Chapter 13

NEGOTIATION

Learning Objectives
After completing this chapter, you should be able to
Understand when and why a buyer enters into a sourcing negotiation
Recognize the importance of planning within the negotiation process
Appreciate the different sources of power that are present during negotiations
Understand the characteristics of effective negotiators
Appreciate the role of concessions during negotiation
Recognize the subtleties and complexities involved with global negotiation

Chapter Outline
What Is Negotiation? Concessions
Negotiation Framework Negotiation Tactics: Trying to Reach Agreement
Identify or Anticipate a Purchase Requirement Win-Win Negotiation
Determine If Negotiation Is Required Good Practice Example: Mack Trucks Uses Negotiation
Plan for the Negotiation to Rev Up Its Sourcing Process
Conduct the Negotiation International Negotiation
Execute the Agreement Selected Countries

Negotiation Planning The Impact of the Internet on Negotiations

Develop Specic Objectives Good Practice Example: Texas Instruments Provides Its
Analyze Each Partys Strengths and Weaknesses Procurement Professionals with Comprehensive Global
Gather Relevant Information Negotiation Skills and Enhanced Cultural Understanding
Recognize Your Counterparts Needs Conclusion
Identify Facts and Issues Key Terms
Establish a Position on Each Issue Discussion Questions
Develop the Negotiation Strategy and Accompanying Additional Readings
Tactics Endnotes
Brief Other Personnel
Practice the Negotiation
Power in Negotiation
Sources of Negotiation Power

459
460 Part 4 Strategic Sourcing Process

Creating New Value through Negotiation

Wayne Delaney is a relative newcomer to the railroad business. That has not stopped
him, however, from using the knowledge and skills gained from his many years at General
Electric to improve the performance of the subsidiary railroads at a major steel producer. So
how did he do it?
Executive management at the parent steel company directed all operating units (including
the railroads) to concentrate on return on net assets (RONA) as an important performance in-
dicator. Improving RONA forced different functional groups at the railroads to search, both in-
dividually and collectively, for creative ways to increase earnings while simultaneously
reducing assets and other current liabilities. The purchasing group, representing the inter-
ests of ve separate railroads, focused on reducing the assets required by the railroads to
maintain track, equipment, and facilities. Inventory makes up a large part of the denomina-
tor of the return on net assets equation.
The purchasing groups approach to higher asset return relies on negotiated longer-term con-
tracts featuring consignment inventory from suppliers. Inventory consignment involves defer-
ring payment for an item until an internal customer physically uses it. Previously, each
railroad purchased its own requirements using short-term purchase orders.
Although the ve railroads operate as separate entities, Wayne works directly with each rail-
road to develop and negotiate systemwide contracts. Purchasing identies potential items for
long-term contracts, identies and analyzes potential suppliers, creates benchmark prices to
compare nal prices against, calculates annual demand requirements, and represents the in-
terests of each railroad during negotiations with suppliers.
Each railroad has an opportunity to present its specic needs before purchasing enters a ne-
gotiation. Internal customers at each site electronically receive a generic contract before a
supplier negotiation. The railroads have an opportunity to identify the contractual options
they prefer, and users can expand the contract by listing any items they would like to see ad-
dressed in nal negotiations.
Has Waynes approach to contracting and negotiation been successful? Over a three-year pe-
riod, current inventory maintained by the railroads has decreased by over 50%. Longer-term
agreements have also allowed for some downsizing at the railroads because suppliers have
assumed responsibilities previously performed by the railroads, such as delivering and plac-
ing physical inventory in storage. Furthermore, the railroads have realized price reductions
due to the combining of common purchase requirements. Overall, the railroads now achieve
a 35% return on net assets, prompting some at the railroad to joke that perhaps the rail-
road should divest itself of the parent steel company, which has failed to achieve its own op-
erating goals.

The opening vignette highlights how a supply management professional, using negoti-
ation and contracting practices transferred from an unrelated industry, has created
new value that has enhanced his companys competitiveness. The ability to improve
return on net assets was possible only through extensive planning, negotiation, and
the use of longer-term contracts that combined the requirements of geographically di-
verse operating units. Negotiation is a skill that is essential to all purchasing and sup-
ply managers.
Chapter 13 Negotiation 461

Everyone negotiates something every day, ranging from dealing with other drivers
at a four-way stop sign all the way to merging with or acquiring another company.
As such, negotiation is generally a highly complex and dynamic process, and many
books and articles have been written on how to effectively negotiate in a variety of sit-
uations. This chapter highlights important topics that are typically part of any negotia-
tion, especially those between buyers and suppliers. We begin this chapter by broadly
dening the concept of negotiation. The second section presents negotiation as a
ve-phase process. Next, perhaps the most important part of any negotiation process
planningappears in detail. The following sections present common sources of negotia-
tion power, the effective use of concessions, negotiation strategies and tactics, and the
important topics of win-win negotiation, international negotiation, and the effect of the
Internet on the future of negotiation.

What Is Negotiation?
One of the most important activities performed by supply managers involves nego-
tiating agreements or contracts with their suppliers. Although supply management is
certainly not the only group in an organization that negotiates, negotiation is a vital
part of every sourcing process. Negotiation is an ideal way to implement the supply
management strategies and plans that a business unit develops. It is also often an
ideal way to convey the buyers specic sourcing requirements and specications to

Sourcing American Airlines Knows

Snapshot the Importance of
Negotiation
In a previous era, the sign of a good purchase negotiator was someone who could get
a rock-bottom price from suppliers. Today, experienced negotiators realize that not all negotia-
tions require a price focus or the same set of skills. Low-level negotiations, says John
MacLean, vice president of purchasing with American Airlines, involve products or services
that are competitive in the marketplace but are not strategically important to American Air-
lines. He points out that getting the best price is a good indicator of effectiveness for these
types of items. MacLean also knows the importance of strategic negotiations when obtaining
critical items and services. Win/win negotiations, says MacLean, are conducted in long-
term relationships with suppliers. In these cases it is important that the supplier and Ameri-
can Airlines feel they are getting a good deal because the plan is to work together for a long
while. At the most advanced level, the strategic compatibility of the companies involved
may determine the success of a negotiation. Says MacLean, Principle-based negotiating is
used in a single-source situation or alliance where the two parties begin the negotiation by
agreeing to certain principles, such as how the companies plan to grow together. American
Airlines recognizes two important principles about negotiation. First, not all negotiations are
equal in importance or require the same skill set. Second, negotiation is a fundamental part
of the companys strategic supply plans.
Source: Adapted from A. Ciancarelli, Strategic Negotiating Goes Far beyond Best Price, Purchas-
ing, March 25, 1999, 126, 4.
462 Part 4 Strategic Sourcing Process

its supply base. See Sourcing Snapshot: American Airlines Knows the Importance of
Negotiation for a discussion of the importance of negotiation for American Airlines.
Negotiation has been dened in a variety of ways: A negotiation is an interactive
communication process that may take place whenever we want something from some-
one else or another person wants something from us.1 Negotiation is the process of
communicating back and forth for the purpose of reaching a joint agreement about
differing needs or ideas.2 Negotiation is a decision-making process by which two or
more people agree how to allocate scarce resources.3 Negotiating is the end game
of the sales process.4
For our purposes, we dene negotiation as a process of formal communication, ei-
ther face-to-face or via electronic means, where two or more people come together to
seek mutual agreement about an issue or issues. The negotiation process involves the
management of time, information, and power between individuals and organizations
who are interdependent. Each party has a need for something that the other party
has, yet recognizes that an interactive process of compromise or concession is often re-
quired to satisfy that need.
An important part of negotiation is realizing that the process involves relation-
ships between people, not just organizations. A central part of negotiation involves
each party trying to persuade the other party to do something that is in its best inter-
est. The process involves skills that individuals, with the proper training and experi-
ence, can learn and improve upon. Good negotiators are not born; they hone these
necessary skills through planning and practice.
There are a number of terms with which all negotiators should be familiar:
BATNA, positions, interests, needs, and wants. A negotiators best alternative to a ne-
gotiated agreement (BATNA) is also known as the negotiators bottom line or reserva-
tion point, that is, that point in the negotiation where it is most advantageous for the
negotiator to walk away from the table and implement his or her next-best option.5
A negotiator should take extra caution to ensure that his or her reservation point or
BATNA is never revealed to the other party because the nal settlement is unlikely
to vary much from that point.6 In addition, all negotiation settlements must ulti-
mately be judged in light of the other viable alternatives that existed at the time of
the agreement.
A negotiators position can be dened as his or her opening offer, which represents
the optimistic (or ideal) value of the issue being negotiated. A position is the stated de-
mand that is placed on the table by a negotiator. In contrast, the negotiators interest
is the unspoken motivation or reason that underlies any given negotiation position.
In many negotiation scenarios, the negotiators underlying interests are unlikely to be
expressly stated or acknowledged, oftentimes because they may not be directly ger-
mane to the stated position or may be personal in nature. Sharing the underlying in-
terests behind a position may cause a negotiators power to shift toward the other
party, resulting in a less-than-desired outcome. The negotiator must, in effect, play de-
tective to try and discern the other partys interests through a series of open-ended,
probing questions. In order to reach a negotiated agreement using principled negotia-
tion, a negotiator should always attempt to focus on the other partys underlying inter-
ests, not his or her stated position.7
The astute negotiator must also be able to distinguish between the other partys
needs and wants. Needs are considered to be those negotiated outcomes that the nego-
tiator must have in order to reach a successful outcome to the negotiation. Wants, on
Chapter 13 Negotiation 463

the other hand, refer to those negotiated outcomes that a negotiator would like to
have as opposed to those outcomes that must be achieved. Wants can also be ex-
changed as concessions to the other party during a negotiation because they are not
as critical to achieving a successful conclusion to the negotiation. When a negotiator
is planning an upcoming negotiation, it is imperative to prioritize all of the potential
issues to be negotiated into needs and wants, thereby knowing what must be
achieved and what can be exchanged for something else of value.
A simple negotiation planning tool, called Triangle Talk, can help the negotiator
begin the initial preparation for an upcoming negotiation. This planning process,
shown in Exhibit 13.1, consists of the following three steps: (1) know exactly what
you want; (2) nd out what they want and make them feel heard; and (3) propose ac-
tion in such a way that they can accept it.8
Step 1 in Triangle Talk is determining and formalizing the negotiators specic
goals and objectives for the upcoming negotiation. Being specic with ones expecta-
tions and writing them down helps the negotiator to remain focused on his or her pre-
determined priorities during the negotiation. Having them written down also allows
the negotiator to refer back to them during the course of the negotiation, when it is of-
ten easy to be distracted by the other negotiators tactics and the pace of the give-
and-take process. The more clearly a negotiator can dene his or her priorities, the
more likely he or she is to obtain them in the nal agreement.
Step 2 involves trying to discern what the negotiators counterpart is likely to need
or want from the negotiation. It is difcult to develop common ground in the negotia-
tion without knowing what the other party is seeking. Ask specically, What does
the other party need or want? Delve into the other partys likely positions and try to

Exhibit 13.1 Triangle Talk

Step 3:
Propose Action in a Way That They Can Accept

Step 1: The Step 2:

Know Negotiation Know
Exactly Process Exactly
What You What They
Want Want

Source: K. Anderson, Getting What You Want: How to Reach Agreement and Resolve Conict Every Time,
New York: Plume, 1994, p. 14.
464 Part 4 Strategic Sourcing Process

estimate what the underlying interests are behind the positions. However, a negotia-
tor cannot automatically assume that the other party thinks the same way he or she
does. During the negotiation, the negotiator can ask open-ended, probing questions
to verify his or her preliminary analysis of the other partys needs and wants. In addi-
tion, the negotiator should develop a strategy and accompanying tactics that will
make the other party feel heard. This will allow the third step in Triangle Talk to
take place.
Step 3 involves the consideration and analysis of the negotiators own needs and
wants and the needs and wants of the other party. This way, proposals and counter-
proposals can be offered that take both sets of needs and wants into account and are
framed in such a way as to make it easy for the other party to say Yes. It is im-
portant to remain exible, fair, and reasonable so that the parties can work out an
agreement in which they are both better off. In addition to acknowledging (but not
necessarily agreeing with) the other partys concerns, the negotiator can accomplish
this by speaking to those needs rst when framing his or her proposals.

Negotiation Framework
Perhaps the best way to approach a buyer-supplier negotiation is by presenting it
as an interactive, give-and-take process involving ve major phases:
1. Identify or anticipate a purchase requirement
2. Determine if negotiation is required
3. Plan for the negotiation
4. Conduct the negotiation
5. Execute the agreement
Exhibit 13.2 summarizes this general negotiation process.

Identify or Anticipate a Purchase Requirement

The purchasing cycle begins with identifying or anticipating a purchase require-
ment. Chapter 2 addresses how rms identify or anticipate purchase requirements, or
what we typically call the purchasing process. The purchasing cycle begins with identi-
fying (or anticipating) a material need or requirement for a component, raw mate-
rial, subassembly, service, piece of equipment, or nished product. Often, supply
management can identify new requirements during new-product development in col-
laboration with its various internal customers within the buying organization, such as
marketing, operations, design, and research and development. For many existing
items, there may not be a need to identify a supplier because an existing sourcing
agreement may already be in place. New sourcing requirements, however, often re-
quire supply management to identify, evaluate, and qualify new potential suppliers.

Determine If Negotiation Is Required

Not all purchase requirements will require buyers and sellers to conduct a thor-
ough and detailed negotiation. For many items, the competitive bidding process will
satisfy a buyers purchase requirements, as may be the case for items that are low
value, are widely available commodities, or have pre-existing standards. Negotiation
is often appropriate when other issues besides price are important or when competi-
Chapter 13 Negotiation 465

Exhibit 13.2 Five-Phase Negotiation Process

Identify or
Determine if
anticipate a Plan for the Conduct the Execute the
negotiation is
purchase negotiation negotiation agreement
required
requirement

1 2 3 4 5
Purchase Is bid process Identify Perform fact Provide
requisitions inadequate? participants finding performance
Inventory Are many non-price Develop Recess or caucus feedback
counts issues involved? objectives as necessary Build on the
Reorder Is contract large? Analyze Work to narrow success of the
point systems strengths and differences negotiation
Are technical
New-product requirements weaknesses Manage time
development complex? Gather pressures
New Does contract information Maintain informal
facilities involve plant Recognize atmosphere
and equipment? counterparts Summarize
Does contract needs progress periodically
involve a Identify facts Employ tactics
partnership? and issues
Keep relationships
Will supplier Establish positive
perform value-added positions
activities? Develop strategies
Will there be high and tactics
risk and uncertainty? Brief personnel
Practice the
negotiation

tive bidding will not satisfy the buyers purchase requirements on various issues. How-
ever, a buyer can still use a competitive bidding process to identify several potential
sources of supply. After identifying a potential supplier through bidding, the buyer
may need to negotiate with the preferred supplier to resolve other non-price issues af-
fecting the sourcing agreement.
The following areas or issues may require supply management to negotiate with
its suppliers:
Identication of and agreement on a suppliers allowable costs
Delivery schedules and lead time requirements
Expected product and service quality levels
Performance metrics and how information is to be gathered and shared
Technological support and assistance
Contract volumes
Special packaging and shipping requirements
Liability for loss and damage
466 Part 4 Strategic Sourcing Process

Payment terms and currency issues

Progress payment schedules
Mode of transportation and responsibility for selecting carriers, as well as l-
ing freight claims
Warranties and replacements
Capacity commitments
Material lead times
Nonperformance penalties or performance incentives
Contract length and renewal mechanism
Protection of proprietary information
Ownership of intellectual property
Resources related to developing closer relationships
Improvement requirements in quality, delivery performance, lead time, cost,
and so on
Resolution mechanisms for contract disputes
Spare parts, after-sales service, and operator or maintenance training
support
This list, although lengthy, is not exhaustive and represents only a portion of the
topics that negotiators can address. Besides the need to agree on non-price issues,
other reasons exist for negotiating with suppliers:
The total contract value or volume is large. It is not unusual for supply man-
agers to negotiate contracts worth millions of dollars. Nonperformance on
large contracts can cause unusually severe problems, such as an interruption
in continuity of supply. The buyer may want to negotiate special safeguards
to make sure the supplier recognizes the importance of performing exactly
as required.
The purchase involves complex technical requirements, perhaps even product
and process requirements and specications that are still evolving. Under this
condition, it is difcult for the parties to reach denitive agreement on a pur-
chase requirement. However, a buyer may want the supplier to begin work
even if nal product requirements and specications have not yet been
established.
The purchase involves capital-intensive plant and equipment. Suppliers often
customize or dedicate capital-intensive plant and equipment to meet a buy-
ers specic needs.
The agreement involves a special or collaborative relationship. Special or col-
laborative relationships must address issues beyond a traditional or conven-
tional purchase agreement. For example, the two parties may discuss the
joint development of technology featuring the sharing or co-location of tech-
nical personnel.
The supplier will perform important value-added activities. Increasingly, buy-
ers are asking suppliers to perform activities such as product design, testing,
or inventory management. These additional activities often require substan-
tial discussion and negotiation to determine appropriate compensation and
how performance is to be measured.
Chapter 13 Negotiation 467

An important question for the supply manager today is how much will the develop-
ment of information technology systems, such as Internet-based reverse auctions and
use of electronic-based communication media, change the need to negotiate or have
face-to-face interaction with suppliers? The use of reverse auctions has likely reduced
the need for face-to-face interaction or negotiation between buyers and sellers. How-
ever, it also likely that the type of items and services obtained through reverse auc-
tions (e.g., standard commodities with a moderate total dollar spend) do not warrant
higher-level negotiations in the rst place. For items that are critical to the buyer or in-
volve many non-price issues, the likelihood that buyers and sellers will no longer en-
gage in face-to-face negotiation is small. See Sourcing Snapshot: Will E-Procurement
Change Negotiation? for a discussion on how electronic communication media can
affect negotiations conducted at a distance.

Plan for the Negotiation

Negotiation planning involves a series of steps that prepare the parties for a forth-
coming negotiation. Many buyer-supplier negotiations are relatively straightforward
and may require only basic preparation and planning. Other negotiations may be
highly complex and require months of thorough and detailed preparation. Regard-
less, supply managers who take the time necessary to plan and prepare for a negotia-
tion will usually experience better outcomes than those negotiators who do not
adequately plan and prepare. Planning is so crucial to achieving desired negotiation
outcomes that a later section addresses this topic in greater detail.
New electronic communications technology may make face-to face buyer-supplier
negotiation, both for domestic and international requirements, far less necessary.

Sourcing Will E-Procurement

Snapshot Change Negotiation?
As the number of people buying online continues to grow, certain changes are in store
for supply management professionals who have traditionally prided themselves on their face-
to-face people skills. Kevin Rohan, a purchasing specialist at JP Cannon Associates in New
York, believes being a strong negotiator is not enough in todays market. Candidates need to
continue to develop their skills and be familiar with the latest technology such as how to
use the Internet, identify market changes, and perform strategic planning. However, the
chances that e-procurement will completely replace one-on-one negotiation in the near future
are slim. Emery J. Zobro, president of the John Michael Personnel Group in Chattanooga, TN,
is condent that, while the characteristics of a successful supply management professional
might change over time, certain qualities will survive e-procurements inltration of the
industry. In ve years a person who hasnt established a track record with e-commerce and
e-procurement will denitely be left behind, Zobro says. Nevertheless, he remains rm in
the assessment that buying things over the computer will never take the place of one-on-
one negotiations.
Source: Adapted from D. Francis, The Decline of the Negotiator? Purchasing, August 24, 2000,
129(3), 160.
468 Part 4 Strategic Sourcing Process

This can be a very attractive alternative to expensive and time-consuming interna-

tional travel as more organizations engage in global supply management, which cre-
ates a host of new negotiation challenges. It will also substantially change how a
supply manager plans for and conducts the negotiation.
More advanced online communication tools are becoming readily available that
feature the ability to negotiate issues beyond price with multiple suppliers, regardless
of their physical location. With these tools, e-procurement managers no longer have
to spend hours in face-to-face meetings arguing over details with suppliers. A buyer
simply lls out a predetermined request for proposal (RFP) or request for quotation
(RFQ) template and then forwards the document electronically to a select group of
its qualied suppliers.9 Suppliers can then easily and quickly respond electronically
with detailed online proposals outlining price, payment terms, shipping methods, or
any other issue that is relevant to the buyer. It is also much easier to make changes
as the negotiation process progresses. These tools enable a buyer to negotiate simulta-
neously with more than one supplier during this process, which leads to greater bid-
ding efciencies and lower prices through increased competition (similar to reverse
auctions).

Conduct the Negotiation

Negotiations with a supplier should occur only when a buyer feels condent about
the level of planning and preparation put forth. However, planning is not an open-
ended process; buyers must usually meet deadlines that satisfy the needs of internal
customers within the buyers organization. Thus, the buyer faces pressure to initiate,
conduct, and conclude the negotiation within a reasonable time. Effective planning
also requires hard work on the following points:
Dening the issues
Assembling issues and dening the bargaining mix
Dening interests
Dening ones own objectives (targets) and opening bids (where to begin)
Assessing constituents and the social context in which the negotiation will
occur
Analyzing the other party
Planning the issue presentation and defense
Dening protocols: where and when the negotiation will occur, who will be
there, what the agenda will be, and so on10
Deciding where to negotiate can be an important part of the planning process. A
home location can provide a substantial advantage to a negotiator, particularly dur-
ing international negotiations. Advances in telecommunication technology now allow
some negotiations to occur electronically rather than face-to-face. Most experts agree
that the atmosphere surrounding a negotiation should be less formal wherever possi-
ble to build trusting relationships and long-term commitment.
Excessive formality can effectively constrain the parties and restrict the free ex-
change of ideas and solutions. It is also a good idea to summarize positions and
points of agreement throughout the negotiation, which helps reduce misunderstand-
ing while helping track progress against the negotiation agenda. It may also help to
have a dedicated note taker or scribe throughout the negotiation whose primary
Chapter 13 Negotiation 469

responsibility is to record what was said, who said it, what the other partys reaction
was, and what the areas of agreement were.
It is during the negotiation that the parties play out their strategy with tacticsthe
skill of employing available means to accomplish or achieve a desired end. Tactics are
the action plans designed to help achieve a desired result. A later section reviews vari-
ous common tactics that negotiators may employ or should be prepared for.
A sequence of four phases often characterizes face-to-face negotiation sessions.
The rst consists of fact nding and information sharing between the parties. This
part of the process helps clarify and conrm information provided by the buyer and
seller. During the second phase, the parties often take a recess after fact nding. This
allows each party the opportunity to reassess relative strengths and weaknesses, re-
view and revise objectives and positions if necessary, and organize the negotiation
agenda. Next, the negotiating parties meet face-to-face in an attempt to narrow their
differences on the specic issues. This phase typically includes the offering of propo-
sals and counterproposals and exchanging concessions. Finally, the parties seek an
agreement and conclusion to the negotiation, plus establish any agreed-upon follow-
on activities.
Effective negotiators typically display certain behaviors or characteristics when con-
ducting a negotiation. They may be willing to compromise or revise their goals, partic-
ularly when new information effectively challenges their predetermined position.
Effective negotiators may also view issues independently, without linking them in any
particular sequence. Linking issues risks undermining an entire negotiation if the par-
ties reach an impasse on a single issue within the negotiation package. Effective nego-
tiators should also establish lower and upper ranges for each major issue, as opposed
to a single, rigid position that may limit the number of viable options available and
be more likely to create an impasse.
Highly effective or skilled negotiators explore more options per issue than do aver-
age negotiators. Furthermore, effective negotiators also make more comments about
the common ground between the parties (rather than the differences) than do aver-
age negotiators. Finally, when compared with average negotiators, effective or skilled
negotiators make fewer irritating comments about the other party, give fewer reasons
for arguments they advance (too many supporting reasons can dilute an argument),
and make fewer counterproposals. Effective negotiators are willing to make counter-
proposals, though not as many as an average negotiator. A willingness to make too
many counterproposals means the negotiator is probably compromising too much or
offering too many concessions. It may also indicate a lack of adequate planning and
preparation or a sign of vulnerability.

Execute the Agreement

Reaching agreement is not the end of the negotiation process by any means.
Rather, an agreement merely represents the beginning of the contracts performance
for the item, service, or activity covered by the agreement. An important part of exe-
cuting and following through on a negotiated agreement is loading the agreement
into a corporate contract system so others throughout the organization have visibility
of the agreement.
During the life of an agreement, a buyer must let a supplier know if the supplier is
not meeting its contractual requirements. Conversely, it is the suppliers responsibil-
ity to let the buyer know if the buyer is not meeting its responsibilities within the
470 Part 4 Strategic Sourcing Process

negotiated agreement. Both parties should work to build upon the success of a negotia-
tion. Carrying out the agreement as agreed upon should reafrm the commitment of
the parties to work together in the future.

Negotiation Planning
Experts on negotiation generally agree that planning is perhaps the single most im-
portant part of the negotiation process. Unfortunately, many negotiators fail to prepare
properly before entering into a formal negotiation. A plan is a method or scheme de-
vised for making or doing something to achieve a desired end. Planning, therefore, is the
process of devising methods to achieve a desired end. Once negotiators develop their
plan and an overall guiding strategy, they can begin to develop the specic actions and
tactics necessary to carry out that plan. Negotiators frequently fall short of their goals
or reach an impasse because they neglect the other partys problems, focus too much
on price, focus on positions instead of interests, focus too much on common ground,
neglect their BATNAs, or overadjust their perceptions during the actual negotiation.11
At least 90% of the successful outcomes of any negotiation are determined by effec-
tive planning. Preparing at the last minute just prior to a negotiation is a sure recipe for
disaster, especially when negotiating against someone who is far more prepared. There-
fore, being quick and clever while thinking on ones feet is simply insufcient to ensure
a successful negotiation outcome. Successful negotiation planning is proactive, not reac-
tive, and consists of the following nine steps, none of which should be passed over.

Develop Specic Objectives

The rst step of the negotiation planning process involves developing specic goals
and objectives desired from the negotiation. An objective is an aspiration or vision to
work toward in the future. For example, an obvious objective in a sourcing negotiation
would be to reach an agreement that covers the purchase of a good or service. Neither
a buyer nor a seller would commit scarce resources if the goal were to see a negotiation
fail. Before actual negotiations begin, the parties need to believe they can reach an agree-
ment. If the parties believed otherwise, they would not put forth the requisite time and
effort to prepare for and conduct a successful negotiation.
An important objective during a sourcing negotiation is to reach agreement on a
fair and reasonable price between a buyer and seller. Examples of buyer objectives
could include achieving an acceptable unit price, required delivery lead time, or im-
proved supplier quality in terms of defect levels. The buyer may also want to per-
suade the supplier to collaborate with the buyer at a level higher than other
competing buyers would receive. Not all objectives are equally important, so the
buyer must begin to identify the importance of each one and prioritize them depend-
ing on the negotiation at hand. One leading company separates its objectives into
must have and would like to have categories. This begins to differentiate the im-
portance of each objective.

Analyze Each Partys Strengths and Weaknesses

Knowledgeable negotiators strive to understand their counterparts through research
and experience. This means understanding what is important to the other company
along with understanding the personality and history of the negotiators opposite
Chapter 13 Negotiation 471

number. For example, when buyers negotiate with a supplier for the rst time, they
must often commit substantial time and energy to additional research in order to more
fully understand that particular supplier and its needs, wants, and priorities.
Analyzing the other party requires a thorough assessment of the relative strengths
and weaknesses of the parties, as well as each individual issue to be negotiated. This
due diligence process can greatly inuence the effectiveness of the strategy and tactics
employed at the bargaining table. Buyers cannot assume that they have power or inu-
ence over the supplier or vice versa. Many times a supplier holds a power position
over the buyer because of its nancial size, or perhaps because the supplier does not
have a great need for the contract. A later section details various sources of power
that are part of the negotiation process.

Gather Relevant Information

The ability to analyze yourself and your negotiating counterpart requires suf-
cient, timely, and accurate information. This process need not be complex, particu-
larly if the buyer and seller have previously negotiated together. When this is the
case, the buyer may have already answered a number of important questions. What
happened between the parties? Were we satised with the previous outcome of the ne-
gotiation? Are we negotiating with the same people or different negotiators? What
are the important issues to this supplier? To us? What were the areas of disagree-
ment? Is there anything about the rules of the negotiation we would like to change?
Where does a buyer, who has no experience with a supplier, gather the required in-
formation? One possible source may be contacting others who have experience with
that supplier. Published sources of information may also be available. These sources
include trade journals, other business publications, trade association data, govern-
ment reports, annual reports, nancial evaluations (such as Dun & Bradstreet re-
ports), commercial databases, inquiries directly to personnel at the supplier, and
information derived through the Internet.

Recognize Your Counterparts Needs

The buyer and seller in a sourcing negotiation are, in many ways, mirror images
of each other. Each side wants to reach an agreement that is favorable to its longer-
term success. As a buyer gathers information about a supplier, it is important to iden-
tify those key issues that are particularly critical to the supplier. For example, a sup-
plier may want to maintain or grow its market share and volume in its industry.
Therefore, receiving the entire purchase contract, rather than only a portion, may be
an important objective to that supplier.
The issues that are most critical to a supplier are not likely to be those most criti-
cal to a buyer. When one party has an issue or requirement that is relatively unimpor-
tant to the other, then the parties are more likely to reach agreement. For example, a
suppliers production scheduling system may require the supplier to produce a buy-
ers requirement late in the day with delivery during the evening. If a buyer has an
evening work crew that can easily receive late deliveries, the buyer can satisfy the sup-
pliers requirement for later deliveries. In return, the buyer may now expect the sup-
plier to be more accommodating on one or more issues that are important to the
buyer. Give and take is essential to negotiation, and each party should not expect to
prevail on all issues. This is why it is important for buyers to do their homework
472 Part 4 Strategic Sourcing Process

before the negotiation begins by identifying ranges of acceptable outcomes for each
and every issue and setting priorities in the event that concessions or tradeoffs are
required.

Identify Facts and Issues

Negotiation planning requires differentiating between facts and issues. The two par-
ties will want to reach agreement early concerning what constitutes a fact versus an is-
sue. A fact is a reality or truth that the parties can easily state and verify or prove. In
negotiation, facts are not open to debate. For example, a buyer wants to purchase a
piece of capital equipment. There is no negotiating with a supplier on whether the
buyer actually needs that particular piece of equipment (although the specic type of
equipment may be an unanswered question requiring interactive discussion).
Issues, on the other hand, are items or topics to be resolved during the negotia-
tion. Issues that might require resolution include purchase price and delivery date.
The parties to a negotiation can discuss and resolve many issues besides price, includ-
ing quality, delivery, service, metrics, and performance improvement. Part of the plan-
ning process requires identifying all of the critical issues and outcomes that each
party seeks to resolve through the negotiation. As discussed earlier, the Triangle Talk
technique can help negotiators determine not only the issues involved but the range
of acceptable outcomes for each issue.

Establish a Position on Each Issue

The parties to a negotiation should establish positions that offer exibility. Negotia-
tors should therefore develop a range of positionstypically, a minimum acceptable
position (or BATNA), a maximum or ideal outcome, and a most likely position. If
the issue is price, a seller may have a target price for which it wants to sell a product.
Of course, the seller will take a higher price if the buyer is willing to offer one. The
critical part of the range will be based on the sellers minimum acceptable price or re-
sistance point. This is the lowest price at which the seller is willing to sell to a buyer.
Any price lower than the minimum will result in no deal or an unacceptable out-
come to the supplier. The area of overlapping positions among issues, when there is
one, is termed the bargaining or settlement zone.12 The bargaining zone represents the
heart of the negotiation process, as any proposal offered outside of this range is likely
to be rejected by the other party because it is less than what he or she is willing to set-
tle for.
Exhibit 13.3 demonstrates a settlement zone for a typical purchase pricebased ne-
gotiation. Looking at example A, the parties will probably not reach agreement un-
less one or both parties modify their original price range or position. The minimum
selling position of the seller is far above the buyers maximum position, with no over-
lap. In example B, there is an overlap between the two positions that should lead to
an agreement. The buyer is willing to pay up to $11.45 per unit. The supplier is will-
ing to sell as low as $11.15 per unit. The two parties will likely reach an agreement
somewhere between those two gures. As a bargaining tactic, the buyer may open
with an offer to purchase at something less than $11.00 (that is, start out very low).
However, if the seller remains with its original plan, the negotiation will likely con-
clude within the overlap range.
Several factors inuence whether a party modies or even abandons its original po-
sition. These include the desire for the contract, the revelation of new or improved
Chapter 13 Negotiation 473

Exhibit 13.3 Developing Negotiating Ranges for a Purchase Price

Buyer

Minimum Target Maximum

Seller
< $10.50 $10.50 $11.00

Minimum Target Maximum

Example A $11.75 $12.00 > $12.00

Buyer

Minimum Target Maximum

< $11.00 $11.00 $11.45

Minimum Target Maximum

Seller
Example B $11.15 $11.50 > $11.50

information that challenges the accuracy and credibility of the partys original posi-
tion, or a major concession that leads the other party to modify its position on an-
other issue for the sake of reciprocation.

Develop the Negotiation Strategy

and Accompanying Tactics
Negotiation strategy refers to the overall approach used to reach a mutually bene-
cial agreement with a supplier that holds different points of view from the buyer. A
major part of the strategic planning process involves the application of tacticsthe
art or skill of employing available means to accomplish an end, objective, or strategy.
They include the current set of action plans and activities adopted to achieve the nego-
tiation objectives and strategy. A later section discusses the effective use of tactics in
greater detail.
Strategic negotiation issues involve the broader questions regarding who, what,
where, when, and how to negotiate. We can think of strategy and tactics as two dimen-
sions of the same negotiation process. The ideal situation is to have a well-developed
negotiation strategy with appropriate and ethical tactics that support that strategy. As
an analogy, consider a military battle. The best-developed strategy will fail unless a
commander has the tactics and the resources to implement that strategy in the eld.
474 Part 4 Strategic Sourcing Process

Brief Other Personnel

A purchase negotiation usually affects other parties throughout the organization.
The individual or team conducting the negotiation should adequately brief these inter-
nal stakeholders to ensure that they are aware of and in agreement with the desired
objectives for the negotiation. This brieng should also address the major issues of
the negotiation and the organizations positions on these issues. Brieng personnel
before a negotiation helps eliminate unwanted surprises during and following face-
to-face negotiation. Oftentimes, it is important to garner stakeholder buy-in to the
negotiation through this brieng process to ensure that the negotiation outcomes are
implemented as agreed upon at the bargaining table.

Practice the Negotiation

Experienced negotiators often practice or rehearse before commencing a formal ne-
gotiation, especially if the negotiation involves a large dollar amount or is highly criti-
cal to the success of the organization. One way to do this is to hold a mock or
simulated negotiation. For instance, a marketing representative or salesperson might
represent the supplier. The counterpart in a practice negotiation session may be able
to raise questions and issues that the buyer had not originally considered. When
using simulation, it is important for each party to play its role as realistically as
possible.
Another effective way to conduct a mock negotiation is for the buyer to role-play
the suppliers side. This allows the buyer to empathize with the supplier and more
fully understand how the supplier might approach the negotiation; it also could pro-
vide valuable insight into the suppliers expected needs and wants. Here again, the
use of Triangle Talk can play a valuable role in this key planning process.
Effective planning means that buyers achieve an agreement that is more creative
and valuable than one that might be available to their competitors. It also means man-
aging the buyer-supplier relationships that support future negotiation and coopera-
tive interaction between the parties.

Power in Negotiation
An important part of the negotiation process involves the recognition and analysis
of the relative power relationship that exists between parties. Power is the ability to in-
uence another person or organization. A has power over B if A can get B to
do something that directly benets A. Throughout human history, we have seen
both positive and negative uses of power. As such, power, in and of itself, possesses
neither a positive nor a negative connotation; it is how that relative power is used
that gives it a particular perception. Within negotiation, the use of power employed
by the parties can dramatically inuence the actual outcome of a negotiation or even
result in a stalemate.
Both individuals and organizations bring different sources of power to the negotia-
tion table, and the consideration of power should be a part of any negotiation strat-
egy. Some types of power are detrimental to a continued relationship, whereas others
are the result of expertise or access to information. Therefore, negotiators must under-
stand the advantages and disadvantages of using each source of power. They must
also understand the possible effects that using a particular source of power will have
on the relationship between the parties.
Chapter 13 Negotiation 475

Sources of Negotiation Power

Researchers have identied six general types of power exercised by individuals or
organizations: (1) informational, (2) reward, (3) coercive, (4) legitimate, (5) expert,
and (6) referent.13

Informational Power
Ready access to relevant and useful information is typically the most common ap-
plication of power found in a negotiation. It relies on inuencing the other party
through the presentation of facts, data, and persuasive arguments to support ones
own positions and to mitigate or challenge the other partys positions. However, the
effective use of information in a negotiation does not necessarily mean open and com-
plete sharing. For example, one party may present only favorable information that
supports its position, whereas the other side may present only negative information
to refute a position. One party often manipulates information, as a source of power,
to control or constrain the options available to the other party.14

Reward Power
Reward power means that one party is able to offer something of perceived value
to the other party, such as a purchase contract or access to a new source of technol-
ogy. Using rewards represents a direct attempt to exert control over the negotiation,
particularly when compared with the use of informational power, which relies more
on persuasion. The basis of reward power is the belief that individuals respond and
behave accordingly when valued rewards are available. An important risk of reward
power is that a negotiation counterpart may eventually learn to respond positively
only when offered rewards.

Coercive Power
Coercive and reward power are somewhat related; they are two sides of the same
negotiation coin. If one party can give the other party something of value (reward
power), then that party can also take it away (coercive power). Therefore, coercive
power includes the ability to punish the other partynancially, physically, or men-
tally. Note that repeated use of coercive power can have damaging effects on longer-
term relationships. There is also a strong likelihood that retaliation or escalation can
occur if the power structure shifts unfavorably in the future. For example, when sup-
ply markets begin to tighten during an economic recovery, suppliers may retaliate
against the buyer by pursuing large price increases, not providing excellent service to
certain buyers, or even disrupting continuity of supply to the offending buyer.

Legitimate Power
The job position that an individual holds, rather than the individual him- or herself,
is the basis of legitimate power. Parents, pastors, managers, and political ofceholders
are examples of individuals possessing legitimate power. In sourcing, a buyer may have
legitimate power simply because he or she legally represents a prominent company and
has the authority to buy. It is not necessarily the case that individuals with legitimate
power have reward or coercive power (e.g., a church pastor).
476 Part 4 Strategic Sourcing Process

Expert Power
Expert power is a related and special form of informational power. Successful appli-
cation of informational and expert power involves the development and retention of
a body of knowledge. Informational power exists when someone has thoroughly re-
searched and prepared for a negotiation. An expert is recognized as having accumu-
lated and mastered vast knowledge about a particular subject, often with veriable
credentials to document that mastery. Expert power can inuence others in a negotia-
tion by reducing the likelihood that another party will be able to successfully refute
the experts position. Furthermore, nonexperts are less likely to challenge an expert be-
cause of the experts perceived depth of knowledge. However, the other party must
value the expertise in order for it to be effective.

Referent Power
This source of power comes from attraction based on socially acceptable personal
qualities and attributes of an individual, such as ones personality. These qualities
could be physical but likely include individual characteristics such as honesty,
charisma, friendliness, and sensitivity. In this source of power, the power holderthe
referenthas some attributes or personal qualities that attract the other party or
make him or her want to be like or respect the power holder. The basis of referent
power is that the nonreferent wants the referent to look favorably upon him or her.
Referent power is most successful in negotiation when the referents are aware that a
counterpart identies with or has an attraction to them.
Parties holding power will likely apply all available types of power to their advan-
tage during a negotiation. Negotiators must be careful not to abuse their power, or
they risk damaging relationships, inviting retaliation, or diminishing the value of that
power. In most negotiations, the sources of power that are usually the most effective
are legitimate, informational, and expert. They are usually the sources of power that
allow the parties to maintain a positive relationship after reaching agreement. How-
ever, referent power can also synergistically interact with the other sources of power,
making them stronger or more effective in the inuence process.

Concessions
A fundamental part of every negotiation process involves the offering and ex-
change of concessionsmovements away from a negotiating position that offer
something of value to the other party. For example, a buyers willingness to offer
$8.50 per unit instead of $8.25 is a concession that favors the supplier. Effective nego-
tiators quickly learn to offer concessions that have little value to themselves in ex-
change for concessions by the other party that do have perceived value. To make the
negotiation process work, each party must recognize that the give and take of conces-
sions is a normal and necessary part of any negotiation. Buyers, however, will still
want to minimize how much they concede on each point by getting corresponding
value in return. Do not give away any concession without getting something of equal
or greater value in return.
Without an effective concession strategy, most negotiations will result in deadlock
or a failure to agree. However, a deadlock does not necessarily mean that the negotia-
tion failed. The parties to a negotiation could be so far apart in their positions that
an agreement is not likely. In such cases, it may actually be better not to agree than
Chapter 13 Negotiation 477

to accept a poor agreement. This is why it is very important for the negotiator to
have adequately prepared and established a thoughtful BATNA before the negotia-
tion begins. The negotiator must be aware of available options and understand that
no deal may be better than a bad deal.
The manner in which a negotiator approaches concession making is an important
part of every negotiation strategy. A buyer who opens the negotiation with a low ini-
tial offer (on price, for example) followed by a relatively small concession is signaling
a reluctance to be exible. Conversely, a cooperative opening position or moderate of-
fer followed by a relatively strong concession signals a willingness to be exible and
to reach mutual agreement.
Exhibit 13.4 illustrates how the pattern of concession making might inuence the
other partys response. If a seller continues to offer concessions during a negotiation,
the buyer is likely to continue to ask for further concessions. Examine Exhibit 13.4,
and ask yourself if you would continue to another round of negotiation given the pat-
tern of concessions presented. How negotiators position their concessions will often
affect the length and cost of the negotiation. It also affects the other partys expecta-
tions of the possible outcomes.
Hendon, Roy, and Ahmed offered the following 12 guidelines for making success-
ful concessions:15
Give yourself enough room to make concessions.
Try to get the other party to start revealing his or her needs and objectives
rst.
Be the rst to concede on a minor issue but not the rst to concede on a ma-
jor issue.

Exhibit 13.4 Offering Concessions

Round Continue to
Round 5?
1 2 3 4

1 $50 $50 $50 $50

2 $110 $75 $0 $15

3 $35 $45 $55 $65

SUPPLIER
4 $200 $0 $0 $0

5 $0 $0 $0 $200

6 $80 $60 $40 $20

CONCESSIONS RECEIVED PER

NEGOTIATION ROUND
478 Part 4 Strategic Sourcing Process

Make unimportant concessions and portray them as more valuable than

they are.
Make the other party work hard for every concession you make.
Use tradeoffs to obtain something for every concession you make.
Generally, concede slowly and give a little with each concession.
Do not reveal your deadline to the other party.
Occasionally say no to the other negotiator.
Be careful trying to take back concessions, even in tentative negotiations.
Keep a record of concessions made in the negotiation and try to identify a
pattern.
Do not concede too often, too soon, or too much.
Suppliers or buyers who open with their best and nal offers with no concessions
are practicing Boulwarisma negotiating style named after Lemuel R. Boulware, the
former CEO of General Electric. This approach usually creates an unrealistic expecta-
tion because negotiators expect more concessions to follow. When concessions fail to
come about as expected, the other side often becomes angry or believes that its coun-
terpart is not bargaining in good faith. In fact, Boulwarism is now generally dened
as bad-faith or no-concession bargaining.16 Negotiations featuring Boulwarism are
more likely to end in deadlock or no agreement.
Although concessions are an important part of the negotiation process, a willing-
ness to offer large concessions is usually not in the best interests of a buyer. The level
of planning and the relative power of each party will inuence how much, how often,
and when each party concedes its positions during a negotiation.

Negotiation Tactics: Trying to Reach Agreement

Negotiation tactics are the short-term plans and actions employed to execute a
strategy, cause a conscious change in a counterparts position, or inuence others to
achieve negotiation objectives. Negotiators develop tactics to ethically persuade their
counterparts to endorse a certain position or agree to a preferred outcome. Further-
more, a negotiator must learn to recognize and understand the type of tactics a
counterpart is using. An awareness of a counterparts tactics usually mitigates the
effectiveness of those tactics.
Some tactics used by buyers and sellers are actually ploys or tricks to get the other
party to agree to an issue or contract without question. However, this does not dimin-
ish the fact that there are many legitimate and ethical tactics that a buyer or seller
can use to persuade the other party to endorse a particular perspective. The following
represents only a small sample of negotiation tactics that the astute and adequately
prepared negotiator should be aware of and prepare for:
Low Ball. This tactic involves one party, often the seller, offering an unusu-
ally low price to receive a buyers business (getting ones foot in the door).
Suppliers know that, once a buyer makes a commitment to a seller, it is of-
ten difcult for that buyer to switch to another supplier due to the consis-
tency principle.
Honesty and Openness. Parties with a close working relationship often have
a level of mutual trust that promotes free and open sharing of information.
Chapter 13 Negotiation 479

The objective of this tactic is to make each party aware of the relevant infor-
mation needed to create a mutually acceptable agreement.
Questions. Open-ended questions serve a dual purpose as a negotiation tac-
tic. First, insightful questions can result in revealing new information about
the interests underlying the other partys stated position. Second, questions
provide a period of relief or reection as the other party takes time to con-
sider an answer. Questions seeking only a yes or no answer do not pro-
vide much additional information.
Caucus. This tactic involves taking a time-out; negotiators might need to pro-
cess new information, take a needed break, or take a recess if the negotia-
tion is going poorly; negotiators might feel they are making too many con-
cessions and need to break the pattern.
Trial Balloon. A negotiator using this tactic might ask, What if I can per-
suade my manager to endorse this option? Would you go along? Trial bal-
loons are tests of acceptability. The other partys on-the-spot reaction to the
idea inuences whether the parties should pursue the idea further.
Price Increase. Sellers sometimes argue that, if a buyer does not agree to a
certain price or condition, the price will soon increase. A well-informed and
adequately prepared negotiator can tell the difference between a real price
change and a tactic used by the seller merely to make the sale.
High Ball. This tactic involves taking an abnormally high initial position on
an issue. For example, the seller may put forth an extremely high selling
price. The underlying logic is that, once a party actually makes a concession
from the extreme position, the new position may appear more acceptable to
the other party. It also attempts to shift the bargaining zone in ones favor.
Best and Final Offer. This tactic often signals the end of a negotiation on a
given issue. The caveat to this tactic is that the person making the best and -
nal offer must be prepared to actually end the discussion if the other party
does not accept the offer. If a party rapidly amends a best and nal offer,
this tactic quickly loses its effectiveness, and the negotiator loses credibility
when the bluff is called.
Silence. This tactic involves not immediately responding when the other
party makes an offer in the hope that an awkward silence will encourage fur-
ther offers or concessions. We often show the tendency to ll in the gaps
when a discussion encounters silence so as to not offend the other party.
Also, when the counterpart makes a point that weakens our position, it may
be better to remain silent than to admit the other party is correct. The other
party may actually back away from its earlier position.
Planned Concessions. This tactic uses concessions to inuence the other par-
tys behavior. The use of planned concessions signals that it is now the other
partys turn to reciprocate and make a concession on an important issue.
There is a natural tendency for an individual to respond in kind when receiv-
ing a concession.
Venue. Some negotiators insist on negotiating in a location that is more fa-
vorable to them. One party may have to travel a great distance, face the sun,
or sit in an uncomfortable chair in an effort to create stress. Also, the choice
of venue can affect whether or not a negotiator can get up and leave the nego-
tiation at a critical time.
480 Part 4 Strategic Sourcing Process

According to Robert Cialdini, an expert on the psychology of negotiation and con-

ict resolution, we can cluster the hundreds of negotiation tactics that exist into six
general categories, which represent fundamental social psychology principles that
guide human behavior.17
Reciprocation. Virtually every human society adheres to the principle of re-
ciprocation, which means that we feel an obligation to give something back
of equal or greater value to someone after we have received something from
them. In negotiation, this principle creates an obligation to return some-
thing in kind when the other party offers a concession. Effective negotiators
understand the inuence that reciprocity has on most individuals. Negotia-
tions have a denite pattern in the concession exchange process and can
strongly inuence the level of concession offered by each party. However, it
is often unnecessary to respond to a concession at the same or higher level
of value if the concession requested is important to you.
Consistency. This principle says that we prefer to be consistent in our beliefs
and actions. In a negotiation, if we can get others to agree to something,
then not following through on their part would be inconsistent and irratio-
nal, a behavior to be avoided. Also, skilled negotiators also understand that,
after someone agrees to something, he or she feels better about that decision
than before he or she agreed. Furthermore, once a small commitment is in
place, it becomes easier to request larger commitments later. The consis-
tency trap is a very powerful tactic and can be difcult to back away from.
Social Proof. According to this principle, we look to the behavior of others
to determine what is desirable, appropriate, and correct.18 This principle of-
ten works against us in negotiations if we look to others to determine our be-
havior. For example, a seller may state that a well-respected company uses
its product, thereby providing social proof of the value of the purchase to
the buyer.
Liking. This principle states that we work well and are more agreeable with
people we like or who are like us. Effective negotiators, therefore, should
take sufcient time to get to know their counterparts, knowing that desired
concessions are more likely when a favorable level of familiarity exists.
Authority. This principle states that we are more likely to accept the posi-
tions, arguments, and direction from recognized authority gures, not unlike
the impact of legitimate power described above. In a negotiation, a senior
sales executive may be able to substantially inuence an inexperienced
buyer, simply because of his or her implied authority or formal position in
the organization.
Scarcity. Sellers learn early in their career the powerful inuence that scar-
city, or even the perception of potential scarcity, can have on a buyer. Who
wants to close a plant because supply will be short next month (unless the
buyer acts now)? The same argument applies to price increases. If the prod-
uct will be scarce at the new price, then the implication is that the buyer
needs to act before the price increase takes effect.
A tactic used during one negotiation may not be successful or applicable to an-
other negotiation, even with the same counterpart. When conducting a negotiation,
effective negotiators must be willing to modify tactics that are not effective and pre-
pare for responses to tactics that are likely to be used against them. Tactics are most
Chapter 13 Negotiation 481

effective when the other party is unprepared, stressed, under severe time deadlines, in-
experienced, fatigued, or disinterested. Be prepared, and dont react off the cuff with-
out analyzing the tactic and its real effects.

Win-Win Negotiation
Many traditional supply managers believe that the primary objective of negotiation
is to win at the expense of suppliers. We call this win-lose negotiation (also called com-
petitive or distributive bargaining). Win-lose negotiation means that two or more par-
ties are competing over a xed value with the winner taking the larger share. It is
also known as a zero-sum, or xed-sum, gameif one party gains, it is only at the ex-
pense of the other party. Every increase in the purchase price benets only the seller,
and every decrease in price benets only the buyer. There are no other possible out-
comes. The level of competition in a win-lose purchase negotiation rarely makes a sup-
plier anxious to cooperate with a buyer to provide advantages that are not available
to other customers. There is no inherent advantage for the supplier to do so.
Win-win negotiation (also called integrative bargaining) seeks to expand the value or
resources available to all participants through collaborative negotiation. The parties
still negotiate, but they do so to determine how to equitably divide a bigger and ex-
panded value pie through the use of creative proposals. For example, increased value
to the buyer may mean receiving a more favorable purchase price than a competitor,
a shorter order cycle time from the supplier, joint efforts to reduce duplication or
waste between the parties, or assistance in developing new technology or product de-
signs. On the suppliers side, increasing value may mean additional sales volume, pref-
erential treatment for future business, or technical assistance provided by the buyer
to help reduce its operating costs. Exhibit 13.5 contrasts the characteristics of win-
lose and win-win negotiation.
The fundamental question of win-win negotiation is how the buyer and seller,
through a collaborative negotiation process, can pursue integrative bargaining and ex-
pand the pie available to both parties. Previous research has identied ve different
methods for pursuing integrative (win-win) agreements.19
Expand the Pie. Working closely together, the parties identify creative ways
to expand available resources or generate new value obtained through a nego-
tiated agreement. For example, the seller that offers a buyer early access to
new technology for inclusion in its own new products can help create new

Exhibit 13.5 Characteristics of Win-Lose and Win-Win Negotiations

CHARACTERISTICS OF WIN-LOSE NEGOTIATION CHARACTERISTICS OF WIN-WIN NEGOTIATION
(DISTRIBUTIVE BARGAINING) (INTEGRATIVE BARGAINING)

Assume rigid negotiating positions. Understand each others needs and wants.
Compete over a xed amount of value. Focus on common rather than personal interests.
Practice strict use of power by one party over Conduct joint efforts to solve problems and develop creative solu-
another. tions that provide additional value.
Pursue adversarial relationships. Engage in open sharing of information.
482 Part 4 Strategic Sourcing Process

value. If the market embraces the new product, presumably sales will in-
crease, and the supplier will receive larger purchase orders. Both parties be-
come better off.
Logroll. Successful logrolling requires the parties to identify more than one is-
sue where disagreement exists. The parties agree to trade off these issues so
each party has a top-priority issue satised. This is a form of compromise in
which each party gets more in those issues that are most important to him
or her while giving up more on those issues that are less critical yet are im-
portant to the other party.
Use Nonspecic Compensation. With this approach, one party achieves his
or her objective on an issue while the other receives something of value as a
reward for going along. This approach works only when the compensating
party knows what is valuable to the other party and makes a reasonable of-
fer to make the other party whole for agreeing.
Cut the Costs for Compliance. With cost cutting, one party (usually the
buyer) gets a lower price as the parties work jointly to reduce the sellers
costs or the transaction costs of doing business together. The buyer satises
his or her objective of a obtaining a competitive price while the seller be-
comes more competitive in the marketplace due to a reduced cost structure.
Find a Bridge Solution. Bridging involves inventing new options that satisfy
each partys needs. Although bridging solutions will likely not totally satisfy
each party, they are usually satisfactory to each side. As in the third point of
Triangle Talk (propose action in such a way that they can accept it), the ne-
gotiators seek to jointly create solutions that satisfy the interests and needs
of both parties.
A win-win negotiation approach works best for items or services that are impor-
tant to the buyers products or business or when the item involves high-dollar items
or services where cost control is critical. It is also appropriate when the supplier adds
a high level of value to the product or service. When variables such as technology, cy-
cle time, quality, and price/cost are important, win-win negotiating may also be the
best approach.

Good Practice Mack Trucks Uses Negoti-

Example ation to Rev Up Its Sourc-
ing Process
Mack Trucks, which is part of a newly consolidated operation comprising the truck-
making units of Volvo, Renault, and Mack, is facing intense pricing pressure from customers
and competitors. The ability to meet its nancial targets has presented a major challenge
for the company. With limited ability to raise truck prices and declining demand, the alter-
natives facing Mack were to manage material costs better or absorb price increases through
lower prot margins and protability.
Even before Volvo assumed ownership of Mack Trucks and Renault, Mack and Renault
sought to leverage the commonality between them on a global basis. Mack Trucks had con-
cluded that procurement offered excellent opportunities for global synergy across Europe and
North America. Mack Trucks, working jointly with Renault, had implemented a global sourc-
Chapter 13 Negotiation 483

ing process designed to leverage the volumes available through the combined truck units.
Volvo Truck is now part of that process. A central part of this process features negotiation to
help the three combined companies carry out their vision of global procurement.

MACK TRUCKS GLOBAL SOURCING PROCESS

The global sourcing process at Volvo/Renault/Mack Trucks, originally developed by Mack, con-
sists of nine steps. Part of the benet from this process is the discipline built into each step
concerning the completion of tasks. Cross-functional sourcing teams are responsible for fol-
lowing this process as they develop and negotiate global procurement contracts. The com-
pany uses the nine-step process even for contracts that the sourcing teams determine are
regional rather than global.
Exhibit 13.6 describes the Volvo/Renault/Mack Trucks nine-step global sourcing process.
Steps 04 of the process involve strategy development, whereas Steps 58 involve strategy
implementation.

STEP 0: SELECT GLOBAL SOURCING PROJECTS

An executive steering committee is responsible for selecting sourcing projects and identifying
the cost savings expected from each project. The steering committee plays a vital role in main-
taining the intensity of the global sourcing process. Step 0 is continuous because the agree-
ments established early in the global process eventually come up for periodic review and/or
renewal.

STEP 1: LAUNCH THE PROJECT

Perhaps the most important task associated with Step 1 is the formation of sourcing teams.
The executive team selects team members based on their familiarity with the items under re-
view. A formal team leader works with the team to develop time schedules, a list of deliver-
ables, and expected milestones.
In Step 1, the teams validate the sourcing opportunity by collecting and analyzing data. Vari-
ous tools are available to support each teams analysis. For example, the teams use a portfo-
lio analysis approach with suggested tactics and strategies depending on the characteristics
of the purchase requirement. This tool helps the team develop a sourcing strategy that best
matches the actual purchasing need.

STEP 2: DEVELOP THE SOURCING PROJECT

Some managers believe this step to be the most critical, as the sourcing teams identify poten-
tial worldwide suppliers. From a list of potential suppliers, the teams sends a request for infor-
mation, which is a generic questionnaire that asks about sales, production capacity, quality
certication (such as ISO 9000), familiarity with the truck business, and major customers.

Exhibit 13.6 Nine-Step Global Sourcing Process

Step 0: Select Global Sourcing Projects

Step 1: Launch the Project
Step 2: Develop the Sourcing Project
Step 3: Develop Requests for Proposals
Step 4: Recommend Strategy and Negotiate with Suppliers
Step 5: Certify Suppliers
Step 6: Formalize the Sourcing Contract
Step 7: Sample Testing and Approval
Step 8: Production Readiness
484 Part 4 Strategic Sourcing Process

Step 2 requires a major work effort on the part of engineering. Engineers will examine drawings
in an effort to standardize part specications among Volvo, Renault, and Mack Trucks. Although
a team may conclude that there is no global supplier, they may be able to standardize design
specications across the companies.

STEP 3: DEVELOP REQUESTS FOR PROPOSALS

Step 3 features the development, sending, and analysis of formal proposals to suppliers identi-
ed in Step 2. Suppliers typically require six weeks to analyze and return the RFPs. The sourc-
ing teams are responsible for analyzing the details of the returned RFPs. The teams are
empowered to determine the criteria and the evaluation weights used to analyze each supplier,
but members must reach consensus in their choices about which suppliers to recommend.
A negotiation workshop occurs during this step at the Renault Learning Center in France. The
purpose of this workshop is to review the tools that are necessary to support the global pro-
cess and to improve negotiation skills. The rst half of the meeting is committed to overall
training. The second half helps individual teams develop their negotiation strategy. The
teams will also select a negotiation leader. The decision of who should be the negotiation
leader is based on discussion and consensus rather than voting. Of the rst 27 global proj-
ects, fully one third of the negotiation leaders were selected from outside the sourcing team.

STEP 4: RECOMMEND STRATEGY AND NEGOTIATE WITH SUPPLIERS

Each sourcing team makes a strategy recommendation to an executive committee comprising
the vice president of purchasing and the vice president of engineering from each of the three
companies. Team recommendations include the selected supplier(s) to use with expected sav-
ings and timings identied.
All negotiation that occurs in Step 4 is face-to-face with suppliers. To date, half of the nego-
tiations have occurred in the United States and half in Europe at company-owned sites.
When suppliers arrive for a negotiation, they review the global sourcing process so they are
aware that this step will only produce a recommendation.
Before suppliers arrive for negotiations, they receive feedback concerning their competitive-
ness, which allows them to revise their proposal before negotiations commence. A team may
disqualify a supplier if the supplier is not competitive and chooses not to revise its proposal.
The negotiation also serves as an opportunity to verify that new suppliers can meet technical
or commercial requirements.
Once the lead negotiator takes over, the team leaders role begins to diminish (unless the
team leader is the lead negotiator). The team leader usually remains part of the negotiating
team. Negotiation sessions generally last three hours. Although the teams objective is to
achieve cost savings, the negotiations can discuss many kinds of issues.

STEP 5: CERTIFY SUPPLIERS

During Step 5, the purchasing and engineering groups receive the global sourcing teams rec-
ommendation and results from the negotiation. Functional directors will begin budgeting ex-
pected savings in their nancial plans. The output from Step 5 is a certication from
affected functional groups of the recommended supplier. Step 5 represents a hand-off of a
proposed and negotiated sourcing strategy from the global sourcing team to the purchasing,
engineering, and quality groups.
Chapter 13 Negotiation 485

STEP 6: FORMALIZE THE SOURCING CONTRACT

This step involves formalizing what transpired during contract negotiations. The negotiation
leader remains with the process until the contract is complete. The legal department is also
involved, but a buyer writes the contract using a predetermined template.
Global contracts, which are typically two to three years in duration, differ from traditional con-
tracts. The global agreements include productivity improvement requirements to offset material
cost increases and encourage technical advancements by the supplier. And, in a somewhat sig-
nicant departure from previous contracting practices, incentives such as 50/50 improvement
sharing are starting to appear.

STEP 7: SAMPLE TESTING AND APPROVAL

This step assesses the samples provided by the selected supplier. The production facilities de-
velop initial sample inspection reports, and the negotiation leader develops a production roll-
out plan.

STEP 8: PRODUCTION READINESS

Step 8 is the pilot production stage. The selected supplier may send a days worth or a
weeks worth of supply for use and testing in actual production.

The Good Practice Example illustrates how a company uses negotiation to add
value to its sourcing process. Without highly skilled and well-trained negotiators, the
development of global sourcing strategies, such as the one illustrated here, would not
be possible. The magnitude and complexity of global agreements, which are usually
longer term in length and address many non-price issues, demand face-to-face
negotiation.

International Negotiation
With the burgeoning growth in international business, especially in outsourcing
and global sourcing activities over the last 20 years, the need to effectively and ef-
ciently negotiate across cultures has increased exponentially. Thomas Friedman gave
us an example of a truly global supply chain in his recent book, The World Is Flat, in
which he describes how Dell sources components for and builds its notebook compu-
ters.20 In a truly global supply chain, Dell utilizes multiple suppliers located in a vari-
ety of countries for different parts and components. If a given Dell supplier is unable
to meet current demand, then Dell can shift its sourcing to another supplier with
available capacity regardless of location. For example, Dell can shift its sourcing of In-
tel microprocessors from factories located in the Philippines, Costa Rica, Malaysia, or
China. Therefore, different negotiation strategies are needed to negotiate purchase
agreements in such diverse cultures as Costa Rica and Malaysia.
Negotiations with suppliers located literally anywhere on the globe take on added
complexity and challenge when the parties have different languages, customs, laws, and
cultures. When preparing for a negotiation with a supplier located in another country,
companies must invest in substantial extra time and effort in planning for the negotia-
tion to accommodate new translation, travel, and other foreign business requirements.
One of the more important considerations in negotiating a global sourcing agreement
486 Part 4 Strategic Sourcing Process

is culture shock.21 Culture shock occurs as a result of negotiators being immersed in a

place in which their established norms have been confronted and may no longer be ap-
plicable. The negotiators pre-existing values, beliefs, rules, and schema may not apply
in the new situation. Emotions run higher, and they may initially encounter substantial
anxiety, disorientation, and confusion, thereby reducing the likelihood of achieving
their desired negotiation outcomes.
Various barriers may dramatically affect the conduct of international negotia-
tions.22 In order of importance, major obstacles to effective international negotiation
include miscommunication due to language, time limitations, cultural differences,
and limited authority of the international negotiator. Effective international negotia-
tors also demonstrate certain personal characteristics that can help overcome these
obstacles. These characteristics include patience, knowledge of the contract agree-
ment, an honest and polite attitude, and familiarity with foreign cultures and cus-
toms. See Sourcing Snapshot: FedEx Expert Shares His International Negotiating
Insights for a look at how one company effectively considers the nuances and differ-
ences between cultures to more effectively negotiate.
Beyond the natural barriers of language differences, it is still possible to fail to un-
derstand and be understood. What we consider as generally accepted words may
have substantially different meanings in other countries, even between countries that
speak the same language, because culture plays such a signicant role in communica-
tion. For example, during international negotiation, an interpreter might verbally com-
municate yet not fully convey the signicance of unspoken actions, signals, and
customs that are invisible to the foreign or non-native negotiator.

Sourcing FedEx Expert Shares His

Snapshot International Negotiating
Insights
Mike Babineaux, senior business specialist at FedExs Strategic Sourcing and Supply
Center of Excellence, offers good advice for any American who negotiates internationally. Ev-
ery person who negotiates with other cultures must be aware of the serious and costly mis-
takes and misunderstandings in business practices that are caused by cultural differences,
warns Babineaux. Although nations, on the surface, are changing every day in many ways,
the fundamentals of culture evolve at a much slower pace.
In the area of communication, Babineaux says, Americans tend to speak directly and
openly. We want the truth, and we want it now. We are suspicious when we think someone
is being evasive. Unfortunately, the American who proceeds in the direct American style in
a negotiation will not be particularly effective in some countries. He or she will be on a differ-
ent wavelength than the foreigner because our style of communication is very different from
others, he explains. An open person may be seen as weak, directness may come across as
abrupt, and written contracts may imply that a persons word is not good. In the end, Babi-
neaux explains, Negotiators who have the greatest success in doing business around the
world are those who have learned to have credible appreciation and understanding of those
with whom they do business.
Source: Adapted from J. Mazel, 5 Negotiation Experts Reveal Their Secrets to Supplier Management,
Supplier Selection and Management Report, March 1, 2000, available at http://www.ioma.com.
Chapter 13 Negotiation 487

International negotiation requires additional planning and preparation to be suc-

cessful. Not only must buyers perform their normal supplier analysis and fact nd-
ing, they must also strive to more fully understand the customs and traditions of
their counterpart. As buying and selling increases between organizations located in
different countries, the need for higher-level global negotiation skills will also
increase.

Selected Countries
The following presents a sample of national characteristics when negotiating, ad-
mittedly from an American perspective. However, understanding these proles can
prove benecial when developing negotiation strategies and tactics.23 A negotiator
must be aware, however, that there is a danger in stereotyping or oversimplifying char-
acteristics of different cultures. There is always substantial interpersonal variation to
consider within a single culture. However, there are certain tendencies within the cul-
ture of which to be aware.
The following discussion outlines very general observations and guidelines for sev-
eral popular business cultures (shown in alphabetical order) in which a supply man-
ager is likely to negotiate.

Brazil
Although Brazilians are receptive to discussing most subjects, home and family
are private, personal matters and are not appropriate topics for casual acquaintances.
Avoid conversations involving religion or politics. You may speak English or use an
interpreter unless you are conversant in Portuguese. They are generally more analyti-
cal than other Latin American cultures and will look at the particulars of each situa-
tion rather than referring to rules or laws for guidance. They like to bargain and
concede little by little. During negotiations, Brazilians tend to approach problems indi-
rectly, allowing their feelings, passion, and enthusiasm to inuence their decisions. Al-
though the presentation of facts during a negotiation is acceptable, these facts usually
will not overrule underlying subjective feelings. The image of the macho male is still
prevalent, although to a lesser extent than in Mexico, for example, and Brazilian men
expect women to be subordinate. There are also large numbers of German and Japa-
nese descendents in Brazil, which may complicate the negotiation somewhat.

China
When negotiating with the Chinese, it is important to avoid slang or jargon and
to use short, simple sentences with pauses to ensure your words are understood ex-
actly. Never do anything that might embarrass your Chinese counterpart. A negotia-
tor should expect to make presentations to many groups at various organizational
levels. Because U.S. managers have a reputation for impatience, the Chinese will ex-
tend negotiations beyond the deadline to gain an advantage. Do not exaggerate your
ability to deliver on your promises. Your counterparts will hold you to your commit-
ments. They may even try to renegotiate previously agreed-upon issues on the last
day, and they will continue to try for a better deal even after signing the agreement.
However, you must be patient in your dealings with Chinese negotiators, who also
prefer to deal with groups, not individuals. Use an interpreter, even if your Chinese
counterpart speaks excellent English.
488 Part 4 Strategic Sourcing Process

France
Given their highly formal and reserved nature, a casual attitude during business
may alienate the French. Allow for sufcient time to conduct the negotiation, as deci-
sions are made slowly and deliberately. During negotiations, arguments are made
from a critical perspective with elegant wit and logic. The French enjoy engaging in
debate, striving for effect rather than detail and facts. You should consider using a lo-
cal agent to assist with the process. Although the French will accept information for
the purpose of debate and may even change their minds, a desire to maintain a
strong cultural heritage often prohibits them from accepting anything that is contrary
to their cultural norm. Because the French are strongly individualistic with a central-
ized authority structure, negotiating with the proper individual can lead to quick deci-
sions. Dress conservatively in well-made clothing.

Germany
Germans are not openly receptive to outside information. Their strict hierarchies
and separation of units often prohibit the sharing of information even across the
same organization. These hierarchies can also slow the making of business decisions.
Germans rarely engage in humor during business activities. During a negotiation, ob-
jective facts form the basis of truth rather than subjective feelings, and Germans are
highly analytical. Nowhere is punctuality more important than in Germany. Arriving
just two or three minutes late to a negotiation can be insulting. During negotiations,
Germans tend to be unemotional because of a high need for social and personal or-
der. German contracts are often more detailed and specic than in the United States,
and documentation and clarity are both very important.

India
English is widely spoken in India among businesspeople and government ofcials;
therefore, it is less necessary to obtain an interpreter or translate ones business
cards. Be sensitive of the need to avoid personal questions and talking about religion,
poverty, or politics. It is important to speak with the highest-ranking person possible,
as decisions are made at the highest levels of the organization. Organizations in India
tend to be very hierarchical and autocratic. In addition, Indian bureaucracy is very
burdensome, while the pace of business tends to be leisurely. As a result, delays in
the negotiation are to be expected. Vegetarian diets are typical, and business negotia-
tions often occur in prominent hotels, not in restaurants. Titles are highly valued, so
always address your counterparts by their ofcial titles.

Japan
Japanese culture is vastly different from American culture. Despite such differ-
ences, the extra effort needed to develop mutually satisfying negotiations can result
in an excellent relationshipJapanese rms are dependable and loyal suppliers. They
will treat their customers like valuable family members. The negotiation process with
Japanese companies is unique. For example, the Japanese are comfortable with ex-
tended silence, which is not true with Americans. As members of a collectivist soci-
ety, they are loyal team players concerned with the well-being of their country and
rm rather than themselves as individuals. Politeness is valued above all else. Instead
of saying No, the Japanese often say Hai, which does not indicate agreement
but merely that they hear or understand. The Japanese dont like surprises, and
they typically reach decisions through a consensus process, which can often extend
Chapter 13 Negotiation 489

negotiations. When negotiating, keep in mind that it is necessary to convince the

whole group rather than a single individual. Also, avoid placing the Japanese in a posi-
tion in which they must admit failure or lose face. The Japanese do not like the ap-
pearance of having to make forced concessions. There is a strong emphasis on
interpersonal relationships and less on formal contracts. Therefore, connections with
intermediaries are important. Choose them wisely.

Mexico
As in Brazil, subjectivity is often the basis for decision making. Mexican negotia-
tors enjoy the process of bargaining and exchange. The pace of business activity will
be much slower than what Americans are used to. It is important to develop and
maintain close personal friendships with the right people. Individual dignity is impor-
tant, so be polite and avoid anything that might embarrass your Mexican counter-
part. The foreign negotiator should emphasize the benets of a proposal to the
individual, his or her family, and pride. Financing is often an issue, so you need to
be creative in offering nancial solutions. It is customary for the oldest person to
pick up the tab for a group meal, although it is typical to haggle over the check. It is
important to recognize a persons title and position.

Russia
Russian negotiators are very patient, as compromise is considered a sign of weak-
ness. However, they tend to make very extreme initial demands and wait for the for-
eign negotiator to concede. Final offers are seldom nal during the initial stages of
negotiation. Long-term interpersonal relationships are less important than in many
other cultures. They expect you to walk away from the table and threaten that you
cannot reach agreement with them. However, Russian negotiators often have limited
authority to make decisions at the table and will refer to absentee third-party deci-
sion makers. You need to be aware that some negotiations are designed only to gener-
ate information, not make a deal. End-of-negotiation demands are typical, even
though you may assume that the deal is complete. Because of the inconvertibility of
the ruble, nancing may be difcult and require creative solutions such as counter-
trade or third-party nancing.

Saudi Arabia
Saudi negotiators are considered astute and perceptive. They may stand very close
to you and place a hand on your shoulder. Concession making is ritualistic and
stems from extreme opening proposals. Decisions take time to materialize from exten-
sive deliberation. Deadlines are made to be ignored. As in many other cultures, devel-
oping and maintaining a strong interpersonal relationship with your counterpart is
important. Social life usually takes place during the day, as there is no nightlife as we
might expect at home. Saudi negotiators rely heavily on their religious beliefs to
make decisions. Also, plan your trip so as not to conict with religious holidays.
Yes generally means maybe.

Vietnam
You will need to be patient and wait until your Vietnamese counterpart initiates
the business discussion. Answers to many questions will be broad and not very spe-
cic. A nodding head does not mean yes, merely that you are being heard or even
that they disagree with you. Patience is very important and is often used to wear
490 Part 4 Strategic Sourcing Process

down the foreign negotiator into making unreciprocated concessions. Use of a skilled
interpreter is vital as there are various nuances to the words chosen and gestures
made. Speak to the other party, not to the interpreter. Vietnamese typically negotiate
in a group setting, not individually.

The Impact of the Internet on Negotiations

Use of information technology, particularly the Internet, e-mail, and instant mes-
saging, can dramatically change the nature of a negotiation. Electronic means of nego-
tiation tend to equalize the interactions between the parties because normal visual
cues and sources of power are not as evident.24 Status differences are not as visible,
and social norms and behaviors are more difcult to discern. Voice inections, which
often provide substantial meaning to the words used to communicate, do not exist
electronically. The use of such devices as emoticons attempts to provide context but
is not as effective as nonverbal communication, which is missing from electronic nego-
tiations. In addition, the negotiator at the other end of the electronic connection is
relatively anonymous. Is the person you think you are negotiating with actually do-
ing the negotiating?
Research indicates that negotiators communicating by electronic means often a differ-
ent persona than they do face-to-face. They engage in more risky behaviors and are
more aggressive in their demands than their face-to-face counterparts. E-negotiators
make more aggressive demands, threats, and take-it-or-leave-it ultimatums. Informa-
tion richness, usually obtained from nonverbal clues, context, and informal communica-
tion, is lost electronically. In addition, active listening and effective feedback are more
difcult to conduct when not negotiating face-to-face.
E-negotiators tend to engage in behaviors that indicate that they are communicat-
ing in real time even when they are not. The normal give-and-take in a face-to-face
negotiation is not present, and the e-negotiators ask fewer questions and tend to
make more assumptions during the negotiation. For example, what does silence
mean when the negotiators are communicating electronically? Also, e-negotiators of-
ten feel less accountable for the outcomes because of a perceived disconnect with
their counterparts in a different locale. They also tend to take on a more adversarial,
us-versus-them, mentality. The bottom line is that negotiators who interact face-to-
face are more likely to reach agreement and avoid impasse than their electronic
counterparts.
Considering all of the challenges in negotiating electronically, it remains a business re-
ality that some negotiations, particularly global negotiations, must be accomplished at a
distance because of timing constraints and substantial travel costs. One way to mitigate
the negative effects of a distance-challenged negotiation is to conduct an initial face-to-
face meeting prior to e-negotiations. This face-to-face meeting helps to foster greater
trust and reduce uncertainty in future interactions that are conducted electronically.
Many long-term sourcing agreements can be facilitated effectively in this manner, that
is, an initial physical meeting followed by electronic-facilitated communication. If a face-
to-face meeting is impractical, some of the same positive effects can be accomplished
initially through the use of a telephone call or videoconference between the parties, allow-
ing for an informal period of sharing and getting to know your counterpart as a person.