
negotiation.

Suppliers are generally motivated by the following factors: being paid (preferably quickly),
winning business, being on good terms and building relationships, being listened to and being
involved, solving your problems, and getting a good reference and positive publicity. Therefore,
if you can fulfil these requirements whilst meeting your own, then the chances for a more
sustained and more profitable relationship increase.

In addition, everyone brings their own personal characteristics and negotiating style to the
table. There are six personal approaches that buyers use consciously or unconsciously when
they engage with a supplier and attempt to persuade them to reach agreement. They are:

• Accept

• Bargain

• Compromise

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• Logic

• Threat, and

• Emotion.

Each approach has its own strengths and weaknesses in a negotiation.

The use of Logic, Threat, Emotion, if successful, will result in the supplier changing its position
without you giving away any of your company’s value. The use of Accept, Bargain and
Compromise styles can result in an agreement, but you will have negotiated away some of your
company’s value. A combination of these styles should help to get the supplier to move their
position to one more favourable to the buyer. And remember never to accept the first offer.

There are lots of specialist tools that can assist the buyer when preparing for negotiations.

The analysis technique of supply positioning is based on the Kraljic model developed by Peter
Kraljic in 1983. It segments products and spend according to annual expenditure and market
risk, to produce four sectors: secure supply, partner with suppliers, minimise transactional
effort and drive to reduce cost.

Different approaches to negotiation are recommended for each sector.

For example, when annual spend is low but market risk is high, you’ll be aiming to secure
supply. Plan your negotiation carefully and analyse what the supplier wants. Use a cautious
style, and be thorough and persistent.

Minimise transactional effort is used when the annual expenditure and the market risk is low.
See if you can get the supplier to take on the complexity of administering, distributing stocking
and auditing stock, in order to reduce internal costs. When planning, consider the wider picture.

When planning a negotiation for high value, high risk items, there is a lot at stake for both the
supplier and the buyer. Use a collaborative style, and work with suppliers over the long term to
deliver large benefits post-contract through innovation opportunities. Where other techniques
have failed, you may be prepared to compromise when negotiating on these types of items.

If the annual spend is larger and the supply market is low risk, the buyer can use their
negotiating skills to drive cost reductions and improve benefits. This requires quick thinking and
assertive behaviours.

The supplier preferencing model helps the buyer consider how the supplier might approach the
negotiation based on their relationship with you. The axes in this case are the value of the
business to the supplier and the attractiveness of dealing with the buying organisation. This
produces four quadrants: develop relationships, minimise input, partner with customer and
exploit the opportunity. The supplier’s desire to deal with the business and successfully
negotiate a good deal depends on aspects such as how organised they are, the opportunity for
growth, and whether payment is timely.

One of the most powerful elements in a negotiation is use of negotiation variables (or
‘tradeables’). These are the items which can be traded or conceded as the give and take of the

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negotiation unfolds. They are a tactical negotiation tool. It’s important to prepare in advance all
the variables you intend to use in the negotiation, and how much, or how many, you intend to
win, lose or trade. You should prioritise your list into high, medium and low. Aim to achieve all
your high-value variables but be prepared to lose or trade your medium to low value ones.

There are many products where savings will always be very difficult due to the nature of the
commodity, where the price is nearly always escalating. The goal for this type of negotiation is
cost containment and control rather than cost reduction. The technique is a simple 3 step
approach: refuse, reduce and delay a price increase.

Negotiation is required at all stages of the contract to ensure that value is being delivered by the
supplier. The relative power of each party in the relationship changes over time. The buyer has
optimum negotiating power at the point where the contract is about to be signed, re-signed or
extended. The supplier may be prepared to concede a great deal in order to gain the contract.
However, the supplier has the most relative power in the final period of a contract, and can
extract value from the buyer who may be worried about missed deadlines.

The way the contract is managed will also affect the amount of power held by each party. Use
warm and tough behaviours to ensure the contract delivers value for the business at every
stage.

At the conclusion of a successful negotiation, all the points of agreement should be summarised
verbally and captured in notes, which should be written up and distributed to all parties and
signed off as a true record as soon as possible.

Next steps should be discussed, such as how long the supplier will need to wait until finding out
if their bid has been signed off, what documentation is needed for both parties to move
forward? And who can be told of the negotiation outcome?

At the end of a negotiating process, your team should carry out an evaluation to determine how
successful it was. Areas to consider include: the extent to which objectives and business needs
were met, whether a thorough process was followed, whether the chosen supplier is a good
cultural fit for the business, how well the team worked together, and whether a mutually
acceptable position was reached.

The terms of the successful negotiation will need to be put into some form of agreement. This
can vary from a straightforward one-page order, through to a highly complex document with
many signatures. The documentation should be appropriate to the level of commitment.

To secure the deal while the full documentation is put in place, it may be appropriate to sign a
Letter of Intent or produce a Heads of Terms, which summarises the essential points of the
agreement and allows preliminary work to begin on implementing the contract.

This brings us to the end of the section on negotiation and the associated strategies, tools and
techniques.

Now answer these questions to check your understanding. Pause the podcast to write down
your answers.

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1. What are suppliers motivated by?

2. What is the supplier preferencing model used for?

3. At what point in the relationship does the supplier have the most power?

This section looks at post-negotiation actions, and considers how to sell the agreements to
stakeholders.

Once a contract has been agreed, it needs to be communicated effectively to stakeholders.

There are a number of ways of doing this, such as through focus groups, presentations, team
meetings, notice boards, networking lunches, or webcasts. A combination of these is ultimately
the best course of action.

The Mendelow stakeholder management matrix can be used to identify how different groups of
stakeholders should be communicated with, based on their level of influence and level of
interest. In each case, a clear statement of the benefits that the contract will deliver to the
business will work best. A targeted and focused communication campaign can be very effective
if you have the resources available to plan, conduct and maintain it.

In some situations, such as in manufacturing, a contract agreement may be ‘mandatory’. In

other situations, stakeholders may be able to choose which supplier contract to use. In each
case, selling an agreement to stakeholders is preferable to imposing it on them. The buyer
needs to articulate to the user ‘what’s in it for them’.

If there are known ‘difficult’ stakeholders, use conflict management techniques to persuade
them to back the new contract initiative. For example, you could use persuasion not
confrontation, demonstrate clearly ‘what’s in it for them’ or employ a charm offensive.

This brings us to the end of the section on post-negotiation actions.

Now answer these questions to check your understanding. Pause the podcast to write down
your answers.

1. What methods can be used to communicate contract information to stakeholders?

2. What tool can assist in identifying how stakeholders should be communicated with?

This is the end of this podcast. You should now be able to:

• Analyse pre-negotiation and the associated preparation that should be made

• Examine negotiation and the associated strategies, tools and techniques, and

• Examine post-negotiation actions.

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