Empower Your Procurement Process with airSlate SignNow's Deal Management Solution

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with things like e-commerce platforms you know amazon alibaba junior and pretty much whatever platform you're familiar with most people tend to think that purchasing in an organization is as simple as going online checking out what you want click here to cut and now it's awaiting it in organizations things tend to be way complex and a lot of negotiation is involved which is why you need to understand how to apply commercial negotiation in the work of procurement and that will mean you have to know what commercial negotiation is how negotiation fits in the stages of the sourcing process sources of conflict that can arise in the work of procurement and supply and team management and the influence of stakeholders in negotiation okay look so as you're going through this i just want to point out that uh you can actually go to the website there the comfort slash courses the link is in the description and you can check out not only this video you can check out other videos as well other video lessons and the interesting part is that as you're going through that you also get to undertake some practice exercises okay based on what you've just learned and at the end of the day once you're done with the exercise you can submit you know check the details see which questions you got right see which questions you got wrong and if you think okay let me redo this entire thing just click you know restart the course and then take all that you know and redo that again okay so the point is um you're trying to make the learning experience as comfortable and as realistic as possible so you go through a lesson you test yourself so you can do that anyway let's continue the video [Music] we all negotiate as we go on with our life but as for you know whether it's successful or not that kind of just comes down to four things the negotiations are produced negotiation objectives power end relationship between the parties and the kind of people in the negotiation negotiation is a basic way of getting what you want from others it is a back and forth communication designed to reach an agreement when you and the other side have some interest that are shared and others that are opposed well in uh in in procurement negotiation is actually going to lead into into a contract in fact you see just don't get into a contract right i mean if you look at contract law you assume that you make an offer somebody accepts that offer there is consideration and you know you have a contract assuming you both have the legal capacity and are in you know intent for legal consequences to follow but the truth is you see the things you say before you get into a contract those things are called representation and if they turn out to be false obviously they're going to be called misrepresentation now the negotiation phase kind of covers the representation because you say some things they say some things you propose what you want they propose to you what they want you probably don't agree and finally you know all that happens so the point is at the end of the day that negotiation is designed to get the parties from just a representation stage all the way into a contract negotiation can be viewed as a process of planning reviewing and analyzing used by a buyer and a seller when trying to reach acceptable agreement or compromises which include all aspects of the business transaction and not just price you see when you focus on price alone then what you're actually doing is you're just beginning and yes but gaining is part of negotiation it just isn't the whole negotiation from a wider context negotiation may be defined as a process whereby two parties come together to confirm in a situation in which there is some divergence or conflict of interest between them with a view of concluding a jointly acceptable agreement all right so you can some negotiation up this negotiation is a process so it's not just a single event okay cases are made along the way and those choices are going to determine whether the whole thing is successful or not so it is a process uh number two it involves two or more parties number three there must be differences because if there are no differences okay if you and the other party are in agreement then what's the point of negotiating i mean if you want the same thing then you just go ahead and do that thing and uh number next the parties must need to resolve their differences that need to resolve those differences that exist is what calls for negotiation which is not to say that that is the only way you can arrive at a solution but uh it's one of the ways to arrive at a solution through negotiating because there is something you want there is something they want it's probably not the same thing and so you sort of try to come up with a solution that fits both of you and negotiation involves trying to reach an agreement okay so with negotiation there are two broad ways in which agreements can be arrived at and i'm talking about the negotiator can explore possibility and develop options that might possibly resolve the issue which is a creative way in which the party's negotiation so if you're negotiating with somebody else then it is a creative way of you trying to add value or expand you know the value so that everybody gets a win out of that situation or negotiators can exchange offers around and between their stated position in which case you're talking about compromise okay so it's like i want this thing you also want that thing you can't both get what you want so let's see what are you willing to lose so that you can get something out of this deal finally negotiation can result in an agreement the thing you have to understand about that you see you're saying you're trying to reach an argument and finally you're saying okay finally you get to an agreement the argument doesn't necessarily mean that you get what you wanted because the agreement can be to walk away so that is an option in negotiation it's not always the case that you're going to negotiate and then you're going to arrive at a solution sometimes the solution is a workaway position okay you decide that i don't want anything to do with that and i'm just going to leave of course the the real trick is in knowing when to do that something that you're going to look at as you progress with this with these videos so there is that those are some of the things that sum up the actual definition of negotiation well the focus of negotiation is on reaching agreement the most important aspect of any negotiation is not the agreement itself but how it is implemented the argument is only a part of the outcome in any negotiation [Music] you should realize that negotiation is not the only way to reach or to get what you want from from suppliers competitive bidding is one of the many alternatives in which case the the suppliers can make the farm bid on terms and prices against specification and the buyer will choose the best offer okay so there is an alternative i mean you can do that in their book purchasing principles and management bayley at all suggests other alternative approaches to reaching agreement which are persuasion in which case you try to encourage the other side to accept okay to accept your viewpoint without necessarily you giving up something giving in in which case you accept the other side's uh offer or the other side's viewer point without them giving you anything question insisting that the other side meet your demands or else you know something is going to happen problem solving in which case you are both trying to arrive at a win-win so you know those are some of the alternatives to you know getting whatever you want persuasion giving in question and problem solving the question at this point then is when is it not a good idea to negotiate in the book negotiation and essentials of negotiation written by lewicki sanders-barry and minton suggests that negotiation should be avoided if one can achieve the objective without negotiating if the objective is not worth the time and effort of negotiating if we have compelling alternatives to negotiation that is you have a very strong you know walk away position or a very strong alternative to the negotiated agreement if we risk losing too much by negotiating if the other party acts in bad faith or unethically or if waiting basically doing nothing will improve your position uh so because of the different approaches that people take when they're trying to arrive at a solution the relationship between buyers rather than negotiation between buyers and suppliers can at the end of the day occur at two broad levels talking about strategic or tactical negotiation strategic negotiation this is not your day-to-day kind of negotiation in fact it's usually carried out less frequently and at a higher level usually by senior management from both parties so in this kind of negotiation we're talking about the kind of negotiation that addresses you know long-range issues things to do with the direction the company is supposed to go and things of that nature okay so it's not really something that you do every day it deals with the nature of the collaboration the source of competitive advantage to be sought the mutual strategic benefit of development and so on so this sort of negotiation is about ends okay it's about results what should we be doing together and what do we each want to get out of it now at this level again negotiations tend to be integrative basically it seems to be to be collaborative because both parties are sort of trying to figure out a way in which they can you know they can work together to move forward okay i mean it's not they're really it's not really i want to really don't want you to lose it's more of what can we do together and how can that benefit us given the big picture as far as the organizational objective is concerned examples of strategic negotiation might include negotiating a joint venture or a partnership agreement the formulation of supply chain management strategies an agreement to co-invest in research and development or system integration and then we have tactical negotiation which is now your day-to-day negotiation carried out by you know the lower levels you know things to do with the daily purchasing and things of that nature okay so this is what you're probably going to be involved with if you are not at an executive level or in the organization it addresses short-range issues involving operations resource allocation performance and risk management utc so at this point it's all about the means remember the other one is about the ends so uh with practically talking about the means okay who does what who pays for what and when what are the obligations and rights of each party are some of the things involved here so at this level the negotiation is more adversarial okay it's more it's competitive it's it's about win lose because both parties are seeking to maximize their own organization's share of the value gains and minimize their own organizational share of the risk within the relationship um yeah so i want to win i want to make my company look better and the idea is if i'm going to win then you're probably going to have to lose something and that is what defines negotiation at this level okay the tactical because it's more of a win-lose kind of situation and examples of these will involve you know will include things like negotiation of prices and terms on a supply contract negotiation of service levels incentives and penalties negotiation of solutions to problem and disputes and so on so at this point it's obvious that if you are in the purchasing and supplies business then you should know how negotiation fits in in the entire in the entire you know in your entire career procurement is the strategic business function that identifies sources accesses and manages the external resources that an organization needs to successfully fulfill its objectives so the the the procurement for us is actually cyclic and the cyclic nature of that process has the following as you know its changes okay so we have understanding the need and development of high level specification market or commodity options including mac versus buy okay assessment developing a strategy procurement market test and market engagement and then development of required documentation such as rfq supplier selection to participate in an invitation to tend exercise issue invitation to tenders of a request for quotation bid standard or quotation evaluation and validation contract award and implementation warehouse logistics and receipts contract performance review and continuous improvement supplier relationship or contract management and finally asset management or end of life that is the procurement cycle right now the question then again is how does that all fit when you're talking about negotiation so let's look at that how does all that you know how does the procurement cycle how does negotiation rather get involved okay how does negotiation get involved in the procurement cycle and uh here's how so the first step is understanding need and development of high level specification this is actually where the procurement activities start this step involves mainly internal negotiation with stakeholders because the idea is to figure out what do they want and by what do they want i mean what do people in your organization want because if you're going to negotiate with outside parties then there is something you want or if it is not you the people you represent in this case it could be a department in organization that wants to buy laptops okay so the point is you first of all start from within try to figure out what exactly are their needs you're talking about demand management so demand management is the negotiation between procurement and internal stakeholders over the need requirement or specification you at this point need to remember that this is actually your opportunity to figure out how to reduce cost because if they want something and then you figure out that there is an alternative achieve alternative to that thing then that means you've actually helped your company to reduce costs if they were to go ahead and procure that thing uh based on what the the person only did had said now number two market or commodity and options research which will include make or buy assessment at this point you're trying to evaluate the the bargaining power of say the supplier or the buyer depending on the role you play in that negotiation this will inform how you negotiate analysis of the market may suggest it makes more sense to focus on smaller suppliers where leverage may be greater or focus on larger suppliers due to the likelihood for failure of the smaller suppliers and then number three develop strategy or plan so this is where you make a plan about whether to negotiate and what to negotiate about if you have established that there is competition in the market and you will benefit from negotiating with bidders or suppliers then build this in your plan remember negotiation is not free which means what which means you need to figure out negotiation objectives plan and resources how much effort should we allow for and will that effort actually be worth it so those are some of the things that you need to figure out at this stage next pre-procurement market test and market engagement which is where you actually do supplier conditioning okay it may be sensible to engage with some or all of the market players but the reason why you do this is so that you can gain insight into what the market actually looks like or you know from the suppliers point of view if you are going to buy or if you are going to purchase uh rather so if you or if you're going to sell it's pretty much the same thing but in this case you're assuming you're buying so you want to gain insight into into that market because you can just rush in and then you spend money and then you can sit back and one week later you realize that well there are you know better alternatives to what you've just spent money on except the money is gone and if you have a boss they're aware of that and yeah in some markets there may be insufficient suppliers or evidence of monopoly or cartel behavior so you may need to undertake reverse marketing or market shaping which means what which means if the market is you know crowded or not really crowded if somebody is monopolizing the market then you may want to figure out how to get that thing from a new entrance or new suppliers who are not necessarily in that market okay or you may want to figure out if the alternatives that could actually solve the problem you have in case of a monopoly because the problem with monopoly or monopolistic competition is that the supplier has all the cards in this case they they have the bargaining power is high as opposed to you as the buyer next development of requirement documentation so the main concern at this stage is just to develop the sort of documents that you're going to use rather that you're going to go to the market things like requests for quotations or requests for proposal whatever documents you're going to use so you develop them at this stage you see there really isn't much negotiation going on here because you now have a plan and now you need to figure out how you're going to get or you're going to start communicating with your suppliers okay or in this case the potential suppliers next supplier selection this will involve shortlisting of suppliers from a large number into a smaller number again there isn't much negotiation going on here because you've already identified the people you want now remember as you are figuring out the supply you're going to deal with these are the people you're really going to negotiate with on a specific level because everything you've been doing up to this point has been either internally or hypothetical or based on research now we are preparing to actually meet the suppliers and start the actual negotiation number seven issue of invitation to tender or request for proposal uh again you know so the important thing is you want them the thing you want to understand is that it's not always the case that all the purchasing process will follow this because at some point you may not really use tenders but if you do if you are doing public procurement then you must use genders well it is a good idea to use standards because then it makes it open for all us all suppliers to compete on equal grounds okay in the next bid or tender evaluation and this is where the negotiation now starts i mean the commercial negotiation not negotiation started at the need identification but this is where now you start talking with the suppliers and they're like okay this is what you're going to supply for this match and these are the terms and then like i don't like the stamps and things of that nature based on what they gave you as their bid okay so you go through the bid and all that which means um contractor ad based on whether you found out the person you wanted after evaluating the bids delivery of goods and service and then contact performance review then supplier regulation management and development and of course the end of contract remember negotiation can take place at any of those stages because take something like contractor ad okay the relationship between supplier selection and rather the timeline between supplier selection and the contact award in between there you can see love post tendering negotiation which is something we'll look at later in this video in the next video so a negotiation can take place in any of those stages and you have to be good at it because that is your procurement cycle okay [Music] okay so if you're negotiating in uh in sourcing process you're going to play one of the following two roles acting as the company's sole negotiator with the sales negotiator of the suppliers usually the case with low volume and critical items or number two acting as a leader of a cross-functional negotiation team usually in case of high value technical complex or strategic contracts and for the development of long-term supply relationship management and uh when you're talking about negotiation during the sourcing process the only thing you need to understand here i mean among other things is first of all you need to figure out how does the outsourcing cycle or sourcing process takes place so here's how that happens number one you're going to have you know you're going to define the specification they need specification so what do you really need and then you're going to develop contractual terms after which you source the market okay to identify potential suppliers so you have a problem they need okay then of course based on your specification you come up with the terms that you expect that the party to meet in this case the supplier and then now you are in the market looking for who the suppliers are going to be right so same for suppliers and appraise the suppliers and then invite quotations you know send invitation to 10 doesn't things of that nature analyze the quotations if they've sent them back and then select the most pros missing supplier and you negotiate for the best deal at this point because you've identified the supplier and then the question is is this the best you guys can offer me what else can you do it's it's sort of like post-tendering negotiation right but um so you do that after which you award the contract and then you manage the contract and as you're managing the contract other problems are going to rise which is the reason why you have this stage called identify the need requisition and then that leads you back to that need specification and then it's just cyclic because normally you solve one problem and another problem arises which is pretty much how that works play or rather how that takes place so in sourcing that's the sourcing cycle which means if you're negotiating at this point seem to the procurement cycle it's a question of figuring out which level am i in and what is required of me at this you know stage [Music] so at this point it's fairly obvious i mean we do know that it's not a must for us to negotiate in order for us to get a deal or to guest to get the best agreement in procurement okay we know that it's not a must for us to negotiate there are a number of ways there are a number of ways to avoid a contract and the method used will typically depend on the nature of the purchase or company policies the organization okay or an organization in this case can just send an inquiry to a selected number of suppliers so inquiry could be in the form of request for quotation and and then from that they just do that you know they select the people they want to deal with so this inquiry if they have to send an inquiry then query can be something like a request for quotation a request for information or a request for proposal the question then becomes what sort of details are going to be entailed or are going to be included in the in those inquiries and you're talking about things like the contact details of the purchaser the quantity and description of goods and services required the required place and date of delivery the buyer's standard terms and conditions for business after which the organization will then require the supplier to submit either proposal for the job or their price for doing the job and that's pretty much how that stage goes how do you choose the supplier now you can choose the supplier on a number of you know bases okay the question is okay you sent all that stuff you you requested for quotation and then they are sent but then now how do you select which supplier to work with and you can do this by you know choosing them on the basis of negotiation regarding price and other terms or on non-negotiated competitive tender basis so when do you use competitive bidding you can use competitive bidding when the following conditions are in place or when the following things sort of make sense to you like the value of the procurement is high the specifications are clear because if you don't know what you want then you can tell somebody to do it for you okay if you know what you want i want a website i want it to be abcd then the person who does it the best that's the person i'm going to pay because at this point you know what you want and know you're going to evaluate it number three there are adequate number of potential suppliers in the market the potential suppliers must be both technically qualified and keen to win the business and finally there must be sufficient time available for the process but what about negotiation what if you want to negotiate okay which is just another way of saying what if you don't want to use those alternatives and you actually want to negotiate with the with the person because if you're using competitive bidding you just want to negotiate as much as you'd have done if you aren't using it so when do you when is it a good idea for you to negotiate well it is a good idea for you to negotiate if it is possible to estimate the production cost accurately the price is not the only or most important criterion changes to specifications are likely and special tooling or setup costs are a major factor in the requirement that kind of tells you that but then the question becomes rather another question that you are to to figure out an answer to is as a buyer what are some of the things that you'll constitute what are some of the things that should be part of your objectives when negotiating so in this case we're talking about things like to obtain a fair and reasonable or advantageous price from the quantity and quality of goods specified to exact control over the manner in which the contract is performed okay so you can do that through things like terms and conditions or through specifications so if you're negotiating there are some of the ways that you may want those are some of the things that you may want to bring out to help you control the way the contract is actually going to be performed another objective that you should have in mind is to persuade the supplier to give maximum cooperation to the buyer's company and finally to develop a sound and continuing relationship with competent suppliers so you know when you should not really bother negotiating you know when you should be negotiating and you also know what objectives you should have in mind when you are negotiating i mean we are making progress right of course if there is a question you know you you can go ahead and ask that [Music] okay so even if you've um figured out the supply that you want to deal with and um so the next thing is to actually give them or to avoid the contract you may still need to clarify some things or there may still be a need for some things to be clarified this is where post-tendering negotiation comes in what exactly is post-entering negotiation post-standard negotiation is the negotiation after receipt of formal standards and before the letting of contract with supplier or contractor with a view of obtaining an improvement in price delivery or content in circumstances which do not put other tenders at a disadvantage or affect their confidence or trust in their competitive tendering system meaning what meaning as i pointed out earlier in the you know negotiation rather in the procurement process right so you've gone through all that and uh what has happened is that you requested for you know expression of interest and these people sent their bids and you evaluated suppliers and now you have two or three suppliers that seem competent of course you have one that you'd rather work with right so now what is the next thing the next logical thing is toward the contract except you're still thinking is there a way that you can get this price low or is there a way that you can speed up the delivery of this thing or you know whatever there is something that you simply need to clarify that doesn't really put other other tenders at risk so what do you do at this point you re-negotiate okay so this sort of negotiation is what is called post-tender negotiation because the tender you know the tenders already taken place right i mean it hasn't been done but in in in lawyers think of this as attempted performance okay so they've already submitted their their tender so before you add the contract you're like can we talk about this what do you think is going to happen if we do this so that is post standard negotiation quick guidelines for buyers regarding prosthetic negotiation number one to ensure transparency have at least two members of the purchasing organization in the post-tender negotiation meeting number two the negotiator from the purchasing organization should have cleared their proposed negotiation strategy with relevant managers before entering the meeting so this way we don't sound like if we are negotiating behind other people's back or doing something in bad faith because there are legal implications to those at least to the contract next notes of the meeting should be taken to ensure that a record is kept of the negotiation and conclusion because these are good practices i mean you do say a lot of things and then you probably don't write them down only that you get into a contract and you expect those things to you said to be done in the contract but then you end up having a problem the problem is express terms versus implied terms and then there is something called the parallel evidence rule which simply says only things that are written in a contract are supposed to be part of that contract and we shouldn't really be adding verbal um terms to a contract of course there are exceptions to that we are not doing contract law at this point okay now next buyers should conduct the negotiation in a professional and ethical manner if the post tender doesn't work with this particular supplier posting the negotiation then that means you can move on to the second preferred supplier because at this point you had like three like we've settled to these three and we are going to have you know some small talk and then we see who we are going to work with which supplier going to work with at this point so we can just move on to the next one okay okay so regarding contract and relationship management once um contracts have been negotiated and signed there will be obligations and actions to be followed up on either side and in the event of any misunderstanding negotiation is going to be used to find a solution if events or contingency arise the contract may or may not lay down what happens next and a way forward may be determined jointly through again through through negotiation okay and something else that happens during this case if you're managing the relationship is that if performance fails to conform to agreed terms and standards there'll be a variety of options for pursuing for pursuing the dispute enforcing the terms of the contract or gaining remedies again negotiation is going to be one of the alternative choices here because it is an alternative dispute resolution mechanism again this just goes to point out why you really need to be good at negotiation not just because you want to get what you want as far as the representations are concerned but also because it helps you to manage risks as far as contracts are concerned it's part of the you know dispute resolution mechanism and finally circumstance and requirements may change over the life of the contract and that will also mean that you need to renegotiate the amendments okay or you need to to renegotiate so that you can fix some of those changes [Music] one of the major roles that procurement plays is to develop and maintain cooperative working relationship in the organization and in the supply chain this can be achieved through things like cross-functional consultation team working as well as through effective contract and relationship management the trick is to figure out how to manage these ongoing um you know differences between the parties you're working with and differences in things they want because that rather because those are some of the things that will uh end up resulting into into conflict so conflict in this case can have positive and a negative side and the question then becomes when is when is when is conflict um when it's conflict positive conflict can be constructive if number one it brings out new options and solutions to a problem if it leads to a clear definition of power relationship it encourages creativity and testing of new ideas if it brings out pent-up emotions in the open or provides opportunity to release hostile feelings that might be depressed all that okay all those are going to help in negotiation because they're going to act as a drive to negotiate but then again conflict can also be negative and when can that happen this occurs when conflict distract attention from the task act as a barrier to communication subvert objectives in favor of secondary goals and agendas encourage defensive or spoiling behavior as well as stimulate emotional win lose conflicts or hostility towards each other and so at that point you quickly realize that you need to resolve this conflict or you need to reduce that kind of that kind of conflict of course the question is how do you do that okay so let's talk about that there are a number of factors okay there are number of factors that can give rise to conflict in um in a business setup and you're talking about things like interdependence of shared resources because if people are really working and the resources are limited then everybody always assumes that they want what they want and whatever the reason they have wanting that thing is important and the other person's reason is not as important as theirs and so that can cause conflict okay so sharing resources is actually a good way for conflict to rise number two difference in goals and values as well as perception number three power imbalance because paul's ability to influence and the people who have it tend to use it to get what they want and the people like it tend to feel oppressed by the people who have that power and in between resentment can can arise and so the power imbalance can actually create conflict in organizations and next ambiguity because if you aren't clear about what is to be achieved and the other person is operating based on that um lack of clarity then at some point something is going to happen and that thing is somebody's going to ask why wasn't this done into the person is going to say but i thought this is how you said you should do it and therein lies the problem common forms of conflict in an organization will include things like institutionalize conflict for instance trade unions and management issues functional conflict typically as a result of clashing of goals and competing for power okay and resources line staff conflict example here the production function versus support functions such as procurement resource conflict as well as political conflict so as a procurement person okay rather if you are if you are that then you probably wonder how is my procurement role or how is the procurement department going to be part of this so we're talking about areas okay areas where procurement function will clash with other functions and that those areas will include issues relating to cost reduction think about it this way the marketing people okay the marketing people want to spend as much as possible to spread the word and um the accounting people want to conserve money now if it is something to be bought okay so the the accounting guys are like you guys need to spend this much the procurement team need to spend this much and the marketing guys are no we want this much and so you see that that's a problem because it comes down to cutting costs and then as a procurement person you're in between there number two specification whatever thing you think you want versus whatever whatever they think they want and then whether you think that thing actually makes sense that can cause conflict supply priorities that's a problem as well as budget allocation and priorities that is conflict between the procurement department and other functions but about conflict within the procurement department because remember we said the first stage in a procurement cycle is need identification and that calls for internal negotiation so what could actually cause conflict within the procurement team itself and you're talking about things like disagreement about needs goals values or even priorities uh poor communication interpersonal relationship competition over scarce resources that can be a problem okay so all that is internal right what about external what could be the cause of conflict between say the procurement and the suppliers or between the organization and the suppliers so what are some of these things because you see if you know what causes those conflict then you know you start to have an idea of how you can try to fix it so in this case with supplies you're talking about problems relating from things like let or unreliable payment by the buyer perceived unfair or harsh treatment of the supplier by the buyer frequent changes to design and specification creating operation and cost balance on the supplier an ethical dealing by either party poor or unreliable performance by either the supplier or the buyer blocking expectations or promises so most of these things are you're going to look at them or they're going to determine most of these things are going to determine how you are going to go ahead okay how you're going to handle or the approach you're going to use when you're negotiating also the approach you're going to use when you're negotiating can also cause some of those things because if you're using an adversarial approach and you think you've just won then you've actually compromised the relationship with that supplier at some point and so those are some of the things that can be future problems that you've just created currently that you're not even aware of a team can be defined as a small group of people with complementary skills who are committed to a common purpose performance goals and approaches for which they hold themselves basically jointly accountable why would you use teams in procurement and supply mostly because they facilitate the performance of tasks which require the collective skills experience or knowledge of more than one person or discipline number two the coordination of work from different functions required for business process again the reason why you may want to use to use a team is because of the interaction okay the communication that uh goes on as far as the team is concerned and that is important because it will allow for testing and ratifying decision it also allows for consultation negotiation and conflict resolution because of that exchange of various viewpoints you know between the team members that is something positive also the reason why you you know that interaction is important is because it allows for collecting and disseminating information because of the multiple networks in which members are involved also it allows you to to generate okay to generate ideas bouncing ideas uh as far as team members are concerned because you know you may think you know something until somebody else pokes a hole in that thing and then the entire process the entire idea just crumbles okay and that is good to a certain degree because it it helps you not to expose your ignorance okay uh i mean that's the thing you you you thought this is what the suppliers wanted and then your friend says i don't think price is important here maybe what they're really keen on is strategic alliance and then you realize well then you know that's the thing that that that changes the whole approach of negotiation that only works if you know you're talking to your to your team members that that is one of the reasons why communication a team is also important which generally just talks about why teams are important in negotiation in the field of team management and employee relations there are three main contexts in which more or less formal negotiation may be required you're talking about number one grievance and conflict handling and these will be the sort of complaints that are between the employee and and the employer so in that case negotiation is important number two group problem solving in which individuals and groups with differing interests will inevitably have to cooperate with each other on shared tasks or for mutual benefit for example in the case of supply chain so the terms of such relationships and exchanges may need to be negotiated in which case we need to negotiate on things like how roles staff and resources will be allocated to say a project our contract management staff relies with consultants or outsourced functions among other things number three negotiating terms and conditions there is also something that will be formally done how about informal negotiation i mean when when do you use informal negotiation as a leader when you're dealing with your team you see all this is just part of team management right so informal negotiation will come in in situations like to resolve interpersonal and task related conflict to informally negotiate roles and tasks allocation to reach mutually acceptable team-based decisions or to exercise leadership okay which just means you know trying to take people from point a to point b and they don't want to go to point b so what you do you could negotiate with them on okay on how they're going to get there and what they look like when they get there things of that nature [Music] now the first obvious question here is who are stakeholders okay stakeholders are people okay they are persons who can affect or can be affected by the organization so these are people who whatever they do or whatever they do okay whatever they do can affect the organization and also whatever the organization does can can affect them a stakeholder of a company is an individual or group that is either harmed by or benefit from the company or whose rights can be violated or have to be respected by the company an organization has both internal and external stakeholders the people you're dealing with because suppliers those are external stakeholders the executive in an organization there are those are internal stakeholders in commercial negotiation context okay who are the stakeholders that you may end up dealing with in commercial negotiation stakeholders would be individuals or groups who have stake or interest in the process of negotiation okay or they are interested in the outcome of the negotiation so examples of such will be the negotiators who are directly responsible for both the process and the outcome so basically individuals were interested in how the negotiation is conducted and what the outcome of that negotiation is going to be number two contract managers who will be responsible for monitoring and managing the performance of the agreement reached number three members of both organizations will be responsible for implementing the agreement reach users of the product and services the budget holders or finances of the procurement as well as senior management of both organizations so these are all people who are going to be involved in the or who are going to be stakeholders in in your commercial negotiation process and you need to understand that you need to know them you just don't walk into a negotiation without knowing who the stakeholders are because these are people who are pulling strings okay so you might think you're very good at negotiation except the other people are like nah don't don't don't say yes to this and don't say no to that and pretty much and so it doesn't really matter how hard you negotiate the other part the other party has people okay or persons behind them whom they are answerable to whom they are answerable to okay so this point i want you to think of a football game or soccer if you're from north america or just america so in a football stadium we have something like this in this case a represents the negotiators appearing for our team which will include basically the people are negotiating on your behalf b represents negotiators appearing for the other team c represents indirect actors on the sidelines okay stakeholders were actively who actively influenced the negotiation so this could include the cross-functional project or procurement team senior users or budget holders or even senior management and then we have d we represent interested observers okay so these are more remote stakeholders who have stack in the process or outcome but are unlikely to exercise direct influence on the negotiations examples of such could be shareholders competitors regulatory bodies etc or even you know or even trade unions that gives you a picture that gives you a picture of what happens okay of what a personal negotiation and the stakeholders involved so we have the person you're negotiating with we have the people who could okay indirectly or directly influence that negotiation outcome and then they just people were just watching you know they're like let's see how this one goes this company wants to buy that company okay except that company hasn't been paying their taxes they do that and then we get them i mean we have all that stuff of you know all those kind of people involved in the negotiation process so it's the callers you really have to understand or you really have to know who are the stakeholders or who are the people who are likely to affect or be affected by this negotiation i mean it's not just going sitting on a table and then starting to say something and then like i'm not taking this deal and i want to take that deal that is that is not it i mean negotiation is bigger than that okay here are the reasons why a failure to achieve negotiated internal agreement will cause serious problems now remember as a buyer your responsibility is to make sure that the people you represent are happy with that negotiation okay and if you don't do that what could possibly go wrong well here are some of the things that will go wrong number one resources will not be available because you are trying to get a deal but you're not interested in that deal you're going to support you you're not going to give you resources so you always want to make sure that your stakeholders your internal stakeholders are on team number two implementation will falter because you have a deal you've got the deal right and then you expect us to implement that deal except we weren't part of that deal so now you go ahead and do it on your own so that is the reason why some of these things are not sustainable number three there is risk of internal resistance or sabotage number four team members will lack a common voice also there is a risk of alienating internal supporters an important thing with that is that you really need to be good at internal negotiation because unlike external negotiation where there is a walk away position like this supply isn't giving me what i want and so i'm going to get a deal with other supplier with internal negotiation you don't have that luxury you're not going to walk away from your company okay i mean so the marketing team wants something and um the accounting team are not really on board 100 and then you think i'm just going to skip the accounting and then or i'm just going to skip the marketing and then i mean either way you're not going to run away from that problem you have to fix it because you need to secure agreement with both parties because both parties are part of the internal internal stakeholders that is the reason why you need to secure an internally negotiated agreement before even bother going out there okay [Music] so let's sum this up by talking about how you can map and basically manage your stakeholders and you can sort of prioritize your stakeholders in terms of power and interest in order to determine which third-party interest they may be represented in the negotiation whether this strengthen or weaken their bargaining position and what outcome or outcomes once agreed by their negotiating parties may be supported or resisted by third parties mendel's power interest matrix is actually a good way to go about doing it okay so it's one of those one of those tools that can help you to really really really go on with this process and actually achieve success here's how the matrix works okay the matrix is actually based on two things it's based on power and it's based on interest power is the ability to influence or as johnson and waitron puts it the ability of individuals or groups to persuade induce or coerce others into following certain course of action so in the case of stakeholders this will actually include the ability to influence how the procurement takes place or the ability to influence how the negotiation in this case takes place for example customer could stop buying a product suppliers could stop supplying although the question of the effect would depend on how big the suppliers are government policies could affect your business and so on um knowing how a stakeholder can influence your business is one thing okay that is just power but then the other thing is knowing where they're actually going to do it or whether they really want to do it or they're interested in doing it that is where interest comes in interest means the likelihood that the stakeholder will use that power basically the strength of their motivation to do so based on the strength of their interest in a given issue or decision so in the case of the matrix okay here's the thing this matrix works in a simple way you draw a two by two matrix that enables you to classify your stakeholders into relevant quadrants which best describes them by their power and interest level so you end up with something like this so in this case we have a that is minimum effort the stakeholders in these groups are the type that are not interested in the organization and do not have much power either an example here could be the suppliers with whom the organization only does small volume of business now the decisions relating to these stakeholders have a low impact what you want to do here is ensure that you do not waste resources taking these suppliers goals or potential responses into account and then you have the stakeholders that fall in quadrant b so these are the ones that you can to keep informed these stakeholders might have high level of interest in organization but low power they are important because if these are not kept on their know about decisions they may seek additional power and influence the running of the organization okay so some of your workers would be in this categories okay or imagine running a hospital and having volunteer groups so these groups provide services that are nice to have but is not necessarily essential so the volunteers might have interest but they have less power what is recommended at this stage okay when you're dealing with people from this point of view so the recommendation is to keep the stakeholders informed of plans and outcomes through communication and stakeholder meeting and then you have people who fall in the category c so keeping satisfied here you find stakeholders with high power basically high ability to influence what the organization is up to but currently have low interest in the organization so this group is important because if they are dissatisfied or get concerned their interest level may arose example here could include government agencies and regulatory bodies okay or even large suppliers so the strategy to use with these people is to keep them satisfied so that they do not exert their influence and then you have the key players that is group d so in this quadrant you end up with stakeholders who have lots of influence and are highly motivated to express their own interests so this could be your major customers your key suppliers the senior procurement manager etc what can you do here okay because these are the key players the strategy to use with this stakeholder is one of early involvement and participation this way their goal can be integrated with the organization's goals ensuring their support now that is the mandela's power interest matrix but the whole point of that matrix is number one identification of stakeholders whose needs and expectations can change the organization's policy and priorities number two knowing the sort of stakeholders whose interest will be most affected by actions taken by the organization and consequences of such number three identifying stakeholders that need constant involvement and number four to help prioritize stakeholders interest to allow for efficient utilization of resources or leverage for maximum advantage now once you've identified the stakeholders then it's important or the next thing that is important is for you to come up with the management strategy and your management strategy could include something like number one goal analysis okay what motivates the stakeholders what are their goals or desired outcomes from the negotiation or agreement what fears or issues might arise from them where might they support or oppose number two desired customers what do you want or need from these stakeholders what level of support do you want from them what roles would you want them to play the negotiation process or implementation of the agreement number three the relationship management how will you manage communication too and input from each of these stakeholders how will you keep the key supporters in motivated how will you win over or neutralize resistance how will you engage the interest of potential stakeholders number four we have issues management how will you raise potential issues and problems okay where the stakeholders are involved and number five you have the danger signals that is what kind of behaviors or response might indicate resistance or lack of commitment and support from your key stakeholders so this point after going through all that i'm hoping that you're actually in a position to apply commercial negotiation in the work of procurement because that was the overall goal of all that so if there is any question do let me know and i'll see you in the next video