Negotiation HOW WOULD YOU DO IT (EFFECTIVELY)?
What is Negotiation? Negotiation is a decision making process that involves other people that do not necessarily have the same desires or preferences as you.
When Do We Negotiate? --- Examples • F(Price, Quality, Service, Quantity) • Risks(?) • Time • Changes of order ---> interruptions
Why Do We Negotiate? • To resolve differences • To allocate resources
Differences in Negotiations Expectations • Risk • Priorities: • Quality • Quantity • Price • Service
Different Priorities Identifying Objective “Distinguishing between Wants & Needs”
Goal of Negotiation To reach the very best agreement possible, rather than just reaching an agreement.
What Is Effective Negotiation? • Effective Communication • Showing progress and direction • Number of issues identified/resolved over a certain period • No hard feelings • Quality of Agreement (Win-Win)
Before You Begin Negotiating • Consider the potential outcomes in the event that no agreement is reached. • Determine your BATNA (Best Alternative To a Negotiated Agreement).
BATNA • “Best Alternative to a Negotiated Agreement” • The Negotiator’s best outcome should no agreement be reached.
Significance of BATNA Negotiated Agreement The value of BATNA provides a lower bound for a negotiated agreement BATNAs Impasse
Reservation Price • The point where a negotiator does not care if s/he reaches an agreement or impasse. • Denotes the value of one’s BATNA
Negotiation Principles • Separate the People from the Problem • Focus on Interests, Not Positions • Invent Options for Mutual Gain • Insist on Objective Criteria
Prescription #0 • Identify Who is what and their concern • around the clock • Gate Keeper,Influencer,End User,Purchaser,Owner • List their concern items and estimate the weight
Prescription #1 Never fall in love with one of anything: if you do, it will likely be yours, but the price will reflect the intensity of your obsession.
Prescription #2 Paying attention to the alternatives of your opponents enables you to predict their willingness to concede as well as assessing your relative power in the negotiation.
Prescription #3 Focus on the underlying interests, rather than on positions. Example: Camp David Agreement
Prescription #4 • Assess how important each issue is to you. • You can effectively trade-off issues by conceding less important issues to gain on more important ones.
Prescription #5 • Assess how important each issue is to your opponent. • In so doing, you can avoid making inaccurate assumptions about the nature of the interaction.
Dos of Negotiation • Proper Personal Appearance • Mind your P’s and Q’s • Technical Competence • Good Company Establishment
Don’ts of Negotiation • Lying/Telling bullshits • Exaggerating • Acting like a snob • Asking personal questions (unless the situation permits so)
Acting crazy Big pot Get a prestigious ally The well is dry Limited authority Whipsaw/Auction Divide and Conquer Get Lost/Stall for Time Wet Noodle Be Patient Let’s Split the Difference Trial Balloon Surprises Classic Negotiation Tactics
Dimensions of Negotiation • Distributive Dimension • Integrative Dimension
The Distributive Dimension • Significance • The Bargaining Zone
Significance of The Distributive Dimension • Determines the distribution of outcomes. • Fixed-pie Negotiation
Fixed-Pie Negotiations The total amount of resources to be divided is fixed: one party’s gain is at the direct expense of the other.
Bargaining Zone • The overlap of the reservation prices (Positive Bargaining Zone) • If there is no overlap then a Negative Bargaining Zone exists and agreement should not occur.
$18M $20M $30M $35M Yr Yt Xr Xt Positive Bargaining Zone Positive Bargaining Zone Xr, Yr = Reservation Price Xt, Yt = Target Price
Negative Bargaining Zone Negative Bargaining Zone $15M $25M $30M $35M Yr Yt Xr Xt Xr, Yr = Reservation Price Xt, Yt = Target Price
Significance of Bargaining Zone • Consists of the range of settlements that make both parties better off by agreeing rather than by not agreeing. • Assess the bargaining zone because it organizes the distributive aspect of a negotiation by overlapping the acceptable settlement regions of each negotiator.
Integrative Dimension • Joint rather than distributive benefit. • Need a clear understanding of the interests and associated levels of importance of the parties. • Eliminate the bias that negotiations are distributive undertakings that provide little opportunity to create value. • Assess where the trade-offs exists
Strategies for Finding Trade-Offs • Build Trust and Share Information • Ask Lots of Questions • Give Away Some Information • Make Multiple Offers Simultaneously • Search for Post settlement Agreements • Use differences to create opportunity
Build Trust and Share Information Key factor: Relationship Between the Negotiating Parties
Ask Lots of Questions • Obtain the necessary information to create trade-offs • The answers provide the basis for understanding the structure of the other side’s interests.
Give Away Some Information • Good when there is low trust between parties. • Breaking Informational Deadlock
Make Multiple Offers Simultaneously Collect information before putting an offer on the table.
Use Differences to Create Opportunity Differences are opportunities rather than barriers to any negotiation!
Search For Post-Settlement Settlements (PSS) Offers a last attempt for the parties to find a fully efficient agreement which they failed to reach during the negotiation with limited risk to either party.
Differences in Negotiations • Expectations • Risk • Time
Expectations • Differences in expectations can create mutually beneficial trade-offs. • Use contingent contracts
Contingent Contract An agreement that creates multiple options for different outcome conditions.
Risk • Use differences of risk preferences to create mutually beneficial (perceived) trade-offs. • Offer the more risk-averse party more guaranteed money and the more risk-seeking party more of the upside potential.
Time • Use differences of time preferences to create mutually beneficial trade-offs. • Future consequences can often be rearranged in a way that gives earlier return to the more impatient party.
Added Strategies for Creating Integrative Agreements • Add Issues to the Negotiation • Cost-cutting • Obtain Added Resources • Search for a Novel Solution Not Currently Under Discussion
Add Issues to the Negotiation In so doing, a party can get what they want in the original negotiation, and compensate the other party on some additional, unrelated issues as well.
Cost-Cutting Can be done by having the party who makes the major concession received something to satisfy the precise goals that were frustrated by the concession.
Obtain Added Resources • When there is a shortage, expand the available resources. • This strategy is viable only if the parties’ interests are NOT mutually exclusive.
Search for A Novel Solution • Remove immediate definitions of the conflict • Identify the parties’ underlying interests • Brainstorm potential solutions
Negotiation Phase Agreement Negotiation maturity A B C Time & Effort Westerners Japanese