Reference no: EM132221206
Read the “Negotiation examples” (in Boyce, Chapter 5) and pick one of the examples to answer these questions:
What was the primary issue that was being negotiated?
What, if any, were the secondary issues being negotiated?
What was the position of each party?
What were some options that both sides had?
Was there any evidence of unethical behavior? If so, identify that behavior.
What was the outcome of the negotiation?
Would you have done anything differently? What? Why?
Examples To illustrate the operation of some of these principles there follows some actual examples where the commercial negotiation was scuppered, jeopardized or hindered by well-intentioned team members failing to observe the self-preservation rules.
Example one In this example the customer wished to place a contract for the supply, installation and commissioning of electronic equipment. The scope of the work was not fully defined and some actual development work would also be necessary. The key features of the customer’s needs were that the requirement could only be satisfied by a single supplier and that delivery on time was absolutely crucial. The supplier was in a very good position to negotiate a favourable contract. He decided that in the particular circumstances his optimum method for exploiting the opportunity in terms of increased profitability was to negotiate a bonus scheme for timely delivery rather than, for example, attempting to charge high prices. The negotiation plan was thrashed out and centred on two key principles. Firstly, that the supplier would formally table a programme of work and delivery dates which clearly showed that under a conventional contract the customer’s vital date would be missed. Secondly, outline details would be proposed for a cash bonus scheme that would indicate a higher probability of meeting the vital date. The supplier’s negotiation team would be led by the commercial manager with the project manager i 176 to include a bonus scheme. The supplier stuck to his line until in desperation the customer said: ‘Look, if we place a conventional contract with you, can you advance the delivery plan you’ve offered?’ The supplier’s project manager leapt in with words equivalent to ‘of course’. The supplier had thereby pulled the rug from beneath his own feet and his position, so carefully developed, collapsed. It is not difficult to see the mistakes of the supplier’s project manager. These were that he did not stick to the plan, he did not follow the leader, he lost sight of the objective, he gave a straight answer to an awkward question and he yielded to the emotional ‘cry-forhelp’ pressure, forgetting the ‘it’s tough’ rule.
Example two The company had arranged a meeting with three other companies to negotiate the essential features of a teaming agreement. The features were the scope of work, volume of effort and applicable prices – these three variables being interdependent. The nature of the overall job was such that each of the four companies would wish to secure a wide scope of work, a sizeable volume of effort and, not surprisingly, high prices. The lead company needed to settle a compromise of these twelve variables between the four organizations within an overall ceiling value. A preparatory meeting was held although the project manager was unavailable. The agreed tactic was to concentrate on the arguments which would be put forward by the other three, each in defending its own position, and to leave the company’s own contribution to last in the probability that it would go through almost on the nod. The negotiation started well, with close adherence to the plan. However, the company could not escape having its own contribution interrogated. Choosing his words carefully the lead negotiator asked his project manager to describe the technical nature of the work (as opposed to asking him to defend the level of effort proposed). The project manager replied by saying that the leader was probably not yet aware of some paper in the system that conveyed a large reduction in the company’s planned amount of effort. Whilst this may have been true, it nevertheless, undermined the company’s position at a stroke. In this example the mistakes made were: the project manager did not attend the pre-meeting, there was no chance at all of everybody sticking to the plan, the project manager did not listen properly and he threw in new information.
Example three The supplier and customer had been involved in a long running argument over whether the supplier’s proposed design met the requirements of the contract. The customer had steadfastly maintained that the design was not sufficient and that the supplier must change the design at his own cost. The supplier was in a diametrically opposed position. It had proved impossible to resolve the issue on purely technical grounds as these aspects were extremely complex and the issue hinged on differing interpretation and differing expert opinion on the two sides. Whilst arbitration and recourse to the courts was open to the two sides, it was in neither’s interest to follow such a course of action. To do so would have meant the customer tolerating unacceptable delays in delivery – there being no practicable alternative method available to him. The supplier would have been starved of cash flow for an extensive period of time. In an attempt to move forward, the supplier and the customer had agreed without prejudice to the position of each that the supplier should put forward a change to the design and a price quotation for the additional work. It was quickly agreed that the change was desirable and that it would correct the perceived weakness in the design. This did not settle the question of who should pay. The customer called the supplier to a meeting at the customer’s premises, which were geographically considerably distant from those of the supplier. The commercial manager and project manager had a pre-meeting at which it was agreed that if the customer was not preparing to alter his stance he would have communicated the fact by telephone or in writing. Thus it was a good sign that the customer sought a face-to-face meeting, particularly in view of the distance involved, as the customer was known not to waste people’s time capriciously. The plan for the meeting was that a compromise on possible splitting of the costs would be acceptable, albeit that it would be a hard slog fought for inch by inch. The prediction about the meeting proved to be accurate and the customer repeatedly came down heavily with his much stated view that he carried no liability whatsoever for additional costs. Nevertheless, slowly but surely progress was made towards a compromise settlement until, in nothing short of exasperation, the supplier’s project manager blurted out the question, ‘if you’re not liable, and you won’t pay, why have you called us to this meeting’. Although not catastrophic, this put at risk the progress so 178 far made and almost invited the customer to bring the shutters down and entertain no further discussion. The project manager did not stick to the plan, did not follow the leader and forgot that negotiations are tough.
Example four The supplier had arranged a meeting with the customer to discuss a potential order for a range of products, which the customer had bought previously from the supplier. The nature of the work was relatively involved and included elements to be supplied by several major subcontractors. There were many issues to be discussed, including the question of where certain risks were to be carried. The supplier’s aim was to establish the principle that as, between himself and the customer, he, the supplier, carried the risk. This was an important point, as the price to be agreed would be linked to, amongst other things, the level of risk inherent in the job. At the pre-meeting it was agreed that the project engineer would support the commercial manager and answer only those questions that the commercial manager put directly to him. At the meeting with the customer the supplier put forward the various relevant arguments to sustain the principle that he was proposing. As a natural part of the process the commercial manager gave examples of how in practice a real problem would fall to his account since he carried the risk. At the worst possible moment the project engineer interrupted to say that in the examples given, that was not how the problems had been dealt with in previous contracts. The interruption was in part made in frustration, through his not understanding the significance of the apparently irrelevant principles. This statement caused the negotiation to take five steps backwards from the point of view of the supplier. The project engineer had not stuck to the plan, his intervention ‘dropped the team in it’, he strayed from his topics, he did not follow the leader and he had completely lost sight of the objectives. These examples are based upon actual events and are not exaggerated for effect. Apparently trivial or helpful comments, no matter how well intentioned, can destroy a carefully constructed negotiation. From the lead negotiator’s point of view these major or even minor disasters present immediate problems. He must recover the ground lost with the other side, explain away his own side’s comments, avoid an argument developing on his own side and maintain his own side’s professionalism. This is a difficult juggling act to pull off in the heat of the negotiation.
Example five The purpose of the negotiation was to reach a preliminary set of agreements in principle with respect to a very important partnering agreement. The negotiations were to be led by an engineer holding a most senior position in the company. Although not a natural negotiator, the lead was ceded to this individual in deference to his position. This engineer gave little time to prepare, despite the importance of the prospective deal. His time saving technique was to rapidly (in practice, hastily) formulate the company’s minimum position (that is, the worst deal that it could accept) and to open the negotiations with a take-it-or-leave it offer at the minimum position (and he described it as such) – because he was in such a hurry. Now it is a time-honoured practice that no one opens with his or her minimum position. Arguably in an ideal world such a practice would be useful and would save much time. But it does not work; the other side always assumes that an opening offer from the opponent can be improved. In this instance, the company opened with its minimum position (which genuinely was its minimum position), the other side took no notice of how the offer was characterized and picked away at it, offered nothing tangible in return and slowly but surely drew the engineer into agreeing a worse position. This was a negotiating and business disaster, the ramifications of which damaged the company for years. None of the above rules were followed.