Negotiations Training

MAT

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Dilbert on Negotiations

You don’t get what you deserve in life…You get what you negotiate

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Dilbert on Negotiating

Clearly we can do better than Dilbert!

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Agenda

• Importance of Negotiations

• Negotiations Styles and Tips

• The Negotiation Process and

Preparation

• Creating Alternatives

• Final Exercise & Key Takeaways

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Let’s start with the facts…

• 70% of people say they don’t 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 day

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Negotiations happen – even when you don’t want them to

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What types of negotiations have you been involved in? Remember, everyone negotiates every day

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Note: Write answers on flipchart paper

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This is the last day of MAT – You should be structuring/segmenting your answers

Professional

Personal

Daily PeriodicalTypes of

Negotiations

Let’s put the list we just developed in our 2-by-2

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Everyone has personal and professional negotiations on a daily and periodic basis

Professional

Personal

Daily PeriodicalTypes of

Negotiations

Other examples and segmentations are possible as well!

• Deadlines for delivering work to boss

• Amount of improvement needed in work by subordinates

• Driving – passing and turning others

• What time you’ll be home for dinner

• Who does chores / errands

• Asking for more responsibility / money

• Purchasing equipment / supplies / products

• Winning support for your ideas

• Buying a car / house

• Agreeing with partner / spouse on key decisions

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Learning comes from doing: Let’s do an exercise…

• In 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!

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Exercise Instructions

• You 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, and- What price the other country sells oil at

• However, Alba and Batia have bad relations- They do not talk to each other- They each want their country to grow more than the other

Note: Trainer should read Trainer’s Note that accompanies case for full information

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Exercise

Do exercise!

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Post-Exercise Questions

• What were everyone’s final profits?-Write them on a flip-chart

• What did we learn?

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The negotiation mentality has to be win-win

WinWinWinWin WinWin WinWin

WinWin WinWin

WinWin

LoseLose

WinWin

Wrong Mentality: I Win, You Lose

Right Mentality: Let’s Find a Way to Both Win

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You need to focus on the big picture and long-term

Wrong Mentality:The Tree

Right Mentality:The Forest

Wrong Mentality:The Battle

Right Mentality:The War

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However, you also need to master the following three things:

• Understand your own

• Be aware of theirs

NegotiationStyles

Process and Preparation

Creating Alternatives

• Prepare, prepare, prepare

• Recognize that most negotiations succeed because of work done in advance!

• Identify win-win opportunities

• Think outside the box

These three items will be the focus of the rest of the module

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Agenda

• Importance of Negotiations

• Negotiations Styles and Tips

• The Negotiation Process and

Preparation

• Creating Alternatives

• Final Exercise & Key Takeaways

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What is your negotiation style?

• Think of a negotiation you are currently involved in (or have recently been involved in)

-Write it down

• Take 1 minute to think about how you would describe your style in this negotiation

-Write it down

• Take 2 minutes to tell the person next to you about the negotiation and your style in it

-4 minutes total

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Circle the element which is more your negotiation style for each of the following pairs

Participants are adversaries

The goal is victory

Demand concessions from relationship

Be hard on the people and the problem

Distrust others

Dig into your position

Make threats

Mislead as to your bottom line

Demand gains to reach agreement

Search for the answer you will accept

Insist on your position

Try to win a contest of wills

Apply pressure

Participants are friends

The goal is agreement

Make concessions for relationship

Be soft on the people and the problem

Trust others

Change your position easily

Make offers

Disclose your bottom line

Accept losses to reach agreement

Search for the answer they will accept

Insist on agreement

Try to avoid a contest of wills

Yield to pressure

OPTION A OPTION B

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What is your negotiation style?

• Sum up your Total of Option A and divide by 13

-This is how much you make Concessions

• Sum up your Total of Option B and divide by 13

-This is how much you Compete

But, is there another option?

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Collaboration > Concession or Competition

Collaboration is the balance of consideration for self and others

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Circle the element which is more your style for each of the following pairs (1 of 2)

Participants are adversaries

The goal is victory

Demand concessions from relationship

Be hard on the people and the problem

Distrust others

Dig into your position

Make threats

Participants are friends

The goal is agreement

Make concessions for relationship

Be soft on the people & problem

Trust others

Change your position easily

Make offers

Concession Competition

Participants are problem solvers

The goal is awin-win outcome

Separate peoplefrom the problem

Collaboration

Be soft on people,hard on the problem

Proceed independent of trust

Focus on interestsnot positions

Explore interests

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Circle the element which is more your style for each of the following pairs (2 of 2)

Mislead as to your bottom line

Demand gains to reach agreement

Search for the answer you will accept

Insist on your position

Try to win a contest of wills

Apply pressure

Disclose your bottom line

Accept losses to reach agreement

Search for the answer they’ll accept

Insist on agreement

Try to avoid a contest of wills

Yield to pressure

Concession CompetitionCollaboration

Avoid having a bottom line

Invent options for mutual gain

Develop mutual options

Insist on objective criteria

Reach a result independent of wills

Be open to reasonnot pressure

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Collaboration – The Negotiation Vision

Collaboration

Avoid having a bottom line

Invent options for mutual gain

Develop mutual options

Insist on objective criteria

Reach a result independent of wills

Be open to reasonnot pressure

Participants are problem solvers

The goal is awin-win outcome

Separate peoplefrom the problem

Collaboration

Be soft on people,hard on the problem

Proceed independent of trust

Focus on interestsnot positions

Explore interests

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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?

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A proactive personal style is positive, and never angry

“If you can make a man laugh, you can make him like you”– Alfred E Smith, NY State Governor

“You can’t shake hands with a clenched fist”– Ghandi

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Some people are Competitive negotiators…

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Use non-verbal communication to SOFTEN the hard-line position of others

S MILE

O PEN POSTURE

F ORWARD LEAN

T OUCH

E YE CONTACT

N OD

• Make a positive, friendly, connection

• Show you are open to negotiate

• Create a bond

• Put yourselves on the same team

• Maintain the bond and the focus

• Gain their trust

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Here are 8 tips to negotiating well… (1 of 3)

• Don’t be afraid to negotiate!

• Experienced negotiators know you can negotiate anything

• Other people will take advantage of you if you’re shy/timid

• Not wanting to negotiate can be very expensive!

• It’s like anything – the more you practice, the better you get. So practice!

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• Don’t get suckered by “rules” or “standard contracts”

• Experienced negotiators know you can negotiate anything

• Rules are often a trick – experienced negotiators refer to rules because they know people respect rules

• There are no standard contracts – You can always negotiate

• You should feel 100% comfortable making contract changes before you sign – the other party might say this is not normal, but it is!

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Here are 8 tips to negotiating well… (2 of 3)

• Never be the first to name a figure

• Once you give a figure, that becomes the anchor point – and you’ll never know what you could have got

• Ask them “What’s their budget?” or “What are they expecting?” – You have nothing to lose

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• Ask for more than you expect to get

• Always start high – the worst that happens is they feel good because you’re giving them a “special deal”

• Once 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.

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• Don’t get emotionally involved

• Keep calm, patient, and friendly

• Leave your ego at the door and look for win-win opportunities

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Here are 8 tips to negotiating well… (3 of 3)

• The final decision doesn’t rest with you• This shouldn’t be a way to re-negotiate after agreeing, but does

give you time to evaluate the terms without the pressure

• This prevents other people from rushing you

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• Don’t act too interested

• Giving the impression that you’re willing to walk away will have a big impact on the negotiations. It’s even better if you really are willing to walk away.

• Play the reluctant buyer or seller

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• Don’t make the other person feel they’ve been cheated• Negotiations should leave both parties feeling satisfied – or it will

come back to bite you in this or a future deal

• Be willing to give up things that don’t matter to you to gain goodwill

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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 Psychologist

In Negotiations, be a man or woman of character

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Agenda

• Importance of Negotiations

• Negotiations Styles and Tips

• The Negotiation Process and Preparation

• Creating Alternatives

• Final Exercise & Key Takeaways

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Preparation is the key to negotiations

• “By failing to prepare you are preparing to fail”

– Benjamin Franklin

• “If I had 6 hours to cut down a tree, I’d use the first hour sharpening the ax”

– Abraham Lincoln

• “Information is a negotiator’s best weapon” - Zdenek Necas,

Czech Adventurer & Entrepreneur

Should Abraham Lincoln have spent more time preparing?

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Typical negotiations have three parts

Receive bids NegotiateRequest bids

• Contact suppliers

• Inform them of what you want

• Ask for lowest possible price

• Ask when they can submit bid by

• Receive bids

• Analyze bids

• Discuss pros and cons of each supplier

• Choose supplier(s) you are most interested in

• Contact them to negotiate best possible price

Typical negotiations follow this standard format… and have little planning / preparation

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Receive bids NegotiateRequest bids

The right way to negotiate is to start with a plan, negotiate terms first, and provide bid feedback

DevelopPlan

Request Company

Info

Prepare Terms(RFP)

NegotiateFinal

Terms

Request & Receive

Bids

ProvideBid

Feedback

HoldFinal

Negotiation

• Identify scope

• Create work plan and timeline

• List stake-holders

• Set goals

• Identify all possible suppliers

• Identify company info required

• Send suppliers detailed request for info

• Create terms you want included

• Think outside the box for all terms

• Request feedback on terms

• Update terms where it makes sense

• Inform suppliers terms are final

• Ask suppliers for bids

• Set a firm date

• Receive and analyze bids

• Provide relative / absolute feedback

• Make it clear to all providers they need to reduce price

• Inform selected providers they are in final stage

• Hold final round (in person if large purchase)

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The key to negotiations is to do them on your terms

Common Misconceptions Reality

• We’re a small company and they’re a huge company – we have no leverage

• We can’t change the terms

• Suppliers won’t provide their company information

• Before 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 it’s worth it!

• This works for big and small negotiations – the only thing that differs is the extent of your effort

If you are the customer and there are competitive suppliers,YOU have all the power to set the terms the way you want them

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Two recent TACA & Volaris negotiations followed this process to success

Maintenance Components Flight Simulator

• 10-year Component repairs contract for TACA & Volaris Airbus fleet

Scope

Key Success Factors

Time-frame

Results

• Following the process

• Setting terms in advance of price

• Creating a competitive environment

• 3 months

• Large savings over previous contract terms

• Purchase of Flight Simulator for Pilot Training

• Following the process

• Setting terms in advance of price

• Creating a competitive environment

• 3 months

• Purchase price significantly below market price

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Developing a clear plan will lead you to success

DevelopPlan1

Identify scope• What’s in scope? What’s out of scope?

• Why?

Create workplan and timeline

• What activities do we need to plan?

• How long will each activity take?

List stakeholders• Who needs to be involved?

• How and when should we get them involved?

Set goals• What do we expect to achieve?

• What are our financial targets?

If you don’t make time to plan, you might as well not negotiate

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A detailed Business Questionnaire was sent to each Supplier at the very beginning of the process

1.1 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 INFORMATION

Request Company Info2

TACA-Volaris Component MaintenanceBusiness Partner Questionnaire

Table of Contents• Ask for as much

information as you want – Don’t be shy!

• This is your chance to learn more about the suppliers

• If they don’t do a good job filling this out, it’s an indicator of how much they value your business

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The terms should be prepared using supplier contracts and internal brainstorming

Prepare Terms (RFP)3

Analyze supplier

contracts

• Identify company needs

• Think creatively about what else to include

Synthesis

• Synthesize thoughts

• Use external consultant / SME if needed

Feedback

• Use process shown on next slide (or other similar process)

• Hold multiple rounds of feedback if necessary

Setterms

• Create document with all terms other than price

- Product description

- Service levels- Timelines- Penalties- Additional

benefits- Volume

discounts- Etc…

Update terms

• Finalize terms that you want – The negotiations should be on your terms

• Remember however that everything has a cost

Conduct internal sessions

• Use old contracts

• Request supplier contracts

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Feedback on terms should be addressed fairly, and must be agreed before negotiating price

Please see Revised RFP Requirements sent on May 22nd for new terms – overall cap on Penalties

Under the assumption that all packages will be awarded to Supplier

4.5.2 Responsiblities

- Penalties

All Components, OEM or PMA, that are part of the Agreement will be subject to TAT, MTBR, and AOG penalties

For PMAs used upon Volaris - TACA's request, TAT-performance, MTBR performance guarantee and AOG rules as set forth in the RFP will not apply

4.11 PMA support and credit

Yes, Over and above pricing only apply to the circumstances listed in the RFP

Question 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 conditions

We cannot provide a return destination as inventory planning is dynamic

TACA Response Supplier 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 station

4.4 Turn Time Requirements

Supplier 1 Response – Round 1RFP Category

Supplier input required NegotiateFinal Terms4

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

Request & Receive Bids5

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Company Simulator Experience

A320 Simulator Experience

Customer Service Level

RFT Period

Software Upgrades Package

Spare Parts Support Package

Warranty Pricing

PoorBelow

Average

Average Excellent

Good

•Experience with A320 simulators

•Competitive prices

Key Strengths

•Customer service

•Level of detail

•Software upgrades

•Product is new

Weaknesses

Qualitative Feedback should be provided to allow suppliers to address areas of weakness

Provide Bid Feedback6A

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Pricing Feedback should also be provided in a way that forces competition

Level D Simulator plus Airbus Parts & Data

Legend

0%-15% away from best offer

15%-30% away from best offer

30%+ away from best offer

Supplier 1 Competitor Competitor Competitor

Note: Price variation in legend can and should be different for each supplier

Provide Bid Feedback6B

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A final negotiation day (also possible by email) will ensure you get to the lowest price

Time Agenda Item

9:00-10:00 Thales Meeting

10:15-11:15 Mechtronix Meeting

11:30-12:30 CAE Meeting

12:45-1:45 Flight Safety Meeting   

1:45 Updated Offers Due (FS @ 2:15)

1:45-3:00 Lunch & Discussion

2:45 Second Round Notification (Top 2) 

3:00-3:30 Second Round Meeting

3:30-4:00 Second Round Meeting   

4:30 Final Offers Due 

5:00-6:00 Exec Update with A Schkn’t & J Solares

6:00 Inform supplier / Final ask

• We have asked suppliers:- To present advantages of

their company / product- To address any perceived

weaknesses

• We will give feedback and ask for additional benefits

• Review updated offers

• Choose and inform top two suppliers

• Give additional feedback

• Look for win-win ways to reduce price

• Ensure clarity

• Receive final offers

• Review offers

• Make decision

• Make final ask

Objectives

Hold Final Negotiation7Simulator Final Negotiation Day

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How can you use this process?

• Imagine you are responsible for negotiating Volaris’s new photocopier leasing contract

• What would you do for each of the first three elements of the process?

DevelopPlan

Request Company InfoPrepare Terms

(RFP)

• Identify scope

• Create work plan and timeline

• List stake-holders

• Set goals

• Identify all possible suppliers

• Identify company info required

• Send suppliers detailed request for info

• Create terms you want included

• Think outside the box for all terms

• How can you use this process in any work-related negotiations you have now or will have in the near future?

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Agenda

• Importance of Negotiations

• Negotiations Styles and Tips

• The Negotiation Process and Preparation

• Creating Alternatives

• Final Exercise & Key Takeaways

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You can always negotiate…

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Creating alternatives starts with interests instead of positions

• What’s really

important to me?

• Can I put myself

in your shoes?

• How can we both

achieve our

interests?

Interests Positions

• How can I explain

my position?

• Why don’t they

understand me?

• How do I win?

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Once you identify interests, you can start generating alternatives

• I want a salary increase

Position

• I want to be recognized equally with Jose

Interests

• Title

• Office

• Responsibilities

• Salary

Alternatives

• I need 25% savings on this contract

• We’re having a tough quarter

• I need to make this look good for my boss

• Short-term vs long-term pricing

• Benefits related to other products boss manages

• You clean the house this weekend

• I look after the kids all week and want to be appreciated for it

• Flowers

• Vacation

• Dinner for two

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The Pareto Principle demonstrates how you can be equally satisfied in different situations

Money

Other Benefits

Pareto Principle

• You can be equally happy at any point on the line

• So, you can make trade-offs (find alternatives) that enable an equally satisfactory agreement

• Remember – everyone has a differently shaped line!

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Knowing your BATNA (or more importantly having one!) allows you to negotiate confidently

Best Alternative To a Negotiated AgreementOr, your next best option

• The 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 they’re only available from scalpers. You start to negotiate. Then you think… This is getting expensive… What’s my BATNA?

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Never negotiate without having alternatives

• What 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 don’t have alternatives?

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Look for points of leverage you can benefit from

What is leverage?

• Imbalances of information

• A situation which is competitive between two parties who both want your business

• Something that is more important to one party than the other

How can you use leverage?

• Search for and identify points of leverage as early as possible

• Hold your position when you have a point of leverage- The other party will eventually agree

• Don’t flaunt it

Generate alternatives taking advantage of your points of leverage

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Agenda

• Importance of Negotiations

• Negotiations Styles and Tips

• The Negotiation Process and Preparation

• Creating Alternatives

• Final Exercise & Key Takeaways

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One more exercise…

• Hand out Parker exercise

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One more exercise…

• What did we learn from this exercise?

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If you only remember four things from this session:

• It’s about collaboration-Not concession or competition

NegotiationStyles

Process and Preparation

Creating Alternatives

• Negotiations succeed because of work done in advance

• Always create alternatives

Everything is negotiable

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2

3

4

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Here are the 8 tips to negotiating well…

• Don’t be afraid to negotiate!1

• Don’t get suckered by “rules” or “standard contracts”

2

• Never be the first to name a figure

3

• Ask for more than you expect to get4

• Don’t get emotionally involved5

• The final decision doesn’t rest with you

6

• Don’t act too interested7

• Don’t make the other person feel they’ve been cheated

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And finally, a list of negotiation tactics…

• Authority Limits

• Change the Negotiator

• Cherry Picking

• Final Offer

• Good cop / Bad cop

• Hovering Pen

• Mind tricks

• Signaling

• Walk Out

• What if?

Tactic Explanation

• Need to go to boss for approval above $x - Used to get agreement on lower price

• Switch negotiators mid-negotiation- Allows the new person to re-open items

• Combine the best prices on different items- Ask other side for best deal including other’s pricing

• State that this is the final offer- Use it only when you mean it or lose credibility

• Work in pairs, one nice and one tough- Nice one can gain knowledge, tough one blamed

• Say you’re ready to sign, then raise final issue- Try to take advantage of other’s eagerness

• Act to extremes – rude, crazy- The real act here is distraction

• Signals can be true or false and intentional or unintentional- Look for them and use them, but proceed with caution

• Leave the room because of an issue- Usually designed to make the other person over-think something

• Ask lots of questions, indicating creative solutions- Used to understand other side better, especially by buyers