So Week 2, we're going to go into more details about developing a plan. So the first thing we need to do before we go on in negotiation, is we want to develop very specific objectives. Generally, those got to be kind of aspirational. What's the best thing that you want? We're going to later translate these into what I call reality objectives. But right now, say, what do we really need? Typically, the objectives have to really be fair and reasonable and where contract quantities, delivery times, or you have to improve supplier quality. Those are the typical type of objectives that you have. The second thing that's important is that you're going to probably make a list of objectives, whether it's quality, or price, or service, and you got to decide what you must have and what would you like to have. The reason that's important is that in the negotiation, there's always give and take and you're going to obviously want to take the ones that you'd like to have and give those up if you have to. You want to make sure the ones that are much have, that you'll hold tight to those. So it's very important. So let's go ahead and use a question for you. If you're developing objectives, what criteria do you have in developing objectives? Which ones are important? What's important about writing a good objective? So I'll give you about 30 seconds here and then we'll basically come back and go through it. So we use this thing called SMART. I don't know if you've seen it in other parts of your business. We quite frankly used it at Colgate. Let me just walk you through this. So if it's an easy acronym, SMART, if you remember it. Specific for the S, M is for measurable, A is for achievable, R is for realistic, and T is time. So basically, if you use these, this one, you're setting objectives, I think you get better objectives, and you can read through the definitions here. But basically what it says is you really want specific, measurable, achievable, realistic, time based objectives. So if you use that, you'll be able to set better objectives. Let's talk about how you take this to the next level. So you've made your objectives, what's important or not. I think what you must have the most critical objectives that you set, is you want to develop what we call MDOs and LAAs. I'll show you why that's important in a minute. It's the most desirable outcome. In the best of all circumstances, what would be the most desirable outcome that you want to achieve either in price, or quality, or service? We're going to, quite frankly, use price over and over again in examples, because that's used the one most frequently, but it can be quality of service or any other things. The least acceptable term says, I can't go below this amount. What happens if you do? Well, if that's true, if you really had written an LAA to be exactly what you want, you're going to have to walk, and you're going to have to another alternative. We call it the best alternative to a negotiated agreement. Usually, one of the major areas, we'll talk about it a little bit later, that people don't have a banter. So what do you do if you can't get your least acceptable alternative? So let's look at how things are balancing out. This is typically how it works. So you have on the bottom, you're the buyer, you have an LAA and an MDO, but you may not realize it, but if the supplier has something like that or might have been trained about MDOs and LAA, he might have similar ones. What we see here is this is a trade-off. Hopefully, through probing, and talking, and listening, you can be able to find that negotiation window and try to come up with a negotiated agreement. So let's take a real life example, because I realize this can be a little confusing. So let's take the buyer, which is the black here. What he's saying is that I'd like to pay if I really could, 11 bucks. But if I had to, absolutely I'd pay 11.45. So the most desirable option for him, is $11, but he'd take 11.45, if he have to pay for. Conversely, unbeknownst to the buyer, because he wouldn't know this, the seller also has points. So the seller would love to get 11.50 because that would really help his top-line, but if he had, he'd take 11.50. What we call this intersection between the buyer and seller, we call it the zone of likely agreement. You're not going to know what the seller wants, the seller is not going to know what you want, but through testing this and asking questions and getting a feel where their bottom line is, I think you can get a pretty good feel. If you can, you're going to come to an agreement that will be mutually acceptable to both parties. So let's look at a couple of these examples so you know what happens, and there are many different scenarios. I'm using price here because that's the most frequent one, but it could be quality or delivery of service or something like that if that was the case. So the first example is where the company and the supplier are apart. You can see the blue range. They're not anywhere near. So when that occurs, and you can feel this in a negotiation, there's no agreement. You're not going to go anywhere with this. You may have to come back and come back with some other alternatives or maybe go to your BATNA to be able to get something done. So this is when no agreement is really possible because neither party is even close. The second one, as you can see here, is a very narrow range. So this is really difficult. It's possible, but you have to really work at it to find that narrow range. So you've been in these negotiations where you go back and forth for weeks on end, and eventually, you come to some agreement that's acceptable to parties and it's because it's a very narrow range. Then you have the next one, which is a wide range, where easy to probably come to an agreement. What you want to do is be the best negotiator possible to say, "We've hit the sweet spot together and because of that, what other things do we want to include?" Whoever the best negotiator, which is hopefully you, what are the things they want to include in addition to price? The last one is all over the board. This is when you have some unrealistic that you've set up, we call the position, just to set the tone for the meeting. In the case of the 11.15, 11.45, you say, "Look, I'll pay 10 bucks, I want 10 bucks as a buyer." The guy says, "Okay," and you go, "What, there's no way you could support 10 bucks." So certainly agreement is possible, but there's a real problem here because something is wrong in your analysis. If that's the case, I think you need to figure out what the problem is pretty quickly. Maybe take a caucus and go talk about it. So all these things can happen to you and it's what's your job as a negotiator to figure out when you can make an agreement, when you can't, if you can't, you're going to need BATNA. So let's go on to BATNA. So this is really a bottom line or reservation point. So this has such as, if you have your least acceptable alternative, which is 11.50, you have to pay for that, and you can't come to an agreement. So what happens is, is that you're going to have to probably walk away and go do something else, and you need to have what is your plan? Are you going to go to that second supplier and try to negotiate a better deal? So it's really after you've exhausted everything that you can do, and you can't. Your 11.50 is the absolute minimum you'll pay, you just have to walk and say, "I'm going have to do something different here." Sometimes if you learn in the Harvard Negotiation method, they'll tell you to go to the balcony and look at, say, what's going on here, and maybe there's other things in order to create value for both parties, but be it as it may, you have to have a plan that if you can't hit your least acceptable alternative. Going a little further now. You want to take time and analyze each party strengths, both your strengths and weaknesses and their strengths and weaknesses. Maybe you negotiate with them every couple of years, or maybe you're doing it more than once a year. Whatever it is, you should know their strengths and weaknesses. You want to know their personality, the negotiation style, what their education background is, who they've negotiated before, and you want to assess what their strengths and weaknesses and you want to build your plan around. Usually, every negotiation is unique. Even if you're working with the same party, it's usually something different. There's different factors come into play. So you want to be able to understand that. You want to gather relative information. Here's the cases: What happened the last time? Where did we agree? Where did we disagree? Is the same people going to be in the room that was a year ago or two years ago, and are there going to be new people? You want to find that out. Is the boss going to be in the room? What are the issues to the suppliers and buyers? You want to find this out. What experience do you have with the other parties? What are the areas that you agree on? What are the areas you disagree on? Any protocols and how you're going to work together on this? We talked a little bit about power, trying to look at power in supply market analysis, what is the power between the parties? If he's the only game in town, he's got the power, or do you have the power because you have a large vine that he needs? So you want to think about the relative information that you can get before you walk in the negotiation. The last thing, assuming this as a big critical negotiation, you're going to want to practice it. Particularly, with complex, large dollars, five-year contract is very critical. What I used to do at Colgate is I would play the supplier and I used to have a lot of fun with it because I knew a lot about these people and I have been in these and watched them. So I paid hard knows supplier and we practice it to see if some of these things work. Particularly important in team negotiations, when you have multiple people that are many non procurement people, and you have to decide who's going to play what role. For example, you're going to have absorber, you can have somebody take notes. Is somebody going to be the finance guy? Who's going to be the good cop and bad cop? We'll talk about that in tactics. All these things you want to think about. So let me give you an example, which is a funny one. When I was involved in Mars plan, Tennessee, we were negotiating for some very specialized equipment to dry the M&Ms. I talk about this in the podcast if you want to hear the story again, but the point would be, as there was a lot of intellectual property that we're adding to the equipment that make it really work well for us. It was in our intellectual property, we did not want the supplier to know about. So one of the ground rules going into the practice negotiation was we can't talk about that. I know we were very proud of it, but we can't tell him because he could take those ideas and sell them to our competitors. So we're going to buy basic piece of equipment, put our technology in it, and it's going to work terrific. So we went through that, the Engineer understood it, we go to the negotiation. Somewhere in the first five or 10 minutes, the Engineer starts blabbering about this intellectual property put in. So I fell off my chair. I'd call it caucus, bring them outside the room, and basically read him right, "I thought we agreed we wouldn't do it," and he said, "Well, I know and I'll cancel it." So it wasn't the end of the world, but the point would be, this is when a practice negotiation didn't go well. But at least this case when I pulled them out of the room, I was able to say to him, "You remember we talked about this, and hopefully you didn't do it as you walked around the plant with him." So practice negotiations are very important. Do it for the large critical items. A couple of takeaways here. Again, we went through the planning area. Hopefully, you got a feel for the second time that 70 percent of your time should be on planning. I hope you got the idea that you got to write specific objectives, use that smart tool to write good objectives. You're going to establish an MDO and LAA, and most importantly, if you can't hit that LAA, least acceptable option, you have to have a BANTA. Where are you going to go if he can't get what you need? Very, very important for major negotiation. Then lastly, even though I joked about it a little bit, particularly if it's a large team, you need to have a Mock Negotiation, which is always critical for those types of negotiation. So with that, we're ending week 2.
