Getting the Right Communication Channel is Critical to Negotiation Success

Communication has never been easier, but selecting the right communication channel for optimum results in negotiation is still as important as ever, explains Mike Phillips, senior partner of negotiation specialists Phillips Consulting. Twenty-first century multi-media provides us with a dazzling array of communication options – text, email, phone, instant messaging, even LinkedIn – the list seems almost endless. However, a skilled negotiator will want to maintain close control of the negotiation dialogue at all times and so a great deal of care needs to be taken in deciding how to communicate with the other party. Most of the more ‘instant’ types of communication, such as text or instant messaging, leave little scope for subtlety or nuance and are open to misunderstanding and, as such, have very limited value in business negotiation. The three key communication channels for negotiation are face-to-face meeting, written word – and nowadays this really means email, as traditional mail is almost universally considered too slow – and the telephone. Face-to-face meeting is unquestionably the best mode of communication for a negotiator but, being the most powerful, it leaves plenty of opportunity for costly mistakes. Although sometimes the only realistic option, teleconferencing should be avoided if a genuine face-to-face meeting can be arranged, even if this means delaying the discussion for a short while. The problem with teleconferencing is that the negotiator can misinterpret or miss altogether key emotional signals from the other party because of the limited view that the TV screen provides. It is also too easy to miss helpful non-verbal signals passing between the members of the other party’s negotiating team - a skilled negotiator will instinctively pick up on knowing glances between colleagues. It is also important not to use the opportunity afforded by the meeting to try to rush the other party. Pushing too hard and too quickly in a meeting is very likely to result in a defensive stance, which will not give you the best result. Be prepared to allow for a break, so the other party can weigh up the options you have presented. Where practical and reasonable, take the time to travel to the other party’s premises for the meeting. This not only shows confidence but commitment. Remember, world-class negotiation is about persuasion. An aggressive and demanding negotiator will always get some sort of result but it is only when you have genuinely convinced the other party of the power of your arguments that you can be sure no money has been left on the table. The written word, via email, is the next best mode of communication, particularly when used following an initial face-to-face meeting. I have sometimes been challenged when placing email above the telephone for negotiating. To be fair, the convenience of email can be abused and meanings can be misinterpreted, either because of sloppiness or poor command of English, but it is easy to overlook the power of a skilfully crafted email. A master negotiator should not be in a hurry to hit the ‘send’ button. The real power of email comes from the ability to write, test and modify arguments before sending. Guard against possible misinterpretations by having trusted colleague not closely involved in the negotiation review the email. Do not be tempted to use email like instant messaging, firing messages back and forth. Again, the real power of this mode of communication comes from the time it allows. Every negotiator sometimes negotiates on the telephone but it is a severely limited mode of communication. Unlike email, where time allows for a considered response, you have to respond instantly. However, restricted as it is to the auditory channel, critical non-verbal information essential to a complete assessment of the position of the other party is lost. If you must negotiate on the telephone, make an appointment for the call. Nothing is guaranteed to push the other party into defensive mode more quickly than an unexpected telephone call.

Cultural Awareness in Procurement

The managing partner of negotiation specialists Phillips Consulting muses about the value of cultural awareness in procurement.

I will shortly be off on one of my increasingly regular trips to China. Globalisation has resulted in a marked increase in international procurement in recent years - especially in manufacturing - and as a negotiation specialist, I am often asked about the importance of cultural issues. In the Far East, for example, how much of a cultural faux pas is it to fail to bring a gift for your host, or to hand over your business card with one hand.

There is no doubt that if you are selling it would be silly not to be aware of the cultural nuances of your overseas client. However, even allowing for the fact that a top-class buyer will always ‘sell’ his or her business to the supplier, the situation is completely different when you are on the purchasing side of the negotiation. For a start, it is critical to set and control the tone of the discussions. This means doing things your way. It is very easy, feeling that you are being sensitive to local cultural norms, to be led along a line that you would not normally go. Of course it is good to be culturally sensitive but take care not to inadvertently hand the initiative to the other party. Apply your sensitivity only to the extent that it will help you achieve your goal.  

For example, giving ‘goodwill’ gifts is common in the Far East, but increasingly rare in Western Europe. I prefer not to. I want a relentless focus on the negotiation issues and I do not want anything, however trivial, to distract from that.

And this is my point. In business there is a universal language that is clearly understood in every corner of the globe – doing the deal. Successful negotiations are achieved by applying universal qualities, like courtesy, respect and personal warmth. So do not be overly worried if you have passed your business card with one hand or forgotten the shortbread biscuits. No serious businessperson will take offence when there is a deal to be done.

The Top 5 Myths in Procurement

Any profession can fall victim to damaging myths that build up over time. Mike Phillips debunks some of the enduring favourites in purchasing.

1. If a supplier agrees to reduce prices, they’ve been ripping us off before.

Taking this stance betrays a fundamental misunderstanding of business and, more importantly, fails to recognise an important negotiation dynamic. In purchasing, a key part the job is to achieve good value and this of course involves buying at a competitive price. If you achieve a lower than average price, you have likely done your job well. If some time later the seller comes to you requesting an increase because the price is not sustainable, would you feel that you have been found out as exploiting the seller? In reality, I think most buyers would blame the seller for not putting forward a sustainable price in the first place. But now flip the situation around, and imagine you are the seller. Your task is to sell your product or service at the highest price that the customer is be willing to pay. If you are good at your job, and you manage to achieve a higher than average price, are you ripping the customer off? Provided you have presented a truthful picture of the benefits of the product, then I think not. A contract requires agreement. If the customer has agreed to the price, then the price is, by definition, fair.

However, far more important is the damage this myth can do to a negotiation. When seeking to persuade a supplier to reduce prices, it is critical to create the intellectual and emotional space to enable the supplier to do what you want. Sellers are not stupid. They can see this myth can arise in the mind of the buyer. It is vital to focus the supplier on the future. Explicitly state that the past is the past and no offence will be taken if the supplier agrees to reduce the price. However, allow this myth to arise, and you will fatally damage your negotiation.

2. If raw material prices increase, then it is reasonable to increase the product price.

There is in fact one circumstance where this is true – when a raw material price adjustment mechanism has been explicitly agreed in the supply contract. This is actually good procurement. If you are purchasing a product with a significant cost element made up of a volatile commodity, you will achieve a lower initial price by offering the supplier a raw material price adjustment clause. Without it, the supplier will have to give you a higher price in order to cover the risk of the commodity increasing in cost.

However, without specific prior agreement, it is not necessarily true that it is reasonable to increase the product price as a result of raw material increases. The buyer should expect to get a benefit from agreeing to a price adjustment clause. Allowing the seller at a later date to adjust the price without a prior agreed mechanism is effectively giving the mechanism without getting anything in return. In this situation, we have to go back to the market to confirm the competitiveness of the new product price. If the market confirms the requested price is still competitive, then the increase may be reasonable. It is the product marketplace (not the raw material marketplace) that defines the reasonableness of the increase.

3. Maintain control of the negotiation by being assertive.

Too many buyers make the mistake of feeling that controlling every aspect of the negotiation will maintain the upper hand. This is damaging on two fronts. Firstly, the other party may respond to the controlling behaviour in a competitive manner. Great negotiation is about persuasion, not competition. As soon as you allow the impression to form that the situation is competitive, then you risk both parties becoming focused on winning, rather than achieving their objectives. This is the way to a lose-lose outcome, rather than a win-win.

The second damaging aspect of this myth is that it fails to recognise the value of giving way on what does not matter but holding firm on what does. For example, whenever possible, have meetings at a time and venue convenient to the supplier. This will very likely cost little but the psychological benefit to the negotiation can be considerable.

This ‘giving things of low value’ technique is why personal charm, which of course costs nothing, is an extremely important quality in purchasing. A great buyer will use personal warmth and courtesy as much, maybe more, than a great seller. Focused solely on achieving his/her objectives, a top-class buyer will remain patient and courteous for as long as it takes, provided the objectives continue to move closer as the discussion progresses. Good manners are a very effective persuasion tool.

4. There is no other supplier than can provide this product/service.

I have lost count of the number of times that a buyer has said this to me. However you interpret this statement, it represents a significant purchasing failure. If it is true, the situation presents an unacceptable logistical and financial risk. With no alternative source, any failure to supply has potentially catastrophic consequences. Further, the monopoly situation presents the supplier with an opportunity to increase prices without the restraining influence of the marketplace.

However, this is not an argument against sole-source supply agreements. Properly constituted sole-source agreements provide major procurement benefits and will of course include supply risk assessments and continued price competitiveness clauses.

In reality, of course, it is extremely rare for there to be a genuine and enduring monopoly situation. The buyer believing this myth needs to get on with identifying alternative sources. Allowing an apparent monopoly situation to remain in place must always be considered unacceptable. In fact, very few companies have no competition. When they do, it does not last long. But in the rare circumstances where this does happen, it is a situation that must be immediately mitigated or eliminated.

5. A contract must be signed to be valid.

Although this is an issue of basic contract law, it is surprising how many buyers (and sellers) believe this myth. And, of course, this is an enduring myth in the general public.

Space does not permit any in-depth discussion, but at a basic level a valid contract in English law requires offer, acceptance and consideration (that is, usually money). The key issue here is the question of acceptance. Nothing in English law requires acceptance by way of signature. When you buy a newspaper, the vendor offers it at the face value, and you hand over consideration (money), which is deemed as acceptance – a valid contract is formed. In essence, this is no different than contracts formed every day in corporate purchasing departments.

Case law has established that actions can be deemed as acceptance. Consequently, if a contract is negotiated, agreed and implemented by both parties, it will be extremely difficult to claim that a valid contract does not exist because of a lack of signatures.

Of course, it can often be good practice to get both parties to sign, but it is important for buyers to understand that a failure to do this does not prevent a contract being formed.

Mike Phillips is managing partner at negotiation specialists, Phillips Consulting