Abstract
The challenges facing procurement managers across industries and public services are quite important. Businesses need to take care of the bottom line while public services need to manage tight budgets. This is aggravated by difficult economic environments such as the one that has come with COVID-19. Reducing procurement costs means less funds and working capital. Such is achieved by means of adequate negotiation processes. Technology procurement is a field with long acquisition lifecycles, where negotiations span over considerable periods of time, and where the features of technology may impact negotiations, including the technology inherent obsolescence speed. Such negotiations occur in an environment where demanding technical requirements abound alongside economic rationality and where negotiations are conducted by teams of managers and engineers, addressing the distinct dimensions. An approach to technology procurement negotiation is presented with viewpoints for reflection on how procurement and negotiations shall be addressed for technology procurement purposes.
TopIntroduction
“If you know the weaknesses and capabilities of yourself and your competition and are familiar with the specific environmental culture (the terrain), you cannot fail.” - Sun Tzu, 544 B.C.
Complex technological procurement managers have to manage for technology acquisition, both products and associated services. Products may include hardware components, systems and platforms, but also software. As for services, there is a considerable range as well, from consulting, engineering, maintenance, software programming, even financial ones. Besides the technical concerns, the economic rational shall always be taken care of, and the ‘value for money equation’ must be always present in mind within the procurement context. These issues demand some care in addressing procurement negotiation. The value of equation (1) must always be greater than one, that is, the value attributed to the functionalities associated with the good or service being purchased, plus the perception of future returns, must be higher than the value paid plus the risks associated with the business (Huet).
(1)For example, when considering the procurement of telecommunications equipment and systems, purchases involve hardware and software acquisition processes related to categories such as radio relay links, networking devices, cable infrastructure, management information systems, geographic information systems, planning tools, as well as a considerable set of services, from design and installation to maintenance. Procurement managers must have equation (1) always in mind as a sort of navigation compass.
This chapter has a special focus on the negotiation and negotiation process and pinpoints some critical “post-negotiation” issues that typically arise within the context of technology acquisition. Because most agreements implementation does not develop exactly as negotiated or expected, there is a permanent need to carry on negotiating during the delivery or implementation stages, a concept oftentimes referred to as “post-settlement settlements” (Mendenhalt, 1996; Raiffa, 1982). Besides the need for an integrative approach to Negotiation, as opposed to competitive ones, such issues involve several typical steps and will be discussed within the context of this chapter.
This chapter is written from the viewpoint of the purchasing side procurement. Such raises a different set of questions when compared with the selling side point of view. Each side or party takes its particular perspective, where sellers want to maximize their profits. In contrast, buyers want to reduce acquisition costs, which, together with the always present asymmetry of information among the parties, will raise friction and damage the procurement effectiveness during or after the main negotiation stage.
This kind of procurement, where technology is involved point toward cooperative modes of Negotiation, where long-term relationship between suppliers and purchasing companies shall be taken care of. Regardless of the benefits of such long-term relationships and the involved collaborative approaches, there is also a negative side. Such negative side arises from the following issues: (i) since procurement managers will have the attention focused on a fewer supplier, he may be missing some new emerging technologies and solutions, (ii) long term relationships have the potential to feed the vicious cycle where other potential supplier will not present themselves to the procuring companies, because they may believe that there is a barrier related to the long-term relationships, already in place, with current vendors, and (iii) there may be some installed inertia on the procurement departments, with procurement managers and officers getting accustomed to the usual suppliers, and where the current sellers, in spite of less competition, may have the tendency to increase their products or solutions prices, even not developing new innovative products, something which is critical in Hi-Tec businesses (Rosseti & Choi, 2005). There are also some human skills issues accompanying the explanation, but such will be referred to throughout the chapter.
Besides this introduction, this chapter is composed of four main sections. Section one addresses the general procurement process in Hi-Tec sector. Section two deals with negotiation preparation. Section three has a focus on the negotiation development itself. Section four addresses the critical issues of Negotiation close and lessons learned as a key issue for organizational learning and an asset for the future.
Key Terms in this Chapter
Distributive Negotiations: This is one of the two main types of Negotiation and typically characterized by competitive approaches, where long-term relationships are not a concern.
Collaborative or Integrative Negotiations: One of the two main types of Negotiation. Usually characterized by a true attempt to reach a win-win situation for both parties in a negotiation.
BATNA: Best Alternative to a Negotiated Agreement. The term would better describe its meaning if it was renamed as solution away from the table, because the “best alternative to the considered negotiated agreement” might be another negotiated agreement.
ZOPA: The acronym for “Zone of Possible Agreement,” which defines the ranges along which an agreement may be closed. Each party walkaway point defines the boundaries of the ZOPA. The ZONE gives a graphical visualization of the superposition between both parties’ negotiation ranges.
Interests: The ‘must have’ goals a party will try to achieve during a negotiation.
Tactics: This refers to the specific methods, and sometimes processes, to implement a strategy.
Trade Off: To substitute or bargain one issue for another. A move typically found in many selling vs. purchasing actions.
Negotiation: A process involving planning and discussion aimed at reaching an agreement.
Die-Hard Bargainers: People to whom every Negotiation is a battle.
Positions: What the parties to a negotiation will be asking for. A bad initial positional may become a very expensive mistake.
Procurement: Concentrates on the strategic process of product or service sourcing, which typically involves researching, Negotiation and planning. procurement is not the same as just purchasing.
Framing: How one understands and tries to describe a situation. The way one party frames a proposal or solution will affect the way the other party will behave.
Scenario: An initial set of conditions and timeline of significant events imposed on trainees to achieve exercise objectives.
Reservation Price: A concept similar to the walkaway point, i.e., that point in a negotiation range that when reached the negotiator abandons the Negotiation. In this case, reservation price relates to the actual price involved in the potential purchasing.
Walkaway Point: A concept similar to the reservation price, however it may consider variables other than price, as would be the case of the reservation price concept, which is a particular case of the walkaway point concept.
Strategy: Defined typically as a planned sequence on how one intends to approach a negotiation.