Negotiation Space

We came across the article “The Art of the Deal: Negotiating your Next Tech Contract” on BusinessNewsDaily.com and thought it was worth sharing four of the tips it outlines.

1. Do not give in to pricing pressure: As in other industries, technology needs to fill yearly sales quotas. If the seller says the deal is only good for a short while—check it out. Talk to your industry contacts and check with other vendors.

2. Customization is expensive. Tech is highly customizable to a company’s specific needs. However, be aware the more you customize, the more expensive it will be, and also that you will be locked in to dealing with one provider.

3. Know what you need and what you don’t. Some add-ons are necessary and some are just nice to have. You must know the difference, because this is where you will have leverage in negotiating with the other party.

4. Have an exit strategy. Define how you can end your agreement in case you are not satisfied with the product or service.

Clearly, these tips are also applicable to other types of business negotiations. If you are a technology buyer, do you have a number one tip you could share?

For both buyers and sellers, understanding pricing is crucial. Buyers want to know as much as possible about the price whereas sellers usually want to keep the details to themselves. How does a negotiator get around the secretive nature of pricing?

For buyers:

Are you a buyer trying to understand the seller’s pricing structure? It is important to get your exact cost breakdowns—in many cases so you can compare pricing with other vendors. Often, sellers will resist giving you this information, unless you can convince them that cost breakdowns will help their long-range interests.

There are several ways to convince the seller to provide you with the price breakdown:

1. Make the case that—due to policy and legal regulations–you cannot deal with sellers who don’t provide breakdowns.
2. Delay giving your order until you get the price breakdown.
3. Tie this purchase to future sales.
4. Leverage the competition: tell the seller they are providing the breakdowns.
5. If all else fails, protest to a higher authority.

For sellers:

Pricing is something most sellers try to keep close to the vest. Revealing too much could be troublesome and create a loss of negotiating power. If you are a seller trying to avoid providing a price breakdown, following are few tactics you could use:

1. Your company policy prohibits it
2. Detailed information is not available
3. Providing breakdowns is a large expense, due to the detailed nature of the work
4. Cost breakdowns involve proprietary information
5. If all else fails, keep saying no.

How do you deal with pricing issues? Please share your tactics (both as a seller and as a buyer) in the comments.

Although we associate the term caucus with politics (the Iowa caucus, the Congressional Black Caucus, etc.), caucus simply means that a group of people, united by the same cause, come to together to decide policy or course of action. In business negotiations, you would hold a caucus with your team when you have new issue or direction to discuss.

Why to caucus

You can caucus when you need to give your team a time-out, especially when something that you did not foresee comes up in the negotiation discussions. A caucus gives everyone involved time to think.

There are many other reasons to caucus:

• To review the negotiations up to now
• To develop new arguments
• To come up with new questions
• To check rules and regulations
• To discuss possible concessions

Caucuses can also provide tension relief and reduce stress during a crisis stage or a very prolonged negotiation.

How to caucus

The team leader will call the caucus. Gather your team with a clear sense of what you need to discuss.

In order to have a good caucus session, you need to have the following available:

• Comfortable meeting place
• Privacy
• Agenda
• Somewhere to take notes
• Displays and information resources (whatever you need to look at to help make decisions)

How and why do you caucus? Have you found caucusing to be helpful in your business negotiations?

In any business negotiation, information is power. The more information you have, the better your position. Getting more information from the other party is always a challenge.  In order to extract information, you’ll have to probe effectively.

There are several probing methods, but we will talk about two. First is the  “what if” or “would you consider” technique.

Dr. Chester L. Karrass writes: “Few approaches to bargaining yield as much information and opportunity for win-win negotiations as the ‘what-if’ technique.’”

To use the “what if” or “would you consider” technique, you have to add some creativity. You are going to be presenting the other party with some scenarios. Here are a few examples:

* What if we give you a three-year contract? or Would you consider a three-year contract?

* What if we modify the specifications? or Would you consider changing the  specifications?

* What if we buy your entire line of products? or Would you consider purchasing our entire line?

* What if we pay in cash? or Would you consider paying cash?

* What if we provide our own shipping? or Would you consider using your own trucks?

By using what-if scenarios (or would-you-consider), you are probing into the other party’s motivations, and acquiring insight that would have otherwise not been available. In some cases, what ifs can lead to unanticipated trade-offs.

Another useful technique is called the “planning purpose trap.”  It is fairly simple and works like this: the buyer tells the seller that “for planning purposes” he/she need an idea of what a product/service will cost in the future, and emphasizes that it can be a ballpark estimate. The seller then makes a quick estimate, which often tends to be on the low side, to keep the buyer interested.  The seller has now made it very hard to increase the price later, but has also revealed a cost that is does not have lots of padding.

There are several other ways to probe—just make sure you are getting the information you need without shutting down the other party.

What techniques have you used to obtain valuable information in a business negotiation?

Power in negotiations
When we talk about power in a negotiation, what do we mean? Dr. Chester L. Karrass defines power in a negotiation as the ability of a negotiator to influence the behavior of the other party. He also lists eight principles about power:

1. Power is relative.
2. Power can be real or apparent.
3. Power can be exerted without action if the other party believes that an action can take place.
4. Power is always limited.
5. Power exists to the extent that it is accepted.
6. Power does not separate the ends from the means.
7. Power entails cost and risk.
8. Power relationships change over time.

Dr. Karrass states that these eight power principles are applicable to most if not all negotiating situations, from the diplomatic to the simple sales transaction.

But apart from the principles of power, you may want to determine the sources of power. Power can be drawn from various situations.

• Legitimacy: We give power to those who have genuine authority through ownership, tradition, and laws.
• Knowledge: The control of information gives power. The more you know about your product, your market and the other party, the better your power situation.
• Commitment: The degree of loyalty and commitment to an organization or a situation determines how much power you have. For instance, if you are non-committal about your job, you may not get promoted.
• Negotiation skill: Your negotiating skills can be developed and honed. The better your negotiation skill set, the higher your power.

What we can take away from all this is that power can be increased or decreased—it is not stable, plus, it depends largely on perception.

Perhaps Alice Walker put it best: “The most common way people give up their power is by thinking they don’t have any.”

Can you counter a counter-offer or a final offer? Most of the time, the answer is yes, you can always counter. In a few cases, the last offer or counter-offer is really the final one. The other party is not going to change course, but in most cases, especially if there really is the will to reach a mutually agreeable deal, the final offer can be countered.

Dr. Chester L. Karrass says that you should not accept the final offer at face value, and suggests you test it.

To test the firmness of the “final” offer you can:

• Determine whether the other party is hedging
• Don’t overreact
• Provide a face-saving way out from the “final” offer
• Consider walking out
• Introduce new alternatives and solutions

Counteroffers are common in real estate and in job searches. In an article from Essortment about home selling counteroffers, the author provides this advice:
• Don’t respond immediately
• Think flexible
• Know your bottom line
Read the article here: http://www.essortment.com/home/homesellingstr_supa.htm

A final offer is often a game of chicken, to see who will be the first one to blink. It takes a good deal of confidence to counter a final offer, but it may be worth it in order to get a deal that is more suitable. However, sometimes a final offer really is final. You will either have to test it or accept it.

How do you counter a final offer?

Is there a point where you stop negotiating? The emphatic answer is yes. There is always a point in a negotiation where you stop negotiating.

In the best case scenario, you stop negotiating when you get to your Both-Win deal, and everyone is satisfied. However, there are times when you are not getting to any resolution, and you have to know when to stop.

When either party has made a final (read unchangeable) decision: Say you have decided to terminate an employee. He/she needs to go because you need a different skill set from what this employee offers (or what he/she can learn). There is no more room for discussion. The employee may try to negotiate with you: he/she will learn new skills, he/she will try harder, etc. You have made a final decision and you are not looking to have your mind changed.

When you have reached deadlock: Sometimes parties reach an impasse and cannot reach an agreement. Sometimes one party uses deadlock as a tactic to test the resolve of the other party. Although sometimes deadlocks make it easier to reach compromise afterward, sometimes they just mean the negotiation is not going anywhere.

When there is a reluctance to reach an agreement. Sometimes parties enter a negotiation without really wanting to negotiate. It may be a requirement that they attempt to negotiate a deal, but there is no will to do so. If either party is reluctant to negotiate, stop negotiating because the negotiation is going nowhere!

When there is unethical behavior going on: Bad faith and lack of integrity will not create a solid, workable agreement. If there is unethical behavior from either party, you will need to clear it up or you won’t be able to continue your negotiation.

When either party is found to have no authority: If the party you are negotiating with does not have the authority to enforce a decision, chances are the agreement will not stand.

When do you stop negotiating? Please share your views in the comments.

Types of negotiators and their skills

Being in business requires negotiation skills. A few days ago here on Negotiating Space, we discussed the types of negotiating skills you need to start a business. Perhaps we could call those entrepreneurial negotiation skills.

In his book The Negotiating Game, Dr. Chester L. Karrass writes that the most important in skills in negotiation are the following:

• Planning
• Thinking clearly under stress
• General practical intelligence
• Verbal ability
• Product knowledge
• Personal integrity
• Ability to perceive and use power

According to the article “Top Negotiation Skills for Entrepreneurs” from the GoForth Institute, those skills, plus organization skills are crucial for entrepreneurs. Read the article here:

http://canadianentrepreneurtraining.com/top-negotiation-skills-for-entrepreneurs/

Here are some other skills that play a part in negotiation:
• Reliability
• Initiative
• Persistence
• Risk-taking
• Courage
• Team leadership
• Patience
• Ability to develop rapport
• Tact
• Open-mindedness

Arguably, entrepreneurs need the full range of negotiating skills, since they are involved in many aspects of business (sales, employee relations, contracts, etc.). The skills needed for specific negotiations may be more focused, or may place more emphasis on one of these areas. For instance, If you are involved in sales negotiations, it is crucial to have product knowledge. You may also need research skills to be able to know and assess the competition.

Dr. Chester L. Karrass makes distinctions amongst different negotiators He writes that industrial negotiators (engineers, program managers) “placed greater emphasis on objectives, ability to exploit power, willingness to take risks and the need for discretion.” He then says that commercial negotiators (attorneys, real estate brokers, retail buyers) “placed greater emphasis on analytical ability, self esteem and patience.”

Do you focus your attention on developing specific skills to your area? If so, which skills do you find most usefu

Entrepreneurship is not enough to start a business. You should also be a good negotiator. Negotiation skills are crucial to business, especially in the start-up phase.

Writing in Entrepreneur Magazine, Asheesh Advani provides negotiating suggestions for start ups. When business have little or no revenue, Advani says business owners will have to negotiate with employees, suppliers and investors. All these negotiations are necessary if you want to keep the business afloat.

Advani gives the following tip when dealing with investors:

“Tell minority investors that you have standard terms that are non-negotiable. Don’t let investors restructure your investment terms unless they plan to lead the entire round of fundraising. Most investors will actually prefer you to have standard terms so they can focus on evaluating the business proposition rather than the investment terms.”

He also advises the following when negotiating with suppliers:

“I recommend negotiating with suppliers just like you’ll negotiate with investors: Put your best foot forward, and let them believe in your company as much as you do. For instance, let your suppliers dream of the day when you’ll be their biggest customer. Negotiating a deal on favorable terms will be considerably easier when they perceive your business as a potential long-term client rather than a startup.”

Read the article in Entrepreneur here: http://www.entrepreneur.com/money/financing/startupfinancingcolumnistasheeshadvani/article76894.html

There are many other areas where entrepreneurs will need business negotiation skills. New business owners will negotiate items like payment terms, transportation costs, contracts and more.

In his book In Business as in Life—You Don’t Get What You Deserve, You Get What You Negotiatie, Chester L. Karrass says the essence of win-win negotiating is that “like successful entrepreneurs everywhere…[find] hidden opportunities in what they could do for the others…it raises the level and content of the relationship between the bargainers.”

Basically, if you succeed at negotiations, you will likely succeed in starting a business.

Dispute resolution is the process of resolving a conflict between parties. There are legally enforced methods of dispute resolution, such as litigation or arbitration, and there are consensual methods such as mediation. In some cases, the parties will reach a dispute resolution agreement, which is a legal agreement laying out the steps and timetable for solving the conflict.

According to the Businessdictionary.com, negotiation is the “bargaining (give and take) process between two or more parties (each with its own aims, needs, and viewpoints) seeking to discover a common ground and reach an agreement to settle a matter of mutual concern or resolve a conflict.”

Dispute resolution is not negotiation nor is negotiation the same as dispute resolution. Simply put, negotiation is one of the tools available for dispute resolution. Negotiation is about reaching agreements, and if a dispute is holding up said agreement, clearly the negotiators need to find a way to resolve the dispute.

Business negotiations should not focus on dispute resolution. To succeed, business negotiations should be collaborative and all parties should be entering the negotiation with the intent of reaching a mutually agreeable deal. If there is a conflict or dispute beforehand, it is hard to see how the parties will work together collaboratively.

If the parties are negotiating a contract, and can’t resolve their differences through negotiation, then the may need to move to mediation or arbitration. Dr. Chester Karrass calls arbitration “a legitimate alternative in the negotiating kit of tools.” Thus, dispute resolution can also be seen as an alternative to negotiation.

How do you handle disputes? Have you successfully resolved a conflict through negotiation alone?