Wednesday, March 24, 2010

Negotiation Authority

Conventional wisdom says you should insist that the negotiator on the other side of the table have full authority. Otherwise, you’ll fall victim to the old "car dealer" trick, where just as you are about to reach agreement with the salesman, he has to check with his manager. In other words, the first negotiation with the salesman is used to bring you to your bottom line, and the second negotiation with the manager, to push you beyond it.

There are advantages to negotiating with the person who has the power to sign on the dotted line:

You know that all of your reasoning is heard directly by the decision maker.
The benefits of the good relationship you have built are likely to be reflected in the deal and its implementation.

You are less likely to have disputes or confusion about the interpretation of a particular provision.

You avoid the "car dealer" trick described above.

As a practical matter, you won’t always be able to negotiate with the individual (or committee) who retains final authority. This can sometimes be an advantage, however: people without formal authority may be freer to discuss their company’s interests and to invent creative options. If you are dealing with someone who does not have full authority, view this as freedom from the need to commit.

Confirm the ground rule that neither side will be committing his or her company in the negotiation. (If they’re not committing, you shouldn’t have to either.)

Suggest using the opportunity to discuss your respective interests and to come up with creative options and packages.

When negotiating about dollar issues, leave yourself some "wiggle room," in case the final negotiator pushes harder in a second round.

If there’s no "wiggle room," strongly convey the message that this is your best offer.
Instead of insisting on full authority, it’s more important that you determine the authority level of the person with whom you will be negotiating, so that you can plan accordingly. Thus, try to ascertain who will be at the negotiating table what her formal title and area of responsibility are
how long she has been with the company how the company is structured. Is it very hierarchical, with significant decision-making powers centered at the top, or is it relatively decentralized?
how the negotiator is viewed within the organization. Is she generally respected and listened to, or not? (Granted, this information may be difficult to obtain, but it’s well worth digging for. If you know other players in the industry or business community, you may be able to learn this through an informal, off-the-record phone call or two.)

If you learn that the negotiator for the other side has very little formal authority and is not respected or listened to by the decision makers, try to get another representative to participate in the negotiations as well. One tactful way to do this is to suggest that you will be bringing a colleague (either with more formal authority or because your joint recommendation will carry more weight), and request that the other side do the same.

As for your side, always know exactly how much authority you have in a negotiation. For example:

Are you authorized only to commit to a predetermined deal for which committee approval has been obtained? What if you can negotiate something better? What would the committee consider to be better?

Are you authorized to commit to a deal that meets certain objectives (with freedom to structure the deal in the best way you can)? Would your company prefer that you bring such a deal back for formal review and approval?

Is your authority limited on dollar issues but not on other creative options without significant financial implications?

Are you authorized to provide information about your company’s needs, interests, and preferences if the other side engages in a good-faith, reciprocal exchange?

You may be frustrated if you don’t get the authority you seek, but at least you won’t unwittingly overstep your bounds. Here again, less authority is sometimes better. The need to check back for certain decisions may be strategically helpful, and may enable you to be more creative in inventing options.

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