Which TV channel to watch today with your family? Where to go out to dinner with your friends? What venue to decide to host that party with your spouse?
All these scenarios in our day to day life imply one thing. Negotiations!!
Yes, negotiations are as much a part of our daily lives as of the business. The aim or focus of these negotiations do change. The goal is always to reach a consensus among the two parties involved. The question is, how do we always come out successful out of these negotiations? How do we make negotiations fruitful and not turn them into bickering arguments? To understand this, let us dig a little deeper into the art of negotiation.
Basically, negotiations can be of only two types:
Positional negotiations are the ones where both parties take up extreme positions and then make compromises to reach a consensus. On the other hand, principled negotiations are where, the requirements of both the parties are clear, and the negotiation helps in fulfilling the needs or demands of both the parties.
In simpler words, you can either argue with your wife to go to that Iron Man movie over the Twilight that she wants, or you can discuss the needs and settle down on Wonder Woman!!
When it comes to business, both the types of negotiations are useful in different scenarios. To get into the details, let us first see different styles of negotiations. There are different ways in which you can approach a negotiation. These ways can be divided in the following ways:
- Competing – An aggressive style, where the negotiator has to be the winner
- Collaborating – The negotiator tries to create value and satisfy both the parties
- Compromising – A consensus is tried to achieve by the negotiator by letting go of some demands
- Avoiding – A passive aggressive style, where issues are skirted rather than confronted
- Accommodating – The negotiator gives in to most of the demands to keep other party satisfied
These negotiation styles should be decided based on the style of the party in front of us. The table below shows the best and the worst set of styles, when they go against each other.
|Negotiation Style||Best Against||Worst Against|
In personal life, these styles can be understood based on person to person. But in business, the negotiation style depends upon many other factors. Especially in procurement, negotiations with suppliers depend on factors like relationship with the supplier, dependency on supplier, supplier market positioning, product quality, etc.
To understand the position that can be taken by the supplier, we need to classify the suppliers based on the relationship we share.
Type 01 and Type 02 suppliers are not required to stay with our company for a long period. The commodities procured from them are usually easily available with many suppliers who can meet the company’s quality standards. Generally, these suppliers are included in the indirect spend of the company. Ex: Stationery, computers, janitorial services, furniture, etc.
Type 03 suppliers are engaged for a small timeframe. They might be required to be engaged with multiple times, but the time of engagement is always limited. The cost incurred in these cases also includes the time required every time to explain the requirements and quality standards of the company. Ex: Event Management, Construction jobs, subcontractors, etc.
Type 04 and Type 05 suppliers are required for the core activities of the business. These suppliers are essential to the company’s functioning. The quality of product or services provided by these suppliers are of the utmost importance to the company. They are usually not suppliers, but long-term partners of the company. Ex: Software services, Raw Material providers, etc.
If we take an example of the Automobile company, the suppliers can be broadly categorized as below.
|Classification||Type 01||Type 02||Type 03||Type 04||Type 05|
|Example||Computers, Furniture, Papers, Printers, etc.||Janitorial Services, Transport for workers, Security, etc.||Logistics, Marketing Agencies, Event Managers, etc.||Human Resources Supplier,Assembly parts supplier, etc.||Steel supplier, Sheet metal supplier, ERP system provider, etc.|
Based on the Supplier type and Negotiation styles, a framework for drafting negotiation strategies can be made.
|Supplier Classification||Type 01/Type 02||Type 03||Type 04 / Type 05|
|Important parameters for Negotiation||Cost||Cost, Continuity, Quality||Cost, Continuity, Quality|
In Type 01 and Type 02, cost is the most important factor, as the quality here is easy to meet and there are many suppliers available. Hence, competing style helps in getting best results.
In Type 03, the quality of the commodity or service matters. Best way is to use the Collaborating approach where the inputs from the supplier will also help in framing our needs. If the company standards and supplier standards differ extremely, then compromising style can be used. Using competitive style here may get us into a strained relationship with the supplier. This will make continuity difficult and cost the company in terms of efforts required in engaging with a new supplier.
In Type 04/Type 05, the supplier is more of a partner. Any negotiations would be preferred in the collaborating style. In some cases, the supplier might have a lot of leverage as the core activities of the business are dependent on him. In such cases, accommodating style is preferred. Also, the supplier might use emotional and personal issues into the negotiation to gain advantage. Avoiding style helps in skirting these issues and focusing on statistical data. As core business processes are in question, the compromising style, where we give up on some demands, would be the last resort.
The framework provided tries to give a systematic approach towards the preparation process before entering a negotiation. Keeping a script ready before entering a negotiation makes it even easier. The best way for a negotiation to succeed is to make it a discussion and not a debate. The finer aspects necessary to do so can only come through experience as it is not science but an “Art of Negotiation”.
And as an added advice, just go to whichever movie your wife wants.
Strategic Visions on Sourcing Market 2016 by KPMG – http://eoafrance.com/wp-content/uploads/KPMG-strategic-visions-sourcing-market-2016.pdf
Effective Negotiation Strategies and preparation by Jessica Long, Law Clerk, The Association of Corporate Counsel – http://www.acc.com/legalresources/quickcounsel/ensp.cfm