Often buyers are expected to negotiate commercial agreements with third party suppliers with very little support to prepare them.
The suppliers are often represented by well-trained professional sales people who have negotiated hundreds of successful deals, usually to the detriment of the buying organization on the other side of the negotiating table.
How do buyers try to even these odds and generate value for their organization?
Certainly not through any of the following:
- Using their power
- Bullying the supplier into making an agreement with false promises or threats
- Using negotiation like it is magic, where certain “tricks” will somehow charm or persuade the supplier into submission and agreement.
Like any art, negotiation is about understanding the very precise and technical rules to maximize your effectiveness; and making the appropriate choices about the right techniques to make use of and when in any given negotiating scenario.
1. The best negotiators know when to negotiate and when not to negotiate
The first question in negotiation preparation must be “is there a need to negotiate?”. Negotiation can be – at best – resource intensive. At worst, it can expose the organization to risk by having to give damaging concessions that were not fully thought-through.
Alternatives to negotiation may be:
- Keeping the status quo
- Choosing an alternative solution to the problem in hand
- Presenting a unilateral proposal that is unconditionally accepted
Some buyers view the last item on this list as a form of negotiation. They await an “offer” from their supplier and either accept it or reject it and demand an improved offer. This is not negotiation. This is a power tactic.
2. The best negotiators don’t think “what do I want?”, they think “what do they want?”
Where objective evaluation shows that there is a need to negotiate, the next activity of the buyer is to assess the background situation of the negotiating parties. This will serve to create as accurate assessment as possible about the positions, interests, objectives and negotiating range of the buying organization and the selling organization.
Suppliers may be swayed by the buyer’s money but negotiation reviews tells us that are many other factors that are of equal of greater importance. For example:
- The opportunity to leverage the agreement to win other work inside and outside the buying organization
- A consistent and reliable income source
- A test ground for new products, services, technologies, concepts
- Association with a brand, or a set of values, certain people or a lifestyle
- Access to people, places, ideas that are closed to them otherwise
- Securing a customer that helps meet the organization’s goals at that time in terms of product mix, service offering, utilization, product lifecycle, capacity, profit aspiration or any other criteria
3. The best negotiators know that the more power you have, the more influence you have
Best negotiators will use their preparation time to assess the relative power of each negotiating party. If it is assessed that your organization has less power actions need to be taken to determine the best approach to the negotiation. For example:
- Strengthen your best alternative to negotiated agreement (BATNA). A strong BATNA means that if you fail to reach agreement, you have a credible alternative to fall back on. This improves your negotiation plan, and your negotiating mind-set.
- Increase the number and quality of concessions you may use. Concessions are “trade-offs” that may be traded for what you want. You don’t have to use all of the ones you have planned for but having them available gives you more variables to move closer to an agreement.
- Gain all negotiating parties consent to have a non-competitive negotiation. This type of collaboration works when everyone agrees that agreement is better than no agreement, even where agreement does not fully meet your initial interests. Collaborative negotiation fosters the sort of creative problem solving that drives greater value for all parties. But it only works if everyone is committed to it, and it clearly makes sense for them.
Negotiation is life skill that we all use daily. It is possible for buyers and anyone who negotiates with suppliers to improve their skills and move closer to being one of the best negotiators. But to do so first requires the humility and insight to observe and critique one’s own style, endeavors and mistakes; and then make a plan for how to do better next time.