The Art of Negotiation - Case Study Example

Negotiation can be defined as a discussion or meeting set up between two or more parties and or persons who are trying to work out a solution or working towards producing a settlement or agreement. This interpersonal or inter-group process can occur at a personal level, as well as at a corporate or international (diplomatic) level. “Negotiations occur for one of two reasons (a) To create something new that neither party can do on own or (b) To resolve a problem or dispute between two parties” (Lewicki, Saunders, Barry 2009, p.5). Negotiation should not be misunderstood as bargaining as “Bargaining is like the competitive hangling that happens during a yard sale or flea market, whereas negotiation is a more formal process that occurs when parties are trying to find a mutually acceptable solution” (Lewicki, Barry, Saunders, Minton 2003, p.3). It is common to prefer a search for a mutual agreement rather than to fight or break off. Mutual adjustment plays an important role for turning a negotiation direction. Effective negotiating parties clearly know the effects of outcomes and influences on each other. Also, they know how adjustments and readjustments are made during negotiations. The parties have to exchange information and make an effort to influence each other in a positive and constructive manner. If one party makes several proposals that are rejected, and the other party makes no alternate proposal, the first party may break off negotiations. If one party feels that they have yielded, then it’s a failed negotiation. Negotiation is said to be perfect when both parties win. Commercial Negotiation – Is an exploration of negotiation and its concepts and evaluating the financial consequences. It mainly focuses on the task of working as a group of buyers and sellers, negotiating and finally reaching a mutually beneficial agreement. This realistic negotiating scenario is a particular product and business situation has been chosen. The buyers represent a small chain of stores (The Balaji Stores) and the sellers represent a small, regional, rice mill (Vinayaka Rice Mill). Recently Balaji Stores has introduced a range of own brand products and, now, are investigating the possibility of an own brand. The two groups have not done business before as the buyers have previously bought branded sugarcane from wholesalers and the initial meeting has come about through the buyers contacting the sellers. AREAS OF NEGOTIATION: An agreement is to be negotiated about – PRICE/ QUANTITY/ PERIOD MONTHS/ DELIVERY LOCATIONS/ PAYMENT DAYS & PROMOTIONAL SUPPORT The actual negotiation process started in January 2009 without any fruitful result. After a series of discussions and with the help of an experienced negotiator, whom both companies hired, the negotiation process has been finalized in the following way. 1st of March, 2010 – FAMILIARISATION & PLANNING 8th of March, 2010 – INFORMATION GATHERING MEETING 15th of March, 2010 – PREPARATION OF THE INITIAL PROPOSAL 22nd of March, 2010 – INITIAL NEGOTIATION 29th of March, 2010 – MODIFICATION OF THE PROPOSAL 5th of April, 2010 – FINAL NEGOTIATION 12th of April, 2010 – REVIEW AND DISCUSSION Familiarization & Planning involved each group, separately, becoming familiar with their own business situations, defining individual responsibilities, considering objectives and determining what information is needed from the other group. Although this was done previously, a detailed documentation was missing for the same. Hence, both parties agreed to do this step. Information Gathering Meeting involved a meeting between the buyers and sellers to obtain information, to supply information and assess the other group. The sellers had left the meeting with a clear understanding of what the buyers want. As this is the first time the groups meet after hiring an efficient negotiator, both parties were fully prepared especially for the opening stages of the meeting. Preparing the Initial Proposal - The groups separated to define goals and considered options and determined what may be useful to do this in terms of what is unacceptable, reasonable and desirable. When considering options this was done based on their probable financial impact. Initial Negotiation the two sides met again to present and discuss the initial proposal. Both groups were prepared to negotiate and suggest acceptable terms. Modification of the Proposal involved the groups breaking off from their negotiation to investigate and modify their proposals. This involved further analysis of the financial implications of the proposals (using the computer) and the definition of firm goals and acceptance criteria. Final Negotiation involved the groups returning to the negotiation to finalize agreement. During this period some necessary short adjournments to allow individual groups to discuss proposals privately were made. Review and Discussion involved the groups reconvening to report on and discussed the negotiation. This involved a discussion on goals, how these were progressed towards and an evaluation of the other group. To help with this session each groups were ensured that they recorded their progress during the negotiation. Following are some of the substantive issues observed (based on the information gathered) during the negotiation related to both parties 1. Price Negotiation a. The seller had poor planning. On the whole, they had no walk-away point b. This created an advantage to the buyer and they negotiated the price easily c. Buyer has not shown enough attention to the seller point of view and was not able to evaluate the offer d. The buyer caved in too quickly for the offer and gloated at the deal. An efficient negotiator will never do this 2. Payments Negotiation a. The seller has not listed the priorities or rankings and had absolutely no alternatives. This created a somewhat unpleasant atmosphere for meetings b. The seller didn’t know the difference between what they NEED and what they WANT, in terms of payments negotiation. This advantaged the buyer to grab the deal. They had a smooth flow of transaction to their end c. The information clearly depicted that the seller has no bottom line. They were ready for any offer. Sometimes, it was felt that it was not a negotiation at all d. The buyer, although had a good time (cashing in the mistakes of seller), they had problem with the time constraints and benchmarks. In this scenario, the buyer was missing with a proper answer or output. However, seller was not able to make use of this point e. Both the parties failed to access the potential liabilities and risks associated with the deal. I strongly feel they might need to include this point in their final meeting f. The buyer representative, as far as my knowledge, had no sufficient authority to take a decision. However, due to poor planning and other mistakes of seller, the buyer had an edge over the deal 3. Promotional Support Negotiation a. To get the desired business outcome, both parties must feel like winners. Here, I observed something else b. Both parties agreed to some of the strategies suggested by the expert negotiator, however, both felt that they are not getting what they deserve Here is some of the subsidiary issues observed in the process 1. Quantity Negotiation a. Buyer was insisting on a quantity of 1000 cases per order, which the seller was hesitant to accept. Compared to other substantive issues the seller has accepted, this is a small deal which can be closed easily as the seller was insisting on 750 cases per order. b. Instead of spending time on this small issue, I personally feel that the seller should have concentrated on other important aspects 2. Delivery Location Negotiation a. Buyer was insisting to deliver the product to their location and seller was hesitant to do so as it would cost them extra liabilities. Instead, the seller was suggesting to collect from their manufacturing location and in return, they offered some discount b. I feel the seller has made a wise decision in this aspect and carried the deal in more effective way comparatively as this particular aspect is really a good deal for seller The word power in negotiation doesn’t have a suitable meaning for years. It has received this reputation because majority of people misunderstand the word as one side dominating or overpowering the other. According to me, power is the ability to influence people or situations. With this definition, power is neither good nor bad. On the other hand, it is the abuse of power that is not good and which must be addressed properly for an effective negotiation. Various types of power can influence the outcome of a negotiation. I emphasize the word can because if you have power but dont use it, your power is of no value. Following are a few types of power that were significant in the negotiating process: 1. Position. Some measure of power is conferred based on one’s formal position in an organization. For example, if you are the marketing manager, you can influence decisions that affect the marketing department. As the buyer’s representative has not enough authority to take decision, the scenario was as if that the negotiation beginning has advantage to the seller 2. Knowledge or expertise. Knowledge alone is not powerful; it is the application of knowledge that grants power. It is important to take the time prior to a negotiation to research facts and statistics, find out what the other party’s goals are, and discover what areas he or she might consider negotiable--and then use this knowledge! The seller has utterly failed in this aspect. 3. Character. Individuals who are seen as trustworthy have a great deal of power in negotiations. A person is perceived as trustworthy if he/she has a standing for doing what they say they are going to do. For this particular aspect, both the parties can be equally graded as they have shown exceptional prowess in this aspect 4. Reward and punishment. Those who are able to bestow rewards or perceive rewards, such as raises or benefits, hold power. Alternately, those who have the ability to create a negative outcome for the other party also have power. The buyer showed a slight trace of this during the negotiation 5. Behavior style. Most people exhibit one or a combination of the following behavior styles: Analytical--process oriented, methodical/ Driven--task oriented, goal directed/ Supportive--relationship oriented, focused on feelings Most appropriate behavioral style depends on the situation. For example, if you were going through a job resignation and wanted to maintain a good relationship with your boss, you would want to use the supportive style. Real power from knowledge of behavior styles is gained only if the situation is read properly and adapted the style to it. Gradually, during the course of the negotiation and with the help of the expert negotiator, both the parties showed supportive style and hence the deal might end up smoothly. Typically, most people have more power than they think they have. There is a correlation between a person’s self-esteem and the amount of power that person thinks he or she has. It has been demonstrated that people with high self-esteem feel they have more viable options--and thus more power to act--in negotiations. Alternately, the reverse is also true: People with low self-esteem feel powerless, and do not stand a fair chance. Due to poor planning and no walk-away point for the seller, it was felt that the buyer has literally taken the situation their hands at some real good phases of the negotiation. Knowing the following rules of power comes in handy when entering into a negotiation. Seldom does one side have all the power. Even the individual who goes to a job fair to ask for a job has power--the power to decide which job to apply to, the power to decide an acceptable pay, and the power to decide what to put up as security deposit if needed. At the end of the negotiation, both parties have recognized this truth as there was a significant change in their interaction during the end of the negotiation. Power may be real or apparent. When I was a student in the management studies department at Huddersfield University, I knew that plagiarism was a potential problem. As I was passing out tests, I announced that I would uphold the university’s "policy" on plagiarism. One bold student asked what the policy was. My response was simple: "If you need to ask, you don’t want to know." This was the first time I had ever seen all sixty students staring at their own paper! Does the university have a policy on plagiarism? I don’t know. But in this situation, whether the power was real or apparent didn’t matter. The students perceived that I had the power. Power exists only to the point at which it is accepted. At the airport on a return trip from India, I noted that all the ticketing agents for economy class had at least a thirty-minute line to check baggage. Yet the business and first-class agents had not one person in line. I boldly walked up to the business class agent and got my seat assignment. Of course, this strategy was successful only because the ticket agent was willing to work with me. But I never would have known if I hadn’t tried. At a particular phase of negotiation, the seller boldly took a decision regarding the delivery location and it was accepted by buyer without any questions raised. Following are some of the important observations in a commercial negotiation 1. Clear Objectives with thorough brainstorming of both parties 2. Plan carefully about the information you need and the other party needs 3. Must be flexible 4. Plan for negotiation and manage accordingly 5. Reach a WIN-WIN agreement BIBLIOGRAPHY Roy Lewicki, Bruce Barry and David Saunders (2009), NEGOTIATION – Readings, Exercises & Cases Roy Lewicki, Bruce Barry, David Saunders and John Minton (2003) – ESSENTIALS OF NEGOTIATION Read More