In 
Negotiation promises higher value creation by matching customers individual specific needs with manufacturers capabilities. However, difficulties in terms of information asymmetry and stickiness along with conflicting incentives prevent customers from effectively tapping into the value of negotiation in procurement. This research conceptualises procurement of customised products as a transaction problem with an embedded design issue.
Effective negotiation has been a competitive strategy in this fragmented and volatile market place, particularly in the new manufacturing landscape where multiple manufacturers customise products for customers patronage. For example, Cisco, Huawei, and Alcatel-Lucent are competing in the customised network servers space; Dell, Lenovo, and HP compete to provide customised computers; and both Nike and Adidas offer custom-made sneakers.
Terming Negotiation
A negotiation-based procurement mechanism can be generally described as a process of sequential search, in which the buyer contacts prospective sellers one at a time until a mutually satisfactory solution is identified. The bilateral interaction during negotiation is essentially a process of joint
decision-making with partial information exchange.
However, there is a possibility that negotiators may fail to reach an agreement, even though mutually beneficial solutions are available. The root cause of such inefficiency lies in the lack of incentives for telling the truth in a negotiation. On the contrary, negotiators are motivated to strategically withhold or misrepresent private information, which results in laborious iterations as well as unpredictable outcomes.
Achieving win-win solutions is crucial for enduring success, as well as to directly address aspects of IT and business alignment challenges. There is a difference between negotiation and barter: negotiation is trying to arrive at a win-win situation where both parties believe that they are getting value for money, whereas barter ends up being perceived by both the parties, as a losing proposition. It results in discontentment and soured relationships.
A good negotiator has the ability to influence his thoughts in a logical and emotional fashion without any offence.
Call in IT
Being a critical component of IT, negotiations help deliver IT projects on time, within budget and to the specification. Besides, good decision-making often translates into tremendous profits and market opportunities. IT department is required to quantify the risks inherent in the negotiation process.
Forms of Negotiations that Envelope IT:
a) Negotiation with vendors is based on technical competency, past individual experience and service support
b) Negotiation with end-users is based on feasibility analysis to convince the
customer to buy appropriate tools
c) Negotiation with subordinates is critical to induce individual
productivity gains to drive cooperation and teamwork
d) Negotiation with management requires demanding additional manpower resources and infrastructure level resources for betterment of the existing system
Rule of Thumb
There is a thumb rule to the art of negotiation. The key skill is to listen and absorb useful information. This will help us plan ahead and put forth our approach and appeals. The verbal and non-verbal signals should reflect a positive attitude.
Do not argue and avoid rude and loud behaviour. Be assertive, firm and polite. We should use hard arguments with soft words, not soft arguments with hard words. The most essential aspect is to maintain eye contact with the opposite party, which shows our confidence.
You must stay focussed on the topic and ask questions without being interrogative and avoid the blame game.
Another interesting aspect is that rules govern negotiation communication. For instance, in informal negotiations, many of the rules are generated through the negotiation interaction. In formal negotiations, rules and procedures structure communication.
Certain Positive Insights There has been significant cost reduction owing to effective negotiation in our projects. In a campus networking project at JSPL in Angul, the initial phase was categorised into two parts supply and services. Firstly, we decided upon popular brands say Product A for supply and Product B for service and the enquiry was floated.
We soon received offers from popular brands and experts vendor X, Y and Z, who are authorised partners for Product A and Product B. The initial offer value was around Rs 5.16 crore.
After several negotiations with vendors X, Y and Z, the Level 1 project cost dropped approximately to Rs 0.04 crore. The key here is that there are several vendors with the same product.
Therefore, to break the monopoly of the OEM, we started talking with other manufactures Product C for supply and Product D for service.
Since the competition was for manufacturer products, so again after negotiating, the price came down to approx Rs 3 crore for Product A and Product B.
We discussed with other group of companies and started negotiating with the country managers of Product A and Product B. Keeping its impact on our future relationship in sight, we got a very good discount on supply part 76 per cent and service part 68 per cent.
It was a win-win negotiation.
Negotiation Closure
There comes a point in every negotiation when we have achieved effective results with expectations reasonably met. If we do not recognise when to draw a balance, we run the risk of the company thinking that it has made a mistake in offering us the job in the first place. The negotiation should close on win-win situation.
Do not run out of time or allow the vendor to threaten you with arbitrary deadlines. Sign the deal only when it is ready to be signed and not by imposed deadlines or project schedules. Verbal deals have no meaning or value. The deal is done only when it has been appropriately reviewed, approved and signed.
Rakesh Mishra is Head, IT & C, Jindal Steel and Power Ltd.
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