STRATEGIC NEGOTIATIONSREVIEW

Strategic Negotiation is a generic course applicable to all private and public sector organisations, including those in the shipping industry.

Given the highly competitive nature of your industry, whether you are in ship building, ports, facilities management, freight forwarding or ship operation, you are working in a well-regulated but volatile market, which is greatly dependent upon the state of the world economy and shifts in the world-trade balance. Success within this sector requires effective strategic planning, negotiation and implementation, as well as the ongoing monitoring of the internal and external environments to meet the business plan.

The areas with which the strategic negotiator must be familiar, irrespective of the industry or public sector, are shown in elements 1 to 6 of the Strategic Process Model. Your organisation will have to negotiate contracts, deal with trade unions, manage the logistics of complex negotiations, take strategic decisions as to future organisational growth, and perhaps deal with bids and tenders. Effective preparation is the key to success in negotiations at strategic level, as is a deep knowledge of the power and influence of the stakeholders that you have to deal with, both on and away from the negotiation table. The quality and depth of your analysis and diagnosis is central to the effective development of the Negotiation Agenda.

The skills and methodologies you learn from the course can be applied anywhere.

MODULE 1 The Strategic Negotiation Process ModelThe strategic negotiation process model maps the stages through which each strategic negotiation activity should be conducted

Process Model

1.2 Foundations of the Business Plan (Boxes 1– 6) 1/2The elements from 1 – 6 (Contracts, Pay & Benefits, Multi-parties, Licensing, Joint Ventures, Due Diligence Vulnerabilities and Tendering, Bid management) are Foundations upon which the strategic negotiations process rests and from which manager draw upon.. Without basic knowledge of these subjects, negotiators would be severly handicapped and unable to evaluate the advice received effectively.

- Authority could be transferred to professionals but responsibility cannot

Contract law – legal details vary by jurisdiction but foundation similar. Some familiarity is necessary

- Written contracts summarise distrusto No contract – high vulnerability; strict contract – signals distrust

Pay and Benefits & Multiparties – important influences on HR considerations for business plans

Box 4-6: main instruments for business growth: Licensing, Joint Ventures, & Mergers & Acquisitions

NB. These are closely related to identifying the commercial and operational imperatives applicable to particular types of organisation and their business plans and depending on the organisation and its business sector, they are most likely to have within them the instruments for realising the organisation’s business plan.

1.3 Analysis and Diagnosis (Boxes 7–9) 1/3Boxes 7-9 develops useful tool for strategic negotiation, particularly for analysis and diagnosis

- Supply substance to data used for strategising- Box 7: looks at Force fields: doodles mapping personnel for/contra proposition

(Lewin)o expanded force fields,: multi-party, multi-level, multi-issue

The diagram rests on the simple idea that at any one moment there are forces operating on a situation, some of which “drive” for positive changes in the status quo and some of which restrain the driving forces to maintain the status quo. To the extent that these forces cancel each other, the status quo prevails.

- 8:- Power Analysis (Atkinson, Levinson) discusses how power influences negotiation using Atkinson’s/Levinson’s “power balance” tool

- 9: - Stakeholder Alliances (McKinsey) complex multi-party negotiations

1.4 Overview of the Seamless Strategies and Process (Boxes 13–16) 1/5Problems in adopting advice on strategy begins when the players adopt what is essentially an inappropriate strategic perspective - the strategy proposed is at variance with the goals it is supposed to tackle and this links the material covered in the Business Plan.Box 13 The business plan 1/6The organisation’s business plan (box 13) comes from deciding what to do and the Strategic Negotiation process model takes into account “interests and objectives because consideration of the organisation’s interests is important for negotiations.

Interests – motivations of negotiators in their preferences for outcomes- Summarise fears, hopes, concerns- Objectives reveal organisation’s interests

General premise of process model: business plan normally taken as “given”- However, normally subject to review, feedback on operational performance,

changed circumstances

Objectives should be SMART

3-5 year planning range sufficient for most purposes - However many contracts last longer

1.4.2 Commercial Imperatives (Box 14) 1/8Box 14 includes important Commercial imperatives derived from business plan, Commercial imperatives are imperatives you must achieve if you are to implement the business plan.

- Subject to Analysis and Diagnosis (it’s from the diagnosis of operational imperatives that the firm will develop strategy to achieve the business plan and which the management’s negotiation agenda is identified.

- Lead to operational imperatives (what the organisation must do to restructure and resource its operations to achieve commercial imperatives.

Typical examples of commercial imperatives- Reduce bad debt provisions- Reduce labour cost base- Extend distribution nationally/internationally- Impose profitability to cover debt interest- Reduce dependence on foreign agencies

Prioritise according to impact on achieving business plan

1.4.3 Operational Imperatives (Box 14) 1/10Which resources will deliver to commercial imperatives

- People: - those who do the work ad receive remuneration (who to assemble, retain)- Finance: - how and on what terms it is resourced (capital mix)- Technology: Technology – what it does for the organisation and what it costs (which

technology mix to use, affordable?)

Typical people imperatives:- Lowering labour cost base- Decruitment- Recruitment- Training- Remuneration- Outsourcing

Finance:- Asset disposals, borrowing- Initial Public Offering (IPO), new share issue- Joint Venture (JV) , Mergers & Acquisition (M&A)- Licensing, franchising- borrowing

Technology- Intellectual property rights (IPR), Research & Development (R&D)- Licensing & Royalties- JVs, M&A to gain technology access- Innovation- Know how

1.4.4 Analysis and Diagnosis (Box 15) 1/12Analysis and Diagnosis of the necessary operational imperatives that must be assembled to allow the commercial imperatives to deliver the business plan may be undertaken by business planners or delegated to staff and functional line managers.Can be delegated:

- More people contribute to planning and implementation => more alignment of activities thus securing its successful outcome within the scheduled planning period (advantage)

Strategic level

- Working knowledge of contracting, pricing, organisation growth, HR management and influence (advantage)

1.4.5 The Negotiation Agenda (Box 10) 1/13The negotiation agenda is a well-thought out proactive strategy for conducting relationships with employees, suppliers and customers. The preparatory data for determining the appropriate policies are derived from analysis and diagnosis (box 15) and implemented in the Negotiation Agenda (box 10) Management should take Regular surveys of future of enterprise

- Wage costs important but not decisive- Preparatory data for policies derived from Analysis and Diagnosis and implemented

in Negotiation Agenda

Negotiation Agenda:- Proactive strategy for conducting relationships with employees, suppliers and

customers- Longer than number of issues for specific negotiation

It is an assertion of the Strategic Negotiation process model approach that the derivation of the negotiation Agenda in an organisation adds greatly to the smoother implementation of the necessary changes and to the flexibility with which adjustments can be made should events show them to be necessary.

- policy choices made in pre-negotiation phase, costed carefully and integrated into the negotiation agenda

- should the agenda items be agreed, and allowing for adjustments that may be necessary in the light of negotiated changes in the original proposals, their implementation should follow the plan discussed during preparation for the negotiation.

1.4.6 Implementation of the Negotiated Agenda and Feedback (Box 16) 1/14Need for policy changes prompted by changes in :

- Environment: regulations, market, exchange rates...- Organisation’s strategic focus: markets, integration, disintegration, growth, cost

cutting, retrenchment- Technology, IT, online publishing banking, network, ...

These changes place constant pressure on the organisation and the way it functions. Some changes may be distinct advantages and could affect the company’s future. If a company does not implement the necessary positive changes before the competition, then any competitive advantage over the competition could be eroded. Also, noteworthy is that not all changes that promise competitive advantage fulfil their promises as an anticipated ‘first mover advantage’ could become ‘first mover folly’

Policy changes agreed with those affected are assessed by how they affect the mix of people, finance and technology that constitutes what the business is about, how it operates, its success or otherwise and the contribution each make to the organisation’s varied purpose

NB.- not all proposed changes are agreed in their original form during negotiation.

1.4.7 Review and Feedback (Boxes 12 and 16) 1/15Alignment between business plan and negotiation agenda is necessary to secure board-level approval. Fully costed options from the Negotiation Agenda have greater chance of securing higher level approvals where they directly support or deliver the objectives of the higher-level’s own objectives in the organisation’s business plan. Feedback and review is an important and integral part of the model

Feedback: should report any discrepancies between planned and actual negotiation outcomes

- Directed at all those involved in negotiation and input into review processo Better to show positive (albeit small) improvements across the board than

mixedPost negotiation reviews should also provide feedback on the strategic negotiation process as a whole, what worked well, what not so well and what lessons may be learned for future negotiations of the negotiation agenda.

REVIEW QUESTIONSChapter 11.1 Why do policy-makers lose strategic focus in their negotiations?Partly it is a result of poor preparation, partly because they are drawn into prominent symbols of their disagreement with the other party. The other party could introduce a prominent number or boundary into the discussions; “one penny a quire”; “draw a line in the sand”, “indigenous labour only”, “international wage rates to apply”, “no re-exports”, “payment in local currency”, “30 per cent withholding tax” and such like. What is prominent attracts attention and what attracts attention becomes the focus of the discussions. Positions for and against are articulated, defended and fortified. Strategic focus is lost in the exchange of rhetoric.

The usual result is for the negotiations to become a single-issue haggle around “yes”, “no” stand-offs, with a zero sum feeling about the outcome, if there is one, or a deadlock. Avoiding these sub-optimal outcomes is the purpose of studying strategic negotiation.1.2 What use are commercial imperatives for a public sector funded organisation?At first sight it might not seem appropriate to lable something as a commercial imperative in a non-commercial organisation. But if you think about so-called non-commercial organisations, thinking about the “commercial imperatives” is entirely appropriate.

Few, if any, publicly funded “non-commercial” organisations are immune to the iron law of the scarcity of resources. Governments are not “bottomless pits” for unlimited finance for the purposes of any organisations, public or private. They are constrained by budgets and the competing demands of other organisations, many of which feel just as passionate about their aims and objects, and all of which articulate their demands through political rather than market forces.

Once this is recognised, then the commercial model of scarce resources competing for alternative uses is relevant. Of course, in some cases this is sensitive to the language of people managing the publicly funded organisations.

When commercial language was introduced to the manager and their sponsors in a large public hospital, they expressed their discomfort over the use of the terms “business plan” and “commercial imperatives” and a discussion of priorities in the funding of medical procedures (money should never come into the treatment of illness). For a while, “business plans” became “budget plans” and “commercial imperatives” became “targets”. In a short time, however, when the benefits of strategic negotiations preparations became apparent, these objections were first muted and then completely absent in the planning meetings.

In commercial organisations the imperatives relate to the matching of expenditures to what the markets will (eventually) pay for; in non-commercial organisations the imperatives relate to the matching of expenditures to what the budget holders will renew in future budgets. Failures to perform in both types of organisation are “punished” either by markets or by budget holders. The imperatives to perform according to the business plan/budget plan should have the same impact on the organisation. Essentially, what you call them is less important than that you recognise their role and why they are imperatives.

1.3 Explain the benefits to management of having a negotiation agendaThe actions of deriving a negotiation agenda require a consideration of the organisation’s objectives as specified in the business plan and the imperatives of performance identified in the commercial imperatives. This moves the negotiation from being a routine “chore” (something that interrupts the “proper” work of the management) to that of its central purpose of delivering the objectives of the business plan within the performance indicators of the commercial imperatives.

The negotiation agenda imposes its own discipline on the time allocated to preparation and the tasks associated with it. Instead of, say, waiting to respond to a list of demands (the wish list) of employees’ representatives (unionised or non-unionised) or opening general negotiations with a view to “hearing what they have to say” and grabbing an unopened file of recent correspondence from suppliers, which hands the initiative onto the other party, the management negotiators take the time to prepare and gain command of the details, cost the various options, and uncover potentially useful variations in what they may want to achieve.

Moreover, because the process model requires current negotiation objectives to be linked, seamlessly, to the organisation’s business plan, seeking and gaining the approval of higher management for the objectives of the negotiation agenda is facilitated. Post-negotiation feedback and review is also facilitated and future negotiation performance is thereby improved.

2 - Basics of Contracts

2.1 Introduction 2/2Basic contract knowledge is important, for negotiators but not widespread.

- Important part of Analysis and Diagnosis

2.2 Promises, Promises 2/2Promises were the lifeblood of relationships, however, with the changing times written Contracts summarise residual distrust between parties. Contracts are:

- Enforceable by law- Negotiable

Don’t leave contractual matters only to lawyers- Lawyers Must interpret your intentions => and intentions must be clearly expressed

as the more clearly they are expressed the more likely it is that the papers signed will accuarately represent your promises and protect your intentions.

2.3 Elements of Contracts 2/3Obligations (contractual promises) underpin most business transactionsPenalties for failing to perform

- Legal (external) contracts) – specified in contract or general law- Informal contracts – may be political

Ten main elements of contracts:1. the identities and addresses of the parties;2. statements of their expertise and their explicit wish to contract;3. definitions and meanings of words used throughout the contract;4. promised obligations and warranties, and indemnities for not keeping them;5. rewards for performance;6. penalties for non-performance;7. duration and termination of the contract;8. ‘boilerplate’ clauses (governing jurisdiction, etc.);9. schedules supporting the contract;10. signatures of the parties and witnesses.

Cross-check every reference (better than reading in sequence)- What is standard to a lawyer may have significant consequences to you

2.4 Anatomy of a Contract 2/4Lawyer – negotiator perspectives:

- Lawyer places negotiable point in context of law- Negotiator places legal point in context of contribution to negotiation- Example:

o Lawyer: Stalling payment (illegal) versus deducting disputed item (legal)o Negotiator: Delay puts pressure to settle, potentially (for plausible reason)

without provoking legal retribution

2.4.1 The Parties 2/5Contracts are between parties Two (or more) names and addresses identified at head

- Licensee may be identified as “licensee” only- Consider jurisdiction of address- In case of holding company / head office

o Linking to parent may extend recourse in case of dispute

2.4.2 Statements and Explicit Wishes 2/6Paragraph usually begins with “Whereas”

- Has clear enough purpose- Rest of contract states terms under which parties promise to carry out their

intension and what happens if they do or fail to do what they promised.

Tend to be self-congratulatory or bland claims. Signing indicates that it recognises claimed expertise of other party

2.4.3 Definitions and Meanings 2/7Definitions and explicit meaning of words in a contract could have serious consequences.

- Order: Alphabetical or based on first appearance

Negotiable!- Change wording, add limitations, clarify meaning and scope

2.4.4 Obligations, Warranties and Indemnities 2/8Usually presented as “obligations of Party A” (the first party mentioned) followed by “obligations of party b”

- States what the parties promise to do within the term of the contractTight wording => mandatory, unqualifiedLoose wording “use best/reasonable endeavours” => loosen obligations

- Relying on obligations wrapped in terminology such as “use reasonable endeavour” may not be wise; offering obligations qualified by “best endeavour” may not be prudent.

Warranties and indemnities go together

- Can and are often meant to be extensive and draconian- Always Negotiable to a point

You may not know how much reliability to place on another party’s statements and, where the risk of default is high, it is prudent to discourage false and misleading affirmations of performance. Requiring warranties and indemnities discourages tendencies for them to be economical with the truth.

2.4.5 Rewards 2/10Contracts seek commercial gains for all parties

- Sellers: commercial gain for sell product, services or tangible properties at more than cost

- Buyers: exploit purchase to produce sellable output (after adding value)

Benefits could include- seller constructs a tunnel which the buyer uses to enable trains to operate taking

fare-paying passengers to their destinations.

- Sellers gains the construction cost of the tunnel; the buyer uses the facility of the tunnel to collect revenue from its users.

2.4.6 Penalties 2/11Penalties can be monetary or terminal (or both)

- Negotiable!

Excluding limted force majeure:Seller: send-or-pay (price for purchasing from alternate source e.g oil or gas to say a power station contractor). Compensates customers for having to purchase supplies elsewhere.Buyer: take-or-pay (rescheduling, rerouting, storage costs)

Liquidated damages: In construction, maximum amount for non-performance (often capped as percentage of contract value)Consequential loss: sufficient to cover all losses attributable to non-performance; draconian; if unlimited risk viability of firm.

Performance bond: sum deposited in buyers bank which buyer can withdraw in case of non-performance

- Corrupt governments may require “performance bond” to senior official- Retention money: milder version, allows client to hold back ~5% until after

completion of work

2.4.7 Duration and Termination 2/13Non-performance of a material contractual obligation can lead to termination if not remedied.

- Every contract should contain a duration and termination clause- Should be two-way

Termination causes:- Bankruptcy, liquidation of one party- Takeover by new beneficial owners- Breach of fiduciary duty- One party brought into disrepute by other- Material breaches in contract provisions

Contract clauses may differentiate between:- Termination for cause – events that cause standard termination- Termination without cause – provision that permits termination by giving notice

(even if nominally “in pertuity”)o Reasons may be subjectiveo May be worth unexpired value. Negotiable!

Other termination provisions:

Cross-default clauses:- More than one contract for related services or unrelated services- Allows termination of all contracts in the event one of them is terminated for cause- Appropriate if contracts are interlinked

2.4.8 ‘Boilerplates’ 2/16Multitude of “boring” but dangerous issues

- E.g. jurisdiction which governs the contracto Contract law is loosely compatibleo Judges may not always be impartialo Inconvenience of travelo USA: each party bears own costs; UK winner may be awarded costs from

loser- Applies to innocuous issues such as headings of a clause not being part of the

agreement- “No reliance” on prior statements- Failure of single clause to invalidate contract- Grammatical (Singular includes plural, inclusive gender)- An important boilerplate clause states that the agreement covers all terms agreed by

the parties and that no reliance should be placed on any prior statements, offers, understandings or promises made before the agreement was signed and which are not contained within it.

Review all negotiation exchanges and ensure all material interim offerings are includedEarlier omissions are identified the more likely mutual consent will be achieved

Side letters – may be confidential private arrangements, e.g. side payment for facilitating

2.4.9 Schedules 2/17Schedules are part of contract

- Detailed lists of items (trademarks, logos, IPRs, properties) too long to place in the clauses of main agreement

- Difficult to change without disturbing pagination- Neater to change numbered schedule

2.4.10 Execution 2/18Execution through witnessed signatures of each party

- Each party entitled to original signed copy of agreemento Multiple reference copieso Strict confidentiality clauses may restrict circulation

Signatories: officers of organisation designated to sign official documentsWitnesses may be any person asked to witness signature; do not need to be aware of contents

2.4.11 Conclusion 2/18- at this level negotiators will be dealing with contractual obligations of a serious nature- negotiator should be familiar with how contracts are constructed

2.5 Contracting as a Bargaining Process 2/18

2.5.1 Introduction 2/18The drafting of written contracts is a bargaining process, in and within which the four phases of negotiation and (purple) conditional bargaining are conducted.

Bargaining includes:

- Offers- Exchanges- Acceptance

Opportunities for negotiation at each stage- May negotiate details before drafting formal contract or may present one or more

drafts at beginningo Generally single draft is preferable (confusing to reconcile)

- Exchanges can be long and complexo Background checks on financial status, proof of title, analysis of company’s

accounts...o Reliance on “good faith”; suspicion to the contrary may lead to withdrawal

2.5.2 Memorandum of Understanding (MOU) 2/19In some jurisdictions, lawyers have been making serious profits due to the lack of “good faith” bargaining amongst parties, thus creating a new source of legal fees in pursuit of Recompense for deadlock if other party had little intention to make agreement.

o In an effort to try and reduce the need for attorneys, some companies attempt to handle the problem by means of a Memorandum of Understanding (MOU). A MOU is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action.

Unreliable protection; expose other risks

China: companies often insist on MOUs

Dangers:- Indicative prices, quantities, delivery dates- Often become fixed or maxima even if supposedly non-binding

2.5.3 Heads of Terms 2/21Listed first on agenda. By default Heads of Terms acquire a “binding” statusSet parameters on aspects of deal, before setline details

E.g. for property lease- Duration, upward-only rent reviews, rental premium, premium for fixtures and

fittings, acceptability of guarantor of tenant’s obligations; legal costs borne by tenant, repair and insurance lease. Tenants pays own and landlord’s costs and state property taxes

- Payment of property taxes, compliance with planning laws, regulationsNegotiable: e.g. prestigious tenants may negotiate better rental deals to encourage others

2.5.4 Heads of Agenda 2/22Identifies agenda topics but does not make proposals on substantive differences

- Doesn’t require explanations or particular sequence- Purpose is to bring parties to meet without preconditions

2.5.5 Offers 2/22Legal principle: unconditional offer unconditionally accepted is a “done deal”

Caution with implied offers: “nothing is agreed until everything is agreed”

Evidence that terms have been discussed and negotiated support claim that legal offer was made

- Press reports, media interviews, negotiation papers, emails...- To avoid controversy: common to add “subject to contract” on all exchanges

Offer can be withdraws at any time before the offeree accepts.

- If withdrawn before acceptance then no contract exists even if offeree subsequently accepts

Conditional acceptance hands power to revoke back to offeror

2.5.6 Exchanging Promises 2/24Negotiation usually involves changes to the original terms of an offer by:

- Amending individual terms (e.g. raising, lowering prices) or - Exchanges conditional propositions that delete/amend linked individual terms

Difference between lawyers and negotiators during this process areNegotiators

- Exchange proposals (tentative offers) and exchange of bargains (specific offers- To facilitate movement, negotiators link conditional offers to trade across more than

one issue to derive package deals, causing negotiations to be described as management of movement

- work across a table; -lawyers - exchange marked-up drafts with proposed amendments to clauses- tend to deal with each issue separately to avoid a sudden withdrawal of commitment

to the deal

Lawyers: wary of conditional clauses- Prefer to deal separately with each issue- Contributions tend to be demand-led (rather than exchange-led)- Single-issue bargaining tends to produce zero-sum outcomes

Negotiators:- Exchange conditional proposals and bargains with greater despatch- Linked conditional bargains provide safe means of indicating flexibility

o Every offer has a price in terms of conditions

2.5.7 Acceptance 2/25This is the endgame/Outcome of negotiation; it is the close of the bargaining phase which ends the negotiations. The outcome is;

- Unconditional agreement- All terms are agreed and when everything is agreed there is nothing left to negotiate

about for the moment.- Signature means it is legally enforceable in courts of jurisdiction

Lawyers and negotiators arrive at same destination through different paths

2.6 Negotiating Contracts 2/26Contracts vary in degree of negotiable flexibility. In some cases everything is negotiable and in some, nothing is negotiable. In between there are varying degrees of negotiable and non-negotiable terms.

When strategic negotiations move from the analysis and diagnosis of a problem or opportunity to the derivation of policies and their implementation via a negotiated agenda, the end product will be a contractual relationship.

2.6.1 Pre-prepared Contracts 2/26Pre-prepared for reading, acceptance and signature.Often closely printed and double-columned: imply little room for flexibility

- Where thousands of business transactions are conducted daily- Minimise risks of variations (unintended legal liabilities)

2.6.2 Pre-prepared Templates for Negotiation 2/27

Implies nothing more than that it saves rewriting everything every time it is used.Apply where most terms are acceptable for most occasions.

- E.g. publisher, screenplays- Some parameters are negotiable

Templates can be considered intellectual property by lawyers

2.6.3 A Single Draft for Negotiation 2/27- Most common type of contract negotiation- Usually presented After time has been spent negotiating main issue from the parties’

prepared agendas and a possible framework for an Agreement has emerged or has been identified

- Signals that parties are close to agreement

2.6.4 Jointly Authored Contracts 2/27Rarely practical to agree line-by-line, word-by-wordMore frequent:

- Would be a slow process since would be difficult to have both sides agree to everything

- Parties keep side notes during negotiations- Parties adjourn- One party produces draft

2.6.5 Complex Contracts 2/28E.g. Construction industry: subject to formalised government and public agency regulations

- Potential damage to people and property- At least two separate documents

o Technical specificationso Commercial terms

Continuity problems in large/complex negotiations- Negotiation team changes- Misunderstandings, perceived “bad faith”- Remedy

o Detailed documentationo Whole agreement clause

Prevents previous representations/arrangements from having validity

REVIEW QUESTIONS2.1 In what ways do negotiators differ from professional lawyers in their approach to the negotiation of contracts?Lawyers attend to the legal implications of their offers and proposals. Their basic principle is that an unconditional offer unconditionally accepted is a done deal. They do not like putting conditions on their offers or their acceptance. This leaves them with narrow options of sticking to their entry positions on issues and waiting for, or forcing, the other party (complicated if it is another lawyer) to move under the pressure of time or events from their current positions.

Lawyers often negotiate by amending single-issue proposals, separated from other issues (the use of distinguishing colours of ink or underlining). This gradually eliminates issues, reducing the residue to ‘difficult’ issues for both of them. It is a natural zero-sum exchange. It also suits adversarial bargaining: at best it takes time; at worst, it provokes deadlock and they go to trial. Negotiators make conditional proposals and bargains, linking movement on an issue to movement on a separate but linked issue. They trade things that are of less value to them for things that are of more value. The conditional proposition links its conditions to its offers.

The former is the ‘price’ of the latter. Revealing a wish to trade does not lead to ambushes or the grabbing of the offers while discarding the conditions. They are inextricably linked and cannot be separated because conditional bargainers are assertive, not compliant.

Lawyers avoid conditional offers and revelations of their potential flexibility. Negotiators base their approach on using their (conditional) offers to reveal their potential flexibility. Negotiators can reach settlements face to face across a table; lawyers take longer because of their heavy workloads and their ingrained legalistic inhibitions (unless they receive remedial training!).

2.2 Why are the ten elements of a contract important for a negotiator?The ten main elements of a legal contract:1. The identities and addresses of the parties2. Their expertise and explicit wish to contract3. Definitions and meanings of words4. Promised obligations, warranties and indemnities5. Rewards for performance6. Penalties for non-performance7. Duration and termination8. ‘Boilerplate’ clauses (governing jurisdiction, etc.)9. Schedules supporting the contract10. Signatures of parties and witnessesThe ten elements are common to many business contracts, and negotiators should become familiar with them and their purposes.

In examining a contract, the ten elements provide a guide that serves most purposes of negotiation, and they are a useful basis on which to approach contract negotiation. Of course, lawyers have an important role too, and in many complex negotiations their role is crucial and mandatory. Most contracts are ‘legalled’ before signature, but negotiators still have a role in setting policy and in settling terms, which can then be drafted securely by the lawyers operating to clear instructions as to your intent.

The clarity of a finished contract is assisted to the extent that the negotiators are reasonably informed on how a contract is constructed and what its principal elements are, and what they are supposed to do, allow or constrain. Knowing something about the construction of the contract assists the negotiation of its clauses.

2.3 Why do certain types of business (e.g., car hire, air travel, mobile telephones, and so on), preprint their contracts and expect customers to sign without quibble and to accept the predetermined choices left to them?Products with mass markets undertake the identical transactions many times a day, and preprinted contracts save on the time taken to complete each transaction. Where high-value products are hired, there is a security issue in their appropriate use and return. Ambiguities in the conditions of use, payment, insurance and return could prove onerous, and litigation to enforce terms and conditions (T&Cs) is expensive. The certainties written into the preprinted contract reduce such ambiguities to a minimum (and, should an unanticipated situation arise, it can be cleared up subsequently by amending and printing new contracts for future use).

Most of the businesses that use pre-printed contracts have many outlets, and the staff employed in them are most efficient when individual discretion is reduced to the T&Cs of the pre-printed contracts. Individual variations create ambiguities. By designing their product offerings carefully such firms closely align what they offer to what customers want, and they do not expect individual negotiation of the T&Cs. Offering pre-printed choices (‘fully comprehensive insurance’ or ‘third party, fire and theft’) tightens the specifications of the service to suit individuals, and the predetermined prices charged for each package eliminate most, if not all, of the opportunities to negotiate. The supplier also has the choice of refusing to supply its product to a customer who wants to negotiate the T&Cs.

2.4 Why do you think that corporate lawyers store on a database every client’s contract they have prepared, and why do they also hold pre-prepared templates for each type of contract? Big law firms may have 200 or more lawyers as partners, all managing their own clients. Without an inordinate degree of verbal coordination, several lawyers may be working on similar contracts simultaneously for different clients. This is highly inefficient. If templates are available, drawn from actual contracts that the firm supplied to clients previously, a great deal of expensive time can be saved (though the intellectual contents of the template are still charged at the full fee rate), and partners can take on additional lucrative work from other clients.

2.5 Why is it better for parties to negotiate from a single draft contract?Trying to negotiate the merger of clauses or parts of clauses from two or more draft contracts is an extremely difficult (and frustrating) exercise. Simple things like the numbers of the clauses are different; even the order of specific terms may be different, and the intentions may also be different.

It is much better for efficiency and speed of progress to work from a single draft, even if it requires substantial modification by one or both parties. If one party wants amendments to some of the clauses and the other doesn’t, it is no disadvantage to have a single draft. The outcome of an agreement involves a single contract and because the draft in use does not cover important points that the parties consider necessary there will be no agreement unless their inclusion is negotiated, independently of how many drafts are on the table.

There is a minor advantage in a single draft text, almost psychological, in that a single draft text becomes ‘our’ text by default, especially if it is amended by all the parties at the table so that each may genuinely claim ‘ownership’ of the Agreement.

2.6 Is it important which of the parties drafts the single text of a proposed contract?In my view it is not important, though it is to some advisors, who recommend that you draft, inter alia, the minutes of a meeting, a draft MOU, or contract, or Heads of Agreement. It seems to me that the key nature of this role is exaggerated. The alleged advantage is that you can ‘slant’ the wording to suit your interests or interpretations.

If ‘slanting’ something to your advantage was real then you must be dealing with a lazy negotiator who is forgetful of the necessary fact that negotiations are two-way events. Slanted wording can be challenged, and often is a cause of suspicion about your motives. I believe the risk of discord in a relationship outweighs any petty advantages you might gain. One advantage of drafting the wording yourself is the certainty that it will be done and that momentum towards agreement will be maintained. Beyond that I can think of nothing to commend it.

3 - Pay, Benefits and Union Negotiations

3.1 Introduction 3/2This module is about the human resource environment in which a company might apply the process model. If negotiating for the objectives in the business plan through the Negotiation agenda, the negotiator should have a basic knowledge of the labour environment in his/her country – how it has evolved and how it operates in practice.

- Main focus is on how the labour negotiations framework operates

Two regulatory models:- Market capitalism: US, UK- Social capitalism: continental Europe

o Higher unemployment, lower private investment, higher public spending, lower official working hours

- Other variations: China, Vietnam, North Korea, Australia, South Africa...

3.2 National Pay Bargaining 3/3Large firms often set remuneration and employment conditions at national level as a result of

- Bargaining agreements with trade unions- Variation: set maximum pay guidelines

o Derived from national budgeto Implement through local negotiation

Local pay bargaining- Local organisations have freedom to hire/fire and set terms and conditions

Nb. The laws and practices of trade unionism in individual countries vary – bearing in mind that in the majority of cases in the majority of secular democracies

- Majority of workforces not unionised, but- Legal right to unionise

3.3 HR Considerations 3/4Organisations operate in particular market settings, and the nature of those settings should be understood if the negotiator is to work within them.

Similar HR and reward strategies for unionised and non-unionised environments- Unions add complications, constraints on management decision-making

3.3.1 Objectives of a Pay System 3/5Knowledge of the board aims of pay and reward systems helps the negotiator to conceptualise the strategies he/she might want to follow; hence he/she require some familiarity with them. Pay and reward systems should

- Enable recruitment/retention of the required stand to carry out functions- Reward responsibility & performance- Create harmonious environment (fair rewards)- Achieve efficiency, cost-effective deployment- Ensure equity and adequate differential- Ensure flexibility to cope with market pressures- Be easily comprehensible- Easily administered, audited, controlled

Pay award structures have different effects on employees and should be designed with these effects in mind. Several facts affect the design of reward systems

Three elements of a pay package:- To all staff: based pay, pensions, holidays, sick pay- The certain categories: cars, bonuses, options- Some staff according to need:

o Relocations, disability, sabbaticals

Unions tend to focus on members rather than organisation

3.4 Union Recognition and Representation 3/8The negotiator’s task here is to manage the organisation to achieve its goals. Therefore, it is important to understand how trade unions function and what affect they have than it is to critique their role.

Highest union priority: Recognition and Representation rights- Majority of employees wouldn’t pay union dues unless recognised as bargaining

agent

Management must recognise importance of recognition (often doesn’t)- Maxim: if you have something the other values then you have greater influence

More impersonal/collective bargaining => less performance and individually oriented behaviour and attitudes. As the consequences of this outcome could be serious for the business plan, subsequent realisation of the impact of lack of care during the recognition process cannot be changed dramatically in the short run, because negotiated agreements, voluntarily entered into by both parties, are difficult to change let alone undo, and the organisation is stuck with what it agreed, or did not agree when it had the opportunity to trade for more satisfactory agreements.

Decline in union membership mostly by individual attrition, not employer-driven de-recognition

3.5 Gradations of Recognition 3/10There are grades of recognition, and one problem with recognising unions occurs when employers recognise Multiple trade unions => avoidable disputes and running tensions and are associated with:

- Recurring arguments over Spheres of influence- Large number of representatives from each union- Large amount of employer’s resources for facilities- Management time- Leapfrogging disputes on substantive and trivial issues

- Inter-union rivalry- Recruitment militancy- Reduced opportunities for management initiatives on cost controls and new

technologies

3.5.1 Single Union 3/11Where a single union is recognised as the sole bargaining agent for its members, employers exclude other unions from recognition.

- Parties to this arrangement avoid factious problems associated with multi-union plants

- Simplest solution- Proliferation of single-union agreements led to union mergers- Single-union strategy for new plant easier than ending multi-union agreement in

existing one

Advantages of single union- Efficient use of management resources dealing with one union- Absence of rivalry- Easier to introduce More flexible work practices- Authoritative forum- Correction of past inequities in pay and rewards “won” by separate unions- Ease of communications

3.5.2 Single Table 3/12Where it is impractical to adopt a single-union strategy, the next best solution is to try a single table approach where all the recognised unions participate together in collective bargaining with management at the same time (eg. SAJ)

- Approach is superior though not as effecicient as a single union approach- Never under-estimate the degree of inter-union rivalries on matters of survival or

member dignity

It is possible to adopt a transitional Two-tier approach:- Single-table for all common terms of employment- Second tier of subgroups with particular interests- Base pay could be either tier

For non-unionised employees- Usual approach: consultative committee

o Should meet before decision is made- Small organisations: individual approach

Benefits of single-table bargaining

- conducive to the efficient use of management resources- can facilitate an agreed set of pay relativities (no leapfrogging of small

groups over comparable groups of employees)- provides an authoritative forum for the expression of employee views- is easier to communicate management views to employee representatives

Disadvantages- Latent inter-union rivalry- Number of representatives at single meeting- Extensive facilities required for several unions to operation (meeting room,

telephone, copiers, etc- Time off work for official union representatives

3.6 Formal Negotiation Procedures 3/13Formal procedures necessary for orderly conduct of collective bargaining

- May reserve negotiations to professional managers (HR) or line managers- Unions may also have full-time officials or may devolve role to local members

- Specify how employee representatives are elected, number and duration of appointments, statement of duties

- Cycle of regular meetings, purpose, ratification process,

May also reference conciliation, mediation, arbitration- Conciliations: private discussions with conciliator who explores options for

resuming deadlock, reopens discussion- Mediation: 3rd party holds private discussion and makes non-binding

recommendations of possible solutions- Arbitration: usually three independent arbiters, make binding decisions either

through compromise or choosing one solution3rd party interventions usually written into contract

- Through joint-consent clause they may be options

Similar arbitration clauses also appear in commercial contracts- May limit rights of recourse

Negotiated agreements superior to 3rd party arbitration- Accountability gives greater legitimacy- Unions object to clauses “no sanctions while a dispute is in procedure” – i.e. no-

strike agreement

3.7 Communicating for Major Negotiations 3/16Direct communication: limited to negotiators presentStrategic negotiation requires communication with all affected by outcome

- Prior, during, afterwards- Abandoning communication with the company’s employees to the union or staff side

could be a serious error.

- Essential to Reserve right to communicate directly to employees on any subject

- Communication beyond the negotiation table is an important part of the Negotiation Agenda for any kind of negotiation

- Important not to neglect all levels of management and employees in the communication process and not just to communicate with those in the negotiation team who prepared the Negotiation agenda.

- Managerial communication is best conducted regularly and not just when a crisis emerges.

- Sending letters to employees about pending action resulting from current union-inspired events is disingenuous and probably too late. Employees who receive regular communication on major issues affecting them are more likely to react positively, even to bad news if management established a reputation of telling the truth and being honest.

Structure expectations or other side’s negotiators- Unrealistic expectations can lead to deadlock

Those with vested interests inclined to reinterpret and reframe motives and interest (circulate misinformation)Don’t neglect any level of management

- Grapevine never charitable- Regular communications best (not just during crisis)

In strategic pay bargaining there are three communication phases:Pre-negotiation:

- Spread accurate information and realism to workforce- Ideal opportunity to address the “no surprises” principle properly.- Theme should be Non-adversarial

- This phase is Neither a negotiation or substitute / akin to brainstorming

Intra-negotiation- Between meetings (e.g. pay negotiations typically require more than one) (eg. Ones

held by ACH or TR with unions)- Not propaganda; reminder of what is at stake- If serious contention emerges in negotiation, negotiator may decide to communicate

directly with employees. Scripted intra-negotiation briefing used during this period become more important and should always be seen as reinforcing involvement in the ngeotitaiton process and the commitment of both sides to its success.

Post-negotiation- Conference should be considered assuming success in the negotiations- Joint presentation of agreement should be made

Review Questions3.1 Why should management ensure that the arrangements for the recognition of a trade

union are carefully structured before they are agreed?Recognition is of extreme importance to a trade union. Without recognition it is severely hampered from operating effectively and efficiently on behalf of the members it recruits from among the employees of an organisation. In many countries, recognition or not is a matter between the employer and the employees, and a refusal to recognise in certain circumstances (such as when underlying and non-addressed employee grievances are present) can provoke severe disruption, some of which the employers ‘win’ and some they ‘lose’. A few instances of grievances lasting years have been experienced.

In other countries there are legal rights governing union recognition. Should employees demonstrate (by secret ballot) that they wish to join a trade union, then procedures exist to ensure that their wishes are realised, and employers must grant recognition. Where these rights are accompanied by legal rights for employees not to join a trade union, the recognition granted will apply only to those employees who join the union, i.e., recognition will be partial. Even if 100 per cent of the employees join a union, people may change their minds or new employees may decline to join the union, and for these individuals their rights are protected.

The significance of gaining recognition rights for a union is a factor in negotiating the terms of recognition, and employers should ensure that, in granting rights, they do not undermine their own ability to manage the enterprise. The right to recognition does not include the right to impose the union’s version of the recognition agreement.

At the moment of agreeing to recognition terms and conditions management has an opportunity to protect its rights to manage and to introduce curbs on the conduct of the union, which, once conceded by management, are extremely difficult to recover. A firm resolve by management to assert/confirm its unfettered right to communicate directly with its employees, its right to manage the enterprise without interference by the union, its right to veto the appointment of shop stewards, its right to insist that persons appointed as shop stewards remain under the disciplinary and grievance procedures of the organisation, its control of the work time of local union representatives between their official union duties and their duties as employees, and its right to insist that union officials adhere strictly to the company–union procedure agreements are the minimum requirements of management when negotiating recognition and procedure agreements. Managements negotiate the application of recognition rights; they do not simply concede them for nothing in return.

3.2 Why is a communication policy beneficial in a workplace? Communication with all employees on a regular basis is important for management. It never wants to get into a situation where it can communicate with its employees only via union representatives, and neither should it abandon its direct communication with employees to the so-called ‘grapevine’, that unofficial, informal and woefully inaccurate means of spreading rumour, gossip and malicious stories about management’s intentions whenever it does anything. From a strategy point of view, communication is an essential element of anything likely to involve changes, not all of them foreseen, because changes always bring stress and anxieties about what they might mean for individuals. Too much stress and anxiety create distractions from the jobs at hand, which may prevent a good situation from developing into something better or make a bad situation worse. Elements of a good communication strategy include regularity of contact (individual letters, notices, briefing groups, meetings), honesty and clarity in the messages communicated, and speedy feedback to senior management. It is better that employees are bored by the communication they receive than that they

are cynical about never being informed about anything. Of course, it is better still if they are enthused by the communications they receive!

4 - Managing Complex Negotiations

4.1 Introduction 4/2Questions addressed:

- How to organise negotiation team without neglecting “day jobs”- Ensure management attention, commitment to deliver- Maintain political will over long-term transactions- Deal with 3rd party influence (media) against project- Maintain focus in face of unexpected events- Deep track of details (e.g. 200 separate agreements)

4.2 Transaction Logistics 4/2Transaction management: management of negotiation process not the negotiating skills used in the process. When the management of complexed negotiations are undertaken by poorly trained negotiators, the results are well below sub-optimal.

Transaction itself has to be managed. Negotiations take place over a length of time; months, maybe years at locations and maybe in more than one country. During the period there are other events occurring that impinge on the negotiations.Location:

- If Property of one party => other must remove papers after each session- Neutral venue => burden on all party

Where negotiation duration is uncertain- Impinging calendar events need to be mapped and noted (ext. Dates of board & shareholders

meetings of the parties and duration of official statutory procedures)Assemble support staff

- Supervisors, porters, drivers, filing clerksMonitor files

- Security provision may be needed => risk assessment

Scheduling- Calendar events must be mapped- Statutory procedures (regulatory approvals, public enquiries, legislation, court cases...)- Festivals, holiday, religious events, week-end- Military coups, public disorder, kidnappings, terrorism...

Media policy- For high-profile implications; can soften public opinion

Logistics- Moving people, documents,

Should be managed like any other project.

4.3 Corporate Risk 4/5Some transactions are so large they can expose the company to bankruptcy. In simple deals with few tradables (10-50) possible to establish negotiating ranges from entry to exit points.

Board business plan identifies decisive issues, charges management with achieving them As issues ascend hierarchy they are summarised into aggregate terms. Negotiation agenda is aligned with the board’s business plan. Managers identify

- Commercial imperatives

- Derive the negotiation agenda to implement the plan- Review the deals they strike and how they deliver the plan

From the list of items identified in the Negiotiation Agenda, the negotiation team will derive its Negotiation plan which details the fully costed negotiation issues management will use in negotiations to secure the Negotiation agenda’s objectives.

Board approvals hinge on summary reports demonstrating support of Business Plan- Should highlight risk assumptions

Expenses- Negotiating large deals, tendering, changes in specifications and design, management time- Sunk costs not relevant; marginal cost of completion must be lower than profitability of

project

Transaction budget- Remove excessive enthusiasm for closure irrespective of long-term consequences- Promote risk assessment review

NB. A feature of the Negotiation agenda is in inbuilt personal accountability by the negotiation team leader who signs off the board report, which are countersigned by the CEO or Director responsible for the function from which the reports emanate.

4.4 Public Sector Negotiations 4/7Negotiating complex high-value deals with public sector organisations creates special difficulties for other organisations, particularly commercial companies. Negotiators need to be aware of the operational differences that arise from the different ethos of each organisation and the people in them.

Organisation loses budget it does not spend- Negotiations accelerate near year end- Invoicing for pending deals

Auditing for performance and probity (value for money)- Departmental pride, public standing

Possibility of government change- Persons may change even if party remains- Risk of termination of negotiations by incoming government

o Stall, accelerate

Requirements for transparency

Public sector officials must balance political agendas with professional roles

4.5 Managing the Negotiation Team 4/9Large contract negotiation: team effort and involves

- Coordination & communications- Appropriate structure, preferably in writing- Circulate full contact details- Roles & responsibilities- Transaction manager

o Strong interpersonal skills and assertiveness- Professional advisers

o Accountants, lawyers, bankers, finance managers, property specialists, valuation assessors, pension managers, insurance brokers, actuaries, surveyors, risk assessors, architects, economists, HRM advisors, translators, environmental impact assessors

o Important considerations Advisers have had professional contacts over years with and against each

other => not likely to compromise professional relationships for short-term gain

Advice should be questioned and challenged => early identification of issues

Select named individual points of contactAll team members should be kept fully informed of flows of documentation

- Establish document numbering system

When negotiations move from Heads of Agreement, it is usual for some team members and advisors to withdraw and be replaced by those specialising in negotiation of the detail.Heads of Agreement sets out

- Concise form or precise terms of sale, purchase, contract ...- Non-binding legally (except confidentiality, exclusivity, cost sharing)- Heavy moral commitment- Useful checklist of main matters to be decided (for incoming team members)

Settling small issues before big ones - Sounds attractive (build trust)- Not always good (false sense of security); at least should be acknowledge early

Long hours typical for intractable problems (e.g. EU, UN)- Better to adjourn and reconvene

NB in role as negotiating Manager, you will face many choices before, during and afterward and should realise that whether you choose consciously or otherwise, whatever you do is your choice and will be taken as such by colleagues on both sides of the table

- Negotiators must invest in preparation- Search for negotiable solutions that deliver the interests- Behave always on the basis of mutual respect for thos with whom they deal- Seek to establish long and prolong trust between parties in all negotiating phases and

afterwards during implementation

Module 4Review Questions4.1 Why are transaction logistics important, and why might the appointment of a transactions manager assist in finding solutions to difficult problems?Long-running negotiations create problems for their management. A proper transaction management plan should be put in place, much as a proper itinerary would be required for a multi-country business trip. The more detailed is the plan, the more likely that most events will run smoothly. To manage the transactions plan a transactions manager should be appointed, ideally with experience of event management. A major negotiation should be treated as a series of events. Location adds a complication if, for example, everything contained in the location belonging to the negotiation team has to be removed at the end of each daily session and returned for the next session. Where there are several locations the problem is compounded. But logistical problems of this kind are not insurmountable. Well-understood procedures exist for decamping from one venue to another. For instance, the European Parliament regularly switches between its buildings in Strasbourg in France and Brussels in Belgium, many United Nations sub-units relocate in sequence around the world, and the G8 countries meet several times in succession in different continents. Formula 1 motor racing events move the competitors, the engineers, the cars and their supporting ‘garages’ a dozen times a year, plus the attendant press and media, and large entertainment organisations, such as World Wrestling Entertainment (WWE), manage the complex arrangements for their travelling shows across North America.

The transactions manager’s job description includes the management of the team that make similar logistical moves possible for the negotiating team without fuss or failure. This way, the negotiators are not diverted by missing files, records, data and computer equipment, nor by double-booked hotel rooms (or no rooms), nor by failed communication links to and from the organisation they represent. Dividing the functions of a transactions manager between several people on a semi-part-time basis is a recipe for failure, which could adversely affect performance in the negotiations. The line of responsibility for transaction logistics should run directly from the transactions manager to the leader of the negotiating team.

4.2 How does the Negotiation Agenda assist in accountability to the Board for what the negotiating team has agreed in the Board’s name?Accountability derives from the nature of the Negotiation Agenda. In the Strategic Negotiation Process Model there is a seamless connection from the business plan to the Negotiation Agenda. Everything included in the Negotiation Agenda has the explicit approval of the Board because it has been fully costed and itemised by the manner in which it contributes to the organisation’s objectives over a three- to five-year planning horizon.

From the Negotiation Agenda – the list of items that deliver the business plan – the negotiating team draws up the Negotiation Plan for particular negotiations. This is costed and presented to the CEO of the organisation for authorisation. When the negotiations are completed, the negotiation team compiles a statement of the results, with explanations of any variances between the plan and the outcome. Where variations have been necessary the negotiation team adds explanations of the

circumstances, the trade-offs that ensued, and what compromises became impossible to avoid. This enables the Board to assess the outcome against the approved plan and the Negotiation Agenda. Anything short of the planned goals is assessed for its ability to be improved upon at subsequent negotiation sessions, and to check that nothing has been agreed that makes the attainment of the planned goal more difficult at a later date.

4.3 What special problems does negotiating in the public sector bring to the bargainers?The public sector is different from the private sector. It is funded differently, has different rules covering public tendering, negotiation and accountability, and operates in discrete budgetary periods. It is also subject to more external influences than are private transactions, many of them with (loud) access to media resources. The public sector is managed by public officials and governed by politicians, and even the public feels no compunction about joining in to make critical (and not always ‘fair’ or truthful) remarks about the performances of public sector managers. With some ambiguity as to who is responsible for performance, the politicians who run the departments or the public servants who work in them, a game of ‘pass the parcel’ is not too difficult to initiate to divert attention away from those who are really to blame.

Private sector bargainers are sometimes surprised by the behaviour of the public sector officials conducting the negotiations, many of whom are not at or near the negotiating table. Their interventions, often quite arbitrary, have immediate impact on the pace of negotiations, their direction, their stopping and starting and their conclusions. To the extent that these off-table influences are anonymous, bargainers who deal only with those at the table are at a disadvantage.Public sector officials feel no responsibility for the financial consequences of prolonged delays from their departments in coming to a decision that might have significant impacts on the private sector negotiator’s prospects for making profits. Even if they feel sympathy for the effects of their department’s delays, they are most unlikely to express such sympathies to the languishing private sector firm in case it is quoted by the aggrieved firm in its noisy disputes with the department over the delays. Delays in authorising the building of an aircraft carrier or a major motorway do not have deleterious financial effects on the department; it may well be saving on spending its budget within the financial year and thereby remain within budget to the satisfaction of an otherwise over-spent Treasury.

For reasons of probity, departments do not encourage the forming of personal relationships between its staff and the staff of private sector contractors. In fact, too close personal relationships are frowned upon and attract the suspicious attention of such bodies as senior departmental staff, the Public Accounts Committee, politicians looking for cheap headlines, and the media looking for the ‘news’ and scandal that sell newspapers or can make the careers of media presenters.

There are costs in such downplaying of the relationship side of negotiating. Strict adherence to the terms of an agreement, when some ‘quid pro quo’ flexibility would benefit both parties in the longer run, has hidden, though often intangible, costs. Invoking a pure ‘transaction’ relationship between the parties avoids potentially misunderstood behaviours between negotiators; these may cost the department more in the medium to longer-term.

Gains and losses from agreed, but inflexible, arrangements are quite normal over long construction projects; sharing them may be more efficient and mutually beneficial. All sides tend to acknowledge this, but finding a ‘safe’ way to manage the ‘swings and roundabouts’ without compromising public trust has proved extremely difficult.

4.4 Why should difficult issues be acknowledged or confronted early in the negotiations?This is a tactical question for which a variety of nuances in the answers are possible. Some negotiators abide by what for them is a general rule, allegedly based on their experience, that settling smaller issues before difficult ones is the best way to proceed. This sounds attractive, but other people’s experience suggests that delaying facing up to the difficult issues until the less difficult, even ‘easy’, answers are settled is not necessarily good advice. That ‘difficult’ issues are present should at least be acknowledged early on, and probably the earlier the better. There may be no immediate need to go into the details about the specific issues and problems that pose difficulties for you, and it may be sufficient to announce that there some ‘problematic’ issues among those you have to negotiate. Calling something ‘problematic’ is a neat way of describing problems without causing provocative offence. Negotiators, it should be remembered, are in the ‘solution’ and not the ‘deadlock’ business, and acknowledging this fact is often helpful in creating a climate of optimism rather than provoking unnecessary deal pessimism. If there is a deal in prospect and the parties willingly want to conclude one, it is the negotiators’ and their advisors’ duty to find it.

Building trust in small steps is the right thing to do, but do not avoid the big issues longer than is necessary. Announcing that you see some ‘problematic issues’ may invite a request for you to identify them, and it is usually a good idea to do so without going into the case for and against them

specifically. Again, a statement that you are in the ‘solution business’ might be enough for the problems to be noted and for them to be taken when they arise in the agenda. If the problematic issues are really difficult to solve, you should spend as much time as it takes to understand why the two sides are at an impasse, and not spend as much time as you can trying to avoid the ‘difficult’ issues.

5 - Organisational Growth StrategiesThe concepts and applications here are needed background for commercial and operational imperatives derived from the business plan and the negotiator would make little progress in the process model without being familiar with them

5.1 Introduction 5/2The Organisation has at least Four potential growth strategies:

- Organic – with own resources- Licensing, franchise, agency distributors- Joint ventures and partnerships- Mergers and acquisitions

All involve negotiation- Internal and external: other organisations and government agencies- Laws may be multi-jurisdictional, multi-party negotiations

Strategic negotiation is implementation of strategic choices- Business plan objectives => negotiating imperatives- Operational activity- Line between planners and implementers maybe blurred

NB. Strategic negotiation is about the implementation of strategic choices (usually) already made by the organisation, by different people. The process model takes the business plan’s objectives as given and explores and delivers the negotiating imperatives that follow from it.Analysis-paralysis can cause indecision among negotiators preventing them from actually doing anything. Sometimes it is possible that the items chosen for the Negotiation Agenda cannot help the company reach the plan’s objectives. It’s also possible that any dissonance between method and objectives will be exposed when trying to derive the Negotiation Agenda from the business plan.

Eg. Preparatory work, including due diligence reports, for negotiations to acquire business unrelated to organisation’s future prospects like acquired business is an intercontinental air transport service but the organisation ships its output via container shipping – should highlight for the negotiators that the acquisition is of insufficient positive value to the acquiring organisation.

5.2 Organic Growth 5/5Many organisations do not grow (sales, profits); they only age eg. Local wholesale, bars, restaurants, taxis

- Growth is risky; can kill a business (growing from small to big can be risky and challenging.- Contract negotiation for non-growth business poses few strategic problems

o Tend to be Repeat negotiations of standard contracts

- Negotiations for organic growth businesses may have some strategic implications if that growth implies changes of some kind in the product mix or location

Questions for organic growth- How to extend product range, diversify, add enhanced services- Associated contracts for new employees, leases, supply and sales- Timing:

o Rapid: viability of replicating previous success formulaeo Slow: invites early imitation by better-financed rivals

Expansion driven by opportunity rather than “prudent” financing is risky- More familiarity with product and market reduces risk

Growth dilutes managerial attention

Organic growth is- Usually contained within the contractual negotiation experience of the organisation if it

sticks to familiar business

- Growth decisions must be more than “good ideas”, must be well thought out and prepared

5.3 Licensing (Box 4) 5/9Many options exists for an organistion wishing to expand its operations (high overlap in negotiations): such as;

- Licensing, agency, franchising (each utilise managerial and marketing competence of existing organisations through “arms length” relationships.

Manufacturers negotiate with third parties to distribute their goods when the costs of setting up and staffing their own distribution and sales services, and learning about distant markets would be prohibitive. Shipping product to independent distribution centres may be less costly than staffing a multi-team sales organisation

License agreements common in new regional /national markets (especially foreign jurisdictions). Licensees negotiation requires legal support in order to draft document. It embodies the relationship with the licensor and license should be drafted to reflect both parties’ precise intentions

NB. There are circumstances where a different choice of negotiating tactic may be made to reconstitute a direct field sales force for retail distribution operations after trying the option of a third-party distribution through local centres approach.Example:Business plan headline objective

- Expand sales nationally/internationallyTransform into SMART objective

- Licensed sales will account for 40% of turnover within three yearsCommercial imperatives

- Locate and negotiate with licensees in six named national regions and secure licensees in six foreign countries with three years

Operational imperatives- Train, recruit expertise in selection and management of potential licensees

License negotiations requires legal support in drafting process and should focus on negotiable issues:- Degree of exclusivity- Terms of obtaining products- Territory- Expected market performance- Distribution of rival products- Protection of IPR- Renewal/terminal terms

Degree of exclusivity influences performance expectations- Higher exclusivity => higher performance- Higher performance => larger territory- Performance => renewal/termination- High exclusivity => lower distribution of rival products- IPR are absolute; no dilution

NB. A company’s business strategy determines the content of its Negotiation agenda.

5.3.1 Exclusivity 5/12Exclusivity speaks to the company alone doing business with the other party.Licensors prefer exclusivity

- Argument: marketing benefits rivals if not exclusiveo Threat of future rivals present even if none yet appointed

Licensee prefer to keep options open- First licensee may not be best

- If multi-distributor then marketing may benefit rival brands

Is exclusivity to be “one-way” or two-wayOne-wayCan take one of two forms

- Licensor awards exclusivity in its own product to the licensee and appoints no other licensees in the territory, but licensees distributes rival products and substitute

- Licensee distributes the licensor’s product and not the products of rivals in the territory but the licensor distributes its products through various other non-exclusive rival licensees.

Either licensee or licensor exclusive (licensee adds your products to its menu of product offering and marketing or promotion on your behalf is diluted by the marketing spend for rival products.Direction of exclusivity depends on market strength or product

Two-way- Licensee distributes rival or substitute brands, and you license rival distributors or- Licensee exclusively distributes your product and not other products in the territory, and

you do not appoint rival licensees.

Can be exclusive or non-exclusiveNon-Exclusive: perfumes (customer like to choose at one location)- Exclusive: Cars (marketing and salest casts and after-sales services are high). Buyers willing

to travel to see branded marquesNegotiated outcome of exclusivity issues should be determined by the nature and price of the licenced products relative to substitutes, the expected size of market and whether licensee can generate sufficient revenue to justify restriction to single branded product.

5.3.2 Quality 5/13Set quality standards for licensees. Without quality standards and clear penalties for breaches, the product could suffer damage, curbing future sales.

- Sales and after-sales service, remedies to fix problems- Maintenance and improvement of quality standards is an important issues (depending on

nature of product)- Complaints about product require early attention- Visits to applicant licensee to inspect operation and interview staff and assess financial

viabilities part of appointment process- Penalties for breach; termination- Otherwise brand may suffer

Quality is a two-way process, what you deliver to the licensee is as important for the licensee as what he delivers to you in terms of your revenue and your reputation.

Feedback: product problem (quick); service problems (more difficult)Quality non-negotiable; Frequency of monitoring, evaluation, remedial interventions negotiable

- Visits to inspect operations, interview staff, assess financial viabilities- Training- Direct questionnaires, supplementary indirect checks

Quality concerns two-way;- Licensee may have legitimate concerns of brands quality, durability- Embed QA in delivery automatically (without request from licensee)

5.3.3 Terms 5/15Both parties can be expected to focus on the distribution of the revenue from the operation of the license.

- Should set your entry price by estimating the maximum value to the licensee of exploiting the licence but must adjust the value downwards if there is a substitute licence available in market from rival

The Negotiating range in a licence agreement

Licensors in general will want to recover their developmental and opportunity costs as well as their transfer costs from the licensee’s total revenue.Distribution of revenue

- Lower percentage of higher volume may be better- Considerations: Relative risks of remote territory; lower costs of third party, speed to

market

- Ex-works price, shipping, import duty

- Who bears risks in transit, when does legal title pass

Design (remote production) versus physical product (shipping)- Physical product easier to count- => Remote production: royalties based on revenues- rather than net profits (easy to manipulate)

Revenue split:- Licensor costs:

o Transfer; two elements Initial license costs (diminish) Continuous (constant)

o Development (R&D)o Opportunity (vague=challenged)

- Licensee

Licensor:- Entry cost estimated value to licensee

o Absolute monopoly over patents (nominal only) Presence of imperfect substitutes)

o Begin with maximum value to licensee but adjust downward if there are substitutes

- Exit price: present value of transfer costs and opportunity costso If local law prohibits direct entry then opportunity costs are 0

People tend to exaggerate own costs

Analytical exercise helps clarify what’s at stake in the negotiation with a potential license.

5.3.4 Territory 5/21Territory is either bounded or unbounded. In licensing and joint ventures the defined territory is of high importance and subject to negotiation.

- Larger territories cut down the proximity of active competitions- Licensee favours larger- Licensor favours smaller

EU: laws preclude separate territories within boundariesNatural territories: Arabic-speaking, Spanish-speaking, China, Japan, Brazil

- Political/language boundaries

Underdeveloped territories vulnerable to competitive suppliers- Open to pre-emptive early coverage

Licensee: prefer entire natural territory- Takes time to build market

Spillover effects of licensee marketing- Benefit rivals of substitutable products

5.3.5 Performance 5/23Output measures (sales volume) are standard but may also be vagueNaive to assume in interest of licensee to maximise sales volume; other motives

- Complete range of rival branded products- Pre-empt rival

Exclusivity without performance targets => lock-in

Non-performance may trigger termination of agreement

Negotiable issues: quanta (measured annually, quarterly, cumulatively) and growth rate

Takeover: licensor terminates license after licensee proves profitability and invests in establishing brand; runs directly

- Rationale may be “too profitable” (unethical?) or “not profitable enough”

5.3.6 Renewal 5/24Licenses should be for set duration

- Renewal dependent on performance- Performance targets may need to shift (e.g. competitive achievements...)- Terminate by “picking a fight”

o Doubtful ethicso Risk of litigation

- Both parties need protectiono Licensee: investment in building brando Licensor: brand from insufficient results

- Comparative performance (competitors) may be admissible criterion for non-renewal

5.4 Master Franchise Agreements 5/25A master francise agreement is a step up from the standard franchise or agency agreement that usually applies to a single company. Master Franchise agreements;

- Tend to be larger in scale and to involve the master franchisee in finding, selecting and contracting with many individual and independent sub-franchisers

- Not suitable for small licensor business with notion to franchise its operations globally on the basis of limited success in home territory

- Global overextension can lead to failure at home- National saturation may be good cause to expand internationally

Three commercial imperatives:- Financial strength to sustain expenses- Preparatory work to judge proposed partnership- Selection of “right” partner

Master-franchiser:- Full authority to recruit sub-franchisers in designated territory- Benefits:

o Only one entity per territory; no day-to-day dealing with sub-franchiseso Quality standards: monitory/dealing with sub-par performanceo Master franchisee is responsible for financing introduction of productso Master franchisee chose on basis of commercial contacts, experience in territory,

familiarity with local practisesAlthougho Franchising pays lower revenues than directly managed, fees are negotiable; still

should be worthwhileFor longer term, Tension give incentive for:o Master franchisee to search for substitute product o Franchisor to consider buying out master franchiseeTermination leads to loyalty issues

o Sub-franchisees may see to improve/lower fees in exchange for loyalty

5.5 Joint Ventures (Box 4) 5/28 A joint venture is two parties agreeing to cooperate for some purpose beneficial to both. Business formation increasingly difficult. Legal, taxation, accounting issues.

Business plan could envisage that a product is to be taken to a wider market beyond the initial jurisdiction within 3 years and speak to how this can be done strategically. Among the decisions to make this happen could be a joint venture with another company already located in the target market. Strategic negotiators ought to have some exposure to what is involved in a joint venture and what to look for.

5.5.1 Why a Joint Venture? 5/28High-level policy concerns regarding reduction in competition

- Why not remain separate and compete- What are the gains in public good? Do they outweigh reduction in competition?

Points in favour:- Companies domiciled in separate market pursue joint project neither could do alone- R&D joint ventures- JV’s are useful vehicles for separate companies to cooperate in the supply of

products/services to markets

Full-scale JV face regulatory interventions => experiments with various forms of alliance (airlines)

Range from arm’s length licenses to newly formed, jointly owned legal entity

5.5.2 Form of Joint Venture 5/30Form of JV will be influenced by the reason for agreeing to form one.

- What problems could be addressed by the formation of a JV that cannot be addressed any other way at least as well?

- JV should be justified by its being essential and efficacious for the objectives it is designed to accomplish.

Option: one partner provides local inputs; other the capital and cost contributionIssues:- Level of compensation for local infrastructure- Risk of padding of running costs- How to share profit

UK Regulations:- All companies formally registered with state authorities (taxation, compliance)- Two formal documents:

o Memorandum of Association: Name of company and business conducted, share capital, limited status

o Articles of Association: how internal affairs will be managed, boilerplate with bespoke clauses

o US: “Operating Agreement” covers both

5.5.3 Shareholders’ Agreements 5/31Shareholder agreement for JV:

- Negotiated between party- Usually confidential- Memorandum and Articles:

o Board resolutions in absence of directorso Share transfers (deceased; beneficiary inheritance or pre-emption clause)

Pre-emption clause also if party withdraws => prevent share dilutiono Should align with Shareholder agreement

- Non-competition clause

5.5.4 Summary 5/32Checklist:

- JV or wholly owned subsidiary?- If JV chosen, Added value of each party- Assurance of contribution of other parties- What to include in Memorandum and Articles and what to exclude- Protection needed for private shareholders

- Protection against active competition- Scrutiny by competition authority- How to distribute Profit between members; necessary growth financing

Useful contribution to analysis and diagnosis stage in process model can be made by negotiators who are aware of the pitfalls of a tempting JV proposition. Looking for the consequences of an action down track is a fundamental obligation of business plan implementor.

5.6 Mergers and Acquisitions (Box 4) 5/33Most mergers are acquisitions (asymmetric). It is when two equal partners merge and the leading personnel of one emerge eventually as the leading players of the merged entity.

- Organisational identities rarely merge

Acquisitions remain the Major strategic route to growth for most companies- Intense negotiations

5.6.1 Guidelines and Due Diligence (Box 6) 5/33The Strategic Negotiation Process model provides guidelines for ensuring that the negotiation part of the acquisition process does not contribute unintentionally to the acquisition failure

Merger failure causes:- Strategic choices before negotiation- Negotiation errors- Implementation faults

Target search- Sometimes through prompting fro merchant bank searching for buyer

Basic questions:- If business plan to increase output: can target profitably add capacity- If business plan to penetrate new regions: can target contribute?- If business plan to purchase upstream/downstream, can target contribute?- Which assets can be disposed to raise capital- What technology (patents, copyrights...) does target own? Would they add value?

Acquisitions are associated with intensive, even exhaustive, diagnosis in a process known as ‘due diligence’ usually conducted by third party accountants, lawyers and risk analysts.

Buyer Due diligence:- Accounts have no black holes- No undisclosed liabilities- Assets with clear and proven titles- Principle’s CV accurate- Board has power to sell business- What the seller is selling is identical to buyer’s believed purchase- Not a substitute for identifying imperatives- Pressure intensifies if multiple bidders / potential buyers

Due diligence is the caveat part of ‘caveat emptor’ – let the buyer beware.Seller due diligence

- Who are they?- Where domiciled- What do they think they are buying (negotiable)- Financial status- Indicative price (negotiable)- Any barriers (consent from shareholders, bankers, creditors, authorities)- Warranties/indemnities required from them (negotiable)

5.7 Threats and Vulnerabilities (Box 6) 5/36Threats should be searched for during due diligenceImplied threats:

- Preconditions, rigged agendas, non-negotiable item- Closing ploy (take-it-or-leave-it, now or never, time deadlines, quivering quill

Threat or bluff- Military Deterrence theory: capability matched by commitment- Same considerations for businesses but less serious consequences

Threats:

- Implicit/explicit messages- Presumed threats (vulnerabilities)- Non-verbalised: carried out without warning

Specified threats have strengths and weaknesses- Date, time and place- After date passes: can determine if bluff or real- To avoid denouement after deadline passes, threat can be unspecific

o Dilutes impact- Perception of impact from point of view of other party critical

Threat can be: Deterrence (If) or Compulsion (unless)

With all necessary means: judge capability and commitment (mobilisation, posturing)

5.8 Three Growth Options 5/39Examples:Growth by expansion of Organic: Increasing distant sales and derivation of the Negotiation Agenda

- Business plano Increase distant sales by 30 per cent

- Commercial imperativeo Improve capacity for distant sales

- Resource imperativeo Requirement for shipping facilities:

People: recruitment; training. Facilities: dispatch space; transport; storage; insurance Technology: packing; tracking; invoicing; credit control

- Negotiation Agendao Rewards: remuneration packageso Contracts: personnel; leases; delivery (out-sourced);o Purchase: packing systems and materials; insurance

Major difference for distant facilities: more expensive

Growth by expansion of Locating wholly owned distant facilities- Business plan

o Invest in distant facilities to increase distant sales- Commercial imperative

o Locate and acquire distant capacity for distant sales- Resource imperative

o Requirement for distant facilities: People: recruitment; induction; training. Facilities: leased or purchased dispatch space; transport; storage; insurance Technology: packing; tracking; invoicing; credit control; head office controls

- Negotiation Agendao Rewards: remuneration packageso Contracts: personnel; leases/purchases conveyance; delivery (if out-sourced);

- insuranceo Purchase: packing systems and materials; vehicles

Acquisition in foreign territory more complex than in home territory

Acquiring a company with wholly owned distant Business plan

o Acquire distant facilities to increase distant sales- Commercial imperative

o Locate and acquire a compatible company with capacity for distant sales- Resource imperative

o Requirement for investment capital: Source of funds and securities Share structure

- Negotiation Agendao Business transfer agreemento Warranties and indemnitieso Assets specified; liabilities on them identified (who pays?)o Cash, creditors and debtors

Module 5Review Questions5.1 How might the application of the Strategic Negotiation Process Model have taken Emblem in case 5.2 which initiated the move into budget hotels, straight to the successful growth strategy demonstrated by Seville, instead of the “stealth-like” and ultimately unworkable strategy with which Emblem started?The decision to develop the budget hotel chain concept arose from an assessment of the competitive downward pressure on room rates at its main chains of hotels from rivals aiming for the same business customers. Discounting was a growing problem on profitability (‘special offers’, ‘weekend 2 for 1’ offers, ‘corporate discount rates’, ‘lower rates after 11 pm’, and so on). The outcome included slowly declining occupancy rates and a flattening of profitability. Regular sales of marginally profitable hotels reduced some costs, and purchases of small chains improved coverage, but none of this altered the obvious fact of a mature business hotel market in slow decline.

Once the concept of the budget hotel chain, with its stripped-down, no restaurant, no frills ambience, but comfortable rooms with en suite facilities, payphones and pay TV was accepted, the strategic question was surely how fast they could move before the competing hotel chains imitated the concept. The choice of the organic growth strategy, and its ten or twelve sites a month, built from scratch, may have been necessitated by budgetary restraints and the need to prove the strategy before Board-level approval for a major change to a bolder strategy. The question of the timing of the slower strategy would have come out of the necessary discussions to formulate the Strategic Negotiation Process Model for the plan. This should have been covered in the Process Model when deriving the business plan for Emblem.

The forming of the special acquisition unit to conduct the budget hotel programme and its analysis and diagnosis should have shown that a schedule of targets (10–12 a month) was not going to produce secure, uncontested (and incontestable) first-mover dominance of this market niche within the business plan’s horizon of 3–5 years. This should have focused attention on the options among JVs, licence and acquisition. There was plenty of development expertise available to Emblem, and the collective wisdom of this expert group should have noted that, once under way, the completion times for each project from greenfield site to a developed operation open for business depended on the time it took to achieve planning permission, including the provision of necessary architects’ drawings, tendering with builders, time to prepare the site and build on it, recruit staff, and open the sites for business. This would have produced an annual total of likely completions for the budget chain. That total number of ready sites, open for business and well within the business plan horizon, was woefully deficient of what was needed to deter competition from imitators or even gain from ‘first move’ advantage.

This information was needed for the quite separate purpose of budgeting for the necessary finance for the building programme, and for the cash flow projections for the budgeted revenues of the venture. The Analysis and Diagnosis phase of the Strategic Negotiation Process Model would have alerted the planners at Emblem to the glaring weakness running through the spine of their strategy. Where major structural weakness is exposed, it should prompt the senior planners to look for alternatives among the available and realistic options. The negotiation load alone was formidable, and on the initial site-by-site acquisition approach there was not much scope for scalability. Recruiting so many experienced and competent developers would soon have become news in the trade. It should soon have been apparent in the preparation phases that a slow organic growth programme would be difficult to keep invisible from potential competitors.

Public bodies linked to local elected authorities manage planning permission in the UK. The elected authority asked to consider applications for planning permission publishes each application (which any person can read on payment of a small fee), and it also writes to those owners with property nearby a proposed application to notify them of the proposed application and how it might affect them. They have a right to make a written objection to any proposal, which the authority must take into account, though it must accept or reject the objection on strict planning grounds only. In these conditions it would not be long before the local media would report on the applications, and these reports would be read by or reported to rival hotel chains, and land speculators. Once the applications were noted from multiple sources across the country they would soon realise what their rival was up to, and would be able to analyse Emblem’s strategy. They would analyse and diagnose the applications and derive the details of the budget chain concept. (Never underestimate the intelligence of business rivals!)

The Strategic Negotiation Process Model, therefore, would have warned Emblem’s senior management that its budget chain programme had little chance of succeeding in keeping the new line of business opportunities to itself. This alone should have sparked off a search for an alternative strategy. Given that the rival Seville chain examined the Emblem concept and saw that the best

response was not to mimic the 10–12 sites a month programme, but to go for a ‘knock out’ acquisition that would give it national coverage in one step, suggests that this solution would have occurred to Emblem’s strategy team if they had used a Strategic Negotiation approach.

The roots of their alternative strategy were as simple as somebody from Seville stopping by chance at a Little Eater roadside diner, and who, while eating, contemplated the problem of Emblem’s 100 budget hotel chain making loads of cash under its new budget hotel concept. He picked up a leaflet at the counter when he paid his breakfast bill. These leaflets from Little Eater showed a map of Britain with the location of every Little Eater diner in the country marked with a red dot. And there were lots of red dots! By the time the Seville manager got to his car, and compared the image of these dots with an Emblem brochure, he was struck by the cross-coverage of Little Eater and Emblem’s locations. Bingo! Before that manager attended a strategy meeting he was due to attend that morning to discuss Seville’s response to the Emblem initiative, the outline of an alternative plan became obvious to him: buy the Little Eater’s business. If only – a lament often heard in strategy review discussions – an Emblem strategist had stopped off at a Little Eater (perhaps one of them did – they were very popular) and had read the same leaflet and looked at the red dots on the map, Emblem’s vulnerability to a ‘copy cat’ gambit would have been obvious, and the less costly strategy of growth by acquisition adopted by Seville might have been recommended as the appropriate conclusion of the Analysis and Diagnosis of their current plan’s prospects.

5.2 Why are growth decisions “big” decisions? A conscious and deliberate decision to grow a business should be taken by the owners, in the case of a small business, or by the most senior managers in the case of a large business. It is not possible to ‘hide’ the consequences of growth from the controllers of an organisation. Growth makes new demands upon all the organisation’s resources, if only because growth will deplete the availability of some resources, and the managers, or the users of the depleted resources, will react to the changes they experience in the normal supply of what they need. Growth creates its own demands for access to resources – more people, more inputs, more facilities, more time – and when resource demands run up against their availability, the strains become apparent in the functions trying to use them.

Growth decisions are always ‘big’ because they put into play everything the owner(s) have achieved so far. Predators feed off little fish and bigger predators feed off little predators, and so on up the food chain. Think of a decision to go for growth, like Julius Caesar’s decision to cross the Rubicon River – once everything is in play and you are vulnerable to losing it all, you cannot go back to the tranquillity of the equilibrium enjoyed by a small company. The small stall owner, sunning himself by the side of the road and selling a few melons to occasional passers by each day, enjoys the security (at a lower living standard) that the CEO of a vast multinational corporation fights for to survive constant threats of takeovers and the relentless competition trying to take his markets away.

6 - Bid Strategies and Tender Negotiations

6.1 Introduction 6/2Major high value contracts are usually put out to tender to various companies able to undertake them and the negotiator has to become familiar with the theory and practice of bid processes if he/she is to contribute to the analysis of tender procedures and their associated negotiations.

Pure theory:- Bidders bid best price based on belief that competitors also bid best price – and best price

wins the contract- Fixed price: no hidden or unspecified extras- Unconditional

Practice: - bidding becomes more complex with the passing of time and the exigencies of managing

large complex projects

- bidding tends to increase complexity because bidders learn to stretch or bend the rules and because clients find it necessary to forestall irritating accusations from rival bidders that successful bidders somehow received unfair or favourable treatment.

- Specification not always known- Clients must forestall accusations of favourable treatment

Tendering is complex:- Large projects: Client see prime contractor who repeats process with subcontractor- Tendering is an expensive activity and becomes more expensive with size of project

6.2 Bid/No Bid Decisions 6/2Marsh (Contract Negotiation Handbook) divides bid/no bid decision in four parts

- Marketing- Production- Financial- ContractualMarsh uses 200 point scale; Kennedy 100 point scale

Weighting and scoring less important than how questions are answered- Counteract natural proclivity to chase every order

Marketing (+) Marks out of 51. Is the tender for a core product in the firm’s activities? 32. Is the tender within the firm’s business plan in relation to(one point each):

(a) the territory?(b) the customer?(c) the products?(d) the competitors?(e) the organisation? 5

3. How does the product fit the existing order book and sales budget? 44. Is there idle or spare capacity available for this order? 35. What is the probability of not receiving other orders just now? 3

+18/25Production (−)

6. Are special materials, staff or capacity required? −57. Are additional materials, staff or capacity, required? −18. What costs are imposed if the tender is not won? 09. Is it a special product or from the range? −510. Are there serious product or special requirement risks? −4

−15/25Financial (+)

11. Is the expected cash flow sufficiently positive? 412. Are there low risks in relation to:

(a) Cost escalation? 1(b) FOREX? 2(c) Customer’s financial performance? 3

13. Is the profit contribution satisfactory? 3+13/25

Contractual (−) 0/−1014. Is it a buyer’s contract?15. Are their contractual risks foreseen in relation to (marks out of 15):

(a) Penalties? −1(b) Warranties? −1(c) Liquidated damages or consequential loss? −1(d) Inspection and testing? 0(e) Dispute procedures and bias? −5(f) Termination for cause or without cause? 0(g) Performance bonds or guarantees? 0

−8/25

Total +8/100

What interventions are possible to improve the scores?Scoring subjective but better than wild guesses since each element must be defensible

The method indicates the areas of concern that must be discussed and assessed before deciding to bid.

6.3 Bid Traps 6/6Tenders are said to be the most efficient way to secure ‘value for money’ and since bidders know they are in competition with others, they tend to bid lower prices over their costs than they would normally enjoy in a normal sales context. A tender is supposed to be an example of ‘one shot’ only at winning the bid. If the bidders miss the purchaser’s target (defined as the lowest bid), they know they are out of the game . . . . this is the theory.

Tenders create problems not found in usual face-to-face situations:- “One shot only” buyer’s intimidation tactic. Require sealed bids and select lowest- Some procurement managers manipulate the bid process by setting traps for the unwary.

Traps- Bids intended only to put price pressure on regular supplier

o Common example: Finance directors call tenders for audit business

6.4 Bid Theory and Practice 6/7In theory there is a problem with adopting a bid strategy in a tender situation.

Bind bid tenders are supposed to be a means by which a buyer forces sellers to bid at their lowest acceptable price. In this scenario there is;

- No negotiation, no rebidding- ‘dirty tender trick, using successive rounds of bidding to reduce bid prices is precluded- Padding is risky and minimal

In practice, even commodities (e.g. pencils) need specifications- Tendency for specifications to become more precise over time- Buyers tighten specifications => bidders work around them => increases expense of tender

processo Field trials, sample evaluations, laboratory testing

Bidders may have to be Approved suppliers which are inspected, approved or rejected and only those on the approved list receive an invitation to bidExcluded suppliers (e.g. foreign owned)

Specification options:- Product is proprietary to sellers: buyer emphasises performance, rather than how- Designed for specific purpose: specify how it performs and what it does- Designed by buyer: specify design, determine how it is made, what product

does

Suppliers will be asked for indicative bids, including proof of competence, and customers Pre-qualify the bidders invited for detailed discussions on the specification, the production plans and delivery schedules. Bidders who fail to pre-qualify drop out of contention.

Suppliers submit indicative bids including proof of competence- Subsequent discussion to expl0ore potential changes to bids

Different bid strategy between sudden-death and negotiated tenders

6.5 Bid Strategies 6/10Three options are used during the bid strategy process, two used more than the one:

- SD: Sudden-death (one-time offer)- PB: Padded bid (first-not-final)- RFP started with a ‘Beauty parade’ (bidders present to customer on competency)

o Followed by SD or PB

Client-bidder communication:- Questions handled in the open

o Questions and answers circulated to all parties- Telephone calls forbidden- Accidental contact must be reported- Bidder-initiated contact can lead to disqualification- Nonetheless, some unauthorised and unreported contact does take place

Padded-bid strategy- Initial bid close enough to pre-qualify and remain compliant- Assess strength and weaknesses of buyer to determine degree of padding

Client:- How far to push bidder on important elements without scaring off serious contender

Negotiation range in PB larger than in SD

Clients prefer SD to a negotiation but:- Forgo opportunity to test pricing of elements in RFP- Can switch to PB post-bid but if clients realise earlier they may submit PB

6.6 Two Erroneous Opening Bid Strategies 6/14Clients entering a new product market with new sourcing arrangements may not be thoroughly conversant with the market and the firms in it. bidders, conscious of their superior knowledge of their markets and well-endowed with current business, may approach RFP’s from new clients with a padded-bid (pb) strategy, while the clients have adopted a sudden death (sd) approach

Mismatch in new market:- If bidders use PB strategy and client accepts on SD basis then miss opportunity to squeeze PB

elements

Some experts advise setting entry price close to client’s exit price. - Difficult: price must be credible and defensible- Abandon’s opportunity for higher price- Theoretical strategy: client’s exit price is unknown

Dr. Karrass: aim high, shock with high price (low if buying)- Field test: higher aspirations => better results- Large initial demand improved probability of success- Unskilled negotiators improved with power (skilled did not)Problems:- Inconclusive results- Spectre of deadlock: very high aspirations increase probability- Advice not replicable; high degree of discretion

Replicable advice:- Ensure entry price is credible and defensible => under your control

6.7 Entry Price PB Strategies 6/18Negotiating a simple product’s price poses certain problems for the parties, of which not knowing the other party’s exit price is only one. Factors that should be considered in deriving an entry price include:

- Seller spare capacity softens entry price- Winning deprives competition of business

o Vulnerable competitor in market may mean softening of all bidders to eliminate- Prospect of follow-on business tempers high bidsContractual Risks of managing a successful negotiation should not be ignored (risks tend to harden entry prices)- Tight warranties, indemnifications- Penalties- Performance bonds (discretion of client)- High retention percentages- Volatile input costs- Loose force majeure criteria- Unusual performance specifications- 3rd party reliance- Termination without cause provisions (one-sided)- Unstable foreign exchange rate, non-independent judiciary- Security, political risks

6.8 Requests for Proposals (RFPs) 6/21A request for proposal (RFP) is issued at an early stage in a procurement process, where an invitation is presented for suppliers, often through a bidding process, to submit a proposal on a specific commodity or service. The RFP process brings structure to the procurement decision and is meant to allow the risks and benefits to be identified clearly up front.[1][unreliable source?]

The RFP may dictate to varying degrees the exact structure and format of the supplier's response. Effective RFPs typically reflect the strategy and short/long-term business objectives, providing detailed insight upon which suppliers will be able to offer a matching perspective.[2]

Similar requests include a request for quotation and a request for information.In principle, an RFP:

informs suppliers that an organization is looking to procure and encourages them to make their best effort.

requires the company to specify what it proposes to purchase. If the requirements analysis has been prepared properly, it can be incorporated quite easily into the Request document.

alerts suppliers that the selection process is competitive. allows for wide distribution and response. ensures that suppliers respond factually to the identified requirements. is generally expected to follow a structured evaluation and selection procedure, so that an

organization can demonstrate impartiality - a crucial factor in public sector procurements.

RFP: details requirements, specified date and time for supplier to:- Confirm technical specifications- Indicate commercial terms- In case of a consultancy – detailed account of what the consultancy would do to solve the

problems- Optional: outline of how work would be performed

o Risk to bidder of revealing IP or appearing to vague => balance

Underselling – risk for bidder, difficult to raise over indicative price- Proliferation of variation orders

Intra-team contention over minor deviations from complianceNon-compliant exceptions open door to negotiations but sometimes difficult to avoid

- Unusual features or vague drawings => good reason to signal degree of non-compliance

Clients use compliant/non-compliant format because- It tends to force bidders to agree to comply with the stated specifications and within their

bid priceTighter specifications => higher front-end costs for the customer

6.9 Post-RFP Negotiations 6/23It is normal and expected that suppliers and customers will have at least one meeting except in Public tendering where all contact are at arm’s lengthCommercial tendering usually at least one meeting between suppliers and customers during tendering

Post RFP Negotiations can take the form of:Suppliers’ conference

- Inhibited from asking questions (revealing IP)- If preferred bidder is present, competition will scan body language for confidence

Post-RFP usually subsequent meeting- Negotiation: Padding creates room for trading (not conceding)- Important to identify and rank negotiable issues of other party

o Interdependent => avoid line-by-line negotiating

RFP constitutes a proposal from the customer and by virtue of the post conference meetings, the customer has put the RFP into negotiation. With both the RFP and supplier’s response presented for negotiation, cross linking between the issues, guided by the preparatory assignment of priorities to all issues, ought to be an acceptable basis for conducting your negotiation towards an agreement.

6.10 Strategic Choice of Bid Targets 6/24Tendering is expensive => tenders have to be selective which bids are tendered for

- Bidder with full order book less inclined than one with spare capacity

Commercial rivals well informed of who wins/loses- Spread FUD about dangerously low bidders (solvency)

Playing field often not level => different cost structures

6.11 Bidders and the Process Model 6/26Bidders should Identify objectives from business plan.

- E.g. commercial imperative to win new business when existing business completes and capacity is released

Market share is indication of required successful bid ratio

Annual sales x success bid ratio is indicator of TCV they need to tender for- Can reduce TCV tendered for by increasing win rate

Criteria to analyse RFPs- Project difficulties aligned with firm’s capabilities?- Estimate of total costs of project delivery- Market research of customer’s bona fides and financial status- Political risks of territory- Site exploration (access problems, geological features)- Local laws and planning regulations- Political security situation- Costs of legal terms- Costs and risks of managing subcontractors- Transaction financing- Contract negotiation

Political factors favouring project:- Spare capacity- Important client- Politics & prestige factors- Chairman needs a “win”- Government request to oblige- Competitive rivals

There is no guarantee that a tender will succeed and there is a well known romance affecting some staff to some extent due to their long association with a proposed project during the evaluation process. Even an unattractive project can attract ‘champions’ in an organisation not from its inherent characteristics as from other circumstances, not always openly disclosed like;

- The plant needs the work- Client is otherwise important to organisation- Politics are important for some reason- Prestige factors predominate- Chairman (or others need to win- Government asked company to oblige- Company in desperate need of income- It will do down serious competitive rivals to snatch it from their grasp

Module 6Review Questions6.1 Why might negotiation help a tender process and why might it hinder it?Negotiation could help bid selection if it clarified how a bidder would tackle the requirements of a client who has a preconceived and specified solution to a need, when the bidder, from specialised experience, believes there is a better way to address the requirement. In general, the more that the requirement is for a tightly specified solution, the less likely it is that the client would consider alternative solutions. Tendering for ‘commodity’ products leaves little room, or necessity, for reconsidering basic solutions, and therefore the less likely it is that negotiation would reveal helpful information about the options.

Negotiation could hinder selection if it encouraged bidders to pad their bids in anticipation of their bids and solutions being open to negotiation.

6.2 If opinions are subjective what benefits are there in giving them “spurious credibility” by weighing them numerically?The discipline of attempting to give a subjective opinion some sort of number usefully ranks the degree to which a subjective opinion is scaled in the opinion-giver’s mind. When opinions are given in an unweighted format, it is hard to judge anything about them, other than from tone, facial expression and loudness of the speaker.

To say that a course of action is risky could give an entirely false impression. How risky it is perceived to be can be indicated from a subjective assessment of where it stands in relation to a scale of 1 to 10.

If the answer given is that it stands about 8, then something useful is said compared with the person describing its risk level as about ‘2’. Numerical assessments are guides to ordinal ‘measures’ of subjective estimates. In an ordinal estimate of risk on a 1 to 10 scale, 8 is a higher degree of risk than 2, but not necessarily exactly four times riskier. That would be too precise a requirement. We can take it that the risk is higher, and that may be about as far as we can go in considering subjective estimates of risk.

These ideas have applicability in negotiation preparation when the disparate views of a team are considered. It is not intended to give precise arithmetical measures of anything. We may not be able to agree on how much more or less something is in relation to several other options but by assessing that something is ‘more’ or is ‘less’ than its comparators we can happen than course B is a step forward compared with relying on assessments that have no relation to each other at all.

6.3 Why do buyers through time tend to increase the complexity of their specifications?Ironically, it is because they want to make the products they buy into virtual ‘commodities’ so that they can more easily compare bids from different suppliers selling the products they have specified! The less variation, the less excuse: therefore suppliers to try to differentiate their products and charge more for the alleged ‘differences’. The results sometimes defeat their intentions. They make quasi-commodities (simple products almost the same in design and performance) into tightly specified bespoke products, which also reduces competition because few suppliers wish to over-specify the commodity product lines they sell (pencils, oil cans, spanners, coat racks, etc.) to their other non-bespoke markets. There is a virtual ‘arms race’ between customers defining product specifications and suppliers finding ways round them. To deal with creeping variations, buyers keep adding tighter specs to their RFPs. Much the same is found in nominally simple notions such as ‘confidentiality’ agreements. What starts out as a clear paragraph in a letter of appointment in time becomes a separate page widening the definition of confidentiality and eventually a 14-page confidentiality warranty, complete with onerous indemnifications covering everything that lawyers can think up that might compromise their client, including in one such that I was required to sign, before being appointed to an advisor’s role in a negotiation, requiring me not to reveal, even to any person employed by the client, that I had signed the client’s confidentiality agreement!

6.4 If, in theory, “sudden death” bidding produces the best value for money, why do some clients vary the bidding process to allow post-bid negotiations? Arm’s length sudden-death bidding has defects that may work against the best interests of a client in complex bespoke products. Several bidders could produce several bids that differ in minor but significant respects, depending on their expertise and competences, which would be worth a client following up and examining to judge them more accurately. The client reviews all of the bids and notes variations in design that may having winning bid features. It may be that the client’s ‘preferred bidder’ is still preferred and that the client wishes to test the variation bidder’s proposals by inviting its preferred bidder’s comments on the variations. There is no neat and clean way to undertake these reviews under sudden-death bid rules without provoking claims against the client from losing bidders who could claim, legitimately or otherwise, that they could have made similar proposals but felt under the specification rules that they had no choice but to bid strictly to the spec. This could cause particular problems for public sector tenders.

The principle behind ‘cardinal performance’ tenders is that the client benefits from the solutions proposed by competing bidders to produce a project that can perform to the standards set out in the cardinal requirements. That way the suppliers address the requirements and bid their own solutions. The client then faces a multiplicity of choices, all meeting the cardinal requirements. This leads to detailed negotiation on the selected bids and their bespoke solutions. Where this works well, clients have an incentive to negotiate majorsudden-death tenders too. Both practices compromise the pristine theory of the SD tender.

some weaker features of SD. They have drifted in practice away from pure SD, except for products that are easy to specify because they have become standard commodities and their unit costs are too small to see benefit in introducing variations. Where there is competition between bidders, it is believed that PB would be minimised, and possibly would also be spotted in a close comparison of the bids. The post-bid negotiationalso creates opportunities for removing or reducing remaining elements of PB. The bidding process leaves an element of uncertainty that, while not as strong as in SD, still remains a disincentive to flagrant PB because no bidder can be sure that the client would not select from bids ranked purely by price, and the expected opportunity to negotiate to retain some of the padding would thereby not materialise. By observing a client’s behaviour in conducting post-bid negotiations, suppliers would get clues as to the likely chances of retaining an element of PB in their bids.

6.5. If, in practice, “padded bidding” is possible because of post-bid negotiation, why do clients bother with a bidding process?SD is supposed to restrict bidders from PB, but clients find it useful to risk PB to overcome some weaker features of SD. They have drifted in practice away from pure SD, except for products that are easy to specify because they have become standard commodities and their unit costs are too small to see benefit in introducing variations.

Where there is competition between bidders, it is believed that PB would be minimised, and possibly would also be spotted in a close comparison of the bids. The post-bid negotiation also creates opportunities for removing or reducing remaining elements of PB. The bidding process leaves an element of uncertainty that, while not as strong as in SD, still remains a disincentive to flagrant PB because no bidder can be sure that the client would not select from bids ranked purely by price, and the expected opportunity to negotiate to retain some of the padding would thereby not materialise. By observing a client’s behaviour in conducting post-bid negotiations, suppliers would get clues as to the likely chances of retaining an element of PB in their bids.

7 - Analysis and Diagnosis

7.1 Introduction (Boxes 7, 8, 9) 7/2Boxes 7, 8 & 9 are Tools that can be used in Analysis and Diagnosis to improve the preparation of the Negotiation Agenda and its later negotiation. They can be used in:

- Complex negotiations with multiple issueso With for and against Competing options and influenced by intrusive events (force

field analysis)- Complex negotiations with more than one player and there are

o Differences of preference within client team (Atkinson)- Where there are Uncertainties of balance of power and whether to reject/accept

(Levinson/Atkinson)- Where there are Multiple stakeholders (McKinsey)

Managing a strategic negotiation is Largely about:- Preparation before- Reassessing earlier preparation during (feedback and review)

These tools clarify and develop the necessary tactical adjustment to existing thoughts about process, personnel and policies that will deliver the organisation’s strategic objectives.7.2 Force Field Analysis (Box 7) 7/2The force field diagram is a simple ‘doodle’ that can be presented in varying degrees of complexity, depending on what is at stake. A powerful tool for visualising the forces present in a negotiation that help or hinder the achievement of the Negotiation agenda and the implementation of what is agreed.

Kurt Lewin’s Field Theory in Social Science- The diagram rests on the idea that at any moment there are forces operating on a decision

situation, some of which drive for positive/negative changes in the status quo- At any given time multiple forces both positive/negative - To the extent that the restrainers cancel the drivers, the status quo prevails, but if the drivers

overcome the restrainers, the situation changes toward the desired objective of the drivers, though not necessarily all the way.

- Identify forces- Divide into drivers and restrainers- Assess relative strengths- For each force in the field you need to develop specific strategies to weaken or strengthen

those important

Important to focus on important strengths (typical error to focus on those easily neutralised)

Extended Generic Force Field

The diagram above expends the generic force field by adding three categories of People, Arguments and events. Always remember organisations do not negotiate, people do and by identifying the other players and discussing privately the approach and how they evolve their preferences is important intelligence gathering and should not be neglected.

People: key players- Identify approach and assess influence- Personality profiling unconvincing

Arguments arrows ID argument/themes used by negotiator in pursuit of objectives:- cases people make (not tone)- be aware of arguments against your proposal and cases supporting them

Events arrows refer to those events and impact on debate:- historic or recent- can change arguments and dislodge/strengthen support- Difficult to control events only influence impact

Easier to weaken opposite position than strengthen own- Danger of negative appearance

The execution of a negotiating strategy depends on the shifting disposition of the players to surprise events. How players are disposed to negotiator’s objectives is influenced by the relative strength of arguments made for/against your/their objectives. Negotiator needs to be away of the arguments against his/her proposal and supporting cases.

7.3 Atkinson’s Expanded Force Field 7/7

Atkinson’s original ‘Expectation test’ – an expansion of the original force field diagram. It starts from the premise that

- Negotiators bring their expectations to the table- Opening debate structures expectations of other side – i.e. lowers expectations

Stronger perceived strength of opponent => lower expectations of favourable outcome- Hide degree of desperation to lower price

Drivers: hopes exceed fearsRestrainers: fears exceed hope

Negotiation:- Submit proposal, counterpoise proposal, debate arguments for and against

Preparation for debate- Improvisation depends too much on verbal agility- Consider possible counterarguments and

o prepare responses and justification

Issues: negotiable issues, or wants.Justifications prove validity of views on issues,Stances: ranges of positions adopted on issueThemes: intended propositions on negotiable issuesStaff work: support stance, research, statistical evidenceKey commitments short phrases capturing essence

including negotiating ranges;.

Force field diagram is visual representation of pros and contras- Doesn’t reveal new information but reminds of the significance

7.4 Atkinson’s Measure of the Balance of Power 7/17Power is always an elusive concept in negotiation and relationships.Replicable tool for assessing power should:

- Improve on hunches, guesses

- Define process steps- Provide examinable assessment criteria- Practical applicability

Disadvantage: not only monetary but also intangible costsAgreement/disagreement not relevant only acceptance/rejection

Atkinson’s method:- State proposal- List disadvantages to other party (of accepting and rejecting)- Rate each disadvantage from 1-10 on impact- Weight each disadvantage on probability- Multiply each disadvantage rating by likelihood of it occurring to give a weighted total for

each disadvantage and add them to produce a total for the elements above and below the line- If disadvantage to them of their rejection exceed the disadvantage of acceptance, then

negotiator has power over them and vice versa

Power ratio assumes negotiators prefer to avoid harmful outcomes

If we have power < 1 then we should review our termsIf we have power > 1 we could assess whether we are demanding enoughBalance of disadvantages will change in the course of negotiations

7.4.1 Subjectivism 7/20It is felt that there is subjectivity to the Atkinson’s numerical power ratio, Criticism of numeric ratio: subject to manipulationResponse: no value in manipulating

Ratings and weightings are subjective but approaching systematically reduced errors and promotes discussion

- Derive strategy to improve determinants of power

7.4.2 Worked Example 7/21

Imprecise: Result ambiguous unless ratio is at least 3:1Movement on some issues may be achieved by training movement on others

7.4.3 Their Power over Us? 7/26

Reversing perspective is useful. Acts as a check of the validity of tool.

7.5 McKinsey’s Multi-Stakeholders Model 7/27McKinsey’s Multi-stakeholders model is used for Complex multi-party negotiations/circumstances: difficult to assess relative influence

- Noise does not equal cloutAlias & Georgiades (McKinsey)

Position: what stakeholders want on issue – extremes or position in the middleSalience: comparative importance for stakeholderClout power of stakeholder relative to other stakeholders to influence decision

Scale 1-100- Position: 0 means opposition to change

Pure compromise vote – “weighted” average of all parties on position only

Stability analysis matrix:- Plots distance from average against- Combined salience and cloud

Then tabulate position of each stakeholder- On each negotiable issue

Log-rolling alliance – quid-pro-quo supportFollowers: allies with little cloutShapers: have influence and care (pro or con)Influencers: have influence but don’t care

- Useful to win as allies

Extremists: problem => reduce number and lower influence

Module 7Review Questions

7.1 In complex negotiations with multiple issues at stake where the debate phase is likely to be filled with pros and contra arguments of competing options and intrusive events, how might we use force field analysis to illuminate the negotiation landscape for visual analysis?

Force field analysis was developed to represent organisational disputes over changes to the status quo. The basic idea is simple: in any situation there are forces driving the change (drivers) and forces restraining the change (restrainers). By counterposing the forces operating in the situation a graphical representation is made, suitable for visual analysis and elementary strategising, it being the task of those preferring the change to strengthen the drivers and weaken the restrainers, and those opposing the change to strengthen the restrainers and weaken the drivers.

The current situation is represented by the bottom line, and the top line represents the objectives of the change. If the drivers lift the bottom line to the top line, the change is effected; if the restrainers push back the drivers to the bottom line, the change is frustrated. In between, the ‘balance of forces’ is represented by the middle line, where the arrows of the forces for and against meet: this line may be represented closer to the top or bottom line depending on the relative strength or weakness of the opposing forces.

Three categories of forces are identified: people, arguments and events. People are the named individuals prominent in the forces for or against the change (though some people could be both for and against the change on different issues and would appear on both sides of the divide). Arguments are the opposing cases made by each side. They are not necessarily meant to refer to the tone or temper of the debates! By listing the arguments of each side as accurately as possible, the parties can identify the arguments they have to counter or neutralise to weaken the other side and those they have to strengthen to add force to the push for change. ‘Events’ refers to the unexpected (and unanticipated) events occurring outside the negotiations that may have serious implications for one or the other side. For example, a negotiation to extend a rail company’s franchise could be negatively affected by a serious accident in another part of its franchise, particularly if there are fatalities that appear to be the result of some failure on its part.

Some events may be anticipated – positive or negative impacts of the weather on a key crop; a change in the price of key components in a product (oil prices); a change in operating or labour regulations being considered by the authorities; the outcome of a legal case, and so on – and these would be listed under the Events column. When an unexpected event occurs affecting the balance of forces, it would be added to the force field diagram and its positive or negative impact assessed by the negotiators. The force field diagram provides a visual representation of the state of play of the forces for and against the change. They are easy to draw and are an economical summary of the salient forces at work in a situation.

7.2 In competitive negotiations in which more than one player is negotiating with a client for a high-level project and there are differences of preference within the client’s team (and those who influence it), how might Atkinson’s Expanded force field improve on force field analysis?

The Expanded force field expands the simple force field diagram by incorporating more characteristics of relevance to the negotiation. The disposition of the two parties teams are represented as opposing forces, as in force field diagrams. The forces on each side are identified:

- issues and justifications;- negotiating stances;- themes and staff work;- key commitments to reinforce the stances;- strategy to achieve the stances and the negotiating ranges for the issues;- responses to the other party’s justifications.

Negotiable issues are substantive. They quantify, describe or define the issues decided jointly by the parties; they constitute the Agreement, if there is one. Justifications are the case made by a party to

persuade the other party of the legitimacy of a party’s proposals. The stances are the positions that a party wishes the other to settle at, or agree to, on the negotiable issues. Part of the negotiation is taken up by parties trying to convince each other that they cannot accept their stances on this or that issue. For this to be effective, parties develop themes from the staff work that supports them with data. Short sentences or ‘mantras’ are also pre-prepared to form ‘key commitments’ that reinforce the stances. To help achieve the stance, strategies are generated, supported by entry and exit ranges, for each negotiable issue. By examining the likely negotiable issues, as seen by the other side, the likely justifications are identified, and those expressed in the negotiation are reconsidered for subsequent sessions (complex negotiations usually involve sequential sessions).

Notes:Issues mean negotiable issues, or wants. Justifications attempt to prove the validity of your views on the issues, e.g., a justification for a substantive issue of the price change could be that ‘an increase in input prices justifies the price increase’. Stances are the ranges of positions you adopt on an issue (e.g., what you want, expressed as your entry price).

Themes are what you are going to say and develop on the negotiable issues (or wants). Staff work supports your stances, especially the research for facts, statistical and other evidence to support your themes. Key commitments reinforce your stance and strategies, including the negotiating ranges, and are best served by carefully honed short sentences or phrases from team discussions which capture the essence of what you are trying to achieve by your proposals. The Expanded force field envisages a space between the teams inside which the parties move (advance and retreat) over their ranges as they seek agreement, or at least to identifythe best terms they can get. Where their exit positions in their ranges overlap a settlement area is formed, and any position in the settlement area can, in principle, form an agreement.

Using the Expanded force field, negotiators are better organised in their preparation. The focus is not just on their own requirements in the substantive issues (a natural bias). Focus is widened to examine how best to persuade the other party, using stances, themes and counters, supported by good staff work based on accurate data and facts and key commit- themes. Negotiators think in terms of ranges, not fixed positions, and trading movement with offers for movement.

7.3 Where there are uncertainties (and erroneous “certainties”) on the balance of power regarding the alternative proposals we could put to the other side, how might Levison/Atkinson’s power balance calculations help to clarify the differences?Negotiation is taken up with debate and trading of proposals. Nothing really happens in negotiation until proposals are presented, because we can only negotiate proposals. The acceptability or otherwise of a proposal is conditioned by the power or otherwise of a proposal to induce its acceptance. This is not quite the same thing as the power to coerce someone to accept it, which is a wholly different meaning of the use of power in negotiation. If the proposal is accepted as a result of coercive power (‘an offer you cannot refuse’) it is hardly negotiation, which is characterised by its being a voluntary process – agreement is secured by the mutual acceptability of a proposal – because each party has a veto.

The acceptability of a proposal depends upon the disadvantages felt by a party from rejecting a proposal compared with the disadvantages from accepting it. This produces a ‘power balance ratio’. The power balance ratio can be expressed as: My negotiating power is a function of

- The disadvantage to the other party from rejecting my proposal- The disadvantage to the other party from accepting my proposal

Where the disadvantages of rejecting a proposal vastly exceed the disadvantages of accepting it, the inclination would be for the party to accept it, always allowing for the possibility that a party might (and is always entitled to) reject the proposal to see whether the proposer is willing to improve it yet further. Negotiation is conducted by human beings not cyber machines. If further debate shows that

the proposer is not likely to improve his or her proposal and there are no more options available to trade something to persuade the proposer to move, it is likely that the receiver will accept the proposal.

However, where the disadvantages of rejecting a proposal are vastly exceeded by the disadvantages of accepting it, it is most likely for the party to reject it, again always allowing for the possibility that a party may not indicate rejection immediately because of the needs of the behavioural interaction or because the proposal (poor as it is in the party’s opinion and assessment of the net disadvantages) is being subjected to questioning (under SAQSS – as explained in Module 9).

The essence of the technique is for disadvantages to be weighted by two dimensions:the seriousness of the disadvantage to the party ( w ) the probability of the disadvantage occurring (p).

i.e w x p,. The aggregate weighting of the disadvantages times their likelihood above and below the line summed to produce the ratio of disadvantages:r w.pΣ a w.pΣ

If the ratio is <1, then rejection is likely; if >1, then acceptance is likely. A ratio of greater than 3.1 is judged to be sufficiently large to make rejection or acceptance a rational choice (eventually). A power balance ratio calculated by the team, with all disadvantages discussed and assessed for their seriousness and likelihood of occurring, usually works to bring about a consensus of view on the viability (from not disadvantageous enough for rejection through to too disadvantageous for acceptance) of the current proposals. Allowing for the inherent dangers of quantifying what are subjective assessments of disadvantages for other people (and worse, the temptation, not always resisted, of ‘adjusting’ the arithmetic to meet preconceptions of the outcome), power balance analysis is a structured alternative to the wild guessing and impressionistic subjectivism of most negotiation preparation.

7.4 Where there are multiple stakeholders and negotiable issues, how might Alias and Georgiades” (McKinsey) graphical models assist the team’s preparation analyses?The Allas and Georgiades tools develop strategies to produce negotiated outcomes palatable to the parties. They help to separate the parties into allies and opponents of the main negotiable issues. The three key characteristics are a party’s ‘Position’ (preferred outcome) on an issue; the ‘Salience’, (or Relative Importance) of the issue (High, Medium or Low), and the ‘Clout’ (Power) enabling it to influence the other players on that issue. It does all this using six relatively simple diagrams:- summary of the parties’ stances on Position, Importance and Power;- weighted average outcome without bargaining;- stability analysis of an issue;- stakeholder classification (ally or opponent);- negotiation landscape of parties;- relationship analysis.The summary stance diagram scores the three key characteristics of Position, Issue Importance and Power using scores out of 100 points for each characteristic for each stakeholder. Where the parties are at the extreme ends of a stance, they score either 100 (everything changes) or 0 (nothing changes), and the other parties being prepared to accept some change or nearly all the proposed change score points between 0 and 100. The outcome continuum shows the outcome of a straight vote using the weighted average of a pure compromise with no bargaining. As negotiators expect to bargain, the weighted outcome acts as a base measurement for calculating how far the parties are from the weighted average outcome relative to a high or low combined relative importance of the issue. Stability analysis describes whether the parties would be likely to challenge a voted outcome and make it unstable or accept it.Stakeholder classification identifies, across the main issues, whether each party is likely to be an ally or an opponent on each issue. The absence of an opponent on any issue suggests that a party would be likely to achieve its aspirations on that issue; the presence of no allies on an issue suggests it faces a tough struggle to achieve its preferred outcome. By differentiating between Importance and Power on each issue the negotiation landscape diagram (one for each issue) shows whether a party is a ‘follower’ (an ally but with little power), a ‘shaper’, a party that cares about the issue (Highly Important) and has High Power (could exert influence), making them natural allies or serious opponents, or an ‘influencer’ (less concerned about the issue but with high power to influence) who can be a winning ally for your proposal, if you can persuade them to support your proposal.

The relationship analysis diagram highlights the situation between pairs of parties (starting with the two parties most opposed to each other on an issue), and this shows the importance of the issue compared to its importance for another party. This is akin to what is shown in the Preparation Planner diagram of the Negotiation text. It identifies the ‘cross-matching’ of degrees of importance on

the negotiable issues and where the possibility of bargaining, lobbying and ‘salami’ type proposals might be appropriate.

The six diagrams (more than six when all the main issues and all the parties are compared, suggesting why a computer-driven simulation analysis is appropriate) can clarify the strategic issues, which may be obscured by a mass of interconnected data.

8 - The Negotiation Agenda

8.1 Introduction 8/2History: Negotiation agenda originated from state of industrial relations in 1970s were very antagonistic

Unilateral list of conditions to be imposed on employees

8.2 The Approach 8/3The negotiation agenda was the Better, alternative strategy developed by some major companies. It is driven by the necessary changes required to operate the enterprise profitably. It was no longer sufficient to react to employees demands; management had to develop its own demands and consolidate them into a negotiation agenda (saj claim’s process)Negotiation Agenda:

- List of negotiable items regarding remuneration and conditions that could be traded - Initial focus on industrial relations spread across other areas of business- Preparatory data from Analysis and Diagnosis and subsequently implemented

(Implementation - Box 16)- Proactive, not reactive- Specific proposals for specific changes- Trades as conditional propositions

Management sets out its intentions in its business plan and then derives its negotiation objectives to implement its plan.

Without Negotiation Agenda- Plans are isolated- Management hostage to mood and militancy of employees, suppliers, customers ...

To achieve specificity in managements proposals drawn from the negotiation agenda management must have:

- Clear and detailed ideas- Commitment to negotiate- Determined to introduce and fund agreed points within timeframe- Maintain seamless connection between business plan and negotiation agenda

Negotiation Agenda covers longer timeframe than specific agenda

8.3 Derivation of the Negotiation Agenda 8/9For each change in commercial imperatives there will be

- Maximum 5 operational imperatives

Total of 5-8 operational imperatives are sufficient to capture the main commercial imperatives. The imperatives may come from relatively informal acquaintances with the business and management’s knowledge, however, vague, of the changes that are coming over the horizon.Impact of imperatives on financial strategies

- Commercial, Operational =>o Budget, Sources, Financial evaluations, Stakeholders, Financial plannng

Exhibit 8.2 Operational imperatives

Impact of imperatives on HR strategies- Commercial, operational =>

o Employee relations, Recruitment, Training, Organisational Development, Manpower planning

Exhibit 8.3 Impact of imperatives on financial strategies

Exhibit 8.4 Impact of imperatives on HR strategies

Derivation of Negotiation Agenda Topics- Commercial, operational Imperatives- Current state “helps” or “hinders” imperatives- “Future” desired state becomes content of Negotiation Agenda

Exhibit 8.5 Derivation of the Negotiation Agenda topics

8.4 Content of a Negotiation Agenda 8/14

Private Finance Initiative (PFI) Example: Public sector departments pay annual feed to private firms to supply capital, complete project, construct it, administrate 20-30 yearsAfter concession period hands over building to department

8.4.1 Commercial Imperatives 8/16From the business plan and other relevant sources, derive the commercial imperatives and objectives.

8.4.2 Operational Imperatives 8/18Operational imperatives are derived from the commercial imperatives and are usually associated with Finance, HR and Technology but could encompass any functions important to the activity. The negotiation agenda approach tests the feasibility of the top level intentions of the organisation, as expressed in the business plan and identifies what must be done to achieve them. If objectives are not feasible, given the current mix of resources, the organisation faces the choice of adjusting the mix or not meeting its business plan, and the negotiation agenda shows exactly what has to be negotiated (and with whom) for the necessary mix to materialise.

- The negotiation agenda Exposes unattainable objectives- Best time to start making necessary adjustments if inconsistencies and fictions are exposed

is as close as possible to year 1 and not in year 4

Spending seems easy but subject to scrutiny and resource constraints

8.4.3 Analysis of Imperatives to Derive the Negotiation Agenda 8/20

May need further subcontractors (e.g. concessionaire may not have capability for facilities management: janitorial, maintenance)

The negotiation agenda approach drives managers to consider strategic questions about the nature of the business and how things might or should change as the business is exposed to relentless analysis of where it is goingImpact on HR:

- Recruit or outsource- Facility management => organisational development

Derivation of Negotiation Agenda topics:

Financial evaluations should remain under continuous review as refined data becomes available and parameters change as negotiated outcomes are reached between the parties.

8.5 Assembling a Negotiation Agenda 8/23The derivation of the impact of the imperatives on the organisation produces the raw material for the agenda. It is a list of all the changes required for the organisation to achieve its business plan. The analysis and diagnosis phase of the model would have produced a lot of the detailed data and at this point the data is sorted and duplications removed. The negotiation items are then assembled and allocated to the relevant negotiating parties.

The Negotiation agenda- ID’s potential proposal that management intends to introduce within the business plan

horizon - The list of items are carefully tied to the well-thought-out imperatives necessary for the

business plan.

- It is a confidential document and premature leaking could cause unwelcomed setbacks

Negotiation agenda identifies potential proposals within horizon of business plan- Tied to imperatives- Fully costed- Confidential document

8.6 Compiling the Negotiation Plan 8/26Below are the elements of a Negotiation Plan (designed by the late John Benson, Negotiate Ltd.) for a major remuneration negotiation with a single bargaining unit (defined as covering members of an employee group represented as such by a single negotiating team, possibly a trade union).

In this presentation there are 15 main headings.8.6.1  Pay Bargaining as an Opportunity for Change8.6.2  Introduction 8.6.3  The Bargaining Unit8.6.4  Pay bill Information8.6.5  Comparability with Other Bargaining Units8.6.6  Key Economic Indicators8.6.7  Factors Influencing the Level of Settlement8.6.8  The Bargaining Unit’s Claim8.6.9  Key Management Objectives8.6.10  Settlement Options8.6.11  Structure of Negotiations8.6.12  Implications for other Employees8.6.13  Sample Cost Matrix8.6.14  Negotiation Budget Authorisation8.6.15  Settlement Report (including Actual Cost Matrix data

8.6.1 Pay Bargaining as an Opportunity for Change 8/27

Planner should provide:- Highly structured framework for planning- Information needs- Probably sources of information- Process for developing objectives- Costing framework- Strategic Negotiation planning process

8.6.2 Introduction 8/27Guidance for turning strategic requirements into operational reality

Purposes of Planner:- Framework within which all aspects of negotiation agenda can be considered- Sets out information management team is required to know- Common format for submissions- Structured framework for analysing data- Roles and accountability levels- Facilitated input to strategies- Accurate record of results and costs- Audit trail

First compilation of Planner takes longest; thereafter maintain base data. If not all data is available use Pareto (80/20) ruleEach heading of the planner is addressed separately along with instructions for its completion, location of probable sources of information and commentary/explanation.

8.6.3 The Bargaining Unit 8/28One Planner for each bargaining unit

- Defined as Group of employees with collective terms and conditions (may be located at single site or at several different sites in organisation like saj/kwl)

- Details required for ID purposes areo Name of organisationo Sites coveredo Bargaining unito Unions involvedo Numbers coveredo Current agreement dateo Negotiating date

- Attach current terms and conditions to Planner (details can be extracted form company’s payroll, existing negotiation procedural agreements, individual contracts of employment, manpower plans and budgets)

8.6.4 Paybill Information 8/29Paybill: actual cost of previous 12 months (from payroll)

- Basic salary- Shift allowances- Overtime- Bonus- Holiday, Sick

All possible negotiable items should be identifiedAssist in determining full cost implicationsCalculate ration (e.g. base:bonus, base:benefits...)

- Hard evidence to address absenteeism, overtime...

Calculate budgeted manpower levels

Questions:- Which categories of employees earn disproportionate overtime- Leading to inequities?- How are paid hours geared to hours worked- Possible objectives on overtime and premium earnings drift?- Scope for introduction of different working patterns?

o New shifts, annualised hours, mix of full-time/part-time

8.6.5 Comparisons with Other Bargaining Units 8/32Comparability claims are common (often unfounded)

- Even if well-founded not mandatory to uplift pay

Comparisons should:- Summarise internal market comparisons- Highlight anomalies- Identify possible areas of planning and shifts- Forewarn

Source of information- Labour market reports- Salary surveys- Professional journals- Similar industries

Negotiators should undertake close analysis of External market data- Understand organisation’s market position- Understand significant differences in pay policy- Compare apples-to-apples- May be out-of-date- Sample size- No survey scientific/accurate- Use only market data relevant to organisation

Analysis of external market data, and close comparisons of similar organisations, should help the management negotiators to: understand the organisation’s true competitive market position in relation to the employees

covered by the bargaining unit (know your markets!); understand the prevalence of significant differences in pay policy and practices of other

organisations which may form the basis of a union claim or supportive argument.

The key objective is to consider information that will work for you and your organisation and will add value to your negotiating planning and decision-making.

Considerations in assessing external data and salary survey information include: the necessity to compare ‘apples with apples’ and ensure that job sizes are comparable to

those in your organisation. Accurate job-matching is at the heart of the use and interpretation of survey data. Additionally, the size of organisation should be comparable, and the possible influences of business sector and geographical location taken into account in making comparisons.

the fact that published salary surveys are always out of date. Allowances should be made for the lead-time between data collection (not publication) and the time you are using the information. Adjustments need to be made on a pro-rata basis in times of high inflation or high levels of wage and salary settlements and increases.

ensuring there is a suitable comparative sample size – both within individual surveys and by the use of several publications. For example, there are surveys that comprise mainly small to medium-sized organisations and which tend to result in aggregate salary levels lower than those of large organisations.

understanding that no survey is totally scientific or accurate, no matter how much detail is provided. Managerial judgement should not be suspended. It is good practice to take information from two or three different sources. What is needed is a broad feel of the parameters of pay and benefits for specific groups in comparable markets.

using only the survey data relevant to your organisation and the specific bargaining unit – otherwise analysis/paralysis will set in!

Analysis of external market data, and close comparisons of similar organisations, should help the management negotiators to: understand the organisation’s true competitive market position in relation to the employees

covered by the bargaining unit (know your markets!); understand the prevalence of significant differences in pay policy and practices of other

organisations which may form the basis of a union claim or supportive argument.

The key objective is to consider information that will work for you and your organisation and will add value to your negotiating planning and decision-making.

Considerations in assessing external data and salary survey information include: the necessity to compare ‘apples with apples’ and ensure that job sizes are comparable to

those in your organisation. Accurate job-matching is at the heart of the use and interpretation of survey data. Additionally, the size of organisation should be comparable, and the possible influences of business sector and geographical location taken into account in making comparisons.

the fact that published salary surveys are always out of date. Allowances should be made for the lead-time between data collection (not publication) and the time you are using the information. Adjustments need to be made on a pro-rata basis in times of high inflation or high levels of wage and salary settlements and increases.

ensuring there is a suitable comparative sample size – both within individual surveys and by the use of several publications. For example, there are surveys that comprise mainly small to medium-sized organisations and which tend to result in aggregate salary levels lower than those of large organisations.

understanding that no survey is totally scientific or accurate, no matter how much detail is provided. Managerial judgement should not be suspended. It is good practice to take information from two or three different sources. What is needed is a broad feel of the parameters of pay and benefits for specific groups in comparable markets.

using only the survey data relevant to your organisation and the specific bargaining unit – otherwise analysis/paralysis will set in!

Advantages & Disadvantages of different market data sources

8.6.6 Key Economic Indicators 8/36Retail Price Index

- Use year-on-year percentage increase/decrease for most recent 12 months- For unemployment figures use the most recent seasonally adjusted figures

8.6.7 Factors Influencing the Level of Settlement 8/36The negotiator should list all the facts seen as influencing the expectations of bargaining unit members, either upwards or downwards. E.g

- Downsizing- Entry of competing employers- Local scarcity of skills

Sources:- Conference reports, team feedback, surveys, management judgement

8.6.8 The Bargaining Unit’s Claim 8/36The negotiator should

- Itemise formal union claim (including non-substantive elements)- Calculate cost of each item- Written appraisals of actual level of expectation of union/bargaining unit members should be

made and recorded as they change.

Analysis helps;- Full response- Identify high-value, low-cost items- Appraise expectations

8.6.9 Key Management Objectives 8/37The negotiating team should state

- How Short-term versus long-term management objectives will need to be considered in relation to the negotiations (e.g costs, productivity, goodwill, quid pro quo)

- Outline major objectives seeking to achieve/facilitate through negotiations- Specify aims in relation to realistic settlement options.- Ensure the short term changes do not undermine longer term objectives- Where negotiation tactics are a first step towards a longer term objective, this should be

stated explicitly and circulated for discussion

An example of a broad need in meeting a management objective may be to look at the containment and control of labour costs. It is possible to review a multitude of areas to impact on this objective, including:

Labour costs; areas of impact:- Multi-skilling- Work practices- Shift patterns- Mix of full-time, part-time employees,- Overtime- Competitive local pay rates

Overtime factors:- Premium rates- Hours applicable- Time-recording systems- Mix of part-timers- Shift patterns

Each of these requires a negotiating objective attached to it, and each of the objectives needs to be given a High, Medium or Low priority rating.

In preparation for each negotiating event, HR and reward strategies should be reviewed. The principal subject areas for negotiation should be established. These principal areas should then be broken down, as in the example above, to establish the detailed, tactical negotiation objectives. These objectives then become the specific ‘shopping list’ on the Negotiation Agenda.

8.6.10 Settlement Options 8/38Components

- Length of agreement- Level of cost- Mix of paybill items

Identified favoured option- include all items on which the company is prepared to negotiate- demonstrate the overall perameters within which the company is prepared to reach

agreement, including most favoured option.

Exhibit 8.22 Settlement options% on previous 12 month paybill % on projected paybill

Option one

Items and costs(List)Current financial yearNext full financial year

Option two

Items and costs(List)Current financial yearNext full financial year

Option three

Items and costs(List)Current financial year, next full financial year

8.6.11 Structure of Negotiations 8/38Know with whom you will negotiate. Assemble information relating to negotiating teams and discuss how team composition might influence the conduct of negotiations and the practice of communication within the bargaining unit.

- Get right mix on management side

Structure- List names/titles of staff- List names/titles of management- How will settlement be communicated to staff/management- Does final acceptance come from negotiating team, staff meetings, secret ballot...

8.6.12 Implications for Employee relations 8/39What is the environment within which these negotiations will be conducted, and what factors will influence bargaining unit behaviour and/or expectations? Where there are implications that could have such an influence, outline your intended approach towards the negotiations.

(i)

Describe briefly the day-to-day employee relations environment in which the organisation is operating and its implications for these negotiations.

Both this section and (ii) which follows inform those individuals outside the management team as to why particular settlement options and negotiation tactics are to be adopted.

Group issues that can influence negotiations:- Resistance to change- High grievance level- Follow of other (more militant) group- Hostility- Status conscious versus egalitarian- Constructive versus negative- Good versus poor negotiators

Analysis is sensitive => restrict circulation list

8.6.13 Sample Cost Matrix 8/40

Exhibit 8.23 Cost matrix examplePercentage on basic 1.0% 4.5% 5.0% 5.5% 6.0%Basic wages 58,200 261,900 291,000 320,100 349,200Shift allowances 5,820 26,190 29,100 32,101 34,920Overtime 8,318 37,431 41,590 45,749 49,908Holiday pay 748 3,366 3,740 4,114 4,488Sick pay 438 1,971 2,190 2,409 2,628TOTAL 73,524 330,858 367,620 404,382 441,144% increase on paybill 0.82 3.71 4.13 4.54 4.951 additional days holiday 3,147 14,161 15,735 17,308 18,882% increase on paybill 0.04 0.16 0.17 0.19 0.21

Cost matrix shows effect of varying levels of wage increases on the total projected paybill from a recent pay bargaining negotiation.

Basic wage rate is headline wage claim- Knock-on effects on other paybill items

The cost matrix provides an overall “ready reckoner” that allows rapid calculations of movement up and down the scale during the process of negotiations.

8.6.14 Negotiation Budget Authorisation 8/41CEO or Chairman should sign off negotiation budget and approve linkage between Negotiation Agenda and Business Plan.

NB. Strategic negotiation is about uncovering those linkages and securing the commitment and attention of top level management to the objectives of the Negotiation Agenda

Securing budget hinges on demonstrating business plan alignment and top level involvement.

8.6.15 Settlement Report (including Actual Cost Matrix Data) 8/41After acceptance of an agreed level of settlement by the bargaining unit(s), the Settlement Report should be completed and copied to the organisation’s CEO, or Chairman of the Remuneration Committee. This report should also detail any significant variations from the options and budgets ‘signed off’ by top-level management. It should cover every item of the Agreement that is a cost element and include actual cost matrix data.

The narrative section will assist in the proper monitoring of negotiating performance and reviewing effectiveness of the planning process of the Management Agenda. This provides a follow-through in the negotiation cycle and permits a review of the HR and reward strategies.

It also informs future preparation of negotiation strategies and tactics, e.g., if the Negotiation Agenda objective to reduce overtime premia is not achieved over a couple of negotiations, it might indicate that changes of strategy on working patterns, which should lead to the required changes in overtime practices, would be appropriate.

Review Questions 8.1 How might a Negotiation Agenda approach assist the achievement of management’s strategic objectives?The Negotiation Agenda is a process that involves the management team deriving from the organisation’s business plan those changes necessary in the organisation for the business plan to be implemented over the time horizon of three to five years.

It differs from the normal process by which a management derives its negotiation objectives according to that year’s annual budget allocated to the employee remuneration and without any systematic considerations of the changes needed for the organisation’s structure or its operations. Annual budget-driven increases in remuneration are influenced by short-term considerations (wage inflation, current staff shortages in certain pay grades, what can be afforded by treating salaries and costs as residuals, employee expectations, and unanticipated (but foreseeable) trends working away for longer periods than the current year.

The Negotiation Agenda approach considers the strategic needs of the organisation; the annual budget approach considers tactical pressures. The former is pro-active, thinking forward a number of years; the latter is mainly reactive to the current year’s pressures and if strategic considerations intrude at all, management is in a weaker position to advance the interests of the organisation.

Using the Strategic Negotiation Process Model, management identifies the necessary changes affecting the organisation if the business plan is to be achieved over the planning horizon. From this data the commercial imperatives are identified and from these the operational imperatives are derived in respect of human resource changes needed to accomplish the business plan.

This activity provides a seamless link between the changes needed in human resource recruitment, decruitment, retraining, and development, all of which require prior negotiation to be in place in time to meet the planning horizons of the business plan.The Negotiation Agenda is a long list of needed changes in the composition of the workforce, the skill sets appropriate to the changes, the changes in the rewards and benefits that may be necessary, the flexibilities in working arrangements required, and the remuneration packages than may be desirable, and affordable, given the financial situation of the organisation.

The items, on a Negotiation Agenda are usually more numerous than a particular negotiation, tough they can be drawn upon should circumstances arise where their use as tradables is appropriate, always remembering that agreements made in a particular negotiation should not inhibit changes the management is anticipating in future negotiations. The changes anticipated over a three-to-five-year horizon are always likely to be more numerous in total than a particular negotiation would consider. Working systematically through a rolling Negotiation Agenda prepares the organisation for necessary changes, a step at a time, and ensures that the strategic objectives of the organisation are properly resourced and, thereby, achieved according to the business plan.

8.2 The Negotiation Agenda requires the collection of formidable amounts of data. How would you justify the staff work necessary to compile the data?Management should know most of the data required to complete a Negotiation Agenda whether for a HR negotiation or preparing to for finance negotiation for a merger. Competent managements (and managers) already have access to all the data required to complete a Negotiation Agenda.

The work to collect, analyse and present in a Negotiation Agenda format is only onerous the first time it is done (assuming the management does not already compile such data). From then adding amendments and refinements each quarter or annually is not difficult. The managers concerned after the first time have established the sources for their data, can collect changes in the data as a matter of routine (a spreadsheet updated clerically), and from familiarity with the data should have no difficulty in contributing to discussions of trends and possible proposals for upcoming negotiations. The real problem for a management is not the work involved in first collecting the necessary data. It is the thought that senior managers are making decisions or contributing to discussions without knowing even the elementary data relevant to their business. The quality of a manager’s contributions to decision-making in an organisation is directly related to his or her familiarity with the data directly relevant to the decisions. In so far as data are the common currency of a manager’s job function, the key data should be at their fingertips at all times.

HR personnel should know the details of the organisation’s pay bill – if asked and they do not know it they expose themselves to ‘re-assignment’. Finance personnel should know the data of the key financial relations relevant to their business – if they don’t they should not have influence on budgeting and certainly should not be allowed to authorise or sign off spending proposals. In this context, the collection of data for the Negotiation Agenda ought not to be seen as onerous, except by managements demonstrating their great need to adopt the Negotiation Agenda approach..

NotesQuestions/contextBusiness Plan (3-5 years)

Commercial imperatives:Sales volume, cost reduction, net profit; New customer, new equipment

Operational Imperatives (Finance, HR, Technologies)Investment in R&D Programme; Competitor Analysis, Marketing Plan, Audit of production, resources, Financial plan, Search for customer alliances, Retraining; induction; monitoring people, Finance technique, New technologies

Force field (Case 4.3):Primary Players, Secondary Players, Negotiable IssuesDiagram: People, Arguments, Events; Desired situation, Balance of Forces, Current Situation

Expanded Force Field: (Case 7, 26.2) ISTCSRR1. Negotiable Issue2. Negotiating Stance3. Themes and Justifications4. Key Commitment5. Strategies to achieve stance6. Ranges7. Responses

Power Balance Ratio / Atkinson’s calculation: Weight x Probability (0..1); 3:1 rule

McKinsey model (Ex 11):- Stakeholder: Position, Salience, Clout- Compromise vote: Pure unweighted average; compare to binary (+/- 50) vote- Continuum (Ex 15); Speculate!! why?, what if?- Stability Analysis: Horizontal: (Salience + Clout 0..200), Vertical: Distance from average

(0..Max)o Unhappy, Unimportant, Challenger, Supporter; sufficient to place in correct boxo Outcome unstable if players in upper right (high saleience+clout, high deviation

from average)- Negotiation Landscape: H: Clout, V: Salience

o Followers, Bystanders, Shapers, Influencers

- Relationship Analysiso H: P1 Salience x V: P2 Salience; o Bargaining/trade, Uninteresting/ignore, Dealbreakers: Negotiate, Easy wins: trade

for difficult wins

Warranty / IndemnityHead of Agreement / Terms...Case 10: tradables for remuneration => start with SNPM; assume where necessary

Contract elements: IEDOR PDBSS1. Identity2. Expertise3. Definitions4. Obligations, Warranties, Indemnities5. Rewards6. Penalties7. Duration8. Boilerplate9. Schedules10. Signatures