Contract Management
Chapter 14
OSCM 3660:002 Strategic Sourcing
Spring 2016
Sandeep Jagani
PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
1
Chapter Overview
Elements of a contract
How to negotiate and write a contract
Types of contracts
Long-term contracts in alliances and partnerships
Nontraditional contracting
Settling contractual disputes
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Managing Contractual Relationships with Suppliers
Impossible to predict every single possibility at beginning of a contractual relationship
Importance of moving beyond legal contractual guidelines to improve long-term suppliers and those that supply critical and strategic goods and services
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Pitfalls in Global Commerce
Signing contracts without reading and understanding them
Making risky assumptions
Making or accepting unreasonable demands
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Pitfalls in Global Commerce
Assuming terms in one market are same as in another
Not recognizing cultural or legal landmines
Failing to utilize sufficient resources in contract negotiations
Ongoing commitment and relationship often supersede written contracts
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Preventive Contracting
Spending time in initial stages to …
More fully understand stakeholder requirements and expectations of contractual elements
Flexibility in contract terms and clauses
Usually costs less to avoid getting into trouble than to pay for getting out of trouble
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What Does a Purchase Contract Do?
Establishes terms and conditions by which parties agree to conduct business
Defines type of relationship
Provides way for parties to obtain mutual benefits
Represents the understanding of parties
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Basic Parts of a Contract
Introduction
Identifies parties
Clauses
Describe different sets of conditions that parties agree to follow
Schedules and appendices
Provides specific details behind clauses
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Sample Beginning of a Contract
THIS AGREEMENT IS MADE this ___________
day of ___________ 2011 BETWEEN
ABC COMPANY LIMITED, a company registered in England and having registered offices at 44 Downing Street, London, U.K. (the “Buyer”) and
XYZ, INC., a corporation duly organized under the laws of the State of Illinois and having its principal place of business at 123 Ridge Road, Chicago, Illinois 60014, U.S.A. (the “Supplier”).
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Elements of a Purchase Contract
Introduction
Definitions
Scope of agreement
Purchase orders
Supply and delivery
Specifications, quality, and health, safety, and environment
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Elements of a Purchase Contract
Payment
Liability
Force majeure
Effective date and termination
Intellectual property
Assignment and contracting
Technology improvements
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Elements of a Purchase Contract
Most favored customer
Confidentiality
Statistics
Key performance indicators and compensation
Notices
Severability
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Elements of a Purchase Contract
Third-party rights
Free trade areas
Minority- or women-owned business enterprises
General
Governing law
Signatures
Appendices (schedules)
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Typical Contract Schedules
Product/process/service specifications, statement of work, or scope of work
Prices and price adjustment mechanisms
Health, safety, and environmental guidelines and requirements
Packaging materials
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Typical Contract Schedules
Approved method of manufacture, delivery, or service deployment
Delivery targets and lead times
Supplier’s hours of operation
Storage and inventory control
Quality assurance manual
Loss allowance calculations and throughput allowances
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How to Negotiate and Write a Contract
Often modified from earlier agreements without material changes
Minimizes administrative effort
Assumes that previous contracts are appropriate in current agreement
Start with general form and/or sample contracts
Get advice from corporate counsel
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Information in Purchase Contracts
What is being bought and cost
How purchased item is to be shipped and delivered
How items are to be installed (if appropriate)
How and when buyer will accept products
Acceptance clause
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Information in Purchase Contracts
Appropriate warranties
Remedies
Including liquidated damages
Clauses specifying consequences for late performance
Boilerplate
Standard terms and conditions
Dispute resolution mechanisms
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Key Details in International Contracts
Forum selection in the event of dispute
Choice of applicable law
Payment currency
Language
Force majeure
Excuses contract performance under non-controllable circumstances
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Types of Contracts
Fixed-price contracts
Firm fixed price
Fixed-price contract with escalation
Fixed-price contract with redetermination
Fixed-price contract with incentives
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Types of Contracts
Cost-based contracts
Cost plus incentive fee
Cost-sharing contract
Time and materials contract
Cost plus fixed-fee contract
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Firm Fixed Price
Most basic contractual mechanism
Price stated does not change
Regardless of environmental changes
Can be obtained using
Price quotation
Supplier response to RFP
Negotiation
Simplest and easiest contract
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Firm Fixed Price
Supplier bears financial risk in rising market
Buyer assumes financial risk in declining market
Supplier may add contingency fee if uncertainty is high
Important for buyer to understand underlying market conditions
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Fixed-Price with Escalation
Used for longer-term contracts
Where costs are likely to increase over time
Escalation clauses allow either price increase or decrease of base price
Should be tied to independent, well-established published third-party index
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Fixed-Price with Redetermination
Used when parties cannot accurately predict labor or material costs and quantities required upfront
Target price is determined using “best guess” estimates
At predetermined time, buyer and supplier review actual experience and redetermine fixed price
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Fixed-Price with Incentives
Terms and conditions allow cost-savings sharing with supplier
Predetermined rate of sharing – often 50/50
Similar to fixed-price with redetermination contract
Typically utilized under conditions of high unit cost and relatively long lead times
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Cost-Based Contracts
Used when there is high risk of supplier contingency fee that would be included in fixed-price contract
Lower risk of economic loss for supplier
Economic risk is transferred from supplier to buyer
But can result in much lower cost to buyer
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Cost-Based Contracts
Need to include terms and conditions that require supplier to carefully monitor and control costs
Parties must agree on allowable costs
Generally applicable when goods and/or services are expensive, complex, or important to buyer and there is high degree of uncertainty
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Cost Plus Incentive Fee
Similar to fixed-price plus incentive except incentive is based on changes in allowable costs
May include cost-savings sharing at predetermined rate
Appropriate when parties are confident of initial target cost estimates
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Cost-Sharing
Allowable costs are shared between parties on predetermined percentage basis
Key is identification of firm set of operating guidelines, goals, and objectives
Need to spell out expectations clearly
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Time and Materials
Generally used in plant and equipment maintenance agreements
Costs cannot be determined prior to actual repair
Based on agreed upon hourly labor rate plus overhead and profit percentage
Requires “not to exceed” amount
Little buyer control over estimated maximum price
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Cost Plus Fixed-Fee
Supplier receives reimbursement for all allowable costs up to predetermined level plus fixed fee
Fixed fee represents percentage of targeted cost
Supplier is guaranteed minimal level of profit above its costs
Little motivation to control costs
Should include cost productivity
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Types of Contracts
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| Type of Contract | Buyer Risk | Supplier Risk |
| Firm-fixed price | Low | High |
| Fixed-price with escalation | ||
| Fixed-price with redetermination | ||
| Fixed-price with incentives | ||
| Cost plus incentive fee | ||
| Cost-sharing | ||
| Time and materials | ||
| Cost plus fixed-fee | High | Low |
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Contract Selection Considerations
Component market uncertainty
Long-term agreements
Degree of trust between parties
Process or technology uncertainty
Supplier’s ability to impact costs
Total dollar value of purchase
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Desirability of Contract Types
| Environmental Condition | Fixed-Price Contract | Incentive Contract | Cost-Based Contract |
| High component market uncertainty | Low | Desirability of Use | High |
| Long-term agreements | Low | High | |
| High degree of trust | Low | High | |
| High process/ technology uncertainty | Low | High | |
| Supplier’s ability to affect costs | Low | High | |
| High $ value | Low | High |
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Contract Length
Spot contracts
Purchases that are made on nonrecurring or limited basis
Short-term contracts
Contract purchases that are routinely made over relatively limited time horizon
Long-term contracts
Made on continuing basis for specified or indefinite period (often >1 year)
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Potential Benefits of Long-Term Contracts
Assurance of supply
Access to supplier technology
Access to cost/price information
Volume leveraging
Supplier receives better information for planning
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Questions in Long-Term Contracts
What is the potential for opportunism?
How likely is supplier to take advantage of buyer? Or vice versa?
Is this right supplier to engage in long-term contract?
Is there fair distribution of risk and gains between parties involved?
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Risks of Long-Term Contracts
Supplier opportunism
Selecting the wrong supplier
Supplier volume uncertainty
Supplier foregoes other business
Buyer is unreasonable
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Contingency Elements of Long Term Contracts
Initial price
Too high inflated future profits
Too low lower supplier motivation
Price-adjustment mechanisms
Choice of index or related product
Supplier performance improvements
Evergreen, penalty, and escape clauses
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Nontraditional Contracting
IT systems contracts
Systems contracting risks
Level of service
Turnkey vs. modular vs. shared
Price
Performance criteria
Procedures
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Other Service Outsourcing Contracts
Facility management services
Research and development
Logistics and distribution
Order entry and customer service operations
Accounting and audit services
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Minority/Women-Owned Business Enterprise Contracts
At least 51% ownership required for federal classification for …
African-American
Hispanic American
Native American
Asian-Pacific American
Women
Physically disabled
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Consulting Contracts
Consultant is agent (or independent contractor), not employee
Buyer vs. supplier
Ownership of intellectual property
Issue of residuals
Copyright ownership
Works made for hire
Need for written contract
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Outside Consultant Goals
Avoidance of misunderstanding
Maintenance of working independence and freedom
Assurance of work
Assurance of payment **
Avoidance of liability
Prevention of litigation
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** Most important
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Consultant Contract Terms
Payment on delivery of final report
Late-payment penalties
Negotiable promissory note or collateralized promissory note
Arbitration agreement
Need to develop standard consultant agreement template
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Construction Contracts – Sequence of Events
Determine base of preferred contract bidders
Contact potential bidders for interest
Distribute bid requests
Hold pre-bid meeting to answer questions
Final bid submissions
Award bid
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Construction Contracts
Stated completion period
Realistic timetable
Overhead costs
Safety requirements
Substantiated cost summaries
Contractor claims
Liquidated damages clauses
i.e., penalty clauses
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Other Types of Contracts
Purchasing agreements
Online catalogs and e-commerce contracts
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Types of Purchasing Agreements
Annual contracts
National contracts
Corporate agreements
National buying agreements
Blanket orders
Pricing agreements
Open-ended orders
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Online Catalogs and E-Commerce
Parity between electronic and paper records
Enforceability of shrinkwrap, clickwrap, and boxtop agreements and licenses
Attribution procedures
Digital signatures
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Settling Contractual Disputes
All contracts are subject to dispute and interpretation
The more complex and larger the dollar volume, the more likely dispute will arise
Build in dispute resolution terms and mechanisms
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Alternative Means of Settling Disputes
| Action | Description |
| Legal action | File a lawsuit in federal/state/local court |
| Non-legal actions | |
| Arbitration | Use of impartial third party to resolve contractual dispute |
| Mediation | Intervention by third party to promote settlement, reconciliation, or compromise between parties |
| Minitrial | Exchange of information between managers in each organization, followed by negotiation |
| Rent-a-judge | Neutral party conducts “trial” between parties and is responsible for final judgment |
| Dispute prevention | Progressive schedule of negotiation, mediation, arbitration, and legal proceedings agreed to in contract |
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Legal Action
Traditional dispute resolution mechanism
Grounded in commercial law
Case heard before impartial judge
Issues
Uncertainty
Cost
Length of time
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Arbitration
Fastest growth alternative to legal action
Helps deal with negative emotions
Arbitration clause is often built into contract’s boilerplate language
Source of trained and qualified arbitrators
American Arbitration Association
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Contractual Terms for Arbitration
Spell out location and method of conducting arbitration
Review state statutes to ensure presence of appropriate legal provisions
Word arbitration clauses carefully using applicable laws and American Arbitration Association guidelines
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Dispute Resolution Factors
Relationship between parties
Choice of mechanism
Type of outcome desired by buyer
Setting precedence for future disputes
Need for direct involvement by parties
Level of emotion present
Cost to resolve dispute
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Dispute Resolution Factors
Time pressures
Information required to reach settlement
Strict rules of evidence
Likelihood of publicity
Credibility of available experts and other witnesses
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Negotiation and Conflict Resolution
Chapter 13
OSCM 3660:002 Strategic Sourcing
Spring 2016
Sandeep Jagani
PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
1
Chapter Overview
What is negotiation?
Negotiation framework
Negotiation planning
Power in negotiation
Concessions
Negotiation tactics: trying to reach agreement
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Chapter Overview
Win-win negotiation
International negotiation
Comprehensive global negotiation skills and enhanced cultural understanding
Impact of electronic media on negotiations
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What Is Negotiation?
Process of formal communication, either face-to-face or via electronic means, where two or more people come together to seek mutual agreement about issue or issues
Involves management of time, information, and power between individuals and organizations who are interdependent
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What Is Negotiation?
Relationships between people, not just organizations
Persuasion
Negotiation skills can be honed and practiced
Supports implementation of supply management strategies and plans
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Common Terms Used in Negotiation
BATNA
Best alternative to a negotiated agreement
Positions
Interests
Needs
Wants
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BATNA
Bottom line or reservation point
BATNA should never be revealed to other party
All settlements must be judged in light of all other viable alternatives existing at time of the agreement
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Positions
Negotiator’s opening offers
Represent the optimistic or ideal target value of issues being negotiated
Stated demands at negotiation table
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Interests
Unspoken motivations or reasons that underlies any given position(s)
Unlikely to be explicitly declared or acknowledged during negotiation
May not be directly germane to stated position
Often personal in nature
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Key Points on Interests
Learn to play detective
Try to discern other party’s interests through series of open-ended, probing questions
Then listen carefully
Always focus on other party’s underlying interests, not its stated positions
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Needs vs. Wants
Needs
Negotiated outcomes that negotiator must achieve
Wants
Negotiated outcomes that a negotiator would like to have
May often be exchanged as concessions
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Triangle Talk
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The
Negotiation Process
Step 1:
“Know Exactly What You Want”
Step 2:
“Know Exactly What They Want”
Step 3:
“Propose Action in a Way that They Can Accept”
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Know Exactly What You Want
Determine and write down specific goals and objectives
Helps retain clear focus and minimize distraction
Can be referred to readily during negotiation
The more clearly defined, the more likely that they can be achieved
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Know Exactly What They Want
Attempt to discern other party’s likely needs and wants
Estimate underlying interests to other party’s stated positions
Beware of expecting other party to think in same way
Ask probing, open-ended questions to confirm or counter assumptions
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Propose Action in a Way that They Can Accept
Frame your own needs in terms of other party’s needs
Make it easy for other party to say “Yes”
Remain fair, flexible, and reasonable
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The Negotiation Framework in Supply Management
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Identify or anticipate sourcing requirement
Determine if negotiation or bidding is required
Plan for the negotiation
Execute the agreement
Conduct the negotiation
Identify or Anticipate the Sourcing Requirement
Purchase requisitions
Inventory counts
Reorder point systems
New product development
New facilities
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Determine If Negotiation or Bidding Is Required
Is bid process inadequate?
Are many non-price issues involved?
Is contract large?
Are technical requirements complex?
Does contract involve plant and equipment?
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Determine If Negotiation of Bidding Is Required
Does contract involve a partnership?
Will supplier perform value-adding activities?
Will there be high risk and uncertainty?
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When to Negotiate
Identification of allowable costs
Delivery schedules and lead times
Expected product and service quality levels
Performance metrics and how information is gathered
Technological support and assistance
Contract volumes
Special packaging
Liability for loss and damage
Payment terms and currency issues
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When to Negotiate
Progress payment schedules
Transportation mode selection
Carrier selection
Filing freight claims
Warranties and replacements
Capacity commitments
Material lead times
Penalty clauses
Performance incentives
Contract length
Contract renewal mechanism
Protection of proprietary information
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When to Negotiate
Ownership of intellectual property
Resources related to developing closer relationships
Improvement requirements
Quality, delivery, lead time, cost, responsiveness
Contract dispute resolution mechanisms
Spare parts
After-sale service
Operator or maintenance training
Access to technology
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Reasons for Negotiation
Total contract value or volume is large
Complex technical requirements
Product and process requirements and specifications may still be evolving
Purchase involves utilization of capital-intensive plant and equipment
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Reasons for Negotiation
Agreement involves special or collaborative relationship
Supplier will perform important value-adding activities, requiring …
Appropriate compensation
Performance standards
Performance metrics
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Planning for the Negotiation
Better planning better outcomes
Use of electronic communication tools vs. face-to-face negotiations
Expensive and time consuming travel
Use of online RFPs and RFQs
Quick turnaround on changes
Allows simultaneous negotiations with multiple suppliers
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Points to Focus On
Defining issues
Assembling issues and defining bargaining mix
Defining interests
Defining own objectives and opening bids
Assessing constituents and social context
Analyzing other party
Planning issue presentation and defense
Defining protocols
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Phases of the Negotiation
Phase I
Fact finding and information sharing
Clarify or confirm information
Phase II
Recess to assess new information and findings
Assess relative strengths and weaknesses
Review and revise objectives and positions, if necessary
Organize agenda
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Phases of the Negotiation
Phase III
Meet face-to-face or electronically
Narrow differences on issues
Offer proposals and counterproposals
Exchange concessions
Phase IV
Seek agreement
Conclude negotiation
Agree to follow-on activities
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Being an Effective Negotiator
Willing to compromise or revise goals
When faced with new information
View issues independently
Establish upper and lower ranges for each major issue
Explore more options
Build on common ground between parties
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Being an Effective Negotiator
Avoid making irritating comments
Avoid argumentation
Too many reasons can dilute an argument
Make fewer counterproposals
Too many concessions
Too much compromising
May indicate lack of adequate planning and show invulnerability
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Execute and Follow Up on the Agreement
Actual performance or management of contract
Load into organization’s contract management system
Provide performance feedback
Build on success of negotiation
Monitor contract provisions
Reaffirm commitment of parties
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Negotiation Planning
Develop plan and overall strategy
Specific strategies
Research
Actions
Tactics
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Reasons for Failed Negotiations
Neglect other party’s problems
Focus too much on price
Focus on positions instead of interests
Focus too much on common ground
Neglect BATNAs
Over-adjust perceptions during negotiation
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Develop Specific Objectives
Objective
Aspiration or vision to work toward in future
Typical objectives
Fair and reasonable price
Contract quantities
Required delivery lead times
Improved supplier quality
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Develop Specific Objectives
Not all objectives are equally important
Need to prioritize
Must have
Would like to have
Serves as basis for concession strategy
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Analyze Each Party’s Strengths and Weaknesses
Understand through research and experience
Personality
Negotiation style
Education and experience
History
Assess relative strengths and weaknesses, i.e., your “due diligence”
Each negotiation experience is unique
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Gather Relevant Information
Previous experience with other party
What happened between parties?
Was negotiator satisfied with previous outcome?
Are we negotiating with same people or with new negotiators?
What were important issues to supplier? To buyer?
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Gather Relevant Information
Previous experience with other party
What were areas of disagreement?
Is there anything about previous protocols that should be changed?
What is relative power between parties?
Who has most to lose? To gain?
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Sources of Information
Other buyers or organizations with experience with supplier
Published sources of information
Trade journals, other business publications, and Internet websites
Trade association and government data
Annual reports
Financial evaluations and databases
Direct inquiry with supplier
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Recognize Your Counterpart’s Needs
Must consider long-term success
Issues critical to supplier may not be issues critical to buyer, and vice versa
Give-and-take must be considered
Each party should not expect to prevail in all issues
Setting priorities for concessions and issue tradeoffs
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Identify Facts and Issues
Fact
Reality or truth that parties can state and successfully verify
Issue
Items or topics to be resolved
Triangle Talk is a helpful tool
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Establish a Position on Each Issue
Need for agility and flexibility
Range of positions
Minimum acceptable position (BATNA)
Maximum, or ideal, position
Most likely outcome
Overlapping positions create bargaining or settlement zone
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Bargaining Zone Example
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Buyer
Seller
Aspiration Point
Aspiration Point
BATNA
BATNA
Zone of Likely Agreement
Note:
Example shown is typical buyer-seller price negotiation
$11.45
$11.15
$11.00
$11.50
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Factors in Modifying Positions
Desire for the contract
Revelation of irrefutable information that challenges accuracy and credibility of original position
Major concession that promotes reciprocation
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Develop the Negotiation Strategy and Accompanying Tactics
Strategy
Overall approach used to reach mutually beneficial agreement
Tactic
Art or skill of employing available means to accomplish an end, objective, or strategy
Includes supporting action plan and activities
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Brief Other Stakeholders
Stakeholder
One who has an interest in or is affected by negotiation outcome(s)
Need to be aware of and in agreement with desired objectives
Includes major issues and initial positions for those issues
Prevent unwanted surprises
Develops stakeholder buy-in and support
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Practice the Negotiation
Applies to complex and formal negotiations that are …
Large dollar amount
Long span of time
Crucial to success of organization
Mock or simulated negotiation
Helps raise awareness of unanticipated questions and issues
Role play other party to develop empathy
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Power in Negotiation
Power
Ability to influence another person or organization to do something
Power by itself is neither good nor bad
It is actual application or use of power that makes it good or bad
Sources of negotiating power
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Sources of Negotiating Power
Informational power
Reward power
Coercive power
Legitimate power
Expert power
Referent power
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Informational Power
Ready access to relevant and useful information
Presentation of facts, data, and persuasive arguments
Need for selective disclosure
Can be manipulated by withholding information or by providing false information
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Reward Power
One party is able to offer something of perceived value to other
Direct attempt to exert control
Individuals respond and behave accordingly when valued rewards are available
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Coercive Power
Taking away or withholding something of value to other party
Ability to punish
Financially, physically, or mentally
Can have damaging effects on long-term relationships
Promotes retaliation or getting even
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Legitimate Power
Power based on job position held
The higher the job position or title, the greater the power inferred
May be separate from reward power or coercive power
Buyer has legitimate power due to his/her ability to award contract
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Expert Power
Special form of informational power
Development and retention of body of knowledge
Often represented by verifiable credentials
Reduces likelihood of refuting position
Other party must value expertise in order to be effective
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Referent Power
Comes from attraction based on socially acceptable personal qualities and attributes
Personality or attractiveness characteristics such as …
Physical
Honesty
Charisma
Friendliness
Sensitivity
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Application of Power
Used to support one’s advantage
Need to be careful not to abuse power
Damaged relationships
Invited retaliation
Diminished value of that power
Some types of power interact synergistically with others
Example – expert and referent power
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Concessions
Movement away from position that has perceived value to other party to gain something of value
Give-and-take process is normal in most negotiations
Need to avoid giving away concessions without receiving something of equal or greater value in return
Always keep BATNA in mind
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Concessions
Without effective concessions strategy, negotiation may result in impasse
Concessions should be made in decreasing increments, not increasing ones
Increasing concession values encourage other party to wait you out for even greater concessions
Based on length and cost of negotiation
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Guidelines for Making Concessions
Give yourself enough room to make concessions
Try to get other party to reveal his/her needs and objectives first
Be first to concede on a minor issue but not first on a major one
Make unimportant concessions and portray them as valuable
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Guidelines for Making Concessions
Make other party work hard for every concession made
Use tradeoffs to obtain something for every concession you make
Generally, concede slowly and give little with each concession
Do not reveal your deadline to other party – ever
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Guidelines for Making Concessions
Occasionally, say “No” to other party
Be careful trying to take back concessions, even tentative ones
Keep a record of concessions made and try to identify a patterns
Do not concede too soon, too often, or too much
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Negotiation Tactics: Trying to Reach Agreement
Short-term plans and actions employed to ...
Execute strategy
Cause a conscious change in other party’s position
Influence others to achieve one’s own objectives
Can be either ethical or unethical
Tricks or ploys
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Common Negotiation Tactics
Low ball
Honesty and openness
Questions
Caucus
Trial balloon
Price increase
High ball
Best and final offer
Silence
Planned concessions
Venue
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Cialdini’s Power of Influence
Reciprocation
Consistency
Social proof
Liking
Authority
Scarcity
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Reciprocation
Obligation to give something back of equal or greater value to someone after having received something from them
Creates powerful obligation response
Can be used effectively when giving concessions
Patterns of concession
Quid pro quo
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Consistency
People tend to want to be perceived as being consistent in their beliefs and actions
Otherwise considered to be irrational
It is difficult to back away from something already agreed to
Beware of the consistency trap
Small commitments often lead to much larger ones
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Social Proof
Looking to behavior of others to determine what is desirable, appropriate, and correct
Power of endorsement
Everyone else is doing it
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Liking
People work well and are more agreeable with others that we like or who are like us
Get to know other party better to build on relationship when concessions are being offered
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Authority
People are more likely to accept positions, arguments, and directions from recognized authority figures
Power of titles and perceived importance
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Scarcity
Can also be “perception” of potential scarcity
“Act now!”
“For a limited time only!”
“Offer expires tomorrow!”
Suppliers often use potential price increases as a scarcity technique
“Twenty percent price increase effective at the first of the month!”
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Overcoming Tactics
Modify tactics when they don’t work
Prepare for likely tactics to be used against you
Tactics are more effective on you if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterested
Try not to react without thinking
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Win-Win Negotiation
Win-lose
Competitive or distributive bargaining
“Fixed sum game” perception
Win-win
Collaboration or integrative bargaining
Expand the value or resources available to all participants
Requires time, patience, and creativity
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Win-Win Methods
Expand the pie
Logroll
Use nonspecific compensation
Cut costs for compliance
Find bridge solution
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International Negotiation
Added complexity and challenge, with different
Languages
Customs
Laws
Cultures
Extra time and effort required
Culture shock
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International Negotiation
Barriers and obstacles
Miscommunication
Time limitations
Cultural differences
Limited authority of foreign negotiators
Need for knowledgeable translators
Culture and language
Industry and business concepts
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Culture Shock
Negotiator’s pre-existing values, beliefs, rules, and decision-making schema are challenged
Emotions run higher
May encounter substantial
Anxiety
Disorientation
Confusion
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Characteristics to Overcome Barriers
Patience
Knowledge of contract agreement
Honest and polite attitude
Familiarity with foreign cultures and customs
Recognize that common words may have different meanings, even between similar countries or cultures
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Caveats when Negotiating Overseas
Don’t think that everyone else thinks and negotiates like you do
There is danger in stereotyping or oversimplifying the interpersonal characteristics of other cultures
There is always substantial interpersonal variation within any culture
However, there are often common tendencies
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Impact of Electronic Media on Negotiations
Electronically-based negotiations tend to equalize differences between parties
Normal visual and auditory clues are diminished or not readily apparent
Status differences and social differences are less discernible
Problem of being anonymous
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Impact of Electronic Media on Negotiations
E-negotiations take more time than face-to-face negotiations
Outcomes tend to be less satisfying
E-negotiations are more impersonal and do not promote rapport
Interchange is often more aggressive and less diplomatic
Messages are often misconstrued and taken out of context
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Impact of Electronic Media on Negotiations
Negotiators tend take more risks
Real time vs. asynchronous
Loss of information richness
More difficult to provide feedback and conduct active listening
E-negotiators ask fewer questions and tend to make more assumptions
What does “silence” mean?
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Mitigating the Negative Effects of Electronic Negotiation
Conduct an initial face-to-face meeting to build rapport
At a minimum, have an extended telephone conversation
Take extra time to carefully reread and edit e-mails before sending them
They are irretrievable and can be easily forwarded to others
Double-check “to:” and “cc:” addresses
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Mitigating the Negative Effects of Electronic Negotiation
Use generally accepted e-mail protocols
Clear, concise language
No all caps, excessive punctuation symbols, underlining, bolding, italics, or “off-the-cuff” comments
Don’t copy e-mail to recipient’s superiors
Perceived as you not trusting the recipient
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