STRATEGIC NEGOTIATIONS
REVIEW
Strategic Negotiation is a generic course applicable to all private and public sector organisations, including those in the shipping industry.
Given the highly competitive nature of your industry, whether you are in ship building, ports, facilities management, freight forwarding or ship operation, you are working in a well-regulated but volatile market, which is greatly dependent upon the state of the world economy and shifts in the world-trade balance. Success within this sector requires effective strategic planning, negotiation and implementation, as well as the ongoing monitoring of the internal and external environments to meet the business plan. The areas with which the strategic negotiator must be familiar, irrespective of the industry or public sector, are shown in elements 1 to 6 of the Strategic Process Model. Your organisation will have to negotiate contracts, deal with trade unions, manage the logistics of complex negotiations, take strategic decisions as to future organisational growth, and perhaps deal with bids and tenders. Effective preparation is the key to success in negotiations at strategic level, as is a deep knowledge of the power and influence of the stakeholders that you have to deal with, both on and away from the negotiation table. The quality and depth of your analysis and diagnosis is central to the effective development of the Negotiation Agenda.
The skills and methodologies you learn from the course can be applied anywhere.
MODULE 1 The Strategic Negotiation Process Model
The strategic negotiation process model maps the stages through which each strategic negotiation activity should be conducted
Process Model 1.2 Foundations of the Business Plan (Boxes 1– 6) 1/2
knowledge of these subjects, negotiators would be severly handicapped and unable to evaluate the advice received effectively.
- Authority could be transferred to professionals but responsibility cannot
Contract law – legal details vary by jurisdiction but foundation similar. Some familiarity is necessary
- Written contracts summarise distrust
o No contract – high vulnerability; strict contract – signals distrust
Pay and Benefits & Multiparties – important influences on HR considerations for business plans
Box 4-6: main instruments for business growth: Licensing, Joint Ventures, & Mergers & Acquisitions
NB. These are closely related to identifying the commercial and operational imperatives applicable to particular types of organisation and their business plans and depending on the organisation and its business sector, they are most likely to have within them the instruments for realising the organisation’s business plan.
1.3 Analysis and Diagnosis (Boxes 7–9) 1/3
Boxes 7-9 develops useful tool for strategic negotiation, particularly for analysis and diagnosis
- Supply substance to data used for strategising
- Box 7: looks at Force fields: doodles mapping personnel for/contra proposition (Lewin)
o expanded force fields,: multi-party, multi-level, multi-issue
The diagram rests on the simple idea that at any one moment there are forces operating on a situation, some of which “drive” for positive changes in the status quo and some of which restrain the driving forces to maintain the status quo. To the extent that these forces cancel each other, the status quo prevails.
- 8:- Power Analysis (Atkinson, Levinson) discusses how power influences negotiation using Atkinson’s/Levinson’s “power balance” tool
- 9: - Stakeholder Alliances (McKinsey) complex multi-party negotiations
1.4 Overview of the Seamless Strategies and Process (Boxes 13–16) 1/5
Box 13 The business plan 1/6
The organisation’s business plan (box 13) comes from deciding what to do and the Strategic Negotiation process model takes into account “interests and objectives because consideration of the organisation’s interests is important for negotiations.
Interests – motivations of negotiators in their preferences for outcomes - Summarise fears, hopes, concerns
- Objectives reveal organisation’s interests
General premise of process model: business plan normally taken as “given”
- However, normally subject to review, feedback on operational performance, changed circumstances
Objectives should be SMART
3-5 year planning range sufficient for most purposes - However many contracts last longer
1.4.2 Commercial Imperatives (Box 14) 1/8
Box 14 includes important Commercial imperatives derived from business plan, Commercial imperatives are imperatives you must achieve if you are to implement the business plan.
- Subject to Analysis and Diagnosis (it’s from the diagnosis of operational imperatives that the firm will develop strategy to achieve the business plan and which the management’s negotiation agenda is identified.
- Lead to operational imperatives (what the organisation must do to restructure and resource its operations to achieve commercial imperatives.
Typical examples of commercial imperatives - Reduce bad debt provisions
- Reduce labour cost base
- Extend distribution nationally/internationally - Impose profitability to cover debt interest - Reduce dependence on foreign agencies
Prioritise according to impact on achieving business plan 1.4.3 Operational Imperatives (Box 14) 1/10
Which resources will deliver to commercial imperatives
- People: - those who do the work ad receive remuneration (who to assemble, retain) - Finance: - how and on what terms it is resourced (capital mix)
- Technology: Technology – what it does for the organisation and what it costs (which technology mix to use, affordable?)
Typical people imperatives: - Lowering labour cost base - Decruitment
- Asset disposals, borrowing
- Initial Public Offering (IPO), new share issue - Joint Venture (JV) , Mergers & Acquisition (M&A) - Licensing, franchising
- borrowing Technology
- Intellectual property rights (IPR), Research & Development (R&D) - Licensing & Royalties
- JVs, M&A to gain technology access - Innovation
- Know how
1.4.4 Analysis and Diagnosis (Box 15) 1/12
Analysis and Diagnosis of the necessary operational imperatives that must be assembled to allow the commercial imperatives to deliver the business plan may be undertaken by business planners or delegated to staff and functional line managers.
Can be delegated:
- More people contribute to planning and implementation => more alignment of activities thus securing its successful outcome within the scheduled planning period (advantage)
Strategic level
- Working knowledge of contracting, pricing, organisation growth, HR management and influence (advantage)
1.4.5 The Negotiation Agenda (Box 10) 1/13
The negotiation agenda is a well-thought out proactive strategy for conducting relationships with employees, suppliers and customers. The preparatory data for determining the appropriate policies are derived from analysis and diagnosis (box 15) and implemented in the Negotiation Agenda (box 10)
Management should take Regular surveys of future of enterprise - Wage costs important but not decisive
- Preparatory data for policies derived from Analysis and Diagnosis and implemented in Negotiation Agenda
Negotiation Agenda:
- Proactive strategy for conducting relationships with employees, suppliers and customers
- Longer than number of issues for specific negotiation
It is an assertion of the Strategic Negotiation process model approach that the derivation of the negotiation Agenda in an organisation adds greatly to the smoother implementation of the necessary changes and to the flexibility with which adjustments can be made should events show them to be necessary.
- policy choices made in pre-negotiation phase, costed carefully and integrated into the negotiation agenda
- should the agenda items be agreed, and allowing for adjustments that may be necessary in the light of negotiated changes in the original proposals, their implementation should follow the plan discussed during preparation for the negotiation.
Need for policy changes prompted by changes in :
- Environment: regulations, market, exchange rates...
- Organisation’s strategic focus: markets, integration, disintegration, growth, cost cutting, retrenchment
- Technology, IT, online publishing banking, network, ...
These changes place constant pressure on the organisation and the way it functions. Some changes may be distinct advantages and could affect the company’s future. If a company does not implement the necessary positive changes before the competition, then any competitive advantage over the competition could be eroded. Also, noteworthy is that not all changes that promise competitive advantage fulfil their promises as an anticipated ‘first mover advantage’ could become ‘first mover folly’
Policy changes agreed with those affected are assessed by how they affect the mix of people, finance and technology that constitutes what the business is about, how it operates, its success or otherwise and the contribution each make to the organisation’s varied purpose NB.
- not all proposed changes are agreed in their original form during negotiation. 1.4.7 Review and Feedback (Boxes 12 and 16) 1/15
Alignment between business plan and negotiation agenda is necessary to secure board-level approval. Fully costed options from the Negotiation Agenda have greater chance of securing higher level approvals where they directly support or deliver the objectives of the higher-level’s own objectives in the organisation’s business plan. Feedback and review is an important and integral part of the model
Feedback: should report any discrepancies between planned and actual negotiation outcomes
- Directed at all those involved in negotiation and input into review process
o Better to show positive (albeit small) improvements across the board than mixed
Post negotiation reviews should also provide feedback on the strategic negotiation process as a whole, what worked well, what not so well and what lessons may be learned for future negotiations of the negotiation agenda.
REVIEW QUESTIONS Chapter 1
1.1 Why do policy-makers lose strategic focus in their negotiations?
Partly it is a result of poor preparation, partly because they are drawn into prominent symbols of their disagreement with the other party. The other party could introduce a prominent number or boundary into the discussions; “one penny a quire”; “draw a line in the sand”, “indigenous labour only”, “international wage rates to apply”, “no re-exports”, “payment in local currency”, “30 per cent withholding tax” and such like. What is prominent attracts attention and what attracts attention becomes the focus of the discussions. Positions for and against are articulated, defended and fortified. Strategic focus is lost in the exchange of rhetoric.
1.2 What use are commercial imperatives for a public sector funded organisation? At first sight it might not seem appropriate to lable something as a commercial imperative in a non-commercial organisation. But if you think about so-called non-commercial organisations, thinking about the “commercial imperatives” is entirely appropriate.
Few, if any, publicly funded “non-commercial” organisations are immune to the iron law of the scarcity of resources. Governments are not “bottomless pits” for unlimited finance for the purposes of any organisations, public or private. They are constrained by budgets and the competing demands of other organisations, many of which feel just as passionate about their aims and objects, and all of which articulate their demands through political rather than market forces.
Once this is recognised, then the commercial model of scarce resources competing for alternative uses is relevant. Of course, in some cases this is sensitive to the language of people managing the publicly funded organisations.
When commercial language was introduced to the manager and their sponsors in a large public hospital, they expressed their discomfort over the use of the terms “business plan” and “commercial imperatives” and a discussion of priorities in the funding of medical procedures (money should never come into the treatment of illness). For a while, “business plans” became “budget plans” and “commercial imperatives” became “targets”. In a short time, however, when the benefits of strategic negotiations preparations became apparent, these objections were first muted and then completely absent in the planning meetings. In commercial organisations the imperatives relate to the matching of expenditures to what the markets will (eventually) pay for; in non-commercial organisations the imperatives relate to the matching of expenditures to what the budget holders will renew in future budgets. Failures to perform in both types of organisation are “punished” either by markets or by budget holders. The imperatives to perform according to the business plan/budget plan should have the same impact on the organisation. Essentially, what you call them is less important than that you recognise their role and why they are imperatives.
1.3 Explain the benefits to management of having a negotiation agenda
The actions of deriving a negotiation agenda require a consideration of the organisation’s objectives as specified in the business plan and the imperatives of performance identified in the commercial imperatives. This moves the negotiation from being a routine “chore” (something that interrupts the “proper” work of the management) to that of its central purpose of delivering the objectives of the business plan within the performance indicators of the commercial imperatives.
the various options, and uncover potentially useful variations in what they may want to achieve.
Moreover, because the process model requires current negotiation objectives to be linked, seamlessly, to the organisation’s business plan, seeking and gaining the approval of higher management for the objectives of the negotiation agenda is facilitated. Post-negotiation feedback and review is also facilitated and future negotiation performance is thereby improved.
2 - Basics of Contracts
2.1 Introduction 2/2
Basic contract knowledge is important, for negotiators but not widespread. - Important part of Analysis and Diagnosis
2.2 Promises, Promises 2/2
Promises were the lifeblood of relationships, however, with the changing times written Contracts summarise residual distrust between parties. Contracts are:
- Enforceable by law - Negotiable
Don’t leave contractual matters only to lawyers
- Lawyers Must interpret your intentions => and intentions must be clearly expressed as the more clearly they are expressed the more likely it is that the papers signed will accuarately represent your promises and protect your intentions.
2.3 Elements of Contracts 2/3
Obligations (contractual promises) underpin most business transactions Penalties for failing to perform
- Legal (external) contracts) – specified in contract or general law - Informal contracts – may be political
Ten main elements of contracts:
1. the identities and addresses of the parties;
2. statements of their expertise and their explicit wish to contract; 3. definitions and meanings of words used throughout the contract;
4. promised obligations and warranties, and indemnities for not keeping them; 5. rewards for performance;
6. penalties for non-performance;
8. ‘boilerplate’ clauses (governing jurisdiction, etc.); 9. schedules supporting the contract;
10. signatures of the parties and witnesses.
Cross-check every reference (better than reading in sequence)
- What is standard to a lawyer may have significant consequences to you 2.4 Anatomy of a Contract 2/4
Lawyer – negotiator perspectives:
- Lawyer places negotiable point in context of law
- Negotiator places legal point in context of contribution to negotiation - Example:
o Lawyer: Stalling payment (illegal) versus deducting disputed item (legal) o Negotiator: Delay puts pressure to settle, potentially (for plausible reason)
without provoking legal retribution 2.4.1 The Parties 2/5
Contracts are between parties Two (or more) names and addresses identified at head - Licensee may be identified as “licensee” only
- Consider jurisdiction of address
- In case of holding company / head office
o Linking to parent may extend recourse in case of dispute 2.4.2 Statements and Explicit Wishes 2/6
Paragraph usually begins with “Whereas” - Has clear enough purpose
- Rest of contract states terms under which parties promise to carry out their intension and what happens if they do or fail to do what they promised.
Tend to be self-congratulatory or bland claims. Signing indicates that it recognises claimed expertise of other party
2.4.3 Definitions and Meanings 2/7
Definitions and explicit meaning of words in a contract could have serious consequences. - Order: Alphabetical or based on first appearance
Negotiable!
- Change wording, add limitations, clarify meaning and scope 2.4.4 Obligations, Warranties and Indemnities 2/8
Usually presented as “obligations of Party A” (the first party mentioned) followed by “obligations of party b”
- States what the parties promise to do within the term of the contract Tight wording => mandatory, unqualified
Loose wording “use best/reasonable endeavours” => loosen obligations
- Relying on obligations wrapped in terminology such as “use reasonable endeavour” may not be wise; offering obligations qualified by “best endeavour” may not be prudent.
Warranties and indemnities go together
- Always Negotiable to a point
You may not know how much reliability to place on another party’s statements and, where the risk of default is high, it is prudent to discourage false and misleading affirmations of performance. Requiring warranties and indemnities discourages tendencies for them to be economical with the truth.
2.4.5 Rewards 2/10
Contracts seek commercial gains for all parties
- Sellers: commercial gain for sell product, services or tangible properties at more than cost
- Buyers: exploit purchase to produce sellable output (after adding value) Benefits could include
- seller constructs a tunnel which the buyer uses to enable trains to operate taking fare-paying passengers to their destinations.
- Sellers gains the construction cost of the tunnel; the buyer uses the facility of the tunnel to collect revenue from its users.
2.4.6 Penalties 2/11
Penalties can be monetary or terminal (or both) - Negotiable!
Excluding limted force majeure:
Seller: send-or-pay (price for purchasing from alternate source e.g oil or gas to say a power station contractor). Compensates customers for having to purchase supplies elsewhere. Buyer: take-or-pay (rescheduling, rerouting, storage costs)
Liquidated damages: In construction, maximum amount for non-performance (often capped as percentage of contract value)
Consequential loss: sufficient to cover all losses attributable to non-performance; draconian; if unlimited risk viability of firm.
Performance bond: sum deposited in buyers bank which buyer can withdraw in case of non-performance
- Corrupt governments may require “performance bond” to senior official
- Retention money: milder version, allows client to hold back ~5% until after completion of work
2.4.7 Duration and Termination 2/13
Non-performance of a material contractual obligation can lead to termination if not remedied.
- Every contract should contain a duration and termination clause - Should be two-way
Termination causes:
- Bankruptcy, liquidation of one party - Takeover by new beneficial owners - Breach of fiduciary duty
- One party brought into disrepute by other - Material breaches in contract provisions Contract clauses may differentiate between:
- Termination without cause – provision that permits termination by giving notice (even if nominally “in pertuity”)
o Reasons may be subjective
o May be worth unexpired value. Negotiable! Other termination provisions:
Cross-default clauses:
- More than one contract for related services or unrelated services
- Allows termination of all contracts in the event one of them is terminated for cause - Appropriate if contracts are interlinked
2.4.8 ‘Boilerplates’ 2/16
Multitude of “boring” but dangerous issues
- E.g. jurisdiction which governs the contract o Contract law is loosely compatible o Judges may not always be impartial o Inconvenience of travel
o USA: each party bears own costs; UK winner may be awarded costs from loser
- Applies to innocuous issues such as headings of a clause not being part of the agreement
- “No reliance” on prior statements
- Failure of single clause to invalidate contract
- Grammatical (Singular includes plural, inclusive gender)
- An important boilerplate clause states that the agreement covers all terms agreed by the parties and that no reliance should be placed on any prior statements, offers, understandings or promises made before the agreement was signed and which are not contained within it.
Review all negotiation exchanges and ensure all material interim offerings are included Earlier omissions are identified the more likely mutual consent will be achieved
Side letters – may be confidential private arrangements, e.g. side payment for facilitating 2.4.9 Schedules 2/17
Schedules are part of contract
- Detailed lists of items (trademarks, logos, IPRs, properties) too long to place in the clauses of main agreement
- Difficult to change without disturbing pagination - Neater to change numbered schedule
2.4.10 Execution 2/18
Execution through witnessed signatures of each party
- Each party entitled to original signed copy of agreement o Multiple reference copies
o Strict confidentiality clauses may restrict circulation Signatories: officers of organisation designated to sign official documents
2.4.11 Conclusion 2/18
- at this level negotiators will be dealing with contractual obligations of a serious nature
- negotiator should be familiar with how contracts are constructed
2.5 Contracting as a Bargaining Process 2/18
2.5.1 Introduction 2/18
The drafting of written contracts is a bargaining process, in and within which the four phases of negotiation and (purple) conditional bargaining are conducted.
Bargaining includes: - Offers - Exchanges - Acceptance
Opportunities for negotiation at each stage
- May negotiate details before drafting formal contract or may present one or more drafts at beginning
o Generally single draft is preferable (confusing to reconcile) - Exchanges can be long and complex
o Background checks on financial status, proof of title, analysis of company’s accounts...
o Reliance on “good faith”; suspicion to the contrary may lead to withdrawal 2.5.2 Memorandum of Understanding (MOU) 2/19
In some jurisdictions, lawyers have been making serious profits due to the lack of “good faith” bargaining amongst parties, thus creating a new source of legal fees in pursuit of Recompense for deadlock if other party had little intention to make agreement.
o In an effort to try and reduce the need for attorneys, some companies attempt to handle the problem by means of a Memorandum of Understanding (MOU). A MOU is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action.
Unreliable protection; expose other risks China: companies often insist on MOUs Dangers:
- Indicative prices, quantities, delivery dates
- Often become fixed or maxima even if supposedly non-binding 2.5.3 Heads of Terms 2/21
Listed first on agenda. By default Heads of Terms acquire a “binding” status Set parameters on aspects of deal, before setline details
E.g. for property lease
tenant, repair and insurance lease. Tenants pays own and landlord’s costs and state property taxes
- Payment of property taxes, compliance with planning laws, regulations
Negotiable: e.g. prestigious tenants may negotiate better rental deals to encourage others 2.5.4 Heads of Agenda 2/22
Identifies agenda topics but does not make proposals on substantive differences - Doesn’t require explanations or particular sequence
- Purpose is to bring parties to meet without preconditions 2.5.5 Offers 2/22
Legal principle: unconditional offer unconditionally accepted is a “done deal” Caution with implied offers: “nothing is agreed until everything is agreed”
Evidence that terms have been discussed and negotiated support claim that legal offer was made
- Press reports, media interviews, negotiation papers, emails...
- To avoid controversy: common to add “subject to contract” on all exchanges Offer can be withdraws at any time before the offeree accepts.
- If withdrawn before acceptance then no contract exists even if offeree subsequently accepts
Conditional acceptance hands power to revoke back to offeror 2.5.6 Exchanging Promises 2/24
Negotiation usually involves changes to the original terms of an offer by: - Amending individual terms (e.g. raising, lowering prices) or
- Exchanges conditional propositions that delete/amend linked individual terms Difference between lawyers and negotiators during this process are
Negotiators
- Exchange proposals (tentative offers) and exchange of bargains (specific offers - To facilitate movement, negotiators link conditional offers to trade across more than
one issue to derive package deals, causing negotiations to be described as management of movement
- work across a table;
-lawyers
- exchange marked-up drafts with proposed amendments to clauses
- tend to deal with each issue separately to avoid a sudden withdrawal of commitment to the deal
Lawyers: wary of conditional clauses
- Prefer to deal separately with each issue
- Contributions tend to be demand-led (rather than exchange-led) - Single-issue bargaining tends to produce zero-sum outcomes Negotiators:
- Exchange conditional proposals and bargains with greater despatch - Linked conditional bargains provide safe means of indicating flexibility
2.5.7 Acceptance 2/25
This is the endgame/Outcome of negotiation; it is the close of the bargaining phase which ends the negotiations. The outcome is;
- Unconditional agreement
- All terms are agreed and when everything is agreed there is nothing left to negotiate about for the moment.
- Signature means it is legally enforceable in courts of jurisdiction Lawyers and negotiators arrive at same destination through different paths
2.6 Negotiating Contracts 2/26
Contracts vary in degree of negotiable flexibility. In some cases everything is negotiable and in some, nothing is negotiable. In between there are varying degrees of negotiable and non-negotiable terms.
When strategic negotiations move from the analysis and diagnosis of a problem or opportunity to the derivation of policies and their implementation via a negotiated agenda, the end product will be a contractual relationship.
2.6.1 Pre-prepared Contracts 2/26
Pre-prepared for reading, acceptance and signature.
Often closely printed and double-columned: imply little room for flexibility - Where thousands of business transactions are conducted daily - Minimise risks of variations (unintended legal liabilities) 2.6.2 Pre-prepared Templates for Negotiation 2/27
Implies nothing more than that it saves rewriting everything every time it is used. Apply where most terms are acceptable for most occasions.
- E.g. publisher, screenplays - Some parameters are negotiable
Templates can be considered intellectual property by lawyers 2.6.3 A Single Draft for Negotiation 2/27
- Most common type of contract negotiation
- Usually presented After time has been spent negotiating main issue from the parties’ prepared agendas and a possible framework for an Agreement has emerged or has been identified
- Signals that parties are close to agreement 2.6.4 Jointly Authored Contracts 2/27
Rarely practical to agree line-by-line, word-by-word More frequent:
- Would be a slow process since would be difficult to have both sides agree to everything
- Parties keep side notes during negotiations - Parties adjourn
- One party produces draft 2.6.5 Complex Contracts 2/28
- At least two separate documents o Technical specifications o Commercial terms
Continuity problems in large/complex negotiations - Negotiation team changes
- Misunderstandings, perceived “bad faith” - Remedy
o Detailed documentation o Whole agreement clause
Prevents previous representations/arrangements from having validity
REVIEW QUESTIONS
2.1 In what ways do negotiators differ from professional lawyers in their approach to
the negotiation of contracts?
Lawyers attend to the legal implications of their offers and proposals. Their basic principle is that an unconditional offer unconditionally accepted is a done deal. They do not like putting conditions on their offers or their acceptance. This leaves them with narrow options of sticking to their entry positions on issues and waiting for, or forcing, the other party (complicated if it is another lawyer) to move under the pressure of time or events from their current positions.
Lawyers often negotiate by amending single-issue proposals, separated from other issues (the use of distinguishing colours of ink or underlining). This gradually eliminates issues, reducing the residue to ‘difficult’ issues for both of them. It is a natural zero-sum exchange. It also suits adversarial bargaining: at best it takes time; at worst, it provokes deadlock and they go to trial. Negotiators make conditional proposals and bargains, linking movement on an issue to movement on a separate but linked issue. They trade things that are of less value to them for things that are of more value. The conditional proposition links its conditions to its offers.
The former is the ‘price’ of the latter. Revealing a wish to trade does not lead to ambushes or the grabbing of the offers while discarding the conditions. They are inextricably linked and cannot be separated because conditional bargainers are assertive, not compliant.
Lawyers avoid conditional offers and revelations of their potential flexibility. Negotiators base their approach on using their (conditional) offers to reveal their potential flexibility. Negotiators can reach settlements face to face across a table; lawyers take longer because of their heavy workloads and their ingrained legalistic inhibitions (unless they receive remedial training!).
2.2 Why are the ten elements of a contract important for a negotiator?
The ten main elements of a legal contract: 1. The identities and addresses of the parties 2. Their expertise and explicit wish to contract 3. Definitions and meanings of words
4. Promised obligations, warranties and indemnities 5. Rewards for performance
6. Penalties for non-performance 7. Duration and termination
10. Signatures of parties and witnesses
The ten elements are common to many business contracts, and negotiators should become familiar with them and their purposes.
In examining a contract, the ten elements provide a guide that serves most purposes of negotiation, and they are a useful basis on which to approach contract negotiation. Of course, lawyers have an important role too, and in many complex negotiations their role is crucial and mandatory. Most contracts are ‘legalled’ before signature, but negotiators still have a role in setting policy and in settling terms, which can then be drafted securely by the lawyers operating to clear instructions as to your intent.
The clarity of a finished contract is assisted to the extent that the negotiators are reasonably informed on how a contract is constructed and what its principal elements are, and what they are supposed to do, allow or constrain. Knowing something about the construction of the contract assists the negotiation of its clauses.
2.3 Why do certain types of business (e.g., car hire, air travel, mobile telephones, and
so on), preprint their contracts and expect customers to sign without quibble and to accept the predetermined choices left to them?
Products with mass markets undertake the identical transactions many times a day, and preprinted contracts save on the time taken to complete each transaction. Where high-value products are hired, there is a security issue in their appropriate use and return. Ambiguities in the conditions of use, payment, insurance and return could prove onerous, and litigation to enforce terms and conditions (T&Cs) is expensive. The certainties written into the preprinted contract reduce such ambiguities to a minimum (and, should an unanticipated situation arise, it can be cleared up subsequently by amending and printing new contracts for future use).
Most of the businesses that use pre-printed contracts have many outlets, and the staff employed in them are most efficient when individual discretion is reduced to the T&Cs of the pre-printed contracts. Individual variations create ambiguities. By designing their product offerings carefully such firms closely align what they offer to what customers want, and they do not expect individual negotiation of the T&Cs. Offering pre-printed choices (‘fully comprehensive insurance’ or ‘third party, fire and theft’) tightens the specifications of the service to suit individuals, and the predetermined prices charged for each package eliminate most, if not all, of the opportunities to negotiate. The supplier also has the choice of refusing to supply its product to a customer who wants to negotiate the T&Cs.
2.4 Why do you think that corporate lawyers store on a database every client’s contract they have prepared, and why do they also hold pre-prepared templates for each type of contract?
Big law firms may have 200 or more lawyers as partners, all managing their own clients. Without an inordinate degree of verbal coordination, several lawyers may be working on similar contracts simultaneously for different clients. This is highly inefficient. If templates are available, drawn from actual contracts that the firm supplied to clients previously, a great deal of expensive time can be saved (though the intellectual contents of the template are still charged at the full fee rate), and partners can take on additional lucrative work from other clients.
Trying to negotiate the merger of clauses or parts of clauses from two or more draft contracts is an extremely difficult (and frustrating) exercise. Simple things like the numbers of the clauses are different; even the order of specific terms may be different, and the intentions may also be different.
It is much better for efficiency and speed of progress to work from a single draft, even if it requires substantial modification by one or both parties. If one party wants amendments to some of the clauses and the other doesn’t, it is no disadvantage to have a single draft. The outcome of an agreement involves a single contract and because the draft in use does not cover important points that the parties consider necessary there will be no agreement unless their inclusion is negotiated, independently of how many drafts are on the table. There is a minor advantage in a single draft text, almost psychological, in that a single draft text becomes ‘our’ text by default, especially if it is amended by all the parties at the table so that each may genuinely claim ‘ownership’ of the Agreement.
2.6 Is it important which of the parties drafts the single text of a proposed contract? In my view it is not important, though it is to some advisors, who recommend that you draft, inter alia, the minutes of a meeting, a draft MOU, or contract, or Heads of Agreement. It seems to me that the key nature of this role is exaggerated. The alleged advantage is that you can ‘slant’ the wording to suit your interests or interpretations.
If ‘slanting’ something to your advantage was real then you must be dealing with a lazy negotiator who is forgetful of the necessary fact that negotiations are two-way events. Slanted wording can be challenged, and often is a cause of suspicion about your motives. I believe the risk of discord in a relationship outweighs any petty advantages you might gain. One advantage of drafting the wording yourself is the certainty that it will be done and that momentum towards agreement will be maintained. Beyond that I can think of nothing to commend it.
3 - Pay, Benefits and Union
Negotiations
3.1 Introduction 3/2
agenda, the negotiator should have a basic knowledge of the labour environment in his/her country – how it has evolved and how it operates in practice.
- Main focus is on how the labour negotiations framework operates Two regulatory models:
- Market capitalism: US, UK
- Social capitalism: continental Europe
o Higher unemployment, lower private investment, higher public spending, lower official working hours
- Other variations: China, Vietnam, North Korea, Australia, South Africa...
3.2 National Pay Bargaining 3/3
Large firms often set remuneration and employment conditions at national level as a result of
- Bargaining agreements with trade unions - Variation: set maximum pay guidelines
o Derived from national budget o Implement through local negotiation Local pay bargaining
- Local organisations have freedom to hire/fire and set terms and conditions
Nb. The laws and practices of trade unionism in individual countries vary – bearing in mind that in the majority of cases in the majority of secular democracies
- Majority of workforces not unionised, but - Legal right to unionise
3.3 HR Considerations 3/4
Organisations operate in particular market settings, and the nature of those settings should be understood if the negotiator is to work within them.
Similar HR and reward strategies for unionised and non-unionised environments - Unions add complications, constraints on management decision-making 3.3.1 Objectives of a Pay System 3/5
Knowledge of the board aims of pay and reward systems helps the negotiator to conceptualise the strategies he/she might want to follow; hence he/she require some familiarity with them. Pay and reward systems should
- Enable recruitment/retention of the required stand to carry out functions - Reward responsibility & performance
- Create harmonious environment (fair rewards) - Achieve efficiency, cost-effective deployment - Ensure equity and adequate differential
- Ensure flexibility to cope with market pressures - Be easily comprehensible
- Easily administered, audited, controlled
Three elements of a pay package:
- To all staff: based pay, pensions, holidays, sick pay - The certain categories: cars, bonuses, options - Some staff according to need:
o Relocations, disability, sabbaticals
Unions tend to focus on members rather than organisation
3.4 Union Recognition and Representation 3/8
The negotiator’s task here is to manage the organisation to achieve its goals. Therefore, it is important to understand how trade unions function and what affect they have than it is to critique their role.
Highest union priority: Recognition and Representation rights
- Majority of employees wouldn’t pay union dues unless recognised as bargaining agent
Management must recognise importance of recognition (often doesn’t)
- Maxim: if you have something the other values then you have greater influence More impersonal/collective bargaining => less performance and individually oriented behaviour and attitudes. As the consequences of this outcome could be serious for the business plan, subsequent realisation of the impact of lack of care during the recognition process cannot be changed dramatically in the short run, because negotiated agreements, voluntarily entered into by both parties, are difficult to change let alone undo, and the organisation is stuck with what it agreed, or did not agree when it had the opportunity to trade for more satisfactory agreements.
Decline in union membership mostly by individual attrition, not employer-driven de-recognition
3.5 Gradations of Recognition 3/10
There are grades of recognition, and one problem with recognising unions occurs when employers recognise Multiple trade unions => avoidable disputes and running tensions and are associated with:
- Recurring arguments over Spheres of influence - Large number of representatives from each union - Large amount of employer’s resources for facilities - Management time
- Recruitment militancy
- Reduced opportunities for management initiatives on cost controls and new technologies
3.5.1 Single Union 3/11
Where a single union is recognised as the sole bargaining agent for its members, employers exclude other unions from recognition.
- Parties to this arrangement avoid factious problems associated with multi-union plants
- Simplest solution
- Proliferation of single-union agreements led to union mergers
- Single-union strategy for new plant easier than ending multi-union agreement in existing one
Advantages of single union
- Efficient use of management resources dealing with one union - Absence of rivalry
- Easier to introduce More flexible work practices - Authoritative forum
- Correction of past inequities in pay and rewards “won” by separate unions - Ease of communications
3.5.2 Single Table 3/12
Where it is impractical to adopt a single-union strategy, the next best solution is to try a single table approach where all the recognised unions participate together in collective bargaining with management at the same time (eg. SAJ)
- Approach is superior though not as effecicient as a single union approach
- Never under-estimate the degree of inter-union rivalries on matters of survival or member dignity
It is possible to adopt a transitional Two-tier approach: - Single-table for all common terms of employment - Second tier of subgroups with particular interests - Base pay could be either tier
For non-unionised employees
- Usual approach: consultative committee o Should meet before decision is made - Small organisations: individual approach Benefits of single-table bargaining
← - conducive to the efficient use of management resources
- can facilitate an agreed set of pay relativities (no leapfrogging of small groups over comparable groups of employees)
- provides an authoritative forum for the expression of employee views - is easier to communicate management views to employee representatives Disadvantages
- Latent inter-union rivalry
- Number of representatives at single meeting
- Extensive facilities required for several unions to operation (meeting room, telephone, copiers, etc
←
3.6 Formal Negotiation Procedures 3/13
Formal procedures necessary for orderly conduct of collective bargaining
- May reserve negotiations to professional managers (HR) or line managers - Unions may also have full-time officials or may devolve role to local members
- Specify how employee representatives are elected, number and duration of appointments, statement of duties
- Cycle of regular meetings, purpose, ratification process, May also reference conciliation, mediation, arbitration
- Conciliations: private discussions with conciliator who explores options for resuming deadlock, reopens discussion
- Mediation: 3rd party holds private discussion and makes non-binding recommendations of possible solutions
- Arbitration: usually three independent arbiters, make binding decisions either through compromise or choosing one solution
3rd party interventions usually written into contract - Through joint-consent clause they may be options Similar arbitration clauses also appear in commercial contracts
- May limit rights of recourse
Negotiated agreements superior to 3rd party arbitration - Accountability gives greater legitimacy
- Unions object to clauses “no sanctions while a dispute is in procedure” – i.e. no-strike agreement
3.7 Communicating for Major Negotiations 3/16
Direct communication: limited to negotiators present
Strategic negotiation requires communication with all affected by outcome - Prior, during, afterwards
- Abandoning communication with the company’s employees to the union or staff side could be a serious error.
- Essential to Reserve right to communicate directly to employees on any subject - Communication beyond the negotiation table is an important part of the Negotiation
Agenda for any kind of negotiation
- Important not to neglect all levels of management and employees in the communication process and not just to communicate with those in the negotiation team who prepared the Negotiation agenda.
- Managerial communication is best conducted regularly and not just when a crisis emerges.
- Sending letters to employees about pending action resulting from current union-inspired events is disingenuous and probably too late. Employees who receive regular communication on major issues affecting them are more likely to react positively, even to bad news if management established a reputation of telling the truth and being honest.
Those with vested interests inclined to reinterpret and reframe motives and interest (circulate misinformation)
Don’t neglect any level of management - Grapevine never charitable
- Regular communications best (not just during crisis) In strategic pay bargaining there are three communication phases: Pre-negotiation:
- Spread accurate information and realism to workforce
- Ideal opportunity to address the “no surprises” principle properly. - Theme should be Non-adversarial
- This phase is Neither a negotiation or substitute / akin to brainstorming Intra-negotiation
- Between meetings (e.g. pay negotiations typically require more than one) (eg. Ones held by ACH or TR with unions)
- Not propaganda; reminder of what is at stake
- If serious contention emerges in negotiation, negotiator may decide to communicate directly with employees. Scripted intra-negotiation briefing used during this period become more important and should always be seen as reinforcing involvement in the ngeotitaiton process and the commitment of both sides to its success.
Post-negotiation
- Conference should be considered assuming success in the negotiations - Joint presentation of agreement should be made
Review Questions
3.1 Why should management ensure that the arrangements for the recognition of a trade union are carefully structured before they are agreed?
Recognition is of extreme importance to a trade union. Without recognition it is severely hampered from operating effectively and efficiently on behalf of the members it recruits from among the employees of an organisation. In many countries, recognition or not is a matter between the employer and the employees, and a refusal to recognise in certain circumstances (such as when underlying and non-addressed employee grievances are present) can provoke severe disruption, some of which the employers ‘win’ and some they ‘lose’. A few instances of grievances lasting years have been experienced.
In other countries there are legal rights governing union recognition. Should employees demonstrate (by secret ballot) that they wish to join a trade union, then procedures exist to ensure that their wishes are realised, and employers must grant recognition. Where these rights are accompanied by legal rights for employees not to join a trade union, the recognition granted will apply only to those employees who join the union, i.e., recognition will be partial. Even if 100 per cent of the employees join a union, people may change their minds or new employees may decline to join the union, and for these individuals their rights are protected.
The significance of gaining recognition rights for a union is a factor in negotiating the terms of recognition, and employers should ensure that, in granting rights, they do not undermine their own ability to manage the enterprise. The right to recognition does not include the right to impose the union’s version of the recognition agreement.
without interference by the union, its right to veto the appointment of shop stewards, its right to insist that persons appointed as shop stewards remain under the disciplinary and grievance procedures of the organisation, its control of the work time of local union representatives between their official union duties and their duties as employees, and its right to insist that union officials adhere strictly to the company–union procedure agreements are the minimum requirements of management when negotiating recognition and procedure agreements. Managements negotiate the application of recognition rights; they do not simply concede them for nothing in return.
3.2 Why is a communication policy beneficial in a workplace?
Communication with all employees on a regular basis is important for management. It never wants to get into a situation where it can communicate with its employees only via union representatives, and neither should it abandon its direct communication with employees to the so-called ‘grapevine’, that unofficial, informal and woefully inaccurate means of spreading rumour, gossip and malicious stories about management’s intentions whenever it does anything. From a strategy point of view, communication is an essential element of anything likely to involve changes, not all of them foreseen, because changes always bring stress and anxieties about what they might mean for individuals. Too much stress and anxiety create distractions from the jobs at hand, which may prevent a good situation from developing into something better or make a bad situation worse. Elements of a good communication strategy include regularity of contact (individual letters, notices, briefing groups, meetings), honesty and clarity in the messages communicated, and speedy feedback to senior management. It is better that employees are bored by the communication they receive than that they are cynical about never being informed about anything. Of course, it is better still if they are enthused by the communications they receive!
4 - Managing Complex Negotiations
4.1 Introduction 4/2
Questions addressed:
- How to organise negotiation team without neglecting “day jobs” - Ensure management attention, commitment to deliver
- Maintain political will over long-term transactions - Deal with 3rd party influence (media) against project
- Maintain focus in face of unexpected events
- Deep track of details (e.g. 200 separate agreements)
4.2 Transaction Logistics 4/2
Transaction management: management of negotiation process not the negotiating skills used in the process. When the management of complexed negotiations are undertaken by poorly trained negotiators, the results are well below sub-optimal.
Transaction itself has to be managed. Negotiations take place over a length of time; months, maybe years at locations and maybe in more than one country. During the period there are other events occurring that impinge on the negotiations.
Location:
- If Property of one party => other must remove papers after each session - Neutral venue => burden on all party
- Impinging calendar events need to be mapped and noted (ext. Dates of board & shareholders meetings of the parties and duration of official statutory procedures)
Assemble support staff
- Supervisors, porters, drivers, filing clerks Monitor files
- Security provision may be needed => risk assessment
Scheduling
- Calendar events must be mapped
- Statutory procedures (regulatory approvals, public enquiries, legislation, court cases...) - Festivals, holiday, religious events, week-end
- Military coups, public disorder, kidnappings, terrorism...
Media policy
- For high-profile implications; can soften public opinion
Logistics
- Moving people, documents,
Should be managed like any other project.
4.3 Corporate Risk 4/5
Some transactions are so large they can expose the company to bankruptcy. In simple deals with few tradables (10-50) possible to establish negotiating ranges from entry to exit points.
Board business plan identifies decisive issues, charges management with achieving them As issues ascend hierarchy they are summarised into aggregate terms. Negotiation agenda is aligned with the board’s business plan. Managers identify
- Commercial imperatives
- Derive the negotiation agenda to implement the plan - Review the deals they strike and how they deliver the plan
From the list of items identified in the Negiotiation Agenda, the negotiation team will derive its Negotiation plan which details the fully costed negotiation issues management will use in negotiations to secure the Negotiation agenda’s objectives.
Board approvals hinge on summary reports demonstrating support of Business Plan - Should highlight risk assumptions
Expenses
- Negotiating large deals, tendering, changes in specifications and design, management time - Sunk costs not relevant; marginal cost of completion must be lower than profitability of
project
Transaction budget
- Remove excessive enthusiasm for closure irrespective of long-term consequences - Promote risk assessment review
NB. A feature of the Negotiation agenda is in inbuilt personal accountability by the negotiation team leader who signs off the board report, which are countersigned by the CEO or Director responsible for the function from which the reports emanate.
4.4 Public Sector Negotiations 4/7
Organisation loses budget it does not spend - Negotiations accelerate near year end - Invoicing for pending deals
Auditing for performance and probity (value for money) - Departmental pride, public standing
Possibility of government change
- Persons may change even if party remains
- Risk of termination of negotiations by incoming government o Stall, accelerate
Requirements for transparency
Public sector officials must balance political agendas with professional roles
4.5 Managing the Negotiation Team 4/9
Large contract negotiation: team effort and involves - Coordination & communications
- Appropriate structure, preferably in writing - Circulate full contact details
- Roles & responsibilities - Transaction manager
o Strong interpersonal skills and assertiveness - Professional advisers
o Accountants, lawyers, bankers, finance managers, property specialists, valuation assessors, pension managers, insurance brokers, actuaries, surveyors, risk assessors, architects, economists, HRM advisors, translators, environmental impact assessors o Important considerations
Advisers have had professional contacts over years with and against each other => not likely to compromise professional relationships for short-term gain
Advice should be questioned and challenged => early identification of issues
Select named individual points of contact
All team members should be kept fully informed of flows of documentation - Establish document numbering system
When negotiations move from Heads of Agreement, it is usual for some team members and advisors to withdraw and be replaced by those specialising in negotiation of the detail.
Heads of Agreement sets out
- Concise form or precise terms of sale, purchase, contract ...
- Non-binding legally (except confidentiality, exclusivity, cost sharing) - Heavy moral commitment
- Useful checklist of main matters to be decided (for incoming team members)
Settling small issues before big ones - Sounds attractive (build trust)
- Not always good (false sense of security); at least should be acknowledge early
Long hours typical for intractable problems (e.g. EU, UN) - Better to adjourn and reconvene
NB in role as negotiating Manager, you will face many choices before, during and afterward and should realise that whether you choose consciously or otherwise, whatever you do is your choice and will be taken as such by colleagues on both sides of the table
- Negotiators must invest in preparation
- Search for negotiable solutions that deliver the interests
- Seek to establish long and prolong trust between parties in all negotiating phases and afterwards during implementation
Module 4
Review Questions
4.1 Why are transaction logistics important, and why might the appointment of a transactions manager assist in finding solutions to difficult problems?
Long-running negotiations create problems for their management. A proper transaction management plan should be put in place, much as a proper itinerary would be required for a multi-country business trip. The more detailed is the plan, the more likely that most events will run smoothly. To manage the transactions plan a transactions manager should be appointed, ideally with experience of event management. A major negotiation should be treated as a series of events. Location adds a complication if, for example, everything contained in the location belonging to the negotiation team has to be removed at the end of each daily session and returned for the next session. Where there are several locations the problem is compounded. But logistical problems of this kind are not insurmountable. Well-understood procedures exist for decamping from one venue to another. For instance, the European Parliament regularly switches between its buildings in Strasbourg in France and Brussels in Belgium, many United Nations sub-units relocate in sequence around the world, and the G8 countries meet several times in succession in different continents. Formula 1 motor racing events move the competitors, the engineers, the cars and their supporting ‘garages’ a dozen times a year, plus the attendant press and media, and large entertainment organisations, such as World Wrestling Entertainment (WWE), manage the complex arrangements for their travelling shows across North America.
The transactions manager’s job description includes the management of the team that make similar logistical moves possible for the negotiating team without fuss or failure. This way, the negotiators are not diverted by missing files, records, data and computer equipment, nor by double-booked hotel rooms (or no rooms), nor by failed communication links to and from the organisation they represent. Dividing the functions of a transactions manager between several people on a semi-part-time basis is a recipe for failure, which could adversely affect performance in the negotiations. The line of responsibility for transaction logistics should run directly from the transactions manager to the leader of the negotiating team.
4.2 How does the Negotiation Agenda assist in accountability to the Board for what the negotiating team has agreed in the Board’s name?
Accountability derives from the nature of the Negotiation Agenda. In the Strategic Negotiation Process Model there is a seamless connection from the business plan to the Negotiation Agenda. Everything included in the Negotiation Agenda has the explicit approval of the Board because it has been fully costed and itemised by the manner in which it contributes to the organisation’s objectives over a three- to five-year planning horizon.
From the Negotiation Agenda – the list of items that deliver the business plan – the negotiating team draws up the Negotiation Plan for particular negotiations. This is costed and presented to the CEO of the organisation for authorisation. When the negotiations are completed, the negotiation team compiles a statement of the results, with explanations of any variances between the plan and the outcome. Where variations have been necessary the negotiation team adds explanations of the circumstances, the trade-offs that ensued, and what compromises became impossible to avoid. This enables the Board to assess the outcome against the approved plan and the Negotiation Agenda. Anything short of the planned goals is assessed for its ability to be improved upon at subsequent negotiation sessions, and to check that nothing has been agreed that makes the attainment of the planned goal more difficult at a later date.
4.3 What special problems does negotiating in the public sector bring to the bargainers?
ambiguity as to who is responsible for performance, the politicians who run the departments or the public servants who work in them, a game of ‘pass the parcel’ is not too difficult to initiate to divert attention away from those who are really to blame.
Private sector bargainers are sometimes surprised by the behaviour of the public sector officials conducting the negotiations, many of whom are not at or near the negotiating table. Their interventions, often quite arbitrary, have immediate impact on the pace of negotiations, their direction, their stopping and starting and their conclusions. To the extent that these off-table influences are anonymous, bargainers who deal only with those at the table are at a disadvantage. Public sector officials feel no responsibility for the financial consequences of prolonged delays from their departments in coming to a decision that might have significant impacts on the private sector negotiator’s prospects for making profits. Even if they feel sympathy for the effects of their department’s delays, they are most unlikely to express such sympathies to the languishing private sector firm in case it is quoted by the aggrieved firm in its noisy disputes with the department over the delays. Delays in authorising the building of an aircraft carrier or a major motorway do not have deleterious financial effects on the department; it may well be saving on spending its budget within the financial year and thereby remain within budget to the satisfaction of an otherwise over-spent Treasury.
For reasons of probity, departments do not encourage the forming of personal relationships between its staff and the staff of private sector contractors. In fact, too close personal relationships are frowned upon and attract the suspicious attention of such bodies as senior departmental staff, the Public Accounts Committee, politicians looking for cheap headlines, and the media looking for the ‘news’ and scandal that sell newspapers or can make the careers of media presenters.
There are costs in such downplaying of the relationship side of negotiating. Strict adherence to the terms of an agreement, when some ‘quid pro quo’ flexibility would benefit both parties in the longer run, has hidden, though often intangible, costs. Invoking a pure ‘transaction’ relationship between the parties avoids potentially misunderstood behaviours between negotiators; these may cost the department more in the medium to longer-term.
Gains and losses from agreed, but inflexible, arrangements are quite normal over long construction projects; sharing them may be more efficient and mutually beneficial. All sides tend to acknowledge this, but finding a ‘safe’ way to manage the ‘swings and roundabouts’ without compromising public trust has proved extremely difficult.
4.4 Why should difficult issues be acknowledged or confronted early in the negotiations?
This is a tactical question for which a variety of nuances in the answers are possible. Some negotiators abide by what for them is a general rule, allegedly based on their experience, that settling smaller issues before difficult ones is the best way to proceed. This sounds attractive, but other people’s experience suggests that delaying facing up to the difficult issues until the less difficult, even ‘easy’, answers are settled is not necessarily good advice. That ‘difficult’ issues are present should at least be acknowledged early on, and probably the earlier the better. There may be no immediate need to go into the details about the specific issues and problems that pose difficulties for you, and it may be sufficient to announce that there some ‘problematic’ issues among those you have to negotiate. Calling something ‘problematic’ is a neat way of describing problems without causing provocative offence. Negotiators, it should be remembered, are in the ‘solution’ and not the ‘deadlock’ business, and acknowledging this fact is often helpful in creating a climate of optimism rather than provoking unnecessary deal pessimism. If there is a deal in prospect and the parties willingly want to conclude one, it is the negotiators’ and their advisors’ duty to find it.
5 - Organisational Growth
Strategies
The concepts and applications here are needed background for commercial and operational imperatives derived from the business plan and the negotiator would make little progress in the process model without being familiar with them
5.1 Introduction 5/2
The Organisation has at least Four potential growth strategies: - Organic – with own resources
- Licensing, franchise, agency distributors - Joint ventures and partnerships
- Mergers and acquisitions
All involve negotiation
- Internal and external: other organisations and government agencies - Laws may be multi-jurisdictional, multi-party negotiations
Strategic negotiation is implementation of strategic choices - Business plan objectives => negotiating imperatives - Operational activity
- Line between planners and implementers maybe blurred
NB. Strategic negotiation is about the implementation of strategic choices (usually) already made by the organisation, by different people. The process model takes the business plan’s objectives as given and explores and delivers the negotiating imperatives that follow from it.
Analysis-paralysis can cause indecision among negotiators preventing them from actually doing anything. Sometimes it is possible that the items chosen for the Negotiation Agenda cannot help the company reach the plan’s objectives. It’s also possible that any dissonance between method and objectives will be exposed when trying to derive the Negotiation Agenda from the business plan.
Eg. Preparatory work, including due diligence reports, for negotiations to acquire business unrelated to organisation’s future prospects like acquired business is an intercontinental air transport service but the organisation ships its output via container shipping – should highlight for the negotiators that the acquisition is of insufficient positive value to the acquiring organisation.
5.2 Organic Growth 5/5
Many organisations do not grow (sales, profits); they only age eg. Local wholesale, bars, restaurants, taxis
- Growth is risky; can kill a business (growing from small to big can be risky and challenging. - Contract negotiation for non-growth business poses few strategic problems
- Negotiations for organic growth businesses may have some strategic implications if that growth implies changes of some kind in the product mix or location
Questions for organic growth
- How to extend product range, diversify, add enhanced services - Associated contracts for new employees, leases, supply and sales - Timing:
o Rapid: viability of replicating previous success formulae o Slow: invites early imitation by better-financed rivals Expansion driven by opportunity rather than “prudent” financing is risky
- More familiarity with product and market reduces risk
Growth dilutes managerial attention
Organic growth is
- Usually contained within the contractual negotiation experience of the organisation if it sticks to familiar business
- Growth decisions must be more than “good ideas”, must be well thought out and prepared
5.3 Licensing (Box 4) 5/9
Many options exists for an organistion wishing to expand its operations (high overlap in negotiations): such as;
- Licensing, agency, franchising (each utilise managerial and marketing competence of existing organisations through “arms length” relationships.
Manufacturers negotiate with third parties to distribute their goods when the costs of setting up and staffing their own distribution and sales services, and learning about distant markets would be prohibitive. Shipping product to independent distribution centres may be less costly than staffing a multi-team sales organisation
License agreements common in new regional /national markets (especially foreign jurisdictions). Licensees negotiation requires legal support in order to draft document. It embodies the relationship with the licensor and license should be drafted to reflect both parties’ precise intentions
NB. There are circumstances where a different choice of negotiating tactic may be made to reconstitute a direct field sales force for retail distribution operations after trying the option of a third-party distribution through local centres approach.
Example:
Business plan headline objective
- Expand sales nationally/internationally Transform into SMART objective
- Licensed sales will account for 40% of turnover within three years Commercial imperatives
- Locate and negotiate with licensees in six named national regions and secure licensees in six foreign countries with three years
Operational imperatives
- Train, recruit expertise in selection and management of potential licensees
License negotiations requires legal support in drafting process and should focus on negotiable issues: - Degree of exclusivity
- Terms of obtaining products - Territory
- Expected market performance - Distribution of rival products - Protection of IPR
- Renewal/terminal terms
Degree of exclusivity influences performance expectations - Higher exclusivity => higher performance