ERIC EVANS A MATURE APPROACH TO NEGOTATION

Eric Evans & Associates Ltd Email: EricEv@nsLtd.net Tel: +44 (0)77 189 100 18

Housekeeping

• The slides will be available on our SlideShare page; the link will be emailed to you

• The recording of the webinar will be available to view; the link will be emailed to you

• Please take the time to complete a post-webinar survey that will pop up at the end

• You can type your questions throughout the session in the Question box

• Time will be allocated in the end for the speaker to address your questions

What is Negotiation?

• Screw or be screwed?

• A battle of wills?

• Convincing the other guy it’s a good

deal?

• Psychological warfare?

• Compromise?

• Being “fair”?

• Both sides getting a good deal?

• The application of power?

• Getting your own way?

• Trading concessions?

• Haggling?

• Genuine problem solving?

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A simple game of cards

Introduction

The objective of this exercise is to make as much money as possible. You will do this by buying, selling or exchanging cards with the other teams until you have the best hand you believe you can get.

You should be aware that two random cards have been removed from the pack. It is a fact that some teams have more cards than others.

Each team starts off with £200 which can be used to buy cards from other teams. Cards are worth whatever teams agree they are worth when negotiating to buy or sell

Scoring

– A run from Ace to the King, all of the same suit will earn you £1,000.

– A run from Ace to the King, all of the same colour (that is hearts and diamonds, or spades and clubs) will earn you £500

– Four of a kind (that is four Kings or four 3’s etc) will earn you £350

– A 4 is a lucky card, and you score £50 for every 4 in you hand. (If you have some of the other point scoring combinations including a 4, then this is an additional score)

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What about Win / Win?

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Abdication Win / Lose

Compromise / haggle Psychological Warfare

Trading Concessions Win / Perceived Win

Win / Win Principled or AGILE Negotiation

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The Behavioural Traits of Successful Negotiators

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A Horror Movie? This part of the programme involves watching a short negotiation and commenting on what is good and what could be done better The context of the negotiation will be explained before the video is shown and participants are then asked to work in groups and highlight things which impressed them and things which scared them

Research findings on why negotiations fail

Questions – The quantity or quality of questions is

inadequate to give the negotiator information, understanding, time to think or control

Listening – The negotiator hears what we wants to

hear or what he expects to hear rather than what is actually said, or the way it is said, or the message behind what is said

Answers – The negotiator answers a question

without considering the implications of giving the answer

Talk too much – Information is gratuitously given away,

or a position is unnecessarily conceded

Words – Words are used without consideration.

(Words need to be chosen for their impact, not their meaning)

Looking – The negotiator misses non-verbal signals

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More failure findings

Easily satisfied – The negotiator finds a solution and then

stops rather than searches for others, or considers those put forward by the opponent

Assumptions – The negotiator makes assumptions

without testing them at an early stage of the negotiation

Like to be liked – We do not wish to cause offence or

embarrassment and therefore we do not take an aspirational position, or we concede too easily or too quickly, or we go are too oblique in asking for concessions

Predictability – We stick with one approach to negotiation

to the point where we are predictable, and therefore easy to deal with

Emotion – We allow our emotions to control us instead

of using appropriate emotions to influence an outcome

Attention Span – The average attention span is 20 minutes

after which we miss opportunities

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Team failings

Lack of a conduit – Team members interrupt each other and vie for air time,

often resulting in the wrong person answering a question, or two different answers being given to the same question

Goldfish – Team members sit there without contributing and there is

a risk that if drawn into the negotiation, they will not be able to add value. Please note that this is not the same as deliberately sitting there and not actively taking part (which could be a valid strategy)

Drifting – No clear and vivid objectives. In spite of the existence of

an agenda and a team plan, the discussion is allowed to drift as personal hobby horses are let loose

Jaw Jealousy – One or more team members feel the need to dominate the

conversation

Hospital Passes – A question is passed to a team mate who is unprepared to

deal with it

Group Think – The team make it clear that they do not have a position on

a particular issue, or an answer to a particular question

Style and Substance Clash – There is an apparent tension between members of the

team

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Keywords – an exercise

Pick ten words or phrases from those listed on this page, which you think best describe a good negotiator, and then six which you think describes a bad negotiator.

1.Tough 2.Scheming 3.Says little, listens much 4. Plays cards close to his / her chest 5. Believes in compromise 6. Manipulative 7. Uncompromising 8. Creative 9. Fair minded 10. A team player 11. Soft 12. Aggressive 13. Can read people like a book 14. Unflappable 15. Stays in control 16. Knows lots of tricks 17. Poker faced 18. Capable of dominating people 19. Focused 20. Good at thinking on his / her feet 21. A good talker 22. Plans well 23. Aims high 24. Gregarious 25. Sensitive 26. Assertive 27. Easy to get on with 28. Easy to talk to 29. Low responder 30. Good at bluffing

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What makes a good negotiator?

Decide which of the following attributes from the list provided against each of the headings, makes for the “best” strategic negotiator. Select one of the options for

each question. A. The Goal 1. Believes in winning at all costs 2. Believes the relationship is more important than

winning 3. If, somewhere between 1. and 2. then use your own

words to articulate the position the “best” negotiator might take.

4. Something else. Use your own words to describe the goal from a negotiation.

B. The Relationship 1. A constraint which prevents us from maximising our

leverage 2. A means to an end 3. A by product of the negotiation 4. An asset C. The Approach 1. Leverage is central to good negotiation practice 2. Compromise is essentially at the heart of negotiation 3. Everything is tradeable, and negotiation is about

looking for trades 4. There is something else which works better. (Say

what it is)

D. Taking Positions 1. It is important to take an extreme position so that you

give yourself bargaining room 2. It is better to go in with an honest position rather than

an exaggerated one 3. Taking positions in negotiation is less than optimum 4. It is more important to think through the opponent’s

likely position E. Pressure 1. The world is a high-pressure environment, and

negotiators need to be able to apply pressure 2. Pressure is unpleasant and can damage a relationship 3. You cannot avoid putting pressure on people in

negotiation 4. Something else F. Planning 1. Successful negotiators spend longer planning for a

negotiation than average negotiators 2. Successful negotiators typically spend the same

amount of time planning as average negotiators 3. You can’t really plan a negotiation 4. Having a structure to use when planning for a

negotiation is important

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Keywords – suggested answers (generalisations, and to be discussed)

Good… Bad… Depends…

• Tough on the problem (but soft on the people)

• A team player • Can read people like a book • Focused • Plans well • Sensitive • Easy to talk to • Easy to get on with • Creative • Unflappable • Good at thinking on his / her

feet • Aims high • Assertive • Says little, listens much • Fair minded • Stays in control • Gregarious

• Scheming • Believes in compromise (there

are better approaches) • Soft • Manipulative • Aggressive

• Plays cards close to his / her chest (does not develop trust)

• Uncompromising • Knows lots of tricks (to recognise

them rather than to use them) • Poker faced • Low responder • Capable of dominating people • A good talker (quality is better

than quantity) • Good at bluffing

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Neil Rackham research

• Neil Rackham was the founder of the Huthwaite Research Group who have conducted significant research programmes into why some people are better than others in areas such as chairing meetings, negotiation, selling and presenting.

• Rackham looked at two groups of negotiators (average and successful) and observed the differences between these two groups in terms of both planning and face to face behaviour.

• Successful negotiators where described as successful on three criteria: – They were widely regarded by their peers, colleagues and opponents

as being good negotiators; – They got better results in comparable situations than their colleagues

in the average group – The deals stood the test of time

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Characteristics of Effective Negotiators

Planning – It is how you use time, not

how much time which counts

– Exploration of options is key

– Listing key questions to ask is key

– Common ground builds bridges

– Long term perspective reduces tension

– A range of objectives is preferable

– Consider your BATNA and theirs

– Playing devil’s advocate is critical

Face to Face – DO – Questions give control – Controlling the agenda controls the

negotiation – Behaviour labelling gets a response – Feelings commentaries build trust – Frequent summarising adds to control – Testing understanding avoids

misunderstandings – Build bridges from their position – Review afterwards always

Face to Face – AVOID – Irritators are common – Quick counter proposals fail – Attack defend spirals are common – Answering questions may add to problems – Argument dilution is a weakness – Point scoring never works

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Based on research carried out by Neil Rackham and my former colleagues at

the North West Regional Management Centre in the UK

Seven habits of highly effective people

In Stephen Covey’s book on principle centred leadership, he quotes an example where he was asked by a friend to be a facilitator in a lawsuit the friend was facing. Apparently there was no trust between the two parties. He advised his friend to simply put all his information up front and ask if they would be willing to search for a better solution. The other party initially refused to meet, but Covey’s friend offered to send all of his information and then pay for lunch. Apparently he said that he did not intend to bring a lawyer but the other party was free to. Covey’s friend said that if they did not wish to say anything then they would just have lunch. He argues that they had nothing to lose and possibly something to gain. At the lunch, Covey’s friend tried to make his opponent’s case for him and after this demonstration of genuine empathy, asked if he had understood everything correctly. The opponent’s lawyer advised against saying anything, but the opposing CEO said that he needed to correct some inaccuracies. To cut a long story short, Covey’s friend used a flip chart to capture the other party’s position, and then made his own points. They then started discussing possible alternatives that would meet their needs, and after an hour resolved their differences. The moral of this tale? Empathy and synergy beat an adversarial relationship hands down.

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Is planning important

There are conflicting views on the significance of planning in negotiation.

Dr Brian Farrington – a Procurement Guru has suggested that for every hour you are to negotiate, you need to spend between 5 and 8 hours planning.

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Neil Rackham has looked at how successful negotiators differ from average negotiators and suggests that the difference is not how much time is spent, but how effectively the time is used. Which is right? Most negotiating practitioners would suggest that spending 1 day planning for a 1 hour negotiation is simply not possible, simply because of the day to day resource pressures we all face. However for complex negotiations Brian Farrington is almost certainly correct. Neil Rackham’s view is also likely to be correct in that no matter how much time you have available for negotiation planning, the key must be how effectively you use that time

Strategic Sourcing

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Strategic

Sourcing

Stakeholder

Engagement

Negotiation

Sourcing

Strategy Implementation

Contract Go to

Market

Analysis Supplier

Management

• Measure Compliance

• Conduct Supplier Review

Meetings

• Review and Update

Contracts

• Monitor & Update Catalogue

Content

• Embed Compliance Plan

• Execute Comms Plan

• Onboard / Disengage

Supplier

• Acquire Catalogue Content

• Finalise Supplier

• Management Framework

• Update Benefits Tracking

Tool and Knowledge

Repository

• Finalise T&Cs

• Get contract signed

• Create Contract Management

Plan

• Negotiation Strategy

• Conduct Negotiation and /

or Auction

• Obtain Final & Best

Terms

• Create Transition Plan

• Communicate with Market

(i.e. RFX)

• Manage the process

• Evaluate Supplier

Responses

• Determine approach

• Supplier evaluation

criteria

• Create detailed resource

& timing plan

• External Market Analysis

• Supplier

• Demand

• Total Cost of Ownership

• Build Business Case Per

Opportunity

• Scope

• Mobilise Stakeholders

• Confirm Business Need

• Identify Opportunities &

Benefits

• Outline Plan & Roles

Negotiation planning starts at Stakeholder Engagement

Exploration of options

• The average negotiator identifies 2.6 possible solutions for each negotiable issue. • The successful negotiator considers twice

as many options in the planning stage • If the first 2.6 options are not acceptable to

the opponent, the negotiation is unresolved, but the successful negotiator has more chance of reaching agreement

• What does this mean for you? – Most negotiators identify 1 or 2 possible

solutions to any issue which is to be discussed, but the most successful guys spend a lot longer working through possible options.

– Lancashire Co-Op buyers have identified 120 possible concessions they could ask suppliers for. This means that if they can’t reach agreement through one particular route, they can use 119 possible alternatives to get agreement, some of which may be lost cost trade-ables for the supplier

– How good are you at creating possible options in the planning stage.

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Common ground and long term perspective

1. A successful negotiator puts time into building up the common ground, time into painting a long term view and actually plays down the problem. The focus is on this is not a big problem if viewed in the right perspective

2. An average negotiator invest less time in common ground and the long term view and consequently the problem is much more clearly identified from each party’s perspective as a big issue

• What does this mean for you? – When planning a negotiation it makes

sense to consider building bridges of agreement and framing the negotiation in the longer term

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Negotiation with common ground and long term perspective

No common ground or long term perspective

Common ground Long term view

The problem

The problem

Common ground and long term perspective

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Recipe for an argument Recipe for a good outcome

Two parties negotiating against each other across a table.

Two parties negotiating together to work out how best to resolve a problem

The phases of a negotiation

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Opening

Middle (Competitive) Middle (Collaborative)

Closing

• Introductions • Relationship building • Agenda • Clarification of results wanted • Statement of positions • Fact finding • Summary (frequent)

• Testing • Challenging • Conditioning • Pressure • Trading • Summary (frequent)

• Empathy • Openness • Focus on genuine interests • Creativity • Objective evaluation • Summary (frequent)

• Movement • Counter proposals • Refinement • Summary (frequent) • Agreement

A range of objectives

• Imagine going into a negotiation with an objective, and it soon becomes clear that you are not going to meet your objective. Where do you go from there? All you can say is that you are going to fail.

• Successful negotiators set themselves three objectives:

– An ideal (or stretch target). There is a lot of evidence that negotiators who aim high are more successful in a negotiation

– A realistic. If it becomes clear that you cannot hit your stretch target, it is helpful to have a realistic target that you can readjust to

– It is always important to have a fallback position or walkaway. To be very clear about the point beyond which you will not go.

• What does this mean for you? – As you go into a negotiation do you have an ideal,

realistic and a walkaway? – Is your ideal stretching but credible? Can you finds

some way of making it appear something that you have a reasonable right to ask for?

– Can you enhance your BATNA so that it has a greater perceived credibility?

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A BATNA

• The Harvard Negotiating Project (which led to a superb little book called “Getting to Yes” by Fisher & Ury) said that every negotiator should know his Best Alternative To A Negotiated Agreement (BATNA). This is your fallback position, the point beyond which you will not go in a negotiation.

• The key is not just to find a BATNA, but to develop it to the point where it is a realistic alternative that you would be happy to work with if the negotiation fails. The stronger your BATNA, the higher your walkaway point, and therefore the better the minimum outcome from the negotiation should be

• It also pays to spend time considering what their BATNA is likely to be. If you don’t have a strong BATNA, you can often improve your performance by undermining theirs

• What does this mean for you? – You should never go into a negotiation without a BATNA, or

a good idea how to undermine theirs? – If you don’t have a credible BATNA, you may want to delay

the negotiation until such time as you do have one

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Playing devil’s advocate

• In all negotiations (but especially in significant ones) it pays to spend time thinking through your opponents likely position.

• These include: – What will his demands be? – What does he really want? – What BATNA does he have? – What bargaining room does he have? – What questions will he ask us? – How will he respond to the questions we ask him? – What is the his personal style likely to be?

• Do not fail to consider where else you may be able to get information on the opponent (your and his colleagues, published material etc.)

• What does this mean for you? – It is often well worthwhile for you to ask a colleague to

think through the negotiation from your organisation’s perspective, while you think it through from your opponents. Your colleague may come up with some novel thinking, and you may better understand what is likely to happen in the negotiation

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Zone of Possible Agreement (ZOPA)

• The Zone of Possible Agreement is simply an estimate of where the final agreement is likely to be

• Thinking through where the ZOPA could be, helps to identify possible stalemate, helps to condition others in the organisation, can force consideration of understanding possible tradeables, and should prepare you for the pressure you often face when no ZOPA exists

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Your ideal, realistic and walkaway positions

His walkaway, realistic, and ideal positions

No ZOPA, therefore agreement unlikely

Contrast this with……….

Linkages and trade-ables

• There is a basic adage that you should never give anything in negotiation, only trade. This means that in planning for a negotiation you need to understand the things that you can trade away (and understand what they will cost you and what value the opponent will place on them), and also understand what you should ask for (and what these things will cost the opponent and what they are worth to you)

• Value is created in a negotiation when you trade away something that costs you little but is valued highly by the opponent, and receive in return something which costs them little, but which you value highly

• What this means for you? – Have you considered what you could ask for and give in return, and

produced some form of estimate of the value and cost these things have to both parties?

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A Typical Contract Negotiation Planning Tool

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29 This checklist can be used to diagnose problems with a negotiation and to

prescribe solutions

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Practical steps to improve negotiating performance

Negotiation Process and Corporate Success • In 2008, The International Association for Contract and Commercial Management, working with a training

service provider, conducted a piece of research to understand what leading organisations are doing to improve their corporate negotiation performance.

• The survey covered 124 globally recognised organisations including Allianz, BP, CSC. General Motors, HP, Microsoft, Oracle, Orange Business Services, Rockwell, Siemens and Xerox, amongst others.

• The research found a strong correlation between corporate performance and negotiation maturity. In 2007, the net income of the world's 2000 largest companies (as compiled by Forbes Magazine) declined by 30.9%. In the same period, the net income of those companies in the survey who demonstrated an upper quartile level of maturity in their corporate approach to negotiation, saw an average net income increase of 42.5%

• This profiling tool builds on the work from that research and proposes 12 elements of a corporate approach to negotiation which need to be considered if a standard of excellence is to be achieved. For each of these 12 elements, a four-point maturity scale from "Innocent" to "Accomplished" is proposed.

• A self assessment process is used to determine:

• i) the aspiration respondents have on each of the elements (where they would like to be)

• ii) the perceived current level of performance (where they are)

• An input sheet is included to enter the data and the spreadsheet automatically produces a visual representation as an output.

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The Corporate Negotiation Process

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Planning Process Philosophy Preparation

Behaviours Measures of Success

Mandate, approvals & escalation

Training

Negotiation Standards

Senior Mgt Support

Success Motivators

Stakeholder Engagement

12 Building Blocks for success

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Planning

• Is there a rigorous and systematic process in place for collection of data? How is this data turned into information and insight? How is it used to determine the negotiating approach?

• "74% of companies have no formal negotiation planning tools"

Preparation

• Do any negotiation planning tools exist? How are they used? How is compliance monitored? Are concession values calculated?

• "Before this process was put in place, the average negotiation time on complex projects was 12 to 18 months. Today 75% of those deals are done in less than 8 weeks"

Philosophy

• Is there a belief throughout the organisation that negotiation is a critical activity? Is there a belief that a corporate negotiating culture is beneficial?

• "Three years ago there were no guidelines for negotiation on planning, preparation, approaches etc. Some of our guys gave the farm away, while others took such an abrasive approach with suppliers that it often created huge problems in implementation"

Process

• Is there a standardised, optimised and documented negotiation process? Is it followed?

• "Companies with no negotiation process suffered an average net income decline of 63.3%"

A few words of explanation…. Expectations

Data Collection Data Analysis Trend Analysis Understanding BATNA Playing Devils Advocate Option Generation "What if" analysis

Diarised Planning Time Negotiation Planning Tools Key points "scripted" Rules, Process Roles Concession patterns Red Team Reviews

Alignment between corporate goals, and approach to negotiation Training materials Feedback on performance

Documented good practice Cue cards Sharing of good practice A process owner Formal feedback after negotiations Negotiation Coaches

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Neg Standards

• Is there a formalised approach to capturing and documenting the negotiation strategy? Are strategies shared across major deal teams? Is there a corporate "playbook" for dealing with difficult situations?

• "Only 4% of organisations have a formalised mechanism for sharing negotiation learnings within the business"

Stakeholder Engagement

• Is there internal alignment between different negotiation stakeholders? At what point are they engaged? Is there an embedded system in place for gaining stakeholder involvement?

• "Getting internal alignment can be more difficult than the external negotiation"

Success Motivators

• How are negotiators motivated to deliver a long-term outcome? How is negotiator performance measured over time? Is implementation success a part of this?

• " The trick is not just to get a short term deal and then walk away. Most of our trading relationships are long term, and we need to use the negotiation to establish the behaviours we want to see in the ongoing relationship"

Senior Mgt Support

• Are Senior Mgt aligned with the strategy? Is there a role for them which is documented and agreed?

• "Companies in the top quartile increased their net income by an average of 42.5%

Expectations

Template for negotiation plan Repository for such plans Notes with feedback on how plan worked Opportunities to share learnings in team meetings

Recognition of the role of core and other negotiating team members Processes which encourage shared thinking & input Celebration of success

“Considered” rather than "deal" focus "Business" not procurement or sales approach Line of sight thinking on the deal

Wish to hear on major negotiations Participation in escalation situations Scripted roles in support of negotiators

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Behaviours

• Is there guidance or coaching on positive and sub-optimal negotiating behaviours? Do negotiators receive systematic feedback on their performance?

• "If we raised the skill level of our people by 10%, that could translate into deal's which are 10% more profitable"

Training

• Is there a structured negotiation training programme in place? Is it skills or process based? Is it continually re-inforced or spasmodic?

• "A recent survey found that 85% of respondents believe they are above-average negotiators. More than half had not received any negotiation training"

Mandate, approvals & escalation

• How is the negotiating mandate secured? How are conflicts resolved?

• "We are not allowed to negotiate until a Senior Manager or Director signs off the plan and gives us "Authority to Negotiate"

Measures of Success

• What metrics are used to determine negotiating success? How are outcomes evaluated? How is negotiating failure dealt with?

• "84% of organisations have no formalised measurement of negotiation success beyond contract signature"

Expectations

Maturity which recognises ongoing development opportunities Personality / style assessment tools Feedback and coaching Formalised training

Training needs analysis Personal Development Plans Target audience for negotiation training - including fringe players Evaluation of training against identified and agreed requirements

A "Commercial Framework" for the negotiation Negotiators with clear levels of authority / mandate from mgt Defined escalation channels

A range of objectives (MDO, LAA) An assessment of the other party's likely range of objectives An assessment of stakeholder needs

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Planning

Preparation

Philosophy

Negotiation Standards

Process

Approvals, Mandates, Escalation

Stakeholder Collaboration

Behaviours

Training Provided

Success Motivators

Board Level Support

Measures of Success

Mean

Plus 1 SD

Minus 1 SD

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The Corporate Negotiation Profile software is available at no cost from Eric Evans at EricEv@nsLtd.net

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Negotiating Tools & Templates that improve the probability of success

The Commercial Framework

• The Commercial Framework is a tool developed by A T Kearney and successfully implemented by British American Tobacco

• It increases the probability that a contract meets the needs of the organisation, that Senior Management provide a mandate for the negotiation and that the organisation – including all members of the negotiating team – are aligned

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Practical Advice 1. On no account, simply accept the supplier’s standard contract

2. Do not agree the deal with gaps in the contract or “agreements to agree”

3. Consider the use of experts in areas such as ERP software licensing or outsourcing

4. Have concrete baseline measures of existing performance and use them as minimum standards

5. Link payment to performance and insist that your organisation shows “tough love”. Service Credits and Liquidated Damages must “bite”

6. Consider the complete “ladder of remedies” and in particular the termination rights you require

7. Build in Governance, Escalation and Dispute Resolution procedures

8. Build in provisions for growth and changes in business (incremental and step change)

9. Make the Account Manager a “Key Man” subject to your approval and with your input to his annual appraisal

10. Agree a dependency clause which is directly relevant to supplier obligations with no generalities or vagueness

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And Finally

• Thank you • Ann and I would be delighted to provide you with four pieces of

software: – The Supplier Management Profile – The Negotiation Profile – The Corporate Negotiation Profile – The Contract Management Profile

• We are also happy to provide clarification or help on anything that has been discussed in the workshops or conference

• Simply write to either Ann or me at:

– Ann@2BC.co or – EricEv@nsLtd.net

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