Chapter 1.3 Flashcards
Explain how the balance of power in commercial negotiations can affect outcomes
What does the term leverage refer to?
Power (it can be used interchangably)
How does the Oxford Living Dictionaries define power?
The capacity or ability to direct or influence the behaviour of others or the course of events
What does French and Ravens Power Base Model do?
It describes 6 bases of power
What are the 6 bases of power as per French and Raven’s Power Base Model
- Coercive
- Expert
- Informational
- Referent
- Legitimate
- Reward
What type of power does French and Raven’s Power Base Model refer to?
Personal power
What does legitimate power come from?
Rules, formal authority, organisational rank, staff grade or official position held
How can legitimate power be demonstrated in commercial negotiations?
By job title and rank
What does legitimate power come from?
The belief that a person has a formal right to make demands and expect others to be compliant and obedient
What does reward power come from?
One person’s ability to compensate or reward another for compliance
Why may buyers in larger organisations be perceived to have more reward power than those in smaller organisations during commercial negotiations
They can potentially award larger and more profitable longer-term contracts and/or introduce the supplier to the wider group
Does the reward just have to be money?
No
Subject matter expert (SME)
A person whose knowledge is recognised as being of influence. Please note, the acronym SME is also used for small-medium enterprise
What is expert power based on?
A persons high level of skill and knowledge
What is expert power based on?
Facts, knowledge, research, insight and study
What is referent power the result of?
A persons perceived attractiveness, worthiness and right to others respect, sometimes referred to as charisma in leaders
How may you exercise referent power in commercial negotiations?
Through demonstrating honesty, fairness and respect in dealing with suppliers, while acting ethically at all times, respecting confidentiality and creating a reputation for being tough but fair
What does coercive power come from?
The belief that a person can punish others for non-compliance, and can be considered as the flip side of reward power
What does informational power result from?
A persons ability to control the information that others need to accomplish something
What is the gatekeeper?
The person with access to the key decision makers or confidential and sensitive information
BATNA (Best alternative to a negotiated agreement)
Often called Plan B, a negotiation should always have a back up position in case no deal can be agreed
What can organisational power be described as?
The capability of those representing an organisation to influence behaviours and decisions of others outside the organisation
What 4 things does relative power determine and influence?
- Whether you can realistically negotiate in the first place
- How ambitious you can be regarding objectives
- The strategies and tactics open to you to use
- Your walk-away point and you BATNA
How can you identify sources of power in the wider business environment?
STEEPLED
What does STEEPLED stand for?
- Social
- Technological
- Economic
- Environmental
- Political
- Legal/regulatory
- Ethical
- Demographic
What can you use to analyse a micro environment?
Porters 5 forces
What is porters 5 forces?
A simple framework for assessing and evaluating the competitive strengths and position of a business organisation in its own micro environment or industry
Name porters 5 forces
- Intensity of industry rivalry
- Bargaining power of customers
- Bargaining power of suppliers
- Threat of substitutes
- Threat of new entrants
What does the porters 5 forces model suggest
The strength of these forces determines industry structure and the level of competition in that industry
What is another source of organisational power
Power that is derived from the relative bargaining positions of the two organisations entering into, or currently in, a commercial relationship
What is supplier positioning?
The process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy
According to the buyers perspective what four quadrants exist?
- Protect
- Collaborate
- Avoid
- Compete
According to the sellers perspective, what four quadrants exist?
- development
- core
- nuisance
- exploitable
What is a key factors that motivates commercial suppliers in a free market?
Money
What is a key source of leverage in a free market?
Your absolute and relative spend as a customer
What is a key objective of strategic procurement and category management
To ensure that the buyer maximises its spend leverage by channeling as much spend as possible across the organisation to as few suppliers as possible in order to extract volume discounts
Name 7 ways you may increase your leverage through spend concentration
- Vendor based reduction
- Volume pooling
- Volume redistribution
- Volume consolidation across categories
- Standardisation and harmonisation of specifications
- Former purchasing consortia
- Stronger relationships
Spend cube
A review of spend data presented as a three-dimensional cube, highlighting the three dimensions usually reviewed:
1. Sub-categories and commodity groups purchased across the organisation
2. Stakeholders or departments buying the category
3. Comparative spend with different suppliers
Name the 3 questions you want to answer when analysing your accounts payable data
- How much are you spending on which categories/commodities
- Who in your organisation is spending the money
- Who are you spending this money with
Name 8 things that can differentiate the buyer from other buying organisations
- Simple procurement processes
- Simple contracting processes
- Clear and concise documentation
- Absence of onerous supplier terms and conditions
- On-time payment
- Transparent process
- Ethical behaviour
- Prestige associated with the buying organisations brand name or brand reputation
What does the Steele and Court supplier preferencing matrix allow us to do?
To consider supplier perceptions regarding their customer segments across two key variables: customer spend and customer attractiveness
Name the 4 quadrants of the Steele and Court supplier preferencing matrix
- Develop: low spend and high attractiveness
- Core: high spend and high attractiveness
- Nuisance: low spend and low attractiveness
- Exploit: high spend and low attractiveness
What is the difference between the Kraljic matrix and the Steele and Court supplier preferencing matrix
The first looks at the supplier from the perspective of the buying organisation, and the latter looks at the buyer from the suppliers perspective
