Friday 31 October 2014

Solid preparation trumps wit for negotiations

Stephen Boyle

Published 05/09/2013 | 05:00

It's a generalisation, but many Irish people pride themselves on having the gift of the gab.

This can be a valuable strength in business; employers often cite communication skills as one of the most important things they look for in recruits.

But, when it comes to negotiation, businesspeople who rely solely on their quick-wittedness and way with words are doing themselves a disservice.

Relying too heavily on the gift of the gab makes a negotiator light on substance and heavy on guesswork. In the absence of a clear plan, negotiators may be tempted to give in to the demands of their opponents by discounting the price or accepting unfavourable terms and conditions in order to seal the deal.

Executives attending negotiation-skills training at UCD Michael Smurfit Graduate Business School routinely state that their biggest weakness is a lack of preparation – and acknowledge that they could achieve better results by putting more time into that preparation.

A procurement manager for a pharmaceutical company recently told me the success of a contract negotiation with his biggest supplier was all down to meticulous planning – and he's already preparing for a renegotiation next year.

However, little time is available to prepare. Here are some tips to make that time count.

Firstly, set clear targets, and don't confuse them with limits. Targets should be aspirational, but not completely unrealistic, and should be expressed in precise rather than general terms – for example, a target price of €7,000 is more focussed and effective than a target expressed as a price range.

OVERALL PACKAGE

Limits are separate: the least a seller would accept, or a buyer would buy, could be very different from the target they hope to achieve.

Secondly, whenever there are multiple variables or contract clauses, consider several alternative combinations that would present an attractive overall package. Good negotiation planning requires that we prepare for the unexpected.

A team of engineers involved in wind farm construction was spending a lot of time preparing for negotiations but the preparation was of limited value. Their negotiation plans focused only on what the ideal contract would be, and did not sufficiently explore other combinations of terms that would still be viable. The ensuing contract negotiations were grindingly slow and frustrating as the team found it difficult to move from its predetermined position.

Finally, planning for important negotiations should always include a thorough examination of fallback positions. If they don't have an adequate awareness and understanding of the available alternatives to the deal they are working on, negotiators are prone to developing tunnel vision that leads them to reach agreements inferior to those alternatives.

Those in a selling role are particularly susceptible to this trap, as they may perceive their role to be to "close the deal". Unless the deal has been weighed up against the alternatives, it may well come at too high a cost.

Start-ups and small businesses are also in danger if they neglect to examine their fallback options. IT start-ups, for example, sometimes work with just one customer in their infancy as they build and refine their service.

Unfortunately, from a negotiation standpoint, this can make it very difficult to exert any control over the terms of engagement.

Smaller businesses can use their flexibility and agility to avoid unattractive deals. Consider the case of suppliers to large supermarket chains. While a major supplier with a large market share may have to sell to every retailer to maintain that share, smaller suppliers with a limited production volume should not feel 'forced' into accepting unfavourable terms from a big retailer.

As part of their negotiation planning, they should be constantly scanning alternative customers and distribution channels so that they know the point at which they would be better off elsewhere.

SOLID PLAN

At a time when profit margins are tight, businesses need to make sure that they are doing everything possible to make a difference in crucial negotiations. They should ask themselves whether they are preparing meticulously or winging it, and whether their key negotiators are adequately trained in techniques they can use to enhance and capture value in deals with customers and suppliers.

A solid plan backed up with an arsenal of negotiation strategies will always beat the gift of the gab.

Stephen Boyle is a lecturer in negotiation, UCD Michael Smurfit Graduate Business School, and director of negotiation training at UCD Executive Education

Irish Independent

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