Thursday, July 2, 2020

Negotiation (Harvard Business Essentials)


CHAPTER 1: TYPES OF NEGOTIATION

The Latin root (negotiatus) of the word 'negotiation' means "to carry on business". In modern Spanish, negocios means "business".

~ ~ ~

THERE ARE two primary kinds of negotiation. Chances are you have been involved in both at one time or another:

Distributive: A negotiation in which the patties compete over the distribution of a fixed sum of value. The key question in a distributed negotiation is "Who will claim the most value?". In distributive negotiations, a gain by one side is made at the expense of the other.

Integrative: A negotiation in which the parties cooperate to achieve maximum benefits by integrating their interests into an agreement. These deals are about creating value and claiming it.

~ ~ ~

DISTRIBUTIVE NEGOTIATION

To achieve success in a distributive negotiation, remember the following:

1. The first offer can become a strong psychological anchor point, one that sets the bargaining range. Studies show that negotiation outcomes often correlate with the first offer. So, start at the right place.

2. Do not disclose any significant information about your circumstances - including why you want to make a deal, your real interests or business constraints, your preferences among issues or options, or the point at which you'd walk away from the table. It is advantageous, however, to let the other side know that you have good options if this deal falls through.

3. Information about the other side can benefit you. Learn as much as possible about the other side's circumstances and preferences - including why they want to make a deal, their real interests and business constraints, and their preferences among issues or options.

4. Exploit what you learn about the other side in setting your first offer or demand.

5. Don't overshoot. If you claim aggressively or greedily, the other side may walk away. You will have lost the opportunity to make a deal.

~ ~ ~

INTEGRATIVE NEGOTIATION

In an integrative negotiation, your task is twofold: 
(1) to create as much value as possible for you and for the other side, and
(2) to claim value for yourself.

Finding opportunities for mutual benefit naturally requires information sharing. Unlike the distributive situation, in which you deliberately play your cards close to the vest, an integrative negotiation encourages negotiators to do the following:

1) Provide significant information about their circumstances.

2) Explain why they want to make a deal.

3) Talk about their real interests or business constraints.

4) Reveal and explain in general terms their preferences among issues or options.

5) Consider and reveal any additional capabilities or resources they have that might meet the other side's interests and could be added to the deal.

6) Use what they learn to find creative options that will meet the interests of both parties to the greatest extent possible.

~ ~ ~

SUMMING UP

1. A distributive negotiation pits two or more parties in competition for a fixed amount of value. Here, each side's goal is to claim as much value as possible, as in the sale of a rug at a street bazaar. Value gained by one party is unavailable to others.

2. Integrative negotiation is about creating and claiming value. Through collaboration and information sharing, the parties look for opportunities to satisfy the key objectives of each, recognizing that they will probably have to give ground on other objectives.

3. The negotiator's dilemma describes the situation faced by people who enter any type of bargaining situation. They must determine which game to play aggressively claim the value currently on the table (and possibly come out the loser), or work with the other side to create even better opportunities that can be shared.

4. No matter which type of negotiation you're faced with, it's bound to be more complex if it has multiphases or involves multiple parties. If your negotiation is multiphased, use the early phases to build trust and to become familiar with the other parties. If many parties are involved, consider the benefits of forming a coalition to improve your bargaining power.

~ ~ ~

CHAPTER 2: FOUR KEY CONCEPTS

1. Know Your BATNA 

BATNA is one's preferred course of action in the absence of a deal. Knowing your BATNA means knowing what you will do or what will happen if you fail to reach agreement in the negotiation at hand.

% IMPROVING YOUR POSITION:

1. Improve your BATNA.
2. Identify the other side's BATNA.
3. Weaken the other party's BATNA.

% A CAUTION ON BATNA VALUES

Although it's absolutely essential that you know your own BATNA and try to estimate that of the other side, be aware that most people don't do a good job of estimating BATNA values. For example, Lax and Sebenius describe an experiment involving the value of a company up for sale. "Even given identical business information, balance sheets, income statements, and the like," they write, "those assigned to buy the company typically rate its true value as low, while those assigned to sell it give much higher best estimates. Neutral observers tend to rank the potential someplace in between."

The lesson here is that BATNA values can be influenced by your personal perspective. So be as objective as possible. Check your thinking with a neutral third party.

% No negotiator is in a weaker position than one with no alternative to a deal. In this case, the other side can dictate the terms. The BATNA-less party is a deal taker, not a deal maker.

2. RESERVATION PRICE 

The reservation price (also referred to as the walk-away) is the least favorable point at which one will accept a deal. Your reservation price should be derived from your BATNA, but it is not usually the same thing. If the deal is only about money, however, and a credible dollar offer is your BATNA, then your reservation price would be approximately equal to your BATNA.

Consider the following example:
You are currently paying $20 per square foot for suburban office space. The location is satisfactory, and you believe that the price is fair, but you wouldn't mind paying more to be closer to your downtown customers. While preparing to negotiate with a commercial landlord for an offer lease in a downtown high-rise, you decided that you would not pay more than $30 per square foot. That's your reservation price. If the landlord insists on more, you can walk away and attempt to lease space in a different building. Or you can stay where you are at $20 per square foot (your BATNA).

At the end of a lengthy negotiation session, the landlord declares that he will not accept less than $35 per square foot - and he won't budge. You graciously terminate the negotiation and walk away from the deal.

In this example your reservation price is different from your BATNA. BATNA in this case is the current rent at the current location: $20 per square foot. But the new location has different characteristics that enter into the equation. It's closer to customers, and it may be a more attractive space with greater workplace utility. You'd be willing to assume the added expense and the hassle of moving, even if it meant paying $30 per square foot. Anything more than that, however, would be unacceptable. Thus, there's a subtle difference between your BATNA and your reservation price.

The fact that the prospective landlord would not take less than $35 per square foot suggests that $35 is his reservation price.

3. ZOPA 

ZOPA, or zone of possible agreement, is the area or range in which a deal that satisfies both parties can take place. Put another way, it is the set of agreements that potentially satisfy both parties.

4. Value Creation Through Trades 

Another fundamental concept of negotiation is value creation through trades. This concept tells us that negotiating parties can improve their positions by trading the values at their disposal. Value creation through trade occurs in the context of integrated negotiations. It usually takes the form of each party getting something it wants in return for something it values much less.

SUMMING UP 
This chapter has explained the fundamental concepts used by skilled negotiators.

1. BATNA is the best alternative to a negotiated agreement. It is one's preferred course of action in the absence of deal. Knowing your BATNA means knowing what you will do or what will happen if you fail to reach agreement. Don't enter a negotiation without knowing your BATNA.

2. If your BATNA is weak, do what you can to improve it. Anything that strengthens your BATNS improves your negotiating position.

3. Identify the other side's BATNA. If it is strong, think of what you can do to weaken it.

4. Reservation price is the price at which the rational negotiator will walk away. Don't enter a negotiation without a clear reservation price.

5. ZOPA is the zone of possible agreement. It is the area in which a deal will satisfy all parties. This area exists when the parties have different reservation prices, as when a home buyer is willing to pay up to $275K and the home seller is willing to take an offer that is at least $250K.

6. Value creation through trades is possible when a party has something he or she values less than does the other party - and vice versa. By trading these values, the parties lose little but gain greatly.

~ ~ ~

CHAPTER 3: PREPARATION
NINE STEPS TO A DEAL 

Every important endeavor benefits from preparation. Negotiating is no different. People who know what they want, what they are willing to settle for, and what the other side is all about stand a better chance of negotiating a favorable deal for themselves.

STEP 1: CONSIDER WHAT A GOOD OUTCOME WOULD BE FOR YOU AND THE OTHER SIDE

Never enter into a negotiation without first asking yourself, "What would be a good outcome for me? What are my needs, and how do I prioritize them?" Then ask the same question from the perspective of the other side.

% The interests of the two sides are sometimes revealed through dialogue at the negotiating table. But not always - particularly in win-lose distributive deals. If you cannot identify the other side's interests, use every communication opportunity to probe for them.

STEP 2: IDENTIFY POTENTIAL VALUE CREATION OPPORTUNITIES

STEP 3: IDENTIFY YOUR BATNA AND RESERVATION PRICE, AND DO THE SAME FOR THE OTHER SIDE

STEP 4: SHORE UP YOUR BATNA

STEP 5: ANTICIPATE THE AUTHORITY ISSUE

"Car dealer" trick: where just as you are about to reach agreement with the salesman, he says, "I will have to clear this with my manager." In other words, the negotiation with the salesman is used to bring you to your bottom line; the second negotiation, with the manager, aims to push you beyond it.

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

a) All of your reasoning is heard directly by the decision maker.

b) The benefits of the good relationship built at the bargaining table are likely to be reflected in the deal and its implementation.

c) There are fewer chances of disputes or misrepresentation of particular provisions.

d) You avoid the "car dealer" trick described previously.

e) If your aim is to make the person on the other side of the table hungry for a deal with you, your efforts will do no good if the real decision maker is somewhere in the background.

STEP 6: LEARN ALL YOU CAN ABOUT THE OTHER SIDE'S PEOPLE AND CULTURE, THEIR GOALS, AND HOW THEY'VE FRAMED THE ISSUE

STEP 7: PREPARE FOR FLEXIBILITY IN THE PROCESS - DON'T LOCK YOURSELF INTO A RIGID SEQUENCE

Here are some things you can do to be more flexible in negotiations:

a) Start with the assumption that the process will not unfold in a predictable, linear fashion.

b) Be prepared for changes on both sides: new people and unanticipated developments.

c) Treat every change as an opportunity for learning.

STEP 8: GATHER EXTERNAL STANDARDS AND CRITERIA RELEVANT TO FAIRNESS

STEP 9: ALTER THE PROCESS IN YOUR FAVOR

Have you ever felt that your ideas were being ignored during meetings or formal negotiations? Does it ever appear that these meetings are rigged to produce a particular result - in spite of input by you or others? If you have, consider these possible explanations:

a) Whoever set the agenda did so with a particular outcome in mind - one that benefits that person or entity.

b) People are deferring to someone with greater organizational clout - your arguments notwithstanding.

c) Yours is a 'lone voice in the wilderness' and out of step with others.

Any of these explanations can shut you out and steer results in a direction favored - if not rigged - by someone else. The antidote is to work away from the table to change the process. "Process moves," as described by Deborah Kolb and Judith Williams, "do not address the substantive issues in a negotiation." Instead, they directly affect the hearing those issues receive. "The agenda, the pre-negotiation groundwork, and the sequence in which ideas and people are heard - all these structural elements influence other's receptivity to opinions and demands."

If you've ever followed international conflict negotiations on the evening news, you've probably noticed that experienced diplomats don't jump right into the issues. Instead, they spend months trying to agree where the meeting will take place, who will participate, and even the shape of the negotiating table. These are all process moves, and effective preparation includes attention to these away-from-the-table issues. Kolb and Williams make these specific recommendations about process moves:

a) WORK BEHIND THE SCENES TO EDUCATE OTHERS ON YOUR IDEAS

A formal meeting is not always a good venue for making a detailed case, or for holding dialogue about a complex issue - especially when opponents control the agenda. So, educate other participants one on one outside formal meetings. Concentrate on people who are respected centers of influence. Convince these people that your ideas have merit, and they will back you when opponents try to ignore your position during meetings. Better still, form a coalition of support outside the negotiations.

b) REFRAME THE PROCESS

If you're been marginalized in a series of meetings or negotiations, the process may be the reason. Consider this example: A loud and brash department head has framed an upcoming meeting in terms of her need for more resources - resources that will have to come from your department. She's prepared to wrestle for as much as she can get, confident that others at the meeting will be neutral because they will not be affected. You could counter by reframing the discussion from "her needs" to "the company's needs". This would make you appear levelheaded and statesmanlike and would help others recognize that the department head's resource grab also affects them.

SUMMING UP

If your aim is to be an effective negotiator, take the time and make the effort needed to become fully prepared. This chapter has offered nine preparatory steps:

1. Know what a good outcome would be from your point of view and that of the other side.

2. Look for opportunities to create value in the deal.

3. Know your BATNA and reservation price. Make an effort to estimate those benchmarks for the other side.

4. If your BATNA isn't strong, find ways to improve it.

5. Find out if the person or team you're dealing with has the authority to make a deal.

6. Know those with whom you're dealing. Learn as much as you can about the people and the culture on the other side and how they've framed the issue.

7. If a future relationship with the other side matters, gather the external standards and criteria that will show your offer to be fair and reasonable.

8. Don't expect things to follow a linear path to a conclusion. Be prepared for bumps in the road and periodic delays.

9. Alter the agenda and process moves in your favor.

~ ~ ~

CHAPTER 4: TABLE TACTICS
HOW TO PLAY THE GAME WELL 

Getting the Other Side to the Table

Before we get into actual negotiating tactics, let's consider some tactics for getting the other side to negotiate. In many cases, issues you may want to negotiate cannot move forward because one or more parties simply aren't interested - they are satisfied with the status quo. They see no point in negotiating with you. And if they have greater organizational power than you, they may brush you off with these types of comments: "I don't think there is any reason to consider this - things are fine," or "We're so tied up with the budget that I won't be able to consider that until next spring at the earliest."

Kolb and Williams note: 
"Such resistance is natural part of the informal negotiation process. A concern will generally be accorded a fair hearing only when someone believes two things: the other party has something desirable, and one's own objectives will not be met without giving something in return. Willingness to negotiate is, therefore, a confession of mutual need."

More precisely, resisters must conclude that they will be better off if they negotiate and worse off if they do not. Kolb and Williams suggest three things you can do to help reluctant bargainers reach this conclusion:

1. Offer incentives.

What are the reluctant person's needs: money, time, your support? Determine those needs and then pose them as potential benefits of negotiation. For example, if your boss, the sales manager, is reluctant to give you time to work on a redesign of the company's inventory system, explain how an improved system will help solve one of his problem - lost sales from out-of-stock conditions.

2. Put a price on the status quo.

Spell out the cost of not negotiating. Kolb and Williams use the example of a woman whose boss promoted her and had her take on additional work but was forever delaying any discussion of a pay raise. Frustrated by his inaction, she found a way to get his attention - she secured a job offer from another company. The boss was suddenly very interested in dealing with her long overdue pay raise. He had to negotiate or face the costly and time-consuming process of replacing an effective subordinate. In other words, he realized the price of the status quo.

3. Enlist support.

Allies can sometimes accomplish what other measure cannot. For example, if the sales manager described earlier still will not give you time off to improve the inventory system, look for allies who have organizational power and a reason to favor your goal. The chief financial officer, for instance, will likely favor any plan to improve inventory management. The CFO knows that better inventory management means lower working capital requirement, which makes her look good. Once the sales manager realizes that the issue has risen to the senior management level, he's likely to bargain.

Making a Good Start 

Once you've gotten the other side to the bargaining table, it's important to get things off to a smooth start. That begins with relieving the tension that is often present. In your opening remarks, try to relieve that tension:

1. Express respect for the other side's experience and expertise.
2. Frame the task positively, as a joint endeavor.
3. Emphasize your openness to the other side's interests and concerns.

Tips for Establishing the Right Tone 

The negotiation environment can affect the level of tension and openness that prevails. If you're interested in lowering tension and seeking collaborative discussion, follow these tips:

1. Never underestimate the value of "breaking bread". In practically every culture, breaking bread is a bonding ritual. So have coffee, soft drinks, and light snacks available.

2. Use small talk at the beginning to dispel tension, lower people's natural defenses, and begin the process of building relationships. Even is a win-lose negotiation, small talk helps the different sides know each other better and gauge each other's truthfulness. It may also loosen people up to the point of seeking value-creating opportunities.

3. Learn from what the small talk reveals about the other negotiator's style and manner.

4. If the other side is very formal, don't speak too casually - they may interpret this as a lack of seriousness on your part. If the other side is decidedly informal, speak in a more casual way, perhaps using metaphors with which they are comfortable.

~ ~ ~ 

After these opening remarks, start with the agenda, making sure both parties have a common understanding of the issues to be covered. Then, explicitly discuss the process, especially since people often hold different assumptions about how the negotiation should work. Some assume that there will be haggling. Some expect proposals to be make at the outset, while others expect an open discussion of the issues to come first. Listen carefully to the discussion of process - it will tell you a great deal about the other side's negotiating style. Offer to explain some of your interests and concerns first. This is a good-faith demonstration that you are prepared to disclose information, provided that the exchange is reciprocal. If the other side does not reciprocate with information, be very cautious about providing more information.

~ ~ ~

Tactics for Win-Lose Negotiations

1. Anchoring Anchoring is an attempt to establish a reference point around which negotiations will make adjustments. In some cases, you can gain an advantage by putting the first offer on the table. That first offer can become a strong psychological anchor: It becomes the reference point of subsequent pulling and pushing by the participants. Initial positions affect each side's perception of what outcomes are possible. When should you anchor? It may be tactically smart to anchor when you have a reasonably good sense of the other side's reservation price. If you are very uncertain about the other side's reservation price, you might encourage him or her to make the first move. Where should you place your anchor? In a negotiation in which claiming maximum value is the primary goal, your first offer or proposal should be at or just a bit beyond what you believe is the other side's reservation price, which may be determined through pre-negotiation investigation or through direct probing of the other side. Wherever you place the anchor, be prepared to articulate why your offer or proposal is reasonable or justifiable. Anchoring with a price (or a proposal) creates two risks. First, if you are too aggressive, the other side may conclude it will be impossible to make a deal with you. They may also feel personally insulted by your offer. Second, if you've made an erroneous estimate of the other side's reservation price, your offer will be outside the zone of possible agreement. If you fall afoul of either of these risks, have a different line of reasoning ready to support your shift to a less aggressive offer. "Because of the owner's desire to conclude the sale sooner than later, he has authorized me to reduce the price to..." Putting a price or proposal on the table is not the only way to gain advantage through anchoring. If you can define the issues, establish the agenda, or somehow impose your conceptual framework on the debate, you will have accomplished something very similar, and very beneficial to you. Negotiations will then proceed along a path that you have determined. 2. Counteranchoring If the other side makes the first offer, you should recognize and resist that offer's potential power as a psychological anchor. Remember that anchors are most powerful when uncertainty is highest - for example, when no one has a clear idea what the price of a company or a piece of equipment should be. When no one has a clue as to the appropriate price, there is no basis for disputing the merits of the first offer. You can reduce the other side's anchoring power by reducing the uncertainty that surrounds the issue. That means gathering and bringing objective information to the bargaining table. Don't let the other side set the bargaining range with an anchor unless you think it's a sensible starting point. If you think the anchor suggests an unfavorable or unacceptable starting point. If you think the anchor suggests an unfavorable starting point, steer the conversation away from numbers and proposals. Focus instead on interests, concerns, and generalities. Then, after some time has passed and more information has surfaced, put your number or your proposal on the table, and support it with sound reasoning. To see how this might be done, let's replay the example of Jake and his lake house. But this time, let's assume that only one potential buyer, Carla, steps forward. The real estate agent had just listed Jake's lakefront summer house for $395,000, confident that that number would be a firm anchor point for all incoming bids. But he hadn't counted on dealing with Carla. Carla had had her eye on the lakefront property market in the Deer Tail Lake area for the past two years, so she was familiar with all the current property listings and the dozens that had sold over that time period. During her first meeting with Jake's agent, Carla explained how she had been tracking property prices on Deer Tail Lake and neighboring lakes for the past two years. Without making any reference to Jake's $395,000 asking price, she cited three sales of comparable properties that had occurred on Deer Tail Lake during the past year, indicating how those properties were more or less similar to Jake's. "These three are very comparable to your listing in terms of shoreline frontage, lot sizes, and house characteristics," she told the agent as she showed him the listing sheets. "They sold for $325,000, $330,000 and $345,000, respectively, within the past ten months. Factoring in inflation, that makes your client's property worth about $350,000 at the most, which is what I'm prepared to offer you today." Here, Carla placed her own anchor on the board. Instead of focusing on what Jake wanted from the deal, she ignored his initial price, substituting in its place a new price supported by market data. That relevant data gave her anchor greater authority than Jake’s and made it easier to push his aside. In the absence of other buyers - particularly buyers who hadn't done their homework - Jake and his agent had to deal with Carla in terms of her stated offer. She effectively substituted her anchor for Jake's. The lesson of this tale is to avoid direct comparison between the other side's initial offer and your own. If the initial offer is not serious or realistic, you can safely ignore it; there's a good chance that the other side will do the same. If the initial offer was serious, and the other side refers to it again, you should respectfully ask them to explain why the offer is reasonable. "Why are you asking for $395,000 in this market? Could you explain how you are justifying that price?" 3. Be Prepared for Concessionary Moves Once an anchor point is on the table, the parties generally engage in a set of moves and countermoves that they hope will end in an agreeable price or set of arrangements. For example, if Carla in the previous example offered $350,000 for Jake's lakefront property, Jake more than likely would respond with a counteroffer through his agent, say, $385,000: "We appreciate the research you've done on recent lake property sales, Carla, but we don't feel that the properties you've used as benchmarks are really comparable to Jake's place. After all, he has that big pier and boathouse - and the house itself has been recently renovated. Taking those factors into account, we think that Jake's property is worth substantially more than your offer, and we believe that other buyers will share our view. However, in the interest of getting things wrapped up, Jake is willing to lower his price by $10,000 to $385,000." Negotiation experts generally interpret a large concessionary move as an indication of significant additional flexibility. Give a large concession, and the other side will think that you're capable of making additional large concessions. Thus, Carla may think "If Jake is willing to come down $10,000 in this first counteroffer, he's probably prepared to come down at least another $10,000." A small move, on the other hand, is generally perceived as an indication that the bidding is approaching that party's reservation price, and that further pushing will result in smaller and smaller concessions. These assumptions are not always true, especially when the other side is in no hurry, and when it has confidence that other parties may come forward with attractive prices or conditions - that is, when it has a strong BATNA. This may be the case in our example. A $10,000 concession on Jake's property isn't a huge concession, even though Carla's bid has satisfied his $350,000 reservation price. We can almost hear Jake's voice as he speaks with his agent over the phone: "I'm happy that we have an offer of $350,000 already. I could live with that. But we may get a better offer in the next week or so, either from Carla or from another buyer. Actually, I'd expect Carla to up her bid to $360K. If she does that, should we push for a bit more? Should we say, 'Give us $365K and we'll have a deal?' Or should we sit on her offer and hope to get a better one?" Jake's uncertainty about how far to push Carla in this example is a function of his uncertainty about her BATNA and reservation price. If he could estimate these with confidence, he could drive a harder bargain. In this case, Carla's BATNA may be the price of similar properties on Deer Tail Lake or other nearby lakes. He could ask his agent to come up with a list of other similar properties on those lakes. Those might represent the set of Carla's alternatives. The best advice about concessions is to avoid the impulse to make them. Few of us like negotiating, so we want to get it over as quickly as possible. And as social creatures we want other people to like us, and to view us as reasonable. These factors often make inexperienced negotiators too ready to make concessions. If you find yourself in this category, here are a few tips: 1% Look to your BATNA before you consider making a concession. If your BATNA is very strong (especially relative to the other side's), a concession may be unnecessary in making a deal. 2% If you're impatient to get it over with because negotiating is stressful, take a break before you consider a concession. If the other side is expecting a $10,000 concession on the price of the home you're selling, think about how difficult it was for you to earn that $10,000. Think about the good things you could do with the $10,000 the other would like you to give away. Ask yourself, "Is getting rid of a little stress worth $10,000?" 3% If your need to be liked or seen as a reasonable person is urging you to make a concession, forget about it. The other side is more likely to view you as a chump or an easy mark if you concede too readily. Remember, too, that deal making isn't about making friends. 4. The Ticking Clock In a buyer-seller negotiation, such as the Jake and Carla example, time can be an important tool. From the buyer's perspective, the seller should never be allowed to feel that he can indefinitely sit on the buyer's most recent bid while he awaits a better offer. The seller will simply use the offer to improve his BATNA. The remedy is to attach an expiration date to the offer to buy. Negotiators sometimes refer to this tactic as an exploding offer. If Carla decided to counter Jake's latest offer ($385,000) with a bid of $360,000, she might stipulate that "this offer is good until 9PM on this coming Saturday, September 23." That expiration date would put a fire under Jake and force him to make a decision. In the absence of an expiration date, Jake would simply tell himself, "Now that I have an option to sell at $360,000, I can wait for a better offer." 5. Package Options for a Favorable Deal Offering alternative proposals (two or more) is often an effective deal-making tactic. Consider this example: Joe is negotiating with Robert and Sharon for the purchase of their small sailboat and trailer. The trailer is of minimal importance to Joe because he expects to secure a permanent mooring. But it wouldn't be a bad thing to own, as he may have to tow the boat some day. So, he makes alternative proposals: "I'm willing to pay $18,000 for the boat and trailer as a package, or $16,000 for the boat alone. You could sell the trailer separately. What's your preference?" Package options have dual benefits. First, people don't like to feel pushed into a corner. A single proposal may feel like an ultimatum - take it or leave it. But when presented with alternative proposals, people may compare the proposals to each other instead of to their original goals. In addition, when the other negotiators won't discuss their interests, you can often infer them by noticing which proposal they prefer. Before presenting alternative proposals, however, do the following: 1. Assess the value of each option to each side. 2. Consider whether the diminution of one option would be offset by an enhancement of another. 3. If you prefer one of the alternatives, adjust at least one of the proposals so that you feel equally positive about at least two of them. 6. Closing the Deal Assuming that things go well, you'll eventually reach a point where you're fairly satisfied with the negotiation and you want to wrap things up. The other side may or may not be at the same point. Here are four recommended steps for closing the deal: 6.1. Signal the end of the road before you get there. If you have been negotiating back and forth, showing flexibility on various issues, and then suddenly announce you're at your bottom line, you are likely to be challenged or not taken seriously. So, as you approach the parameters of what you would like in a final deal, say so. Repeat the warning, not as a threat but as a courtesy, particularly if the other negotiator seems to expect a lot more movement in his or her direction. 6.2. Allow flexibility if you anticipate going beyond the final round. If you are aware that the other negotiator lacks final authority, leave yourself some flexibility, or wiggle room, in the final terms. More specifically, don't give the other side your best and last offer - save that in case you have to bend during the final round. However: A. Don't create so much flexibility that the deal will be rejected by the other side's decision maker. B. Consider whatever final trade you would be willing to make if you end up requesting significant adjustment in the final terms. 6.3. Discourage the other side from seeking further concessions. If you appear to have reached a final deal that is acceptable to the other side (and perhaps also favorable to you), discourage further tweaking in their favor: % Express your willingness to accept the total package, without changes. % Explain that adjustment in their favor on one term would have to be balanced by adjustment in your favor on another. For example, "If we open that issue, then I'm afraid we'll have to reopen the whole deal for it to work for me." 6.4. Write down the terms. If your negotiation time has been well spent, don't risk ruining it by failing to record and sign your agreement. People's memories of their agreement will inevitably diverge; recording the terms of the agreement avoids future disputes and confusion. It also provides closure. Even if counsel will draft the official documents, write an informal agreement in principle. Decide whether it is binding or not, and say so in the document. Even if your informal agreement is nonbinding, it will serve as a common reference by both parties as future, good-faith questions arise.

Tactics for Integrative Negotiations

Getting Started Here also we begin by learning about other side's concerns and interests. Don't make a proposal too quickly; a premature offer won't benefit from information gleaned during the negotiation process itself. Instead of hastily throwing out an offer, try these techniques: 1. Ask open-ended questions about the other side's needs, interests, concerns, and goals. 2. Probe the other side's willingness to trade off one thing for another. For example, "Do you care more about X or Y?" 3. Inquire about the other side's underlying interests by asking why certain conditions - for example, a particular delivery date - are important. 4. Listen closely to the other side's responses without jumping in to cross-examine, correct, or object. 5. Be an active listener. The more they talk, the more information you're likely to get. 6. Express empathy for the other side's perspective, needs, and interest. Empathy is especially important in highly charged situations. It takes active listening one step further, confirming that you can connect with the speak and the underlying tensions or emotional issues. 7. Adjust your assumptions based on what you've learned. The assumptions that you've make about the other side's interests and circumstances when preparing for the negotiation may be wrong, in which case you'll need to revisit your strategy. 8. Be forthcoming about your own business needs, interests, and concerns. It is just as important to assert what you need and want (and why) as it is to listen carefully to the other side. Indeed, striking a balance between empathy and assertiveness is essential to effective negotiating. If you are too empathetic and insufficiently assertive, you may shortchange your own interests. If you are too assertive and insufficiently empathetic, you risk missing a deal and escalating emotions. But don't barrage the other side with all of your interests and concerns at once. 9. Work to create a two-way exchange of information. Stay flexible about who asks questions and who states concerns first. If the other side seems uncomfortable with your initial questions, offer to talk about one or two of your most important points - and explain why they are important. 10. Continue your relationship-building efforts even after the negotiating has begun. Show empathy, respect, and courtesy throughout the proceedings. Always remember that the other side consists of human beings with feelings, limits, and vulnerabilities. 11. Refrain from personal attacks. Don't accuse or blame. Maintain a sense of humor. 12. When an issue seems to make another negotiator tense, acknowledge the thorniness of the issue. 13. Don't feel pressured to close a deal too quickly. Instead, generate options that offer mutual gain. Tips for Active Listening There's a big difference between keeping your mouth shut while the other party is talking and what communication experts refer to as "active" listening. Active listening helps you capture what the other side has to say while signaling that you are alert and eager to hear what the other side has on its mind. Here are some tips for being an active listener. They will help you in any type of negotiation. 1. Keep your eyes on the speaker. 2. Take notes as appropriate. 3. Don't allow yourself to think about anything but what the speaker has saying. 4. Resist the urge to formulate your response until after the speaker has finished. 5. Pay attention to the speaker's body language. 6. Ask questions to get more information and to encourage the speaker to continue. 7. Repeat in your own words what you've heard to ensure that you understand and to let the speaker know that you've processed his or her words. 1. Look for Options That Exploit Differences During the negotiation, you are confronted with the other side's positions and come to understand the interests underlying those positions. It is hoped that the other side will understand your positions. It is hoped that the other side will understand your positions and interests just as well. The challenge now is to arrive at an outcome that satisfies both parties' interests. One place to look for a mutually satisfying outcome is in the differences between the parties. People know intuitively to build upon their shared interests. Less obvious sources of value are in the differences between them. By trading on differences, you create value that neither party could have created on its own. In particular, look for differences in these places: 1. Access to resources. For example, Martha, who owns both a retail store and a restaurant, is negotiating with an interior designer for his services in renovating the restaurant. She agrees to pay a somewhat higher price than planned for the restaurant design in exchange for the designer ordering fixtures and furnishings for the retail store at his trade discount. The owner would not otherwise have ready access to these discounts - yet providing them costs the designer nothing. Value has been created for both sides. 2. Future expectations. For example, the current owner of a business is selling. He demands a high price because he predicts that the market for his will increase over time. The potential buyer is unwilling to pay that high price; she does not share the owner's rosy outlook. Within this difference of opinion, they see an opportunity. They agree to a base sale price, plus 20 percent of the company's increased revenues over the next five years - if any - with the current owner providing advice and assisting with marketing and distribution plans over that period. Under this arrangement, the buyer will get a lower price and the seller will be able to capture the upside growth in the business he anticipates. 3. Time preference. The timing of a deal can be a barrier to a mutually satisfactory conclusion. For example, Jonathan is happy with the CEO's plan to promote him to vice president of marketing, but unhappy that he must play a waiting role until the incumbent retires six months hence. The CEO, however, has arranged for the current marketing VP to use that time to finalize the company's strategic distribution agreement with its dealers. "He engineered this strategy and has close personal ties to key players on the other side. I want him to conclude the deal." Within these differences, however, the CEO finds a solution: He will put Jonathan in charge of a team that is working on the plan to implement the new distribution contract. That satisfies Jonathan and benefits the company. 4. Risk aversion. What is highly risky for one party is often less risky for another. Parties often have different risk tolerances. In these cases, value can be created by shifting risk to the party better able to bear it - in exchange, of course, for higher potential returns for the party assuming the risk. For example, Jeff and Jessica are negotiating with Jones Properties, a developer, for the purchase of a newly built condominium. For Jeff and Jessica, newcomers to the housing market, the condo would be by far their largest investment. "What if I got transferred and had to sell sometime soon?" Jeff ponders. "If the condo market were depressed at the time of sale, we'd take a heavy loss." Jones Properties, on the other hand, owns hundreds of properties in dozens of buildings scattered around the country. Its risk of ownership is highly diversified. And so, it posed a solution: As part of the sales agreement, it will agree to buy back Jeff and Jessica's condo at any time within two years of purchase at 95 percent of the purchase price less transaction costs. Take Your Time Few more suggestions for generating integrative solutions: 1. Move from a particular issue to a more general description of the problem, then to theoretical solutions, and finally back to the specific issue. 2. Pay special attention to shared interests and opportunities for cooperation. 3. Consider joint brainstorming with the other side - it can be a very fruitful way of generating creative alternatives. Set ground rules that encourage the participants to express any and all ideas, no matter how wild or impractical. Be careful not to criticize or express disapproval of any suggestion. At this stage, such judgements inhibit creativity, making people reluctant to make further suggestions - and more likely to criticize any idea you volunteer as well.

General Tactics: Framing and Continual Evaluation

Whether you're engaged in a distributive or integrative negotiation, your results will be better if you adopt any one of the three following tactics: 1. Framing 2. Process moves 3. Continual evaluation These tactics may be used at or away from the table. Process moves were discussed in chapter 3, so this section focuses on the other two tactics.

Framing

Fill a glass of water halfway to the top. Now, if you describe this glass to someone else, would you say it was half empty or half full? Whichever way you describe the glass, you are framing the situation. If the other person accepts that frame without question, subsequent discussion will proceed within that frame. This could be advantageous to you. Consider these examples. 1. The glass is half empty. A labor negotiator tries to frame upcoming wage and benefit talks with a company. "During the past three years, hard work by our members has helped this company to triple its revenues and almost double its profits. Management salaries have grown substantially as a result, and key executives have rewarded themselves with record-breaking bonuses. And what is management willing to share with rank-and-file employees? A mere 25 percent increase in wages over the next three years! That, we contend, is a slap in the face to the people who have created this company's good fortunes." In other words, a fair sharing of the wealth created by the employees should frame negotiations. 2. The glass is half full. Management makes its pitch to labor. "We are pleased to offer our rank-and-file employees a salary increments of 25 percent over the next three years. That increase is one-third higher than what our main market competitors have offered their employees. It will put the average annual wage of our people some $3,000 above the industry average and will allow the company to retain sufficient funds to reinvest in the technology it needs to ensure job security and future wage increases." In other words, wage negotiations should be made with a frame that emphasizes financial constraints and the company's desire to ensure job security and higher future incomes. ~ ~ ~ Marjorie Corman Aaron, a consultant and trainer with many years of experience in mediation, negotiation, and dispute resolution, gives the example of a bank officer faced with demands by local community activists to provide more generous lending arrangements. In advising the bank's board on a course of action, the officer could adopt any one of several frames: He could frame the demands to the board of directors as a "shakedown," thereby invoking a mental model that resists "knuckling under to pressure". But if he framed it as a business problem - the need to earn the goodwill of the community - the board might be persuaded to fund some programs. If he framed the bank's circumstances as "wrestling with a 500-pound gorilla", the board would probably do whatever it would take to get the gorilla off its back, and quickly. So, if you frame your position in terms of a mental model the other side can embrace, you'll have less trouble moving toward agreement. More generally, you can use these frames: 1. Frame your proposal in terms that represent a gain instead of a loss. Instead of saying "My current offer is only 10 percent less than what you are asking," say "I've already increased my offer by 10 percent." 2. Tap into people's natural aversion to risk. Risk aversion has two consequences: 2.a. People who are very risk averse will often accept larger potential losses in the future rather than incur smaller losses today. This explains why many people will seek remedies in court and possible suffer paying a larger settlement in the future rather than pay a smaller settlement today. 2.b. Most people prefer a bird in the hand rather than two in the bush. In other words, they prefer the certainty of a smaller offer to the uncertainty of a larger future gain. "I know that you want $400,000 for that property, and you may get it someday. However, I'm willing to pay $340,000 for it today. Can we make a deal?" Continual Evaluation and Preparation Normally we think of negotiating as linear process of preparation, negotiation, and eventual agreement or failure. The first step takes place away from the table; the rest take place at the table. In simple interactions, this model often holds true. But many other negotiations are complex and can take place in succeeding rounds and involve several different parties. New information can appear at various points, casting new light on the issues at stake. Different parties can offer concessions or heighten their demands. This more complex dynamic suggests a nonlinear approach to the preparation process, as shown in figure 4-1.
Here preparation is followed by negotiation, which produces outcomes and information that require evaluation. The outputs of evaluation then feed into a new round of preparation and subsequent negotiation. Round and round it goes until agreement is reached or the parties call it quits. Michael Watkins, author and expert on the subject of negotiations, suggests that the ambiguities and uncertainties associated with complex deals should caution negotiators to give less attention to pre-negotiation preparation and more attention to what he calls "planning to learn". Learning must be ongoing. After all, the information available to negotiators before going to the table is bound to be limited and may even be inaccurate. So instead of setting your course based on pre-negotiation information, consider doing the following: 1. Take small steps, gathering better information as you proceed. 2. Continually learn from new information and the behavior of the other side. 3. Use that learning to adjust and readjust your course as you move forward. Evaluation is another important element of the process and should be part of your tactics. Periodically, you should put a little distance between yourself and the negotiations and ask: How are things going? Are negotiations proceeding along a track that will eventually serve my goals? Are they playing my game, or am I playing theirs? Whose frame dominates the talks? If I were representing the other side, how would I answer these same questions? Answering these questions objectively isn't natural or easy. A person must take the perspective of a neutral stranger and adopt an outside-looking-in stance. This is essential to mastering the game. Summing Up The first challenge in negotiation is to get the other side to the table. This won't happen unless the other side sees that it is better off negotiating than going with the status quo. Encourage negotiation by offering incentives, making the status quo expensive, and by enlisting the help of allies. Once you've gotten the other side to the table, get things off to a good start by relieving tension, making sure that all parties agree with the agenda and the process, and setting the right tone. Several tactics are particularly useful in distributed (or win-lose) deals: 1. Establish an anchor, an initial position around which negotiations make adjustments. 2. If an initial anchor is unacceptable to you, steer the conversation away from numbers and proposals. Focus instead on interests, concerns and generalities. Then, after some time has passed and more information has surfaced, put your number or proposal on the table, and support it with sound reasoning. 3. Make concessionary moves if you must. But remember, many interpret a large concessionary move as an indicator that you're capable of conceding still more. A small concession, on the other hand, is generally seen as an indication that the bidding is approaching the reservation price and that any succeeding concessions will be smaller and smaller. Tactics for distributive (win-win) negotiations are fundamentally different from those just described since value creation is one of the goals. So, concentrate on these tactics: 1. Active listening 2. Exploiting complementary interests 3. Packaging options for more favorable deals Finally, the chapter offered tactics useable in any context: 1. Framing 2. Continual evaluation

CHAPTER 5: FREQUENTLY ASKED TACTICAL QUESTIONS

FAQs About Price Q1. Should I ever state my acceptable range? A1: Some negotiators will ask you to state a monetary range of what you're willing to pay. Do not comply. This would give away your reservation price. For example, if you tell someone that you would pay $20,000 to $25,000 for piece of property, rest assured that you will pay at least $25,000. The other side will think, "That's the reservation price," and it is the only number he or she will pay attention to. It is much better to work in terms of your bottom line, or "the best I can do." The only reason to mention a range occurs toward the end of the negotiating process, to discourage the other side from pushing you beyond it. For example, after several rounds of back and forth on a dollar figure, you are at $23,000, and the other side is at $30,000 and seems to be pushing for a deal at $28,000. You could say, "My range walking in here today was $20,000 to $23,000, but not above $25,000." Revealing your range may make it easier for the seller to accept $25,000 because he will feel that he has pushed you to the top. Q2: Should I ever tell the other side my real bottom line? A2: You can reveal your bottom line, but only if you've reached it (or are about to). If you do reveal your bottom line, make sure you call it just that, with appropriate emphasis or firmness. Otherwise, the other side may not take you seriously, and may view that number or proposal as just another step on the way to a final deal. Q3: Suppose that the other side opens with an incredibly unreasonable number. Should I counter with an equally unreasonable number, or decline to counter at all? A3: Consider one of the following strategies: 1. Make a joke to indicate that you don't consider the other side's number a serious offer: "Right, and the moon is made of green cheese. Now, let's get serious." 2. Clearly state that the other side's number is entirely out of the range you had imagined for the deal. Go back to talking about interests. Ask about a specific issue for some importance. Explain your perspective on the deal - how it might have value to you, or others similarly situated. (You will, of course, be describing value that falls in entirely different ballpark.) Let some time and discussion go by. Then you might suggest a number or proposal that you can justify as reasonable and that is in the favorable end of your range (or close to what you estimate their reservation price is, whichever is better). Do not refer to their initial number or proposal. Ignore it. If you counter with an equally unreasonable number, you will either contribute to the impasse or make the road to agreement longer and more difficult. 3. Indicate that the offer is entirely out of range. Then express your concern that a deal may not be possible. Try to get the other side to bid against itself as follows: "That offer is so low that, we will not even consider it. Why don't you confer with people and get back to me with something more realistic? I'll be in my office all afternoon." FAQs About Process Q1. Is it ever acceptable to bid against myself-to make two moves in a row? A1: It's not a good idea. Just say, "Wait, you seem to be asking me to make another move here. I made the last offer; I don't want to bid against myself. Give me your offer." This usually elicits at least a token move on the other side. If it doesn't, if they are stuck and the only way to make progress is for you to move again, you should announce your awareness of what you are doing, and state that it should not be considered a precedent. Make your next move in good faith, to a proposal or number you can justify as reasonable, explain your reasoning, and ask the other side to do the same. If they don't, you may have reached an impasse. To bridge the gap, consider broadening the discussion of the parties' interests, and formulating other creative options, perhaps through joint brainstorming. You might bring in a third-party facilitator. Q2. Is it smart or fair to bluff? A2: Is it okay to bluff or puff during a negotiation? Sure. One man's puff is another's positive spin. One woman's bluff is another's best foot forward. Lying about material fact, however, is almost certainly grounds for legal action. In certain circumstances, creating a false impression or failing to disclose material information may be a formal legal breach. Nevertheless, as long as what you bring to the table has real value, you need not real all the circumstances that make you willing to conclude a deal. Thus, if you are negotiating the terms of a job offer, there is nothing wrong with describing the major projects for which you have been responsible and your likely next step on the corporate ladder in your current company. There is no shame in describing your achievements in a positive light. You need not mention that the new division president is impossible to deal with. Q3: In a complex deal, is it better to reach agreement issue by issue or wait until the end? A3: Every deal is different, but it's generally better to aim for tentative agreements, or agreed-upon ranges, for each issue, one at a time. This will give you the necessary flexibility to make value-creating trade-offs between issues later on and to create alternative packages of different options. The risk of negotiating each issue in serial fashion is that you lose opportunities to create value through trades. Q4: Is it better to deal with difficult or easy issues first? A4: In general, dealing with easier issues will build momentum, deepen the parties' commitment to the process, and enable the parties to become familiar with each other's negotiation and communication styles before hitting the tough stuff. In some instances, however, you may want to deal with a more difficult issue as a threshold matter. If you cannot reach tentative agreement on the difficult issues, then you will not have wasted time on the smaller issues. It is also true that once the most difficult issue is resolved, smaller issues often fall more easily into place. Q5: What if there is an unexpected turn in the road - before or after an agreement? A5: Unexpected developments can endanger potential agreements. They can also undermine agreements already made. Consider this example: You have entered a fixed price contract with a general contractor to build new office suites and conference rooms in an older brick building purchased by your company. The suites and conference rooms are to be paneled in a lovely pear wood. But after the contract is signed, a pear wood blight is discovered, which triples the cost of pear wood. Under your negotiated agreement, the contractor is to bear the risk of fluctuation in material costs. If you insist on that term, the contractor may try to make up some of the cost in other ways, perhaps by shorting the detail work. If you agree to renegotiate, absorbing some or all of the additional cost (or choosing a different wood), the contractor is more likely to do a high-quality job. The next month, you discover that the bottom floor of the building is sinking, and walls are cracking because of settling in the foundation. This was not part of the original contract, but you want the contractor to take it on as soon as possible and at a reasonable price. What goes around comes around. Similar events can happen while you're in the process of negotiating a deal. In both cases, analyze how the unexpected development affects the decision to go forward. Determine if a deal still makes sense, or if you need to undo the deal that has been negotiated. Also: 1. Contact the negotiators on the other side immediately. 2. Acknowledge the unexpected nature of what has happened. 3. Affirm your commitment to working on the problem (if that is so). 4. Jointly discuss the underlying principles and intent of the deal as originally negotiated and agree upon what issues or provisions are affected. 5. Pick up the negotiations again. FAQs About People Problems Q1: What happens when you pit a collaborative negotiator against a positional hard bargainer? A1: A positional bargainer aims to win at the other side's expense. He will agree that "compromise is what will get us to a deal," then expect all the compromises to come from the other side. An effective collaborative negotiator should be able to deal with this type of negotiator if she recognizes the situation for what it is. After all, she will have analyzed her BATNA, set a reservation price, and considered both opening and first-offer strategies. If the positional hard bargainer refuses to disclose information and begins to use any disclosures against the cooperative bargainer, that's a clear signal that this is not likely to be a win-win proposition. The negotiator should seek reciprocity or refrain from providing additional information. The real question is whether the collaborative negotiator will be able to "convert" the hard bargainer, at least sufficiently to create some value in the deal. The answer is "maybe". If the collaborative negotiator is effective and resourceful, she should be able to tease out some of the interests underlying the hard bargainer's positions. She may then suggest different options and packages for meeting both parties' interests. Even the most recalcitrant hard bargainer can recognize when it benefits his interests to join in creating value. Q2: How should I respond if the other side seeks to change something in its offer after a deal has been reached? A2: Chances are the other side afflicted with the "winner's curse": Whenever they reach a deal, they are cursed with the thought that they could have gotten more. If the other side tries to change one item, express surprise or disappointment. Explain that if they must make a change, then they must understand that you will want to open up other issues as well. "I agreed to a total package. A change on one issue affects the entire package. Are you willing to renegotiate other issues?" If the answer is yes, then the other side was sincere, and you should proceed with the renegotiation. If they reconsider and withdraw the request for a change, then assume that they were just testing you. If they insist that they must have this change and no others, express dismay, then decide whether the adjusted deal has sufficient value for you to agree. Q3: What should I do when the negotiator on the other side has a temper tantrum? A3: Don't respond in kind. Instead, help him regain control. The right response will depend upon how angry or upset you fell, the value of the deal, and whether it is your choice to proceed. Here are some alternatives: % Sit quietly. Say nothing. After a few moments, resume the negotiation with a calm voice. % Stop. Say, "This is getting us nowhere. I'm inclined to leave and let you cool off. Is that what you want?" If his shouting was intended to get you upset and off-balance, you certainly shouldn't reward that strategy by negotiating in that less-than-top-form condition. Also, keep in mind that you have some control over who you will deal with. Consider contacting someone else on the other side to suggest that another negotiator be assigned to the deal. Q4: I don't believe what the other side is saying. What should I do? A4: You suspect the other side is lying or bluffing. At best, they are just telling you what they think is needed for an agreement and have no intention of following through on their promises. Here's how you could respond: 1. Make sure they understand that deal is predicated on their accurate and truthful representation of the situation. For example: "If you can't provide shipping on the schedule we've described, it's best to tell me right now." 2. Require that they provide back-up documentation, and that the deal be explicitly contingent on its accuracy. 3. Insist on enforcement mechanisms, such as a penalty for non-compliance (or perhaps positive incentives for early performance). Example: "We expect the final agreement to contain a late fee of $1,000 per day for every day that construction milestones are not met. On the other hand, we are willing to pay you a bonus of $20,000 if you can have the building ready for occupancy on or before July 20 of the coming year." Q5: When, if ever, is it appropriate to negotiate over the telephone or by email? Or is it essential to insist on a face-to-face meeting? A5: It is far better to negotiate face to face when personal, nonverbal cues matter. For example, is this a deal in which the other side might be tempted to lie or shade the truth? Are the parties professionally or emotionally invested in what's at stake? These situations often reveal themselves through nonverbal cues. Some research indicates that people are less likely to lie in person, perhaps because they fear that the other side will detect their deception. Indeed, in a face-to-face negotiation we see the sideways glances of the other negotiating team, we sense when they are becoming uncomfortable, and we pick up the nonverbal cues that indicate something is more important than their words indicate. Anecdotal evidence indicates that email or other written messages may have a greater tendency to result in disputes and impasses. The person who receives an email or fax may interpret a comment negatively when the sender did not intend it that way. Because the sender is not there to read the facial expression or hear the exclamation of the recipient, he or she can't correct the impression. The original sender is surprised and feels unjustifiably attacked when the return message carries a nasty tone and responds in kind. On the other hand, email communication is devoid of emotions. For an inexperienced negotiator, this can be a big plus. He or she is less likely to emotionally whipsawed by an aggressive negotiator on the other side. And since email makes it possible to reflect on a message before hitting the "Send" button, one is less likely to give away vital information to the other side. Unwarranted disclosure can be a problem in face-to-face discussions. Some people talk too much. Either through thoughtlessness or an effort to make themselves seem important, they give away vital information. The chance of doing this is lessened when email is the medium of communication. Some, but not all, of these problems of email are partially solved by using the telephone. You can use and interpret tone of voice of keep communications on track. However, it is more cumbersome to propose creative ideas. You can't put them on a chalkboard or easel. And some recent research indicates that people are more likely to bluff over the telephone. On the other hand, if the negotiation is over a simple issue, where personal communication is not likely to matter, the most efficient method works best. Q6: How should I react when the other side challenges my credentials, status, or authority to make a deal? A6: Why are they challenging you? Are they just trying to make you defensive, put you off-balance? Or do they have genuine concerns? The best approach is to shift the discussion to general ground rules. Say something like this: "Right. We should be clear about whose approval is needed for a deal - both on my side and yours. I am authorized to complete the deal with these parameters: x, y and z. I need formal approval for any agreements outside those parameters. Now, what about you? What are you authorized to do?" If the challenge to your authority was posed to make you feel defensive, you will have demonstrated that such strategies will not be successful.

CHAPTER 6: BARRIERS TO AGREEMENT. HOW TO RECOGNIZE AND OVERCOME THEM.

1. Die-Hard Bargainers They are out there: the die-hard bargainers, for whom every negotiation is a test of wills and a battle for every scrap of value. Unless you're willing to play the same game - or lack other options - negotiations with these people may be fruitless. Here are some ways of making the most of this type of situation: 1.1. Recognize the game they're playing, and don't be thrown off-balance by it. Anticipate low-ball offers, grudging concessions, and lots of bluffing and puffing along the way. Don't let these antics prevent you from analyzing your BATNA and setting your reservation price and aspirations. Try to assess theirs and proceed accordingly. 1.2. Because you're dealing with highly acquisitive people, be guarded in the information you disclose. These people will take whatever information you reveal and use it against you - and give nothing in return. So, disclose only the information that cannot be used to exploit you. 1.3. If you're unsure about the attitude of the other side, test their willingness to share information. Let slip a minor piece of information and see what they do with it. Do they use it against you? Do they respond by offering information to you? If the answer is "yes" to the first question and "no" to the second, be guarded with any further information. 1.4. Try a different tack. Suggest alternative options: "Here are two alternatives for solving this problem." Ask which they prefer, and why. That will throw the ball into their court, tempting them to respond. If they won't respond, ask if it would be better or worse for them if you added or eliminated one of the options. Continue in this manner. The idea is to get the other side to show more of its hand. 1.5. Be willing to walk away. If the other side sees a clear benefit in reaching an agreement, it will be less overbearing if it knows that its behavior creates the risk of no deal at all. 1.6. Strengthen your BATNA. If you position is weak, the other side can bully or ignore you with little risk. But if your BATNA is strong - or growing stronger over time - the other side will be more respectful of your interests. Idea is: "Speak softly but build your BATNA", "Speak softly but carry a big stick". 2. Lack of Trust Agreements are difficult in the absence of mutual trust. "How can we negotiate with these people?" is a common refrain. "We cannot believe a thing they tell us. And if we were to make a deal, how could we be sure that they'd hold up their end of the bargain?" The importance of trust was cited by Dominick Misino, a retired New York Police Department hostage negotiator, in the Harvard Business Review. Trust, he said, begins with civility and respect: When I'm dealing with an armed criminal, for example, my first rule of thumb is simply to be polite... A lot of times, the people I'm dealing with are extremely nasty. And the reason for this is that their anxiety level is so high: A guy armed and barricaded in a bank is in a fight-or-flight mode. To defuse the situation, I've got to try to understand what's going on in his head. The first step to getting there is to show him respect, which shows my sincerity and reliability. So, before the bad guy demands anything, I always ask him if he needs something. The sincerity and reliability cited by Misino are the building blocks of trust. Given the choice of negotiating with an untrustworthy party, people with realistic options will turn to their alternatives, or they will hedge the agreements they make with these parties by making them more narrow or limited than they would otherwise be. Negotiation scholars refer to these as "insecure agreements". But don't give up too quickly if you suspect the other side is not entirely trustworthy. 2.1. Emphasize that the deal is predicated on their accurate and truthful representation of the situation. 2.2. Require that they provide back-up documentation, and that the terms of the deal be explicitly contingent on the document's accuracy. 2.3. Structure the agreement in a way that makes future benefits contingent on current compliance and performance. 2.4. Insist on compliance transparency. "Compliance transparency" refers to one's ability to monitor compliance from the outside. You want to craft a compliance mechanism that is readily monitored and that assures you that terms of the agreement are being honored by the other side. For example, if you've agreed to license a proprietary technology in return for royalty payments, you'd be wise to build into the agreement your stated right to examine the other side's book on a regular basis to ensure the proper calculation of royalties. 2.5. Require enforcement mechanisms, such as a security deposit, escrow arrangement, or penalties for noncompliance (or perhaps positive incentives for early performance). You can also help to foster a climate of greater trust by building relationships between people and by improving the channels of communication between organizations involved in the negotiations. Joint ventures, for instance, require substantial trust between independent organizations. Experienced managers of joint ventures give key personnel of the different parties opportunities to know each other and to collaborate in making decisions. They arrange meetings within which problems, opportunities, and working frictions can be communicated and addressed. These mechanisms create opportunities for creating the trust needed for the success of the venture. 3. Informational Vacuums and the Negotiator's Dilemma Negotiators have difficulty in connecting with each other when they have little or no pertinent information about the interests of their counterparts. In the absence of illuminating information, they pass by each other like ships sailing in darkness. Consider this example: Peabody products had just won a big contract from the Royal Navy to produce electric motors over the next twelve months and was scrambling to set up the necessary supplier relationships. Among the things it needed were 20,000 wiring harnesses, and it needed them in a hurry. Unfortunately, all of its regular suppliers were backlogged with other work. Then the procurement department found Western Manufacturing, a small component producer located outside Glasgow. Neither of the two companies knew much about the other, and their negotiators had reasons for not sharing certain information. For example, Peabody's representatives didn't want Western's people to know how desperate they were to get 20,000 wiring harnesses in short order. Without them, their deal with Royal Navy might founder. "If the people at Western know this," said one company official, "we'd be in a poor bargaining position and bound to get gouged on the price. They'd know that they had us over a barrel." The people at Western likewise felt that they were in a poor bargaining position. "If Peabody Products were to learn that we are operating at forty percent capacity," said Western's sales manager to his boss, "they'd demand a rock-bottom price - and we'd probably give it." Though Peabody and Western need each other for important business reasons, neither realizes it. Each fears to reveal information about its situation. And if neither party speaks up, they could easily fail to negotiate a deal. Operating in the dark, Peabody's bid to buy and Western's offer to sell might be so far apart that each party would be encouraged to withdraw. This situation is symptomatic of what negotiation scholars call the "negotiator's dilemma". In this dilemma, both sides could create value if both were forthcoming with information about their needs and their business situations. But either will suffer if one shares its information and the other does not. How can this dilemma be resolved for mutual benefit? The best answer is cautious, mutual, and incremental information sharing. Here, one party takes a small risk: It reveals a small piece of information about its interests. It follows this revelation with a query: "Now, tell us something about your interests." Reciprocity by the other side helps create a climate of trust in which still further information can be safely shared. As trust and sharing continue, each party puts more of its key cards on the table, and opportunities for mutual value creating and value claiming are identified.
4. Structural Impediments In some cases, the road to agreement is blocked by structural impediments. As in: 4.1. Not all the right parties are at the table. For example, a work schedule for developing a new product is being negotiated. The people from research and development and marketing are there, but no one invited the manufacturing people whose input is critical. Remedy: Get the right people on board. 4.2. Other parties to the negotiation don't belong there - worse, they are getting in the way. Remedy: Get the group to confront the individual or individuals who are blocking progress and ask them to step aside. If a person resists, appeal to a higher authority. 4.3. One or more of the parties who legitimately belongs at the table is deliberately blocking progress toward an agreement. Remedy: If you have the organizational clout to prevail, tell this person or persons to back off. If you lack that clout, form a coalition of people at the table to deliver the same message. 4.4. No one feels under any time pressure, and so negotiations drag on and on. Remedy: Avoid this by adding what Michael Watkins has called an 'action-forcing event', such as a deadline or progress meeting. For example, "We are giving your company an exclusive opportunity to bid on this work. However, if we cannot reach a mutually satisfactory agreement by March 15, then we will have to seek other bids." If a time component was not part of ongoing negotiations, consider adding one. "Since we are in agreement that things are moving too slowly, I suggest that we adopt a timeline that provides for completion of our negotiations by March 15." 4.5. Agreement on this deal is predicated on agreement in another separate negotiation, which is going nowhere. Remedy: If it makes sense or is feasible, decouple the different deals. If that is not possible, consider adding a time constraint to the other deal. 5. Spoilers Particularly in multiparty negotiations, certain stakeholders may prefer "no deal" as the outcome. Call them spoilers. They may have the power to block or sabotage your negotiations. These spoilers may have seats at the table, or they may not. For example, the president of the US may negotiate a trade deal with a foreign nation, but two or three powerful senators who view the deal as contrary to the interests of their constituents may block ratification in Congress. An influential executive who has the ear of key board members can sometimes accomplish the same result. You can anticipate this barrier to an agreement by identifying all key stakeholders, their respective interests, and the power of each to affect the agreement and its implementation. Then identify potential spoilers and consider the necessity of sweetening the deal in a way that would neutralize their incentive to sabotage an agreement. Tips for Dealing with Spoilers Many internal negotiations aim to create change within the organization. Change is necessary condition of vitality, but it often creates winners and losers. And those who see themselves as potential losers do what they can to resist or undermine change. "The reformer has enemies in all those who profit by the old order," Machiavelli warned his readers. And what held true in sixteenth century Italy remains true today. Some people clearly enjoy advantages that - rightly or wrongly - they view as threatened by change. They may perceive change as a threat to their livelihoods, their perks, their workplace social arrangements, or their status in the organization. Anytime people perceive themselves as losers in the outcome of a negotiation, expect resistance and possible sabotage. Resistance may be passive, in the form of noncommitment to the goals and the process for reaching them, or active, in the form of direct opposition or subversion. Here are some tips for dealing with resistance and possible sabotage: 1. Always try to answer the question: "Where and how will this change create pain or loss in the organization?" 2. Identify people who have something to lose and try to anticipate how they will respond. 3. Communicate the "why" of change to potential resisters. Explain the urgency of moving away from established routines or arrangements. 4. Emphasize the benefits of change to potential resisters. Those benefits might be greater future job security, higher pay, and so forth. There's no guarantee that the benefits of change will exceed the losses to these individuals. However, explaining benefits will help shift their focus from negatives to positives. 5. Help resisters find new roles - roles that represent genuine contributions and mitigate their losses. 6. Remember that some people resist change because it represents a loss of control over their daily lives. You can return some of that control by making them active partners in your change program. 7. Build coalition with sufficient strength to overpower the spoilers. 6. Differences in Gender and Culture Our language, thought processes, perceptions, communication styles, and personalities are formed by a thicket of culture, gender, and social dynamics. Culture is a cluster of tendencies that are more prevalent in one group than another - how people behave and think. We tend to attribute any mystifying behavior in other people to, say, the French national character, the ways of women, the personality of lawyers, or even to the culture of a certain company. But culture does not determine or predict any single individual's behaviors or choices: There are always great variations within given populations. Thus, an Italian engineer may have more in common with a German engineer than with an Italian artist. A female lawyer may have more in common with a male lawyer than with a female musician. People often attribute a breakdown or difficulty in negotiation to gender or cultural differences, when these may not be the cause of the problem. They throw up their hands and say, "The problem is that she's a woman and can't deal with conflict." Or, "He's late because that's how Argentinians are with time." Don't make these mistakes. By attributing problems to gender or culture, you may miss the fact that the female negotiator is signaling her company's resistance point. Or you may fail to pick up on production problems at the Argentinian company. If you are negotiating with someone from a culture very difficult from your own, and if you are experiencing problems understanding or dealing with each other, look for a pattern in these problems and ask: What kinds of issues are always tripping us up? What types of misunderstandings are we having? If you find a pattern, analyze it together. If you have the time, review any available literature about the other negotiator's culture and how it compares with yours. How is it different? Does this explain the pattern of problems you have had? Different cultures sometimes bring different, unspoken assumptions to the negotiating table. These can create barriers to agreement. Michael Watkins refers to assumptions as "the deeper, often unspoken beliefs that infuse and underpin social systems. These beliefs are the air that everyone breathes but never sees." Look in particular at assumptions about who should make decisions, what is of value, and what will happen if agreement is reached. Differences in organizational culture may also be behind the problems that plague negotiators. For example, if your meetings with a joint venture partner seem to be going nowhere, the difference between your organizational culture and that of the other party may be the problem. This is especially true when one company is highly entrepreneurial (let's get this done) and the other is highly bureaucratic ("we must follow established procedures"). This was the problem with an R&D alliance between Alza, a small, entrepreneurial start-up based in California, and Ciba-Geigy, the giant Swiss pharmaceutical firm. As described by Gary Hamel and Yves Doz: [Alza's founder] believed deeply in the value of an informal, egalitarian environment in which unique talents could bloom through self-structuring teams. Alza's teams worked quickly and informally to integrate the many technologies needed to develop advanced trans-dermal drug delivery systems. Ciba-Geigy, on the other hand, was a two-hundred-year old company... It was the epitome of a traditional, disciplined, dedicated European company. And as a large multinational company, Ciba-Geigy was formally structured and bureaucratic. As described by Hamel and Doz, deep historical, cultural, and organizational differences made collaboration and agreement between these companies very difficult. The Alza people expected their partner's people to work at a Silicon Valley pace, while Ciba's people wanted things to move more gradually. To make matters worse, the trust needed to bind the partnership together never developed. The Alza people were always fearful that their larger partner would usurp the one thing they had of value: their technology. This distrust resulted in collaboration along very narrow lines. 7. Difficulties in Communication Communication is the medium of negotiation. You cannot make progress without it. Poor communication renders the simple treacherous and the difficult impossible. Communication problems cause deals to go sour and disputes to ripen. When you suspect that communication is causing the negotiation to go off track, try the following tactics: 7.1. Ask for a break. Replay in your mind what has been communicated, how, and by whom. Look for a pattern. Does the confusion or misunderstanding arise from a single issue? Were important assumptions or expectations not articulated? After the break, raise the issue in a non-accusatory way. Offer to listen while the other side explains its perspective on the issue. Listen actively, acknowledging their point of view. Explain your perspective. Then, try to pinpoint the problem. 7.2. If the spokesperson of your negotiating team seems to infuriate the other side, have someone else act as spokesperson. Ask the other side to do the same if their spokesperson drives your people up the wall. 7.3. Jointly document progress as it is made. This is particularly important in multiphase negotiations. It will solve the problem of someone saying, "I don't remember agreeing to that." THE POWER OF DIALOGUE Dialogue is a powerful mode of communication and an effective antidote to most, if not all, of the human barriers identified in this chapter. It is a time-tested communication form in which parties exchange views and ideas with the goal of reaching amicable agreement. Dialogue is usually the very best way to peel back the layers of problems, bring undisclosed concerns to center stage, develop solutions, and reach common understandings. Though the practice of dialogue between two or more individuals undoubtedly goes back into the mists of time, Plato, through his Socratic dialogues, helped the Western world appreciate its power. Plato's purpose was not to tell us what he thought directly, but to teach us how to toss ideas back and forth in a logical process that eventually leads to the truth and common understanding. That same logical process makes negotiations run more smoothly, draws out the best ideas, and builds agreement around them. Dialogue can also help you give direction without telling people what to do in so many words - which is what managers in today's participatory organizations must learn to do. For such managers, negotiating with people is as important as directing them. For example, instead of saying, "Have the inventory report on my desk at 3 PM tomorrow," try something like this: Manager: What progress have you made on the inventory report? Employee: It's almost ready. I only have one section to complete. Manager: Good. Do you see any problem in getting it all wrapped up by tomorrow afternoon? Employee: No, not if you need it by then. Manager: Yes, I do need it by 3 PM at the latest. Employee: You can count on it. What works between managers and their people can also work between negotiating parties if they start slowly, practice active listening, and gradually develop the level of trust that problem solving requires. Summing Up This chapter examined typical barriers to negotiated agreements and what you can do to overcome or eliminate them. 1. Die-hard bargainers will pull for every advantage and try to make every concession come from you. You can deal with these people if you understand the game they are playing, withhold useful information from them (they'll only use it against you) unless they demonstrate a willingness to reciprocate, and make it clear that you don't mind walking away. If you don't want to walk away - or cannot - do whatever you can to strengthen your position and your alternative to a deal. 2. Lack of trust is a serious impediment to making a deal. Nevertheless, agreements are possible if you take precautions, require enforcement mechanisms, build incentives for compliance into the deal, and insist on compliance transparency. 3. It's difficult to make a deal - and impossible to create value - in the absence of information. What are the other side's interests? What does it have to offer? What is it willing to trade? Ironically, fear of advantaging the other side encourages parties to withhold the information needed to create value for both sides. Each is reluctant to be the first to open up. This is the negotiator's dilemma. The solution to this dilemma is cautious, mutual, and incremental information sharing. 4. Structural impediments include the absence of important parties at the table, the presence of others who don't belong there but get in the way, and lack of pressure to move toward an agreement. Remedies to these impediments were provided. 5. Spoilers are people who block or undermine negotiations. Several tips were offered for neutralizing or winning over these individuals, including the creation of winning coalitions. 6. Cultural and gender difference can be barriers to agreement, particularly when one of the parties brings to the table a set of assumptions that the other side fails to notice: assumptions about who will make key decisions, what is of value, and what will happen if agreement is reached. Negotiators who represent organizations with conflicting cultures (e.g., entrepreneurial versus bureaucratic) are also likely to experience problems in reaching agreements. 7. Communication problems can also create barriers. You can diffuse them by insisting that each team be led by an effective communicator and by practicing active listening, documenting progress as it is made, and establishing real dialogue between parties. 8. Dialogue can eliminate or lower all of the barriers described in this chapter.

CHAPTER 7: MENTAL ERRORS How to recognize and Avoid them

Key topics: % Escalation % Partisan perceptions % Irrational expectations % Overconfidence % Unchecked emotions Each of these errors represents a case of shooting oneself in the foot, and each is amenable to self-correction. 1. Escalation In their book "Negotiating Rationally", Max Bazerman and Margaret Neale point to "irrational escalation" as an error committed by otherwise level-headed businesspeople when they get into difficult and competitive negotiations. In their definition, 'irrational escalation' is "continuing a previously selected course of action beyond what rational analysis would recommend." It might also be called "overcommitment." Bazerman and Neale cite the example of Robert Campeau's ill-fated 1987 acquisition of Federated Department Stores, parent company of Bloomingdale's, as a case of irrational escalation. Campeau, who wanted Bloomingdale's both for its inherent earning power and its potential to anchor various shopping malls he planned to develop, pursued his quarry boldly despite strong competition from Macy's. This rival also wanted the company and put in a high bid. Not to be outdone, Campeau bid some $500 million above Macy's last offer. With that bold stroke, he won the contest - but he plunged his own organization into bankruptcy. The lesson of the Bloomingdale's story, as Bazerman and Neale artfully point out, is that even a good strategy will produce a bad result if it is escalated beyond a point where it no longer makes sense. Bloomingdale's was a great prize, but not at the price Campeau paid. Paying too much is a lesson found repeated over and over in the annals of business. Why do normally shrewd businesspeople fall into the escalation error? Here are possible reasons - and possible remedies. 1. Their egos cannot abide "losing". CEOs and other senior executives are accustomed to getting what they want. And they don't want to be seen coming home empty-handed from a negotiation, particularly when it's highly visible. So, when winning requires paying more than every rational measure says is smart, their egos tempt them to pay. They then point to "future synergies" or other nebulous values as justification for their behavior. 2. Auctions and other bidding contests that pit individuals against each other encourage irrational behavior. As one consultant put it, "Collectors in particular do not exhibit rational price behavior." In the absence of any particular price expectations, they are more likely to bid up to a price they can afford than to a price they know something to be worth. The urge to have something - and to win out over other bidders - overcomes their business sense. 3. A principal / agent problem is at work. In general, the businesspeople who spend to win beyond the point of rationality do so with OPM (other people's money). As agents of the shareholders (the true principals), they can take credit for the "win" and charge the costs to the real owners of the business. It's unlikely that agents would be so bold, or so reckless, if they were spending their own hard-earned savings. Remedies 1. Get a firm handle on your alternatives to the deal before you negotiate. Remind yourself that money you don't throw away on an overpriced deal is money you'll have available to invest in those alternatives. Remember, too, that the money your competitor is using to defeat you is money it won't have at its disposal when the next deal comes down the pike. 2. Prior to negotiations, be very objective and empirical in setting a price beyond which good sense dictates walking away. Seek agreement and mutual support within your team regarding that price. "Then we are agreed that we will not offer more than $350,000? Does anyone have a different view?" Agreement by many people regarding a price will reduce the temptation to escalate. 3. Set clear breakpoints where you and your team will stop and take stock of where you are in the negotiations and where you are headed. 4. If during negotiations new information suggests raising the walk-away price, apply objectivity in recalculating that walk-away price. 5. With respect to the principal/agent problem, the best solution is to align the negotiator's rewards with the economic interests of shareholders. (This topic is discussed further in chapter 9.) The board of directors should be diligent in safeguarding the interests of shareholders against irrational behavior on the part of the CEO. This is a tough problem because most board members are members of the same fraternity as the CEO; in the US, for example, the majority of corporation board members are also CEOs - that is, agents of shareholders. 2. Partisan Perceptions A 'partisan perception' is a psychological phenomenon that causes people to perceive the world with a bias in their own favor or toward their own point of view. For example, loyal fans of either team in a sporting event perceive that the referee was unfair to their side. Democrats and Republicans watching the same presidential debate perceive that their candidate "won". A panel of engineers representing two joint venture partners fails to reach a conclusion as to how well one of the companies has performed its part of an agreement. Effective negotiators know how to stand outside a situation and see it objectively, thus avoiding partisan perceptions. They can also get inside the minds of the other parties and see their unique - and partisan - viewpoints. You can do the same if you try the following: 2.1. Recognize partisan perception as a phenomenon to which we all fall prey. 2.2. Put yourself in the other side's position. How would the issue look to you then? 2.3. Pose the issue to colleagues (without revealing which side you are on) and solicit their opinions. To convey your position to the other party: 2.a. Try to pose the problem as it appears to you and ask how they view it. 2.b. Use an analogy or a hypothetical situation to frame the problem as you see it. Another technique for reducing partisan perceptions is for the opposing sides to reverse their roles, as in the following example: "When two city councilors proposed expanding the town's existing golf course, local environmentalists and outdoors enthusiasts objected." An expanded municipal course will provide substantial revenue for the town," argued the two councilors. "Not true," said the opponents. "It makes no economic sense, and you'd have to gut our last remaining woodland to build it." Faced with a divided community, the mayor formed a fact-finding committee to investigate and report on the various merits and demerits of the golf course expansion, with all interested parties represented. Each side presented its facts - on the economics of the expansion, on environmental impacts, on community values, and so forth. But neither side would accept the other's facts or interpretations. And each side impugned the other side's honesty. To help bring the committee members to a point where they could develop an objective report, the mayor asked the opposing sides to reverse roles. Thus, the environmentalists would represent the "facts" gathered by those who advocated golf course expansion, and vice versa. Each was asked to develop a coherent and compelling case using the facts of their opponent. By the end of the role reversal exercise, each side had a greater appreciation for the other's point of view. And though they continued to disagree on key points, they were able to develop a report for the mayor and the community that fairly represented all information and viewpoints. If any of these suggestions fail, bring in a neutral third party or expert to provide unbiased guidance. 3. Irrational Expectations Agreement is hard to find when one or more parties have expectations that cannot be fulfilled. This eliminates any zone of possible agreement. Many people commit this mental error as they enter into negotiations. Consider this example: Like every other budding author, Marie had read stories about the fabulous royalty advances that some authors received for their manuscripts - and even their proposed manuscripts. "The pope got $4 million," she told a friend. "Hillary got $8 million!" She didn't expect to get nearly that much for her self-help book, The Joy of Antique Hunting. After all, it was her first work. But she did expect around $100,000. Unfortunately, the publisher Marie approached with her ten-page proposal did not see it her way. "I'm sorry, but $10,000 is the most we're willing to pay," she was told. "You've got to be kidding," she exploded. "That's not even enough to cover the three or four months I'd have to take from work to write the book!" After some harsh words with the editor, Marie moved on to another publisher, where (guess what?) she got the same reaction to her demand for a large advance. "You people don't even understand your own business!" she fumed. "Look, Marie," editor number two counseled. "You're a first-time author with no track record. And your subject will appeal only to a narrow niche of readers. It's not the stuff from which best-sellers are made by a long shot." The words weren't even out of his mouth when he heard Marie slam her phone down on the receiver. After two more such disappointing encounters, Marie's best friend offered some advice. "Marie, you've now had encouraging conversations with several mainstream publishers. All have like your proposal, but none have been willing to give you anything near the advance you insist on having. This might be the best you can expect with this type of book. Your expectations may be out of line." "Baloney!" she huffed. "They're just trying to take advantage of me." Indeed, Marie's expectations were out of line with reality as each of the publishers saw it. Nor did she have the bargaining power to force them to accept her point of view. Were it not for this irrational expectation, she might have been successful in negotiating as agreement with any one of the four publishers. Cases like this one are not uncommon, but they are not insoluble. In Marie's case, her irrational expectation resulted in no ZOPA. With the publisher's reservation price somewhere around $10,000 and Marie's somewhere around $100,000, there was simply no overlap in which agreement could be struck. This sorry situation might have been remedied if the parties had provided one or both of the following: 3.1. Educating dialogue. The editor might have had a calm, heart-to-heart conversation with Marie in which he indicated the number of copies he'd have to sell to cover Marie's $100,000 royalty advance. He could also have indicated the unit sales of comparable books, none of which sold enough copies to earn the level of advance Marie expected. For example: "Look, Marie, in order for your book to earn $100,000 in royalties, we'd have to sell at least 50,000 copies, and we believe that that number of sales is highly unlikely. We have published three books on antique collecting over the past several years, and not one of them surpassed 12,000 copies. Would you like to see the sales figures for yourself?" This bit of education might have induced Marie to reduce her reservation price substantially. 3.2. New Information Marie might have provided information (if she had it) to encourage the editor to increase his reservation price - and his expectation of future sales. For example: "Here's a letter I received from the marketing director of 'Antiquing Monthly', which has 200,000 subscribers. He indicates his interest in purchasing 10,000 copies to use as a new subscriber premium." Either of these tactics would have defused the problem caused by irrational expectations. What are your expectations as you prepare to negotiate with your boss, your customer, or your direct reports? Are they realistic? Will the other side have similar expectations on key negotiating points? These could be deal busters if your expectations and theirs are significantly at variance. If they are, you must bring expectations in line with fact-based reality. 4. Overconfidence Confidence is a good thing. It gives us the courage we need to tackle difficult and uncertain ventures - such as negotiations. Too much confidence, however, can set a person up for a fail. Overconfidence encourages us to overestimate our own strengths and underestimate those of our rivals. Consider the example of the American Civil War. Each side expected to whip the other quickly and "have the boys home" within a few weeks. Four years and hundreds of thousands of casualties later, the contending sides were still slugging it out - and on a scale that neither side could have envisioned. As evidence that this mental error is not exclusive to Americans, we have the example of the Imperial Japanese Navy on the eve of the Battle of Midway. Its planners dismissed the US Navy as incompetent and unwilling to fight. That overconfidence encouraged them to take a tactical risk that resulted in heavy losses and a turning of the tide in the Pacific. We observe similar overconfidence in business and interpersonal disputes, where one or both parties reject settlement in favor of litigation. "We are very confident that the court will find in our favor. The lawyers say that we have a very strong case." Groupthink: Overconfidence can blindside you to dangers and opportunities. It is reinforced by a related mental error known as groupthink. The late Irving Janus, the Yale psychologist who coined the term, defined groupthink as "a mode of thinking that people engage in when they are deeply involved in a cohesive ingroup, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action." Groupthink is the result of convergence of thinking around a norm. Unfortunately, that convergence is driven less by objectivity than by social psychological pressures. In the end, opposing views are repressed in favor of homogeneity and an illusion of certitude. Those who "think otherwise" are either reeducated or pushed out. Here are some symptoms of groupthink: 4.1. An illusion of invulnerability exists. 4.2. Leaders are insulated (protected) from contradictory evidence. 4.3. Members accept confirming data only. 4.4. Those holdings divergent views are censured. 4.5. Alternatives are not considered. 4.6. Members of the "out" group are discounted or demonized. Do you see any of these symptoms in your negotiating team? If you do, here is a suggestion for getting rid of them before groupthink leads to critical thinking errors: Empower a team of bright and respected people to find and objectively represent the relevant data. This same team should examine and report back on every one of your key assumptions. 5. Unchecked Emotions People tend to assume that unchecked emotions occur in divorce and other personal negotiations, but rarely in business. Not so. Business partnership dissolutions are call business "divorces" for a very good reason: They involve tremendous anger and personal vitriol. Bad things happen when anger takes control of a negotiation. The parties stop focusing on logic and rational self-interest. Inflicting damage on the other side becomes the goal, even when doing so causes damage to one's own interests. Huge damage is caused when negotiators allow their emotions to get out of control. This is often observed in cases of closely held family businesses when the founder / patriarch tries to retire and turn the reins over to a handpicked successor. In some cases, siblings turn on each other and their parents and practically destroy the business through interpersonal warfare and expensive lawsuits. If you see this happening in your negotiations, try the following: 5.1. Agree to a cooling-off period and tell the combatants to go to their separate concerns. 5.2. Enlist an objective moderator. A moderator who has the best interests of the contending parties at heart may be successful in dampening emotions, acting as a medium of communication, and providing the "adult supervision" necessary during subsequent negotiations. In the absence of a moderator, do the following: 5.3.1 Determine what is making the other negotiator angry. What does this deal, or this dispute mean to him? Listen very carefully when he gets angry. Search for clues. 5.3.2 Respond to what appears to be the emotional problem. Express empathy for what this means to her. 5.3.3 Remember that people are most often angered and frustrated at a personal level by perceived deception, unfairness, humiliation, or loss of pride and lack of respect. You can avoid these land mines by focusing discussion on the issues and the problem instead of on individuals and their personalities. If none of the suggestions work, you might call for a break in the negotiations or try to make arrangements to work with a negotiator who is less emotional, if that is possible. Otherwise, suggest that the negotiations proceed with a neutral, third-party facilitator. Fairness Matter: Anger and irrational behavior are often triggered by an offense to one party's sense of fairness. People will sometimes forego tangible personal gains rather than be party to an agreement that treats them unfairly. Summary Up Mental errors by negotiators can result in no deal or a bad deal. This chapter has examined five common mental errors. 1. Escalation - that is, irrational escalation - is the continuation of a previously selected course of action beyond the point where it continues to make sense. Some people commit this error because they cannot stand losing. Other fall prey to auction fever. 2. Partisan perception is the psychological phenomenon that causes people to perceive truth with a built-in bias in their own favor or toward their own point of view. 3. Irrational expectations are an error insofar as they eliminate zones of possible agreement. 4. Overconfidence in negotiating is dangerous. It encourages negotiators to overestimate their strengths and underestimate their rivals. It is reinforced by groupthink, a mode of thinking driven by consensus that tends to override the motivation to realistically appraise alternative courses of action. The antidote to both overconfidence and groupthink is to have one or more objective outsiders examine one's assumptions. 5. Unchecked emotions are frequently observed in business negotiations, and generally result in self-injury. Among the remedies are a cooling-off period and the use of an objective moderator.

CHAPTER 8: WHEN RELATIONSHIPS MATTER A different notion of winning

Two phenomena of the past 20 years or so account for the frequency of negotiations in which relationships matter. The first is the flattening of organizations. Flatter organizations and wider spans of management control have dispersed power, giving lower level managers and employees greater autonomy for action and decision making. With power thus dispersed, negotiation has replaced "you will do this" with "here's what needs to be done" as a means of focusing resources and getting work accomplished. This results in negotiated solutions between parties who need to maintain strong relationships. The change within organizations is paralleled by changes between them. Companies are less inclined to pit one supplier against another to extract the best deal. Instead of squeezing their suppliers, many leading companies are viewing them as long-term partners. At the same time, companies have entered into many more joint ventures and strategic alliances - deals in which relationships must be managed with care. Harvard professor John Kotter underscores the importance of relationships and their features: Good working relationships based on some combination of respect, admiration, perceived need, obligation, and friendship are a critical source of power in helping to get things done. Without these relationships, even the best possible idea could be rejected or resisted in an environment where diversity breeds suspicion and interdependence precludes giving orders to most of the relevant players. The importance of good relationships changes how people deal with each other when they negotiate. It moderates extreme value-claiming behavior. Why? There are three reasons: 1. Future transactions of real value are anticipated: Being too greedy today would risk losing those valuable transactions. 2. Reciprocity by the other side is expected: You give a little in this transaction in the expectation that the other party will help you later. 3. A good relationship engenders trust: Trust reduces the cost of monitoring compliance and nitpicking adherence to the terms of an agreement. How Perceptions of Relationship Value Affect Negotiations Negotiations between parties who value their relationship will be different from those between parties who place no value on the relationship. Consider these examples: % After three years of constant disagreement and bickering over how to run their make-to-order dress shop, Phyllis and Sharon are breaking up their business partnership. Each blames the other for the split, and each is too bitter to speak with the other about how they should allocate responsibility for the shop's assets and liabilities. % Acme Sound Corporation and one of its first-tier parts suppliers, Waltham Widgets, are negotiating a dispute involving a particular lot of 1,000 transistors. "We've experienced a high level of warranty claims on amplifiers that incorporated those parts," says Acme's purchasing manager. "Our analysis points to Waltham's transistors as the root cause, and we've suffered financial losses owing to warranty claims and damages to our reputation for quality stereo equipment." Waltham's representative doesn't see it that way. Nevertheless, the two parties are working to resolve their differences in ways that will not impinge on their ability to continue their business relationship.
Now, here's one important complication: Although both Acme and Waltham recognize relationship value as part of the negotiation dynamics, it's very likely that neither party sees it to quite the same degree. One will most certainly value the relationship more highly than the other. It's also very likely that the following are true: 1. Neither side can quantify its view of relationship value. In fact, the assessment of value is likely to vary among individuals within the same company. 2. Neither side can know how the other assesses the relationship value. These two forms of uncertainty will affect the tactics and intensity of how each side negotiates with the other. Now consider the negotiations in which you are presently engaged, and try to answer these questions: Q1: How greatly should relationship value influence my negotiating goals and tactics? Your answer should be framed by two considerations: (1) The extent to which you will deal with the other side in the future, and (2) a rough calculation of the present value of benefits you anticipate receiving through future dealings with this party. Obviously, if you are unlikely to deal with this party again, there will be no relationship value to worry about. Value claiming should be your goal. But if the opposite is the case, you need to make a mental tally of the future benefits and develop a strategy for value creating and sharing between both parties. Q2: To what extent does relationship value matter to the party with whom I'm dealing? Doing It Right Negotiators fear that if they push too hard to get the best deal possible today, they may jeopardize their company's ability to do business with the other party in the future. Or they fear that if they pay too much attention to the relationship, they'll end up giving away too much and make a lousy deal. Though natural, such confusion is dangerous. It leaves the negotiator open to manipulation by the other party. The danger of manipulation is obviously greatest when one party values the relationship and the other does not. Ertel gives the example of an accounting firm that must annually renew its auditing contract with a major client company. The client is interested in cutting a lower-priced deal, while the accounting firm is interested in a long-term relationship. So, when the client demands a lower price, the accounting firm capitulates for the sake of the relationship. Several years of this, however, make the relationship profitless for the accounting firm. Is this reminiscent of your negotiations? If it is, you might consider the actual value of your relationships with those particular customers. How profitable are they? "Over the years," writes Ertel, "I have asked hundreds of executives to reflect on their business relationships and to ask themselves what kind of customer they make more concessions to, do more costly favors for, and generally give away more value to." Their usual response, he reports, is that concessions are made to the most difficult and least valuable customers - and always in the vain hope that the relationship will improve! How can you avoid falling into this same trap? Ertel's advice is to distinguish between the deal and the relationship - that is, to draw a clear distinction between the components of the deal and the components of the relationship. It may help to create a list like the one in table 8-1, where one column itemizes all the deal issues and the other does the same for relationship issues. Don't look at the negotiation as a seesaw in which improving the relationship must result in a loss in the deal itself. Instead, they should rise and fall in tandem. According to Ertel, A strong relationship creates trust, which allows the parties to share information more freely, which in turn leads to more creative and valuable agreements and to a greater willingness to continue working together. But when a deal is struck that is not very attractive to one or both parties, chances are that they will invest less time and effort in working together, they will become more wary in communicating with each other, and their relationship will grow strained.
Fig 8-2 illustrates Ertel's view of the deal-relationship cycle. In the "usual way," exploitation of the deal by one party creates a vicious circle of distrust and a withholding of information. Both the deal and the relationship eventually suffer. A zero-sum mentality eventually prevails. In the "better approach," negotiators do not feel compelled to trade a good relationship for a good deal. As a result, they trade information and creative ideas more freely, expanding the possibilities of the deal. This leads to a virtuous circle of improved trust and deals that satisfy the core interests of all parties.
If relationships rank high among your organization's strategic goals, be forewarned that you could pay a personal price in pursuing them. Why? Because many companies still talk out of both sides of their mouths. On the one hand, they say that long-term relationships matter. On the other hand, they generally reward negotiator for delivering on monetary or other measurable values: the most advantageous settlement, the lowest-cost supplier contract, the most favorable contract terms, and so forth. Tips on Managing Relationship Value If you want to keep a relationship on an even keel, manage it as you would any other activity that matters to you. 1. Create trust Trust is created when people see tangible evidence that one's words and actions are in harmony. So, avoid making commitments you may be unable to honor, and always do what you have committed to do. Trust is also created when you acknowledge and demonstrate respect for the other party's core interests. 2. Communicate The different parties should communicate their interests, their capabilities, and their concerns to each other. For example, if you agreed to complete a customer survey for the marketing vice president within thirty days but have hit a logjam, communicate that information to him. 3. Never sweep mistakes under the rug. Mistakes are bound to happen. Acknowledging and addressing them - quickly - is always the best course of action. 4. Ask for feedback. If everything appears to be going as planned, never assume that the other side sees it the same way. Be proactive in uncovering problems. The other side will respect you for it. Ask questions such as these: "Is everything happening as you expected?" "Are the parts reaching your plant on schedule?" "Did my report cover all important points?" Summing Up This chapter examined the relationship value that is part of so many of today's agreements, both between separate entities and between employees of the same organization. 1. Flatter organizations and the desire of companies to build long-term links with suppliers are two important reasons why relationships matter in many of today's negotiations. 2. Relationship-value moderates extreme value-claiming behavior. Negotiating parties understand that trying too hard to claim value today will risk losing opportunities for claiming value in future transactions. 3. Parties who perceive no relationship value will aggressively claim value. 4. Even when both parties recognize a relationship value, there is likely to be an imbalance in how strongly each party feels about that value. This can lead to manipulation of the party to whom the relationship matters most. 5. Negotiators must separate the deal from the broader relationship.

CHAPTER 9: NEGOTIATING FOR OTHERS Whose interests come first?

% Why people engage agents to represent them in negotiations? % The problems of informational asymmetries, divided interests, and conflicts of interest - and how to deal with them. Independent Agents Generally, people hire an independent agent to represent them for either or both of the following reasons: 1. The agent has greater expertise. Engaging the services of an agent is usually a good idea when the other side is more experienced, more knowledgeable, or a sharper bargainer than you. For example: Nineteen-year-old Billy can put a basketball through the hoop from anywhere on the court, but he doesn't know a thing about contracts or how much he might be able to able to get from a major basketball team. Recognizing his own shortcomings in this area, he hires an agent who has knowledge and experience in contract negotiations to represent him. 2. To put some distance between oneself and the other party. Will you be bargaining with a friend or valued business associate? If you are, are you prepared to drive a hard bargain? Probably not - doing so could damage that important relationship. By engaging an agent, you can put some distance between yourself and the other side, thereby avoiding some (but not all) relationship complications. Consider the case of Veronica, a best-selling romance novelist. She is ready to negotiate a contract for her next book, The Breathless Duchess. To avoid straining her working relationship with her editor, Tony, she engages a literary agent to represent her in contract negotiations. Since the agent is not a friend of Tony, he'll have no reluctance in pressing for the largest royalty advance and the best possible deal for Veronica. Non-Independent Agents Some individuals act as non-independent agent representatives in negotiations. A purchasing manager negotiates regularly with suppliers on behalf of his employer. He acts as the employer's agent but, unlike a divorce lawyer, is part of the organization on whose behalf he is negotiating. Agency Issues Regardless of whether the agent is independent or a member of one's organization, the decision to be represented by another poses some big challenges. These flow from information asymmetries, divided interests among the principals, and conflicts of interest. 1. Information Asymmetries Information asymmetry simply means that one party has more information than the other. This can be a problem. If the principal bas more information than the agent, then the agent may not know how best to represent the principal. More often, however, the agent - whether independent or non-independent - possess the greater share of information. Some of this information flows from the agent's superior expertise; other critical information is often picked up at the negotiating table itself. The agent's greater information can create a problem of trust between the principal and the agent. Consider this example: Fred is the purchasing manager for Gonzo Furniture, a maker of office furniture and work cubicles. He and Jane, the company's manufacturing manager, have been delegated to negotiate with 'As You Like It, Inc.', a specialized supplier of materials to the furniture industry. The two companies have not done business before. Gonzo's strategy in dealing with suppliers has been to extract the lowest price and the best conditions, often pitting one supplier against another. The senior management team has grown up on that approach. Fred and Jane, however, are beginning to question that low-price practice. AYLI has demonstrated its ability to provide just-in-time delivery and preassembly of key components. It is also capable of assuming responsibility for other material requirements as a 'tier 1' supplier, in effect giving Gonzo an opportunity to outsource some activities that add no value. Fred and Jane like what they've heard, and their phone calls to clients of AYLI assure them that the company can deliver on its promises. "A deal with AYLI would help us modernize our supply chain operations," says Jane, "and give us a real opportunity to move into fast, mass-customized production." Fred agrees, adding that the deal would reduce materials inventories and their associated costs. "We'll pay more to do business with this supplier, but we'll be gaining real advantages in manufacturing and more rapid customer delivery." In this example, Fred and Jane have gathered some very important information in their negotiating sessions with AYLI representatives. That information has opened their minds to opportunities to improve their approach to manufacturing and has given them insight that would make it possible to move beyond win-lose negotiations to something capable of creating greater value. The company's decision makers, however, are not privy to this information and its nuances. All they know is that doing business with this new supplier will cost them more money. "I'm starting to wonder if Fred and Jane know what they're doing," says the CEO. The information asymmetry has separated the principals from their agents, creating a gap of distrust. How can principals and their agents avoid the problems caused by information asymmetries? Here are some suggestions: 1. To the greatest extent possible, principals should give agents information about interests - what they care about. 2. Agents should regularly communicate information gathered at the negotiating table. That information should be discussed, and the agent should ask, "In light of this new information, how should I proceed?" 2. Divided Interests Many agents face the challenge of serving divided internal interests. Not every organization - be it a union, a company, or an operating unit - is of one mind as to its core interests. This fact puts those who represent the principal into a difficult position. How should issues be prioritized? When push comes to shove, where should the trade-offs be made? Are the interests of other constituencies at stake in a particular deal? Consider this example: As a bargaining agent for the Pet Groomers Union, Local Number 1, located in Anoka, Minnesota, Hugh discovered that he had to represent a diverse set of interests. The local union is primarily concerned with safety issues. "The members want full-body chain mail whenever they have to work on cats," the local's president told him during a briefing. "Have you ever tangled with an 18-pound tomcat with an attitude?" Hugh can see the local union's point, but he also has to consider the larger issues of pay, benefits, and working conditions. If he trades off any of those values in resolving the safety issue for this one group, he'll be setting a precedent that could create problems for other 'Pet Groomer' locals that have different interests. There is no easy answer for how to handle a situation such as Hugh's. Politicians face the same problem every day and usually try to solve it by promising to give something to everyone. This is rarely possible in the commercial sphere, where constraints cannot be legislated away. As discussed in the previous section, the best solution is communication with constituents - communication that aims for consensus regarding priorities. In these instances, the agent has to act as an educator, helping constituents understand external realities. Sometimes the agent must be a coalition builder. Conflicts of Interest The third major issue in the principal/agent relationship is the fact that every agent is bound to have a personal agenda, and that agenda may conflict with the principal's agenda. Michael Watkins and Joel Cutcher-Gershenfeld have used the example of sports and entertainment agents to indicate how an agent's personal interest may eclipse his or her clients' interests. "These agents may even court controversy or engage in other behaviors designed to attract future clients - with neutral or negative implications for the present clients they ostensibly represent." Ambitious sports and entertainment agents are not the only representatives who may be tempted to direct negotiations in ways that benefit themselves. Consider a business executive charged with negotiating an important deal. If several constituencies within his company have stakes in the outcome, this executive may be tempted to produce a good result for whichever constituency can best advance his career. This type of problem is observed repeatedly, and at the very highest levels. CEOs, for example, are, at bottom, agents of shareholders. They are hired to maximize shareholder wealth and are bound by a fiduciary duty to do so. That duty has not, however, prevented many CEOs from awarding themselves with lavish perks or cutting sweetheart retirement deals with corporate boards. Generally, companies (and shareholders) use incentives to align the interests of agents with their own interests. The idea is simple in concept: The agents only do well if the organizations they represent do well. Bonuses, profit sharing, and stock options are the primary tools of alignment. However, this simple idea is difficult to implement in practice. Watkins and Cutcher-Gershenfeld note that "it is not possible for a principal to design an incentive system that perfectly aligns an agent's interests with her own." Create a pay-for-performance system, and employee-agents will immediately channel their ingenuity into tactics for playing the game in their favor. Incentives may be imperfect as a tool for controlling agent behavior, but they are better than nothing. When combined with careful oversight and close communication, they help assure that the interests of principals will be adequately represented in negotiations. Summing Up 1. An agent is a person charred with representing the interests of another (a principal) in negotiations with a third party. 2. People engage agents to represent them in negotiations when the agent has greater expertise and when they want to reduce the risk of damaging their relationship with the other side. 3. Information asymmetries, divided interests, and conflicts of interest are three important problems in the agent/principal relationship. 4. Information asymmetry means that one party has more information than the other. If the principal has much more information than the agent, the agent may have a difficult time representing the principal’s interests; in the reverse situation, the agent may discover value-creating opportunities that the principal does not understand or appreciate. 5. Not every organization is of one mind as to its core interests. This fact puts those who represent the organization into a difficult position. 6. Principals face the problem of preventing agents from putting agent interests ahead of their own. Incentive systems that align the agent's interests with those of the principal can help, especially when combined with oversight and communication.

CHAPTER 10: NEGOTIATION SKILLS Building Organization Competence

% Continuous improvement - learning from every experience % Building organizational capabilities for negotiating % The characteristics of effective negotiators Continuous Improvement The first step toward continuous improvement in negotiations is to treat negotiation as a process with a fairly universal set of process steps:
Whether a negotiation involves two individuals or multiple participants, and whether it aims to settle a damage dispute or a labor contract, these steps generally apply. Each step in this process represents an opportunity for improvement, and each should be analyzed with that goal in mind. The second step is to organize to learn from the process as it takes place, and at the conclusion of the negotiation itself. For example, participants should continually evaluate progress during negotiations and revise their tactics as necessary. They should also use what they've learned in one phase of a negotiation to prepare for the next phase. The feedback loop labeled "ongoing evaluation and learning" in the figure represents this activity. And, of course, participants should conduct a postmortem at the conclusion of every negotiation to determine what worked, what didn't work, and how their experiences can be used to improve future negotiating outcomes. Finally, postmortem learning should be captured in forms that make learning easily disseminated and reusable by future negotiators: training courses, checklists, and databases. Learning capture and reuse is reflected in figure 10-1 through a feedback loop. As you organize to improve your negotiating processes and capabilities, recognize the need to overcome four key barriers: 1. The outcomes of a negotiation are not always clear. For example, the negotiator who negotiates a rock-bottom price with a key supplier may not realize that he or she has soured an important relationship. 2. In some cases, the true consequences of a negotiation cannot be measured for many years. 3. In learning from the negotiating experience, one cannot always say, "This action produced these results." The presence of many uncontrolled variables makes such certainty impossible. 4. Individuals may not have incentives to share their negotiating know-how with others. Nevertheless, experience, and the learning it produces, can help individual negotiators to improve their performance over time. And lessons distilled from that learning can educate other individuals. Negotiating as an Organizational Capability Unfortunately, few companies apply continuous improvement to their negotiations. Nor do they think systematically about their negotiating activities as a whole or of negotiating as a key organizational capability. Instead, they take a significant view, perceiving each negotiation as a separate event with its own goals, tactics, participants, and measures of success. As a consequence, they fail to capture learning for future use. By treating negotiating as an ad hoc activity instead of an organizational capability, they never get better at it - and they often pay a high price at the bargaining table. An organization can ignore its overall negotiating skills and turn that skill into an important capability by heeding the following guidelines: 1. Provide training and preparation resources for negotiators. 2. Clarify organizational goals and expectations regarding any agreement - and when negotiators should walk away. 3. Insist that every negotiating team develop a best alternative to a negotiated agreement (BATNA) and work to improve it. 4. Develop mechanisms for capturing and reusing lessons learned from previous negotiations. 5. Develop negotiating performance measures and link them to rewards. Let's consider each of these measures in greater detail. 1. Provide Training and Resources In his article "Turning Negotiation into a Corporate Capability," Danny Ertel described how a Mexica bank, Serfin, was faced with the task of renegotiating many loans in the wake of that country's 1994 currency devaluation. "Desperate to improve its negotiation process, the bank decided to take a new tack. It looked for opportunities to standardize and codify its negotiation processes, to impose some management controls, and to change the negotiator's concession-oriented cultures. In short, it set about building a corporate infrastructure for negotiations." Serfin began with a training curriculum that put its negotiators in real-world positions. It followed up with the technical resources that its "work out" negotiators would need in the field. These helped with pre-negotiating preparation. Finally, it linked its negotiators with the bank's analysts, who were charged, for each particular case, with defining the bank's and the debtor's interests, defining the bank's BATNA, and developing a set of creative options for resolution. Companies that aim to increase their negotiating capabilities, as this bank did, can likewise provide preparation checklists and access to lessons learned from earlier negotiating experience. They can also help novices gain experience through apprenticeship. Apprentices assigned to more experienced negotiators can participate in actual deals and develop a sense of how things happen. This "sense" is part of the art of negotiating. Good negotiators are people who have learned to recognize threats and opportunities in a back group of unimportant clutter. They develop this pattern recognition through experience. Apprenticeships give novices opportunities to develop pattern recognition while freeing them from the risk of making mistakes. The same can be accomplished through the use of case studies and simulations. 2. Clarify Goals and Expectations When they begin negotiating with an outside party, negotiators shouldn't have to guess at organizational goals and expectations. They should have clear direction from senior management. For example, if management is concerned with improving profit margins but fails to communicate that goal effectively, its field sales force may be negotiating agreements with customers that discount prices to win new accounts - just the opposite of what management wants. The antidote is for management to be clear in its expectations and tell its negotiators when it expects them to walk away from a deal. Negotiating goals must be aligned with organizational goals and supported with the right incentives. 3. Insist That Every Negotiating Team Knows Its BATNA The concept of best alternative to a negotiated agreement has been discussed throughout this book. A strong BATNA relative to the other side gives negotiators bargaining power. And knowledge of their own BATNA tells negotiators when it's smart to walk away. Companies should insist that their representatives have a clear understanding of their BATNA and that they have explored ways of strengthening their best alternative. 4. Capture and Reuse Lessons Learned The idea of capturing experience and reusing it in future analogous situations is an essential part of the now-popular field of knowledge management. Consulting firms, tax accounting firms, and other knowledge-based enterprises have been pioneers of knowledge management - and for very practical reasons. Learning how to solve a knotty business problem or how to apply an ambiguous provision of the tax code is often time-consuming, costly, and subject to error. Knowledge capture and reuse allows these firms to avoid reinventing the wheel. For example, a tax accountant based in New York City is unsure how to treat a financial transaction made by a film producer. A search of her firm's database indicates how colleagues in the Los Angeles office have successful handled the same type of transaction. The file also included an opinion letter issued by the Internal Revenue Service. In this example, knowledge capture and reuse improved both productivity and service quality. Something similar can be obtained when companies are systematic in recording the outcomes of negotiations. As reported by Danny Ertal, one major professional services firm is developing a centralized database to help its project managers negotiate scope-and-fee agreements with clients. "Every time a manager negotiates with a client," he reports, "he or she will now be expected to fill out a brief questionnaire that captures the approaches taken, the results achieved, and the lessons learned." The reports are entered into a database and made available to other project managers as they prepare for upcoming negotiating with clients. 5. Develop Performance Measures and Link Them to Rewards You've heard the old saying "Companies get what they measure and reward." Thus, when companies base sales bonuses on revenue instead of operating profits from sales, the sales force has every motive to use costly service perks and other inducements to bring in new customers - many of whom are unprofitable to serve. The same applies to negotiators. When companies reward their negotiators for squeezing the lowest possible price out of suppliers, they enjoy short-term gains at the expense of relationship values. Their negotiators ignore win-win opportunities in favor of the zero-sum game. And suppliers have every reason to leave them in the lurch as soon as they find better partners. Change the measurement and rewards system, and the outcomes will be different. Thus, management must create alignment between its goals and bow it measures and rewards negotiators. Danny Ertel provided HBR readers with the example of a set of measures used by an engineering and architectural services firm. This firm was less interested in simply booking more business at higher rates and more interested in a broader spectrum of financial and relationship values. Management used those measures to evaluate deal results and negotiator performance; employees used the same measures to prepare for impending negotiations. In view of this discussion, consider the measures against which your organization evaluates and prepares for negotiations. % Can you identify your company's measure? % Are they sufficiently broad? % Are they used to align the behavior of negotiators with organizational goals? % Are they used for rewards? If you answered "no" to any of these questions, start rethinking your current measures. Table 10-1 A BROAD SET OF MEASURE FOR EVALUATING THE SUCCESS OF Negotiations Relationship: Has the negotiation helped build the kind of relationship that will enable us and our clients to work effectively together over the project's life cycle? Communication: Does the deal satisfy our interests well at the same time that it satisfies our client's interests to an acceptable level and the interests of relevant third parties to at least a tolerable level? Options: Have we searched for innovative and effective solutions with the potential for joint gain? Legitimacy: Have we used objective criteria to evaluate and select an option that can be justified by both sides? BATNA: Have we measured the proposed deal against our best alternative to a negotiated agreement? Are we confident that the deal satisfies our interests better than does our best alternative? Commitment: Have we generated well-planned, realistic, and workable commitments that both sides understand and are prepared to implement? What Makes an Effective Negotiator? Everything discussed so far in the chapter has addressed the organizational issues of improving negotiating competence. What we haven't addressed are the characteristics of effective negotiators. The two go hand in hand. Organizational competence is, in fact, the sum of the competence is, in fact, the sum of the competence of the organization's individual members - including you. In ending this chapter - and the book - it's fitting at ask, "What are the characteristics of an effective negotiator?" The answer defines the goals that management should aim for in developing organization wide capabilities. It also indicates what you should aim for in developing organization wide capabilities. It also indicates what you should aim for in developing your own toolkit of skill. The personal characteristics that make negotiators effective are derived from the topics treated in previous chapters. An effective negotiator: 1. Aligns negotiating goals with organizational goals. An effective negotiator operates within a framework that supports the strategic goals of the organization. This is only possible when those goals are clear. Senior management has a responsibility to communicate goals to everyone from the executive suite to the mail room - including those who negotiate on its behalf. That communication is the best assurance of alignment between goals and employee behaviors - and negotiated outcomes. 2. Prepares thoroughly and uses each negotiating phase to prepare further. In effective organizations, people come to meetings prepared with facts and proposals. They don't wing it. The people who negotiate for themselves, their departments, and the organization must be equally prepared. 3. Uses negotiating sessions to learn more about the issues at stake and the other side's BATNA and reservation price. Negotiators, like card players, must often operate in a fog of uncertainty. Advantage generally accrues to the parties who, through preparation and dialogue, gather the information that allows them to penetrate that fog. One's BATNA and reservation price are generally knowable, and the other side's can often be ascertained through effective dialogue and away-from-the-table detective work. 4. Has the mental dexterity to identify the interests of both sides, and the creativity to think of value-creating options that produce win-win situations. A really good negotiator confronted with what others perceive as a zero-sum game can change that game. He or she can help the other side see the value of sharing information and expanding the universe of value opportunities. 5. Can separate personal issues from negotiating issues. The accomplished negotiator knows that it is not about him or her - or even about the individuals sitting across the table. This negotiator operates with objective detachment and focuses on producing the best possible outcome. 6. Can recognize potential barriers to agreement. Barriers aren't always obvious. A skillful negotiator ferrets them out and finds ways to neutralize them. 7. Knows how to form coalitions. Not every negotiator is dealt a winning hand. The other side often has greater power at the table. A good negotiator, however, knows that a coalition of several weak players can often counter that power. More important, he or she knows how to build such a coalition on a foundation of shared interests. 8. Develops a reputation for reliability and trustworthiness. The most effective negotiations are built on trust. Trust formed through one phase of negotiation pays dividends in the next. Good negotiators practice ethical behavior. They are as good as their words. With training and experience, you can develop these characteristics and become an effective negotiator. Summing Up It's one thing to develop one's individual negotiating skills. Developing the negotiating skills of an organization at many levels is a very different challenge, but one with great potential rewards. This chapter explored that challenge from several perspectives. 1. The discipline of continuous improvement can develop the effectiveness of an organization's internal capabilities and, over time, improve bottom-line results. This same discipline can be applied to the negotiation process. 2. The first step toward continuous improvement in negotiations is to treat negotiation as a process with a fairly universal set of process steps: pre-negotiations, preparation, negotiations, agreement or nonagreement, postmortem learning, and learning capture. Learning capture feeds back to the next negotiating experience. The second step is to organize to learn from the process as it takes place, and at the conclusion of the negotiation itself. 3. An organization can improve its overall negotiating skill and turn that skill into an important capability be doing the following: providing training and preparation for negotiators, clarifying organizational goals and expectations from any agreement and clarifying when negotiators should walk away, insisting that every negotiating team develop a BATNA and work to improve it, developing mechanisms for capturing and reusing lessons learned from previous negotiations, and developing negotiating performance measures and linking them to rewards. Because organizational competence is the sum of the competences of an organization's individual members, the chapter concluded with the characteristics of effective negotiators. These define the goals that management should aim for in developing organization-wide capabilities. An effective negotiator: 1. Aligns negotiating goals with organizational goals. 2. Prepares thoroughly and uses each negotiating phase to prepare further. 3. Uses negotiating sessions to learn more about the issues at stake and the other side's BATNA and reservation price. 4. Has the mental dexterity to identify the interests of both sides, and the creativity to think of value-creating options that produce win-win situations. 5. Can separate personal issues from negotiating issues. 6. Can recognize potential barriers to agreement. 7. Knows how to form coalitions. 8. Develops a reputation for reliability and trustworthiness. ~ ~ ~ END ~ ~ ~

No comments:

Post a Comment