Integrative principled negotiation

The last strategy of negotiation to be presented in this set of blogs is integrative principled negotiation. It is worth investing your time and energy in building "your face" with the company. In short:

• it is consistent as regards the object of negotiation. Hard on principles, but somewhat soft to the negotiators;
• no tricks, no posturing, no (excessive) bluff;
• focuses on the importance of the problem, not on the accession to negotiations. Both negotiation parties approach one task;
• uses (preferable quantitatively) argumentative explanation why proposing the change. Not based on will, rather on rationale.

4 basic points

1. Focus on interests, not on positions: let the interests lead to the conclusion... NOT VICE VERSA!
2. Separation of the people from the problem of negotiation. Not personal - separation of emotions from objectivity platform for negotiations. Communication focus on the problem, not on the deficiencies facing the negotiators on the opposite site of the table. Carry on in a way that will contribute to future negotiation
3. Collaborating in design of options and potential solutions in mutual benefit. Looking for bigger, synergistic benefits - not focus only on “my piece of the pie”. This allows the use of common interests and benefit of both.
4. Insistence on objective criteria. If the opponent insists on position and not on (mutual) interests – “reset” him /her using (measurable) the arguments.

Let’s describe this approach a bit more…

Focus on interests

With intention to do so, we have to: 

• define the problem or, better, the challenge to be solved, the change of present agreement to be implemented by process of negotiation
• once we know what we would like to change, we need to know, why we would like to change it, what is our point of (mutual or individual) interest(s) 

And be careful – strongly differentiate between the interests and the position. First, let us clear out the terminology and meaning: in a process of negotiation, positions can be viewed as the stated stands and (set of) objectives of the (either) negotiating party, whereas the interests are the underlying reasons that explain positions. And second, the use of one or another: if positions might easily enter the “Theory ofgame” type of negotiation strategy, the primary focus on interests leads to the principled negotiation. With principled negotiation concerned with the interests, we are able to satisfy true underlying reasons why we would like to change something, not what we would like to achieve by this change.

Let me give you an example of the importance on good knowledge on our or mutual interests as well as awareness why interests and positions are substantially different. Try to draw parallels with business – to measure effectiveness and efficiency of the business (process) we often use KPI’s, the Key Performance Indicators. The set of KPI indicators - as thermometers in healthcare measures body temperature - measure “heat”, t.i. indicate on performance of the business. But they are only “business thermometers”! They “just” measure state, or the future goal, so - the position. In order to make and manage the change, you need to know KSF – the Key Success Factors. In healthcare, at fever detected by thermometer, in order to decrease the temperature, you would be prescribed with painkiller and ordered to bed. In business, the KSF are those levers which explains not only the target, but also point the path of change – how we can successfully move from one to another (better) position. And, yes, after the change is implemented, the KPI “thermometers” should measure the difference of a changed state.

How to overcome frailty EQ reactions while proposing to change with emotions imbued past solutions? Simply (?!) by intensifying IQ over EQ, separating people involved from the problem, describing the proposed change using metaphors, … By doing this you create another, temporary, parallel world, the emulated business surrounding. This environment is to be used as a playground for the purpose of toying with the ideas and proposals during the negotiation only. All these with intention to present the rationale of change “on some other case”, with “some other names” to reach a principled consent “yeah this might work…” from the opposite negotiation party. And the results of the parallel world should be later transplanted in the real business environment. All with a view not only to decrease probability of potential misunderstandings but, of equal importance, not to distract the negotiation with potential conflict that could arise from hurting personality of the negotiators by bringing him /her out of the comfort zone (too deep or for too long).

All these enable higher level of collaboration during negotiation and increase probability to conclude with a win-win agreement. To end the negotiation with an untouched self-respect and good opinion on the process itself. And to assure, that also this negotiation will add a piece to a mosaic of entire relationship with the counterparty. 

Arguments over EQ! Do we have possible communication problem?

By separating the people and the problem, using arguments and rational rather than wishes and fillings, you might enter a communication problem. Many sources refer (and we will argue them in our next blogs) the structure of communication that over 90% of the communication is body language or nonverbal communication. Being more specific: with the percentages of importance of varying communication channels should indicate that 55% of communication is body language, 38% is the tone of voice, and 7% is the actual words spoken. 

Even if these numbers are discuss-able, it is true that body language plays important role. Namely, by removing the temperament part of our communication weapon arsenal out of negotiation, we have to strongly emphasize on remaining available communication skills. This makes principled negotiation much harder in comparison to - for example - positional bargaining, where you are “satisfied” also with win-lose situation.

Such situation is not in benefit even of IQ minded negotiators, even if might be differently seen at first glance. It requires extensive training in skillfulness of »allowed« non-(too) emotional communication and much, much more effort during the preparation of the negotiation. Preparation - especially to define principles, interests and to solidly argument it in order for both parties to accept argument as a substitute to emotional power based negotiation extensively using non-verbal communication which excite human mirror neurons[1]

Provide solutions in mutual benefit

Isn’t it great!?! You are starting to build up the relationship with the opposite party!

Well, you seldom meet entirely new stories and people in it. Even with the inventions as the subject of negotiation, you are always possessing some relations, data, information that would help you start the negotiation with “something on the table” what should empower both parties with clearer understanding of the interests at issue. So, rather than establishing new, we most often adapt, improve existing relationship.

Once you’ve defined the interests of both, yours and your opposite negotiation party, when you’ve separated personal fillings from the scope of the negotiation, you need to find several options and alternatives. The elaboration of which should enable problem solving and bring you to win-win solutions in benefit of both negotiating parties. Therefore, fulfilling their interests.

At generation of different options that should lead to solution of a problem, to supplement existing both processes of the participants are dearly welcomed. For that, many possible different mechanisms and approaches (i.e. additional information gained by RFI, brainstorming, Delphi method, negotiation coaching, communication training …) that can add to creative thinking are to be adopted. While designing the options, use multidisciplinary team consist of not only of specialist for the subject of negotiation, the procurement and law office, but all that are involved in either designing the change, responsible for the change implementation and those who will daily live with the change. With negotiation team members, try with hired outsider specialized in integration and negotiation of core elements of different interests of both negotiation parties. All these would enable you to enhance an out-of-the-box thinking.

Define objective criteria, the principles of change: Business. Professional. Ethical. 

For two reasons:

1. to minimize the fear of the foreseen change, and 
2. to define the rules how you will concede from your initial bargaining offer 

outline principal rules of change! Explain how to align the change with the interests of yours and those of the opposite negotiation party. Define how to put the change in focus of the interests!

Absence of defined principled criteria can lead to a contest of wills, bitterness, and deadlock.

How to define objective criteria? The ethical principles are easy to write but harder to comply with. It helps if written ethical or moral standards exist. Both remaining, the business and the professional are easier to define since several rules and laws are written for those two areas of interest. You can use standards or “just” business practice, a professional judgment, precedents, performed research works and/or analyses, experiences possessed in the long-term know-how, excellently implemented past business decisions, usances, tradition, … Apply these standards and arguments to the negotiation - you should for sure increase the probability of conducting the negotiation in more constructive way, with solid argumentation of the problem, setting adequate options and alternatives as base for value-adding solutions. With increased prospect to conclude the negotiation in a win-win manner.


If you will conduct the negotiation process in a way to have possibility of equitable participation of both parties, including co-designing the interests, defining the agenda and setting the infrastructure for the meeting, co-leading the negotiations with clear invitation to jointly decide on all (relevant) issues. This, in combination with open, honest approach, contributes to “your face”, to trust in you, as well as to perceived equality of the negotiation process for both parties, satisfy them with the results and, by improved relations, reinforce and confirm excellent base for further cooperation.

[1] See Giacomo Rizzolatti  and his Italian scientist tram discovery. In short: mirror neurons is a system that provides the physiological mechanism for the perception/action coupling. They argue that mirror neurons may be important for understanding the actions of other people, and for learning new skills by imitation. Some researchers also speculate that mirror systems may simulate observed actions, and thus contribute to theory of mind skills, while others relate mirror neurons to language abilities).


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"Theory of game" strategy

An universal negotiation opponent (as by rule with lower bargaining power)

In negotiation, the game theory explains the rational behavior among negotiators acting interdependently to reach best possible outcome. The best possible outcome for… for whom?? The negotiators have a common interest to make the pie as large as possible, but they have to compete to maximize their own share of same pie.

The Game theory negotiation – uncertainty promotes conflict?
And while competing, negotiators are anticipating and identifying the opposite party’s actions and reactions in order to response with a rational offer /decision. Since anticipations that implies for expectations are not entirely predictable, the uncertainty is essence of negotiation based on the theory of game. And as that, the “opportunities” for a conflict between negotiating parties are "great".

Vivid process of negotiation

The theory of game is sometimes referred as the position bargaining, but I rather call it a strategy of tactical negotiation. Because this is a strategy which is, in parallel to both other strategies described in other blogs (the principled negotiation and the partnership negotiation) the hardest to explain independently without explaining the belonging tactics used as tooling during such negotiation. In whatever explanation of the theory of game strategy, you have to use the content of different negotiation tactics in order to explain this strategy correctly.

There is no straight border between game theory negotiation and the principled or partnership negotiation – in game theory approach, you can see elements of all. All with the purpose of the negotiator to get as biggest piece of the pie as possible.

ZOPA, the agreement zone

In all three mentioned strategies, and the most pronounced in the game theory strategy, it is important to get ASAP good filling where the zone of possible agreement is. Identifying this would give you a first mover advantage. Finding borders, comparing those with expectations of both parties to confirm that it has potential to satisfy the interests of both, defining options within the borders to deliver solutions that furnish contract. The solution that is not necessarily in win-win benefit – remember, we are playing a game (theory)!

Where we end up in the contract zone it depends on bargaining power. The bargaining power usually depends on

• alternative opportunities if no bargain is reached (outside option), we will letter on called it WATNA (Worst Alternative To Negotiate Agreement) or BATNA (Best Alternative To Negotiate Agreement),
• relative cost of delaying the negotiation, if one of the parties measures this time as an opportunity cost,
• commitment strategy, the extent to which you can make the other party believe you will not budge.

Cooperation? Competition? Coopetition!
There is no “right way of negotiation”. Depending on your negotiation style, on the bargaining power and tactical approach (the use of negotiation tactics), you define your own negotiation style, a part of “your face”. Before all, you need have to be responsible as least as that much to know well, to be aware of your negotiation style. To know it and develop it constantly.

Roughly stating, there are 2+1 negotiation styles: the competitor or the cooperator + since in life, we should not live in extremes, the combination of both, the coopetitor. The features of all three are mirrored also in the negotiation tactics used.

While the cooperator may be too wicking to share data and information, collaborate and make concessions to the opposite party, the competitor might take the advantage on such offerings. Especially if reactions of the cooperator meeting the competitor are temperamental, this is just prove for the competitor, that he /she is successful in negotiation…

So, the right, healthy mix of both personalities will give you a balanced negotiator.

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E-auction for bank deposits?

You must be kidding!
No, I’m not. And.. YES! We did it! Let’s do it again for you, my dear blog readers!

E-auction for companies surplus cash to bank deposit 
Just as an intermezzo between blogs on negotiation. the e-auction is also the “technological advanced” as well as damn difficult way to negotiate. With a blue chip, business innovative company, we successfully finished an e-auction. The subject of the e-auction was a short-term cash, which the company deposited to bank as a cash surplus within the active management of working capital requirements.


First thing first… What is an E-auction? 
The e-auction is a modern, e- type of business negotiation between auctioneer (the company) and bidders (suppliers). It takes place on a technologically advanced platform simulating a wide electronic marketplace.

It’s becoming an inseparable part of the everyday procurement process while connecting three most important documents of that process – (internal) request for procurement, order on basis of negotiated contract and the bill to be paid for the service provided from the supplier.

Types of auction

In a classic auction, buyers compete by bidding the prices to buy offered item, which is a subject of the auction. As the opposite to the ordinary - forward auction -  where supplier sells to several bidders (buyers), the company in procurement uses a reverse auction, where they collect offers to buy from several suppliers, trying to get the item for the lowest price possible. In business most often the e-auctions are performed between companies (B2B), more seldom to customers (B2C) or between customers alone (C2C).

Why e-auction?

E-auction results  of reference (source: www)

• Typical savings in procurement e-auctions range from 10 to 40%
• Siemens in 4 years increased procurement through e-auctions more than ten-fold, over 5,5 billion €
• Telefonica shortened time of procurement cycle by 50% and decreased costs in the process by 27%
• Royal Dutch Shell uses reverse e-auctions from 2011. Today over 100 e-auctions is executed monthly
• All Fortune 500 companies perform e-auctions!

Limitation of the e-auctions

Beside the impersonal approach to negotiation, where it is not necessary for you even to meet the supplier at all, several other, more IQ limitations may occur:

• possibility of fraud, although high transparency and audit trail
• limited participation of suppliers
• security of data transmitted over the e-medias
• auction software was costly, but these days you can repay the investment within few auctions
• long cycle time of preparation, but short and repeatable execution
• equipment for buyers is becoming more and more universal and undemanding for use
• dismissive attitude of those performing the negotiation, because they have to learn something new
• fear of change as constant worm in our heads

There are also some myths accompanying the e-auction…

Do you use E-auction? (Efficioconsulting, 2011)

“Only” 9 steps to perform a successful e-auction…

1) Select right item for the e-auction. 
Everything that is billed to you can be auctioned! It’s a bit easier to perform the reverse auction on tangible items (material, equipment, products, …) than services. But it is not seldom to auction even lawyer services, if you define the user requirements right and respectively include the specifics of the selected auction item.

Some auction software come with possibility to use simple approaches and analyze your procurement portfolio to suppliers/items. Intention is to find out the most appropriate item to auction, either as regards suitableness of the item specifics, or taking into consideration higher priorities due to economic criteria (i.e. ABC method for finding items where most of the effect is gained using the least effort.


2) Define requirements and goals. 
Define user requirements by defining the quality and functionality of products or SLA for services. Use appropriate criteria and assign right weights to assure effective selection of bids and efficient flow of the auction process.

Do not underestimate the fact that also in e-auctioning using right negotiation strategy and tactics is important. It has slightly different approach but still influences the negotiation process in a great manner.


3) Train and prepare the participants. 
E-auctioning is relatively new approach. Therefore, there is a high probability that participants on either side of negotiation “computer screen” do not possess sufficient knowledge as well as experience with e-auctioning. While the last comes with the millage over years of repeated negotiation, we cannot afford to let the participants to participate in auction without sufficient knowledge – it would cause errors and bad mood. Both leads to aversion to e-auctions finding many more arguments against than in favor. Train your staff! Hit the road, visit several suppliers and explain the process. Higher your negotiation power the more success you’ll have in attracting their attention and convincing them.


4) Publish and invite potential suppliers. 
Scan the competences of potential suppliers! Especially since the e-auctioning allows you to invite long-distance cross-border potential suppliers, prevent of giving non-arguable advantage to prices (best bid) neglecting capabilities to perform (price-performance). Draw a transitional matrix (we will discuss it in one of our next blogs) and map your supplier in it, discovering its ability to adapt to your present requirements and future developments.

Be fair to all bidders. Remember? Keep “you face”!


5) Prepare documentation. 
Good documentation is vital – remember, personal contact in e-auctioning is very limited. Therefore, there is little room to correct a mistake during the ongoing on-line bidding process. Use all RFx steps if necessary, but be consistent in building the best tender documentation ever and avoid potential costly misunderstanding and/or disqualification of your credibility.


6) Review and exclude non-compliant bids. 
Based on documents and your requirements, you receive bids prior the execution of on-line bidding. Analyze them in detail, allow bidders to supplement them (if allowed). But, above all, enter the bidding with equal quality of documentation for all bidders.


7) Perform the e-auction. 
Do it!


8) Monitor the e-auction. 
Act according the e-auction process to run it efficiently – react in case if needed. Use mail, phone – adapt newly emerged situations, prevent the incidents.


9) Select the winner and close the dealThe process should propose to you the winner with best offer according to your requirements and goals reflected in the documentation. Some electronic “paperwork” is needed to close the deal.

Execute the procurement and enjoy the relationship.

How to auction the surplus money with banks?

Auctioning the company surplus cash to be transferred to the bank deposits is rarely used approach. Even though you can perform the e-auction on services, most banks belong to even more specific species - conservative, with complex authorization system, escalating seniority, more rigid as you are – arising from relatively high regulated environment. Therefore, they are less inclined to changes, to business innovations. These could be their great excuse to avoid e-auctioning, if there would not be little bit specific in their business – they are using e-auctioning every day! In trading interest rates and currencies, securities and commodities. Over Bloomberg, Reuters, …

For that, breaking ice while inviting the banks to cooperate in e-auctions is obvious. And, after extensive explanation of the reverse e-auction, all banks that considered themselves to be true partners in management of the company’s working capital (do you remember last blog where we talked building the partnership negotiation?), participated in a constructive way!

In the process, basically, we followed all the above steps carefully, giving especial attention to:

• selecting straightforward product –short-time deposit, a transaction that is performed in a classical way almost daily
• training the staff on both sides to assure readiness of the bank staff and routine on side of the financial department of the company
• assuring enough participants – I suggest over 5 banks, because, by default, they will not response all and you need at least three or four of them
• monitoring the execution of the auction – nevertheless, it was the first time for the company, for the banks in the country, and most probably in the region, too.
• do the follow-up after closing the deal. Find www (what went wrong) and especially what went wow – to avoid the first and to reinforce the last. And remember – the bank should be your trustworthy partner that should follow you in good and less favorable (economic) conditions. And as such, if they have not participated in the auction (remember, today the banks liquidity is extensive, they do not necessarily need costly deposits), perhaps you should revise also the “cookies”, such as payment transactions over banks, fees and commissions, the prices of loans, … Because… Within negotiation - use your bargaining power to stabilize your supply chain – also for supplying money – especially since you rely on your partner in optimizing your working capital.

Were we successful?

Be the judge! The baseline interest rate received and used in the past actually was improved by almost 30 bp. I should not give you exact numbers on better results, not to reveal the interest rate of the company – but let’s say, that they nicely fit in range of the above stated “e-auction results of reference”. By taking into account same transactions in next 12 months, the result is repaying all the TCO costs of e-auction (of course, incl. depreciation of the SW) for several times.

Well done! With great team and capable decision makers. And, last, but not least – with affirmative support of the management board. Along with collaboration of the (partner) banks!

Would you like to do it too? Contact me, we’ll do it for you to! Click: www.avanton.si 

Negotiate strategic partnership

As we said in our previous blog, there is no real reason why slotting your negotiation opponents with more than three basics strategies:

Although gear for the partnership in the above picture is the smallest (since it applies for the smallest portion of your suppliers in the procurement portfolio (=the counter parties in negotiation)) – it rotates the fastest. Somewhat mirrors the energy required from both negotiation parties required to be injected into the relation.

Partnership in business is like with friendships in our life… How many real friends do we have? More than five? Really? Let’s talk about physics – because the nature doesn’t lie, right?:

• taking into account the zero law of thermodynamics, which says that two bodies are in thermal equilibrium with a third system, they must be in thermal equilibrium with each other… well, since free markets impose equilibrium due to competitive forces, also market players, competitors and /or partners have to be well balanced to navigate well;
• combining it with the first law of thermodynamics: the energy can neither be created from nothing nor destroyed into nothing. But it can be transformed and transferred (from one to another body).

You can conclude that differences in expectations between two negotiating parties you can overcome by converging towards (most preferable common interest) closing negotiation with an agreement infusing great amount of energy.

With your friends, they will “cost you” energy – as by newest definition: “a friend is a person to whom you continually give unlimited great deal of your energy. And conversely, he/she serves as a battery charger when your energy is low”. Same with partnership in business? 

(Strategic) partnership is the highest level of relationship offered through the negotiation strategies presented in this blog. Beyond the limits of competition, coopetition, or merely consultation over RFI & RFP, embracing all different levels of participation, the partnership between negotiating parties stresses cooperation from very early stage of design of the change until the final agreement later on. In partnership, individualism is withdrawn in favor of highest level of collaboration. 

According to the most or even all previously mentioned characteristics: the nature of foreseen agreement itself (i.e. duration of contract, scale & scope, cooperation on early R&D, …), the communication across joint activities in problem solving process before the conflict is even on the horizon, and involving strategic issues of mutual cooperation. 

Partnership requires high corporative culture & ethics with companies, and highest moral values of individuals participating in the negotiation teams. All mentioned creates wonderful social capital, which, especially in time of recession, where trust is pretty rare currency, always gains in value. It develops mutual respect and that special sensitivity for possible not only business, but particularly cultural and other differences. These is exceptionally important since in era of globalization, most of the relations these days often state and social crosses borders. 

The necessary condition to form a partnership is sharing same or similar aspects of a common interest on a targeted area. But be aware – as many as there are benefits of the partnership relation, not much less there are limitation present, at least in comparison with other levels of cooperation /coopetition.

All these characteristics make the partnership as a strategic approach to negotiate an ultimate upgrade of the integrative strategy where all basic features of principle negotiation are adjusted for a cooperation rather than coopetition. Again, the directions are following simple principle – address the partner’s party as they would be part of your (business) system, a part of your life.

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