Revision Workshop – Commercial Negotiation (L4 M5)

Exam Preparedness Session

L4M5 – Commercial Negotiation
Presented by:
Madi Malemu (MCIPS)

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Module Outcomes

1.0 Understand key approaches in the negotiation of commercial agreements

with external organisations
2.0 Know how to prepare for negotiations with external organisations
3.0 Understand how commercial negotiations should be undertaken

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Outcome 1: Understand key approaches in the

negotiation of commercial agreements with external
organisations
1.1 Analyse the application of commercial negotiations in the work of
procurement and supply
1.2 Differentiate the types of approaches that can be pursued in commercial
negotiations
1.3 Explain how the balance of power in commercial negotiations can affect
outcomes
1.4 Identify the different types of relationships that impact on commercial
negotiations

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 Revision Workshop – Commercial Negotiation (L4 M5)

1.1 Analyse the application of commercial

negotiations in the work of procurement and supply
• Definitions of commercial negotiation
• Negotiation in relation to the stages of the sourcing process
• Sources of conflict that can arise in the work of procurement and supply
• Team management and the influence of stakeholders in negotiations

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1.1.1 Definitions of commercial negotiation

• ‘A process of planning, reviewing and analysing applied by a buyer and a

seller to reach acceptable agreements or compromises [that] include all
aspects of the business transaction, not just price.’
• ‘The process whereby two or more parties decide what each will give and
take in an exchange between them.’

Negotiation is similar to a game of poker - each side Various definitions, but some common factors:
holds a deck of cards of various values. • Involves two or more parties and a channel of
Playing skillfully requires: communication.
• Assessing your own hand. • Objective is to reach an agreement of settlement of
• Paying close attention to your partner’s game so as an issue.
to get clues about his hand. • Should be viewed as a process.
• Not giving away more than you intended. • Involves a degree of co-operation between the
• It is the art of achieving cooperative results within a parties.
competitive environment. • Something of value is exchanged.
• Common interests must be identified and acted upon • Both/all parties will have their needs sufficiently
so that everyone wins. satisfied to arrive at a mutually agreeable settlement.
• A collaborative approach. • An agreement all parties can ‘sign up to’.
Negotiation involves people and deals with strengths Negotiation – content versus process:
and weaknesses. • Content and subject matter varies between
Having a greater awareness of the process of negotiations.
negotiation provides greater insight into what is • Subject matter or technical experts may be used.
happening in a negotiation and therefore greater ability
to influence the outcome. • Process (stages and sequence of events) remains
more or less the same.
The negotiation process can start long before the
‘meeting’ stage:
• Beginning at first communication between buyer and
supplier.
• Ending at final signing of the contract, mobilisation,
contract management and contract exit.

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1.1.2 Negotiation in relation to the stages of the

sourcing process

Negotiation in relation to the stages of the sourcing process • Step 9: Contract award
(cover each of the following using examples to illustrate o Commercial negotiation activity can take place
advantages and disadvantages and their typical uses – use
locally based examples wherever possible and where each would • Step 10: Delivery of goods/services
be typically used or appropriate and their characteristics). o Typically limited commercial negotiation activity
Negotiation in relation to the procurement and supply cycle. • Step 11: Contract performance review
Not all procurements involve tendering. o Commercial negotiation activity can take place
Negotiation within the CIPS procurement and supply cycle: • Step 12: Supplier relationship management and development
• Step 1: Understand need and develop a high-level o Commercial negotiation activity can take place
specification
• Step 13: End of contract – exit transition to new supplier
o Involves mainly internal negotiation with stakeholders
o Commercial negotiation activity can take place
• Step 2: Market/commodity and options research (including
make or buy assessment) Negotiation in relation to the contract management cycle:

o Informs the negotiation process • Even in less complex contracts, there is likely to be a need to
negotiate with the supplier again after contract award
• Step 3: Develop strategy/plan
Areas where negotiation typically arises in the CIPS contract
o Where the decision regarding whether and what to management cycle:
negotiate is made
• Step 1: Planning and scope
• Step 4: Pre-procurement market test and market
engagement • Step 2: Stakeholder readiness

o Where ‘supplier conditioning’ begins • Step 3: Contract administration

• Step 5: Develop (tendering) documentation • Step 4: Relationship management

o Typically limited commercial negotiation activity • Step 5: Performance management

• Step 6: Supplier selection (to participate in • Step 6: Payment and incentives

tender/negotiation) • Step 7: Risk and resilience
o Typically limited commercial negotiation activity • Step 8: Contract changes and development
• Step 7: Issue ITT/RFQ • Step 9: Supplier development
o Typically limited commercial negotiation activity • Step 10: Supplier relationship management (SRM)
• Step 8: Bid/tender evaluation • Step 11: Exit and termination
o Commercial negotiation activity can take place • Step 12: Asset management

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1.1.3 Sources of conflict that can arise in the work of

procurement and supply

Multiple sources of divergent positions that can arise that

buyers need to be aware of… Sources of divergent positions – the process of
Sources of divergent positions – the content of negotiations:
negotiation: • Agenda and governance - examples
• Price: • Conflicting negotiation styles of participants – examples
o Typical buyer position • Cultural difference – examples
o Typical supplier position • Timescales/location – examples
• Quality: • Negotiation medium – examples
o Typical buyer position • Team size and make-up – examples
o Typical supplier position
• How negotiation will be closed out – examples
• Payment terms: Procurement and supply and contract management cycles:
o Typical buyer position • Review of potential negotiation situations:
o Typical supplier position o Conflict management and resolution
• Risk share:
• Game theory:
o Typical buyer position
o Scientific modelling of interactions between different
o Typical supplier position parties, each pursuing their own interests
• Volumes and commitment: o Can help in resolving conflicts and has applications in
o Typical buyer position commercial negotiations

o Typical supplier position • Conflict management styles:

• Contract terms and conditions: o Thomas-Kilmann conflict resolution model

o Typical buyer position o Assertiveness and co-cooperativeness

o Typical supplier position o Competing – objective to win

• Dispute resolution/contract governing law: o Accommodating – objective to yield

o Avoiding – objective to delay
o Typical buyer position
o Typical supplier position o Compromising – objective to find middle ground
o Collaborating – objective to find a win-win solution for
both

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 Revision Workshop – Commercial Negotiation (L4 M5)

1.1.4 Team management and the influence of

stakeholders in negotiations

Stakeholder influence • Inform

• Commercial negotiation objectives should be driven by the o Identify stakeholders’ current level of commitment and
business needs of the organisation, not just the instincts of required level of commitment for project success
procurement. o Identify a relationship owner for each stakeholder
• Stakeholders can be defined as the persons or groups that o Decide how to engage and communicate
have an interest (or stake) in the outcome of a negotiation.
o Record actions and provide status updates
Internal stakeholders
Stakeholder support o Stakeholder support level scale - can be
• Examples used to estimate the gap and progress towards desired levels
• Can exercise considerable influence on the negotiation of support.
process and content, controlling all parameters
Team management o Benefits of a team approach when
Connected stakeholders negotiating
• Often a significant stake in an organisational activity • Less intimidating
External stakeholders • Less unplanned concessions
• Likely to have quite diverse objectives and degrees of • Individuals can focus on individual areas
influence • Stage manage team and use tactical ploys
• Influence on procurement negotiations is typically more • Risk of procurement fraud and sharp practice is reduced
remote and general
• Learning environment for junior or new staff
Stakeholder engagement and analysis
Negotiating team roles (some roles may be combined)
• Steps in stakeholder management and engagement:
• Team leader
o Identify key stakeholders
• Chief negotiator
o Identify stakeholders’ needs and expectations
• Commercial lead
o Identify stakeholder level of influence and interest
• Technical lead
Stakeholder map
• Observer
• Engage
• Scribe
• Involve
Good negotiators – born or made?
• Build awareness

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1.1.4.1 Team management and the influence of

stakeholders in negotiations

Stakeholder influence o Identify stakeholders’ current level of commitment and

required level of commitment for project success
• Commercial negotiation objectives should be driven by the
business needs of the organisation, not just the instincts of o Identify a relationship owner for each stakeholder
procurement. o Decide how to engage and communicate
• Stakeholders can be defined as the persons or groups that o Record actions and provide status updates
have an interest (or stake) in the outcome of a negotiation.
Stakeholder support o Stakeholder support level scale - can be
Internal stakeholders used to estimate the gap and progress towards desired levels
• Examples of support.
• Can exercise considerable influence on the negotiation Team management o Benefits of a team approach when
process and content, controlling all parameters negotiating
Connected stakeholders • Less intimidating
• Often a significant stake in an organisational activity • Less unplanned concessions
External stakeholders • Individuals can focus on individual areas
• Likely to have quite diverse objectives and degrees of • Stage manage team and use tactical ploys
influence • Risk of procurement fraud and sharp practice is reduced
• Influence on procurement negotiations is typically more • Learning environment for junior or new staff
remote and general
Negotiating team roles (some roles may be combined)
Stakeholder engagement and analysis
• Team leader
• Steps in stakeholder management and engagement:
• Chief negotiator
o Identify key stakeholders
• Commercial lead
o Identify stakeholders’ needs and expectations
• Technical lead
o Identify stakeholder level of influence and interest
• Observer
Stakeholder map
• Scribe
• Engage
Good negotiators – born or made?
• Involve
• Build awareness
• Inform

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1.2 Differentiate between the types of approaches

that can be pursued in commercial negotiations
• Collaborative win-win integrative approaches to negotiations
• Distributive win-lose distributive approaches to negotiation
• Pragmatic and principled styles of negotiation
• Setting targets and creating a best alternative to a negotiated agreement
(BATNA)

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1.2.1 Collaborative win-win integrative approaches to

negotiations
• Collaborative approaches to managing conflict can be understood as those that aim to leave all parties
satisfied at the end (‘win-win’)
• Assumes that both parties can benefit
• Generally assumed as the best approach to achieving your objectives
• Win-win as common sense?
– Balance of power is rarely equal between parties and each party should be aware of their bargaining position
and what they want to achieve when negotiating
– Achieving a ‘good deal’ for both parties
• Impact on relationships of different behaviours
• Integrative solutions are generally more satisfying for both sides as the parties can only succeed by
assisting each other
• Creating versus claiming value diagram

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1.2.2 Distributive win-lose distributive approaches to

negotiation
• Assumes a fixed ‘cake’ or ‘pie’ that must be distributed among the parties
• Tends to define the parties as adversaries
• Associated with claiming value
• Based on the idea that you win as much as possible during a negotiation to
maximise your gain
• Tactics are similar to integrative bargaining
• Where divergent views or conflicts exist, distributive bargaining is important

Assumes a fixed ‘cake’ or ‘pie’ that must be distributed among the parties:
• Tends to define the parties as adversaries
• Associated with claiming value
• Based on the idea that you win as much as possible during a negotiation to maximise your
gain
• Tactics are similar to integrative bargaining
• Where divergent views or conflicts exist, distributive bargaining is important
• Distributive and integrative bargaining are not mutually exclusive
• Integrative bargaining is a good way to ‘grow the pie’ but ultimately, parties must distribute
the value that has been created

Consideration of the 11-step formula for business success (Trump and Schwartz)
Distributive versus integrative bargaining:
• Goal
• Guiding principles
• Negotiation focus
• Information sharing
• Dealing with issues
• Solution sought
• Relationship with the other party

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1.2.3 Pragmatic and principled styles of negotiation

Four fundamentals of principled negotiation

• 1st Principle: Separate the people from the problem or issue
• 2nd Principle: Focus on interests, not positions
• 3rd Principle: Invent options for mutual gain
• 4th Principle: Insist on using objective criteria

Pragmatic and principled styles of negotiation (cover each of the o Allow the other side to express emotions
following using examples to illustrate advantages and disadvantages and o Symbolic gestures
their typical uses – use locally based examples wherever possible and
where each would be typically used or appropriate and their o Actively listen to the other party
characteristics): o Speak only about yourself
• Codification and application of the win-win approach 2nd Principle: Focus on interests, not positions:
• Based upon ‘Getting to Yes: negotiating an agreement without giving • Positions are public things that people in negotiations say they want
in’ (Fisher and Ury, 1981)
• Interests are the underlying needs that people have that drive their
• Focuses mainly on the collaborative approach to conflict positions
management and dispute resolution
• Essential to uncover the other parties underlying interests:
• Proposes using an integrative approach to find a mutually agreed
o Suggested steps
shared outcome
• Iceberg diagram
Criticisms of approach:
• Conflicting positions can be reconciled through principled negotiation
• Not all commercial negotiations can assume all parties are
reasonable, open to logic, want to reach an agreement and focus on • Conflicting interests are more difficult to reconcile and may be
achieving the best long-term outcome impossible if there is no compromise or common ground
Four fundamentals of principled negotiation: 3rd Principle: Invent options for mutual gain:
1st Principle: Separate the people from the problem or issue: • Thinking creatively regarding the benefits for both parties
• Depersonalise the situation and accept that the subject matter of the • The more options or ‘tradeables’ the better
negotiation should be the focus • Obstacles to generating creative problem-solving options:
• The price plateau (Russill): o Limited variables to negotiate
o Warm • Ways to overcome obstacles:
o Cold o Deciding prematurely on an option, so failing to consider
o Tough alternatives
o Easy o Being too focused on narrowing options to find the single
answer
• Common issues in communication when negotiating:
o Defining the problem in win-lose terms
o Not speaking clearly with the other party
o Assuming it is up to the other side to come up with a solution to
o Not actively listening to the other party
the problem
o Misunderstanding or misrepresenting what the other party has
4th Principle: Insist on using objective criteria:
said
• Ensuring that the negotiation stays focused on outcomes based on
• Ways to overcome communication issues:
objective criteria and that it is productive
o Empathise with the other party
• Parties must develop objective criteria that both parties agree to
o Do not assume your worst fears will occur (legitimate and practical)
o Do not blame or attack the other party for the problem
o Acknowledge emotions

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1.2.4 Setting targets and creating a best alternative

to a negotiated agreement (BATNA)

Setting targets and creating a best alternative to a • Generating negotiation options/variables/tradeables:

negotiated agreement (BATNA) (cover each of the o The more variables that can be identified, the
following using examples to illustrate advantages and more likely the opportunity for a win-win outcome
disadvantages and their typical uses – use locally based
examples wherever possible and where each would be o At the planning stage of a negotiation, buyers
typically used or appropriate and their characteristics): should ‘brainstorm’ all possible variables that
could be traded
• Having clarity about targets is essential
• Setting your trading limits/applying MIL criteria: ‘Must,
• Usually price and other cost factors that make up the Intend, Like’:
total cost of supply
o Must achieve
• The zone of potential agreement (ZOPA)
o Intend to achieve
For a successful negotiation, there must be the
potential for agreement: o Like to achieve
• Establishing the ZOPA is essential when setting BATNA – best alternative to a negotiated agreement:
targets and establishing a ‘walk away’ point • Having an alternative as a backup in case a
• ZOPA model can be applied to any variable, not just negotiation fails to achieve minimum objectives
price provides a source of power
Setting targets: • Worth seeking out a BATNA before negotiations
commence
• Aim high, but be realistic:
• In most negotiations, the party with the strongest
o Clear targets for all objectives must be set and BATNA will have the upper hand
measured against
• Establishing a BATNA:
o ‘Walk away’ points for each variable must be
established and locked down o List everything you could do if an agreement is
not reached
o BATNA should also be established incase
objectives cannot be achieved o Explore the best options and try to improve on
them
o Choose your best option (BATNA)

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1.3 Explain how the balance of power in commercial

negotiations can affect outcomes
• The importance of power in commercial negotiations
• Sources of personal power
• Organisational power: comparing the relative power of purchasers and
suppliers
• How suppliers gather information on purchasers
• How purchasers can improve leverage with suppliers

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1.3.1 The importance of power in commercial

negotiations
• Power is the ability of an individual or group to exercise influence over others.
• Authority is not power and the ability to influence is limited by other
contextual factors.
• One who has power has leverage over the other.
• One who has leverage wins the game.
• Power is used in adversarial and competitive scenarios, where there is little
time to negotiate, or where parties have reached an impasse.

The importance of power in commercial negotiations (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and their
characteristics):
• Creative buyers will look for other sources of leverage or power that might influence a
supplier
• Perceptions of power are critically important in understanding the commercial negotiation
process
• Power can be from a personal and organisational perspective
• The combination of these factors defines the way the balance of power tips at the outset of a
negotiation
• ‘Leverage’ is used interchangeably with the term ‘power

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1.3.2 Sources of personal power

• Legitimate power - legal/rational or formally conferred authority associated

with position.
• Expert power - recognised because of expert knowledge one possesses.
• Reward power - recognised because of control over resources.
• Referent power - emanating from inspiring and attractive personality of an
individual.
• Coercive power - the power to threaten sanctions or hand out punishment.

Power imbalance creates competitive advantage and enables the party perceived as having
greater power to apply leverage to the ‘lesser’ party.

Sources of power for negotiators:

1. Information and expertise - as a result of acknowledged expertise.
2. Resource control and reward - ability to award future contracts.
3. Legitimate - as a result of formal appointment to head the negotiations.
4. Location in the structure - as a result of the role or position in the company.
5. Personal - as a result of individual influencing.

Power can be split into organisational and personal power.

Personal power is based on a few factors:

• Physicality, which is very remote in negotiations.
• However, charisma is an exceptional social skill, which can turn negotiations into an art.
• And negative, which refers to an ability to stop and cancel contracts, which prevents being
pushed into agreements if your objectives are not being met.

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1.3.3 Organisational power: comparing the relative

power of purchasers and suppliers
Organisational power is based on a few factors
• An organisation’s market power is determined by the level of competition that it faces.
• The size of an organisation, whether big, small, nuisance or core to the parties that deal
with it.
• Relative value - How highly parties value a deal with an organisation?
• Financial - The level of financial resources available to a party.
• Reputation - The organisation’s economic clout, image or brand.
• Reward - If the performance is satisfactory, new business opportunities may arise.
• Alternatives - The availability of other suppliers or substitutes.

Organisational power: comparing the relative power of 1. Intensity of industry rivalry

purchasers and suppliers (cover each of the following using 2. Bargaining power of customers
examples to illustrate advantages and disadvantages and their
typical uses – use locally based examples wherever possible and 3. Bargaining power of suppliers
where each would be typically used or appropriate and their 4. Threat of substitutes
characteristics): 5. Threat of new entrants
• No simple definition but in the context of commercial Level 3: supply positioning 1:1 organisation power:
negotiations, can be described as the capability of those
representing an organisation to influence behaviours and • Power derived from the relative bargaining positions of the
decisions of others outside the organisation two organisations in a commercial relationship

• Relative power of purchasers and suppliers is not always • Classification of suppliers:

obvious o Commodity
• Understanding relative power of a buyer and supplier in any o Strategic
given situation at a given time is essential in commercial o Routine
negotiation planning and execution
o Security
Level 1: macro environment – PESTLE analysis:
• Positioning from a buyer’s perspective:
• Understanding the wider forces that influence the balance of
o Protect
power
o Collaborate
• Identification of sources of power in the wider business
environment o Avoid
• Any trends or changes which affect power: o Compete
o Political - examples within negotiation context • Positioning from a seller’s perspective:
o Economic - examples within negotiation context o Protect
o Social - examples within negotiation context o Collaborate
o Technological - examples within negotiation context o Avoid
o Legal/regulatory - examples within negotiation context o Compete
o Environmental/ethical - examples within negotiation • Leverage will be greater for ‘attractive’ customers
context • Considering both perspectives
Level 2: micro environment (industry structure) – Porter’s
Five Forces analysis:
• Mainly affects players in a particular industry or market
• Evaluates the competitive strengths and position of a
business in its own microenvironment or industry

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1.3.4 How suppliers gather information on

purchasers
Fundamental information can be gathered from
• Information about your industry (such as monitoring trade journals)
• Financial transactions (such as credit ratings)
• Publicly released information (such as regulatory filings by a competitor)
• Speak to other parties who have had dealings with the buyer
• Screening Pat & Non Pat Publications of Competitor.
• Press releases, analyst reports, trade journals, transcripts of speeches, and
other published sources of information.

How suppliers gather information on purchasers (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and their
characteristics):
• Publicly available sources on the internet – examples
• Buyers should take note of the source and be aware of biased or inaccurate sources
• Other sources of information available:
o Paid-for subscriptions to trade magazines, industry, specialist websites and paid-for
industry reports
o Annual financial accounts/reports
o Customer tendering activity
o Industry and business ownerships statistics
o Industry conferences and exhibitions
o Supplier-sponsored conferences and exhibitions
o Employing ex-employees of customer organisations
o Industrial espionage

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1.3.5 How purchasers can improve leverage with

suppliers
The tactics employed in a negotiation are influenced by the negotiation approach, whether
collaborative or distributive.

Common tactics include

• Building block - Progressively asking for a better offer.
• Silence - After every question is asked, wait for the answer.
• Broken record - Repeating the same point more than once, conditions the other party.
• Recess - Call for short breaks in between.
• Divide and rule - Split the views of the supplier’s team.
• One more thing - towards the end further concessions can be made.
• Russian front - Offer something that the other party will never choose

How purchasers can improve leverage with • How much money is being spent on which
suppliers (cover each of the following using examples categories/commodities?
to illustrate advantages and disadvantages and their • Increasing purchaser’s leverage through other
typical uses – use locally based examples wherever means:
possible and where each would be typically used or
appropriate and their characteristics): o Customer attractiveness
• A key source of leverage in the market is absolute • Many factors, not just order value:
and relative spend as a customer o Buyer attractiveness model
• A key objective of strategic procurement and • Variables:
category management is to ensure that the buyer is
o Customer spend
maximising their spend leverage through channelling
as much spend as possible across the organisation o Customer attractiveness
• Intelligent suppliers seek to increase their leverage • Outcomes:
beyond volume of spend or size of contracts o Develop: low spend and high attractiveness
• Increasing leverage through spend concentration: o Core: high spend and high attractiveness
o Vendor base reduction o Nuisance: low spend and low attractiveness
o Volume pooling o Exploit: high spend and low attractiveness
o Volume redistribution Key sources of leverage
o Volume consolidation across categories • An organisation’s spend as a customer
o Standardisation and harmonisation of • Spend concentration/consolidation across a smaller
specifications number of preferred suppliers
o Forming purchasing consortia • Using analytics to find out who/where/what of spend
• Increasing leverage through analytics – spend • Projecting organisation as an attractive customer
analysis overview:
o Spend cubes
• Who is spending the money (cost centre)?
• Who is money being spent with (vendor and
contracts)?

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1.4 Identify the different types of relationships that

impact on commercial negotiations
• The relationship spectrum
• Building relationships based on reputation, and trust
• Repairing a relationship

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1.4.1 The relationship spectrum

Signs of trust in business relationships

• Mutually agreed and managed objectives
• Sharing information
• Managing conflict through joint problem solving
• On time delivery of products and services
• High-performance teams that feel empowered to get the job done
• Supplier welcomes opportunity to innovate
• Both parties share ideas and insight
• Clear criteria for decision making

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1.4.2 Building relationships based on reputation, and

trust

Building relationships based on reputation, and trust o Employment of high-profile sports people,
(cover each of the following using examples to illustrate celebrities or leaders, to bolster reputation
advantages and disadvantages and their typical uses – o Buying brands or smaller companies to acquire
use locally based examples wherever possible and their reputational good will
where each would be typically used or appropriate and
their characteristics): Trust:
Reputation: • Difficult concept to define
• Reputational strength based on: • Taxonomy of types of trust in commercial
relationships (Saxo):
o Quality of products or services
o Contractual trust
o Low cost/value for money
o Competence trust
o High ethical standards
o Goodwill trust
o Reliability
• Building relationships based on trust:
o Cutting edge technology
o Trust/partnership-building behaviours
o Strong customer focus
o Trust/partnership-destroying behaviours
o Engineering excellence
o Signs of trust in business relationships
• Reputation often captured through branding
o Other factors where trust can be broken down
• Reputational risk
o The value of trust
• Perception of reputation
• Intangible value created by partnerships
• Building commercial relationships based on
reputation: • Poor relationships destroy value
o Sponsorship of prestigious events to drive brand
association
o Recruitment of sales people with technical
qualifications (not actually needed)

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1.4.3 Repairing a relationship

Repairing a relationship (cover each of the following using examples to illustrate advantages
and disadvantages and their typical uses – use locally based examples wherever possible and
where each would be typically used or appropriate and their characteristics):
• Many reasons why commercial relationships break down
• May escalate beyond the buyer and supplier and may need a third party via:
o Mediation
o Adjuration
o Arbitration
o Litigation
• Vicious circle of blame:
o Decisions are made based on evidence and driven by long-term needs
o Decisions do not always align with the internal customer wants
o Customer rationale
o Supplier rationale
o Requires negotiation and conflict management skills to break the vicious cycle
o Collaborative and integrative approach

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OBJECTIVE RESPONSE QUESTIONS

A truly collaborative negotiation is typified by which of the following?

a. All parties must have exactly the same goals
b. Both parties understand each other's goals
c. One party is prepared to accommodate the other
d. The parties will always find a compromise solution

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OBJECTIVE RESPONSE QUESTIONS

Which of the following is the best example of a BATNA (best alternative to a

negotiated agreement)?
a. A concession is made
b. A contingency supplier
c. A marker is placed
d. A walk-away point

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Outcome 2: Know how to prepare for negotiations

with external organisations
2.1 Describe the types of costs and prices in commercial negotiations
2.2 Contrast the economic factors that impact on commercial negotiations
2.3 Analyse the criteria that can be used in a commercial negotiation
2.4 Identify the resources required for a negotiation

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2.1 Describe the types of costs and prices in

commercial negotiations
• Types of costs: direct and indirect, variable and fixed
• Breakeven analysis: cost volume profit formulae
• Costing methods such as absorption, marginal or variable and activity-based
costing
• Volumes, margins and mark ups and their impact on pricing
• Negotiating prices

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2.1.1 Types of costs: direct and indirect, variable and

fixed

Types of costs: direct and indirect, variable and fixed (cover Semi-variable costs
each of the following using examples to illustrate advantages and • Have a fixed and a variable element
disadvantages and their typical uses – use locally based examples
wherever possible and where each would be typically used or • Examples – utilities
appropriate and their characteristics): • Addressability of spend – procurement influence?
Direct and indirect costs o Potentially influenceable by procurement actions, i.e.
Direct (prime) costs negotiation
• Those costs of a product/service directly attributable/traceable o Some areas are not addressable – i.e. statutory minimum
to its production wages
• Examples: • Suppliers’ fixed and variable costs: implications for negotiations:

o Materials and services (bought in) o Understanding supplier’s cost base

o Labour or wages o Visualising cost breakdowns

o Expenses Spend tree

• Relatively easy to calculate • Value analysis and value engineering

Indirect costs (overheads) Stops waste

• Not directly attributable to production • Standardisation

• Examples: • Transportation
o Materials and services (not used in production) • Over-engineered

o Labour: management, security etc. • Packaging

o Expenses: rent, rates, insurance etc. • Substitutes

• Apportionment to goods and services to allow for recovery • Weight

Variable and fixed costs • Any unnecessary processing

Fixed costs • Supplier’s input

• Do not vary with volume • To make

• Examples – factory rent • Eliminate

Variable costs Exchange rate movements

• Vary with volume Insight into vendor supply capacity

• Examples – cost of materials • Supplier’s cost curve
Early procurement involvement
• Seek to be involved in the design at the specification stage

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2.1.2 Breakeven analysis: cost volume profit

formulae

Breakeven analysis: cost volume profit formulae (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and their
characteristics):
• Analysis of costs helps determine the break-even point
• Total revenue from sales and total costs exactly balance
• Worked out graphically or by formulae

Price – Variable Cost = Contribution

• Fixed Cost/Contribution = Break-Even point (volume)
• An important determinant of flexibility of pricing for suppliers

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2.1.3 Costing methods such as absorption, marginal

or variable and activity-based costing

Absorption costing
• Approach to allocating overheads so that indirect costs are loaded (or absorbed) into direct costs
related to specific jobs, processes or outputs
• Total absorption costing
Marginal or variable costing
• The cost of producing an additional unit of output
• Dynamic pricing - price varies depending upon demand and whether nominal break-even or revenue
targets have been achieved
Activity-based costing
• Looks at what is done in terms of activities
• Assigns costs to activities based on the resources they consume
• Aligned to ‘Lean’ thinking
Other cost concepts important in negotiation
• Cost plus:
o Contractors price is based on itemising allowable costs and then adding an agreed margin
o Benefits
o Limitations
• Total cost of ownership/total cost of supply/whole life costing:
o The initial purchase price in many cases is a small component of the total life cost of some assets
o Factors to consider
o Benefits
o Limitations

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2.1.4 Volumes, margins and mark ups and their

impact on pricing
• Volume – affects the unit cost of production, the more the buyer buy the
more he or she can negotiating a price with a supplier e.g. quantity or trade
discount.
• Margins (the percentage of the final selling price) – the more the buyer buys
from a seller the more he/she can negotiate better prices.
• Mark-ups (a percentage of the seller’s cost) – the more the buyer has
intelligence on the supplier’s mark-up they better he/she can negotiate

Margins and mark-ups

• Common within the retail or distribution environments
• Mark up – the amount added to the cost price to get to its selling price (expressed as a percentage)
• Margin – the amount added to the cost price expressed as a percentage of the selling price
• Effect of volumes:
o At high volumes, suppliers can make profits at low margins
o At low volumes, suppliers will need to charge a high margin to make profits
• Pricing strategies used by suppliers:
o Cost-plus pricing
o Premium pricing
o Penetration pricing

Marginal cost pricing

• Market pricing
• Cost modelling and analytics
• Helps to understand assumptions and variables, as well as achieve a quick overview of complex information
• Procurement analytics (insight and value):
o Category visibility
o P2P process compliance
o Pricing and contracts
o Risk and fraud
• ‘Should cost’ analysis/benchmarking

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2.1.5 Negotiating prices

Negotiating an agreement on price may include a range of matters including:

• The type of pricing arrangement.
• The price or fee schedules.
• Costs and charges incurred by the supplier in the course of the contract which are to
be reimbursed by the buyer.
• Methods by which new prices or price changes will be determined and jointly agreed
(contract price adjustment) .
• Available discounts, and the conditions under which they will be applied.
• Terms of payment and credit

Negotiation skills tend to benefit from a more complex • Getting started with PPCA:
multi-factor perspective where price is only one element o Aims and objectives
that makes up total supply costs incurred in buying from
a supplier: o Material costs
Suppliers can recover price concessions in a o Process and labour costs
number of ways o Employment costs
• Savings levers and tactics: o Overhead costs
o Volume concentration o Distribution costs
o Demand management o Depreciation on equipment
o Best price evaluation o Profit
o Global sourcing • Understanding suppliers’ costs assists procurement
o Specification improvement to:
o Joint process improvement o Explain what drives costs and to seek to reduce
them
o Relationship restructuring
o Understand the elements of expenditure which
Purchase price cost analysis (PPCA) – putting it into are addressable
practice
o Establish realistic opening offers
• Purpose – to assess the cost make-up of a supplier’s
product or service to help drive down price and seek o Know when suppliers can afford to make price
cost improvements concessions
• When to use PPCA
• High-level questions to ask
• Key to success

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2.2 Contrast the economic factors that impact on

commercial negotiations
• The impact of microeconomics and market types on commercial negotiations
• Macroeconomics and its influence on commercial negotiations
• Sources of information on micro and macro economics

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2.2.1 The impact of microeconomics and market

types on commercial negotiations

Microeconomics is a branch of economics that considers the • Markets and competition:

behaviour of individuals and businesses and decisions are made
o In industrial markets, the price paid by customers is
based on the allocation of limited resources:
determined by many factors including negotiation capability
Scarcity, choice and opportunity cost and market structure
• Microeconomics focuses on how decision makers choose o In microeconomics, competition is the key determinant of
between scarce resources that have alternative uses the different ways in which firms within an industry may be
structured
• Opportunity cost
• Perfect or pure competition:
• Producers have to decide how much to produce and for whom
with the resources at their disposal o Many firms
• PESTLE influences o Identical or very similar products
How supply and demand determine price o No barriers to entry
• Prices are determined by the interaction between supply and o Perfect knowledge of the market for producers and
demand – price mechanism consumers
• Demand is finite o Procurement and negotiation implications
Factors that determine demand o Contract price adjustment
• Downward sloping demand curve: • Monopolistic competition:
o Shift in the demand curve o Many competing producers which use product
differentiation (i.e. branding)
• Supply:
o Procurement and negotiation implications
o Upward sloping supply curve
• Oligopoly:
o Determinants of supply
o Small number of producers
• Equilibrium price:
o Procurement and negotiation implications
o Demand = supply
• Monopoly:
o No shortage or surplus
o One producer
• Elasticity:
o Usually subject to government control to help avoid super
o Responsiveness of quantity demanded or supplied to a
normal profits
change in price, or another factor
o Procurement and negotiation implications
o Price elasticity
o Income elasticity
o Cross elasticity

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2.2.2 Macro economics and its influence on

commercial negotiations

What is a macroeconomic factor? o Potential impact on commercial negotiations

• Examples • Currency exchange rates:
• Relationships between various macroeconomic o In general, when importing, buyers should
factors: seek to pay in their home currency
o Winners and losers o Potential impact on commercial negotiations
Key macroeconomic factors • Unemployment rate:
• Economy growth rate: o The number of unemployed people as a
o The level of buying and selling activities percentage of the labour force
happening in an economy over a period of o Potential impact on commercial negotiations
time • Protectionism:
o Typically measured by GDP o The economic policy of restricting imports
o Potential impact on commercial negotiations from other countries through methods such
• Inflation rates: as tariffs, quotas and government
regulations
o The rate of price increase normally
measured in percentage per year o Potential impact on commercial negotiations
o Applied to a whole country, i.e. CPI, RPI or • Considerations:
industry/product/service area, i.e. labour o Changes and rates of changes
rates o General versus particular effects
o Potential impact on commercial negotiations o Expectations/consumer sentiment
• Interest rates:
o The charges levied by banks for extending
credit

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2.2.3 Source of information on micro and macro

economics
• Forecasts, reports and statistical surveys published by the government and
government agencies.
• Analysis published in the mainstream and financial media.
• Data published by financial institutions and analysts.
• Data published by the financial markets.
• Published economic indices.
• The websites and information services of organisations promoting trade and
exports.
• Published and online macro-economic analysis

Examples of sources:
• Newspapers
• Television
• Internet websites
• Business journals
• Industry interest groups
• Colleagues
• CIPS Risk Index Quarterly Report

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2.3 Analyse criteria that can be used in a commercial

negotiation
Criteria such as:
• Setting objectives and defining the variables for a commercial negotiation
• The bargaining mix
• Positions and interests
• Openings and presenting issues

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2.3.1 Setting objectives and defining the variables for

a commercial negotiation

Setting objectives and defining the variables for a Step 3

commercial negotiation • Identify major negotiation issues (Bargaining Mix)
Introduction and recap on key concepts • Difference between current and desired positions
• BATNA • Focus planning areas on common ground
• Positions and interests • Be creative and thorough in preparation
• Setting objectives: Steps 4 and 5
o Trust • Review existing research and insight on external
o Importance of relationships influences, industry forces, macroeconomic issues,
o Negotiation objectives/strategy – the process supplier positioning etc.

o ‘Getting to Yes’: Fisher and Ury’s preparation • Understand current contracts and performance
stages • Understand supplier’s capabilities to meet objectives
Step 1 • Understand supplier’s representatives’ incentives and
• Set overall and organisational objectives objectives

• Develop specific objectives • Prepare counter-responses

• Agree team roles • What if?

Step 2 o Putting it into practice (real-life negotiation

preparation)
• Define desired end position
o Citizen Tele Service (CST) example case study
• Consider range of options/outcomes to achieve from
the negotiation
• Identify and prioritise preferred outcomes (MIL)
• Set objectives in terms of upper and lower limits
• Investigate and be aware of negotiation factors

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2.3.2 The bargaining mix

• The mix of variables that can be traded in a commercial negotiation situation

• The more variables that can be identified and articulated, the lower the chances of the
negotiation reaching deadlock as more possibilities are facilitated regarding more creative
solutions
• Mix will vary according to what is being negotiated and with whom
• Examples of possible bargaining mix components
• Bargaining mix – price
• Concession planning:
o The difficult concessions
o The easy concessions to win
o The easy concessions to give away
o The low-value concessions for both parties
o Concession planning tips
• 4 steps

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2.3.3 Position and Interest

Position is stance taken by the parties in a negotiation and is presented as:
• An opening bid
• A target point
• A negotiation objective
• A statement of what we want, what they need, desire or want
• A statement of who is ‘right’ or correct, who has legitimacy, or what is fair
• Power: who can exercise most influence, by dominance, economic pressures, expertise,
legitimate authority and so on

Interests are underlying values, needs, wants and concerns that explain why each party
wants what it wants.

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2.3.4 Opening and Presenting Issues

Opening position
• Statements of an opening bid.
• Depicted as the best possible outcome or ideal solution for the party making
the first move.
• Determines who makes the opening offer as a starting point for negotiation

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2.4 Identify the resources required for a negotiation

• Choice of location
• Involving appropriate colleagues
• Use of telephone, teleconferencing or web-based meetings
• Room layout and surroundings

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2.4.1 Choice of location

• Home or away
– Home turf gives the buyer the advantage of being in a familiar environment and near to
internal resources.
– An away venue can be a neutral venue or at the supplier’s. A neutral venue gives a
balanced view. At the supplier’s premises the buyer can have first-hand information
about the supplier.
• Reception is a key first impression on the proceedings of the negotiations.
• Room layout and surroundings – A relatively comfortable working
environment will be conducive to agreement

Can contribute to the tone of the negotiation

• Key international negotiations in the political area are often held on ‘neutral ground’ for
fairness and neutrality
• Suppliers often travel to the buyer’s organisation
• Location and availability of supplier negotiation team may dictate location
• Teleconferencing
• The ideal negotiation environment:
o Both parties feel comfortable physically
o Travel to location and connectivity is good
o No concerns over security and confidentiality
o Quiet, secure facility
o Negotiation teams kept separate ahead of negotiation
o Agenda and timings agreed beforehand
o Refreshments available
o Access to tele/video conferencing facilities
o No surprises to distract or unsettle visiting party
• Factors to consider if you have a choice:
o Home or away – home
o Home or away – away
o Neutral ground

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2.4.2 Involving appropriate colleagues

Team Negotiations
• A small group of people with complementary skills are brought together for
important negotiations to deal with issues of new buy or capital purchases as
an individual will rarely be qualified to act as a sole negotiator.
• Multiple parties are negotiating with one another and attempting to achieve a
collective or group consensus.
• Multiple individuals are present on each “side” of the negotiation.
• The parties to a negotiation are teams against teams.

Benefits of adopting a team approach o Less o Thinking/feeling

likely to be intimidated o Judging/perceiving
• Less likely to make unplanned concessions • Learning and perception
• Individuals can focus on specific areas Individual negotiation styles
• Stage-manage the team and use tactical ploys • Warm:
• Risk of procurement fraud and sharp practice o Strengths
reduced, ethical behaviour increased
o Weaknesses
• Junior or new staff learning opportunities:
• Tough:
o Who should be involved?
o Strengths
• Team roles:
o Weaknesses
o Chair
• Logic:
o Leading speaker
o Strengths
o Experts
o Weaknesses
o Analyst or observer
• Dealer:
o Secretary/note taker
o Strengths
Negotiation team member styles – personality
and learning o Weaknesses
• Personality and working style
• Myers-Brigg Type Indicator:
o Extraversion/introversion
o Sensing/intuition

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2.4.3 Use of telephone, teleconferencing or web

based meetings
Telephone negotiation Teleconferencing or web based meetings
• Always make a brief note of the issues you • No face-to-face contact.
wish to discuss. • Misinterpretation of written word.
• Make sure you have a pen and paper. • Everything is recorded – audit trail.
• Always take account of the different time • Speed of response.
zones. • Access to new sources of supply.
• Always speak slowly and clearly. • Distance - no barrier to response.
• Listen intently to the other person, then • Electronic forms – storage issues
suggest an agenda if possible.
• Summarise what was discussed and
confirmed.

If practical, face-to-face meetings are desirable for important commercial negotiations

• Routine or less critical negotiations may be undertaken by phone, teleconferencing or video-
conferencing
• Challenges and disadvantages of face-to-face in-person meetings
• Negotiating over the phone:
o Advantages
o Disadvantages
• Teleconferencing (audio conferencing):
o Advantages
o Disadvantages
• Video and web conferencing:
o Advantages
o Disadvantages

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2.4.4 Room layout and surroundings

• The layout of a room in which negotiations will take place and whether a
home or away venue is used is largely influenced by your approach to
negotiations.
• The distributive approach tends to be more aggressive, driving the other
party to the wall.
• The integrative approach tends to create information flow, working on
common ground.

Room layout and surroundings (cover each of the following using examples to illustrate
advantages and disadvantages and their typical uses – use locally based examples wherever
possible and where each would be typically used or appropriate and their characteristics):
• Most commercial negotiations are based (at least initially) on a principled (pragmatic) type
approach; the room layout should also follow these principles
• Advantageous seating arrangements in negotiation

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OBJECTIVE RESPONSE QUESTIONS

The supplier's break-even point is reached when its revenues exceed which of the following?
1. Opportunity costs
2. Total fixed costs
3. Equity costs
4. Variable production costs

a. 1 and 2 only
b. 2 and 4 only
c. 1 and 3 only
d. 3 and 4 only

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Outcome 3: Understand how commercial

negotiations should be undertaken
3.1 Identify the stages of a commercial negotiation
3.2 Appraise the key methods that can influence the achievement of desired
outcomes
3.3 Compare the key communication skills that help achieve desired outcomes
3.4 Analyse how to assess the process and outcomes of negotiations to inform
future practice

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3.1 Identify the stages of a commercial negotiation

• Defining the stages of a negotiation such as: preparation, opening, testing,

proposing, bargaining, agreement and closure
• How behaviours should change during the different stages of a negotiation

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3.1.1 Defining the stages of a negotiation such as:

preparation, opening, testing, proposing, bargaining,
agreement and closure

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3.1.2 How behaviours should change during the

different stages of a negotiation
• Beginning: Perceptual errors, attribution biases, framing.
• Middle: Offering sequences and issue development, evolution of framework
and detail, use of questions.
• End: Decision making, avoiding traps, achieving closure

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3.2 Appraise the key methods that can influence the

achievement of desired outcomes
• The use of persuasion methods
• The use of tactics to influence the other party

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3.2.1 The use of persuasion methods

Persuasion and influence defined

• Persuasion
• Influence:
o Choosing between push and pull
• Directive (push)
• Collaborative (pull)
• Persuasive reasoning (push)
• Visionary (pull):
o Irritators

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3.2.2 The use of tactics to influence the other party

There are many tactics and ploys that can be used to persuade others, particularly those not trained in
negotiation. Example tactical ploys include:
• Hard guy/soft guy
• Thank and bank
• Lack of authority
• Declaration of a public stance
• Getting peanuts
• Salami (one slice at a time)
• Outrageous initial demand
• Add-on
• Broken record
• ‘One more thing’
• Other examples of tactical ploys

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3.3 Compare the key communication skills that help

achieve desired outcomes
• Types of questions
• Effective listening
• Push and pull behaviours
• Nonverbal communication
• The influence of culture in commercial negotiations
• The use of emotional intelligence in commercial negotiation

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3.3.1 Types of questions

Reasons for asking questions in negotiation

• To condition the other party
• To suggest you are naïve or unaware of something (tactical advantage)
• To create an impression of knowledge
• To test honesty of the other party
• To create and sustain movement in a negotiation

Question styles
• Open
• Closed
• Probing
• Hypothetical
• Different question styles should be used at different stages

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3.3.2 Effective Listening

Effective listening involves the following aspects:

• Talking when it is necessary.
• Concentrating on what is being said.
• Waiting until the other person has finished talking.
• Try to understand what the other party is saying.
• Avoiding premature conclusions.

Effective listening (cover each of the following using examples to illustrate advantages and disadvantages and their typical
uses – use locally based examples wherever possible and where each would be typically used or appropriate and their
characteristics):
Common listening mistakes
• Consider negotiation as persuasion
• Over preparation
• Fail to hear what they do not want to hear
Rules of attentive listening
• Be motivated to listen
• Be alert to non-verbal cues
• Do not interrupt when the other party is speaking
• Fight off distractions
• Write everything down
• Listen with a goal in mind
• Give the other party your undivided attention
• React to the message, not the person
Improving your active listening skills
• Probing
• Encouragers
• Restating
• Summarising
• Reflecting
• Giving back
• Emotion labelling
• Validation
• Use pauses and silence

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3.3.3 Push and pull behaviours

Push style Pull style

Push is more about moving or forcing someone to a change rather than Pull is generally about motivating the individual to want to change. They
motivating them to want to make the change. Push styles tend to involve tend to involve personal disclosure, involvement and showing the
logical reasoning, threatening punishment, or offering rewards or possibilities that will result from change. They tend to work on decreasing
incentives. They seek to increase the ‘forces’ and rationale for change. the forces or rationale against change. Insincere pull styles can however
They can often be referred to as the ‘stick and carrot’ approach. Push be seen as manipulative and dishonest. Pull styles can be effective in
styles can be effective in achieving compliance but may not achieve gaining commitment and high quality but they may be slower in achieving
commitment. They may bring about quick results. The Push style is results. The Pull style is characterised by concentration upon three
characterised by extensive use of three types of behaviour. The different behaviours. The influencer spends 35% or more of their time in
influencer spends 70% or more of their time in these activities: these activities:
• Proposing • Testing Understanding
• Giving Information • Seeking Information
• Blocking/shutting out • Building
The rationale of the Push Style is that people are influenced by The rationale of the Pull Style is that people are influenced more readily
convincing proposals which are well supported. The keys to successful by uncovering their needs, motives, aspirations and concerns. The keys
use of the push style are: the quality of the proposals; the information to effective use of the Pull Style are: the quality of questions used to test
given; the ability to get those proposals heard by shutting others out. The understanding and to seek information, and the ability to build upon
Push style tends to be most effective under one or more of these ideas and proposals. The Pull style tends to be effective in most
conditions: situations, but is particularly useful under these conditions:
• The recipient has little experience or understanding of the issue and • The recipient of the influence attempt has strong opinions and
recognises the need for help or guidance. views.
• There is no vested interest in the status quo and the recipient does • The recipient has a vested interest in the status quo and could have
not feel threatened by accepting the proposal. difficulty in accepting the influencer's proposals.
• The recipient recognises the legitimacy of the influencer's power • It is unknown what the recipient will find acceptable.
base (e.g. expert, position, physical).
• The influencer has no recognised power base, or wishes not to use
• The recipient trusts the influencer's motives. an established power base.
Persuasive reasoning • It is important that the influence attempt has a long-lasting effect i.e.
the influencer wishes to obtain more than compliance from the
This is an issue-driven style where the influencer wants others to buy
recipient.
into their ideas by presenting them in an even-handed, logical, rational
and objective way. This is most appropriate when: • The relationship between the two parties is new or there is a history
of mistrust.
• Your credibility with others and knowledge about the topic is high.
• Previous attempts using a Push Style have failed.
• You need to get buy-in to an unpopular decision.
• There is a ‘best’ answer and you’ve done the research to prove it.
Overuse or inappropriate use and you may be regarded as a ‘tough
guy’.

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3.3.4 Non-verbal communications

• The reason people

communicate is to exchange
information, which leads to trust
and commitment.
• Communication can either
be verbal or non-verbal.

Nonverbal communication (cover each of the following using examples to illustrate advantages and disadvantages
and their typical uses – use locally based examples wherever possible and where each would be typically used or
appropriate and their characteristics):
What is non-verbal communication?
• Body posture and movements
• Position of arms, hands and legs
• Facial expressions and hand gestures
• Tone of voice
• Level and type of eye contact
• Involuntary human physical reactions: blushing, dry throat, sweating, voice pitch
• Physical contact, e.g. handshake grip, slap on back
• The use by the other party of the physical space between the parties
Interpretation of non-verbal communication
• The theory:
o Mehrabian formula (1960s)
• Checklist of body language gestures:
o Openness
o Dominance
o Frustration
o Defensiveness
o Boredom or indifference
o Readiness
o Nervousness

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3.3.5 The influence of culture in commercial

negotiations

• Power distance: the extent to which the unequal Managing cultural differences
distribution of power is accepted by members of a society. • Evaluating cultural differences: Hofstede’s cultural
• Uncertainty avoidance: how much members of a society dimensions:
are threatened by uncertain and ambiguous situations. o Power Distance Index (PDI)
• Individualism-collectivism: the tendency to take care of o Individualism versus Collectivism (IDV)
oneself and one’s family versus the tendency to work
together for the collective good. o Masculinity versus Femininity (MAS)
• Masculinity-femininity: the extent to which highly o Uncertainty Avoidance Index (UAI)
assertive masculine values predominate. o Long-term orientation versus short-term normative
• Long-term orientation: the extent to which thrift and orientation (LTO)
perseverance are valued (long-term orientation) over o Indulgence versus Restraint (IND)
respect for tradition, fulfilling solid obligations and
protecting one’s ‘face’ (short-term orientation). • Where cultural differences have no impact on the
negotiation, other factors may play a role in the overall
Recognising cultural difference sourcing decision when dealing with international
• When are international cultural differences important in companies:
negotiations? o Trust and payment issues
• Examples are when: o Currency risk issues
o Buying complex purchases or those requiring a long o Legal and contracting issues
term and close relationship with a foreign supplier
o Communication and logistics issues
o Creating partnerships/joint ventures/long-term alliances
with foreign suppliers where trust, empathy and mutual o Ethical and environmental issues
understanding is important o Political issues
o When buying services where your organisation will be
engaging with teams of people from other countries
o When the stakes are high and minor
misunderstandings can lead to major problems
o When goodwill trust is essential for a good working
relationship, as contractual trust is not deemed as
important to TOP (e.g., redress in courts takes years)
o When there are different expectations and norms
around the giving and receiving of corporate hospitality
and gifts

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3.3.6 The influence of culture in commercial

negotiations
• Intelligence Quotient (IQ) • Emotional intelligence
• Emotional Quotient (EQ) seeks to – JCA Global model of emotional
measure intelligence
– Identifying emotions • Personal intelligence
– Evaluating how others feel • Interpersonal intelligence
– Controlling one’s own emotions – Use of emotional intelligence in
negotiation
– Perceiving how others feel
– Using emotions to facilitate social
communication
– Relating to others

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3.4 Analyse how to assess the process and

outcomes of negotiations to inform future practice
• Reflecting on performance
• Opportunities for improvement and development
• Protecting relationships after the negotiation

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3.4.1 Reflecting on performance

What do we mean by reflection?

• Taking time to review what went well and what could have gone better after a negotiation
session
• Key to improving the negotiation capabilities of individuals and teams in the future:
o Benefits of reflection
o Areas to consider
• Process
• People
• Objectives

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3.4.2 Opportunities for Improvement and

Development
• Learning, training and development On the job by coaching and experiential learning
through practice in negotiation performance.
• Coaching A short-term developmental relationship in which a more experienced
individual offers job guidance, advice, correction and teaching with the view to improving
performance.
• Mentoring Is a long-term, developmental relationship where a more senior person acts
as a teacher, coach, counsellor, role model, supporter or sponsor in the organisation to
critique and encourage the mentee in appropriate situations over a course of time.
• Experiential learning Is a key development technique in interpersonal skills with an
opportunity to observe, practice and gain experience

Consider all stages

• Negotiation prep card
• Negotiation self-review

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3.4.3 Protecting relationships after the negotiation

• Supplier motivation and performance management.

• Ensuring that there are meaningful incentives for performance and relationship
improvement, and that the rewards are given when earned.
• Maintaining positive, relationship-building contacts and communications with
suppliers.
• Securing the commitment and sponsorship of senior managers in both
organisations.
• Cultivating personal contacts and networks, building trust and goodwill on each side.
• Ethical, constructive, collaborative and, where possible, ‘win-win’ negotiation

Consider how hard to push a supplier if goodwill trust is important in the subsequent
relationship.
Tips to protect relationships:
• Adopt a principled approach
• Accept that it is ok to disagree and express wish
• Leave open the option of future business if no deal
• Respect confidentiality
• Do not lie
• Do not publicly criticise suppliers, even if negotiations break down
• Do not personalise criticism or insult individuals

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OBJECTIVE RESPONSE QUESTIONS

A procurement manager has been negotiating with a supplier for half an hour and is
frustrated with the lack of progress. They are seeking a price reduction. After a short
recess the procurement manager says to the supplier 'How about if we agree to
increase the guaranteed volume for the first twelve months - by how much will you
reduce the price?'. This is an example of which of the following?
a. Threat
b. Emotion
c. Logic
d. Bargaining

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