商务谈判时，评估一下，你到底有几张牌？（By Richard B. Lanza）

Assess sources of power in your negotiations

Auerbach Analysis

Jan 8, 2002


By Richard B. Lanza

Negotiation power is the ability to influence. This power may be real or it may only be believed by the other party in negotiations. One example of believed or apparent power is when a spy makes a phony business card of a company's security officer and goes about asking personnel key questions, “assuming" the power of legitimacy. These questions, as personal as asking for their passwords, mother's maiden name, etc., are all answered because of a piece of cardboard printed at a local office supply store. Therefore, believe you have the power so it pours out into every subtle interaction with the vendor—words, business correspondence, and body language.

When entering into a negotiation, the major types of power that can be exerted/felt need to be assessed. The key here is to assess the balance of power in either the buyer's or the vendor's direction. For example, the balance of reward power is clearly to the buyer's advantage in most buying situations because the buyer is generally providing the vendor with cash in return for their organization's goods/services. On the other hand, if the buyer has a Web site that just crashed and needs to go live immediately, and the only way to get it to go live is to buy the “last server in town" from the vendor, then reward power clearly shifts to the seller.

Therefore, the balance for each type of power listed below should be assessed, as well as a determination made of how to strengthen the balance in the buyer's favor. Strengthening can come from brainstorming with the buying team, reviewing past experiences, and hiring technical experts (more fully detailed in each of the types of power). (Note: Bulleted questions have been provided after each power to assist in the brainstorming process.)

Reward power
Rewards take on many forms, including money, property, improved productivity, etc. Generally, reward power is in the buyer's favor because the cash to be exchanged is the key power chip. However, rewards to the vendor include the prestige of the client, the excitement of working on an influential project, the status in the marketplace the project will provide the vendor, etc.

Questions to help assess reward power are:

• How can our organization help the vendor with this or future deals (e.g., cash, prestige of having the account, etc.)?
• What benefit is the particular vendor providing that presents a potential imbalance in the reward power struggle?

Punishment power
On the exact opposite end of the spectrum, the threat of punishment is also generally in the buyer's favor not only from the cash-at-hand perspective, but also in the potential loss of a long-term customer who has provided the vendor with the bulk of their profits. For example, an accounting firm may perform the company's audit at a great loss to the accounting firm in return for obtaining the tax and computer consulting business, where the accounting firm can enhance its profits. (Note: Perceived fear can be worse than an actual threat imposed by the buyer.) In other words, punishment power can be unspoken in discussions with the vendor but nonetheless be effective.

However, be sure that punishment power does not come back to bite you in the form of fear mongering by the vendor. Recently, many companies ran to the Web fearing that their businesses would be replaced by a 20-year-old kid in a garage. Millions of dollars later, the company found that the 20-year-old kid never existed, and the consultant's stock was now worth only pennies. In other words, keep any fears imposed by the vendor at a minimum. Be sure there are observable facts supporting your assessment.

Questions to help assess punishment power are:

• When can punishment power be used to make the vendor back down on key terms in the agreement?
• Is the vendor using fear mongering to scare you into signing? If so, are there observable facts to prove that these fears are justified? How can you protect yourself other than by signing with the vendor (using your competition/other options power)?

Legitimacy power
This power is also called moral power. For example, a buyer getting a fair price in return for a vendor's right to a profit is an expectation of business. Any attempts by the vendor to instill unfair practices should be thwarted by this power for a fair deal. It is the only legitimate and moral thing to do.

Another form of legitimacy power is power derived from your position in the organization. The position of purchasing manager conveys that the person has the power to make decisions in the negotiation. As noted in the example of the spy, the legitimacy power is normally an assumed power. All that is needed is a business card.

Questions to help assess legitimacy power:

• Are you getting a fair deal from the vendor? If not, where in the business community can you point to other companies that are getting fair deals?
• How can your correspondence, speech, and body language with the vendor appear more professional?
• How can your negotiation team's credibility be enhanced by adding players who, real or apparent, convey that the team is in a credible position to make a decision and therefore deserves to see the best deal from the vendor?

Power of other options/competition
Ever since the formation of the Federal Trade Commission (but surely before then), competition has ruled capital markets. This provides an essential power to the buyer in that the buyer can always walk away from the table and use another vendor. The vendor, knowing this dynamic, makes every effort to thwart the competition's offerings by minimizing the competition's skills and offering, while at the same time highlighting their own company's strengths. This balance should be maintained in the buyer's favor (with the vendor working to earn their business) by ensuring that every buying situation has competitors. There is a reason for the golden rule of purchasing (i.e., obtain three bids for a product): It creates competition.

With competition, you will be able to present to the vendor other options that can be provided (but do not say who can provide them). This provides a basis from which to begin with the current vendor to negotiate further concessions.

Questions to help assess competition power are:

• What other options are there, other than choosing this vendor?
• Have these other options been noted to the vendor, thereby displaying a posture that you are not committed to their option?
• Are you remaining independent in dealings with the vendor—evidenced by speech, body language, and correspondence implying that other options exist?
• How can you increase your appearance of independence?
• Is there a contingency plan if all negotiations fail? Is there at least one sure thing to fall back on? If not, what should it be?

Power of knowledge
The old cliche “knowledge is power" comes into its own in a negotiation because the more information a buyer has about the various vendors, the more powerful the buyers will be in influencing results in their favor. For example, a buyer has reviewed current financial articles and noted that one of the sellers is in financial trouble. This information might halt all future dealings with the vendor, but if the buyer does decide to move forward with the vendor, this information can be used to obtain a better deal in consideration of the risk the buyer is taking in selecting this vendor.

In addition to learning more about the vendor organization, learn more about the persons representing the vendor. Try to understand the representatives' professional goals and try to find solutions that will help them meet those desires. These are the unspoken needs that are not written in the proposal but can be obtained through candid discussion, talks over dinner, etc. For example, in talking with a vendor, you may find that he or she hopes to one day become a regional sales manager. Suggest (using a little reward power) that by gaining your company as a client, the vendor will be one step closer to achieving that position.

A key piece of information in any vendor negotiation is how much a solution should cost. Preferably, the team should gather information to form an estimate of the product or service prior to bringing in vendors. Products such as Cost Xpert allow a project team to estimate with good accuracy the cost of a software development project using a database of over 20,000 projects prior to meeting a vendor.

As noted by Napoleon, “A spy in my enemy's camp is worth 10,000 men in the field." Inside information about the vendor can often be obtained from competitors (who are so free with such information), references provided by the vendor, or persons working for the vendor who are known by the buyer. Please note that other competitors should be minimally contacted because you do not want to tip off too many people about the vendor pool with whom you are currently negotiating.

Now that there is a perspective of the types of information to gain about a vendor, the focus should move to you and your team. Information regarding the team, the competition during the proposal process, and the optimal price point should be kept by the team with the utmost security. On large projects, some companies actually swear their negotiating teams to secrecy, locking them away in hotel rooms, to ensure that secrets do not leak out. Although this may be extreme, negotiation teams should be small (easier to contain information) and reminded regularly of the critical nature of such information. Ben Franklin once said, “Three people can keep a secret if two of them are dead.”

Although certain information should remain secret, a host of information can and should be shared. For example, requirements for system, product specifications, etc., should be free for disclosure. This type of information will help the vendor to better assess your situation and arrive at a firm offer.

Questions to help assess knowledge power are:

• Have you reviewed current financial/other information on the vendor that can be used to your advantage in the negotiation by looking at Morningstar.com and Company Sleuth?
• Is there any prior experience with the vendor from which you can learn?
• Have you contacted the vendor's references to understand not only their technical capabilities but also how they act during negotiations (e.g., do they prefer to have “a bird in the hand vs. two in the bush")?
• Have you contacted the vendor's closest competitor (and included them in the proposal process) to understand the vendor's relative strengths and weaknesses?
• Have you talked to your vendor contact about his or her goals/professional objectives to see how your current negotiation could further those goals?
• Have you independently estimated the cost of the product/service for use when negotiating with vendors?
• Is there any other homework that you can do regarding the product/service being purchased, the industry, etc.?
• Have you provided as much information as possible regarding your requirements?
• Have you gathered information on each vendor regarding their perspective about deadlines, cost, priorities, the decision-making process, contractual statements, and organizational chart?

Power of time
If one thing can be avoided in a negotiation, do not say, “We need your product/service as quickly as possible because we have a deadline we must hit." Upon hearing this phrase, the discount column on the vendor's retail price list magically disappears. Power has been handed to the vendor, who will now have no sense of urgency to return calls because at that second, the vendor realized your need—you are desperate. Use time to your advantage by never uttering those words but plan ahead and take the perspective of wanting to make the right decision, regardless of how long it takes. Using time brings patience, and with it, you will gain a better appreciation and viewpoint of the situation before making a decision.

Questions to help assess time power are:

• Have you planned ahead, or are you under the gun to complete the project?
• What is the latest point to select a vendor?
• If under the gun, have you told the vendor (don't)?
• If you are not in a time crunch, do you feel anxious to just finish the process so you can move on to other projects (don't)?
• Does the vendor have any time pressures that would benefit him or her if the sale were closed (e.g., end of the month sales closing)?
• Is the vendor using time tactics such as “the price goes up June 1"?

Expert power
Vendors smell blood when they know they are dealing with a team that does not understand the vendor's business. Therefore, as noted above, building a credible negotiation team is critical to making the buyer become (or at least appear to be) an expert. If the expertise is not in-house, hire a consultant for your team who does have expertise. For example, hire a technical review vendor who agrees to not take the job currently being bid (to aid in forming a more independent decision). You could even print business cards for the technical review vendor with your company name on them (a less-than-$50 expense); however, put “Independent Consultant" in his or her title to remain honest. Once the vendor sees an expert, “snowshoes" will immediately be left at home (no snow jobs are in the forecast). The vendor will be prepared to stick to the facts.

Questions to help assess expert power are:

• How can you strengthen the expertise on your negotiation team related to the current purchase? Do you need to add a new skill set that was previously not anticipated?
• Would it be useful to hire a technical expert to assess the relative strengths/weaknesses of the vendor at hand?

Risk power
Risk is a power that needs to be spread among parties. For example, a $1,000 bet in Las Vegas on one round of blackjack is too much for a person to reasonably bear, but a $1,000 bet spread among 50 people ($20 each) is more acceptable. The bet is still the same, but the risk is much lower in the betting group. Therefore, it is also wise to spread risk between the buyer and seller. A popular way to accomplish this is to sign a fixed contract price with the vendor for key deliverables. This fixes the organization's investment in the project, transferring the risk to the vendor to complete the project on time and under budget.

A question to help assess risk power is:

·  How can the vendor share in the risks associated with this project?

Further reading

1. Chester L. Karrass, The Negotiating Game, New York: HarperBusiness, 1993.
2. Chester L. Karrass, Give and Take, New York: HarperBusiness, 1993.
3. Gerald I. Nierenberg, The Art of Negotiating, New York: Random House, 1985.
4. Herb Cohen, You Can Negotiate Anything, Los Angeles: Audio Renaissance Tapes, 1990.
5. Dale Carnegie, How to Win Friends and Influence People, New York: Simon and Shuster, 1981.
6. Robert M. Bramson, Ph.D., Coping with Difficult People, Dell Publishing, 1988.

Richard B. Lanza currently heads the Program Management Office of the American Institute of Certified Public Accountants (AICPA). He is a leading authority on the use of data extraction/analysis technology, a frequent speaker on risk/data analysis, and has written numerous articles on audit technology for trade publications.

The opinions expressed in this article are the author's own and do not necessarily represent the policies or positions of the AICPA. Official positions by the AICPA are determined through certain specific committee procedures, due process, and deliberation