Successful negotiations require careful preparation and planning. The following are the 10 Critical Steps for Negotiation Preparation:
- Assessing your Leverage
- Identifying the Issues
- Setting Targets
- Deciding when to disclose targets
- Developing a Strategy
- Putting Negotiation Issues in order
- Contingency Planning
- Deciding on a location
- Developing your negotiation worksheet
- Practicing the negotiation
Let us define steps 1 and 2:
Assessing your Leverage
Leverage is something intangible. Think of a traditional scale that balances objects on opposite sides. Imagine some unseen force that makes one side heavier, pulling the other side in its direction. That is what leverage is. Something that gives you extra powers of persuasion that allow you to influence your counterpart’s willingness to agree to terms that are favorable to you.
You have more leverage if:
• You have no time constraints
• Your purchase is a large order for the supplier
• Your organization is widely recognized
• You have other alternatives
• The supplier has no relationship with your organization
• The supplier sees additional opportunities
The following is a tool to help you understand your leverage, limitations, and opportunities.
Table 1, Assessing Leverage Matrix
Note: Scores 0 to 2 suggest Low Leverage, 3 to 4 is Medium Leverage, and 5 to 6 is High Leverage.
Identifying your Issues
Negotiation issues are those aspects of a relationship that lend themselves to negotiation. You probably won’t negotiate every single issue as the supplier is sure to propose some reasonable terms. In some cases, the financial benefit you would get by achieving a more favorable term may not be worth the cost of your time negotiating it.
Common issues that are negotiated include:
- Delivery date
- Payment terms
- Maintenance, support, and service
- The length of the agreement
- Cancellation policies
Table 2, Negotiation Issues Matrix
Note: The Negotiation Issue Priority(NIP) with the highest value (20 in this example) is the issue with the most significant impact on your organization. In the example above, quality, payment terms, and length of the agreement are not critical issues. You should focus your negotiation strategy on price, delivery frequency and accuracy, with the delivery frequency selected as your primary focus.