Negotiations Training MAT Dilbert on Negotiations You dont

Negotiations Training MAT

Dilbert on Negotiations You don’t get what you deserve in life… You get what you negotiate 2

Dilbert on Negotiating Clearly we can do better than Dilbert! 3

Agenda • Importance of Negotiations • Negotiations Styles and Tips • The Negotiation Process and Preparation • Creating Alternatives • Final Exercise & Key Takeaways 4

Let’s start with the facts… 1 • 70% of people say they don’t like negotiating 2 • 80% of business people say they want to be better negotiators 3 • 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 5

Negotiations happen – even when you don’t want them to 6

What types of negotiations have you been involved in? Remember, everyone negotiates every day • • • Note: Write answers on flipchart paper 7

This is the last day of MAT – You should be structuring/segmenting your answers Types of Negotiations Daily Periodical Professional Personal Let’s put the list we just developed in our 2 -by-2 8

Everyone has personal and professional negotiations on a daily and periodic basis Types of Negotiations Professional Personal Daily Periodical • Deadlines for delivering work to boss • Asking for more responsibility / money • Amount of improvement needed in work by subordinates • Purchasing equipment / supplies / products • Driving – passing and turning others • Buying a car / house • What time you’ll be home for dinner • Winning support for your ideas • Agreeing with partner / spouse on key decisions • Who does chores / errands Other examples and segmentations are possible as well! 9

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! 10

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 11

Exercise Do exercise! 13

Post-Exercise Questions • What were everyone’s final profits? -Write them on a flip-chart • What did we learn? 14

The negotiation mentality has to be win-win Wrong Mentality: I Win, You Lose Win Right Mentality: Let’s Find a Way to Both Win Win 15

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 16

However, you also need to master the following three things: Negotiation Styles Process and Preparation Creating Alternatives • Understand your own • Be aware of theirs • 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 17

Agenda • Importance of Negotiations • Negotiations Styles and Tips • The Negotiation Process and Preparation • Creating Alternatives • Final Exercise & Key Takeaways 18

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 19

Circle the element which is more your negotiation style for each of the following pairs OPTION A OPTION B Participants are friends Participants are adversaries The goal is agreement The goal is victory Make concessions for relationship Demand concessions from relationship Be soft on the people and the problem Be hard on the people and the problem Trust others Distrust others Change your position easily Dig into your position Make offers Make threats Disclose your bottom line Mislead as to your bottom line Accept losses to reach agreement Demand gains to reach agreement Search for the answer they will accept Search for the answer you will accept Insist on agreement Insist on your position Try to avoid a contest of wills Try to win a contest of wills Yield to pressure Apply pressure 20

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? 21

Collaboration > Concession or Competition Collaboration is the balance of consideration for self and others 22

Circle the element which is more your style for each of the following pairs (1 of 2) Concession Collaboration Competition Participants are friends Participants are problem solvers The goal is agreement The goal is a win-win outcome The goal is victory Make concessions for relationship Separate people from the problem Demand concessions from relationship Participants are adversaries Be soft on the people & problem Be soft on people, Be hard on the people and the problem hard on the problem Trust others Proceed independent Distrust others of trust Change your position easily Make offers Focus on interests not positions Explore interests Dig into your position Make threats 23

Circle the element which is more your style for each of the following pairs (2 of 2) Concession 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 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 reason not pressure Competition 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 24

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 reason not pressure Collaboration Participants are problem solvers The goal is a win-win outcome Separate people from the problem Be soft on people, hard on the problem Proceed independent of trust Focus on interests not positions Explore interests 25

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? 26

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 27

Some people are Competitive negotiators… 28

Use non-verbal communication to SOFTEN the hardline position of others S MILE • Make a positive, friendly, connection O PEN POSTURE • Show you are open to negotiate F ORWARD LEAN • Create a bond T OUCH • Put yourselves on the same team E YE CONTACT • Maintain the bond and the focus N OD • Gain their trust 29

Here are 8 tips to negotiating well… (1 of 3) 1 • 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! 2 • 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! 30

Here are 8 tips to negotiating well… (2 of 3) 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 4 • 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. 5 • Don’t get emotionally involved • Keep calm, patient, and friendly • Leave your ego at the door and look for win-win opportunities 31

Here are 8 tips to negotiating well… (3 of 3) 6 • 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 7 • 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 8 • 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 32

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 33

Agenda • Importance of Negotiations • Negotiations Styles and Tips • The Negotiation Process and Preparation • Creating Alternatives • Final Exercise & Key Takeaways 34

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? 35

Typical negotiations have three parts Request bids Receive bids • Contact suppliers • Receive bids • Inform them of what you want • Discuss pros and cons of each supplier • Ask for lowest possible price • Ask when they can submit bid by • Analyze bids Negotiate • 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 36

The right way to negotiate is to start with a plan, negotiate terms first, and provide bid feedback Request bids Develop Plan Reques t Compa ny Info • Identify scope • Identify all possible • Create suppliers work plan and • Identify timeline company info • List stake required -holders • Set goals • Send suppliers detailed request for info Prepare Terms (RFP) Receive bids Negotiate Negotiat e Final Terms Provide Bid Feedback • Create • Request • terms feedback you want on terms included • Update • • Think terms outside where it • the box makes for all sense terms • Inform suppliers terms are final Request & Receive Bids Hold Final Negotiatio n • Provide • Inform relative / selected absolute providers feedback they are Set a firm in final date • Make it stage clear to Receive all • Hold final and providers round (in analyze they need person if bids to reduce large price purchase) Ask suppliers for bids 37

The key to negotiations is to do them on your terms Common Misconceptions • We’re a small company and they’re a huge company – we have no leverage Reality • Before you sign a contract is when you have ALL of the leverage – ask for what you want • We can’t change the terms • Suppliers won’t provide their company information • 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 38

Two recent TACA & Volaris negotiations followed this process to success Maintenance Components Flight Simulator Scope • 10 -year Component repairs contract for TACA & Volaris Airbus fleet • Purchase of Flight Simulator for Pilot Training Key Success Factors • Following the process • Setting terms in advance of price • Creating a competitive environment Timeframe • 3 months Results • Large savings over previous contract terms • Purchase price significantly below market price 39

Developing a clear plan will lead you to success 1 Identify scope Create workplan and timeline List stakeholders Set goals Develop Plan • What’s in scope? What’s out of scope? • Why? • What activities do we need to plan? • How long will each activity take? • Who needs to be involved? • How and when should we get them involved? • 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 40

A detailed Business Questionnaire was sent to each Supplier at the very beginning of the process TACA-Volaris Component Maintenance Business Partner Questionnaire Table of Contents 1. 1 Company Information 1. 2 Financial Information 1. 3 Organization & Capabilities 1. 4 Key Accounts 1. 5 Engineering and Technical Capabilities 1. 6 Component Maintenance Capabilities 1. 7 Staffing 1. 8 Inventory Management 1. 9 Customer Support and Account Management 1. 10 Pricing Proposal Questions and Payments 1. 11 Quality and Schedule Requirements 1. 12 Warranty 1. 13 Components Shipment APPENDIX A: SUB-CONTRACTOR INFORMATION 2 Request Company Info • 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 41

The terms should be prepared using supplier contracts and internal brainstorming Analyz e suppli er contra • Use oldcts contracts • Request supplier contracts Conduc • t intern • al sessio • Identifyns company needs • Think creatively about what else to include 3 Synthesis Set terms Feedback Prepare Terms (RFP) Update terms • Use process • Finalize terms • Create shown on that you want document with next slide (or – The all terms other Use external other similar negotiations than price consultant / process) should be on - Product SME if needed description your terms • Hold multiple Synthesize thoughts - Service levels - Timelines - Penalties - Additional benefits - Volume discounts - Etc… rounds of feedback if necessary • Remember however that everything has a cost 42

Feedback on terms should be addressed fairly, and must be agreed before negotiating price 4 Supplier input required RFP Category Supplier 1 Response – Round 1 TACA Response 3. 4. 3 Over and above repair conditions 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) Yes, Over and above pricing only apply to the circumstances listed in the RFP 4. 4 Turn Time Requirements 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 We cannot provide a return destination as inventory planning is dynamic 4. 5. 2 Responsiblities Under the assumption that all packages will be awarded to Supplier Please see Revised RFP Requirements sent on May 22 nd for new terms – overall cap on 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 All Components, OEM or PMA, that are part of the Agreement will be subject to TAT, MTBR, and AOG penalties - Penalties 4. 11 PMA support and credit Negotiate Final Terms Supplier 1 – Compliance (Yes/No) 43

A Pricing Sheet should be based on your terms and allow you to compare apples-to-apples 5 Request & Receive Bids 44

Qualitative Feedback should be provided to allow suppliers to address areas of weakness 6 A Poor Below Average Provide Bid Feedback Excellent Good Key Strengths Company Simulator Experience • Experience with A 320 simulators A 320 Simulator Experience • Competitive prices Customer Service Level RFT Period Software Upgrades Package Weaknesses • Customer service Spare Parts Support Package • Level of detail • Software upgrades Warranty Pricing • Product is new 45

Pricing Feedback should also be provided in a way that forces competition 6 B Provide Bid Feedback Level D Simulator plus Airbus Parts & Data Supplier 1 Competitor Legend 0%-15% away from best offer 15%-30% away from best offer 30%+ away from best offer Note: Price variation in legend can and should be different for each supplier 46

A final negotiation day (also possible by email) will ensure you get to the lowest price Simulator Final Negotiation Day 7 Objectives Hold Final Negotiation 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) • Review updated offers 1: 45 -3: 00 Lunch & Discussion 2: 45 Second Round Notification (Top 2) • Choose and inform top two suppliers 3: 00 -3: 30 Second Round Meeting 3: 30 -4: 00 Second Round Meeting 4: 30 Final Offers Due • 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 • Give additional feedback • Look for win-win ways to reduce price • Ensure clarity • Receive final offers 5: 00 -6: 00 Exec Update with A Schkn’t & J Solares • Review offers 6: 00 Inform supplier / Final ask • Make decision • Make final ask 47

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? 1 2 3 Develop Plan Request Company Info • Identify scope • Identify all possible suppliers • Create terms you want included • Identify company info required • Think outside the box for all terms • Create work plan and timeline • List stake-holders • Set goals Prepare Terms (RFP) • Send suppliers detailed request for info • How can you use this process in any work-related negotiations you have now or will have in the near future? 48

Agenda • Importance of Negotiations • Negotiations Styles and Tips • The Negotiation Process and Preparation • Creating Alternatives • Final Exercise & Key Takeaways 49

You can always negotiate… 50

Creating alternatives starts with interests instead of positions Interests • What’s really important to me? • Can I put myself in your shoes? • How can we both Positions • How can I explain my position? • Why don’t they understand me? • How do I win? achieve our interests? 53

Once you identify interests, you can start generating alternatives Position • I want a salary increase • I need 25% savings on this contract • You clean the house this weekend Interests • I want to be recognized equally with Jose Alternatives • Title • Office • Responsibilities • We’re having a tough quarter • Salary • Short-term vs longterm pricing • I need to make this look good for my boss • Benefits related to other products boss manages • I look after the kids all week and want to be appreciated for it • Flowers • Vacation • Dinner for two 54

The Pareto Principle demonstrates how you can be equally satisfied in different situations Pareto Principle Other Benefits • 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! Money 55

Knowing your BATNA (or more importantly having one!) allows you to negotiate confidently Best Alternative To a Negotiated Agreement Or, 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? 56

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? 57

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 58

Agenda • Importance of Negotiations • Negotiations Styles and Tips • The Negotiation Process and Preparation • Creating Alternatives • Final Exercise & Key Takeaways 59

One more exercise… • Hand out Parker exercise 60

One more exercise… • What did we learn from this exercise? 61

If you only remember four things from this session: 1 Negotiation Styles • It’s about collaboration 2 Process and Preparation • Negotiations succeed because of work done in advance 3 Creating Alternatives • Always create alternatives 4 -Not concession or competition Everything is negotiable 62

Here are the 8 tips to negotiating well… 1 • Don’t be afraid to negotiate! 2 • Don’t get suckered by “rules” or “standard contracts” 3 • Never be the first to name a figure 4 • Ask for more than you expect to get 5 • Don’t get emotionally involved 6 • The final decision doesn’t rest with you 7 • Don’t act too interested 8 • Don’t make the other person feel they’ve been cheated 63

And finally, a list of negotiation tactics… Tactic • Authority Limits Explanation • Need to go to boss for approval above $x - Used to get agreement on lower price • Change the Negotiator • Switch negotiators mid-negotiation - Allows the new person to re-open items • Cherry Picking • Combine the best prices on different items - Ask other side for best deal including other’s pricing • Final Offer • State that this is the final offer - Use it only when you mean it or lose credibility • Good cop / Bad cop • Work in pairs, one nice and one tough - Nice one can gain knowledge, tough one blamed • Hovering Pen • Say you’re ready to sign, then raise final issue - Try to take advantage of other’s eagerness • Mind tricks • Act to extremes – rude, crazy - The real act here is distraction • Signaling • Walk Out • What if? • 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 64