Most negotiators greatly underestimate the time required to plan for any business negotiation even though this is a critical part of business negotiation best practice.
Using your negotiation skills to understand the negotiation environment is a great place to start preparing for negotiations.
Some of the key elements to think about are:
- What is the nature of the sale/purchase in terms of risks involved, the level of expenditure and the complexity of the transaction?
- Competitive analysis: What is the nature of the market and what options do the other side have at their disposal? We will approach a sole supplier differently than those in a competitive market.
- Is it a one-off deal or should we consider securing a long-term positive association that develops opportunities for future trade?
- Have we concluded any transactions with our counterparty in the past and what is their most likely approach to doing business?
- How capable are the negotiators on the other side of the table?
- What cultures will be present and what are the local traditions?
- Who are all the parties & persons involved in the transaction and what is the decision making process? A diversified tactic is required as final decision makers will certainly be interested in Return on Investment and augmented revenues & margins. The end user who looks for improved output and efficiency will find the financial elements almost totally irrelevant.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
If we fail to prepare and rank our deal objectives we put ourselves at risk of being manipulated and/or ending with a sub-optimal agreement. Whether you are involved in negotiation on the sales or purchasing side, consider the following factors when preparing for negotiation:
- Price and payment, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the difficulty of most business transactions demand finding ways to develop additional value and to move negotiation from haggling to synergistic and creative joint problem solving. Professional buyers are not charged with buying the most affordable solution but rather with securing their businesses with the cheapest total cost of ownership, which is composed of things like:
- Purchase price, Maintenance costs, The cost of use, Training costs, Supplier performance metrics, Delivery, Quality and Customer Support. (These concepts are covered in most purchasing training programmes).
If we are able to reduce our counterpart's costs in the entire life cycle of the product, solution or service and at the same time provide value for money, we are in a better position to find common ground.
Key Obligations: Ensure your product and services are defined and reflect your priorities. Include all the relevant quantities and specifications.
Delivery: How important are the delivery timelines and what happens if the delivery doesn't take place as agreed?
Warranties: In order to preserve trust and credibility ensure that you deliver any promises.
Intellectual property: Carefully negotiate IP ownership rights and think about the following factors:
- Who is paying for the Research and Development?
- Could the product development be used by competitors to your disadvantage if you don' t own the IP? How can you stop competitors to use the same IP?
Risks: The best way to manage exposure is to include the elements in a written contract. Cultural consideration is critical. In Asian countries the goal of negotiation is not a signed contract. In China, unforeseen events are resolved through the relationship.
Analysing the above elements are crucial in preparing Concession Strategies that will help you to leverage maximum value from trades and in planning meetings optimally.
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