This book presents criteria and recommendations for successful negotiations. The System of Negotiations, which was developed on a scientific basis for this purpose, clearly illustrates the most important steps, tools and applications. By using game theory and behavioral economics, the success of negotiations in purchasing can be systematically maximized. At the same time, transparency and fairness offer a high level of acceptance among negotiating partners. To this end, numerous practical examples are used to show how contracts can be awarded in the event of competition between suppliers, and how various auction formats and differentiated communication can be used to achieve optimal savings potential. Also for situations where the supplier is a monopolist, ways are described to avoid being at the mercy of pricing power.
Author(s): René Schumann, Stefan Oswald, Philippe Gillen
Publisher: Springer
Year: 2023
Language: English
Pages: 135
City: Wiesbaden
Foreword
Contents
1: The Journey to Our System of Negotiations
1.1 What Is the Focus of the Procurement Negotiation: Process or Person?
1.2 Why Stress in Negotiations Does Lead to Suboptimal Results
1.3 Abstracting from the Persons Involved in Negotiations
1.4 What Game Theory Can Contribute to Successful Negotiations
1.5 Our “System of Negotiations”: A Combination of Game Theory, Behavioral Economics, Data Science and Practical Experience
1.6 The Structure of the Book
References
2: Negotiations in Procurement with Competition
2.1 Serious and Common Mistakes in Conventional Procurement Negotiations
The Most Important Success Factor for Negotiations in Procurement: Competition
Self-Inflicted Restrictions Regarding Competition
Lack of Comparability of Offers
What Happens, If the Procurement Department Does Not Have the Full Commitment for the Negotiation
Crucial: The Right Preparation for the Negotiation
Common Mistakes when Using Auctions
Conclusion
2.2 Case Study: The Benefits of a Well-Structured Competitive Negotiation Process
The Problem: The Former in-House Supplier Used its Privileged Position to Enforce Excessive Prices
Our Task: Preparation of the Negotiation and Elaboration of a Case-Specific Negotiation Design
Our Negotiation Design: Two-Stage Procedure with Stop-Now Button
The Negotiation: Strong Competitive Pressure
Conclusion
2.3 BATNA: The Best Alternative If the Negotiation Fails
What If We Do Not Reach an Agreement?
What Is a Satisfactory Outcome of the Negotiation?
Who Has the Bargaining Power in the Negotiation?
ZOPA: Zone of Potential Agreement
Conclusion
2.4 The Game-Theoretically Optimized Negotiation Process
Analysis of the Market Situation
Comparability of Offers Through Monetary Evaluation
Negotiation Design
Sign-off
Supplier Communication
Final Awarding
Conclusion
2.5 Analysis of the Market Situation
Competition Matrix and Shiftability Analysis
Analysis of Individual Suppliers
Conclusion
2.6 Bundling Products and Services to Increase Competition
Barriers to Competition in Practice
Competition-Optimizing Bundling of Packages for Different Product Portfolios
Dealing with Uncertainty Via Forward Bundling
Linking Existing and New Business by Means of a Discount Factor
Conclusion
2.7 Establishing Comparability
Disadvantages of Conventional Concepts for Qualitative Supplier Evaluation
For Comparability, Qualitatively Different Suppliers Must Be Evaluated in Monetary Terms
The Monetary Evaluation Method
Fixed Bonus/Penalty
Variable Bonus/Penalty
Absolute Bonus/Penalty
Examples of Bonus-Penalty Evaluations
Conclusion
2.8 Entrepreneurial Assessment of Cost Components
Consideration of All Cost Components
Consideration of Internal Costs
Consideration of Uncertainty and Risks
Consideration of Time Preferences and Impatience
Conclusion
2.9 Hedging against Price Renegotiations
Conclusion
2.10 Negotiation Design
When to Choose Which Format?
Conclusion
2.11 Commitment, Supplier Communication and Awarding of Contracts
A Few More Words About Fairness
Conclusion
2.12 Case Study: Extortionate Pricing of Suppliers
Establishing Comparability Between Different Concepts
The Problem: Extortionate Pricing from Suppliers
Our Task: Development of a Counter Strategy Based on Game Theory
The Result: High Savings Already in Phase One
Conclusion
2.13 Lessons Learned
Details of the Awarding
Information from the Market Analysis and Bonus-Penalty Assessment
Awarding Design
Result
Conclusion
References
3: Negotiations with Monopolists
3.1 First Check Whether the Supplier Really Has a Monopoly
Analyze the Competitive Landscape, Broaden the Field of Vision
Objectively Evaluate the Costs of a Possible Change of Supplier
Conclusion
3.2 Identification of Consequences
The Threat of Consequences Creates Pressure on Prices
Example: Creative Consequences in Negotiations with a Monopolist
Conclusion
3.3 Negotiation Options and Their Monetarization
Distinguish Between Demands and Tradables
Consider the Interests of the Other Side
Conclusion
3.4 Need for a Negotiation Mandate
The Threatened Consequences Must be Credible
“Cheap Talk” Is Not Effective
Without a Negotiation Mandate, the Supplier Has an Outside Option
External and Internal Negotiation Mandate
Conclusion
3.5 Essential: The Incentive-Optimized Storyline
Understanding the Main Incentives of the Counterpart
Excursus: Using the Effects of Behavioral Economics
Conclusion
3.6 Storytelling and Negotiation Roadmap
Dosing the Flow of Information Correctly
Building up a Tension Arc for the Negotiation
The Six-Phase Model of a Negotiation Roadmap
Phase 1: Commitment and Negotiation Mandate
Phase 2: Communication of the Anchors and Consequences
Phase 3: Communication of the Demands
Phase 4: Strategy Change
Phase 5: Exchange
Phase 6: Agreement
Conclusion
3.7 Allocation of Roles in the Negotiation Process
Conclusion
3.8 Special Case: Bilateral Negotiations with Alternatives
Market Analysis, Consequences and Differentiation of Claims and Tradables
Negotiation Mandate and Communication
Disadvantages
Conclusion
3.9 Case Study: Negotiation with a Monopolist in the Transport Sector
Our Analysis
Our Goals
Identification of Consequences and Negotiation Options
Obtaining the Mandate to Negotiate
Elaboration of a Storyline
Procedure According to the Six-Phase Model
Conclusion
3.10 Lessons Learned
Consequences, Tradables and the Interests of the Other Side
Negotiation Mandates and Storyline
Conclusion
References
4: Negotiating: The Perspectives
4.1 Some General Rules of Conduct
The 11 Dos and Don’ts for Preparing and Conducting Negotiations
Conclusion
4.2 Further Areas of Application of the System of Negotiation
Customers from All Industries
More than Just the Price: Holistic Evaluation of All Properties
Applications: For Example, in Mergers & Acquisitions…
… for Entrepreneurs and Start-Ups…
… and Even Cybercrime
Conclusion
4.3 The Opportunities of Digitisation
E-Auctions: More than Just Saving Time
The Use of Data and Advanced Mathematical Methods
Adding Value with Yesterday’s Data
Optimizing Processes with Today’s Data
Rational Decisions for Tomorrow Based on Data
Conclusion
4.4 Negotiation: From Intuition to Science
References
Glossary
