Chapter 2Chapter 2

The Negotiation The Negotiation Process:Process:

Four StagesFour Stages11

A Key Concept for All NegotiationsA Key Concept for All Negotiations

Negotiator and mediator Theodore Kheel summarized a critical concept:2

“Negotiations are about changing the status quo. Unless both parties can receive something more than what the status quo provides, there is nothing for them to negotiate.”

Why? If not, they will choose the status quo and walk away.

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Five Negotiation SkillsFive Negotiation Skills Skill 2.1: Skill 2.1: PreparationPreparation before entering a before entering a

negotiation includes deciding a negotiation includes deciding a BATNABATNA Skill 2.2: Consider appropriate Skill 2.2: Consider appropriate ground rulesground rules Skill 2.3: Develop an Skill 2.3: Develop an initial offerinitial offer Skill 2.4:Skill 2.4: Anticipate Anticipate posturingposturing Skill 2.5Skill 2.5: : Decide if the negotiation is a Decide if the negotiation is a

single issue or multiple issuessingle issue or multiple issues and if it and if it includes includes two or more partiestwo or more parties and the and the appropriate strategy. Also decide if an appropriate strategy. Also decide if an impasse impasse occurs how it should be resolvedoccurs how it should be resolved

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The Four Stages:The Four Stages:

Stage 1: Stage 1: PreparationPreparation

Stage 2: Opening Stage 2: Opening

StatementsStatements Stage 3: BargainingStage 3: Bargaining Stage 4: Stage 4:

SettlementSettlement

Opening Statements

Bargaining

Preparation

Settlement

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Chapter Case: The Budget PresentationChapter Case: The Budget Presentation Francis, a newly appointed dept. head, asked Francis, a newly appointed dept. head, asked

the head of another department to describe the the head of another department to describe the budget process. She told him “it’s a vicious, budget process. She told him “it’s a vicious, competitive process…we all know that we are competitive process…we all know that we are fighting for a share of a fixed pool of funds” fighting for a share of a fixed pool of funds”

After the meeting you sit down with the CEO After the meeting you sit down with the CEO and try to get the most you can for your and try to get the most you can for your department, keeping in mind the presentation department, keeping in mind the presentation by the other dept. headsby the other dept. heads

How does Francis prepare? Negotiate with the How does Francis prepare? Negotiate with the CEO?CEO?

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Stage 1: PreparationStage 1: Preparation Decide your BATNA - Decide your BATNA - always start with a always start with a

clearly defined BATNA and stick to itclearly defined BATNA and stick to it List all key issuesList all key issues either party will want either party will want

decided. Include tangibles, intangibles, decided. Include tangibles, intangibles, throwaways…the more the better!throwaways…the more the better!

Set prioritiesSet priorities for the key issues by either: 1. for the key issues by either: 1. Ranking; 2. Weights (%); 3. Assign each issue Ranking; 2. Weights (%); 3. Assign each issue to one of four priority levels—Essential, to one of four priority levels—Essential, Important, Desirable, ThrowawayImportant, Desirable, Throwaway

Develop support argumentsDevelop support arguments based on based on information, facts, logicinformation, facts, logic

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What Is What Is BATNABATNA??

BATNA = the BATNA = the BBest est AAlternative lternative TTo a o a NNegotiated egotiated AAgreementgreement

Always decide your BATNA before entering any Always decide your BATNA before entering any negotiation!negotiation!

BATNA = the value or point at which you will BATNA = the value or point at which you will choose no agreement over a settlementchoose no agreement over a settlement

BATNA is similar to the “walk-away” value or BATNA is similar to the “walk-away” value or pointpoint

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How to Determine Your BATNA!How to Determine Your BATNA!(Answer the following questions)(Answer the following questions)

If the other party withdrew from negotiations today, what are your alternatives?

Can you list and place an estimated value on all the economic variables such as price, timing, warranty, options, etc.?

How important is your long-term relationship with the other party? Can you assign a dollar value to it? Does it override other factors?

Can you improve your BATNA by seeking new alternatives to no agreement?

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Preparation Includes Developing Preparation Includes Developing Support ArgumentsSupport Arguments

FactsFacts InformationInformation LogicLogic PersuasionPersuasion Why? You attempt to “level the playing Why? You attempt to “level the playing

field” or perception of power/leveragefield” or perception of power/leverage

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The Basic Stages of Negotiation

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Stage 2: Opening SessionStage 2: Opening Session

Ground Rules:Ground Rules: Consider the “5 Ws” Consider the “5 Ws” Initial offersInitial offers on each issue of importance to on each issue of importance to

either side are presentedeither side are presented PosturingPosturing to state one’s case, blow off steam, to state one’s case, blow off steam,

etc., may include presenting conflicting etc., may include presenting conflicting views, concealing objectives, caucusing, views, concealing objectives, caucusing, inflexibility, unwillingness to compromiseinflexibility, unwillingness to compromise

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Ground Rules: Consider “The 5 Ws”Ground Rules: Consider “The 5 Ws”

WWHOHO speaks for each party, is authorized to speaks for each party, is authorized to make/reject offers, and how many people make/reject offers, and how many people will be on each team?will be on each team?

WWHEREHERE will negotiation take place, and will negotiation take place, and what will be the seating arrangement?what will be the seating arrangement?

WWHENHEN will negotiations begin, and how long will negotiations begin, and how long will sessions last?will sessions last?

HOHOWW will offers be made, issues included in will offers be made, issues included in the discussion?the discussion?

WWHATHAT form of final agreement is acceptable form of final agreement is acceptable (handshake, verbal, written, notarized)?(handshake, verbal, written, notarized)?

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Bargaining Styles: Howard Raiffa’s Bargaining Styles: Howard Raiffa’s FOTE & POTEFOTE & POTE

FOTE = Full, Open, Truthful Exchange, which includes a completely open, honest, and truthful exchange of interests. FOTE is primarily only used by family, friends, long-time business associates, students

POTE = Partial, Open, Truthful Exchange which includes the concealment of real interests, posturing, bluffing, etc., and causes the parties to practice “the negotiation dance.” POTE is used by most negotiators

Why is POTE used more? The parties lack the trust required to engage in FOTE

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““Saving Face”Saving Face” Both parties need to “save face” or avoid

embarrassment during and at the end of negotiation

Both parties need some “gains” to tout, if not why would they settle?

Neither party presents the final deal as a “win-lose” and could potentially cause hardship for the other party

Why? Payback can be a powerful motivator! Keep in mind future encounters

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How to start a negotiationHow to start a negotiation

Be proactive about the openingBe proactive about the opening Quickly establish strong relationship Quickly establish strong relationship

and communication foundationsand communication foundations Common to see negotiators start with Common to see negotiators start with

small talk small talk

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Prepare a conducive environmentPrepare a conducive environment Select meeting place to build a good Select meeting place to build a good

relationshiprelationship Have a degree of opennessHave a degree of openness Prefer meeting face-to-face to build Prefer meeting face-to-face to build

trust trust

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Create a relaxed environmentCreate a relaxed environment Think of a place that facilitates:Think of a place that facilitates:

High sense of privacy and security High sense of privacy and security (low risk)(low risk)

Informal or coordinated feel (low Informal or coordinated feel (low power)power)

Let’s talk about this over lunch at a nice cozy restaurant across the street where we will not be disturbed.

Welcome! I understand that you would like to talk about something important. Would you like me to close the door?

OR

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Do not pushDo not push

Give them space to show respect and make them comfortable to get into the relationshipI am not sure if I can come to your event tonight. I can better explain it to you later. Do you mind?

First, thanks for calling to let me know. I am sad that you will not come! And of course I do not mind. I offered you an invitation, not a demand. If something changes, even if at the last minute, please show up as I still want to see you.

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Small talk A targeted small talk can produce a

positive relationship and communication set-up

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The opening statement Establish the desired frame for the

relationship. Example: JVP frame

Promote interdependence and focus on common challenge and opportunity

I am confident that if we put our heads together, we will be able to better understand one another and sort out this misunderstanding.

I am glad to have the opportunity for us to discover together ways to make our company more productive.

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Less powerful opening statementsLess powerful opening statements May still work but carry more riskMay still work but carry more risk

PROBLEM OPENING STATEMENT EXAMPLE THEIR POTENTIAL RESPONSE

Too general and vague

I am glad to meet you today to see if we can find mutually beneficial solutions to our

problem.

Sure! Nice canned statement. You probably say that to everyone…

Positional or adversarial

I am here to make sure that I can get a 10% reduction in your price.

Really? Thanks for the advance warning. Over my

dead body!

Substance-focused We can make a lot of money if we work together.

We? I can make a lot of money. Why would I need

you?

Assumption-based I am sure both of us can benefit from avoiding going to court.

Who says so? I believe you are afraid of going to court.

Suspicious My goal today is to help you make US$1 million!

Yeah, right! And you do this out of the kindness of

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Share what is at stakeShare what is at stake Statements that contain elements of Statements that contain elements of

interest (potential success) or interest (potential success) or alternatives (risk or failure)alternatives (risk or failure)

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Negotiating the four Ps

Simple guideline to negotiate the Simple guideline to negotiate the broader process elementsbroader process elements

Purpose

People

Process

Product

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Negotiating the four PsNegotiating the four Psurpose – What the negotiation wants to achieve

Get to know each other better; explore our interests; close the deal, etc.

eople – Key decision-makers we need to influence

Me; my boss; my department; my friends, etc.

rocess – The best way to get there (negotiation path)Time for meeting; agenda issues; process rules, etc.

roduct – The material output of the negotiationA signed contract; proposal; memo; letter of intent, etc.

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The building of the bridge

• The bridge is set once – the environment is

right

– the relationship is set

– the process is clearly structured

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Potential misunderstanding Relying heavily on body language is Relying heavily on body language is

riskyrisky

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Stage 3: Bargaining

Two critical variables shape the negotiation: Two critical variables shape the negotiation: number of parties, number of issuesnumber of parties, number of issues

Two-party and single issue = “zero-sum” Two-party and single issue = “zero-sum” (assuming no long-term relationship)(assuming no long-term relationship)

Two party and multiple issues = trades to Two party and multiple issues = trades to achieve an efficient settlementachieve an efficient settlement

Three parties and one issue = auction processThree parties and one issue = auction process Three parties and multiple issues = consensus Three parties and multiple issues = consensus

by all on some or all issuesby all on some or all issues

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Common Bargaining Tactics to Prepare For

Extreme (high or low) opening offersExtreme (high or low) opening offers Claiming limited authorityClaiming limited authority Emotional outburstsEmotional outbursts Offering few concessionsOffering few concessions Resisting deadlinesResisting deadlines

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Possible Negotiation SituationsPossible Negotiation Situations

Number of Issues Two Three or More

One Zero-sum Outcome

Auction Process

Multiple Efficient Outcomes

Consensus by all parties on all issues, or only some issues resolved by some parties following their BATNAs

Number of Parties Involved2-19

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Stage 4: SettlementStage 4: Settlement Negotiations result in either a settlement Negotiations result in either a settlement

or an impasse (stalemate)or an impasse (stalemate) Impasse = both parties still seek an Impasse = both parties still seek an

agreement but negotiations have stalledagreement but negotiations have stalled Why do parties declare an impasse even Why do parties declare an impasse even

though they both still seek a settlement? though they both still seek a settlement? Common reasons: (1) non-communication Common reasons: (1) non-communication of interests; (2) excessive emotional of interests; (2) excessive emotional involvement; (3) failure of one or both to involvement; (3) failure of one or both to realize the interests of the other party realize the interests of the other party and thus offer a settlement which exceeds and thus offer a settlement which exceeds their BATNA their BATNA

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Beyond Impasse: Third-Party Beyond Impasse: Third-Party InterventionsInterventions

FacilitationFacilitation --- known friend or family member is --- known friend or family member is trusted to provide assistance by meeting trusted to provide assistance by meeting separately with both parties and suggesting a separately with both parties and suggesting a settlementsettlement

MediationMediation --- third party assists the parties in the --- third party assists the parties in the development of a mutually acceptable settlementdevelopment of a mutually acceptable settlement

ArbitrationArbitration --- third party is empowered to make a --- third party is empowered to make a “final and binding” decision on all unresolved “final and binding” decision on all unresolved issuesissues

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The Closing

With a verbal agreement (if between family With a verbal agreement (if between family members or friends); a handshake; or a members or friends); a handshake; or a written, signed, and dated document the written, signed, and dated document the negotiation endsnegotiation ends

Both sides realize gains beyond their walk-Both sides realize gains beyond their walk-away point (BATNA)away point (BATNA)

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