THE Godfather of Negotiation Planning Intel Corp Negotiation

“THE Godfather of Negotiation Planning” ~ Intel Corp Negotiation for Leaders CA Sri Lanka Strategy Summit 2016 Omid Ghamami, MBA, CPSCM President & Chief Consultant, Purchasing Advantage www. Purchasing. Advantage. com CEO & Chairman of the Board, Center for Purchasing and Supply Chain Management Excellence www. Center. For. PSCMExcellence. org

About Omid Ghamami, MBA, CPSCM v MBA, University Of California; Certified Purchasing & Supply Chain Manager v President & Chief Consultant, Purchasing Advantage v CEO & Chairman of the Board, Center for Purchasing & Supply Chain Management Excellence v 18 Years At Intel Corp: Ran Global Corporate Purchasing Operations with $16 B USD scope – “THE Godfather of Negotiation Planning” v Thousands Of Hours Consulting/Speaking/Training Experience In 21 Countries v Author of 2 Best Selling Purchasing Books v Multitude Of Industry Purchasing Articles in Leading Global Journals v Published Fortune Magazine article regarding 21 st Century Corp Success Factors v 50+ Hours TV Appearances As Purchasing Industry Expert v Have Consulted for 50 Chief Purchasing Officers of the United States Govt on how to achieve strategic cost advantage with their $3. 2 T budget v Consulted on $10. 6 B of Mergers and Acquisitions v Called upon to speak to Harvard University Supply Chain Mgmt Program v Trained by Harvard University Master Negotiation Program Founder v Program Founder & Adjunct Professor Of Purchasing, Folsom Lake College

Teddy Roosevelt’s Dilemma • 3 million copies of this photo were printed in campaign literature in 1912 • AFTER printing, It was discovered that the owner was Moffett Studios, and it could cost $1/each to license the photos! • Cost impact in 2016 dollars = $65 M in royalties • Grab a partner and discuss what you would do if you were Roosevelt’s campaign manager • Be prepared to report out

Why Do CEOs Need Expert Negotiation Skills? Sales Procurement M&A’s Spin Offs / Divestitures Equity/Sale of Assets Joint Ventures Licensing Influencing BOD and Executive Staff Internal Coalition Building

Influence vs. Position Power

Influence vs. Position Power • Influence achievement of objectives because the other party wanted to • Position Power achievement of objectives because the other party had to • Influence results in motivated followers • Position Power results in disgruntled followers • The ability to influence is THE most important factor for career success 6

Rude Awakening Ab In ility flu t en o ce Importance The Influence Curve Le Kn vel ow of led ge Career Level Over Time 7

Investigative Negotiations

Key Message! “Negotiations Are Won And Lost Before They Ever Start”

Deadly Sins of Negotiations • The Fixed Pie Bias • Assuming the Other Party Is Most Interested in Your Money • Failure to Understand Walk Away Options for both parties • Focusing on transferring value instead of creating value

Investigative Negotiations The topics both parties want to discuss Where each party stands on each topic Issues Positions Interests Underlying needs and wants that are not readily evident

The Art & Science of Negotiations is the ability to create value for all parties Done by focusing on inventing options that meet all parties’ interests Negotiations need not involve deception or aggression with this model

“Splitting the pie down the middle” = Lose/Lose 13

NOVICE NEGOTIATORS See one pie – the money pie Focus on TRANSFERRING VALUE Allocates assets to themselves Go through issues one by one Get less and so do their suppliers EXPERT NEGOTIATORS Create MANY pies Focus on CREATING VALUE Allocates assets to the party that values them more Go through issues all at once, to negotiate packages Get more, and so do their suppliers

Garment Manufacturing Market and the Lycra Brand Name 5% additional discount given for placement of logo on clothes…. … 55% jump in sales as result!!!!

Egypt & Israel Negotiations • The Issues: ownership of land in the Sinai region • The Positions: each party wanted to have this land owned by their government • The Interests: Israel wanted safety and security, Egypt wanted the land • The Solution: a demilitarized zone was established under an Egyptian flag.

The Largest Stone in the World • The Largest stone in the world is in Lebanon • For years it was used as a trash dump • One man spent his entire life cleaning it, and begging people to stop dumping, but they would not • He begged to government to intervene and they would not

How to Solve the Trash Dumping Problem? • Grab a partner and think through what the Issues, Positions, and Interests are of the Stone Keeper and the Citizens who are dumping. • What should the solution be? • Your answer will be contrasted with what actually happened to fix the problem

Zone of Possible Agreement - ZOPA

Understand VALUE to the Other Party Before Making First Offer • Edison wanted $5, 000 for his ticker tape invention, but was willing to accept $3, 000 • In negotiations with a brokerage house, Edison was asked how much he wanted, but he “hadn’t the nerve to name such a large sum. ” • In response to his silence, the Gold & Stock Telegraph Co offered him $40, 000!

“A Good Deal is a State of Mind” – Lee Iacocca • What % of a deal is emotional and what % is economics? Does the Math Add Up? (Left Hemisphere) Perceived Fairness, Self Image, and Reputation (Right Hemisphere)

Writing the Other Party’s Victory Speech • Map out how you will make the other side look like a HERO in front of their BOD and Exec Staff…. …. while meeting and exceeding your total cost objectives.

Master Negotiations – What the Research Shows

Making the First Offer in Negotiations • The benefit of making the first offer is the establishment of an anchor • Research shows that the anchor strongly influences the final outcome

Stanford University Study • A home was randomly listed under prices of $119 K, $129 K, 139 K, and $149 K. All other info provided was the same • Agents, appraisers, and home buyers were all dramatically influenced by these anchor positions • Perceptions of appropriate list price, appraisal value, willingness to pay, and lowest acceptable offer all increased along with anchor price!

What if Supplier Makes First Offer • Compare this with your Negotiating Positions • If the supplier’s position is close to yours, negotiate off of supplier’s position • If supplier’s position is far from yours, ignore and work off of yours • If supplier’s position is better than yours, don’t get excited! Think and find out what you missed!

What if the Supplier Won’t Budge? ! Create a Contingency Contract Supplier Meets Aggressive Performance Criteria Supplier Gets Their Price Supplier DOES NOT Meet Aggressive Performance Criteria You Get Your Price **This should be a bet that both sides expect to win**

Best Alternative to a Negotiated Agreement - BATNA • This strategy outlines what your backup plan in the event you cannot achieve your goals in negotiations • You also need to understand the other side’s BATNA • The other side’s BATNA can also be weakened!

Making Concessions • Scenario A: you found $100 while going on a walk • Scenario B: you found $50 while going on a walk, 2 days in a row • Which one makes you happier? Why? Significance: Separate concessions made to supplier into smaller pieces to maximize supplier satisfaction

Receiving Concessions • Scenario A: you LOST $100 while going on a walk • Scenario B: you LOST $50 while going on a walk, 2 days in a row • Which one makes you more upset? Why? Significance: Aggregate supplier concessions into large pieces to maximize supplier satisfaction

Justify Concessions You Want to Receive • If you give a reason for why you need a particular concession, you will be more likely to succeed • Consider Harvard University copy machine study • Question 1: “Excuse me, I have five pages. May I use the Xerox machine? ” 60% • Question 2: “Excuse me, I have five pages. May I use the Xerox machine, because I have to make some copies? ” 93%!!

ASU Study Creating Contrast Between Negotiation Offers First Control Group: “Would you be willing to take a group of juvenile delinquents on a day trip to the zoo? ” 17% said yes 2 nd Control Group: “Would you be willing to be a counselor for juvenile delinquents at a detention center for 2 hours a week for 3 years? ” 0% said yes. “OK then, would you be willing to take a group of juvenile delinquents on a day trip to the zoo? ” 50% said yes!!

Leveraging Your BATNA and Weakening the Other Side’s BATNA

Staples Founder Thomas Stemberg – A BATNA Case Study • Staples had a goal of offering low prices for small business office supplies • With initial VC backing, sales beat targets by 50% • Office Depot was getting stronger, so Stemberg needed more funding ASAP to grow his business • However, the same VCs now stonewalled him with low valuations and large equity positions 35

Stemberg Was Stuck – Negotiating With No Bargaining Power & No BATNA “How do I break the Venture Capitalist Cartel? ” 36

Weakening the Other Side • Stemberg decided the only way to get bargaining power was to circumvent the VCs • He researched and discovered that insurance companies and pension funds were limited partners of the VCs • He also discovered that they resented the 20% profit sharing and hefty VC management fees 37

Negotiating With Bargaining Power • Stemberg started negotiations again with the VCs and shocked them with the competition he created • In the end: – Stemberg got his valuation from other sources – He still built bridges with the VCs and got representation from them on his board – Next time he went for funding, the VCs were no longer in the driver’s seat 38

Call To Action

Are You Going to go Back to Work and Do Things the Same? Or Will You Rise Above and Invest in Your Influence & Negotiation Skills – to be a More Effective Executive?

CALL TO ACTION • The ability to influence and coalition build are your biggest assets as Executives • Have a deep understanding of the INTERESTS of the other side before negotiating • Leverage investigative negotiations to CREATE value and transfer to party that values it most • Write the Supplier’s Victory Speech to Ensure Perception of Good Deal • Have a Negotiation Strategy for BATNAs, ZOPA, Concessions, Bargaining Power

A Glimpse at Just Some of Purchasing Advantage’s Client Base

Purchasing Advantage Strategic Capabilities • Advisory Board / Board of Directors • Strategic Procurement Capability Consulting • Sales Force Negotiation Training • Executive Coaching • Success Fee Based Strategic Negotiation Support I am available for meetings on Thursday, July 28 th & 43 Saturday July 30 th