PREPRATION: FUNDAMENTAL TO NEGOTIATIONS?

Most negotiators greatly underestimate the amount of time required to effectively prepare for and research the background to any business negotiation. The old clich says failing to prepare means preparing to fail. We should spend at least twice as much time preparing for business negotiations as we expect to be engaging in actual negotiations. E.g. if we estimate that we are going to spend 1 hour negotiating with our counterparty, we should then consider spending approximately 2 hours preparing for the engagement. The better our preparation, the greater the chances of achieving superior outcomes in our business negotiations.

Negotiation preparation is the most important part of business negotiation best practice and is specifically critical for complex, multi issue, multi party negotiations. Lets then analyse what is important to be considered in support of our efforts and decision making processes in business negotiations.

1. Understanding the context.

The context of negotiation can be understood by an analysis of the environment in which businesses operate. Some of the key elements to consider in understanding the context of a business negotiation include:

• What is the nature of the sale/purchase you are making in terms of risks involved, the level of expenditure and the complexity of the deal?

• Competitive analysis - what is the nature of the market and what alternatives do our counterparties have available. E.g. in a purchasing role it is critical to understand the supply market in order to prepare our negotiation strategy effectively. We will approach negotiations with a sole supplier differently than with a potential vendor in a fully competitive market. Identifying market characteristics for specific services and goods will allow us to understand how the market works, its competitiveness and key suppliers.

• Is it a one-off deal or should we consider maintaining a long-term positive relationship that creates opportunities for future business. For example, in a situation where we sell a car or a house we are normally only interested in the best price and not really interested in an ongoing relationship. A ompetitive approach with no consideration for the relationship will most likely assist us to achieve our goals and objectives if no ongoing relationship is concerned. On the contrary, most business negotiations are more complex and although price is usually an important factor, there are many other criteria that have to be satisfied on both sides as a foundation for mutually rewarding deals and relationships.

• Have we had any dealings with the other side in the past and what is their most likely approach to doing business?

• What does the power balance look like? (Legitimate power, Reward power, Coercive power, Expert power, Referent power)

• How skilled are the negotiators on both sides of the table?

• What cultures will be represented at this negotiation? (Ethnic, Corporate & Professional Cultures should be considered). Do you need to do any homework regarding the local customs?

• Who are all the parties & individuals involved in the negotiation and the decision making process? When selling it is critical to identify not only final decision makers, but also final users of our product or service in order to develop internal groups of support within our counterpartys organisation. A diversified approach is required as different buying roles look for different benefits and advantages when purchasing a product or service. Final decision makers (read people who release the money e.g. CEO, FD etc.) will most likely be interested in Return on Investment and increased revenues & margins as the ultimate result of purchasing your product, service or solution. The final user who looks for improved productivity and efficiency will find the financial elements almost completely irrelevant.

2. Understanding the deal objectives.

In any negotiation it is critical to understand the tangibles that all parties are trying to gain or achieve. If we fail to prepare and prioritize our deal objectives we put ourselves at risk of being exploited and/or ending with a sub-optimal agreement. Whether you are engaged in negotiation on the sales or purchasing side consider the following elements when preparing for negotiation

Price and payment - Key Obligations - Delivery - Warranties - Intellectual property - Risks etc.

Price and Payments: the notion that price is the only issue in negotiation is not entirely logical. The competition and the complexity of most business deals requires finding ways to create additional value and to move negotiation from positional bargaining to synergistic and creative joint problem solving. Professional buyers are not charged with buying the cheapest solution available but rather with providing their organisations with the cheapest total cost of ownership. It means that besides our company, product and salespeople attributes we can differentiate ourselves from our competition buy using the TCO Total Cost of Ownership approach that is composed of amongst others:
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