Wednesday, December 8, 2010

Negotiation Strategies

General negotiation strategies can be zero sum, win-win or problem solving.

Zero Sum is based on the assumption that there is a single universe to be carved up in which for you to get a piece of the pie, the Supplier must give that up. For you to avoid a risk, the Supplier must assume it. For you to reduce your price, the Supplier must reduce their profit. In Zero Sum negotiations you:
o   Find the Supplier’s minimum they will accept
o   Negotiate toward their minimum
o   Manage the perception of your acceptable position
The primary use of Zero Sum negotiations is basic buying or selling relationships.

Win-Win or Problem Solving. The assumption in win-win or problem solving strategy is that you are not limited to a zero sum, what you are looking for is something that is acceptable to both parties. It could include different factors than zero sum negotiations. In win-win or problem solving you:
o   Try to separate people from problems and move from positions to needs.
o   Establish objective criteria for discussion
o   Try to invent options for mutual gain
o   Problem solve to produce positive result
The Primary use is for these strategies are in relationship building, or where Supplier’s has more leverage in the relationship than the Buyer.

When I hear someone say win /win or talk about BATNA I sometimes feel like I live on a different planet than them. Maybe it’s because Suppliers spend huge amounts of money trying to create products that are custom or unique so they don’t have to compete because they want to win. Maybe it’s because I’ve seen Suppliers rush to be first to market to get designed into their customer’s products so it’s difficult and costly to switch Suppliers because they want to win. Maybe it’s because I’ve had to deal with Suppliers who have leadership positions in their market and simply don’t care to reach a BATNA or make it a win / win. Maybe it’s because I’ve dealt with a number of Supplier’s that could care less about value creation and only care about making that sale in that period. I suppose that there are Suppliers where you could come up with a win /win solution but most of the time I’ve hear the phrase used,  the context is they want the Buyer to make a concession for their win, but they only want to have you think that you are getting a win. I suppose that there are Suppliers where you can come up with a BATNA to help move from positions to help solve your problems, but most of the time what I find myself having to do is drag the supplier kicking and screaming to get to a point where it’s  a win.  I understand the concept of expanding the pie so each party can get their share, but in most procurement settings you may not be able to expand the pie or you simply may not want to expand the pie with that supplier. In procurement what you negotiate prices and responsibilities for costs and risk. Risks, when they materialize, become costs so the entire negotiation is all about cost and profitability of the parties. So in many cases for one to win, the other party must get less. Sometimes you have to force suppliers into wanting to do problem solving. Sometime you won’t be successful. It all depends upon their perception of leverage in the relationship and whether they need or want your business.

Win / Win and Batna’s a good to understand, but you need to understand other approaches for situations where the Supplier can’t or won’t cooperate with you. When using a Zero Sum approach, one way to improve your chances of success is in having the Supplier perceive more business in the future. For example, the carrot of potential future business and expanded relationships can provide incentive for a Supplier to make concessions they wouldn’t ordinarily make. Good negotiators will always try to imply that if this negotiation is favorably concluded more business will follow and the concessions required today are more like the ante to get into the bigger game.