Dr. Lee Buddress, C.P.M.
Dr. Lee Buddress, C.P.M., Assistant Professor, Portland State University, Portland, OR 97207, 503/725-4769.
Dr. Alan Raedels, C.P.M.
Dr. Alan Raedels, C.P.M., Professor, Portland State University, Portland, OR 97207, 503/725-3728.
Abstract. Many authors have noted that much of the overall cost of any product is fixed long before suppliers are contacted. Purchasers frequently find that the primary negotiation takes place internally rather than with suppliers. Are intrafirm negotiations different from those undertaken with outside individuals? This paper explores several key situational and cultural issues which indicate the need for different strategies for intrafirm and interfirm negotiations.
Introduction. In any purchase transaction, there are two primary elements; definition of requirements and selection of suppliers. In other words, specifying and sourcing. Costs associated with these transactions are often driven by the way in which the requirements are defined. The range of costs which might be negotiated are often far greater during the definition phase than during negotiation with suppliers. The opportunities to meet users' requirements at least total cost begin at the design phase of product development.
"We are all salesmen every day of our lives. We are selling our ideas, our plans, our enthusiasms to those with whom we come in contact."
Charles M. Schwab
Negotiation Processes. Negotiation is a specific set of processes, to be practiced and perfected, just like other purchasing and supply activities. It should involve planning, execution, performance measurement and review in the same fashion as other managerial processes.
A typical managerial approach might include the following steps:
In internal negotiation there exists a similar sequence of activities:
The first four steps in the sequence above may be grouped into the process of negotiation planning. Most experts agree that the success, or lack thereof, in any negotiation is largely the result of the planning process. Carefully conceived, thoroughly researched and developed negotiation plans usually yield superior results. Unfortunately, most of us are sufficiently busy that we may not find time to plan for internal negotiations. Indeed, we often fail to recognize intraorganizational communication as a negotiation. Even if we recognize the internal negotiation situation, we may not prepare with the same diligence as we might for an external negotiation.
Negotiation Planning. In negotiation, there are two stages to recognition: opportunity and environment. Business communication, in most cases, takes one of two forms: exchanges of information and persuasion. Since these activities are frequently intertwined, the necessary first step is to develop the habit of recognizing the negotiating opportunities in everyday conversation or business communication. We interact with our fellow workers throughout the workday. Often, because of the informality of these communications, we overlook negotiation opportunities.
Negotiation Opportunity. Situations where a gap exists between the perspectives or positions of the parties represent negotiation opportunities. These may range from price or delivery differences with suppliers to discussions over how fast to run a machine on the shop floor to the question of where to go for lunch. We encounter literally dozens of these daily. The trick is to develop the habit of recognizing them as negotiation situations rather than just conversations. Winston Churchill, one of the world's greatest communicators, once said that he never allowed himself to go to bed at night without having written at least one paragraph. His point was that, like any skill, communication (or negotiation) requires continuous practice to maintain proficiency. Recognizing opportunities is the first step toward mastery.
The Negotiating Environment. The next part of recognition is of the negotiation situation or environment. This is akin to process identification and mapping. The physical situation in which the negotiation takes place may be important, but this topic has been extensively discussed by others. Two additional issues may be more important to the negotiation planning process: those of money and gender.
It has been said that money is perhaps the most powerful of all negotiating tools. All too frequently, because of its dominance, we tend to use it to the exclusion of other tools. How and what we negotiate may be significantly different depending on whether or not money issues are involved.
Most purchasing textbooks describe traditional buyer-supplier relationships as adversarial. The preponderance of the acrimony occurs around the issue of price. However, in non-monitary situations, more and different issues may be discussed. Imagine, for example, a negotiation for a long term contract with a supplier whose price is fixed. Perhaps a local distributor sells products the prices of which are set by the manufacturer and are not negotiable. What alternative issues are there to discuss? Negotiation of other issues may be more collaborative and comparatively simple.
The same might be true for internal negotiation. Often, purchasers seek permission from engineers to buy an "equal" because of price. While price may be the motivator for the purchaser, the engineer is interested in function, technology and pride of authorship. If price were ignored internally, and true functional need compared with capabilities of various available products, perhaps the same outcomes would be found. Once true need is matched with a specific product, then price may be negotiated with the supplier.
The Other Negotiators. Consider the following issues.
A recent study in which men and women were connected to MRI scanners and were then given the same problem to ponder. Men used different parts of their brains to address the problem than did women.
Men tend to be transaction-oriented, while women tend toward relationship orientation.
Women tend to feel more comfortable sitting beside friends, while men prefer to sit across from friends.
At a recent high pressure sales presentation, single attendees were carefully paired with opposite sex sales representatives.
All of the above examples (and there are many more) suggest that negotiators may need to plan differently for negotiations with women than with men. This is neither a positive nor negative issue--just different.
Internal Negotiation. It has been suggested that purchasing agents often make more money for their firms by negotiating internally than through supplier negotiations. The suggestion is that such things as overly restrictive specifications or sole source suppliers constrain a firm's ability to introduce competition into the transaction. By understanding true need and negotiating for the minimum restrictions which will insure that the need will be met, purchasers may properly serve their firms. The same importance may be assigned to any of our internal relationships. Links to or between functions such as quality, production-operations, engineering, other technical functions, marketing, information systems or even the boss may be equally improved through better negotiation processes. Keys to successful internal negotiations include the establishment of credibility, artful questioning, and the development of many alternative solutions.
Credibility. Credibility may take many forms. It will include fluency in the technical jargon of your industry. Even though the concepts may be clear in one's mind, lack of the technical vocabulary makes one appear to be outside true understanding. Lack of the right term, or use of a wrong term often brands one as a stranger to the discipline.
A clear understanding of the overall workings of your firm, not just your job or department is another element of credibility. With today's focus on multi-discipline or cross-functional teams, this is essential. One of the truths of negotiation is that it is impossible to persuade unless you truly understand. Successful cross-functional negotiation demands understanding and appreciation of other departments.
The consistency of Cialdini, and Cohen's discussion of investment (See Bibliography) both argue for the development of common ground between the negotiating parties as a prelude to the introduction of a big, sticky topic. The notion is that investing time and developing concurrence on most of the other issues will mitigate disagreement over the big topic, making settlement more likely. Most of these prescriptives are centered on the negotiation, itself. This view can be effectively expanded. The points of agreement need not necessarily be developed at the negotiation table, but may be accumulated during interaction between the individuals, over time. "I usually agree with him, but we differ in this case." The previously established common ground -- the consistency of thought and belief -- carry over from earlier times to the negotiable issues, lending credibility to each of the parties and significantly increasing the likelihood of satisfactory settlement. "The longer the shadow of past or future interaction, the more likely will be the parties to reach a satisfactory conclusion."
Daily interaction and communication are the foundations of this element of credibility. Communication skills and performance play huge roles here. Casual behavior may best be tempered with the realization that impressions and credibility carry forward from unimportant situations to those of considerable consequence.
Questioning. In internal negotiation, as with most other forms of negotiation, questioning is a core activity. Judicious questioning helps improve knowledge of important issues such as technical specifications and requirements. It offers the opportunity to clarify understanding of points you want to make and your comprehension of those made by the other side. We all enjoy the chance to demonstrate our knowledge. Questioning allows the development of empathetic feelings from the other side by allowing them the opportunity to show off. Zig Ziglar, one of the world's greatest salesman once noted, "Selling is essentially a transference of feeling."
Development of several potential alternative solutions is every bit as important in internal negotiations as in external ones. Herb Cohen suggests giving your negotiating opponent an alternative which is acceptable to you, and another that's even more acceptable -- and letting them take their choice. We often fall into the trap of "best way". While, in our view there may well be a "best way" to reach an objective, it surely will not be the only way. Even though there may clearly be a preferred way to accomplish something, the preference may depend on perspective.
Spending time to explore alternatives as part of the negotiation planning process pays big dividends. When the negotiation runs aground on (even irrational) resistance, alternative paths may allow achievement of goals albeit in less desirable ways. Carefully planned alternatives usually yield better results than those hastily conceived on encountering resistance.
Conclusions. Negotiation opportunities are everywhere, in both our business and personal environments. To improve our negotiation skills, it is first necessary to develop the habit of recognizing these myriad opportunities to use them to practice negotiation planning and execution skills. If these skills are exercised only during major, clearly defined situations, then the practice necessary for mastery may be lacking. This is part of the continuous improvement objective.
Among the elements of a negotiating environment which must be recognized and enfolded in the planning process are monetary and gender issues. These are not often described in negotiation literature.
Internal business negotiations surely occur more often than external ones. They may also be more important. Honing negotiation skills in intrafirm situations will afford the opportunity to develop partnerships while reducing overall costs and improving negotiation expertise.