Nearly all negotiators completely underestimate the amount of time required to prepare for any business negotiation even though this is a critical part of business negotiation best practice.
Using your negotiation skills to analyse the context is a great place to start preparing for negotiations.
Some of the key elements to think about are:
- What is the nature of the transaction in terms of risks involved, the cost and the complexity of the deal?
- Competitive analysis: What is the current position of the market and what options do our counterparties have available? We will approach a sole supplier differently than those in a competitive market.
- Is it a single transaction or should we consider maintaining a long-term positive relationship that develops alternatives for future business?
- Have we concluded any transactions with our counterparty in the past and what is their most likely method to concluding business?
- How capable are the negotiators on the other side?
- What cultures will be represented and what are the local traditions?
- Who are all the groups & individuals involved in the transaction and what is the decision process? A diversified approach is required as final decision makers will very often be interested in Return on Investment and increased revenues & margins. The end user who looks for better productivity and efficiency will find the financial elements almost totally immaterial.
Almost any negotiation training course will highlight the importance of setting formal deal objectives.
Failing to prepare and prioritise our deal objectives we put ourselves at risk of being exploited and/or ending with a sub-optimal conclusion. Whether you are engaged in negotiation on the sales or purchasing side, consider the following factors when planning for a negotiation:
- Price and payment terms, Key obligations, Delivery, Warranties, Intellectual property and Risks.
Price and Payments: The competition and the complexity of most business deals demand finding methods to create additional value and to move negotiation from haggling to mutually beneficial and creative joint problem solving. Professional buyers are not requested with buying the cheapest solution but rather with providing their businesses with the cheapest total cost of ownership, which is made up of things like:
- Acquisition costs, Maintenance costs, The cost of use, Training costs, Supplier performance criteria, Delivery, Product quality and Customer Support. (These concepts are covered in most purchasing training programmes).
If we are able to lessen the other side's costs in the entire life cycle of the product, solution or service and simultaneously offer value for money, we are in a better position to find common ground.
Key Obligations: Ensure your product and services are defined and show your priorities. Include all the important quantities and specifications.
Delivery: How important are the delivery timelines and what happens if the delivery doesn't take place on time?
Warranties: In order to maintain trust and credibility ensure that you can live with any promises.
Intellectual property: Carefully negotiate IP ownership rights and consider the following factors:
- Who is footing the bill for the Research and Development?
- Could the research and development be used by competitors to your loss if you don' t own the IP? How can you avoid competitors to use the same IP?
Risks: The best way to manage exposure is to include the factors in a contract. Cultural consideration is critical. In Asian countries the goal of negotiation is not a signed contract. In China, unforeseen events are settled through the relationship.
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