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6.1 Effective negotiating skills

 

Why Negotiate?

The World is full of countries that prove the precept that those that live closer to the principles of free trade do better than those who have abandoned them. The famous economist Adam Smith spent 12 years, up until 1776 writing his seminal piece ‘An Inquiry into The Nature and Causes of the Wealth of Nations’. In it he remarked on the propensity to truck, barter and exchange – which he found to be common to all people on the planet and yet was not present in any other species. – Smith wrote.

“Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine; that is yours, I am willing to give this for that.”

If you want to trade you have to negotiate, the alternative is to accept what you are offered. There are many opportunities to negotiate better deals and terms, however these chances are often missed because neither side makes it clear that negotiating is an option.

Many people wrongly assume that nothing is negotiable unless the other party indicates that this is the case – a more realistic view is that everything is negotiable, in order to be effective you will need effective negotiating skills.

The 4 Phases of Negotiation
The complexity of the negotiating process will vary according to the size and complexity of the proposed deal as well as the attitudes adopted by the parties involved. This book explains a comprehensive and detailed approach, which should be tailored to suit the needs of each particular negotiation. It is worth remembering that the time and effort that you invest in any round of talks should reflect the potential benefit that can be gained from them.

Nearly all negotiations are characterized by four phases – preparation, opening, bargaining and closing. In large scale negotiations each of these phases are normally tackled sequentially. However, in smaller scale negotiations it is quite common for these phases to merge – possibly into a single unstructured process. Where this is the case, a good understanding of the logic that underpins the four phase approach can guide you, even when you are negotiating smaller deals.

  • Preparation involves information gathering – knowing the state of the market, being aware of the supply and demand status, being aware of any current or imminent discounts and special offers and so on.
  • The opening phase of a negotiation involves both sides presenting their starting positions to one another. It usually represents the single most important opportunity to influence the other side.
  • In the bargaining phase your aim is to narrow the gap between the two initial positions and to persuade the other side that your case is so strong that they must accept less than they had planned. In order to do this you should use clearly thought out, planned and logical debate.
  • The closing phase of a negotiation represents the opportunity to capitalize on all of the work done in the earlier phases. The research that you’ve done in the preparation phase, combined with all of the information that you’ve gained since should guide you in the closing phase.
  • Recognizable Patterns
    In practice negotiations can be a messy business – there are no hard and fast rules. Human behaviour plays a strong part in any negotiation process – varying attention spans, deviations and interruptions are just a few of the hurdles, as are a whole range of emotional responses – from the silent sulk to the aggressive outburst.

    However in all this chaotic human interaction there are underlying and recognizable patterns. This book identifies the underlying patterns of the negotiating process, highlights and analyses them and forwards a considered view of best practice – for effective negotiating skills. It identifies alternative courses of action that should help you to steer a successful path to the outcome that you seek.

    Characteristics of Negotiation
    In business we negotiate with both suppliers and customers. We also negotiate within our organizations, for example with colleagues and team members. Think for a minute about the hundreds of deals you make every year – with your boss, your customers, your suppliers and colleagues. Whilst there are an infinite variety of negotiation scenarios, most negotiations are defined by 3 characteristics:

  • There is a conflict of interest between two or more parties. What one wants is not necessarily what the others want.
  • Either there is no established set of rules for resolving the conflict, or the parties prefer to work outside of an established set of rules to develop their own solution.
  • The parties prefer to search for an agreement rather than to fight openly, to have one side capitulate, to break off contact permanently or to take their dispute to a higher authority.
  • The principles of negotiation are not dependent on the identity of the parties involved, their cultures or the amounts at stake. The skill of negotiation can be applied universally – whether you are seeking a promotion, commissioning a nuclear power plant or simply buying a used car.

    Factors Influencing Negotiations
    The actual negotiation process depends on the following factors:

  • The goals and interests of the parties
  • The perceived interdependence between the parties
  • The history that exists between the parties
  • The personalities of the people involved
  • The persuasive ability of each party
  • The cultural understanding of the people involved
  • Negotiation is a complex communication process, all the more so when one round of negotiations is just an episode in a longer-term commercial or political relationship. In these situations considerations about the longer term relationship will influence any specific round of talks – and reduce the tendency to maximize short term gain at any expense.

    One Sided Deals
    The spirit of the deal can be as important as the terms of the contract, even a tightly worded contract can be sabotaged by either party backing out of the agreement, or by acting in bad faith. Capable negotiators understand that the stability of the outcome is important and focus on more than simply maximizing the concessions that can be extracted from the other side. This is down to effective negotiation skills; they know that if either side subsequently has reason to regret or resent the agreement reached, then they may seek to undermine it, or even reject it outright. Think about the following scenarios:

  • Consider a situation where management secure an agreement with workforce representatives on new working practices, but the workforce themselves believe that they have been coerced into acceptance. The workforce might then employ disruptive tactics, for example by refusing to undertake any tasks that are outside their formal job description. The result of this kind of action is often highly disruptive, even though it breaks no agreements or contracts.
  • In situations where sales representatives secure deals that are very one-sided the buyer may, on reflection, decide that he wishes to back out of it. In the business world it would prove very expensive and time consuming for the seller to seek recourse through the legal system. Furthermore such action would alienate a potentially valuable customer and could result in a lot of negative publicity.
  • Where the public are involved, and as consumers commit to purchase high value goods and services, they are usually protected by a legally specified cooling-off period. During this period they can back-out of the deal without incurring a penalty. Here the law recognizes that trained sales staff are usually much better deal makers than members of the public.
  • Negotiation Approaches
    There are two types of negotiation process that differ fundamentally in their approach and in the relative prospects for the stability of the agreement that is reached.

  • The first is called the integrative or win/win approach. In these negotiations the prospects for both side’s gains are encouraging. Both sides attempt to reconcile their positions so that the end result is an agreement under which both will benefit – therefore the resultant agreement tends to be stable. Win/win negotiations are characterized by open and empathetic communications and are commonly referred to as partnership agreements.
  • The distributive or win/lose approach. In these negotiations each of the parties seeks maximum gains and therefore usually seeks to impose maximum losses on the other side. This approach often produces agreements which are inherently unstable, as represented by the triangle balance on its apex.
  • The Mixed Approach: In real life negotiations both of these processes tend to be at work together. Therefore, rather than two negotiators adopting one or other of the approaches, negotiations tend to involve a tension between the two. It should be apparent that where a long term business relationship is involved that it is important to adopt a more integrative (win/win) approach to negotiations. The failure to work together with the other side in order to reach a mutually acceptable outcome is a common reason for the breakdown in many otherwise successful business relationships.
  • Stability of the Outcome
    Remember, the spirit of the deal can be as important as the terms of the contract and when seeking to expedite negotiations that will deliver a deal that suits the needs of both sides, you should:

  • Focus initially on each side’s primary objective – ancillary negotiating points can become a distraction in the early stages.
  • Be prepared to settle for what is fair – if an agreement is not seen to be equitable it is unlikely to be stable. Maintain flexibility in your own demands and interests, this makes it easier for the other side to be flexible as well.
  • Listen to what the other side wants and make efforts to meet their requests. You may need to compromise on the main issues, so that both sides can begin to attain their goals.
  • Seek to trade-off concessions – so that each side gets something in return for everything they give up.
  • Capable negotiators understand that the stability of the outcome is important and focus on more than simply maximizing the concessions that can be extracted from the other side.