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13 September 2012 | Sue Preston
Good preparation and planning have a significant impact on the outcome of a deal, explains Sue Preston.
Without adequately defining your objectives, preparing your case and planning your strategy, your chances of achieving your ideal objectives in a negotiation are minimal. If one party has spent time before a meeting defining the desired outcome, planning how they will dictate the agenda, including how they will open their case and tackle some tricky questions, they will always outperform the person who has given no prior consideration to it.
The initial phase should incorporate objective setting, preparation and planning. Preparation is about researching your own precise requirements and latitude for movement, the market, the other party’s strengths and weaknesses, and making some (educated) assumptions about their ideal and fall-back positions.
Research by NRI found too few people dedicate time to planning. Here are some key planning and preparation steps to consider.
1. Manage your time
A staggering two-thirds (62 per cent) of the people questioned spent one hour or less preparing for a negotiation. Sixty-eight per cent admitted that better preparation for their last deal would have produced a better outcome.
Negotiation is a performance; it is during the planning phase that the stage is set and expectations managed. Effective negotiators envisage a far wider range of potential variables, openings and outcomes than the average negotiator. They also spend more time considering areas of common interest between the parties.
Average negotiators discuss item A then B, followed by C and D. If the business is in any other order, they are thrown off balance. Effective negotiators are able to discuss items in any order, enabling flexibility in their approach.
When preparing for a negotiation remember to:
- Consider the impact on the business.
- Consider how attractive this business is to the other party.
- Select the location for the negotiation.
- Plan the opening, testing and moving phases of the negotiation
- State assumptions.
- List questions to test the assumptions.
- Be creative – the longer and more creative the list of variables, the more flexible your strategy will be.
2. Prepare open questions
Of those surveyed, only 1 per cent would typically prepare 20 ‘open’ questions for a negotiation, with 44 per cent relying on only 0-5 planned questions.
Closed questions can be answered with “yes/no” or a short phrase, whereas open questions demand more information – for example, “Will you innovate for us?” versus “How will you innovate for us?”
If we ask open questions, it is difficult for the other party to evade and therefore puts the asker in a position of control. Many people believe that talking gives you control. In fact, it is the person asking the open questions and listening to the responses who will be in control.
If you talk too much and are under-prepared, the other party will put you on the spot with a well-chosen question. If you have planned properly, you will know what information you require and what assumptions you have made concerning you, your business and the other party. Proper use of questions allows you to check out all of this preparation before you move into the next phase of the negotiation.
3. Design a strategy route map
A negotiation has clear phases and these must be planned. Avoid entering one without having drawn up a careful map of the direction and destination of the meeting and any subsequent events. The route may not be completely sequential – you may have to backtrack – but at least you will be prepared.
Skilled negotiators will be in a better position to manage time more effectively, which will result in delivery of a better deal.
A quarter thought that the other party was more prepared than the buyer, with 48 per cent saying that both parties were equally prepared. Our research, which was based on the responses of 90 delegates on our courses, would suggest that a lack of preparation and planning is putting the buyer’s questions in a weaker negotiation position before they even go in to do the deal.
4. Consider style and personality
Personality type, negotiating styles and interests are all key factors in building rapport and managing behaviour during a negotiation. It is important these areas are considered in the planning stage.
The research found 43 per cent ‘sometimes’ consider these aspects, and 4 per cent ‘never’ consider it.
It is important to be unpredictable within a negotiation to prevent the other party reading you too well. And if they are skilled, they will also be unpredictable.
You need to prepare and plan for a plethora of tactics, approaches and questions because not all techniques will work all of the time on every one. So, when you’re planning, consider the responses the other party is likely to give.
Over half the people interviewed ‘mostly to always’ consider the other party’s response. This will put them in control and help them deal with the unexpected that can sometimes arise during a negotiation.
5. Define your targets
Another part of the strategy should be setting well-defined targets for each issue or variable. The research showed that negotiators often lose sight of their objectives. Keep these in mind and set well-defined goals from the outset. If we don’t know where we are going, how will we know when we’ve arrived?
Setting objectives from ‘ideal’ and ‘realistic’ to ‘walk away’ is paramount. It will help to control the extent to which you move from your ideal settlement point and to understand the cost implications of any movement.
Skilled negotiators know the specific objectives for each variable: what must they get? What might they achieve in an ideal world? And what is realistic? Make sure that the ideal is a stretching objective and that you have clear targets for each variable.
The longer and more creative your give and take list of variables, the more flexibility you will have in your negotiation.
The NRI study found 79 per cent either ‘always’ or ‘sometimes’ dedicated preparation time to getting their objectives clear.
6. List your tactics
There are more than 75 tactics that are used during negotiations. Some will work on certain personality types, but not on others. Skilled negotiators are unpredictable in their use of different approaches. If you continue to use a pattern of the same tactics in each negotiation, the other party will prepare to counter them next time. It is important, therefore, to list and carefully plan the tactics you will use in each negotiation.
7. Rehearse your opening statement
A clear, well-defined and well-rehearsed opening statement is crucial. The first thing you say should condition the other party and manage their expectations.
Skilled negotiators rehearse their opening statement several times before entering the negotiating room. Rehearse and then ask yourself: “If I heard this statement would it encourage me to walk towards or away from my ideal objective?” This will help you check you’re managing the expectations of the other party positively towards your ideal.
The study showed that just 2.5 per cent of people surveyed ‘always’ rehearsed their opening statement, with a huge 54 per cent ‘rarely’ or ‘never’ rehearsing.
Without doubt, what you do or don’t do in preparation and planning will determine the outcome of all negotiations. The more you plan and prepare, the more efficient you will be as a negotiator.
Mike Inman highlights two common mistakes made by negotiators
One of the things we stress most in our classes is “fail to plan, plan to fail”. A cliché, yes, but one with a strong correlation to negotiation results regardless of culture, industry, title or job function. Putting it another way, those who plan better do better.
Ahead of my presentation at the final plenary of the CIPS Annual Conference, where I will explain how you can transform your negotiation success, I have outlined below the two major supply chain side negotiation ‘no-nos’.
Being overly competitive
One of the toughest negotiators I ever had the pleasure of working with had one flaw in their game: they had to win every single deal point. While you need competitive drive, sometimes being too competitive in the short term leads to unintended long-term negative consequences.
First, deals take a long time to complete if someone is holding out to win every single point, which can often delay larger successes. Second, and most importantly, if the supplier doesn’t feel they win anything other than the order, they will be less inclined to provide extra value-added services once the contract is in place. Worse yet, they can become adversarial once the deal is signed and try to make it up in reduced services and price increases.
As a part of your planning process, try to identify a few deal points that are important to the supplier, but not critical for your side – and plan to concede them. I typically plan to give a supplier a long-term contract, which also helps me to be more efficient over time by not constantly bidding something out, so long as I have a 30-day termination for convenience clause, of course.
Focusing on price and/or margin
I’ve heard several negotiators say “why should you (the supplier) be allowed to have a higher profit margin than me (the customer)?”. It sounds reasonable, but negotiating using relative profit margins has nothing to do with financial reality. The supplier is competing with the market for the maximum amount of revenue their product or service commands and their own internal costs drive the margin calculation. Notice the customer’s profit margin doesn’t factor in at all. Still, many negotiators get off track by clinging to this issue if the supplier doesn’t concede right away.
I want suppliers to make a healthy margin on our account (nothing absurd, mind you) so we can command a great service. How do you do this if your success is measured by the savings you achieve? Here’s an example: we were negotiating with a well-known marketing company to support a sustainability programme. They wanted us to pay for them to spend hours interviewing several executives and then report back with a list of potential names. The total projected cost was US$30,000 (£19,207), which included a 25 per cent margin and it would take three weeks for the results. The first negotiator spent a week focusing on the margin and got the supplier to reduce it to 20 per cent. Upon further review, we didn’t believe the interview process added value to the quality of the brainstorming results and didn’t like adding three weeks (four weeks when you include the negotiation time) to our project plan. We offered them a deal. We would pay them US$10,000 (£6,402) to show us the lists of names they provided for their last three Fortune 500 clients. Their margin would be much higher while our costs would be much lower and we could save time. This win-win was possible because we began negotiating based on total cost instead of supplier margin.
☛ Mike Inman is a negotiation instructor and adviser with TableForce and a former CPO
For more guidance on what you can do to help your organisation transform its negotiation success, join us at the CIPS Annual Conference at Kings Place in London on 4 October. Go to www.cipsannualconference.com or call 020 7324 2746
Good preparation and planning have a significant impact on the outcome of a deal, explains Sue Preston. Purchasing Features analysis features Purchasing 2012