NEGOTIATION STRATEGY 1 Negotiation Strategy Marion Stephens Colorado Technical University NEGOTIATION STRATEGY 2 Purpose of Negotiation Definition and purpose of Contract Negotiation Contract negotiation is an action of two or more individuals or parties discussing of a potential partnership agreement. That is, a contract negotiation is a process, which entails compromising and discussing agreement terms with the aim of reaching a final arrangement between two parties involved in a contract. In most agreements of contracts, every party tries to negotiate for the interest of their business; therefore, making negotiation is a vital aspect of a contact since both parties are legally bound by contract terms and conditions. Reasons for Conducting Contract Negotiations The core objective of contract negotiation is for an arrangement to be made which is beneficial to both parties involved in a contract. Although discussion may go forth and back between involved parties until all points are agreed upon, the end objective of a contract negotiation is to reach an arrangement equitable and fair to every party. Purpose of Negotiation in Supply Chain Negotiations in supply chain aimed at communicating with the goal of attaining an arrangement by means if needed, compromise. The objective of negotiation in the supply chain is to attain a bargain on all conditions and terms of procurement encompassing the price to be paid, logistic choice, and the subject of purchasing. Negotiation plays a vital role in the supply chain, such as: o Enhancing reaching of a reasonable and fair price o Ensuring that the agreement is performed in a timely manner and materials delivered on time o Persuading vendor to offer maximum co-operation to a buyer’s firm, and o Developing a cordial relationship with competent vendors NEGOTIATION STRATEGY 3 Situations Where Negotiation Is Appropriate o An organization negotiating with a contractor for a contract on office cleaning is a situation where negotiation is applicable. Negotiation may be needed with the aim of reaching an agreement on time for cleaning the office. o A company negotiating with a vendor for supply of materials Common Negotiation situations o Negotiating price between a vendor and a company providing the contract with the aim of reaching a reasonable and fair price o Negotiation about service and delivery of materials between a vendor and a company is a common negotiation situation intended on reaching an arrangement on means of supplying the services to a firm providing a contract Desired outcome Importance of Identifying the Organization's Goals and Objectives Negotiation planning is vital in determining the success of any contract negotiation. In addition to attaining an agreement, negotiation planning is among the pivotal aspect of a negotiation meeting. Poor negotiation planning can culminate in allowing the other negotiating party to take more concession offered by a company leading to unrealistic expectations of a firm as well as affecting future terms. Thus, prior to engaging in any contract negotiation, it is essential to identify the organizational objectives and goals, thereby, having a clear picture of what is expected in during a contract negotiation. Firstly, identifying enterprise objectives and goals aids in ensuring that a company negotiator [acting as a representative during contract negotiation] considers a firm's interests. As a result, this succors in ascertaining that a negotiator does not compromise the terms and condition in a way that would hurt a company. Additionally, identifying company objectives and goals aids a NEGOTIATION STRATEGY 4 negotiator in coming up with the ‘best alternative to a negotiated agreement' (BATNA) (Daryl, 2012). Recognizing BATNA will form the bottom line by identifying the far a negotiator can permit counterpart party takes away during a negotiation process. Thus, identifying the goals and objectives of a company as part of planning a negotiation would aid the company negotiator to ensure that a counterpart offers better and reasonable offers that would not affect the company's future negotiation or reduce its profitability. Importantly, identifying company objectives as part of a negotiation planning would assist a firm negotiator to set realistic and attainable negotiation goals that align with organization objectives. For instance, in this scenario, as a negotiator, I would ensure that XYZ Plastics offers a reasonable price to the materials, thereby, enabling us to sell DELAMIX blenders at a profit to our customers. Definition and Description of Most Desirable Outcome Most Desirable Outcome refers to the best situation a team feels is possible. That is, MDO is the best outcome a firm wants and would be in a position to defend (Rudzki, 2005). For example, in this case, the company MDO would be a minimum price for the outsourced product, shortest delivery time, services and performance that exceed specification, and guaranteeing a longer term on the price of the product. Pertinent information Importance of Relationships in Negotiations Too often, individuals believe that negotiation entails only carrying out a deal with a negotiating party. Nonetheless, conducting a business deal is not enough in the desire of having a successful negotiation unless there are establishment and preservation of a working relationship (Gan, 2017). Besides, it is unfortunate that most negotiators consider that a signed agreement represents the consummation of a deal. While this may be true, a deal is not just an agreement, but a successful and NEGOTIATION STRATEGY 5 long-lasting deal extends to a working relationship, which is committed and embodies carrying out the agreed terms. In respect, therefore, relationships in negotiations aids in providing a foundation for collaborative problem solving as well as the creation of mutual gains. The relationship in negotiation aids in promoting better negotiation outcomes, reinforcing a relationship, and supporting future deal making. A good relationship during negotiation aids in abating adversarial relationships from worsening before a deal commences. For example, in a case negotiating parties view themselves as adversaries in a negotiation, both parties become defensive, thereby, interrupting or halting the negotiation process. Contrary, if both parties share a good relationship, it becomes easier to offer business dealings in the context of establishing consensus. Thus, in the course of conducting a negotiation with XYZ Plastic negotiator, it is vital to ensure that one has the company background, know the company objectives and their offer. To attain this, it is crucial to listen to the other negotiation party and allow them to table their alternatives before providing ones BATNA. This will help in establishing trust, which is a key determiner in conducting a successful negotiation. Tactics for Managing Conflict during the Negotiation process When a conflict flares up during a negotiation, it is vital to employ one or more conflict solving tactics, such as accommodating, avoiding, collaborating, or compromising depending on the nature of the negotiation process. Accommodating entails providing the other negotiating party what they want. However, this type of conflict management takes place when one party desires to maintain the peace. Accordingly, avoiding tactic focuses on putting off a conflict indefinitely. By delaying or abating a conflict, individuals avoiding the conflict hope that issue will resolve on its own without engaging in a confrontation. Collaborating is a conflict management strategy involving working and finding an acceptable solution, which is agreeable to each party. This type of conflict management requires a lot NEGOTIATION STRATEGY 6 of time and commitment from both parties. Lastly, compromising is a conflict management tactic calling for each party to give up their interests and develop an acceptable solution. Thus, in the course of conducting a negotiation process with XYZ Plastic, a negotiator can employ compromising strategy, whereby, both parties will require setting aside their desires and interests and establish an agreeable solution leading to a successful contract deal making. Interests/desires/motivations Comparison and Contrast of Distributive and Integrative Negotiation Distributive negotiation strategy refers to a bargaining negotiation that entails individuals that have never met or had a previous negation relationship that is interactive and neither planning to have a future negotiation. Distributive negotiations take the form of a win-lose basis when involved parties claim having the maximal value for their interest. On the other, integrative negotiation refers to an interest-based bargaining strategy that incorporates different tactics aids on enhancing the likelihood and quality of a certain negotiated contract via the provision of various alternatives. The negotiating parties will use integrative negotiation Unlike distributive negotiation that ends up in a situation of win-loss results, thereby, allowing some parties to have a more gain than others, integrative negotiation mostly ends up in a win-win situation for involved parties (Maiwald, 2015). The aim of a distributive negotiation is to benefit others while others suffer, however, the focus of an integrative negotiation is to meet the objectives of the involved parties and thus, promoting satisfaction. Accordingly, distributive negotiation is a selfcentered negotiation that focuses primarily on meeting personal interests without minding other people. Nonetheless, integrative negotiation focuses on a mutual gain of both parties. Thus, to attain each party’s objectives, the strategy will encourage brainstorming for constructive solutions, which will aid in bringing benefits to both parties. Integrative negotiation promotes the establishment of trust NEGOTIATION STRATEGY 7 leading to the formation of long-lasting relationship for future creative issue solving, which is contrary to a distributive negotiation whose relationship is easily breakable. Subsequently, distributive negotiation is often competitive and needs every party involved to view each other as competitors or opponents. Thus, each party holds an extreme position, which it knows, will not allow surrender to smallest value once the deal is struck. On the contrary, integrative negotiation will promote collaboration, thereby, making parties to engage in a negotiation as mutual allies for mutual gain. Importantly, while distributive negotiation augments conflict, integrate negotiation aids in conflict management. To engage in an integrative negotiation, as a negotiator, I will employ various tactics, such as looking for the difference with the aim of creating value, taking time, offering significance information about one's circumstances, and inquiring about the other party's interests. Firstly, to reach a mutual agreement, it is vital to ask about XYZ Plastic interests, needs, concerns, and their willingness to trade their products with services. Listening carefully will aid in revealing valuable information essential to facilitating the negotiation. Accordingly, providing information about the company situation will help in explaining the reason form making a deal. Thus, an effective integrative negotiator states preferences, interests and other options that would aid in facilitating a deal. Looking for differences focuses on creating value by understanding each other’s interests and needs. This enhances reaching a mutual outcome for both parties. Sources of Power Power and Influence in Negotiation Negotiation power refers to the capability of a negotiator to affect a conduct of another person (Thompson, Wang, & Gunia, 2010). Power is the most significant factor in assessing as well as determining the outcome of a negotiation process. Power is regarded as a vital element that influences NEGOTIATION STRATEGY 8 and contributes to the outcome of a negotiation. As a result, multinational corporations employ power to get what they want during the negotiation process. In the case of the company being represented, it is pivotal for a negotiator to use BATNA when negotiating with XYZ Plastics. This will heighten the likelihood of a win-win situation leading to closing a successful and fair deal. On the other hand, influence refers to an intrinsic and elemental element, which affects the negotiation flow and outcome during the process. Thus, during the negotiation process, it is crucial for the company negotiator to comprehend the personality type of XYZ Plastic negotiator. This will help in knowing the personality of a person one is facing, thereby, evaluating one's persuasiveness. Sources of Power in a Negotiation Process Various sources of power and influence a negotiator can use include positional based. This is a source of power derived from holding a legitimate position in a company. Legitimate power makes people respond quickly due to respect associated with such kind of power. In addition, positional based power emanates from the negotiator's ability to mobilize resources. Resource mobilization is a technique used to win the other negotiating party during a negotiation process through the utilization of both monetary and non-monetary tactics. Contextual is another source of power during a negotiation process that entails using BATNA and external audiences. Worth noting, during a negotiation process, the company can utilize BATNA by having more alternatives and backup plans, thereby, culminating in more negotiation power when engaging with XYZ Plastic negotiators. This will help the company negotiator to have different options to defend the company stand leading to more power over XYZ Plastics negotiation representative. Moreover, the company can use external audiences to observe, assess, and review the negotiation process leading to better outcomes. Relationship-based source of power and influence is crucial when engaging in a negotiation process. This entails the use of goal interdependence and referent power. For instance, the company negotiator can use goal independence NEGOTIATION STRATEGY 9 to assess how XYZ Plastic negotiator views his goals, thus, determining how much both parties’ goals rely on each other’s behaviors. Moreover, a negotiator can employ referent power by getting to know the XYZ Plastic negotiator order of commonalities. Identifying the similarities between both negotiators would aid in establishing a bond and strong relationship that is vital in facilitating a fair agreement. In the case of the company, having a legitimate source of power and strong BATNA will aid in facilitating a successful agreement between XYZ Plastic negotiators and me. Walk-Away Alternative Best Alternative to Negotiated Agreement Having good options prior to starting a negotiation process is vital since a negotiator feels confident and empowered to either walk away or reach a mutually beneficial and satisfactory agreement. BATNA is the most beneficial alternative course of action a negotiating party can pursue if negotiations fail and there is no agreement attained. Besides, BATNA is vital and a driving force behind any successful negotiation and thus, a negotiator should not accept a worse offer than its BATNA. There are several steps that clarifies BATNA, which are (i) listing alternatives if a person’s present negotiation results in impasse (ii) evaluating alternatives based on the value of pursuing that alternative (iii)selecting the alternative, which would have the highest anticipated value for the company, and (iv) computing the lower/reservation deal the company is willing to accept. Alternative refers to the things a company negotiator will do apart from the deal currently being worked on by both parties. In this case, the company alternatives would be to search for other suppliers of DELAMIX blenders in a case XYZ Plastics offers a higher price quotation than the one stated in the company BATNA. Having an alternative will offer the negotiator power over the XYZ Plastic representative, thereby, striving to attain the best option for reaching to a successful and fair agreement. Thus, to design options, both parties will have to agree on the best solution, which meets NEGOTIATION STRATEGY 10 the interests of both parties. Thus, both negotiators should engage in integrative negotiation strategy that would lead to the establishment of a mutual and long-lasting relationship. Nonetheless, if we fail to reach an agreement with XYZ Plastic representative, the walk away alternative would be to seek the services from other suppliers willing to offer the same product at an affordable price. In a case, the deal proposed is lower than our reservation value, that is, after evaluating my alternatives, BATNA, interest, computing and finalizing the reservation and lowest value deal our company is willing to accept, it would be better rejecting and walking away from the deal. Hardball Negotiation Tactics Some of the hardball negotiation strategies include extreme demands that are followed up by slow and small concessions. This type of tactic is employed by dealmakers to protect themselves from making concession too fast. However, when dealing with such a tactic, a negotiator should have a clear view of the negotiation goals, BATNA, and keep calm during the negotiation process. Secondly, commitment tactics is another strategy used by opponents to delay or make the other party agree to the offered contract terms. Nonetheless, in a case XYZ Plastic representative utilizes such a tactic, the company negotiator could investigate whether the commitment tactics are true. Take-it-or-leave-it tactic is a non-negotiable offer. However, to diffuse this, a negotiator can ignore the demand and focus on the content of the agreement, then try to make a counter-offer that would meet the interest of both parties. Ethical Considerations Ethical Considerations Ethics refers to a system of moral principles that deals with good and bad as well as with moral obligation and duty. That is, ethics refers to the standards or rules that govern the conduct of a member NEGOTIATION STRATEGY 11 (s) of a profession, accepted wrong or rights. Ethics establishes the meaning of doing what is fair, right, and honest. Ethical reasoning refers to the wrongs and rights of an individual conduct. Therefore, some of the ethical considerations both XYZ Plastic and the company should consider include but not limited to being honest, keeping the promises, and having multiple options. During the negotiation process, it is vital to establish a relationship based on trust and honesty. In this respect, both parties should ensure that they practice honest leading establishment of a strong bond that would culminate to a fair deal making between XYZ Plastic and the company. Additionally, both parties should not make promises they cannot fulfill resulting from their eagerness to seal the deal. It is pivotal for both parties to make a promise (s) they can fulfill, thereby, strengthening the relationship and trust between the two companies. Besides making promises and being honest, it is indispensable for both XYZ Plastic and the company representative to have more than one option during the negotiation process. This will help in making sure that both parties bring ethical deals to the table. Deceptive Tactics in Negotiation • Revoking an offer- this refers to revoking or making an offer in bad faith to the other party, thus, affecting the party. • Emotional manipulative is an unethical tactic that intentionally influences the emotional condition of the other party with the aim of swaying their logical decision-making. • Active misrepresentation- this refers to an unethical tactic where a negotiator may deliberately mislead the other party. Thus, the company negotiator should ensure that it has not used any deceptive tactic during the negotiation process. NEGOTIATION STRATEGY 12 Negotiation Team Negotiation Team The negotiation team uses the expertise of its team members to develop a comprehensive negotiation position for the company. The team members will be in charge of identifying issues that are of interest to the company. Negotiation team Roles and Responsibilities • The chief negotiator- this will be the company representative and the key decision maker at the negotiation table. During the negotiation process, various issues of different magnitude will arise, and it will be the duty of the chief negotiator to reach a resolution on the arising matters in consultation with the other team members as well as the executive management team. Resulting from the vital role of a chief negotiator, the company will have clear parameters of instructions and authority concerning the company priorities. • Procurement official- the procurement official will oversee the honesty and integrity of the negotiation procedure. He will assist in drafting the conditions and terms of the contract. • Legal representative- the role of legal representative will be to advise the negotiation team and the chief negotiator concerning the terms and conditions of the contract. • Contract negotiation team- the role of this team will be work with the chief negotiator, procurement official and the executive management in ensuring that the company interest is considered. Pros and Cons of Negotiation Teams Pros • The team offers support to the chief negotiator • The team comprises of various skills and expertise NEGOTIATION STRATEGY 13 Cons • It can be challenging to manage a team • Sensitive company information has a greater possibility to be leaked once discussed with a team Recommended Negotiation Strategy Preferred Negotiation Strategy The company can utilize an integrative negotiation strategy because it encourages the establishment of a long-lasting relationship. Besides, this approach is a win-win tactic that promotes satisfaction to both parties. Best Practices in Negotiations • Paying attention to details • The company should start the negotiation process from its contract draft, thus, enabling both parties to play by the company rules • The company negotiator should be fair and professional Reference List Daryl, Ullman. (2012). How to prepare for a major contract negotiation. The ITAM Review. Retrieved from https://www.itassetmanagement.net/2012/06/04/prepare-major-contract-negotiation/ Rudzki, R. A. (2005). World-Class Negotiations Management: Best Practices, Tools and Future Directions. Gan, I. (2017). Advancing a Distributive-Bargaining and Integrative-Negotiation Integral System: A Values-Based Negotiation Model (VBM). Social Sciences, 6(4), 115. NEGOTIATION STRATEGY 14 Maiwald, André. (2015). Power, Negotiation Type and Negotiation Tactics. Retrieved from https://essay.utwente.nl/68264/1/Maiwald_MA_Behavioural%20Sciences.pdf Thompson, L. L., Wang, J., & Gunia, B. C. (2010). Negotiation. Annual review of psychology, 61, 491-515.
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