Defining requirements lies at the start of any successful negotiation.
Sounds simple, doesn’t it? But this basic precursor, and the wider concession strategy within which it sits, is a concept that is difficult for many to grasp.
It is complex because it is not a process, a tactic or a set of rules. It is an amorphous mix of how we outline everything we need and want from a negotiation, what we can and cannot accept, and a planned means to move towards a goal to maximize success.
A concession strategy determines how we should manage the way the negotiation plays out and, as such, is a critical component of any winning plan.
Despite this, it is perhaps the least planned for and most avoided part of negotiation preparation.
Our ‘negotiation requirements’ or ‘negotiables’ form our shopping list of essential and desirable outcomes as well as individual topics for discussion. Negotiations with suppliers could include:
- Payment terms
- Agreed volumes/size or duration of contract
- Specification, features, benefits, levels of quality, service levels
- How the relationship will work.
If we can have everything we want, what would we ask for? We need first to understand all the requirements that shape what we are buying and might already have been used to communicate our need to the supplier or supply base as part of effective tendering, supplier selection, contracting and performance measurement. Typically, these might include many different requirements of which some will be essential and non-negotiable:
- For the goods or service we are buying (specification, quality required, service levels that must be achieved, timing etc)
- The supplier must meet (accreditations, compliance with legislation, proven track record etc)
- For how the business might want to implement any long-term sourcing arrangement for the area of spend (sufficient supplier capacity, support for implementation etc)
- Pertaining to the relationship we want with the supplier (alignment of future plans, willingness to collaborate etc).
An important tool used in strategic sourcing is the RAQSCI (Regulatory, Assurance of supply, Quality, Service, Cost/Commercial and Innovation) business requirements model.
There is a sequence or hierarchy to business requirements and the model is often shown as a staircase with Regulatory and then Assurance of Supply requirements representing the needs that must be satisfied above all others.
Similarly, it is pointless considering commercial needs such as payment terms or designated points of contact if assurance of supply cannot be met and goods may not turn up. This hierarchy is crucial as it refocuses attention in a prioritized order on what is important.
Defining the negotiables
Begin by discounting non-negotiable elements – things that must be satisfied in any case and do not need to form part of the negotiation. For example, a food producer may require suppliers to comply with relevant food safety and hygiene regulations and demonstrate suitable accreditations. It is pointless to engage with any supplier unless they can meet this basic requirement, which should be satisfied as part of a pre-qualification activity, perhaps through a tendering process.
The aim in developing negotiables is to identify only points that need agreement and can realistically be addressed – ideally around five or seven. Generally, the more negotiables or requirements, the more complex the negotiation becomes. The ultimate end-point is a simple list of the negotiables or the specific points on which we intend to negotiate.
The MDO, LDO, BATNA and ensuring the ZoMA
Any good textbook will reference the MDO and LDO or similar acronym. These are our Most Desirable Outcome (MDO) and Least Desirable Outcome (LDO). LDO is sometimes called LAA (Least Acceptable Agreement). Together these define what we would like to achieve but also provide for the minimum we will accept.
The purpose of the MDO and LDO is to establish clear aims for a negotiation while remaining in control and giving a negotiator all the relevant facts and data rolled up into two simple indicators.
They are needed for each of the individual points of agreement within the negotiation.
The Zone of Mutual Agreement (ZoMA) represents the overlap between our LDO and their LDO. If there is no overlap then agreement is not possible unless one or the other side is prepared to go beyond their LDO.
Determining the MDO
In the words of US motivational speaker Les Brown: ‘Shoot for the moon. Even if you miss, you’ll land among the stars.’ That’s a great philosophy as many negotiators do not aim high enough or are too quick to concede.
An aspirational MDO can help us maintain our position in a negotiation. As we reveal our MDO, the other party then has to move us much further to bring us into the ZoMA and this increases the likelihood of the deal being closer to their LDO than MDO.
In other words, they have to work hard just to get us to a point where agreement is possible. So, when determining MDOs, we should aim high, assume we won’t get everything we want and remember that, as compromise is inevitable, the more headroom the better.
Determining the LDO
Whereas finding good MDOs is a bit of informed guesswork, the LDO requires more certainty. Having a clear and accurate set of LDOs for all the negotiation requirements is critically important. Get this wrong and the consequences could be catastrophic.
Determining our BATNAs
The concept of the BATNA (Best Alternative To a Negotiated Agreement) is concerned with using the power of alternatives by creating choice as to making a particular agreement or doing something different. BATNAs exist both at the level of the entire deal and some of the individual negotiation requirements. They are an essential weapon and, ideally, a negotiator needs as many as possible.
Effective use of BATNAs is a case of being prepared to do something different. At a deal level, this may mean taking the entire business in a completely different direction and such a BATNA would need to be fully agreed in advance by relevant stakeholders and decision makers. Corporate strategy can often be determined or shaped by the outcomes of specific negotiations.
Steering to Success
In a negotiation with many negotiables, it can be easy to get lost. Skill comes from being in control while sailing through difficult waters. The effective determination of requirements within a wider concession strategy provides the vital map to steer proceedings towards a successful destination.
☛ Jonathan O’Brien is CEO of Positive Purchasing Ltd
This article includes excerpts from Negotiation for Procurement and Supply Chain Professionals written by Jonathan O’Brien and reproduced by permission of Kogan Page Ltd.