Negotiation in its simplest form is the process of formal communication either face-to-face or via electronic means where two or more people come together to seek mutual agreement about an issue.
supply chain management with GIBSON SIBANDA
Negotiation is one of the important activities undertaken by procurement practitioners. On a daily basis, they negotiate agreements and contracts with suppliers. This is one activity that differentiates purchasing from procurement. The negotiation process involves management of time, information and power between individuals who are independent.
Negotiation starts because each party has a need for the other, yet recognises that compromises on concessions are often required to satisfy that need. Negotiations involve relationships between people and not just organisations. Central to the process is that each party tries to persuade the other to do something that is in their best interest. The process involves skills that come from learning and experience. In procurement management, the procurement practitioner during the sourcing process, determines whether negotiations will be required or not as the competitive bidding process sometimes satisfies the needed requirements. Negotiations are often appropriate if issues besides price are important, such as: agreement on a supplier’s allowable costs, delivery schedules and requirements, expected product and service quality levels, technology support and assistance, contract volumes, special packaging requirements, liability for damage, payment terms, etc.
The negotiation process comprises five parts, although the stages are not necessarily in sequence presented — the preparation stage, the relationship building stage, the exchange of task related information stage, persuasion stage, and concessions and agreement stage. Successful negotiators will agree with me than the battle is won at the preparation or planning stage. Planning is the most important part of the negotiation process. Negotiators do not negotiate successfully because they fail to commit sufficient time to the planning process. They fail to set specific objectives with acceptable ranges, neither do they formulate convincing arguments or consider a counterpart’s needs. Ninety percent of any successful negotiation is determined by effective planning. As a negotiator, you need to conduct research so as to develop profiles of counterparts, find out to the largest extent possible what kind of demands that might be made, composition of the opposition team, relative authority that the members possess, come up with specific negotiation strategies and allocate roles to team members and decide on concessions. Having this information on your fingertips constitutes key ammunition.
The second negotiation stage is concerned with relationship building. It is the process of knowing and building trust between opponents. Effective negotiators allow time in their schedules to build relationships. It is encouraged to take social events such as golf and engage in general, polite conversations and informal communication. This helps in gathering more information about your opponents. Some organisations use intermediaries who play the role of “relationship bridge” between parties. Relationship building brings the concerned parties closer and the sense of rivalry is, as a result eroded.
The next step is the exchange of related task information. Each side makes a presentation and states its position. Question and answer sessions ensue and alternatives are discussed. Consider cultural differences at this stage when dealing with international organisations. Americans are straight forward, objective and understandable. Mexican negotiators are usually suspicious and indirect in presenting little substantive material. The Chinese ask a lot of questions, their presentations contain vague and ambiguous material. Be tactical in the presentation of your position as this will be the basis of attack from the opponent.
After exchange of related information, persuade. The hard bargaining starts at this stage. Each party tries to persuade the other to accept more of their position and give up some of their own, persuasion sometimes takes place at the social setting stage. Most of the persuasion takes place over one or more negotiation sessions. Important to note are verbal and non-verbal behaviours. Some negotiation tactics include promises, threats, commands, etc. Some negotiators use “dirty tricks” to try and mislead opponents deliberately while some give wrong or distorted information. Others use ambiguous authority and others use tactics designed to put opponents in a stressful situation so that they give in. Subtle behaviours such as body expressions, eye contact, dress and timing of negotiation matter.
The final part of the negotiation is concerned with concessions and reaching an agreement. Successful negotiators decide in advance what concession their strategies are. Some negotiators open their bargain with extreme positions asking for more than they hope to gain. Others usually start with what they are prepared to accept. Some negotiators make incremental decisions while others approach issues in a holistic manner and make decisions on the whole deal.
An important part of the negotiation process involves power relationships between parties. During the planning and negotiation process, it’s important to understand power dynamics so that you correctly position yourself and make use of proper tactics. Imagine using a threat when your power base is weak, definitely it will not work! Both positive and negative uses of power have been used throughout history. Within negotiations, the use of power employed by the parties can influence the outcome of the negotiation. Negotiators, however, must understand the advantages and disadvantages of using power and the effect power has on relationships. Sources of power could be informative, reward, coercive, legitimate, expert, and referent power.
Informational power originates when one has access to information and is the most common form of power in a negotiation. It relies on persuasion through facts, data and other arguments. Complete information might not be given except that which is necessary to win an argument. When used in negotiation, one party might manipulate information to control or restrict options available. Reward power means a party is able to offer something of value, say a purchase contract. It presents a direct power to exert control. The basis of reward power, is that belief that individuals respond and behave accordingly when rewards are available. Coercive power, like reward power involves the ability to punish (financially, physically or mentally). Retaliation becomes an option if power structure shifts hence should be used with caution! Legitimate power is based on the position an individual holds.
Purchasers may have legitimate power because they represent certain companies. Expert power is a special form of informational power. It involves retention of knowledge and comes from an accumulation and vast mastery about a subject. Expert power influences an organisation in that the opposition rarely refutes a position and non-experts are not likely to challenge the expert. Referent power comes from attraction based on personal qualities and attributes of an individual. It could be physical but will likely include characteristics such as honesty, charisma, friendliness and sensitivity. Useful in a negotiation if the referent is aware that a counterpart identifies with or has an attraction to the referent.
When negotiating internationally, it’s crucial to take note of cultural issues and their negotiation styles. For the Japanese for example, emotional sensitivity is highly valued, hiding of emotions, face saving is crucial, not argumentative and quiet when right.
Gibson Sibanda is a member of the Chartered Institute of Procurement and Supply (MCIPS), general secretary of CIPS Zimbabwe branch. The views expressed in the article are entirely personal. For feedback you may contact him on firstname.lastname@example.org