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Key Takeaways

  • When negotiating, the approach can be influenced by personal emotions and requirements. For example, if someone is happy with their job and believes they’re paid fairly, they might not need to negotiate. But, if they feel they need more money, they might need to look for opportunities elsewhere.
  • When job hunting, knowing who you’re negotiating with is important. Although you might often be speaking with HR, try to involve the hiring manager as much as possible to gain an ally during negotiations.
  • Making the first offer can steer the conversation toward one’s desired outcome due to cognitive biases, where initial numbers influence perceptions of value. For salary negotiations, present a researched, assertive expectation.
  • Watching real-world negotiations unfold and participating in them can be more effective than classroom-based negotiation games.
  • Understand the culture you’re negotiating within but don’t let it dominate the negotiation. Business language is universal and it should be enough to close a deal, regardless of cultural differences.
  • Negotiations should focus on more than just sealing the deal. Factors such as mutuality, longevity, non-price elements, and sustainability of the deal are essential.
  • It’s important to respect the people within the organization and understand one’s role in the broader team.

Executive Summary:

Ladies and gentlemen, welcome back to the NEGOTIATEx podcast. We are continuing our conversation with Mike Phillips, a renowned negotiation consultant and the author of The Naked Negotiator. In part A of this episode, Milke discussed his journey from a mechanical engineer to a negotiation expert and shared his insights from 30 years of negotiation experience across different sectors. 

He also shared unique strategies to tackle complex negotiations, key principles of effective negotiation, and techniques for salary negotiations. In this episode, he delves into greater detail about the topics. 

So, without any further chit-chat, let’s jump right in. 

A Comparison Between Emotional Investment and Business Perspective

Aram starts with a question about salary negotiation, asking if it’s always necessary or if accepting a fair offer without negotiation is an acceptable strategy.

In response, Mike explains that the approach to negotiation can depend on personal emotions and requirements. He compares this to his experience with buying property. When purchasing a home for personal use, he is more likely to accept the price because of his emotional investment and desire to avoid stress. 

But, when purchasing a property as a business investment, where there’s no emotional attachment, he would negotiate more aggressively.

As for applying this to job negotiations, Mike suggests if someone loves their job and feels they’re being paid reasonably, they might not need to negotiate. 

However, they might have to consider looking for opportunities elsewhere if they are looking for monetary benefits. That’s because it could be challenging to negotiate a higher salary in their current position if they don’t fully believe they deserve it.

Mastering Job Negotiations: Strategies for Engaging Both HR and Hiring Managers

Aram follows up with another question about knowing who you’re negotiating with, especially when seeking employment. He suggests that job applicants often negotiate with HR representatives rather than the managers who will oversee their work, leading to a difference in hiring motivations.

Mike acknowledges this difficulty, likening it to the commercial negotiating context where it’s preferable to negotiate directly with the decision-maker. However, he advises job applicants to make the best of the situation by quickly building rapport with whoever they’re negotiating with. 

Additionally, he suggests trying to involve the hiring manager in the process as much as possible to potentially gain an ally during negotiations with HR.

The Power of the First Offer and the Role of Natural Ability in Negotiations

The conversation then shifts to corporate negotiations, particularly within manufacturing companies. Aram asks how the principles from Phillips’ book, ‘The Naked Negotiator’, can be applied to procurement situations in these companies.

Mike responds by delving into the intricacies of making the first offer in negotiations. According to him, making the first offer is essential to steer the conversation toward one’s desired outcome. He cites an experiment where participants are influenced by initial numbers they see, affecting their guesses about the price of a champagne bottle. 

This demonstrates a cognitive bias where an initial number can influence a person’s perception of value, which can be utilized strategically in negotiations.

As far as salary negotiations are concerned, Mike advises job seekers to present their salary expectations assertively after doing their research. This should be a credible yet ambitious figure that can implant a desired number in the employer’s mind.

To help individuals embrace this assertive approach, Mike strongly urges the listeners to expose themselves to real-world negotiations. Watching negotiations unfold and participating in them can be more effective learning tools than classroom-based negotiation games. 

He acknowledges that while practice and exposure can improve negotiation skills, there’s always an element of natural ability that contributes to one’s proficiency in negotiating.

Balancing Cultural Sensitivity with Universal Business Objectives

After that, the conversation takes a turn toward cross-cultural negotiations. Nolan asks Mike if there are specific insights or lessons learned from Mike’s experience that could benefit leaders engaged in international negotiations.

Phillips stresses the importance of understanding the culture you’re negotiating within while not letting it dominate the negotiation. He asserts that the business language is universal; the goal is always to close a deal, regardless of cultural differences. 

Overall, cultural norms and practices should not overly dictate the negotiation.

Common Mistakes in Commercial Negotiations and How to Avoid Them

Moving on, Mike highlights the following common errors made during commercial negotiations and provides solutions to avoid them.

#1 Lack of Preparation 

This is one of the most significant mistakes made in negotiations. It’s crucial to do your homework before going into a negotiation, whether it’s for a salary or a commercial deal. In the context of commercial negotiation, understanding the market, determining competitive pricing, and being aware of industry standards are all part of the preparation.

#2 Lack of Boldness 

Phillips advises being assertive and bold during negotiations. He sees many negotiators hesitate to push for what they want, which can lead to suboptimal results. If the negotiator has done their homework and understands what’s reasonable, then being bold won’t come off as offensive. Each side understands that their goal is to get the best deal possible; for the buyer, this means the lowest price, and for the seller, the highest.

#3 Lack of a Threat 

A ‘threat’ or a BATNA (Best Alternative To a Negotiated Agreement) is also essential in negotiations. This usually implies the option to walk away from the deal in a commercial context.

#4 Asking, ‘Is that your final offer?’ 

Lastly, Mike advises not to use this phrase, especially in salary negotiations, as it can shut down negotiation avenues. If they answer yes, the negotiation is effectively over; if they say no, it appears unprofessional. It’s better to continue negotiating without attempting to force a final offer prematurely.

Beyond the Deal: Ensuring Mutuality and Longevity in Business Negotiations

Next, Aram asks Mike about a common challenge businesses face: the misconception that sealing the deal is the final goal. Instead, Aram highlights the importance of implementing and measuring the deal’s effectiveness.

Phillips agrees and mentions that in his consulting work, which is primarily about helping his clients achieve cost savings through negotiations, it would be shortsighted to focus solely on obtaining the lowest price. There are other factors to consider as well, such as:

#1 The Deal Should Deliver Lasting & Mutual Benefits

The deal should be designed to last and deliver mutual benefits. Although fairness is not strictly necessary, there must be something beneficial for both parties. This isn’t always a 50-50 split; it could be 60-40 or even 70-30. However, both parties should walk away from the negotiation feeling like they have gained something.

A successful negotiation is one where the other party feels the negotiator was on their side, even if the negotiator has obtained all they wanted.

#2 Non-price Elements Are Also Crucial 

Non-price elements and the sustainability of the deal are crucial. In commercial negotiations, sustainability doesn’t necessarily refer to environmental considerations but rather to the longevity and effectiveness of the agreement. 

These non-price elements should be part of the negotiation, as they might impact the price. It’s not wise to focus solely on reducing the price, as it can lead to the deal unraveling later.

The Importance of Respect and Role Understanding in Organizational Dynamics

Moving on, Aram brings up the topic of internal negotiations within an organization and asks Mike how he helps people manage these situations. In reply, Mike mentions that internal negotiations within his client companies often prove more challenging than external ones.

He emphasizes the importance of being respectful to the people within the organization. On that note, he recounts his experiences working with surgeons and electronics engineers, where he ensured respect for their expertise.

Discussing the challenges of coming in as a consultant, Phillips highlights the natural human resistance to external advice. He shares how he manages this by reminding the supply chain staff that they are all procurement people aiming to show the business the impact of procurement. 

Additionally, he likens the role of supply chain personnel to decathletes who have to deal with many different aspects of the job, while he is more like a sprinter focusing on one particular area.

Phillips concludes by noting the importance of respecting the professional positions of the individuals within the organization and the value of understanding one’s role in the broader team.

Establishing Negotiation Processes in a New Environment: Start Small, Achieve Quick Wins, and Build Momentum

Subsequently, Nolan proposes a scenario where a mid-level manager, Ellen, enters a new company and discovers no established negotiation processes. He asks Mike for advice on how she can establish these processes and create a unified team approach to negotiation.

Mike suggests starting small by identifying a particular area where they can demonstrate the effectiveness of a structured negotiation process. He mentions the resistance that may be encountered, as individuals may be used to handling things in their way without a centralized process.

His approach involves demonstrating the negotiation process in a selected area and achieving quick wins. This gives tangible evidence of the benefits of a more structured approach, which can then be used to encourage the wider adoption of these processes throughout the organization. Essentially, Mike advises starting with small, manageable steps that can provide verifiable results and then using these results to build momentum for broader change.

Overcoming Budget Disclosure Hesitations in Client Negotiations

Nolan presents another scenario where he’s in negotiations with clients about the budget for his digital marketing agency. He struggles with clients who are hesitant to disclose their budgets, fearing that revealing their budgets will lead to him exploiting them. 

This lack of transparency complicates his ability to set expectations and appropriately scale his services to match the client’s budget. He asks Mike for advice on approaching this conversation so clients feel more comfortable disclosing their budgets.

In response, Mike advises a policy of openness and transparency. He suggests being open about the range of services and the corresponding costs. This includes explaining what one can expect from a high-budget project (like having a professional film crew) versus a lower-budget one (like using stock images from the internet). He emphasizes that transparency can build trust, often resulting in clients being more willing to share their budgets.

Mike then goes on to describe his business model in which his fee is incentive-based; he makes more if he saves the client. He believes this transparency creates a win-win situation and encourages clients to be more open.

Prioritizing Excellence over Money for Career Satisfaction and Fulfillment

As the conversation begins to wrap up, the hosts ask Mike what additional thoughts he wants to share with listeners. Phillips underscores the importance of not primarily pursuing money in one’s career. 

While fair compensation is undoubtedly important, he advocates for prioritizing excellence and being the best in the workplace. He believes this pursuit of excellence ultimately leads to job satisfaction and career fulfillment.

Thank you for listening!

Transcript

Nolan Martin : Hey everyone, thanks for joining us on the NEGOTIATEx podcast. We are continuing our conversation with Michael Phillips, founder of Phillips Consulting. If you haven't already checked out part A of this show, be sure to do that. First, let's jump into the conversation with Mike.

Aram Donigian : Quick questions on salary. And I think we're gonna shift gears a little bit, but, so one is do you always negotiate salary or if you can look at it and say, I'm being fairly compensated, what they're offering is fair, what advice would you give? I mean, so sometimes I hear people say, oh, you should always negotiate it.

And sometimes I also wonder if this is an example of what it's gonna be like to work together. And I can look at it and say, I'm fairly compensated for what they're asking me to do. This is fair on the market. Right. I'm happy just to get, let's get started.

The Emotional Vs. Financial Divide and its Impact on Negotiation Tactics [1:46]

Mike Phillips : I think this is a little bit about an individual. I mean, I tend to be the latter in that situation, Aram. I know when I think about over the course of my life, I've, on a few different occasions, I've had to buy a property. Okay. Or buy properties. And there's a fundamental difference between whether I'm buying a property that I'm gonna live in. Or I'm buying a property that I'm gonna let out.

Now, if I'm gonna live in it, you know, I go and I look at it and you know, we say, oh, we love this house. We're emotionally invested in it. I tend to negotiate less in that case cuz I just want the house. I don't want to go through all the stress. And because at the end of the day, you know, another 5,000 here or there, over the course of, you know, decades is not gonna make any difference.

Now, if I'm gonna buy a house to let out and I'm not emotionally invested, it's a pure business transaction. You drive a hard bargain then. So, I think if you are in a job you love and you do your research and you feel you're getting a reasonable salary, it is individual. But for me, I would say, well, you know, you've ticked the box, you've done your research. If you feel in your life you need more money, then you've got some decisions to make. But that may mean going to another organization because it's gonna be hard to make your case internally cuz you won't believe yourself.

AD : Yeah. The other question and maybe relates a little bit to this too, is how important is it to be aware of the person you're talking to? So, if I'm looking to get hired, sometimes I've gone through a process. I've been hired by a manager, then when I get ready for the salary discussion, I get passed over to HR. I mean, how much can control that in terms of, hey, I want to talk to the person I'm reporting to or something, right?

But the process for the company is they're gonna push me off to somebody who, at HR, who has slightly different incentives for the rate at which they hire me or the hiring in general than, than this manager who was hiring me for skill and productivity and delivery. And this person's trying to manage a budget and set good precedent. How aware should I be of that dynamic?

Building Rapport and Aligning Interests with Decision-Makers [3:44]

MP : Yeah. I hate that. That's really bad, isn't it? You know, cuz again, if you put it in the commercial negotiating context, you want to negotiate the decision maker, don't you? That's, you know, that's muddy in the water for you. It's making it more difficult. Personally, I would try and involve the guys hiring me as much as possible because then if you go over to someone you don't even know you've had no interaction with, to be fair, I have to do that a lot in commercial negotiating.

So, you have to think on your feet, you know, get a rapport going as quickly as you can. There's no silver bullet for that but that's it. That happens. I know it's, but it's quite annoying. But yeah, just get to know the person as much as you can. Try and get out of the manager as much as you can because maybe you can get he or she on your side with the HR person.

AD : Let's switch then. Let's go ahead and switch over to the corporate negotiations that you're involved with. And you said that most of these are with manufacturing companies, kind of between the 10 million to a hundred million range. How do you extrapolate some of the key lessons from The Naked Negotiator and apply them to the procurement situations that these companies are facing?

The Significance of Assertive Proposals, Cognitive Biases, and Real-World Practice [4:53]

MP : It's interesting cuz as I say in the book, the lessons are negotiation theory that have been drawn from genuine commercial negotiations over the course of nearly 30 years. And, you know, we've gotta think about some of the key ones. One of the key ones that there's actually a whole chapter dedicated to, and this tends to be a bit controversial in the negotiating world, is who should make the first offer?

Okay, now it gets a, it does bit, a bit polarizing, this one. I am very much in the camp that you must make the first offer and it's all about getting the conversation into the area that you wanted in. I remember some years ago the BBC made a documentary called something like you know You Don't Think The Way You Think, something like that. And they had in this documentary an experiment which they filmed.

And so they went up to people in London in the street with a big bottle of champagne. And then they asked them to put their hand in a bag and pull out a numbered bull. And the numbered bull either had the number 60 on it or the number 15 on it. And so they went and asked a number of people to put out a book. Just, they just say it's a reference number, you know, there's no significance to this number, just a reference. Oh, number 15. And then they asked them, how much do you think this bottle of champagne is worth?

And they all made their guesses. Now what they demonstrated, and this has been shown in academic studies as well, is that the people who saw the higher number, guessed the higher number for the champagne and the people who guessed the lower number, guessed the lower number for the champagne.

And it's extraordinary really, isn't it, just merely seeing a number influences your mind to go up or down. And so this is a kind of, you know, cognitive bias that we have. We've seen a number and it can influence us. So I, over the years I've done a lot of negotiating with Chinese companies and they love a target and I don't mind giving them a target. I have to do my homework on the target. Because the key thing about the target is it's gotta be, you know, really aggressive, really ambitious is perhaps a better word, but also credible because if you go too far, you just look silly, don't you?

So, that's a key lesson I would say in that comes from the commercial negotiation into your, into your salary negotiation. It's a bit counterintuitive cuz most people when they go to a salary negotiation will say, oh, I think this is, and this, this, this, will you give me, what will you give me? Now I'm saying, right, no, no, don't do that. Say I've done my research and I think I'm worth this amount. And get that number in your boss's mind right at the beginning.

AD : The power of leadership or leading in negotiation, which comes back, I think to this idea that you were sharing earlier around being assertive, which assertive has some degree of confidence and competence kind of built in. I've done my homework, I'm not throwing out a crazy number, it's ambitious. Sure. Right. I mean, if I'm in a range, I'm gonna be at the high end of the range. Here's why. How do you coach folks to get there? If their tendency is want to sit back and say, well what will you give me?

MP : Well, you know, it is really interesting because, you know, over the years I've done negotiating classes, you know, in a classroom and you come up with all sorts of scenarios and negotiating games and stuff like that, but it's never the same as actually being in a real work negotiation. So when I'm working with my clients, I always say to them, you know, I can go off and do this work for you and, and I'll get on with it for you, but you know what's best, get your staff with me in the negotiation, see how it's done.

And you learn so much more by being there, seeing the interactions. And then we can have a discussion afterwards, you know, what went well, what didn't go well, not always the beginning before the meeting. We'll have a discussion about, you know, who's, who's doing what. These are the things I'm trying to achieve. This is how I'm gonna try and achieve it.

So yeah, in terms of trying to get people to understand it, the best way is to get them involved in a real world negotiation. There's always an element of natural ability, isn't there? I mean, you've come across Malcolm Gladwell's, you know, 10,000 hours concept. You know, if you do something for 10,000 hours, you can get professional proficiency and, and I would say yes, in poor terms, that is true. I'm sure I've done 10,000 hours of negotiating, but there's also an element of natural ability as well. I've got a piano in my sitting room, I've practiced on it loads, but, you know, I'm still rubbish at playing [laugh]. Don't have, don't have the, the natural ability to do it.

NM : Yeah. So you had mentioned cross-cultural negotiations in Asia and was hoping to kind of dig into that a little bit more. Are there any other lessons learned as you do these cross-cultural negotiations that would be important for some of our leaders who are going to have that international negotiations throughout their career?

Balancing Understanding with Practicality and a Memorable Japanese Anecdote [09:49]

MP : Yeah, I think I would say on this, that understanding the culture that you are in is important. And you need to do that. You need to do your homework, but don't get too carried away with it, okay? Because at the end of the day, business is a kind of universal language. You know, we're trying to do the deal, you know, whenever I'm talking with the Chinese supplier, they want the order.

If we've got the right supplier, I want to give them the order. So that's the nuts and bolts of it. Don't get too carried away with the culture. I remember being in Japan and the Japanese are quite interesting when it comes to negotiating, as you probably know, they're very much an honor-based culture. And so, you know, I remember going into the meeting always in Japan, there's always a huge team of people.

You know, there's a room full of people. But, and then the boss comes in, you know, and he sits at the end of table. He barely says a word or in fact whether he does or not, he says he doesn't even understand English. He may, I don't know. But anyway, he doesn't say anything. We have a long discussion and I think it goes pretty well. But then of course in Japan you have to have this thing, oh, we must go out to karaoke in the evening.

So, we go to karaoke and we're in this bar and you know, you have to get up and sit. But the one thing I realized that I mustn't do, not that he was lively, that I mustn't sing better than the boss [laugh]. I get up and do my piece, it's not very, and then the boss gets up and does his piece and oh it's great. Go into the meeting the next morning and the deal's done. [Laugh]

NM : Nice, nice.

AD : For some of us, it wouldn't be hard to sound worse than the boss.

NM : [Laugh]. You'd be good, Aram.

AD : Thanks.

NM : Yep.

AD : So Mike, what are some common pitfalls, mistakes that you see companies that you work with make during the commercial negotiations, and how can they kind of avoid them?

The Necessity of Proper Preparation, Assertiveness, and Avoiding Common Pitfalls [11:46]

MP : Yes. So as we sort of indicated, you know, one of the worst one is not doing your homework. You've gotta do your home. Whether you're doing a salary negotiation or whatever negotiation it is, if we're talking about a commercial negotiation, you've gotta have done your market research. You've gotta understand the market yourself and what is good pricing, what is sloppy pricing? You know, the homework is really important and we've touched on it a little bit, but being bold is important.

Too many times, you know, I'm working with people and I'm saying, I say to them, right, I think we should go for this price or this deal. And they go, oh, I dunno if you've done your homework, you're not gonna upset people because as long as you're not silly, everybody understands that there's a deal to be done.

And your job, if you're on the buying side anyway, your job on the buying side is to get the lowest price. And their job on the selling side is to get the highest price. Everybody understands that. So as long as people don't feel you are taking the Nicky taking liberties, then you know, they're not, they're not gonna be. So be bold. Too often people are not bold and you must have a threat as well.

And obviously, you know, in the commercial context, the threat is you walk away from the deal, there's the threats there. I mean, one thing you must never do, particularly in the salary negotiation context and never say, is that your final offer? Never say that. Cuz there's no good answer to that fact, you know, what would you like to say? You know, no, that's not my final offer. Well, you know, it's a bit of “The Office” isn't it? Or it is my final offer, and then all you've done is invite them to close down the negotiation. So, never say, is that your final offer.

AD : Yeah, there are better questions than I think we like to say there's no bad question, but there are, there are some questions that are less effective than others. Right? Hey, so I had a question too. In terms of challenges, how often do you see companies struggle with the idea that the deal is not the end, how we implement it, how we measure it, how we revisit the effectiveness of what we said we were gonna do? That's important. We really need to set ourselves up, not just to get a deal done. Okay, but actually for effective implementation and the ability to potentially repeat this a year from now or whatever. I mean, and do, is that something that people lose sight of?

The Importance of Mutual Benefits and Non-Price Elements in Negotiation Success [13:55]

MP : Yeah, it is. And it's, it's particularly pertinent to the type of consulting that I do because my consulting is about getting the deal. It's about, you know, getting cost savings for my clients. And so too often people will assume that that is all it's about. But even in my context, I mean, I might typically be engaged with a client, anything from as short as, you know, a few months to over a year that the length of engagement varies.

But even if it's a short engagement, I would be shortsighted in the extreme if I just totally focused on just getting the lowest price and forgetting everything else that is important. I'm not gonna get any repeat business if I do that. You've got to make sure that you've got the deal set up so it's gonna be lasting that it's gonna deliver mutual benefits.

That's important. You can't, although, you know, sometimes in discussions when I'm coaching people they say, well it has to be fair, not necessarily fair, but there has to be something in it for the other party. It's not necessarily a 50-50 split. You might be a 60-40, even a 70-30, but the other party's gotta get something out of this.

I always feel that if I end a negotiation and that the person across the table shakes my hand and says, thank you for all your help, then I've done a good job. You know, that's what I want to get them to giving me everything I wanted. But they feel I've almost been on their side, I've been helpful.

So, it's a slight tangent to what you asked Aram, but I do completely agree with you. If you're right, the non-price things that the sustainability of the deal, I mean from a commercial point of view, not necessarily from a sort of environmental point of view, but that may be important as well. But the sustainability of the deal is absolutely critical. And you've gotta get those elements in the discussion actually because they may affect the price. And as I say, it's really shortsighted to just try and drive, drive, drive on the price and then the deal unravels in six months.

AD : I love what it is that we get fixated on price and we equate price to cost and we forget that total cost is bigger.

MP : Yeah.

AD : And we need to, as you said, we need, that conversation probably needs to happen and maybe not at the beginning of the negotiation. Right. But I don't, you know, maybe but the, during some point of the negotiation process, we need to talk about total costs and implementation.

Non-Negotiable Factors in Price Discussions [16:11]

MP : Yeah, I mean I always like to say though that there are, in terms of, you know, things that are about quality and service and these sort of things, I do tend to say to suppliers I'm talking with, you know, these are non-negotiables. I actually want the best quality, I want the best service. So, you know, assume that they're there. We are gonna talk about the detail naturally. Cuz sometimes if I'm driving a hard bargain on price, they'll say, oh well, you know, we could, you know, reduce the quality of this. Like, oh, that stopped the game we're playing, you know, this is the specification, this is what we want. We're not gonna negotiate on that. But you do need to be at a competitive market price for this quality of product that we're buying.

AD : You know? And so kind of going on both the quality and service piece and just the negotiations as we sit here in 2023 post COVID world, some of the supply chain challenges that are occurring for so many companies. Curious about trends that you're seeing that whether they're surprising or new or interesting or whatever. I'll give you an example and maybe you can draw on some too that you're seeing.

We had a colleague of ours who works for a global tech company recently just say, you know, right now what is most important to me is I've gotta know for my suppliers that something is gonna get delivered on time to spec and I'm willing to pay more to make sure that happens. So, right. A little bit of a trend difference just because of the supply chain challenges. What else would you say that you're seeing in terms of just kind of general trends, things that you're working through as you work with different clients?

Understanding Timing and Market Conditions [17:44]

MP : Well, I think on this, Aram, there’s a timing issue here. And it's about, I guess really, I mean I suppose different industries will be at different points in their curve, to be fair. But you know, I get quite, I get involved quite a lot in the electronic components industry. And if we go back to say 20 20, 20 20, 21 in particular and into 22, that's where we were. It almost doesn't matter what the price is, we've got to have the components. And I saw, I was working with clients and we might previously have been paying $2.50 for a microchip.

And we are now having to pay a hundred dollars for the microchip. It's just crazy. And the distribution companies, the Arrows, the Avnets of this world, you know, they were insisting on firm schedules, non cancelable, non rescheduled, obviously, you know, what people are understanding is that the supply chains got completely disrupted.

And then what's gonna happen is there's gonna be a, and everybody's gonna grab as much stock as they can. And so all the stock won't be with the distribution. They'll be with the OEMs in their warehouses. And at that point, the distribution company's outputs is gonna go through the floor cause everybody's stocked up. And so, they insisted fixed firm schedules, no negotiation. You have to take these that take these now that was 2021, go forward now into 23.

And we're already now in the phase where it's beginning to ease quite a lot. Prices are tumbling inventories are going up again in the supply chains, but OEMs of course are still sitting on lots of stock, so they don't need it. And so now I'm, we're very much at the phase with my clients saying, you need to really be driving a hard bargain.

I mean, a good example was I've got a client in the medical industry, they had a supplier in India last year. The supplier put through quite a significant increase on the basis of raw materials had gone up. Foreign exchange had moved against US shipping costs. I mean the shipping costs went crazy. I still remember that you might have been paying $1,500 for a shipping container, you know, you were up to $20,000 for shipping container.

So, they put through an increase before I was involved with the client. And you know, to be honest, it was a perfectly reasonable increase at that time. Now I've become involved later on, and as we've said, I'm doing my homework, I'm doing my preparation.

All three of those factors, raw material, foreign exchange, shipping costs had all turned around. And so that gave me very strong negotiating lead bridge with the supplier because I was actually able to use logic against them. And straightaway, straightaway they removed the increase. You know, and I can't remember the exact figures, you know, that was a couple hundred thousand dollars in one discussion. So the timing is critical. It will vary from industry to industry. But I'm picking up definitely we're, we're very much on the, on the phase now where supply chains are, are not snarled up and are easing now and prices are tumbling.

AD : It requires tremendous flexibility when the situation is fluid and it's changing. You gotta be educated to be, well I I would assume that you also have to be able to manage the internal versus external conversations. So much of what we've talked about so far has been kind of external focused. I assume that when you talk about some of your work with the NHS and working with surgeons, some of this is all about the internal negotiation within an organization to be aware of what is changing in terms of trends.

What is changing certainly in the medical field in terms of procedures and what's needed. How do you help people have better or more constructive internal dialogues to influence stakeholders within their organization so that they can then go have, be able to negotiate effectively externally?

Mike on Internal Negotiations: Balancing Expertise and Respect [21:44]

MP : Yeah, I'm gonna say in my long career, the internal negotiations I have within my clients are more challenging than the external discussions.

AD : I was gonna say, I we're not surprised to hear that. I think some people are always surprised to hear that. Yeah. But, sorry. Keep going.

MP : You know, I think the key thing is showing professional respect to the people that you're dealing with. So, as I say with the surgeons, I was very, very careful not to even imply that I would tell them which manufacturer of implant to use. They're the experts. They know that. When I'm in the manufacturing area, particularly in the problem, we were just talking about where there was a severe supply shortage of components and we were constantly having to have discussions with electronics engineers saying, we can't get this part. We need another part. You know, but it's really important not to say, to respect their knowledge, their professional integrity and say, can we have this part, you know, not start telling them what to do. Cause I think that's one thing that's gonna, that winds up people straight away is being told how to do their job.

Now, for me, the challenging thing is that when I'm invited into a client, I've gotta work with supply chain people. And the human reaction is, who's this bloody smart Alec coming in trying to tell me how to do my job, [laugh]. And, you know, and that’s tricky. It's a human reaction, isn't it? But, you know, I guess the best, the way I try and deal with that and say, look, you we're all procurement people, all we're trying to do is to demonstrate the business, how important a procurement is and what an impact it can make. And often use the analogy of, you know, a great supply chain person has to be a bit like a decathlete. They've got all sorts of things they have to deal with. You know, they've got their day-to-day quality issues, you know, getting the parts in.

They may have staff issues, they've gotta deal with, you know, procedural issues. When I come in, I'm just like the sprinter I can get to focus on what I'm doing. I don't have all those other responsibilities that they do. Right. And so, you know, bring me into your, or the other analogy to use a soccer analogy, you know, I'm the center forward that you buy in for a while to knock a few goals in, you know, and, and I go away afterwards, but you know, you are the manager of the team still. So it's again, trying to respect that, you know, that professional position.

NM : So I have a couple vignettes that I'd love to ask you. And so first one is kind of one I'm seeing with my peers. So let's say Ellen from the Nick and Negotiator is walking into, let's say the negotiation didn't go well. She moved companies and now entering to a new company into a mid-level management position and sees that the processes are not in place. And I know something I know you've experienced, I know Aram and I have experienced, is that you can see a distinct difference when an organization has negotiation processes in place.

They're speaking the same language. There's just a ton of benefit that happens there cuz they're able to all be on the same page moving in the same direction. So what advice would you give to that manager who sees that there's no process in place? Like where do they start? How do they break it down? How do they bring this team together around how to be effective negotiators?

Mike Phillips on Proving the Efficiency of Structured Negotiation Processes [25:02]

MP : Yeah, it's a good question. I mean, I'm kind of thinking about a kind that I'm working with at the moment. It's in a similar position. What I've done with my sponsor in the company, after you get one person who tends to bring you in is say, let's just try and get a few quick wins to demonstrate how effective this process can be. What I'm experienced there is you've got a little bit of people holding their cards close to their chest. Oh, you know, I'm dealing with this, I'm dealing with this. You know, you get that.

And that's exactly where, you know, because there's no process there. It's being done in individual ways. So what I'm doing is to go through a process, demonstrate, try and pick an area where there's no one clamoring over this that have my my mind, pick an area, demonstrate the process, and then you've got some results, haven't you? And then the hope is then you say, well look, you see how I did this here, it produced this result. And then try and build on it from there and expand it. So I would suggest that, I think.

NM : That's a great, great idea of getting buy-in. Yeah. and then kind of going from there. All right, so the next vignette is mine. So with my website design, digital marketing agency, I have kind of a difficult conversation with budget with our clients. Whenever we have a new client, like during the RFP process, many of my clients or prospects are hesitant to provide me with the budget because they think that I'm going to take advantage of them. And, you know, the little information that they may have about value, cost, et cetera, they don't necessarily know what the cost of a website is.

So, but I know that there's a big difference between a $75,000 website and a $10,000 website. And so, you know, on the high end, I may have a professional film crew and on the low end I may just have stock images that you just find off the internet. So how can I do a better job at approaching this conversation in a manner where they feel comfortable, give me their budget so I can set realistic expectations or figure out how to put more into the project.

Mastering the Art of Procurement Negotiations [27:12]

MP : Yeah, I would say with this, I mean, I always say to people when I'm coaching them about negotiating, just be open. Offer as much information that as you can only hold back what you really have to, sometimes there's commercial stuff that you've gotta hold back. So just be completely open about, you know, just what you were saying. And reassure them. Explain, I do remember you know, with a colleague and we would, we would go along to a potential client. And you kind of just trying to figure out what to say to try and persuade the client that this was a good idea. And he was kind of always worried that you would kind of give too much away. Not in terms of value, but in terms, you know, the whole process. But I've learned over the years, just be as open as possible.

Just be completely open. This is how it works, this is what we'll deliver and this is the cost. And the way that my business is set up is that we generally have what we call an incentive fee. So if I make a big saving, then I get a bigger fee. So that's how we set it up. And so I'm very open with people, you know, I say, you know, if I, if I save you $500,000, you're gonna give me a big chunk of money.

But what's the problem? You know, you're gonna get the much bigger slice. I get paid. Well, you make a big saving. Everyone wins. I think somehow people respond to just an open manner. So, you know, I do really take your point, Nolan, that people are always worried about it. But I would say be open, explain as much. You can be relaxed about it as well. Cause I think that that relaxation will be in infectious to the other party.

AD : Yeah. You say infectious reciprocal piece, right? The idea, I mean, information is the currency of negotiation. We have this bias to hold our cards closed and there's a real cost to doing that. And, again, I love your advice cuz you're not saying some Pollyannish, oh, just play your cards open. You're saying, Hey, really think critically about what information we share that's relevant to be able to share and that's going to probably draw more information from them. But it's a little bit of a shift in mindset about being open.

MP : Yeah. And I mean, to give you an example on that is, you know, when you've done your homework, so how do you find out what the proper value of anything is? You have to go out to the market, you get pricing from the market and you may have got it from supplier A, B, and C. And so now you go and talk with supplier D the one you are talking to and you say your price is not in line with the market. And they'll say, well, which suppliers have you spoken to? Now sometimes I'll go, I'll be open, say, well, it's, you know, A, B C, but sometimes knowing a bit about the market, I don't want to be open because they'll start picking holes in it. They'll say, oh, then you know, there's this, and that's for me to judge.

You know, when I'm doing my benchmarking process, I'm being careful to pick suppliers who are real ones that I really would be prepared to go to. And so, you know, it depends on the circumstance, but sometimes I'll be completely open, oh yeah, it was, you know, supplier X or other times, because I don't want to go down a rabbit hole and then start saying, oh, you know, then I've made that judgment. They're acceptable. So yeah, you work out what you can share, but my, I always say the default position is share it unless there's a good reason not to share it.

NM : That's great advice. Thanks.

AD : So as we get ready to wrap up, I feel like we've still, this has been a very quick hour. I feel like we've still just kind of hit the surface and yet you've provided great examples. Taking us deep, what haven't we asked you today that you'd like to ensure that you kinda leave our listeners with?

Pursuing Excellence over Monetary Gains [30:46]

MP : Yeah, I think it's, this is interesting because we've talked a lot about salary and about getting value and getting what you deserve. And I think, you know, that is important. But ultimately in terms of work, I don't think you should chase the money. Don't make that your ultimate, you know, I think what really will give you fulfillment in a career is going into work every day and being the best you can, striving for excellence every day. So getting paid what you deserve is good, but don't make it your optimum.

AD : Well, Mike, thanks. And I just want to, as I just again say thanks for joining us from across the pond. Thanks for your great insights. So many great takeaways here that I think that we can apply both individually as we negotiate, as you just said, a career that we want with ourselves, for ourselves, and also for the teams and organizations that we're part of. How do we help them? So thank you for covering so much ground with us.

MP : Thank you. Great talking to you guys.

NM : Absolutely. Thanks Mike. I really appreciate it. So that is it for us on today's podcast. If you haven't already, please rate, review and subscribe to the podcast and we'll see you in the next episode.

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