P1 Determine what is negotiation, why it occurs and key stakeholders during negotiation process
Negotiation is an activity between two or more parties who face divergence in interest and understanding that they are interdependent, look for an alternative arrangement aiming at eliminating their divergence and thus creating, maintaining and developing a healthy relationship between them. In context of business organisations, this process is imperative to be creative in any business process, especially selling process. Business negotiations are often done for the purpose of dealmaking, corporate team building, entering into contracts, business acquisitions, vendor pricing and sales, real estate leases etc. A successful business negotiation was carried between Walt Disney Company and Lucas Films where after bargaining for one and half years, Disney fina
Business negotiation is often carried out with the objective of resolving points of difference and to gain competitive advantage for individual or collective relevance. Also, it is conducted to derive successful outcomes for the interest of parties involved in negotiation. This process is often carried out when one party put forward an opinion as to the importance of collaboration and then offering a position and making concessions to arrive at achievement of agreement. The extent to which the negotiating parties put trust and belief in each other to execute the negotiated process defines whether the negotiation is successful or not. The acquisition of Lucas Films by Disney made the company a leader in animation and superhero films and generated huge revenues from already lucrative Star Wars media and merchandising empire of Lucas Films.
To carry out a successful negotiation, there are various skills that should be present in a negotiator. Effective negotiators must have analytical skills to understand a problem and determine the interest of each negotiating party. Before entering a bargaining meeting, a skilled negotiator determines goals, areas for negotiation and alternatives to pre-decided process. Successful negotiators possess good listening skills to hear the other party during the debate. Also, it is imperative that a negotiator keeps control over emotions as sometimes negotiation may not yield the desired outcomes. Along with that, negotiators must possess the ability to effectively communicate his opinions and solutions to the other party. In context of acquisition by Disney, the company gave Lucas Films a period of 1.5 years so that Lucas Films can gain trust in Disney. Robert IGER, chairman of Walt Disney possessed tactical skills to give time frame to Lucas Films and then carried out a successful acquisition which resulted in bolstering the status of enterprise as the leader in animation and superhero films. Also, IGER possessed smartness as he put forward the deal of continuation of Star Wars film series, a dominant and revenue generating source in past for Lucas Films.
Stakeholders are those persons, groups or institutions who possess an interest or are directly/indirectly affected by the the outcome of any event.. Key stakeholders are those who can significantly influence or are important for the success of an event. During negotiation, key stakeholders are the parties involved in the process of bargaining and then mutually coming together to an agreement. They are the people who are responsible for carrying out the process of negotiation by communicating need of entering into an agreement and the probable outcomes that are expected to take place as a result of negotiation.
P2 Evaluation of key steps and information required for negotiation and deal generation
Whenever a negotiation is carried out between two or more parties, parties have to make certain choices that directly affect the outcome of negotiation process. To derive a favourable outcome, it is important to ascertain and understand the process of negotiation.
While many negotiations are direct, some of them are the hardest decisions that have to be taken by the negotiating parties. The success of negotiation depends upon the planning and preparations done for the process. These may involve well defined strategies and tactics to execute the process from the stages involved beginning from planning to closure.
Steps involved in the process of Negotiation
Negotiation is a 4 stage process which is explained below:-
Planning and Preparation
This step is essential for the success of negotiation process. Planning everything in advance and being well prepared for the process generates confidence among negotiator. Planning and preparation involves the following activities (information):
- Gathering information: It is important to ascertain and understand the problem as the more the negotiator learns about the problem, the more effective solutions can be developed.
- Leverage Evaluation: It is essential for negotiator to evaluate his and the other party's leverage as a number of steps can be adopted to raise or reduce the leverage of the other party.
- Understand the people involved: Determining and gaining an insight into the parties involved in the process of negotiation is necessary. It is also important to develop an understanding of their vision, objectives, roles and stake in market. Also analysing the issues that can be raised by the other party during debate can be helpful for successfully being able to tackle the issue by tactics during negotiation process.
- Rapport: Establishing and maintaining a healthy relationship with the other negotiating parties during the early stages of process can be helpful. This aids the negotiator in understanding the extent of cooperation that the other party exhibit and to gain their trust fro successful execution of negotiation.
- Know your objectives: It is essential to ascertain one's objectives behind entering into an agreement with the negotiating parties as this will help the negotiator in effectively communicating their motive behind negotiation to the other parties involved. All arguments and justifications should be kept ready by negotiator.
- Type of negotiation: It is important to ascertain whether the negotiation will be face to face, by fax, through a mediator or in some other manner.
- Plan: Deciding on the negotiation approach and planning is done as per that.
Here, both the negotiating parties come face to face. They present their views and opinions and try to influence the other party's thinking. By effectively communicating their say during the debate, they initiate the setup of negotiation.
Bargaining process involves closely analysing the aim and objective behind entering into an agreement with negotiating parties. This process involves the basic strategy applied to convince and influence the other party regarding the demand placed by negotiator. To execute this process, negotiator must possess tactical skills and effective communication to clearly state the views and opinions in his favour.
The closing phase of a negotiation process represents the opportunity for the negotiating parties to capitalize on all the planning and execution of work in the earlier stages. The research done in the planning and preparation phase along with all the information that has been gained during the negotiation process is helpful in the closing phase. It also involves formal documentation of the agreement which both the parties are willing to enter. The parties to negotiation formalize the agreement in a written contract or letter of intent. Reviewing the negotiation is also necessary to learn what was favourable in the negotiation and what needs to be improved.
P3 Explain RFP process and relevant types of documents required
Tendering is the process used by business organisations to invite suppliers and vendors to supply goods or services to the enterprise. Negotiation is carried out with suppliers through Request For Proposal (RFP). Request for Proposal is the process of documentation and solicitation that communicates the needs of an organisation for a service and invites various vendors to submit proposals in this concern to gain the opportunity.
The key steps of creating an RFP are described below:-
- Determine needs:It is essential to ascertain the needs behind writing an RFP. While documenting a RFP, the business entity is primarily writing a "help wanted" ad. It should communicate the needs of business enterprise, skills, tactics, quality and timeline within which a proposal is to be submitted.
- Write the RFP: Like a CV or resume, RFP has a specified format. Different authors suggest a different format but it is wise for a business enterprise to follow a uniform format as this will help the vendors in understanding what should they be expecting from RFP.
- Distribute the RFP:Distribution of RFP is another essential element of RFP process. Business organisation try to distribute maximum RFPs to gain a fruitful response from vendors and suppliers. When dealing with the long list of people seeking for proposal approvals, enterprises should consider the realities of the proposal.
- Evaluate Responses: This process is time-consuming yet the most essential stage of RFP process. Business organisations consists of a team of stakeholders who go through every response carefully to select the best proposal. The process of eliminating the unwanted proposals is called "shortlisting." Once the shortlisting of vendors or suppliers is done or a smaller group of applicants that submitted relevant proposals are selected, company can begin scrutinizing them more carefully.
- Evaluate Further:After shortlisting of the selected proposals, there is still some information left to be collected. A round of interviews are then conducted to gain additional information about the selected candidates. Vendors should be willing to provide these additional details and perhaps even a demo if required by business organisation. At this step, stakeholders should have all information necessary to make a final decision like pricing and terms of agreements if the candidate is finalised as the supplier for company.
- Make a Decision:The stakeholders in the organisation should look at all options and information presented by the selected candidates and then decide upon the suitable vendor who will deliver the best services as required.
P4 Explain contractual process and how relevant documentation is managed and monitored
When contracts are complex or of high value, there is usually some negotiation between the parties. Both parties enter into an agreement with the intention to bargain for what both the parties will deliver and receive. Both the parties will enter into the contract with the expectation of gain. Parties may negotiate for themselves or appoint a representative to perform this task. But, if a third party negotiates on a party's behalf, he should be legally intended representative.
It is essential to enter into a written document. Contract language should be specific, clear, and concise. Drafting an outline before creating the agreement can assist the parties in creating a legal document without any chances of disputes in future. Accuracy of data such as party names, addresses and terms and conditions is essential to avoid any unclarity. Writing a contract is the most effective way for the parties to gain an insight into exactly what one party want from another party and protect them from false claims in future.