Negotiations Training

MAT

Dilbert on Negotiations You dont get what you deserve in life You get what you negotiate

Dilbert on Negotiating Clearly we can do better than Dilbert!

AgendaImportance of NegotiationsNegotiations Styles and TipsThe Negotiation Process and PreparationCreating AlternativesFinal Exercise & Key Takeaways

Lets start with the facts70% of people say they dont like negotiating

80% of business people say they want to be better negotiators

90% of people after finishing a negotiation say they have no idea if they could have done better

And, most importantly

Everyone negotiates every day123

Negotiations happen even when you dont want them to

What types of negotiations have you been involved in? Remember, everyone negotiates every day Note: Write answers on flipchart paper

This is the last day of MAT You should be structuring/segmenting your answersProfessionalPersonalDailyPeriodicalTypes of NegotiationsLets put the list we just developed in our 2-by-2

Everyone has personal and professional negotiations on a daily and periodic basisProfessionalPersonalDailyPeriodicalTypes of NegotiationsOther examples and segmentations are possible as well!Deadlines for delivering work to bossAmount of improvement needed in work by subordinatesDriving passing and turning othersWhat time youll be home for dinnerWho does chores / errandsAsking for more responsibility / moneyPurchasing equipment / supplies / productsWinning support for your ideasBuying a car / houseAgreeing with partner / spouse on key decisions

Learning comes from doing: Lets do an exerciseIn Negotiations, as in most things in life, the more we practice the better we get

The following exercise will give you a chance to try your negotiation skills

This is a competitive negotiation between groups The goal is to maximize profits!

Exercise InstructionsYou are each a member of the Board of an Oil Company in one of two countries: Alba or Batia

Alba and Batia sell oil to a third country, called Capita

Alba and Batia make profits depending on:What price they sell oil at, andWhat price the other country sells oil at

However, Alba and Batia have bad relationsThey do not talk to each otherThey each want their country to grow more than the otherNote: Trainer should read Trainers Note that accompanies case for full information

Trainer InstructionsDivide the group into two and put them in separate roomsOne group is AlbaThe other group is Batia

Give each person in each group a number starting with 1Alba 1, Alba 2, Alba 3, etcBatia 1, Batia 2, Batia 3, etc

There will be multiple identical negotiations between individual members of Alba and BatiaAlba 1 will negotiate with Batia 1Alba 2 will negotiate with Batia 2Etc

Hand out the instructions and pricing sheets to everyoneNote: The Trainers Note says to do this in groups of 4-6, but we will do it in individuals or if preferred in pairs

ExerciseDo exercise!

Post-Exercise QuestionsWhat were everyones final profits?Write them on a flip-chart

What did we learn?

The negotiation mentality has to be win-winWinLoseWinWrong Mentality: I Win, You LoseRight Mentality: Lets Find a Way to Both Win

You need to focus on the big picture and long-termWrong Mentality: The TreeRight Mentality: The ForestWrong Mentality: The BattleRight Mentality: The War

However, you also need to master the following three things:Understand your ownBe aware of theirsNegotiation StylesProcess and PreparationCreating AlternativesPrepare, prepare, prepareRecognize that most negotiations succeed because of work done in advance!Identify win-win opportunitiesThink outside the boxThese three items will be the focus of the rest of the module

AgendaImportance of NegotiationsNegotiations Styles and TipsThe Negotiation Process and PreparationCreating AlternativesFinal Exercise & Key Takeaways

What is your negotiation style?Think of a negotiation you are currently involved in (or have recently been involved in)Write it downTake 1 minute to think about how you would describe your style in this negotiationWrite it downTake 2 minutes to tell the person next to you about the negotiation and your style in it4 minutes total

Circle the element which is more your negotiation style for each of the following pairsParticipants are adversariesThe goal is victoryDemand concessions from relationshipBe hard on the people and the problemDistrust othersDig into your positionMake threatsMislead as to your bottom lineDemand gains to reach agreementSearch for the answer you will acceptInsist on your positionTry to win a contest of willsApply pressureParticipants are friendsThe goal is agreementMake concessions for relationshipBe soft on the people and the problemTrust othersChange your position easilyMake offersDisclose your bottom lineAccept losses to reach agreementSearch for the answer they will acceptInsist on agreementTry to avoid a contest of willsYield to pressureOPTION AOPTION B

What is your negotiation style?Sum up your Total of Option A and divide by 13This is how much you make Concessions

Sum up your Total of Option B and divide by 13This is how much you Compete

Collaboration > Concession or CompetitionCollaboration is the balance of consideration for self and others

Circle the element which is more your style for each of the following pairs (1 of 2)Participants are adversariesThe goal is victoryDemand concessions from relationshipBe hard on the people and the problemDistrust othersDig into your positionMake threatsParticipants are friendsThe goal is agreementMake concessions for relationshipBe soft on the people & problemTrust othersChange your position easilyMake offersConcessionCompetitionParticipants are problem solversThe goal is a win-win outcomeSeparate people from the problemCollaborationBe soft on people, hard on the problemProceed independent of trustFocus on interests not positionsExplore interests

Circle the element which is more your style for each of the following pairs (2 of 2)Mislead as to your bottom lineDemand gains to reach agreementSearch for the answer you will acceptInsist on your positionTry to win a contest of willsApply pressureDisclose your bottom lineAccept losses to reach agreementSearch for the answer theyll acceptInsist on agreementTry to avoid a contest of willsYield to pressureConcessionCompetitionCollaborationAvoid having a bottom lineInvent options for mutual gainDevelop mutual optionsInsist on objective criteriaReach a result independent of willsBe open to reason not pressure

Collaboration The Negotiation Vision

What is your negotiation style?Think back to the negotiation you talked with your partner about a few minutes ago

Take 3 minutes (total) to answer the following questions with your partner:Were you more conceding or competing?How can you use the concept of collaboration to help you specifically in that negotiation?What is the one thing you want to improve in your personal negotiation style?

A proactive personal style is positive, and never angryIf you can make a man laugh, you can make him like you Alfred E Smith, NY State Governor

You cant shake hands with a clenched fist Ghandi

Some people are Competitive negotiators

Use non-verbal communication to SOFTEN the hard-line position of others S MILEO PEN POSTUREF ORWARD LEANT OUCHE YE CONTACTN ODMake a positive, friendly, connectionShow you are open to negotiateCreate a bondPut yourselves on the same teamMaintain the bond and the focusGain their trust

Here are 8 tips to negotiating well (1 of 3)Dont be afraid to negotiate!Experienced negotiators know you can negotiate anythingOther people will take advantage of you if youre shy/timidNot wanting to negotiate can be very expensive!Its like anything the more you practice, the better you get. So practice! 1Dont get suckered by rules or standard contractsExperienced negotiators know you can negotiate anythingRules are often a trick experienced negotiators refer to rules because they know people respect rulesThere are no standard contracts You can always negotiateYou should feel 100% comfortable making contract changes before you sign the other party might say this is not normal, but it is!2

Here are 8 tips to negotiating well (2 of 3)Never be the first to name a figureOnce you give a figure, that becomes the anchor point and youll never know what you could have gotAsk them Whats their budget? or What are they expecting? You have nothing to lose3Ask for more than you expect to getAlways start high the worst that happens is they feel good because youre giving them a special dealOnce the other person gives their number, even if it's much better than you expected, say something like "I think you'll have to do better than that". Don't be arrogant or aggressive. Just say it calmly. 4Dont get emotionally involvedKeep calm, patient, and friendlyLeave your ego at the door and look for win-win opportunities5

Here are 8 tips to negotiating well (3 of 3)The final decision doesnt rest with youThis shouldnt be a way to re-negotiate after agreeing, but does give you time to evaluate the terms without the pressureThis prevents other people from rushing you6Dont act too interestedGiving the impression that youre willing to walk away will have a big impact on the negotiations. Its even better if you really are willing to walk away.Play the reluctant buyer or seller7Dont make the other person feel theyve been cheatedNegotiations should leave both parties feeling satisfied or it will come back to bite you in this or a future dealBe willing to give up things that dont matter to you to gain goodwill8

Your character who you are and how you act will follow you through negotiations Men of genius are admired

Men of wealth are envied

Men of power are feared

But only men of character are trusted-Alfred Adler, Austrian PsychologistIn Negotiations, be a man or woman of character

AgendaImportance of NegotiationsNegotiations Styles and TipsThe Negotiation Process and PreparationCreating AlternativesFinal Exercise & Key Takeaways

Preparation is the key to negotiationsBy failing to prepare you are preparing to fail Benjamin Franklin

If I had 6 hours to cut down a tree, Id use the first hour sharpening the ax Abraham Lincoln

Information is a negotiators best weapon - Zdenek Necas, Czech Adventurer & EntrepreneurShould Abraham Lincoln have spent more time preparing?

Typical negotiations have three parts Contact suppliersInform them of what you wantAsk for lowest possible priceAsk when they can submit bid byReceive bidsAnalyze bidsDiscuss pros and cons of each supplierChoose supplier(s) you are most interested inContact them to negotiate best possible priceTypical negotiations follow this standard format and have little planning / preparation

The right way to negotiate is to start with a plan, negotiate terms first, and provide bid feedback Receive bidsNegotiateRequest bidsIdentify scopeCreate work plan and timelineList stake-holdersSet goals Identify all possible suppliersIdentify company info requiredSend suppliers detailed request for infoCreate terms you want includedThink outside the box for all termsRequest feedback on termsUpdate terms where it makes senseInform suppliers terms are finalAsk suppliers for bidsSet a firm dateReceive and analyze bidsProvide relative / absolute feedbackMake it clear to all providers they need to reduce priceInform selected providers they are in final stageHold final round (in person if large purchase)

The key to negotiations is to do them on your termsCommon MisconceptionsRealityWere a small company and theyre a huge company we have no leverage

We cant change the terms

Suppliers wont provide their company informationBefore you sign a contract is when you have ALL of the leverage ask for what you want

It takes time and hard work to do the preparation but its worth it!

This works for big and small negotiations the only thing that differs is the extent of your effortIf you are the customer and there are competitive suppliers, YOU have all the power to set the terms the way you want them

Two recent TACA & Volaris negotiations followed this process to success Maintenance ComponentsFlight Simulator10-year Component repairs contract for TACA & Volaris Airbus fleetScopeKey Success FactorsTime-frameResultsFollowing the processSetting terms in advance of priceCreating a competitive environment3 monthsLarge savings over previous contract termsPurchase of Flight Simulator for Pilot TrainingFollowing the processSetting terms in advance of priceCreating a competitive environment3 monthsPurchase price significantly below market price

Developing a clear plan will lead you to successDevelop Plan1Identify scopeWhats in scope? Whats out of scope?Why?Create workplan and timelineWhat activities do we need to plan?How long will each activity take?List stakeholdersWho needs to be involved?How and when should we get them involved?Set goalsWhat do we expect to achieve?What are our financial targets?If you dont make time to plan, you might as well not negotiate

A detailed Business Questionnaire was sent to each Supplier at the very beginning of the process1.1 Company Information1.2 Financial Information1.3 Organization & Capabilities1.4 Key Accounts1.5 Engineering and Technical Capabilities1.6 Component Maintenance Capabilities1.7 Staffing1.8 Inventory Management1.9 Customer Support and Account Management1.10 Pricing Proposal Questions and Payments1.11 Quality and Schedule Requirements1.12 Warranty1.13 Components ShipmentAPPENDIX A: SUB-CONTRACTOR INFORMATIONRequest Company Info2TACA-Volaris Component Maintenance Business Partner Questionnaire Table of ContentsAsk for as much information as you want Dont be shy!

This is your chance to learn more about the suppliers

If they dont do a good job filling this out, its an indicator of how much they value your business

The terms should be prepared using supplier contracts and internal brainstormingPrepare Terms (RFP)3Analyze supplier contractsIdentify company needsThink creatively about what else to includeSynthesisSynthesize thoughtsUse external consultant / SME if neededFeedbackUse process shown on next slide (or other similar process)Hold multiple rounds of feedback if necessarySet termsCreate document with all terms other than priceProduct descriptionService levelsTimelinesPenaltiesAdditional benefitsVolume discountsEtcUpdate termsFinalize terms that you want The negotiations should be on your termsRemember however that everything has a costConduct internal sessionsUse old contractsRequest supplier contracts

Feedback on terms should be addressed fairly, and must be agreed before negotiating pricePlease see Revised RFP Requirements sent on May 22nd for new terms overall cap on PenaltiesUnder the assumption that all packages will be awarded to Supplier4.5.2 Responsiblities- PenaltiesAll Components, OEM or PMA, that are part of the Agreement will be subject to TAT, MTBR, and AOG penaltiesFor PMAs used upon Volaris - TACA's request, TAT-performance, MTBR performance guarantee and AOG rules as set forth in the RFP will not apply4.11 PMA support and creditYes, Over and above pricing only apply to the circumstances listed in the RFPQuestion from Supplier: If we understand the paragraph in the RFP correctly, you mean that over and above pricing will only apply to repairs or removals due to: (see table on left)3.4.3 Over and above repair conditionsWe cannot provide a return destination as inventory planning is dynamicTACA ResponseSupplier 1 Compliance (Yes/No)The return destination of subject component has to be specified by Volaris-TACA on the first day of shipping from any Volaris-TACA designated station4.4 Turn Time RequirementsSupplier 1 Response Round 1RFP CategorySupplier input requiredNegotiate Final Terms4

A Pricing Sheet should be based on your terms and allow you to compare apples-to-applesRequest & Receive Bids5

Qualitative Feedback should be provided to allow suppliers to address areas of weaknessPoorBelow AverageAverageExcellentGoodExperience with A320 simulatorsCompetitive pricesKey StrengthsCustomer serviceLevel of detailSoftware upgradesProduct is newWeaknessesProvide Bid Feedback6A

Company Simulator ExperienceA320 Simulator ExperienceCustomer Service LevelRFT PeriodSoftware Upgrades PackageSpare Parts Support PackageWarranty Pricing

Pricing Feedback should also be provided in a way that forces competitionLevel D Simulator plus Airbus Parts & DataSupplier 1CompetitorCompetitorCompetitorNote: Price variation in legend can and should be different for each supplierProvide Bid Feedback6B

A final negotiation day (also possible by email) will ensure you get to the lowest priceWe have asked suppliers:To present advantages of their company / productTo address any perceived weaknessesWe will give feedback and ask for additional benefitsReview updated offersChoose and inform top two suppliersGive additional feedbackLook for win-win ways to reduce priceEnsure clarityReceive final offersReview offersMake decisionMake final askObjectivesHold Final Negotiation7Simulator Final Negotiation Day

How can you use this process?Imagine you are responsible for negotiating Volariss new photocopier leasing contract

What would you do for each of the first three elements of the process?Develop PlanRequest Company InfoPrepare Terms (RFP)Identify scopeCreate work plan and timelineList stake-holdersSet goals Identify all possible suppliersIdentify company info requiredSend suppliers detailed request for infoCreate terms you want includedThink outside the box for all termsHow can you use this process in any work-related negotiations you have now or will have in the near future?321

AgendaImportance of NegotiationsNegotiations Styles and TipsThe Negotiation Process and PreparationCreating AlternativesFinal Exercise & Key Takeaways

You can always negotiate

Lets start with a gameSplit up into groups of 3Each Group will receive two $1 billsEach Group must decide who gets to keep themYou really get to keep them!If you cant decide, the Instructor keeps themThe bills can not be changed into coinsYou have 5 minutes

What did you learn?How did you solve the problem?What negotiation tactics did you use?What alternatives did you create?How do you feel?

Creating alternatives starts with interests instead of positionsWhats really important to me?Can I put myself in your shoes?How can we both achieve our interests?InterestsPositionsHow can I explain my position?Why dont they understand me?How do I win?

Once you identify interests, you can start generating alternativesI want a salary increasePositionI want to be recognized equally with JoseInterestsTitleOfficeResponsibilitiesSalaryAlternativesI need 25% savings on this contractWere having a tough quarterI need to make this look good for my bossShort-term vs long-term pricingBenefits related to other products boss managesYou clean the house this weekendI look after the kids all week and want to be appreciated for itFlowersVacationDinner for two

The Pareto Principle demonstrates how you can be equally satisfied in different situationsMoneyOther BenefitsPareto PrincipleYou can be equally happy at any point on the lineSo, you can make trade-offs (find alternatives) that enable an equally satisfactory agreementRemember everyone has a differently shaped line!

Knowing your BATNA (or more importantly having one!) allows you to negotiate confidentlyBest Alternative To a Negotiated AgreementOr, your next best optionThe most single powerful tool in a negotiation is the ability to get up and walk away from the table without making a deal

Negotiating from a position of real need is a bad, bad situation. You are almost certainly going to lose. The other party will push until they find your threshold of pain

In order to negotiate effectively, efficiently, and wisely, it is crucial to prepare. Preparation means studying the interests and BATNAs of the other side as well

Think about wanting to buy tickets to a football game but theyre only available from scalpers. You start to negotiate. Then you think This is getting expensive Whats my BATNA?

Never negotiate without having alternativesWhat are examples of business negotiations you have done (or might do in the future) on behalf of Volaris?

What alternatives did you (or can you) create?

What happens if you dont have alternatives?

Look for points of leverage you can benefit fromWhat is leverage?Imbalances of informationA situation which is competitive between two parties who both want your businessSomething that is more important to one party than the otherHow can you use leverage?Search for and identify points of leverage as early as possibleHold your position when you have a point of leverageThe other party will eventually agreeDont flaunt itGenerate alternatives taking advantage of your points of leverage

AgendaImportance of NegotiationsNegotiations Styles and TipsThe Negotiation Process and PreparationCreating AlternativesFinal Exercise & Key Takeaways

One more exerciseHand out Parker exercise

One more exerciseWhat did we learn from this exercise?

If you only remember four things from this session:Its about collaborationNot concession or competitionNegotiation StylesProcess and PreparationCreating AlternativesNegotiations succeed because of work done in advanceAlways create alternativesEverything is negotiable1234

Here are the 8 tips to negotiating wellDont be afraid to negotiate!1Dont get suckered by rules or standard contracts2Never be the first to name a figure3Ask for more than you expect to get4Dont get emotionally involved5The final decision doesnt rest with you6Dont act too interested7Dont make the other person feel theyve been cheated8

And finally, a list of negotiation tacticsAuthority LimitsChange the NegotiatorCherry PickingFinal OfferGood cop / Bad copHovering PenMind tricksSignalingWalk OutWhat if?TacticExplanationNeed to go to boss for approval above $x Used to get agreement on lower priceSwitch negotiators mid-negotiationAllows the new person to re-open itemsCombine the best prices on different itemsAsk other side for best deal including others pricingState that this is the final offerUse it only when you mean it or lose credibilityWork in pairs, one nice and one toughNice one can gain knowledge, tough one blamedSay youre ready to sign, then raise final issueTry to take advantage of others eagernessAct to extremes rude, crazyThe real act here is distractionSignals can be true or false and intentional or unintentionalLook for them and use them, but proceed with cautionLeave the room because of an issueUsually designed to make the other person over-think somethingAsk lots of questions, indicating creative solutionsUsed to understand other side better, especially by buyers