Best Practice Workplace Negotiations

Best Practice Workplace Negotiations

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Best Practice Workplace Negotiations

Richard Luecke

Copyright © 2010 American Management Association. All rights reserved. This material may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. ISBN−10: 0-7612-1479-8 ISBN−13: 978-0-7612-1479-3 Printed in the United States of America. 10

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Contents About This Course How to Take This Course Introduction Pre-Test

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1 Negotiations in the Contemporary Workplace 1 Negotiation Defined The Importance of Negotiating Skills The Negotiating Process A Case Example Recap Review Questions

2 Two Different Approaches: Win-Lose and Win-Win

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Win-Lose Win-Win Lose-Lose Situations Recap Review Questions

3 Basic Tools

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Alternatives Complications Strengthen Your Alternatives

Reserve Price Make Your Reserve Price Realistic The Reserve “Point”

Area of Agreement

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Recap Review Questions

4 Preparation

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Identify Interests Look for Value-Creating Trades Gather Relevant Facts Determine Alternatives and Reserve Price Think Outside the Box What About the Other Party?

Learn About the Other Negotiator(s) Recap Review Questions

5 Pay Attention to the Preliminaries

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Get the Other Side to the Table Interests Sweeteners Alternatives Again Let the Situation “Ripen”

Create an Appropriate Setting Pay Attention to Cultural Differences Low- and High-Context Cultures Personal Space

Listen and Learn Open-Ended Questions Clarifying Questions

Determine Where Best to Begin Option 1: Begin with the Easy Issues Option 2: Agree First on General Principles Option 3: Begin with the Most Difficult Issues

Recap Review Questions

6 Persuasion

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An Essential Skill The Foundation of Persuasion Trust Understanding Others A Credible Case The Language of Persuasion

Recap Review Questions

7 Practical Tactics Frame the Issue Your Way AMACOM Self Study Program http://www.amaselfstudy.org/

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CONTENTS

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Set an Anchor Use Time to Your Advantage The Exploding Offer

Offer a Package or Options Identify Options that Address Differences

Make Concessions Wisely Don’t Be Too Quick Never Concede Anything of Critical Value Insist on Proportionality

Close the Deal Recap Review Questions

8 The Human Side of Negotiating Tactics

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Be Assertive in Pursuit of Your Interests Understand the Role of Respect and Self-Esteem Prepare to Handle Difficult People The Aggressive Bargainer The “Take It or Leave It” Negotiator

Deal with Power Imbalances Concentrate on Interests, Not Power Join Forces with Like-Minded Parties Improve Your BATNA

Keep Learning The Role of Attitude and Personal Preferences Recap Review Questions

9 Common Errors Made by Negotiators

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Overconfidence Irrational Expectations Trying to Win at Any Cost Give Relationships Adequate Attention Recap Review Questions Bibliography Glossary Online Resources Post-Test Index

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About This Course

The ability to negotiate is an important element of success for every leader, manager, supervisor, project manager, and employee as they deal with customers, suppliers, and one another. Negotiation is often the key to settling disputes, resolving conflict, allocating scarce resources, and making tough decisions. And in today’s workplace, where employee empowerment and teambased work are increasingly important, there are many more occasions in which informal negotiations are necessary in order to get things done. Best Practice Workplace Negotiations offers a systematic approach to developing negotiating skills. It serves as an introduction to current best practices in negotiation that can be applied across a broad range of business situations. This up-to-the-minute course covers win-win vs. win-lose negotiations; the BATNA concept (best alternative to a negotiated agreement—what every negotiator should have in mind before entering into any negotiation); walk-away price, or reserve point; negotiation as a logical set of process steps—preparation, initial moves, application of tactics, and post-deal evaluation; and the power of persuasive communication in negotiations. Throughout the course, cases, assessments, exercises, Think About It sections, and Negotiating Tips offer students opportunities for practice, feedback, and practical application. Richard Luecke has spent most of his career in the publishing industry: first as a salesperson, then as an editor, and ultimately as a writer. His books have been published by Oxford University Press, John Wiley & Sons, Harvard Business School Press, and AMACOM. He has also written articles published by Harvard Management Update and Consulting to Management. Most of his work involves collaborations with business school faculty, management consultants, and corporate executives. Recent clients include Harvard Business School Publishing, Massachusetts Institute of Technology, Marsh, Mercer Human Resources Consulting, Northeastern University, and Babson College.

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During his career he has negotiated over 100 contracts and written two books on the practical application of negotiating skills. Mr. Luecke earned an MBA from the University of St. Thomas and a BA in History from Shimer College.

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How to Take This Course

This course consists of text material for you to read and three types of activities (the pre- and post-test, in-text exercises, and end-of-chapter review questions) for you to complete. These activities are designed to reinforce the concepts introduced in the text portion of the course and to enable you to evaluate your progress.

PRE- AND POST-TESTS* Both a pre-test and post-test are included in this course. Take the pre-test before you study any of the course material to determine your existing knowledge of the subject matter. Submit one of the scannable answer forms enclosed with this course for grading. On return of the graded pre-test, complete the course material. Take the post-test after you have completed all the course material. By comparing results of the pre-test and the post-test, you can measure how effective the course has been for you. To have your pre-test and post-test graded, please mail your answer forms to: Educational Services American Management Association P.O. Box 133 Florida, NY 10921 All tests are reviewed thoroughly by our instructors and will be returned to you promptly. *If you are viewing the course digitally, the scannable forms enclosed in the hard copy of AMA Self-Study titles are not available digitally. If you would like to take the course for credit, you will need to either purchase a hard copy of the course from www.amaselfstudy.org or you can purchase an online version of the course from www.flexstudy.com.

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THE TEXT The most important component of this course is the text, where the concepts and methods are presented. Reading each chapter twice will increase the likelihood of your understanding the text fully. We recommend that you work on this course in a systematic way. Reading the text and working through the exercises at a regular and steady pace will help ensure that you get the most out of this course and retain what you have learned. In your first reading, concentrate on getting an overview of the chapter content. Read the learning objectives at the beginning of the chapter first. They will act as guidelines to the major topics of the chapter and identify the skills you should master as you study the text. As you read the chapter, pay attention to the headings and subheadings. Find the general theme of each section and see how that theme relates to others. Don’t let yourself get bogged down with details during the first reading; simply concentrate on understanding and remembering the major themes. In your second reading, look for the details that underlie the themes. Read the entire chapter carefully and methodically, underlining key points, working out the details of examples, and making marginal notes as you go. Complete the activities.

ACTIVITIES Interspersed with the text of each chapter you will find a series of activities. These can take a variety of forms, including essays, short-answer quizzes, or charts and questionnaires. Completing the activities will enable you to try out new ideas, practice and improve new skills, and test your understanding of the course content.

THE REVIEW QUESTIONS After reading a chapter and before going on to the next chapter, work through the Review Questions. Answering the questions and comparing your answers to those given will help you to grasp the major ideas of that chapter. If you perform these self-check exercises consistently, you will develop a framework in which to place material presented in later chapters.

GRADING POLICY The American Management Association will continue to grade examinations and tests for one year after the course’s out-of-print date. If you have questions regarding the tests, the grading, or the course itself, call Educational Services at 1-800-225-3215 or send an e-mail to [email protected].

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Introduction

Welcome to the AMA’s Self-Study course on Best Practice Workplace Negotiations. No matter what your current skill level as a negotiator or your current status—executive, manager, supervisor, or employee—this course will help you become more effective. Negotiation is how people resolve differences when imposed resolutions are not an option. Chances are you know people who are very adept at negotiating differences at work, at home, and in your community. When people cannot agree, good negotiators have a knack for moving them toward a settlement. Many assume that effective negotiators like these were born with that particular skill. Not true! Good negotiators are made, not born. As with most skills, the ability to negotiate effectively is strengthened through study and practice. You’ve taken a significant step toward mastering the art of negotiation by beginning this course. The concepts and techniques described here will give you a framework within which you can practice and improve. Each chapter will take you a step further. This course offers numerous practice opportunities through the exercises and “Think About It” sections found in each chapter. Try to make the most of these, since practical engagement with new and unfamiliar topics is the best way to master them. Also, practice what you learn about negotiation with those around you. As you experience success, repeat those techniques. Soon they will become habits, and others will look up to you as a “born” negotiator! Here’s what you’ll learn in the chapters of Best Practice Workplace Negotiations:

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Chapter

Key Learnings

1. Negotiations in the Contemporary Workplace

This chapter provides readers with an overview of negotiation, beginning with a working definition. Readers will learn why negotiating skills are so important for modern organizations and for the careers of their employees—particularly supervisors, managers, and executives. Negotiation is described as a process with a number of discrete steps. The chapter ends with a lengthy case describing a project manager and her task of coordinating the development and implementation of a company’s e-commerce website. The case gives a preview of most of the important topics developed in later chapters of the course.

2. Two Different Approaches: Win-Lose and Win-Win

This chapter introduces the basic types of negotiations: win-lose and win-win. Although most negotiations contain some mixture of the two, it’s useful to understand the difference between them because each requires a different attitude and set of tactics. This chapter explains those differences, identifies their characteristics, and indicates the motivations that encourage parties to pursue one or the other type of negotiations.

3. Basic Tools

This chapter introduces three important concepts every negotiator should understand and think about before entering into discussions with another party: alternatives (the options available if you cannot negotiate an acceptable deal), reserve point (the point at which a deal fails to meet your requirements and the negotiator should walk away), and area of potential agreement (an area in which give-and-take between parties is possible). These are basic tools of the negotiator’s trade and can be applied in every bargaining situation.

4. Preparation

A good negotiator begins before he or she ever meets the other parties—with solid preparation. This chapter will tell you what you need to do in order to succeed as a negotiator: understand one’s own interests and those of others along with the personal style or authority of the opposing negotiator.

5. Pay Attention to the Preliminaries

Even when you’ve done your homework, you need to take care of a number of preliminaries before getting down to business. In some cases, that means getting the other side to the table and Chapter 5 will tell you how to do that. You must also create a suitable setting, pay attention to cultural differences, keep your eyes and ears open for clues about the other side, and finally, strategize where to begin your negotiations.

6. Persuasion

Chapter 6 is about a skill that will help you in negotiation and every other aspect of your work and personal life: persuasion. The focus here is on developing the four building blocks of persuasion: trust, understanding others, a credible case, and persuasive language.

7. Practical Tactics

Once you get going in your negotiation, you’ll need some practical tactics for getting the other side to see the issues from your perspective and for moving toward an agreement. You’ll find a discussion of several of those tactics in this chapter: framing, understanding how to use a price anchor, and formulating a “packages” deal, among them.

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INTRODUCTION

Chapter

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Key Learnings

8. The Human Side of Negotiating Tactics

Negotiation is ultimately a human activity, so you need to understand certain people-related issues: assertiveness, the role of respect and self-esteem in negotiations, handling difficult people, and so forth. Chapter 8 will provide you with the basics.

9. Common Errors Made by Negotiators

Continuing with the human side of negotiations, this chapter identifies common mental errors that people make such as overconfidence, irrational expectations, and winning at any cost—and how you can avoid them. Chapter 9 also identifies actions you can take to build personal relationships with negotiating partners.

Once you’ve finished those chapters, you’ll find some useful materials at the end of the book: a glossary containing all the key negotiating terms used in the course, a list of online sources on negotiating, and an annotated bibliography describing books and articles that can teach you even more about the useful art of negotiating. Use these resources as you see fit. Good luck with your studies!

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Pre-Test

Best Practice Workplace Negotiations Course Code 96022 INSTRUCTIONS: Record your answers on one of the scannable forms enclosed. Please follow the directions on the form carefully. Be sure to keep a copy of the completed answer form for your records. No photocopies will be graded. When completed, mail your answer form to: Educational Services American Management Association P.O. Box 133 Florida, NY 10921

1. When a negotiator’s expectations exceed those supported by the facts of the situation, those expectations can be described as: (a) uncompromising. (b) ambiguous. (c) irrational. (d) disoriented. 2. ______________ is the price at which the negotiator has decided it makes more sense to walk away than to accept a deal. (a) The area of agreement (b) The step-up point (c) The “line in the sand” (d) The reserve price

Do you have questions? Comments? Need clarification? Call Educational Services at 1-800-225-3215 or e-mail at [email protected]. © American Management Association. All rights reserved. http://www.amanet.org/

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3. Part of being an effective persuader is:

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(a) appealing strictly to the emotions of people in the group. (b) capitalizing on misinformation. (c) pointing out the worst-case scenario. (d) identifying the key decision makers. Negotiations that successfully address the _____________ of the parties are more likely to create a win-win solution than those that merely wrestle over positions. (a) prejudgments (b) interests (c) behavioral habits (d) latent fears Some negotiators favor a strategy of beginning with the small, least contentious issues. The logic behind this approach is that beginning with the easy things gives the participants opportunities to: (a) learn how to outmaneuver the other side. (b) build trust and to observe the progress that often comes from working together. (c) avoid dealing with the hard issues. (d) master the smallest details. An exchange in which you can give up something of little or modest value to you, but of great value to someone else is a: (a) zero sum game. (b) win-lose deal. (c) lose-win deal. (d) value-creating trade. One value that may motivate participants to attempt a win-win resolution is: (a) the best possible price. (b) loss avoidance. (c) certainty. (d) a long-term relationship with each other. In setting up a physical negotiation place, which of the following arrangements is most likely to encourage people representing two contending sides to feel more part of a team? (a) Seat the teams on opposite sides of the table, facing each other. (b) Seat people randomly around a circular table. (c) Situate opposing teams in separate rooms and use a “go between” for communication purposes. (d) Seat the teams at separate tables, facing each other. One of the building blocks of persuasion is: (a) trust. (b) practice. (c) overconfidence. (d) observing others.

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PRE-TEST

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(a) price ratio. (b) area of agreement. (c) bid-ask spread. (d) area of non-agreement. A tactic for encouraging a reluctant or disinterested party to negotiate with you is to: (a) act as though you are equally reluctant or disinterested. (b) sweeten the deal with incentives. (c) play the waiting game. (d) apply a blend of assertiveness and aggression. Whenever possible, a person should avoid entering into a negotiation if he or she lacks: (a) a 40 percent or better chance of getting what he or she wants. (b) body language skills (c) one or more feasible alternatives to a negotiated agreement. (d) good selling techniques. Which of the following is a common beginning point for a negotiation? (a) Offer the other side a concession as a signal of good will. (b) Tackle the most difficult issues first. (c) Engage with participants who have no authority to make a deal. (d) Survey one’s own constituency. Which of the following actions can a negotiator undertake when he or she finds himself or herself at odds with a more powerful party? (a) Offer a concession to placate the other side. (b) Reduce his or her expectations. (c) Refuse to negotiate. (d) Find an ally. Negotiation is a means of resolving differences and conflicts between individuals, organizations, and other entities when imposed settlements are either not possible or: (a) not desirable. (b) best for one party. (c) likely to produce a win-lose outcome. (d) likely to result in a short-term gain. Concessions are sometimes necessary during negotiations. When you make one, however, insist on __________________ from the other side. (a) a disproportionate response (b) agreement to your basic demands (c) an exploding offer (d) a reciprocal concession Few things are as effective in quashing an unreasonable position or demand as: (a) a strong bluff. (b) being a sympathetic listener. (c) intuition. (d) solid, relevant facts. © American Management Association. All rights reserved. http://www.amanet.org/

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18. One key phase of the negotiating process is:

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(a) hypothesis testing. (b) interest alignment. (c) preparation. (d) calling the bluff. The use of an impartial third party to hear both sides of a dispute and to render a decision, which is usually binding, is called: (a) arbitration. (b) disintermediation. (c) mediation. (d) winner take all. Negotiation is a career-enhancing skill because of the: (a) continued use of command-and-control management. (b) ability of managers to impose conflict resolution. (c) more frequent cases of interpersonal conflict in today’s organizations due to cultural differences. (d) frequency with which it is used in the employee-empowered workplace. One of potential characteristics of win-lose negotiating is: (a) the value at issue can be expanded. (b) there are no more than two participants. (c) the resolution is imposed by one party. (d) price is all that matters. One way to expand the value of a deal for other parties is to: (a) consider a change in the timing of the transaction under negotiation. (b) adopt a bait-and-switch tactic. (c) insist on one’s initial position. (d) offer a concession. Price is often all that matters when the object of a negotiation is: (a) unique. (b) generally unavailable. (c) made-to-order. (d) a commodity-like item. If possible, you should negotiate with a person who has: (a) a boss waiting in the wings. (b) a certificate in negotiating science. (c) more negotiating experience than you. (d) the authority to make a deal. A type of negotiation in which anything gained by one party is achieved at the expense of the other is sometimes called: (a) a zero sum game. (b) a loser’s game. (c) an Abilene Paradox. (d) a win-win deal.

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1 Negotiations in the Contemporary Workplace Learning Objectives By the end of this chapter, you should be able to:

• Explain the purposes and benefits of negoti• •

ation. Indicate why negotiating skills are so important for modern organizations and for individual careers. Describe the basic steps of the negotiating process.

NEGOTIATION DEFINED Negotiation is a means of resolving differences and conflicts between individuals, organizations, and other entities when imposed settlements are either not possible or not desirable. It is a way to get one’s fair share, whether it is selling a proposal to management, settling a labor dispute, buying real estate, or obtaining a new car. Consider these examples: • Not possible. Two senior managers were having a dispute about the allocation of floor space within a new addition being made to their office building. Each wanted more than half of the space under construction. Because neither had the power to impose a decision on the other, they met to negotiate. • Not desirable. During the final years of the Vietnam Conflict, U.S. and North Vietnamese diplomats met in Paris to discuss how they might end the long war. The U.S. had the power to impose a settlement. With thousands of nuclear weapons in its arsenal, it could have wiped North Vietnam off the map in a single day. However, it did not see this approach as a desirable way to end the war. It chose, instead, to negotiate. The result was the Paris Peace Accords (1973).

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Think About It . . . You might think that a person with substantial organizational power—like a CEO or some other senior manager—would never have to negotiate with employees to secure his or her objectives. Simply saying “This is how it will be” would seem sufficient. But wise leaders ration their power, using it only when absolutely necessary. The rest of the time they seek agreement with those whom they lead. Can you think of a situation when a manager, an executive, or other powerful individual negotiated an agreement with you or your colleagues instead of simply dictating what should be done? Briefly describe that situation.

Now, why do you suppose this individual found a negotiated agreement more desirable than a direct order?

We negotiate with people all the time, often without realizing it. Do you recall your last family vacation? How was its destination decided? Did one family member say, “We’re going hiking in the Rocky Mountains in mid-July. Are there any questions?” Probably not. More likely, several family members mentioned places they’d like to go to and things they wanted to do. In the course of subsequent discussions, some family members may have made a case for their preferences, hoping to persuade the others. After some bargaining and compromising, a decision was made. Ideally, everyone in the family saw some benefit in the final decision. Whether you recognized it at the time, you and your family members were negotiating the what, when, and where of your vacation. Negotiation was necessary because an imposed decision was either not possible or not desirable. Negotiations are also common in the workplace: between companies, between departments, within departments, and even within work teams of a few members. Some of these negotiations are formal. Consider the following two examples. AMACOM Self Study Program http://www.amaselfstudy.org/

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Example 1: A private equity firm meets with representatives of a manufacturing company to purchase one of its operating divisions; its goal is to run the division as a stand-alone business. Together, the two sides must settle on a purchase price, which liabilities of the division (e.g., pension obligations to current employees) will be transferred with the sale, when the transaction will take place, and dozens of other issues. This type of negotiation involves teams of lawyers, executives, financial analysts, and consultants, and may go on for well over a year. Example 2: A software company and a manufacturer of Internet and intranet servers meet to reach a collaborative agreement. The manufacturer would like to use the other company’s operating and data storage software on an upcoming line of servers. Their agreement must address payment levels (how much) and payment terms (a flat amount or royalty paid on each machine sold). They must also determine how the software company’s engineers and the server designers will work together. Additionally, these two companies must determine what the software company’s responsibility will be for fixing “bugs” and security weaknesses discovered in the years following release of the servers. Again, teams of lawyers, executives, and technical specialists will be involved in this negotiation over many months. Most workplace negotiations, however, are informal, less complicated, and less protracted in duration. Consider these examples: Example 3: The production manager of a publishing company is meeting with a supplier’s sales representative. The publishing company outsources printing and binding work for over 80 books each year, and this sales representative is eager to capture some of that business. Since these jobs are routine, the two individuals talk for no more than 30 minutes. They discuss schedules, paper and binding materials, print quantities, and how particular details will be handled. At the end of the meeting, they have the basis for an agreement. The production manager is not happy about price, but the vendor’s willingness to deliver the goods in less than one month has offset that objection. The sales representative says that she will return to her office and confirm her per unit price estimate, based on a first printing of 5,000 copies. “Okay,” says the production manager. “If your estimate holds up—and if you can guarantee delivery in four weeks or less—I’ll send you a purchase order for the work.” Example 4: Four members of a loan processing team are taking a break to discuss their work schedules during December. “I know that everyone would like to take time off between December 24 and January 2, but we have a backlog of loan applications to process, and © American Management Association. All rights reserved. http://www.amanet.org/

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that means that at least two of us must be here every business day. We may even have to put in some overtime.” Who will come to work over the holidays and who will be allowed to take time off ? Because this team leader is not authorized to impose a solution, he asks people to work it out among themselves. Over the course of their short break, the four team members express their preferences and share information about travel plans and how many vacation days they have coming. One person says, “I have four vacation days that I must use up before the end of the calendar year—otherwise I’ll lose them.” The team leader offers to extend the vacation days to January 31 to meet the department’s objectives. After some compromising and horse-trading, the four work out a plan that satisfies the needs of the business and most of their personal needs.

Think About It . . . Is there a situation currently looming in your personal or professional life that will require or benefit from negotiation? A salary discussion with your boss, perhaps? The destination for your next family vacation? If you can think of one, describe it below. If nothing comes to mind, keep alert for a negotiating opportunity.

THE IMPORTANCE OF NEGOTIATING SKILLS The use of negotiations to settle differences within individual operating units, as in Example 4, has become more commonplace over the past decades as organizations have moved from centralized, command-and-control management to an atmosphere of greater employee empowerment. Employee empowerment refers to a management style that gives subordinates substantial discretion as to how they accomplish their objectives. Thirty years ago, many more decisions and directives, large and small, were made at the top of the organizational pyramid and dictated to employees below. Today, commandand-control is increasingly viewed as a counterproductive approach to handling people. Today’s managers are more apt to tell their subordinates what needs to be done, explain why it is important, and leave it up to them to find the best way to do it. AMACOM Self Study Program http://www.amaselfstudy.org/

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Empowered employees find that they have greater authority within their individual jobs. However, since most jobs today require collaboration with others, people discover that they must be skillful in negotiating mutually beneficial arrangements in order to successfully complete their work. Thus, individuals who in an earlier time would have been told how to work together and share resources must now negotiate those collaborations. Since these individuals seldom have power over the people with whom they work, they cannot force agreements or command behavior. Instead they must persuade, bargain, and show how collaboration serves the interests of participants. The frequency with which negotiations are employed in the workplace— both formally and informally—makes it a career-enhancing skill at every level, especially as people move up the career ladder to managerial positions. Individuals who know how to settle disputes, enlist people in collaborative efforts, and bargain effectively with outside entities such as customers, suppliers, and regulators are of greater value to their companies than are employees who are either uncomfortable with negotiations or lacking in negotiating skills. Do you have the right attitude to become an effective negotiator? No idea? Not sure? Then take the self-assessment in Exhibit 1-1. It asks you to rate yourself on a number of attitudes, personal preferences, and behaviors that contribute to negotiating effectiveness. The ratings range from 1 to 5, with 1 being not at all like you and 5 being very much like you. Example: If you think that “I always prepare for important work” doesn’t describe you at all, you should put a 1 in the “Never describes me” column.

xhibit 1-1 Self-Assessment: Do you have the makings of a good negotiator? Read each question and reflect on how accurately it describes you. Indicate your view with the appropriate number score. You’ll find scoring instructions at the end. 1 Never

2 Rarely

3 Sometimes

4 Frequently

5 Always

I always prepare for important work. I know what’s important to me and what is not. I try to understand the views and interests of others. I am most satisfied when everyone comes away a winner.

Exhibit 1-1 continues on next page. © American Management Association. All rights reserved. http://www.amanet.org/

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Exhibit 1-1 continued from previous page.  1 Never

2 Rarely

3 Sometimes

4 Frequently

5 Always

My reputation at work is that of a creative problem-solver. The people I work with regard me as trustworthy and fair-minded. I enjoy working with customers and with people in other departments. I am a patient person when it comes to solving problems. I spend as much or more time listening as speaking. I know how to determine what is a good deal or a bad deal for me. I find the motivations of other people interesting. I’m not opposed to compromising on some things when it results in a greater good. The people I work with would say that I’m assertive yet reasonable. I would rather speak with a customer who has a complaint than work in my office on a report. I’m not easily intimidated when dealing with others.

Exhibit 1-1 continues on next page. AMACOM Self Study Program http://www.amaselfstudy.org/

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Exhibit 1-1 continued from previous page.  Scoring instructions: 1. Total each column.

2. Add the five scores to get your total score. Write that total score here: ______

3. Divide your total score by 15 (the number of questions) to obtain your average score. Write your average score here: _____ If your average score is 4 or 5, congratulations. Once you learn the relevant skills and develop them through practice, you’re likely to be an effective negotiator. If you scored 3 or 4, the same goes for you. Just work a bit on attitude, preferences, and behaviors. If you scored below 3, you’ll carry some extra baggage into your future negotiations. For instance, if you indicated that you are easily intimidated, or if your described a preference for working in your office instead of talking with a customer who has a problem, you’ll have more trouble negotiating effectively than will a person who answered the opposite to these questions—other things being equal. Fortunately, attitudes, personal preferences, and behaviors are not cast in stone. Once you are aware of them and understand how they limit your success, you can do something about them. Consider the late Alec Guinness, arguably one of the great actors of the late twentieth century. Guinness was plagued in his early years by stage fright to the point that it hung like a dark cloud over his future as a thespian. Once he recognized the impediment this problem posed to the career he hoped to follow, he managed to overcome it. So, if you didn’t score well on the test, take heart as attitudes, preferences, and behaviors can be changed from within if we recognize that they prevent us from achieving something we desire.

THE NEGOTIATING PROCESS Many of the routine things we do at work every day can be described as work processes. A work process is a set of interrelated tasks that aim to produce a defined output. The loan department in a bank, for example, follows a process for handling loan applications, from gathering all the relevant information, checking the applicant’s credit rating, deciding whether to approve the loan, notifying the applicant of the bank’s decision, and (assuming that the loan is approved), meeting with the customer to get all appropriate signatures and to provide required disclosures. Other enterprises, both services and manufacturing, have analogous processes for getting work done. The business of negotiating is likewise a process of sorts, and it is useful to have a mental overview of the process as one learns and masters its details. Exhibit 1-2 is graphic view of the negotiating process, seen as a linear series of phases:

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•

•

•

• •

Preparation. In this phase the negotiator gathers as many relevant facts as possible, including information about participants in the negotiations, their strengths and weaknesses, their interests, their sense of urgency, their ability to deliver on their promises, and so forth. He or she should also look inward, asking, in effect, “What is our interest and what do we want from this deal?” Preliminary tasks. This phase could involve any number of tasks, such as coaxing a reluctant negotiating partner to the table, creating a physical setting conducive to a fruitful discussion, and determining if negotiations should begin with the small, easy-to-solve issues, or with an immediate attack on the knottiest problems. Engagement with negotiating participants. This is the phase that most people visualize when they hear the term negotiation. Here each side applies tactics meant to produce the outcome it seeks. These might involve compromise, concessions, strong-arming, bluffing, making offers and counter-offers, and so forth. Resolution. Negotiations formally end here, with some form of resolution. Resolution might take the form of one party walking away. Depending on the formality of the negotiation, a written agreement may be signed, complete with enforcement mechanisms. Learning from the experience. Even though formal negotiations end with the resolution stage, smart negotiators and their teams make a point of reflecting back on their experience. They try to understand what went well, what went badly, and what can be learned that will improve their future negotiations (reflected in Exhibit 1-2 by the feedback loop from Learning back to Preparation).

That’s the “Big Picture” of negotiation. Getting that picture into your head will help you make sense of the many topics covered in subsequent chapters of this course and help you see how they all fall into place. Being an intensely human activity, of course, negotiation is never entirely linear. It does not proceed quite so neatly, phase by phase. Learning, for example, takes place in every phase, though perhaps less formally than in the final one. Nor does the process mapped in Exhibit 1-2 recognize all the skills and human activities that go into a typical negotiation—persuasive communications, the exercise of specific tactics, dealing

xhibit 1-2 The Negotiating Process

Preparation

Preliminaries

Engagement

Resolution

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Learning

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with difficult people, and so forth. Thus, we have not attempted to arrange our treatment of the subject in parallel with the process map shown in the exhibit.

A CASE EXAMPLE To help you appreciate the process nature of negotiation, and what effective practitioners do to achieve their objectives, read and reflect on the following case, which is based on a true story disguised somewhat to preserve confidentiality. It involves a consumer products company (ProdCo) and its effort to build a new, state-of-the-art e-commerce website. The main cast of participants (Exhibit 1-3) includes the following:

• • • •

A four-person ProdCo executive group; this group controlled the project’s budget and had authority for strategic decisions. Bill Miles, the head of the Product Group, whose goods would be sold on the new site. Millennium Software, an outside vendor hired by the company to build the site at an agreed cost of $5 million. Terri Quinlan, a ProdCo employee assigned by the executive team to act as manager for the website development project. Her job was to coordinate the effort and assure that the site was built to specifications on time and on budget. She had no formal authority over any of the project’s participants.

xhibit 1-3 Project Polaris Executive Group

Product Group (Bill Miles)

Website Project

Vendor (Millennium)

Project Manager (Terri Quinlan)

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Work on the new website, dubbed Polaris, was already into the fifth month of its twelve-month development schedule. Project manager Terri Quinlan was in daily communication with the team assigned by the vendor, Millennium Software, and reported its progress each week to the executive group charged with project oversight. Everything was going according to plan. Then Bill Miles, head of the product group, called Terri with an urgent request. “I’ve been talking with my people,” he began, “and we’d like to add a new feature to the site.” “Tell me about it,” Terri responded. “Well, in our initial plans, we didn’t incorporate the mechanism that Amazon and other e-commerce sites use to suggest additional purchases by visitors. You know, the feature that says, ‘Customers who purchased that item also bought X, Y, and Z.’ But our group absolutely needs to increase sales this year, and we think this feature will help.” “Oh,” said Terri, “that’s called a product recommendation feature. Do you want to add it to the site?” “Yes, that’s it. We think a recommendation feature would increase sales revenues from the site by 15 percent.” “I’m not surprised,” Terri replied, “but that feature is outside the scope of the Polaris plan approved by the executive group late last year. Adding it now would surely delay project completion and add to the total cost—the current budget couldn’t handle it.” “I know,” said Bill. “I wish we had included this in the initial plan, but we hadn’t realized how powerful that feature can be in generating sales. Now that we understand it, we know that we need it.” Terri didn’t doubt the merits of Bill’s request, but as project manager she knew that implementing it would cost time and money. The executive group would have to approve the change, and the vendor, Millennium Software, might not be able to accommodate it in a timely way at an affordable price. As head of the product group, Bill Miles was an important figure in the organization, and his request could not be discounted out of hand. Yet the executive group was on record as opposing any increase in Polaris’s budget or delay in its schedule. Dealing with this situation would require substantial negotiating skill on the project manager’s part. Terri’s first step toward resolving the problem was to learn exactly what new capability the product group wanted in the site, what that might mean in terms of future sales revenues, and what the change request would cost in time and money. She gathered that information through discussions with Bill and his staff, and with the vendor’s consulting team, which furnished a price/time estimate. “Another $400,000 and two more months in the schedule?” she asked the Millennium team leader with mild astonishment. “That’s what it will take,” he confirmed. Knowing that the executive goup would balk at a change of that magnitude, Terri arranged a meeting with Bill Miles. “Bill,” she began, “It may be possible that we can accommodate your request, but I’ll need some help from you to get this through the execs.” “Good,” he said. “How can we work this out?” AMACOM Self Study Program http://www.amaselfstudy.org/

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“Well,” she began, “the exec group is adamantly opposed to adding time and cost to this project, so we need to talk about your priorities. The current site plan includes lots of bells and whistles designed to sell products. Which of these would you be willing to give up in order to add your new feature?” Bill adopted a shocked expression. “I don’t want to give up any,” he said forcefully. “There’s support in the product group for every one of those features.” Terri paused and smiled knowingly at Bill, as if to say, “Of course, you want to have everything no matter what it costs.” Then she resumed: “I know that there is support for all the features you’ve proposed, Bill. But I also know that your group supports some features more than others. So let me rephrase my question. When the exec group says ‘no’ to your request, how will you respond?” Bill knew he was off base. He could act tough toward Terri, but he couldn’t do that to members of the executive group. He understood the group’s reluctance to change the scope of the project at this late date, so he backed off a bit. “Well, we might be able to cut corners somewhere in order get this feature. What would you suggest, Terri?” Having done her homework, Terri had a ready answer: “I’d recommend dropping the preferred customer feature, which reserves some products for selected customers only. That feature will be costly to implement, and by your team’s own estimate it will have little impact on sales revenue. It’s a ‘nice to have,’ not a ‘must have’ item. We can always add it to the site in Version 2, which is only a year or so down the line. So it’s not that you’re losing that feature, Bill; you’re simply getting it a year later, if you still think you need it then.” Bill reluctantly nodded his approval. With Bill’s agreement in her pocket, Terri next approached the Millennium Software team to obtain an estimate of the time and money the project would save if Bill’s preferred customer feature were dropped in site Version 1. A few days later she had her answer: The project cost would drop by $180,000 and one month would be cut from the new schedule. Netting this out, Terri could see that dropping the preferred customer feature and adding Bill’s product recommendation feature would still put the project behind by $220,000 and one month. She needed to reduce each of those in order to get the executive group’s approval for the change. Her next stop was the IT department, where she met with its manager, Hollings Griffin, to explain the situation. “Hollings,” she asked, “we need to get a better deal from Millennium to make this plan work. Do we have any leverage over Millennium?” “Well,” he replied. “They’ve been trying to get their foot in the door here for two years. The website is the first project we’ve hired them to implement, and I know that they’re hungry for others. If fact, one of their sales reps has been calling me every week, looking for new business.” “So, are you planning to hire them for another job?” Terri asked. “In fact I am. I want them to rebuild our corporate intranet system later in the year. They’re the right vendor for that job.” © American Management Association. All rights reserved. http://www.amanet.org/

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“Does Millennium know of your intentions yet?” “No,” said Hollings. “I just got the funding approved last week and haven’t spoken to their sales rep about it.” “Good,” said Terri. “Perhaps, we can use that assignment as leverage to get them to reduce their price on the website change I have in mind. What do you think?” “Go for it.” Knowing Millennium’s interest in increasing its business with her company, Terri worked with Hollings and the head of Millennium’s website team to reduce the vendor’s estimates for the cost and time of implementing Bill Miles’s change. Given those adjustments and Bill’s willingness to drop other features in Version 1, she had negotiated agreements that put the total price of the new plan only $120,000 over budget and only three weeks behind the original site launch schedule. Would the executive group approve these changes? The only way to know was to ask directly. Terri favored inclusion of Bill’s recommendation feature into the new website because it would make the site a more powerful selling tool for the company. But she did not feel that it was her responsibility as project manager to advocate for it; that was Bill’s responsibility as head of the product group. He was requesting the change and he would have to do the persuading. Terri facilitated this by setting up a meeting with the executive group. She invited the head of the Millennium team to talk about the technical challenges of adding the feature, and she encouraged Bill to bring along whatever cost-benefit analysis his people had done. He would have to present a credible case that the added cost and time required by his change request would pay off in future benefits to the company. Will ProdCo’s executive group approve Bill Miles’s change request, given the time and money it will add to the project’s schedule? We leave the answer to your imagination. Even without revealing the outcome, however, this case has exposed you to many of the elements found in workplace negotiations and its various phases: preparation, gathering facts, understanding the interest of other parties, trading one value for another, making concessions, using persuasion, and so forth. These are all important elements of negotiations, and you’ll learn much more about them in the chapters that follow.

Exercise 1-1 Preparation Bill Miles’s change request created a problem for Terri, the project manager. How did she prepare for her negotiations with him?

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Exercise 1-1 continued from previous page.  Rather than give Bill everything he wanted, Terri suggested that he trade off one thing he wanted for something he wanted even more. Describe that trade.

Bill agreed to drop one of the features he had initially planned for the site. He hated making that concession. What did Terri offer in return that made this “bitter pill” easier to swallow?

Before negotiating with Millennium for a better price and schedule, Terri tried to understand its interest. She would address that interest in getting a better deal. What was that interest?

What did Bill Miles have to do in order to gain the change approval from the executive group?

People use negotiations to resolve differences and conflicts when imposed settlements are either not possible or not desirable. Negotiation is a process with several phases: preparation, preliminary tasks, engagement, resolution, and learning. These phases do not always follow a linear path, however; nor do they describe all the things that negotiators must do. © American Management Association. All rights reserved. http://www.amanet.org/

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Review Questions INSTRUCTIONS: Here is the first set of review questions in this self-study course. Answering the questions following each chapter gives you a chance to check your comprehension of concepts as they are presented, reinforces your understanding, and provides you with information that is fundamental to your further study of chapters to come. As you can see, the answer to each numbered question is printed to the side of the question. Before beginning, conceal the answers in some way, either by folding the page vertically or by placing a sheet of paper over the answers. Then read and answer each question. Compare your answers with those given. For any question you answer incorrectly, make an effort to understand why the answer given is the correct one. You may find it helpful to turn back to the appropriate section of the chapter and review the material about which you were unsure. At any rate, be sure you understand all the review questions before going on to the next chapter.

1. A set of interrelated tasks that aim to produce a defined output is a:

1. (a)

(a) work process. (b) collaborative assignment. (c) contingency plan. (d) command-and-control system.

2. A key phase of the negotiating process is:

2. (a)

(a) learning. (b) conflict avoidance. (c) imposed resolution. (d) optimization.

3. In which of the following situations would negotiation be a potential

3. (c)

means of resolving differences within a group or between individuals? (a) When one party can impose a resolution (b) When neither side has an interest or need to bargain (c) When an imposed settlement is not possible (d) When an imposed settlement is desirable

4. The ability to negotiate effectively becomes more important as a

4. (c)

career skill when a person: (a) gains more power and authority over others. (b) operates in technical environments. (c) moves into a managerial position. (d) controls greater resources.

5. The use of negotiations to settle differences within individual operating units has become more commonplace as organizations have moved from command-and-control management to a management style that gives: (a) supervisors and managers greater authority. (b) subordinates more discretion in how they accomplish objectives. (c) most decision making power to senior executives. (d) unions a greater say in company policy. Do you have questions? Comments? Need clarification? Call Educational Services at 1-800-225-3215 or e-mail at [email protected]. AMACOM Self Study Program http://www.amaselfstudy.org/

5. (b)

2 Two Different Approaches: Win-Lose and Win-Win Learning Objectives By the end of this chapter, you should be able to:

• Explain the difference between win-lose and • •

win-win negotiations. Identify three characteristics of win-lose negotiations. Identify non-price values that may motivate participants to seek win-win resolutions.

There are two pure forms of negotiation: win-lose or win-win. Most negotiations are one or the other—or some mixture of the two. It’s useful to understand the difference between these negotiations because each involves a different attitude and set of tactics.

WIN-LOSE In a win-lose negotiation, the matter at stake involves a fixed value, and each party aims to get as much of it as possible. Anything gained by one party in this type of negotiation is achieved at the expense of the other, which is why a win-lose situation is also known as a “zero sum game.” To better appreciate the win-lose concept, imagine that you’ve just had dinner with three other people. One of them, the hostess, then brings a knife and a freshly baked pie to the table. How will the pie be divided among the four diners? An equitable solution would be to divide the pie into four equal sections, as shown in the left-hand circle in Exhibit 2-1. Clearly, if anyone wasn’t satisfied with his or her share and wanted more than a quarter section, that person would have to take it from the shares available to one or more of the other diners, as we see

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xhibit 2-1 Carving the Pie

in the right-hand circle in the exhibit, where one diner slices a larger portion for himself or herself at the expense of someone else. Because there is only so much pie to go around, one person’s gain becomes another person’s loss— thus the term, win-lose. There’s usually a lot more than pie at stake in win-lose negotiations! Consider the company whose board of directors decides to put $1 million into a bonus pool for employees. The board leaves it up to the CEO and the sixmember executive team to decide how the $1 million will be allocated. Perhaps your company has this type of bonus or profit-sharing arrangement. As you think about this situation, note that the number of dollars in the bonus pool is fixed. This means that any amount given to one employee reduces the amount available to the others. It’s the pie example in different terms, isn’t it? So, if the CEO and the six senior managers decide to allocate $500,000 of the bonus pool to themselves, there is only $500,000 left to distribute to the rest of the employee population. Here are other examples of win-lose situations:

• •

A couple is negotiating a house purchase with a seller. The seller is asking for $400,000. The buyers are offering $350,000. Any concession the seller makes from her asking price will benefit the buyers entirely at her expense—and vice versa. A 300-person company has ten technical-support personnel, each working eight hours per day and no more. The managers of the company’s two main operating divisions are trying to agree on how the time of these technical people should be allocated among the divisions. If manager A succeeds in getting more than half of the available technical-support time, he or she will do so at the expense of manager B.

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Think About It . . . Can you think of a win-lose situation in your workplace? Identify one instance when a negotiation between individuals or departments advantaged one party at the expense of the other. Describe it below.

“Another Vodka, Comrades?” Negotiators and Communist party apparatchiks of the former Soviet Union were practitioners of the win-lose style. Their guiding principle was “What’s ours is ours—what’s yours is negotiable.” As described to the author by one member of a U.S. agricultural mission to Moscow, every discussion began with a great deal of smiling, backslapping, and vodka toasts to the health of the American visitors. The Soviets, as per this informant, seemed immune to the intoxicating effects of Russian vodka, which quickly reduced the cognitive powers of their U.S. counterparts. Once they had the Americans limbered up, they proceeded to pick away parts of the deal that favored the United States while stonewalling every proposal that required a concession from the Soviet side.

Notice that the win-lose examples given so far have one thing in common: the amount of value available to the different parties is fixed. The pie cannot be made larger; the company bonus pool is set at a specified dollar amount, and so forth. When the value of a deal is fixed, as in these examples, negotiations become contentious. And the more eager the parties are to capture the value on the table, the more contentious and hostile the negotiations may become. Win-lose situations generally have one or more of these characteristics:

• • •

Price is all that matters. There is no expectation of a continuing relationship with the other party. One side has greater bargaining power than the other; it can impose its will.

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For example, think about the last time you purchased a new car. Chances are that you knew exactly which model you wanted, your color preferences, and the options that appealed to you. Newspaper ads told you what price the different dealers were asking for that model and, thanks to some online information, you knew what those dealers had paid for that model (dealer invoice price) and the different options. Another online search gave you a good idea what you might expect for a trade-in of your old car. Chances are that every dealer visit you made included some haggling about price. This is typical when the objective of the negotiation is a commodity-like item, such as a particular car model. A commodity item is one whose features are standard—or qualitatively undifferentiated—and readily available from multiple sources. Household extension cords, skim milk, gasoline, and 60-watt light bulbs all qualify as commodity products. So are particular car models; with the exception of superficial differences in colors and options, one 2009 Ford Focus is just like every other 2009 Ford Focus. They are commodity-like manufactured goods. For these items, price is often the only thing that matters. Consequently, if several auto dealers in your area had the car you wanted—say a silver-gray, four-door Honda Civic with an automatic transmission—there wasn’t much besides price to negotiate about. Your business relationship with the car salesperson and the dealer didn’t matter either. The salesperson and his or her boss were clearly trying to get as much as they could for the car, trying to “up-sell” you on expensive options you didn’t want or need, and low-balling the value of your trade-in. So you weren’t planning to do business with these people again. You were after the car at the lowest possible price. Your intention was to come away with the greatest possible value—a win-lose proposition—and the salesperson was playing the same game.

Exercise 2-1 Aiming to Win Return for a moment to the car-buying example given above, the one involving the purchase of a new Honda Civic. Now answer the questions. 1. Which if any of the following are indicators that this is a win-lose negotiation? Explain your answer. a. Price is all that matters. b. There is no expectation of a continuing relationship with the other party. c. One side has much greater bargaining power than the other; it can impose its will.

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Exercise 2-1 continued from previous page. 2. If the buyer were unable to negotiate a satisfactory deal with the car salesperson, what option would be open to him or her?

WIN-WIN Very few negotiations involve a fixed value or a commodity product. There’s generally at least one or more ways that the parties can alter the value of the deal, product, or service at the heart of their negotiations—in effect, enlarging or changing the shape of the pie. In these situations, price becomes only one of several issues. As you get beyond price as the sole value of interest, the following values often take on some importance and motivate participants to attempt a win-win resolution.

•

•

•

The reliability of the other party. If you are negotiating the purchase of a used car from a dealer, for example, price is important. But the dealer’s reputation for reliability will likely matter as well. You know that a reputable dealer will not put “lemons” on its used car lot. And you know that a reliable dealer can be counted on to honor whatever warranties it attaches to its vehicles. That reliability has real value to a buyer. The timing of the transaction under negotiation. The couple negotiating the house purchase (discussed earlier) may find that they and the seller can expand the value of the deal by including the timing of the sale into their negotiation. If the seller gives the buyers more time to sell the house they already own, that’s a value for the buyer. The buyer may reciprocate in some way—for example, by agreeing to pay a bit more, or by telling the seller: “We have a utility van you can use if you’d like to move some of your fragile household items before your moving crew arrives.” Each of those reciprocal offers has value for the seller. The importance of one’s relationship with the other party. Business schools teach future managers to be “optimizers”—that is, to get the very most out of everything. Once newly minted managers get into the real world, however, they generally discover that it’s just as important to develop solid relationships—with subordinates, outside suppliers, union leaders, government regulators, and so forth—even if doing so means they must “suboptimize” a particular transaction. Always getting the biggest piece of the pie may, in the long run, turn others against the optimizing manager, making him or her someone that no one wants to deal with or collaborate with on projects. © American Management Association. All rights reserved. http://www.amanet.org/

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Here’s an example of how non-price issues enter into negotiations. Until fairly recently, U.S. original equipment manufacturers (OEMs)—General Motors and Ford being examples—tried to optimize every deal with their hundreds of suppliers. Because of their greater bargaining power (there being few OEMs relative to a greater number of competing suppliers), these manufacturers squeezed their suppliers for price concessions, usually by playing one firm against another. Fearful of losing business to a rival, suppliers cut prices to the bare bone. The result was a classic win-lose situation in which the stronger OEMs gained at their suppliers’ expense. In the short-run, this approach to contract negotiations worked. But in the long run it created financially weak supply companies that could not afford investments in quality control or innovation. Relationships toward OEMs were hostile and non-collaborative. Beginning in the 1980s, the OEM-supplier relationship began to change. The quality movement awakened manufacturers to the fact that financially strong suppliers were more important than cut-rate prices. They realized that healthy suppliers were an important key to their own quality and product innovation goals. Gradually, forward-thinking OEMs stopped hammering suppliers and began treating them as partners. Win-lose thinking gave way on many fronts to win-win thinking. As the sense of partnership developed, engineers from the supply companies began working directly with OEM engineers to design lower-cost, more reliable components. The OEMs, in turn, sent their own quality control experts to suppliers’ shops to help them adopt statistical quality control and other methods for raising productivity and product reliability. In recent years, OEMs and suppliers have worked out other mutually beneficial arrangements. Just-in-time (JIT) inventory control is one example. In this arrangement, a supplier delivers parts or materials to the manufacturer’s production facility—often right to the assembly line—only as needed and when needed, assuring efficient operations and reducing inventory costs for both companies. PC-maker Dell and its supply chain provide a leading example of JIT in action.

Think About It . . . Does your company take a win-win or win-lose approach with its suppliers, employees, or trade unions? Briefly describe your company’s approach and its effects on the parties.

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Win-win negotiations aren’t necessarily about giving up value. In some cases it costs little or nothing to advantage the other party, even as you do well for yourself. This is achieved by understanding the interests of the other party, and by creating value through trades—that is, by giving up something that is of little value to you, but which the other party values highly. Consider this example: Helen and Adam are both avid book collectors. Helen is especially interested in the novels of Jane Austen and has a nearly-complete set of Austen novels, all printed in the nineteenth century. To complete the set, she must find and purchase a vintage printing of Pride and Prejudice. Like Helen, Adam has been trying to complete a collection—in his case, the complete works of Ernest Hemingway. Helen and Adam met by chance at an antiquarian book fair. As they discussed their collecting interests, the two make a discovery. Adam has a copy of Pride and Prejudice printed in 1885. This book was of no great value to him, since he wasn’t collecting Austen novels. And, as luck would have it, Helen had a first printing of Hemingway’s Death in the Afternoon, a title that Adam had been seeking for his collection. After some negotiating, the two collectors agreed to an even trade. Helen would get Adam’s Pride and Prejudice, thus completing her collection and making it much more valuable, while Adam would get Helen’s Death in the Afternoon, building his Hemingway collection. Helen and Adam’s story shows how each person can obtain something he or she values highly while giving up something of little consequence to him- or herself. Their creative deal enlarged the value pie! Can you think of analogous situations in your workplace? It all begins with understanding interests: yours and those of the other party. We’ll have more on understanding interests and creating value through trades in Chapter 4 of this course.

Exercise 2-2 Pursuing the Win-Win Can you think of win-win examples from your work experience? Perhaps you’ve asked your boss for a raise. “I don’t have the money in my budget for a raise,” she replied, “but I can offer you something that may be more valuable to your career in the long run. I could, for instance, assign you to the team that will be developing and administering our customer satisfaction survey. I think you’d learn a lot from that experience and make some important connections within the company.” In that hypothetical example you would have gained something of value at no cost to your boss—win-win negotiation. Now, think about your work experiences and, if you can, describe two win-win negotiations that you’ve either observed or experienced directly:

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Exercise 2-2 continued from previous page. 1.

2.

LOSE-LOSE SITUATIONS Although most negotiations can be described as win-lose or win-win, some result in losses for all parties. This happens when one or both parties are irrationally intent on hurting the other side—a frequent occurrence in bitter divorce cases and terminations of business partnership agreements. It also happens when one side is successful in forcing unreasonable demands onto the other party, as when union demands for higher wages, benefits, and inflexible work rules make a company unprofitable and uncompetitive. In the end, both go down. Another example of a lose-lose game is a compromise—or set of compromises—that inadvertently diminishes the total value of the deal. Instances of this were often found, until recently, in the product development processes of U.S. automakers. Chrysler, Ford, and General Motors each had creative, experienced new-model design teams. These teams produced a number of stunning new-model concepts over the years, but they were compelled to compromise their designs to satisfy other interests. The financial people insisted that they save money by forcing forward-thinking designs to be built on existing platforms and suspensions. Marketing people further compromised these sound designs: they thought they were “too different” from what current customers were buying; marketing wanted products that were more like current models. Purchasing managers also had a great deal to say about the materials used in new car designs. Their interests were in pricing and sourcing from suppliers. Satisfying these different interests within the U.S. auto companies resulted in compromises that very often resulted in unremarkable new car models that failed to excite the driving public. In trying to please different interest groups, these companies did not please the interest group that mattered most: customers. We’ve always been taught that compromise is a good thing. However, compromises can potentially leave both sides with far less than they needed in the first place. AMACOM Self Study Program http://www.amaselfstudy.org/

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Tips for Salvaging a Lose-Lose Situation By definition, no one benefits from a lose-lose deal. It is, in fact, a deal gone bad. So, if you see that you’re slipping into one, start looking for a way out. Here are three tips for doing so: • Ask for a time-out. Most lose-lose deals are the result of anger or irrationality on the part of one or all parties. Divorce attorneys can tell you all about these situations. Someone is more interested in hurting the other side than in anything else. A time-out gives people an opportunity to calm down and think more logically. • Try to neutralize whatever is fueling the other side’s anger or irrationality. Resist the temptation to counterattack. Instead, try to “play nice.” Listen sympathetically to all the complaints. Ask probing questions to get all the venom out on the table. Demonstrate an interest in the other side’s well-being. • Develop a convincing argument for why the other side’s position will hurt him or her. Assuming that anger or negative emotions are no longer fueling the other side’s irrational position, use the time-out to craft a logical argument for why his or her position is self-destructive. For example, in a labor negotiation, you might lay out a clear calculation of how higher wages will reduce profitability and the company’s ability to provide future benefits and job security.

A win-lose negotiation typically involves a fixed value, with each party trying to capture as much of it as possible. This is sometimes called a zero sum game because anything gained by one party is achieved at the expense of the other. Win-lose situations generally involve situations in which price is the main issue, where the parties don’t expect to have a continuing relationship, or when one side can impose its will on the other thanks to greater bargaining power. Win-win negotiations produce mutually satisfying outcomes. They are usually achieved when the parties work together to find ways to enlarge the value of the deal. They are especially important when one or both parties see a good relationship with the other side as an important value. One way to produce a win-win outcome is by finding a way to give the other side something he or she values but which has little value to you—and vice versa. You can only know what the other side values, however, if you understand his or her interests. A lose-lose negotiation is a negotiation gone bad. All parties in these negotiations lose.

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Review Questions

1. A negotiator may deliberately suboptimize her dealing with

1. (b)

another party if she: (a) cannot impose a win-lose solution. (b) values a long-term relationship with that party. (c) aims to win at any cost. (d) is playing a zero sum game.

2. Forcing unreasonable demands on another party may result,

2. (d)

over the long run, in: (a) an unreliable negotiating partner. (b) a permanent win-lose situation. (c) a stalemate. (d) a lose-lose outcome.

3. Which is a characteristic associated with win-win negotiations?

3. (d)

(a) The negotiation is driven by emotions and fears. (b) No more than two parties can be involved. (c) Any gain by one party is made at the expense of the other(s). (d) The value of the deal, product, or service at the heart of the negotiation can be expanded.

4. Which of the following is an example of a commodity item?

4. (b)

(a) A handmade sweater (b) A quart of milk (c) A specially designed piece of software (d) An architect-designed home

5. Which of the following is a characteristic generally associated with win-lose negotiations? (a) There is no expectation of a continuing relationship with the other party. (b) Each party looks forward to a collaborative relationship. (c) Price is not the key motivating factor. (d) Neither side is capable of imposing a resolution.

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5. (a)

3 Basic Tools

Learning Objectives By the end of this chapter, you should be able to:

• Explain the importance of having alternatives • • •

as you enter a negotiation. Describe how alternatives can be strengthened. Define the term reserve point and indicate its purpose during a negotiation. Explain what is meant by the area of agreement in a negotiation.

This chapter introduces three important concepts every negotiator should understand:

1. Alternatives—the options available if you cannot negotiate an acceptable deal

2. Reserve point—the point at which a deal fails to meet your requirements and you should walk away 3. Area of potential agreement—an area in which give-and-take is possible These are concepts that can be applied universally. Whether you’re negotiating the purchase of an automobile, an office computer system, or a salary increase from your boss, these concepts and their effective application will serve you well.

ALTERNATIVES The first important concept you must understand is the alternative. You already know this to mean an available choice or option. An entrepreneur, for example, © American Management Association. All rights reserved. http://www.amanet.org/

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may have many alternatives for financing his or her venture: cash obtained from a venture capital firm, local “business angels,” commercial banks, a government Small Business Administration loan—he or she might even draw on his or her credit card line of credit. A manager trying to develop a cost effective process for shipping customer orders is likewise bound to have alternatives: re-engineer the current internal shipping department, outsource shipping to Federal Express or UPS, etc. Every experienced deal-maker tries to go into a negotiation with one or more feasible and attractive alternatives in his or her back pocket. To appreciate why, consider the following example: Phil has been out of work for three months and his financial resources are running low. Fortunately, he recently identified a job with Alpha Corporation for which he is qualified, and secured an interview with the hiring manager. That interview went very well and a few days later, Phil was asked to come back for a second interview. Again, everything went smoothly. Although several other people were interviewed, the manager has offered Phil the job. Phil is glad to have the offer. With his financial resources nearing rock bottom, the prospect of a regular paycheck is welcome— and the sooner the better. But he’s not happy with the offer: The pay is far less than Phil feels is appropriate; and the schedule the company expects him to work will cause problems at home. He has spoken to the hiring manager about these issues, but the manager won’t budge on either pay or hours. So Phil asks himself, “Should I continue negotiating, holding out for a higher salary and more favorable hours?” He concludes that he should not. Phil recognizes that he is not in a good position to negotiate pay or hours since he has no other job offers waiting in the wings, and he has lots of bills to pay. He also knows that Alpha Corporation has other qualified job candidates available if he will not accept its offer as it stands. In this example, one of the parties—Phil—has no alterative to the deal as it stands other than to remain unemployed, which is a poor alternative given his financial distress. Alpha Corporation, on the other hand, has alternatives: other qualified job candidates. If Phil won’t accept its terms, the company can offer the job to someone else; it might even leave the position vacant for the time being. Consequently, Phil is in a weak negotiating position relative to the other side. He has entered a negotiation with no alternative to the deal on the table. He’ll be in an even weaker position if the negotiator at Alpha Corporation knows that he is desperate for a paycheck and has no alternative to the deal offered him. Phil’s situation suggests an important lesson: Whenever possible, enter negotiations with one or more alternatives in hand. Alternatives make it possible for a negotiator to say, “If this negotiation doesn’t get me what I need, I can do something else.”

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Exercise 3-1 Your Alternatives Recall a negotiation you’ve had sometime in the past year—buying a home or car, negotiating the purchase of suppliers for your company, bargaining over the terms of your salary or employment with the human resources department, or dealing with people from another department. Write down a brief description of that situation. Situation _____________________________________________________________________ ____________________________________________________________________________ Now, what alternatives, if any, did you bring to that situation? Again, write them down. My alternative(s)_______________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ Finally, describe how having alternatives—or not having any—affected your negotiations. Effect _______________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

The value of available alternatives will help you decide how hard to bargain, when to accept a deal, or when to walk away. To appreciate this idea, let’s change Phil’s situation just a bit. Let’s give him an alternative to the employment situation he faced earlier in the chapter: Phil had had a very good week on the job-hunting front. He was still unemployed, but he now had two offers: one from Alpha for $60,000 per year working the noon-to-nine shift, and another from Beta Company for $63,000 working a regular nine-to-five shift. Despite Beta’s better offer, Phil favored Alpha as an employer. He liked the people he had met better, and his prospects for career growth with Alpha appeared stronger over the long haul. “If only I could get Alpha to increase the salary,” he told himself, “and put me on the nine-to-five shift.”

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In this scenario, Phil has something he lacked earlier: an alternative to Alpha’s initial job offer. With the $63,000 offer from Beta Company in hand, he can bargain with Alpha for a better deal with much greater confidence— knowing that if Alpha won’t budge, he can always take the job with Beta for more money and better hours. In effect, alternatives give the negotiator a credible walk-away opportunity. Roger Fisher and William Ury, authors of Getting to Yes, formalized this common sense notion, which they called best alternative to a negotiated agreement, or BATNA. Every negotiator should have a BATNA. Lacking a BATNA, a person has little bargaining power and is likely to be a deal-taker, not a dealmaker.

Complications In theory at least, a negotiator shouldn’t accept any deal that is less valuable than his or her most valuable alternative. This is easy advice to follow when the stakes are defined and measurable—for example, when one is negotiating the purchase of a standard item, such as an automobile, and the only difference between two alternatives is the price, as in this example: After doing their research, Laura and her team of warehouse personnel decided to purchase a new forklift. She found the machine she wanted at a local heavy equipment dealer, where, after some negotiation, the salesperson offered the forklift for $12,000 delivered. “Is that the best you can do?” she asked. “That’s it,” he replied. Laura thanked him and said, “I’ll think about it and let you know.” She then went online and found an identical forklift at $11,500 (delivered) offered by another dealer sixty miles away. With this information in hand, she called the original salesperson back and said that she had found a better price. “Are you willing to come down from $12,000?” she asked. Once he understood that Laura had an alternative, the salesman was willing to bargain. In the end, he lowered the price to $11,000. In this example, the two forklifts, their warranties, and so forth were identical. The only difference was the price, making it easy for Laura to put a value on each alternative. She could bargain aggressively with the dealer’s salesperson, knowing that a better alternative was available. She could easily follow our advice of not accepting a deal that is less valuable than her most valuable alternative because she could measure the value of each offer. In reality, few negotiations involve alternatives that are as easily valued as Laura’s forklift purchase alternative. Most negotiations involve bundled issues that are less easily compared. Phil’s situation is typical. While his two different salary offers were easy to measure and compare, how could Phil measure the value of working the nine-to-five shift at Beta versus the noonto-nine shift at Alpha? He also liked the Alpha people more, and thought his long-term career prospects were rosier at their company. How could those aspects of Alpha’s deal be valued? This isn’t the place to wrestle with those questions. For now, just be aware that placing a value on different alternatives usually involves some subjective judgment. AMACOM Self Study Program http://www.amaselfstudy.org/

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Negotiating Tip Doing nothing may be a practical alterative. For instance, the author once wrote a case study on a family-owned business that had property near the ocean. The family had run a small amusement park on that property for over thirty years. Over the years that business had provided the family with a decent standard of living and enough cash to send both sons to private colleges. In 2006, a condominium developer approached the family and offered $5.5 million for the land. The owners wondered, “Should we accept that offer?” Five and one-half million dollars was a lot of money. “Maybe we should develop the property ourselves,” said one of the sons. “Maybe we should hedge our bets by selling half of the land to a developer and developing the other half ourselves,” said the other son. As they talked it over, the parents and their grown children realized that they had many alternatives to the developer’s offer. The most obvious one—at least for starters—was to do nothing, that is, continue using the property as an amusement park. The cash flow generated from the amusement park was a measurable value, which could be compared directly to the cash flow generated by investing the $5.5 million from the land sale.

Think About It . . . Reflect back on important choices you have made over the past year—e.g., buying a car, financing your education, considering a job move or promotion. Describe one situation in which “doing nothing”—that is, maintaining the status quo—was a feasible alternative choice.

Now describe the merits of “doing nothing” in that situation relative to your best other alternative.

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Strengthen Your Alternatives The alternatives you have as you approach a negotiation should not be viewed as fixed. In some cases you can strengthen those alternatives, thus improving your negotiating position, as in this example. The CEO of a suburban commercial bank was approached by one of the city’s leading financial institutions. “We have a client who is buying banks like yours and operating them through a holding company. He is willing to offer $93 million if your board is interested in selling.” “That’s a tempting offer,” the CEO replied. “I’ll speak with my board and get back to you.” In the meeting that followed, board members debated the pros and cons of selling versus remaining an independent bank (i.e., doing nothing). “Our immediate alternative,” said the board chair, “is to continue operating the business, which is profitable and is forecasted to become more so over the next five years as our community grows.” “That’s true,” the CEO responded, “and we know the value of that alternative—it’s the present value of the bank’s future cash flows.” All agreed, however, that if they negotiated the bank’s sale with the prospective buyer, their negotiating position would be stronger if they had strong alternatives. So while the CEO stalled the potential buyer, the bank hired an investment banker to solicit bids from other potential buyers. “If the investor thinks that our institution is worth $93 million,” said the CEO, “there are probably others who think that it’s worth that much or more.” Within a month, the bank had two other interested buyers, one who was willing to pay $110 million. The CEO was pleased. He was now in a stronger negotiating position with the first potential buyer. The board’s action had improved his BATNA by $17 million. During the weeks that followed, the initial suitor and the two new ones got into a bidding war that resulted in an offer of $160 million, which the CEO and the bank’s directors accepted. In that example, the CEO demonstrated one way of strengthening his alternative to the existing deal. Forming a coalition is another. You may be able to strengthen your alternative indirectly by forming a coalition. This is the basis for labor union bargaining strength. Unions know that the bargaining power of an individual worker relative to a big corporation is negligible. The individual’s alternative is to withhold his or her labor—that is, go out on strike. But the company doesn’t care if one person walks out. That alternative gains strength, however, as many individual workers band together as a united bloc. If they all walk out together, the business may not be able to operate. You’ll learn more about using coalitions to strengthen your position in Chapter 8, where we describe how a weak party can deal successfully with a stronger one.

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Exercise 3-2 Coalitions Describe one situation in which you’ve observed co-workers using a coalition or some other form of joint action to strengthen their position.

Now, briefly describe the consequences of their forming a coalition. Did it give them a stronger bargaining position?

RESERVE PRICE If you have ever sold an item on eBay, the online auction site, you’ve encountered the term reserve price, which is the lowest price you will accept for your item. If the auction’s highest bid does not reach or exceed your reserve price, then the auction closes without a sale. Naturally, you don’t disclose your reserve price to bidders, lest they all place their bids a dollar or two above it. A reserve price is the minimally acceptable price. If you are a seller, it’s the price below which you will walk away from a deal. “If I can’t get $200 or more for this lamp, I’ll keep it.” Here, $200 is the reserve price. Buyers should also have a reserve price in mind as they enter a negotiation. For example, if you are shopping for a house, you should have a dollar amount above which you will not pay. “I’ll go up to $400,000, but no higher.” Any price over $400,000 for this buyer is a walk-away point. Every negotiator should determine his or her reserve price, and mentally keep that price tucked away before entering into a negotiation. Consider this example: Nikos and Alex were planning to sell their restaurant, Nikolex, and retire. To get an idea of what the business was worth, they hired a business appraiser, who looked at the revenues and earnings of Nikolex, and how much people had paid for comparable restaurants in the area. “I think that you should be able to get between $800,000 and $900,000 for this restaurant in the current market,” he told them. Using the appraiser range as a guide, the two owners agreed to © American Management Association. All rights reserved. http://www.amanet.org/

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put Nikolex up for sale, but privately agreed that they would not entertain offers of less than $750,000. “If we can’t get that much,” Nikos told his partner, “we should take Nikolex off the market and continue operating it for a few more years.” By determining their reserve price in advance of negotiations, the two restaurant owners knew in their minds the point at which they’d be willing to accept an offer.

Make Your Reserve Price Realistic Like the two restaurateurs in the example, you should establish a reserve price before you negotiate. But don’t just pull a number out of thin air. Instead, make an effort to get as realistic a price as you can, otherwise the other side will not take you seriously. Here are some tips for doing that:

•

• •

If you plan to buy or sell a house, an office condominium, or some other type of commercial real estate, hire a property appraiser—either residential or commercial as the case may be. These people are trained to estimate the market value of properties, usually by comparing them to equivalent properties whose sales prices have been recently recorded. (www.Truila.com and www.Zillow.com are online search engines; they can identify recently sold residential properties in your area and tell you how much the buyer paid.) If you are buying or selling a small business, as in the case of Nikos and Alex, enlist a business valuation expert. Their appraisal techniques are highly technical, involving property values, the value of inventories, present and future cash flows, current debts and receivables, and so forth. How large a salary should you insist on in negotiating with a new employer? For a survey-based figure for different types of jobs in your geographic area, try www.salary.com/

There are even online value estimators for used farm and industrial equipment. And for unusual items, such as particular collectibles, watch a few eBay auctions of those items and note the size of the winning bids. This can give you a sense of what willing buyers and sellers have agreed on.

The Reserve “Point” So far we’ve only talked about reserve “price.” Price is the commanding issue in many negotiations
but not in all. Other deals may give equal or higher consideration to non-monetary issues:

•

•

A corporation has targeted a smaller company for a strategic acquisition. It will pay a reasonable price for the target company, but only if that company retains all responsibility for its pension obligations to current and retired employees. For this acquirer, those pension liabilities are a reserve point. It will walk away rather than take responsibility for them as part of the buyout. Clarisa has been negotiating with the division general manager, who wants her to take on a larger role. She is agreeable to his plan, and all the issues AMACOM Self Study Program http://www.amaselfstudy.org/

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about salary, bonus, and reporting responsibilities are acceptable to her. She will not, however, take on the new position if it requires her to move to Washington, D.C. For Clarisa, that move is her reserve point.

Think About It . . . Think about a recent negotiation you were involved in. If price was an important issue—as in the purchase of an automobile or renting an office or apartment—did you have a clear reserve price in mind? How much was that price, and did the other party fail to meet it? Describe this situation below, along with your reserve price and the final outcome. Situation _____________________________________________________________________ Your reserve price (or point)______________________________________________________ Outcome_____________________________________________________________________ ____________________________________________________________________________

AREA OF AGREEMENT Now that you understand reserve price and reserve point, you’re ready for the next negotiating concept: area of agreement. This is the price range within which a deal will satisfy both parties. To understand this concept, let’s return to the case of Nikos and Alex, the restaurant owners who are considering the sale of their business. As we learned previously, their reserve price is $750,000. Yes, they’d like more, but they’d settle for that amount. Any offer less than $750,000 would make them walk away. Now let’s suppose that a business broker brings in Juana, a potential buyer of the property. Juana is favorably impressed by the restaurant’s location and annual revenue, and figures that if she paid any amount up to $800,000 she could earn a good return on her investment. So, $800,000 is Juana’s reserve price. In her current frame of mind, she will not pay more. If you think about this scenario for a minute, you’ll see that there is an area of agreement between the sellers and the potential buyer: an area between $750,000 and $800,000. The sellers will not entertain an offer less than $750,000 and the potential buyer will not make an offer more than $800,000. Thus, any final price settlement within that area will satisfy both parties. Exhibit 3−1 provides a graphic representation of this area of agreement. Unless someone changes his or her mind, no agreement can be reached below $750,000 or above $800,000: one of the parties would walk away.

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xhibit 3-1 Area of Agreement

Area of Agreement

$750K Seller’s Reserve Price

$800K Buyer’s Reserve Price

As they negotiate the restaurant sale, we’d expect Juana to initially offer less than her $800,000 reserve price, and the two owners to ask for more than their $750,000 bottom line. But in the end, the parties are likely to settle somewhere in the area of agreement since a price within that range will satisfy both. Unfortunately, an area of agreement is not always available. For example, what if Nikos and Alex had a reserve price of $750,000 and their potential buyer would pay no more than $650,000? In that case there would be no area of agreement within which to bargain. This is not to say that an agreement would be absolutely impossible. Nikos and Alex might say, “Okay. We’ll sell it to you for $650,000, but without the furnishings and kitchen equipment.” If Juana had no plans to use the building as a restaurant, that offer might actually be agreeable to her. In the previous section on reserve price, we noted that you should not reveal your reserve price to the other side. So, you might ask, “How can I know the area of agreement if I cannot know the other side’s reserve price?” The truth is that you cannot in most cases—unless the other side reveals it to you. The area of agreement is simply a concept for helping you think about the larger picture. However, a little research may tell you something about the other side’s reserve price. Consider this example: Harriet was conducting an interview with a job candidate who said, “I couldn’t consider this position—given my experience and the living costs in this area—for less than $80,000.” Harriet took that figure to be the applicant’s opening bargaining point—not his bottom line. For her part, she didn’t want to pay more than $70,000. So before her next contact with this individual, she asked herself, “What are other companies paying for equivalent jobs?” To answer that question, she did some online research, checking job postings for the equivalent position at several other employers in the area to see what they were offering. She then adjusted those figures for this job applicant’s level of experience and unique qualifications. “If he expects to work in his field anywhere in this area,” she told herself, “he’s not likely to be offered more than $60,000 by other companies.” She then AMACOM Self Study Program http://www.amaselfstudy.org/

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used that figure as her estimate for the applicant’s reserve price. “If I’m right about this,” she told herself, “he can’t get much more than $60,000. And since I’d be willing to pay $70,000, there’s room for bargaining.” In this example, the hiring manager used publicly available information to get a sense of the other side’s reserve price.

Exercise 3-3 Graphing the Area of Agreement Imagine that you are the purchasing manager for your company, and that you are negotiating with a supplier for 1,000 units of electronic components. These will be used in a line of computer-controlled furnaces produced by your company. Prior to initial negotiations, you and your boss determine that you cannot pay more than $15 per unit, though the supplier is asking for $18 per unit. “If that’s as low as they’ll go,” you tell yourself, “there’s no zone of agreement within which to bargain.” You suspect that $18 is simply what the supplier would ideally like to get, and that he will lower his price to avoid losing your business. But how low can the supplier price his components and still come out of the deal with a profit? To get an estimate of that price, you talk to other people in the industry and conduct some other research. You conclude that $12 per unit would cover the supplier’s manufacturing costs and also provide a reasonable profit. You judge this to be a fair proxy for the supplier’s reserve price. Using your own reserve price of $15 and the supplier’s reserve of $12, create a graphic similar to the one shown in Exhibit 3−1 in the space below. Then, label the area of agreement.

Now, based on the graph, what initial price per unit would you offer to pay this supplier? _______ Explain why you would offer that price and not something higher or lower.

Alternatives, reserve price (point), and area of agreement are useful tools that you can take into the preparation phase of the negotiating process. Once you understand them, you’ll be better prepared to negotiate. You’ll learn more about the applications of these concepts in the chapters that follow.

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This chapter introduced three useful tools that you can use in any type of negotiation. The first is alternatives—the options available if you cannot forge an acceptable deal with the other party. Whenever possible, avoid entering a negotiation without one or more alternatives at your disposal. If you know the best alternative to an agreement in the current negotiation, you’ll know how hard to bargain, when to accept a deal, or when to walk away. In theory, a negotiator shouldn’t accept any deal that is less valuable than his or her most valuable alternative. One tactic that a negotiator can adopt is to strengthen his or her best alternative. Reserve price, another basic concept, is the lowest price a seller will accept in a negotiated deal. It is the point at which the negotiator has decided that it makes more sense to walk away than to accept a deal. For a buyer, the reserve price is the price above which it makes no sense to pay. The term reserve point refers to the same concept when the value in question does not have specific monetary value. In setting a reserve price (or point), it’s important to be realistic, otherwise you will not be taken seriously by the other side. The third basic concept introduced in this chapter is the area of agreement, the price range within which a deal will satisfy both parties. This area exists only when a seller’s reserve price is lower than the buyer’s reserve price—for example, when a seller tells himself, “I won’t take less than $50 for this item,” and a buyer tell herself, “I won’t pay more than $60.” In that example, a deal struck between $50 and $60 would satisfy both parties.

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NEGOTIATIONS IN THE CONTEMPORARY WORKPLACE

Review Questions

1. Evelyn tells herself that she will not accept a promotion and transfer

1. (c)

if the salary offer is less than $80,000. In this case, $80,000 is her: (a) best alternative to a negotiated agreement. (b) agreement limit. (c) reserve price. (d) upper limit.

2. Prior to their negotiations, Sandra’s reserve price for the sale of her

2. (b)

used data server is $7,000. A potential buyer tells himself that he will pay no more than $8,000 for Sandra’s server. The area of agreement in this case is: (a) $7,000. (b) between $7,000 and $8,000. (c) $8,000. (d) $15,000.

3. Which of the following is a means of strengthening one’s BATNA?

3. (c)

(a) Threatening to walk out (b) Raising one’s reserve price (c) Forming a coalition (d) Offering a concession

4. If possible, one should enter a negotiation with:

4. (d)

(a) a team of advisors. (b) a sole objective. (c) organizational authority. (d) one or more alternatives in hand.

5. As described in this chapter, a negotiator should not accept a deal that: (a) is less valuable than his or her most valuable alternative. (b) is equal to his or her reserve price. (c) involves three or more alternatives. (d) would result in a win-lose outcome.

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4 Preparation

Learning Objectives By the end of this chapter, you should be able to:

• Explain • • •

the importance of understanding one’s own interests and those of other negotiators. Explain the concept of value-creating trades. Describe why it is important to gather relevant facts as part of preparation. List several aspects of the opposing negotiator’s personal style or authority that are important to know.

This chapter describes the first step of the negotiating process: preparation. Negotiators must understand the various parties involved, their interests, their best alternatives to a deal, the area of agreement, and other factors. The more they understand about the other side, the better off they will be when actual negotiations begin. As the saying goes, “Fortune favors the prepared mind.” Preparation also involves self-understanding: What is my interest? What is my best alternative if this deal fails to meet my objectives? At what point am I prepared to walk away? Finally, preparation involves strengthening one’s own negotiating position. The stronger your position going into a deal, the greater the chance that you’ll reach a satisfactory conclusion. We’ll cover these many facets of preparation in the following sections, then end the chapter with a checklist you can adapt to your own preparation routine.

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IDENTIFY INTERESTS Many disputes or differences can be avoided or resolved by simply understanding one’s own interests and those of the other party. As used here, the term interests refers to the motivations or goals underlying each party’s negotiation position. For example, the interests of a company bargaining with its labor union would likely be a reliable and effective labor supply priced at a level that will allow it to compete effectively with rival companies. The labor union’s key interests are likely to be job security, wages that keep pace with inflation, and generous health and retirement benefits for its members. Once you understand the other side’s interests—and they understand yours—you both will be in a better position to reach an agreement. This is because interests are more powerful than the positions people take when they begin negotiating. Consider this example: Two managers for Acme Company, Ray and Carla, were sitting at a small conference table, arguing about how their respective departments would share the only vacant workspace remaining in the company’s suite of offices. Their mutual boss, Nathan, was sitting in. Ray advocated strongly that his department take over 75 percent of the floor space, since his department has 15 people while Carla’s department has 10. “Yes, you have more people,” Carla responded, “but our work routines require more square footage per employee, so we should be given 50-75 percent of the available space.” The two argued back and forth about whose department should given how much space, with Ray sticking to his position and Carla defending hers. Nathan, their boss, followed this discussion like a spectator at a tennis match, shifting his attention left and right as each manager argued his or her position. Finally, he intervened. “Ray,” Nathan began, “I understand your argument about having more staff, but what is your interest in using this particular space?” “It’s simple,” Ray replied. “Every day between 9 and noon, my people have to package all the product samples requested by the field sales reps and get them to the express mail shop for next-day delivery. They start the same process again at 9 the next morning.” “So, your interest is in having enough space to get that job done efficiently every morning from 9 until noon, right?” “Exactly,” said Ray. Nathan then questioned Carla about which of her interests would be served by occupying the new space. As it turned out, Carla’s people likewise needed extra space for only part of the day. “But in our case,” she said, “any time of the day would do.” Once the two managers understood each other’s interests, they saw a solution: Ray’s people would use the vacant space during the morning hours, then turn it over to Carla’s staff for the rest of the day. Both managers left the meeting satisfied with the outcome. AMACOM Self Study Program http://www.amaselfstudy.org/

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The two managers in this example had been arguing over their negotiating positions (“I should have 75 percent of the floor space”) without ever considering the interests of either party. Taking a position and trying to impose it is a very elementary form of negotiation. Here’s an example: “I’ll give you $3,500 for that used car just as it is.” Unfortunately, this encourages the other side to dig in further into its position. “No, $5,000 is the price—and I will throw in a brand new spare tire.” Pushing and pulling on the basis of competing positions is much less likely to create a win-win solution that leaves both parties satisfied and willing to continue their business relationship than a negotiation that addresses important interests. Perhaps, a win-win solution and a good future relationship is of no importance to the two parties in the used car example, but for Nathan and Carla—and for anyone who must negotiate with colleagues, suppliers, and customers—mutual satisfaction with the deal and good future relations truly matter. Focusing on interests instead of bargaining positions is one way to assure both. Negotiating Tip To understand the other side’s interests, dig beneath the surface of its stated position. Try to determine what would truly satisfy them. You might even ask directly, “What do you hope to accomplish through this negotiation?”

Exercise 4-1 What Interests Were at Stake? In negotiations, people will readily state what they “want.” A “want” is their position. There is almost always some unstated interest underlying that want or position. For instance, if your boss wants a report on her desk by 4:00 PM tomorrow, her unstated interest may be in making a good decision that will make her boss think more highly of her. The report contains data that will facilitate that good decision; it is merely a means to an end. Here’s a little exercise that will help you make the transition from wants to interests. Think back to a time when you had to reach an agreement with other employees or an employee group on some project. Describe briefly what those people wanted and what you wanted. They wanted _________________________________________________________________. You wanted __________________________________________________________________. Now, work back from these stated “wants” to the underlying interests—theirs and yours. What was beneath the surface of these wants? Their interest _________________________________________________________________ Your interest _________________________________________________________________

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LOOK FOR VALUE-CREATING TRADES Understanding the interests of contending parties opens the door to another fruitful preparatory activity: seeking opportunities for value-creating trades, a topic we first introduced back in Chapter 2 in our discussion of win-win negotiations. These trades are the foundation of win-win negotiations: deals in which everyone gains. A value-creating trade is one in which Party A gives something of little value to itself to Party B, for whom that something has important value. Party B, in turn, gives Party A something that it values very little, but which A values greatly. Consider this example of a value-creating trade: Bob’s Auto Repair owns six auto maintenance and repair shops in the Miami metropolitan area. As a strategic move, it is converting four of those facilities to deal exclusively with hybrid (gasoline/electric) vehicles, and it hopes to open another at a new location. That move will require the acquisition of many new, specialized tools and diagnostic equipment. As a result, Bob will have to liquidate many traditional tools and diagnosis machines, all of which are in good condition. Fortunately, Bob has found a possible buyer for that surplus equipment: Carlos, the operator of several traditional auto repair shops. As Bob and Carlos talk about their issues, Carlos mentions that he plans to close one of his current repair shops. “It’s in the South Miami area,” he says, “and I’ve had trouble staffing it with competent mechanics.” “South Miami?” Bob responds with interest. “I’ve been looking in that area as a possible location for one of my new hybrid auto repair shops.” Bob and Carlos quickly recognized important opportunities for value-creating trades. Bob has equipment that is no longer useful to him, because of his move to hybrids; Carlos, on the other hand, could use that equipment if it’s in good working order. In addition, Carlos has a repair facility he’d like to unload; and it’s in a geographic area that Bob is exploring for future expansion. In this example, both business owners own assets that the other party values more highly than they do, creating opportunities for value-creating trades. Situations like this one, where “one person’s junk is another person’s treasure,” are not unusual in the business world and in other human activities. They are the basis for negotiated cross-sales of equipment and property, as well as for joint ventures and strategic alliances between companies. Value-creating trades are the currency of win-win negotiations.

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“But It’s Only a Nail!” British sailors who explored the Pacific islands during the late eighteenth and early nineteenth centuries always packed a generous supply of nails, knives, and other ordinary metal objects in their sea chests. Common sailors who accompanied Cook, Bligh, and other captains to Tahiti, the Hawaiian Islands, and other remote destinations learned that the natives, who had no metal objects of their own, prized this material above all else; they would eagerly exchange great quantities of fresh fish, pigs, turtles, fruits, vegetables, a boat—even tattooing services—for a nail or two. Were these sailors taking advantage of poor, simple people? Some may think so. More likely, each side recognized an opportunity for valuecreating trade. To the sailors, metal nails had little value, but to the islanders nails were useful in making fish hooks, implements, and weapons. As for the fruit, fish, and pigs, the islanders had these aplenty; but to British sailors who had been eating bug-infested biscuits and salted pork for six long months at sea, the islanders’ very ordinary food was highly desirable, if not life-saving.

Exercise 4-2 Value-creating Trades Drawing on your life and work experience, identify one situation analogous to the one described earlier for Bob and Carlos—a situation in which each party had something it valued very little, but which the other party valued greatly. 1. Briefly describe the facts of the situation.

2. What items or assets of value were involved in this situation?

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Exercise 4-2 continued from previous page. 3. What type of trade was negotiated between the parties?

4. How did the trade benefit the parties?

Synergy and the Value of Trades Businesspeople use the term synergy (from the Greek synergos, working together) to describe the beneficial effect of bringing together the assets and competencies of two or more separate companies or operating units. When combined, the value of the whole is worth more than the sum of the separate parts. Synergy is often the motivation for mergers, acquisitions, and joint ventures in the corporate world. For example, a U.S manufacturer with no Far East sales or distribution capability will acquire a Chinese firm in the same industry, reasoning that the combined company will have everything it needs to tap into emerging Chinese markets: firstclass products and people who know how to sell and distribute them in China. Thousands of the mergers, acquisitions, and joint ventures you read about in the business press each year are based on perceived synergy and our value-of-trades concept.

GATHER RELEVANT FACTS In many cases, a negotiator can turn the tide in his or her favor if he or she can do a better job substantiating his or her argument or position with irrefutable facts. If all the other side can offer are generalizations and conjectures, the person in command of relevant facts will likely carry the day. While fact-gathering is important all through the negotiating process, you should

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begin this activity during the preparation phase, when you have more time and are under less pressure. Consider this example: Lawrence was asked by his company to locate street-level office space in a neighboring town and to negotiate a one-year lease for the property. He began by walking around the commercial center of the town to get a sense of where best to locate. He then turned to the classified commercial real estate ads, both in the newspaper and online, to determine what was available and under what terms. As he closed in on his ideal location, Lawrence began talking with real estate agents, who provided him with data on currently available office space, typical lease conditions, and rental rates on a squarefootage basis. Lawrence’s background work led him to conclude that the kind of space he was looking for could be rented for between $1.50 and $2.00 per square foot per month, not including utilities. His preparation also identified four unrented offices that appeared to satisfy his location and cost requirements. In this example, Lawrence prepared himself with the facts he’d need to accomplish his goal: to lease space in an ideal location, under acceptable terms, and at the right price. And he did all this before becoming embroiled in negotiations with a property owner. Once he got into actual negotiations, he would be armed with facts. He would know what a fair and reasonable offer would look like. For example, if the property owner told him “Sorry, $3 per square foot is the lowest I can go. That’s the going rate for street-level space in that part of town,” Lawrence could confront the owner with the facts he has gathered: “I don’t think so. Here are the listing sheets for four office spaces in the same area with equal amenities. As we can both see, the rental rates are all between $1.50 and $2.25 per square foot.” Few things are as effective in quashing an unreasonable position or demand as solid and relevant facts. Negotiating Tip Gather relevant facts during the preparation phase. But don’t stop there; instead, continue gathering relevant facts and continue learning. Once you begin negotiating, new information will appear. If that information comes from the other side, check its basis in fact. If the facts you encounter during negotiations contradict the assumptions and plans you developed during the preparation phase, make all of the appropriate adjustments to your game plan.

DETERMINE ALTERNATIVES AND RESERVE PRICE The concepts of the best alternative to a negotiated agreement (BATNA) and reserve price were explained in the previous chapter. We revisit them here © American Management Association. All rights reserved. http://www.amanet.org/

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because determining them is an essential part of preparation. You want a clear idea of both before you enter actual negotiations. Let’s return to the case of Lawrence on this score. As he investigated the rental office space market in the neighboring town, Lawrence identified four alternative office locations. Naturally, he would try to negotiate a lease for the best of these four—based on some combination of price and location. And as he negotiated, he would know which of the remaining three was his best alternative if that negotiation failed to produce the result he wanted. “The ideal spot for our new office is at 13 Chestnut Street,” Lawrence thought to himself. “Of the four spaces I’ve found, it has the best potential for walk-in traffic. The listed rent of $1,600 per month is more than I want to pay. I could press the owner on that price—perhaps down to $1,450. If he stonewalls me, I can always rent space at 241 River Street. The location is not as strong, but the owner is asking only $1,250.” In this example, Lawrence has also established his reserve—or walk away—price at $1,450. He is prepared to negotiate.

Think Outside the Box As you consider deal alternatives, try to think outside the usual circle of possibilities. In Lawrence’s case, the alternatives he identified are very traditional—that is, “inside the box.” He might have considered less traditional alternatives: sharing office space with another company or, even further out of the box, using a website in lieu of a physical office location. Dunkin’ Donuts, the coffee and baked goods company, thought outside the box as it sought alternative locations for its expanding business. Dunkin’ Donuts serves nearly 3 million customers each day from more than 7,000 locations around the world. Its original business model was based on sales from individual stores. More recently, it has adopted an alternative model: for example, operating out of convenience stores (a store within a store) and sharing single store locations with its Baskin-Robbins sister company. As a final note, don’t forget that doing nothing may be an alternative to negotiating a deal.

What About the Other Party? Preparation also includes learning about the other party involved in the upcoming negotiation. As you develop your alternatives and determine your reserve price, try to do the same for the other side. These can sometimes be determined or estimated through some research on your part. For example, our friend Lawrence might learn from talking with local real estate agents that his preferred location at 13 Chestnut Street has been vacant and on the market for the past six months, and that the owner still has no one interested in the property—meaning that the owner may have no immediate alternatives to Lawrence’s offer. With no other prospective renters in sight, the owner may have a reserve price that is much lower than the currently listed $1,600 monthly rent.

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Negotiating Tip Try to learn the other side’s reserve price and BATNA without revealing your own. As part of your preparation, try to estimate the other side’s reserve price. Knowing that price will tell you how much you’ll have to pay to make a deal. Knowing your BATNA, your best alternative to a negotiated agreement, is another important part of preparation. But go a step further: as you gather relevant facts, make every effort to understand the BATNA of the party with whom you are negotiating. The circumstances will determine how you might go about this. Understanding the other side’s BATNA will tell you how far you can push to get what you want.

Exercise 4-3 Detective Work Describe a negotiation you are now in, or expect to be in the near future. It may involve the purchase of an expensive item for yourself or for your company, such as a vehicle or a piece of office equipment; or it may involve a dispute that needs to be settled: e.g., a quarrel over work assignments. Whatever the case, describe it below, and then answer the questions. 1. Describe the negotiating situation:

2. What issues are at stake (a) for you and (b) for the other side? (a) _______________________________________________________________________ (b) _______________________________________________________________________

3. What is the other side’s best alternative if he or she (or they) cannot negotiate an acceptable agreement with you?

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LEARN ABOUT THE OTHER NEGOTIATOR(S) Another aspect of pre-negotiation preparation is learning about the people you will be dealing with and the organizations they represent. Negotiation is, after all, a human endeavor, not a chess game involving inanimate pieces. Whether they work for your organization or represent outside entities, the more you can learn about other parties before the negotiation, the better. Here are a few useful things to know about the negotiating style and interpersonal practices of the people with whom you will deal:

• • •

Is the person a conflict avoider, or an in-your-face, aggressive type who thrives on conflict? Is he or she straightforward and fair-minded, or someone who is willing to manipulate or take advantage of others’ fair-mindedness in order to achieve his or her goals? Does this person have a reputation for seeking win-win solutions, or does he or she play to win over all?

If the other person is part of your organization, you may already know something about his or her approach in dealing with others, and the nature of your negotiation may be based on whether this person will be contentious or collaborative. But if you’ve had no previous contact with this fellow-employee, or if the person is outside your organization, how can you know what to expect? Here are a few approaches to obtaining this information:

• •

Exploit your network for information. If your negotiating partner is in another department or another division, use your informal network within the company to quietly gather information. Ask, “What’s it like working with this person?” Ask salespeople or customers. If the person works for another firm, and if it seems appropriate, one of your salespeople or customers might have some insights into this person’s interpersonal style.

Equally important, you should find out where this person stands in the line of authority. Is he or she a middle-level staff person, a senior executive, or a department manager? You have two reasons for obtaining this information:

1. The person’s position is important. You should be dealing with someone of equal or greater rank than yourself. Anything less would show disrespect for you. Can you imagine how you’d feel if you were a high-level manager and the other side sent a low-level clerical employee to negotiate with you? You wouldn’t take this person seriously. 2. The person you’ll be negotiating with should have the authority to make a deal. You don’t want to work out a deal with a low-level employee who will then say, “Oh, I’ll have to run this by my boss.” You should be negotiating directly with his or her boss, the decision maker and you should suggest that “your boss should call me if he (or she) wants to discuss this.”

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Think About It . . . Have you ever bought an automobile from a dealer? If you have, the salesperson probably pulled the tactic just described: claiming that he or she had to get the manager’s approval for the purchase price you both had negotiated. If you’ve had this experience, or something like it, describe it briefly below. Were you surprised? Did you feel taken advantage of?

“I’ll have to talk to my manager” is an old ploy in which you and the car salesperson wrestle over the details and eventually reach a resolution on the new car’s price, the trade-in value of your old vehicle, the cost of various add-on options, and so forth. You’ve probably compromised on many of these issues in order to reach an agreement. But just when you think that you’re at the end of the long road and you have a deal—surprise! Now, someone else wants to negotiate further—that is, he or she wants you to make another concession. There are antidotes for this ploy: Don’t play their game, or if you cannot avoid it, hold back on some concessions in your negotiation with the salesperson, knowing that there is more bargaining ahead.

This chapter has explained the importance of pre-negotiation preparation and the things you can do to prepare yourself. To help you implement these preparatory activities, you can use the Preparation Checklist offered on the next pages (Exhibit 41). Either adapt it to your needs or use it as we present it here. The starting point for preparation is identifying the interests of the people involved, including your own. Negotiations that successfully address the interests of both parties are more likely to create a win-win solution than those that merely argue over positions. So, as you prepare, ask yourself, “Which of my interests are involved in this situation?” and “What are their interests?” Also, look for opportunities to make value-creating trades, exchanges in which you can give up something of little or modest value to you but of great value to someone else. These trades are the currency of win-win negotiations. Effective negotiators use some of their preparation time to gather relevant facts. For example, if they plan to negotiate a lease with a property owner, they will hunt down the facts about lease rates. Facts are a useful tool in bringing an unrealistic negotiating partner back to reality. © American Management Association. All rights reserved. http://www.amanet.org/

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Developing alternatives to the deal—in case it cannot be satisfactorily negotiated—and determining one’s reserve price (both concepts explained in Chapter 3), are other facets of preparation. Finally, the chapter explained the importance of learning as much as possible about the individuals with whom one plans to negotiate. Are they aggressive, hell-bent on defeating their opponents, or are they inclined to seek a win-win outcome in which all parties are satisfied? One should also determine if the person who will be on the other side of the table has the authority to make a deal.

xhibit 4-1 A Preparation Checklist Issue(s) being negotiated:

Key interests at stake Ours

Theirs

Value-creating trade opportunities What do we have to offer that is of little value What do they have to offer that is of little value to us but of great value to them? to them but of great value to us?

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Exhibit 4-1 continued from previous page. Best alternative to a negotiated agreement Ours

Theirs

Reserve price (walk-away point) Ours

Theirs

Who are the people we will negotiate with?

Do they have decision-making authority? What is their negotiating style/experience?

Yes

No

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Review Questions

1. Negotiators who seek win-win outcomes should look for opportunities

1. (c)

for __________________________ as they prepare to negotiate. (a) stalling (b) sharing resources (c) value-creating trades (d) cornering their opponents

2. If you could pick one of the following individuals to negotiate with,

2. (b)

who would be preferable? (a) A person with a neutral attitude toward negotiating (b) A person with the authority to make a deal (c) A person who understands his or her own reserve price (d) A person with a strong BATNA

3. As described in this chapter, one of the things you should do as part

3. (a)

of pre-negotiation preparation is: (a) gather relevant facts. (b) obtain the other side’s permission to represent your side. (c) concentrate on the other side’s position. (d) determine which concession you’ll make first.

4. Preparation for negotiations should always involve an effort to

4. (d)

understand the ________________ of all parties. (a) attitudes (b) checklists (c) hierarchy (d) interests

5. Negotiations based on interests usually produce more satisfactory outcomes than negotiations based on: (a) organizational authority. (b) reserve price. (c) alternatives. (d) positions.

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5. (d)

5 Pay Attention to the Preliminaries Learning Objectives By the end of this chapter, you should be able to:

• Explain how to bring a reluctant party into • • • •

negotiations. Create a physical setting appropriate to the negotiation. Negotiate practical issues dictated by cultural differences. Describe techniques to learn more about the other side as you begin negotiating. Strategize where to begin in your negotiations.

The previous chapter explained what you must do to prepare for a negotiation. Even when those tasks are done, a number of things must be addressed to get things off to a good start. In some cases, you must get the other party to the negotiation table. What if that party isn’t interested in negotiating something that’s important to you? This chapter will also discuss the often overlooked importance of creating the right setting. Attention must also be given to cultural differences and the high value that people from many parts of the world give to relationships. Finally, you’ll learn how to probe for useful information as you get to know the other side, and where your negotiations should begin.

GET THE OTHER SIDE TO THE TABLE Remember the expression, “It takes two to tango?” Well, it applies equally to negotiations. You can’t accomplish anything sitting at a conference table talking to yourself. So, what can you do when you need to make a deal but the other party isn’t interested and won’t talk to you? How can you get that person or group to the table? © American Management Association. All rights reserved. http://www.amanet.org/

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Disinterest in negotiating is commonplace in all areas of disagreement. Consider the field of international diplomacy. For almost thirty years, the United States refused to speak or negotiate with Iran on any of the issues that divided the two nations: Iran’s purported support for terrorism, its nuclear development program, regional tensions, petroleum supplies, and so forth. Ever since radical students invaded the U.S. embassy and held its 63 diplomats and three U.S. citizens hostage during the Iranian revolution (1979), there have been no official channels of communication between Teheran and Washington. The U.S.-Iranian stalemate was the result of historic conflicts and ideological differences. Other similar stand-offs are often a function of disinterest or resistance on the part of one or both parties. Example 1: An employee tries to get her boss interested in a new venture, but he brushes her off: “That’s interesting, Sheila, but I can’t deal with it right now. I’m tied up with a presentation I have to make to management next month.” In this case, what is important to Sheila is not important to her boss. Example 2: A team of engineers has created a working prototype of an improved aerial reconnaissance drone, but they need funding and more engineering resources to take their prototype to the next stage of development. Unfortunately, the three executives who control research and development funds are ignoring the engineers. “They’d never admit it,” one insider tells the engineers, “but those executives are afraid that your success will cannibalize sales of our existing aerial drone.” Here, self-interest on the part of the executives is preventing discussion of the funding issue. How can you get people to talk in these kinds of situations? Read on.

Think About It . . . Situations in which one party will not negotiate—or even listen—are common in the workplace. Can you think of one that has involved you or your work group? Describe it below. Then try to explain why this happened. Why did the other party hold back? The situation:

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Think About it continued from previous page. Why wouldn’t the other party negotiate or discuss the problem?

Interests In most cases, people will only negotiate an agreement if they recognize that doing so is in their best interest—that is, they must see negotiating as the surest way of getting what they want. This makes perfect sense. Why would anyone go through the hassle of negotiating if they could attain their ends more easily and cheaply by other means? Thus, one way of getting the other side to the table is by convincing its people that negotiations are in their best interest. Consider our engineers in Example 2: They must convince the executives who control the R&D purse strings that their best interests will be served by the successful development of an improved aerial drone. They might argue as follows: “Yes, the new, improved drone will cut into the sales of our existing product—at least initially. But the higher price we can charge for a more capable drone will quickly make up for those lost sales and recoup our development cost. Besides, if we fail to upgrade this product line, our competitors will move ahead of us, putting all of our sales at risk!” On this same note, consider that in 2007 the United States ended its three decades of refusing to talk with the Iranians when it finally recognized that doing so was clearly in its interests. The United States at that time was in a quagmire in Iraq, unable to create a stable, democratic country, and unable to withdraw without producing grave consequences. It was stuck and needed the help of Iraq’s neighbors—Syria, Jordan, and Iran—to get out of the mess. So, U.S. diplomats began talking with their counterparts from Iran because doing so was in the interest of the United States.

Sweeteners Convincing people that negotiating is in their best interests isn’t always easy. Sometimes you may have to “sweeten” the deal with incentives. Nations often do this by offering to open their borders to commercial trade as an inducement to negotiations. Sheila, who has been getting the brush-off from her boss in Example 1 might sweeten her deal as follows: “I can see that you’re too busy to talk with me. That presentation to management is important. But how about this? I’m very good at cre© American Management Association. All rights reserved. http://www.amanet.org/

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ating PowerPoint slides. If I spent two hours helping you with your presentation to management, could you give me half an hour to discuss the new venture I have in mind?” Given this “sweetener,” the boss may find it in his interest to meet with Sheila. Negotiating Tip Rational people will always do what’s in their best interests. But people are not always rational. They may refuse to negotiate out of pride, hurt feelings, or prejudice. Consider family members who have not spoken to each other for years because of something that one of them said or did years earlier. In cases like these, it sometimes helps to enlist a respected third party to intercede and convince them that “burying the hatchet” is in their best interests. Former U.S. President Jimmy Carter played this third-party role in September 1978 when he brought together Egyptian President Anwar al Sadat and Israeli Prime Minister Menachem Begin to discuss peace. The resulting Camp David Accords ended a long period during which neither side would speak to the other and set the stage for future peace talks. The U.S. “sweetened” the Accords with a pledge of financial and military assistance to both participants.

Alternatives Again Remember our discussion of BATNA back in Chapter 3? BATNA is an acronym for best alternative to a negotiated agreement. Rational people will always pursue what they see as their best alternative. So, if someone will not negotiate with you, it may be because he or she has a better alternative than dealing with you. If this is the case, what can you do? Here are two suggestions:

1. Take away the other party’s best alternative. Example: An agent representing Rivertown Properties, Inc. has been trying to lease a suite of offices to you at its 100 Main Street building. You have ignored her because, as you tell your colleagues, “If we need more space, we’ll negotiate a lease in the new First Street Center.” In your view, the First Street Center is a better alternative: more amenities, better location, and equal leasing costs. That alternative vanishes when you read this in the local newspaper: “Rivertown Properties has announced its purchase of the recently constructed First Street Center. A company spokesperson told reporters that it has tenants lined up for all spaces in the Center.”

2. Improve your offer to the point where it represents the other side’s best alternative. This is a variation on the “sweetener” approach. Example: The agent from Rivertown Properties has been unable to draw you into discussions about leasing at 100 Main Street. But AMACOM Self Study Program http://www.amaselfstudy.org/

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you’ve just found this message on your answering machine: “Hello, Mr. Jones. This is Jennifer from Rivertown Properties calling. I am happy to announce that we are now offering two incentives for new leaseholders at our 100 Main Street building: zero rent for the first three months of a three-year lease, and an option to extend the lease for four years at the same monthly rent. Can we meet to discuss this offer?” In this example, the agent has improved her offer, perhaps to the point of making it the best alternative for your company.

Exercise 5-1 Sweetening the Deal Let’s imagine that you are a salesperson for a car leasing company who is trying to get a mediumsized organization to switch to your company when its three-year lease on its vehicles runs out in two months. This organization currently leases a car for its CEO and for its twelve regional salespeople. You’ve been trying to get the financial manager of this organization to lease those vehicles from you over the next three years. And you can furnish any make and model. The financial manager’s current best alternative is the lease company it now uses, which only leases Ford products. Assuming that you can’t undercut the competitor’s annual leasing fee for 13 vehicles, what are some things you could do to become the prospective customer’s best alternative? (There is no single right answer)

(Depending on the situation, you might sweeten the deal by offering 14 vehicles for the same annual leasing fee. Free “loaner” cars while these vehicles are in the shop for repairs might be another “sweetener”.)

Let the Situation “Ripen” It’s not uncommon for one party to feel no compelling reason to negotiate. It may feel that it will get its way without negotiating or, as we’ve seen above, it has better alternatives to negotiating. This view may change over time. Some people say that the situation has to “ripen” before one or both parties will see the benefit of negotiating. The U.S.-Iranian situation described earlier provides an example. As long as the U.S. felt that things were going its way, it felt no reason to talk to a regime that President George W. Bush had included among the “Axis of Evil.” Iran had been effectively isolated and, in the U.S. © American Management Association. All rights reserved. http://www.amanet.org/

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view, blocked from spreading its influence and anti-Western propaganda beyond its borders. The situation “ripened,” however, as the U.S. got bogged down in Iraq and needed Iran’s help (or active neutrality) in stabilizing the Middle East. Situations of armed conflict between nations sometimes “ripen” as each nation takes stock of its terrible losses and its failure to overcome the other side. When they do, they let the other side know that they’d like to talk. World War I ended this way, as did the Korean Conflict and the Vietnam Conflict. You might use this ripening technique the next time you buy a car or make some other major purchase. This can be effective when you’re feeling no compulsion to make a purchase. “I like the car,” you say to the salesperson, “but not the price. If you’ll come down $2,500 from the sticker price, we can probably make a deal.” The salesperson isn’t interested in negotiating, thinking that someone willing to pay full price will come by soon. So you give him your card and say, “Here’s my phone number, let me know if you change your mind about the price.” If that car sits on the lot with no takers for a few weeks, you’re likely to get a phone call.

CREATE AN APPROPRIATE SETTING Once the other side agrees to meet with you to discuss your differences or to negotiate some type of deal, give some thought to the setting in which the meeting will take place. Failing to consider the setting could result in a situation like this: Eric was very pleased that Martha Browning, division general manager of Newcastle Products, had agreed to meet and negotiate a dispute their two companies were having with Newcastle’s purchase of component parts. Newcastle had accepted delivery three months ago but has still not paid for them, citing a handful of quality issues. Eric was so pleased that he didn’t think about the time and place of their meeting. When Martha sent an email asking about when and where they could meet, all he could think to reply was, “Whatever time or place is convenient for you, Ms. Browning.” “In that case,” she emailed back, “come to my office in the headquarters building on Tuesday at 2:00 PM.” Eric eagerly showed up at the at Martha’s office five minutes before the appointed time. “She’s at a lunch meeting,” said the secretary, “and running a little late. Can I get you some coffee or tea while you wait?” And wait he did, for over an hour. Finally, Martha raced through the reception area and into her office with a train of subordinates in tow. The office door slammed shut. And it stayed shut for another 45 minutes, at which time the subordinates filed out and Martha Browning motioned Eric into her inner sanctum. “So sorry about the delay,” she told him. “It’s been a hectic day. So, Eric, where would you like to begin?” AMACOM Self Study Program http://www.amaselfstudy.org/

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“Well,” Eric said, “we need to resolve the problem we’re having collecting payments for the parts we’ve supplied to your division over the past . . .” at which point Martha’s secretary barged into the room. “Sorry to interrupt, Ms. Browning, but that call you were expecting from the CEO is on line three.” “I have to take this,” Martha told Eric apologetically. Twenty minutes later, he was still cooling his heels as Martha continued her phone call. During that time he had a chance to assess his position. He was in a subservient position relative to Martha— subject to her control of time and place. Even the physical set-up made her appear dominant. The chair he sat in was small and low when compared to her massive desk and higher chair, both of which seemed, like Martha, to tower above him. These circumstances made him regret that he hadn’t given more thought to the physical setting for their negotiations. The story of Eric and Martha is fictional, but many of us have experienced Eric’s plight. By failing to give any attention to the physical setting of his meeting, he surrendered control to Martha, who ended up in a dominant position, controlling both the setting and the pace of their discussion. Also, the setting resulted in needless interruptions. To avoid this outcome, do the following:

•

• • •

•

Choose an agreeable location, one that is insulated from interruptions. That might be a conference room; it might be an off-site location that is neutral territory for both parties. If you’re looking for a win-lose outcome, bring the other side onto your turf, where you will have the “hometown” advantage. Ask people to turn off their cell phones, but provide periodic breaks during which they can check their messages and/or communicate with their remote colleagues. If teams are involved, provide each team with a private space where its members can retreat to discuss things among themselves. Create a comfortable ambiance, with good lighting, coffee and tea, or other light refreshments. If people need to communicate with their organizations during the proceedings, make sure that they have Wi-Fi connections for email, a fax machine, and telephones located where they can communicate in private. Pay attention to the shape of the table. Facing tables, or seating delegates of the contending parties on opposite sides of a single table, is conducive to more formal and confrontational negotiations. Here, the table (or the space between facing tables) acts as a symbolic barrier between the negotiating parties. If you aim for collaboration and win-win, think about using a round table (Exhibit 5-1). People sitting at a round table are inclined to feel less separate and more part of a team.

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xhibit 5-1 Furniture Arrangements Can Make a Difference

Using separate facing tables or arranging negotiators on opposite sides of a single table is conducive to more formal and confrontational negotiations.

Seating contending negotiators around a round table can make them feel more like part of a team.

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Exercise 5-2 Your Settings Recall one situation in which you had to address some important issue with your boss or some other person with greater organizational power than yourself. When you met, was it at a time and place of his or her choosing? If it was, briefly describe the setting. Did that setting give the other person a psychological advantage in any way? If it did, please describe.

Now, recall a meeting during which the parties aimed to collaborate. Describe this setting. Did anyone have an advantage from the setting?

PAY ATTENTION TO CULTURAL DIFFERENCES This section addresses some things you should consider when negotiating with people from non-U.S. or non-Western cultures. Ten or more years ago, a course like this one, which is aimed primarily at English-speakers in the Western hemisphere, would not have included this material, but times have changed. Because of the growing globalization of business, more companies are involved in cross-cultural relationships. They have started or acquired offshore operations or find themselves dealing with foreign customers, suppliers, and distributors. To be effective in sales and negotiations with these foreign contacts, it is useful to understand how culture creates differences in their communications and personal relationships. The subject of culture is broad and deep, involving cuisine, religion, values and beliefs, interpersonal relationships, common courtesies, and behaviors. That’s more than we can discuss in this book. However, even a little awareness of cultural differences can help make business relationships, including negotiations, go more smoothly. For example, a U.S. executive heading to Tokyo © American Management Association. All rights reserved. http://www.amanet.org/

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to arrange a distribution agreement for his company’s products in Japan must understand what constitutes appropriate behavior in a business setting there. Likewise, a manager in the New York office of a multinational bank should understand how differences between U.S. culture and the culture of the bank’s Asian employees might impede communication, understanding, and their working relationships.

Low- and High-Context Cultures One way to look at culture difference is in terms of high and low context—a concept given to us by anthropologist Edward T. Hall (Hall, 1976). In his view, low-context cultures depend on very direct, explicit communications. For example, in Switzerland, Germany, Scandinavia, and North America, people get to the point quickly and state very clearly what they want without a lot of preliminary ceremony. For example, when a salesperson and a potential customer meet, they get right down to business. They exchange business cards and pocket them with barely a glance. After some perfunctory small talk, the salesperson asks some questions, then makes his or her pitch and asks for the order. Both the salesperson and the customer want to conclude their business as quickly as possible. Both are very conscious of time and don’t want to waste any of it. In high-context cultures, which include Japan, Korea, China, Arab countries, and Latin America, things are very different. Getting acquainted, developing mutual trust, and relationship-building are mandatory first steps to doing business in these cultures. For instance, if a Japanese client presents you with his or her business card, he or she will do so in a formal manner, with both hands. You are expected to receive it with both hands, as though it was a valued gift, read it carefully, and indicate your happiness at receiving it. The “courtship” continues. Your prospective customer will want to hear a great deal about your company, about your personal background, and so forth. A luncheon or dinner may be necessary to develop rapport between you. These preliminaries take substantial time, but time is less important to people in high-context countries, according to Hall.

Personal Space Another characteristic of some high-context cultures, notably Arab and Latin American, is that people operate with a difference sense of personal space than do North Americans and Northern Europeans. It’s part of their culturebased body language. They stand very close, so close that the typical American will feel uncomfortable and back away, which may give offense to the other person. Exhibit 5-2 summarizes key characteristics of low- and high-context cultures, based on Hall’s concepts.

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xhibit 5-2 Characteristics of Low- and High-Context Cultures

Low-Context Northern Europe, North America

High-Context Japan, Arab Countries, Mediterranean Europe, Latin America

Less formality

Very formal

Direct, explicit communication

Indirect, implicit communication

Get right down to business

Build a relationship and trust before getting down to business

Need larger personal space

Comfortable with little personal space (Arab cultures, Latin America)

Exercise 5-3 Greetings, Honorable Visitors! It’s 9:30 AM. Imagine that a group of Japanese businesspeople has arrived at your building to discuss possible distribution of your company’s products in their country and in the Asia-Pacific region. You’ve been asked to negotiate with them. Here are two brief scenarios of how you might act. Pick the one that seems most likely to set the stage for a productive negotiation. Then explain why you made that choice. 1. I would introduce myself to each of the Japanese visitors, and then take them to our conference room. Once they were comfortable, I would ask their leader, “How successful do you think you can be in distributing our products in your geographic region?” Once that person has had a chance to respond, I’d ask our Vice President of Marketing to join us and talk about possible distribution arrangements—shipping, insurance, returns, pricing, and so forth. With lunch time approaching, I’d have food brought in so that we could eat and continue talking business at the same time. 2. I would introduce myself to each of the Japanese visitors, and then take them for a tour of our plant and offices. I’d be sure to introduce them to a number of our employees along the way, explaining what they do. With lunch time approaching, I’d ask someone to reserve us a large table at a fine restaurant, with our CEO and Vice President of Marketing joining us there. During lunch, I’d engage each visitor with small talk about his or her family and other interests. Which scenario is most appropriate? _______________________________________________ Why? _______________________________________________________________________ ____________________________________________________________________________ In responding to these questions, remember that people from Asia, Latin America, the Middle East, and Mediterranean Europe are more formal than North Americans and are more appreciative of formalities that introduce one individual and his or her company to the other.

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Keep the concepts of high- and low-context culture in mind as you communicate and negotiate with people in the multicultural workplace. If you travel abroad on business, adopt the context of your hosts. If you’re a North American doing business in Germany or Scandinavia, for instance, your communication can be very direct, just as it is at home. But if your travels take you to Asia or Latin America, be prepared for the formalities and rituals that must precede direct communications.

LISTEN AND LEARN If you have time to prepare for negotiations, you should gather relevant data about the issues in question, as described in the previous chapter. Gathering data and information, however, should not be limited to the preparation phase. Every phase of negotiation provides opportunities to learn more about the other side. The more you can learn, the better your chance of coming away with a satisfactory agreement. In handling the preliminaries of your negotiation, you will probably have many opportunities to speak casually with one or more of the relevant parties—about where you will meet, who will attend, what issues should be on the agenda, and so forth. Casual conversations around these matters are perfect opportunities to learn things you don’t already know about the other side: its interests, strengths, and weaknesses; its negotiating style and strategy, its BATNA and walk-away point, which individual will represent it, and so forth. You can obtain some of that important information if you ask questions and then listen carefully to the answers. As you ask questions, minimize the use of closed-ended questions—that is, questions that can be answered with a simple “yes” or “no” answer. These are the least likely to produce useful information. Instead, emphasize open-ended and clarifying questions.

Open-Ended Questions Open-ended questions are questions that invite a more complex response than a simple “yes” or “no.” They usually begin with “what,” “when,” or “how.” Another way to get specifics is to ask, “Can you give me an example?” Here are some examples of open-ended questions: Q: Why are you so concerned with that issue? Q: What would the perfect resolution to this problem look like from your point of view? Q: So, you think that I’m jumping to conclusions? What did I say that made you think that? Q: How would it affect the proposed price if I were to ask you to do the repairs before we transfer ownership of the property? Notice that these questions leave no room for a “yes” or “no,” or even a single word response. The other person has to open up, revealing a bit of his or her thinking—giving you an opportunity to learn more. AMACOM Self Study Program http://www.amaselfstudy.org/

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Clarifying Questions Another way to get the other person to share information from which you can learn is to ask clarifying questions. A clarifying question focuses on a specific point that seems unclear to you, or about which you’d like more details. For example, if your offer has been rejected, it would useful to know why; this will help you reformulate your offer or present it in a way that is more acceptable. You might, for example, ask a clarifying question such as this: “I’m having a little trouble understanding your objection to our offer. What, specifically, is the problem?”

Exercise 5-4 Clarifying Questions You have placed a sales ad in the paper offering your 2000 Ford Explorer for $4,500. The first person to respond looks the car over. As he does so you ask a closed-ended question: “Is this the type of car you had in mind?” “Yes and no,” the person replies. Puzzled, you decide to ask a clarifying question. What would you ask if you were trying to learn more details about the kind of vehicle and offer that would appeal to this person? Write your question here:

Now, let’s assume that the prospective buyer indicated that he was concerned about the price. This time, formulate a clarifying question that would elicit more information about this person’s price concerns. Write it down here:

Open-ended and clarifying questions can unlock the door to important information about the other side. Just be sure to listen carefully to what is said. Good listeners allow the other side to do most of the talking. They do not interrupt except to ask clarifying questions and to acknowledge what they’ve heard (e.g., “So, if I understand you correctly, you main concerns are . . .”). © American Management Association. All rights reserved. http://www.amanet.org/

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DETERMINE WHERE BEST TO BEGIN The success of complex negotiations involving many factors may depend on where you begin. If you are scratching your head over that statement, consider the fact that there are three schools of thought among negotiators as to where parties should begin in attacking whatever problem brings them together:

1. Begin with the easy issues. 2. Agree first on general principle. 3. Begin with the most difficult issues. Option 1: Begin with the Easy Issues The first school of thought is associated with Henry Kissinger, U.S. Secretary of State during the Nixon administration of the 1970s. In approaching difficult and complex problems, Kissinger generally favored a strategy of beginning with the small, least contentious issues. His logic behind this approach was that it gave the participants opportunities to build trust and to observe the progress that often comes from working together. Success in settling initial areas of disagreement, in his view, would give them confidence in their ability to settle more complex problems. There is much to recommend in this strategy. The potential problem, however, is that you could spend months and months working out solutions to small, unimportant matters, only to be stopped dead in your tracks once you get to the serious issues. In that case, all your time and earlier efforts will have been wasted.

Option 2: Agree First on General Principles A second school of thought encourages negotiators to seek agreement over general principles. Once agreement on these is reached, sorting out the details should be fairly easy—at least in theory. Many negotiations between nation states begin in this way. In the Israeli-Palestinian conflict, for example, the Israelis have always insisted that the principle of Israel’s right to exist must be recognized by the other side before dialogue on other matters can go forward. The Palestinians have always wanted the Israelis to agree, in principle, that Palestinians forced out of their homeland by earlier wars should enjoy the “right of return.” During the Bosnian War of the 1990s, U.S. diplomat Richard Holbrooke followed a similar approach, but with much greater success. He maneuvered the Serbs, Croats, and Albanians into fruitful negotiations by focusing first on general principles. Once those were settled, the parties went on to negotiate solutions to many individual issues. The resulting “Dayton Peace Agreement” ended the war.

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What Do General Principles Look Like? The general principles (framework) of the Dayton Peace Agreement is summarized as follows:

• • • •

Bosnia and Herzegovina, Croatia, and the Federal Republic of Yugoslavia (FRY) agree to fully respect the sovereign equality of one another and to settle disputes by peaceful means. The FRY and Bosnia and Herzegovina recognize each other, and agree to discuss further aspects of their mutual recognition. The parties agree to fully respect and promote fulfillment of the commitments made in the various Annexes, and they obligate themselves to respect human rights and the rights of refugees and displaced persons. The parties agree to cooperate fully with all entities, including those authorized by the United Nations Security Council, in implementing the peace settlement and investigating and prosecuting war crimes and other violations of international humanitarian law.

Source: University of Minnesota, Human Rights Library, http://www1.umn.edu/humanrts/icty/dayton/daytonsum.html

The benefit of seeking agreement on principles is that negotiators will be less likely to allow disagreement over minor details to get in the way of a settlement. In theory at least, opposing sides that agree on principles are committed to a successful negotiation. This, unfortunately, doesn’t always work. As some people say, “The devil is in the details,” and those details are sometimes deal breakers. For example, U.S. auto producers and their unions in the 1970s and 1980s seldom had knock-down fights over principles. Both wanted the auto companies to be financially strong and highly competitive. However, conflict began just as soon as labor contract negotiators stepped down from the lofty temple of principles and began discussing healthcare and retirement benefits, job security, and outsourcing.

Option 3: Begin with the Most Difficult Issues This third school of thought believes that the surest way to resolve many areas of disagreement is to get rid of the biggest and toughest problem first. To adherents of this approach, the big, tough problem is like the food waste that gets stuck in your kitchen drain, causing it to back up. Knock out that blockage, they reason, and everything else will flow smoothly and quickly down the drain. This prioritization strategy has much intuitive appeal. Negotiators know that if they fail to get an agreement, they will not have wasted time on the other, smaller components of the conflict. On the other hand, people who adopt this approach do not gain the benefits of the “easy things first” strategy, such as learning how to work successfully with the other side, and building trust.

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Which of these three choices is the best approach to negotiation? The answer is that it depends both on the situation and the people involved. And remember, the right choice in one negotiation may be the wrong one in another. Negotiating Tip Where to begin? As a general rule of thumb, we offer this advice:

•

• •

If the parties are deeply divided, and if the negotiation will involve many issues, each of which must be negotiated, seek agreement on general principles first. The effort of doing this will help each party understand the other, and provide some indication of whether agreement on the many issues is even feasible. If the matter must be settled rapidly, tackle the difficult issues first. Once you break through these, the rest will quickly fall into place. If time is not an issue, use the “easy issues first” approach. Doing so will help the parties to better understand each other and build trust.

The other party will only negotiate with you if it sees that negotiating is in its best interest. So, if you cannot get another party to negotiate, demonstrate why doing so will be beneficial. This might be accomplished by offering incentives (“sweetening” the deal), by taking away alternatives to negotiating, and by improving your offer to the point that it represents the best alternative to the other side. If these fail, you may have to let the situation “ripen”—that is, wait until the other side becomes so unhappy with the status quo that it’s willing to talk. Once both sides agree to negotiate, create an appropriate setting: one that’s comfortable, insulated from interruptions, and has suitable amenities and communication facilities. If your negotiation involves cultural differences, recognize them and do what’s necessary to bridge these differences between the two sides. Use your initial contacts with your negotiating partner as opportunities to learn more about him or her and his or her interest. Ask open-ended and clarifying questions and give the responses your full attention. Remember, you learn nothing while you talk. Finally, determine the best way to begin negotiations. Generally, your alternatives are to: (1) begin with the easy issues; (2) seek agreement first on general principles; and (3) begin with the difficult issues. Each has its merits and the right choice will be determined by the situation.

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NEGOTIATIONS IN THE CONTEMPORARY WORKPLACE

Review Questions

1. Some cultures stress formalities and relationship-building as

1. (b)

preliminaries to doing business. In which of the following countries would a negotiator expect to find that type of culture? (a) The United States (b) Japan (c) Belgium (d) Scotland

2. In handling the preliminaries to a negotiation, you can learn more

2. (c)

about the other side, its interests, and so forth, if you: (a) talk to your team members. (b) concentrate on the physical layout. (c) ask open-ended questions. (d) ask closed-ended questions.

3. In some negotiations, the parties find that resolution of difficult details

3. (b)

is easiest when they first agree on: (a) their alternatives. (b) general principles. (c) the physical setting. (d) points of disagreement.

4. Using separate-facing tables or arranging negotiators on opposite sides

4. (b)

of a single table is conducive to: (a) neutralizing hostilities. (b) more formal, confrontational negotiations. (c) creating a team-like atmosphere. (d) controlling the negotiation.

5. One effective way of drawing a reluctant or disinterested party into negotiations is by: (a) making your offer that party’s best alternative. (b) giving an ultimatum. (c) sending a formal invitation. (d) process mapping.

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6 Persuasion

Learning Objectives By the end of this chapter, you should be able to:

• Explain the necessity of persuasion in nego• • •

tiations. List the four building blocks of persuasion. Identify four ways of building a persuasive case. Understand how language choice can make you more persuasive.

AN ESSENTIAL SKILL This chapter describes a skill that is important to everyone both in and out of the workplace: persuasion. Persuasion is a communicative process through which we alter or affect the attitudes, beliefs, or actions of others. Anyone who supervises others, or who must enlist the support of others in order to get things done, must understand and practice this important skill. Consider these examples of situations in which the ability to persuade helps negotiators: Bob is negotiating with a potential customer about the purchase of a telecommunications system offered by his company for each of the customer’s six branch offices. The total amount, considering a volume discount, would be $125,000. The customer would like to buy just one system for its home office for $27,000. “We’d prefer to see how well the system performs before I make a big commitment,” she tells Bob. Helen is the leader of a bank’s cross-functional team, which is responsible for selecting office furniture for its upcoming office make© American Management Association. All rights reserved. http://www.amanet.org/

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over. The team includes a representative from the finance department and two representatives each from five major work groups. Susan has no authority over any of these people, and some of them outrank her. And there is strong disagreement within the team. Helen must somehow get these people to agree on a furniture package and vendor that will meet the needs of employees and the bank’s budget. Harlan, a salaried employee, has been working overtime for the past five months to develop a piece of proprietary software for his company. With his annual performance review meeting just hours away, he is already rehearsing his meeting with the boss. “I’ve done my day job and have probably put in an additional 200 hours on the software project. I’m not coming out of that meeting without a significant bonus or raise,” he tells himself. These three very different situations have one thing in common: a successful outcome will depend on someone’s ability to persuade. Bob must persuade his customer to adapt the telecom system companywide. Although Helen has no authority over the people on her team, she must use the power of persuasion to get them to work together toward a common goal. And finally, there’s Harlon, who’s determined to get a raise from his boss. He, too, will have to be persuasive to get what he wants. If you keep your eyes open, you’ll see the power of persuasion around you every day. It’s so commonplace that we often don’t think about it. Yet it is essential to getting things done in the workplace, at home, and at the negotiating table. This chapter identifies the four building blocks of persuasion, and then explains what you can do to increase the persuasiveness of your communication in negotiating.

Exercise 6-1 Your Experience with Persuasion In the space below, identify three situations in which you or someone you work with (“persuaders”) used persuasive communication. Then, using the table provided, indicate the goal of that communication—that is, did the person attempt to alter or affect the attitudes, beliefs, or actions of others? Finally, note whether the persuader was successful or not. 1. 2. 3.

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Exercise 6-1 continued from previous page. Persuaders

Successful? (Yes or No)

Goal

1.

2.

3.

THE FOUNDATION OF PERSUASION Like a building, effective persuasion rests on a solid foundation. This foundation is a combination of trust, understanding others, a credible case, and the use of persuasive language (Exhibit 6-1).

xhibit 6-1 Foundations of Persuasion

Persuasion

Trust

Understanding of Others

Credible Case

Persuasive Language

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Trust It’s difficult to persuade people who do not trust us. Even if we were to tell them that the sky is blue, they might not be persuaded because they don’t trust us. Would you purchase an item on an eBay auction if you didn’t trust that the seller truthfully described the condition of the product? Surely not. Would you be persuaded to accept someone’s sales forecast if you thought that person wasn’t knowledgeable about the subject, or was using sloppy forecasting methods? Would you enter into a negotiated agreement with someone whom you did not trust to carry out her end of the bargain? Assuredly not. Anyone who aims to persuade in the absence of trust faces an uphill climb. Here’s what is meant by trust. Trust is a condition wherein we have confidence in the character, ability, and/or truthfulness of someone else. We trust people when we believe that:

• • • • • •

They speak the truth. They respect or safeguard our interests. They know what they’re talking about. They are sincere in what they say to us. They have been reliable in the past. They do not disclose confidential information.

If asked, would your co-workers say that you have these trust-inspiring qualities? If they wouldn’t, work to develop them, otherwise you’ll never be a persuader or an effective negotiator. The seven “tips” described below are things you can do today and every day to inspire trust in others. Tips for Establishing Trust 1. Always keep on the right side of the truth in your dealings with others. Lies, even little ones, have a way of being found out. 2. Make a point of understanding the interests of others; then demonstrate respect for those interests. 3. Never talk off the top of your head about serious business; instead, develop expertise in the subjects you deal with. 4. Be sincere in your dealings—not a phony. Few things are as annoying and as difficult to disguise as false sincerity. 5. Cultivate a reputation as a person others can count on. If you agree to do something, always follow through. 6. Never reveal information given in confidence. People are more inclined to trust a person who will not share sensitive information with others without first asking permission to do so. 7. Be a good listener. That’s the best way of demonstrating that you care about the interests of others. If you follow the advice given in these “tips,” you’ll develop a reputation as a trustworthy person, and that reputation will enhance your persuasiveness during negotiations and in other aspects of work and life. AMACOM Self Study Program http://www.amaselfstudy.org/

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Understanding Others You’ll also be more persuasive in your communications as you come to understand the people you’re trying to influence. It’s intuitively obvious that the more you know about someone and his or her interests, viewpoints, and needs, the more successful you’ll be in communicating persuasively. You’ll be prepared to package your message in a manner that has impact. Every salesperson understands the importance of understanding his or her audience. For example, a sharp real estate agent won’t just drive a new client around to look at houses for sale. He or she will first ask questions: “Are you currently living in a house or an apartment? If it’s a house, do you already have a buyer?” “How large a house are you looking for—number of bedrooms, bathrooms, and so forth?” “Do you have your eye on a particular part of town or neighborhood?” “How large of a monthly house payment—including taxes and insurance—are you willing to pay?” “How much cash do you have available for a down payment?” You get the idea. Understanding your audience before you try to persuade them is common sense. If, for example, you aim to persuade your boss and co-workers to adopt a new process for handling an essential routine, you might try to understand:

• • • •

How attached are individual co-workers to the current process? How would the change you propose affect them—both negatively and positively? Who, if anyone, would resist the change, and why? Who, if anyone, would strongly support the change and, perhaps, become your ally?

If you think about the interests of the people you aim to persuade, you’ll be in a much better position to bring them around to your view.

Exercise 6-2 Persuading Your Boss Imagine that you want to negotiate an arrangement in which the company will give you and your co-workers permission to undertake some new initiative—with you as the leader. (Invent any initiative that seems reasonable for your line of work.) Your co-workers are enthusiastic about this idea, but what about your boss, who will have to approve it? Before you try to persuade him or her of the merits of your idea, list three concerns or objections that your boss might have to this arrangement. For each, indicate how you would respond to his or her concerns/objections. Exercise 6-2 continues on next page. © American Management Association. All rights reserved. http://www.amanet.org/

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Exercise 6-2 continued from previous page. Concerns/Objections

How I Would Respond

1.

2.

3.

Understand How Decisions Are Made Understanding the people you aim to persuade includes understanding how decisions are made. This is important because persuasion usually aims to influence a particular decision: how a change in a work schedule or process will be implemented, which new office technology should be purchased, how bonuses will be allocated, and so forth. Before you try to persuade someone, investigate how the decision that concerns you will be made. Will it be made by your boss, your boss’s boss, or by a committee? Typically, lower-level managers are allowed to decide on the small local issues, whereas bigger decisions are pushed up the chain of command to more senior managers, the executive team, the CEO, or even to the board of directors. In some departments, project- or work-teams can make decisions up to a certain level. When decisions affect many people or departments, a committee usually has the final say—and it may seek input and advice from specialists. For example, within large corporations, board-level compensation committees generally make recommendations on salaries and bonuses for senior managers. Those committees seek input from the finance department, the human resources department, and, in many instances, from outside compensation consultants. Identify Key Decision Makers and People Who Influence Them (Thought Leaders) Once you understand how decisions are made, the persuader’s next task is to identify the key decision makers and thought leaders. Thought leaders are the people to whom others listen when important matters are on the table. These “centers of influence” may have organizational authority—a supervisor or manager—technical expertise, or just the kind of good common sense that commands respect from others. They may not make decisions, but they influence the people who do. AMACOM Self Study Program http://www.amaselfstudy.org/

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Key decision makers and thought leaders are the people on whom you should focus your persuasive communication since they will have so much to say about the decision. Just be careful as the person you assume to be the decision maker may be highly influenced by one or more people you wouldn’t expect. Consider this example: Julia manages the customer service department of a medium-sized direct mail retail enterprise. Bob and Samantha, her direct reports, supervise the other 15 people in the department and try to ensure that their work follows the game plan and that they are highly efficient. If you were advocating on behalf of a new telecommunications system to handle customer calls, you’d probably tell yourself, “Julia’s the key decision maker, but she’ll likely consult with Bob and Samantha on something like this.” And you would probably be right. But don’t accept the obvious; try to find out who else will influence the decision. In this case, you might discover that Eugene, the head of technical support, is a major influence. Stan, the chief financial officer, would be another likely influencer of the decision. Actually, since Stan is the person who must authorize payment for the new system, he, and not Julia, may be the real decision maker with respect to the new telecom system. If this decision process and its cast of characters becomes too confusing, try drawing an influence map, like the one shown in Exhibit 6-2. An influence map can help you sort things out. The arrows in the map indicate who is influencing whom in the decision to purchase a new telecom system. The boldface arrows represent strong influence, as in Eugene’s influence over Julia; the lightface arrows represent weaker influence. Notice, too, that influence is a two-way street in some cases. For instance, Julia influences Bob and Samantha, her direct reports, but to a lesser extent than they influence her.

xhibit 6-2 The Telecom Decision Influence Map

Eugene

Stan

Julia

Bob

Samantha

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Exercise 6-3 Draw an Influence Map Who is influencing whom in your department on key issues? Think of one important decision your department is currently grappling with—hiring a new employee, purchasing new equipment, etc. Then, in the space provided below, develop an influence map like the one in Exhibit 6-2, indicating the individuals involved. Use boldface arrows to indicate strong influence and lightface arrows to represent weaker influence. The map you draw is bound to be subjective, so ask a co-worker to comment on it. He or she may understand something about the patterns of influence in the workplace environment that you do not.

Ideally, we should try to persuade everyone to accept our point of view. However, there is only so much time. Before you try to persuade everyone, stand back and study the situation to determine how the decision that matters to you will be made, and who the key players are in the decision making process. Many negotiators fail to do this. They assume that the person sitting across the table from them is the person who will make the decision when the real decision maker isn’t even in the room. These negotiators waste time and energy trying to bring the wrong person around to their point of view.

A Credible Case The third foundation of successful persuasion is a credible case based on logic and supported by evidence. People have trouble saying “no” to logical arguments and evidence. Consider this example: an editor working for a Chicago book publisher pitched an idea to his boss in order to expand their business. He made the following proposal to his boss:

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“I want the company to relocate me to Boston. There is probably more book-writing talent on subjects of business, economics, and public policy in the Boston-Cambridge area than anywhere else in the country—if not the world. By being there and tapping into the local network, I’ll be much better positioned to recruit leading authors to our book publishing program.” The boss, however, resisted. The move was bound to be expensive and the money wasn’t in the budget. And who knew how long it would take for the editor to become productive in that new and unfamiliar environment? “No,” he said. “I don’t think it’s a good idea— especially this fiscal year.” Undaunted, the editor came back two weeks later. This time he was armed with a solid case: a business proposal that included:

• • • •

Documentation on the estimated cost of the move, which was substantially lower than the boss had anticipated. A list of contacts the editor had already made in the Boston area. A plan for recruiting authors at four major business schools in the Boston area. An estimate of how books published by those prospective authors would improve the finances of the company.

This time the boss could not dismiss his subordinate’s request. The editor had made a serious and credible proposal, which had to be considered—both by the boss and by higher management. By building a logical case for his proposal, the editor had countered his boss’s initial reluctance and received a hearing. More persuasion on the part of the editor would be needed to get the go-ahead, but he had won the first round. It’s easy for people to be dismissive of persuasive efforts when the wouldbe persuader hasn’t done his or her homework—that is, hasn’t developed a solid, fact-based case. This is especially true when a proposal requires people to change what they have been doing or to take a calculated risk. But as the previous example makes clear, fair-minded people find it difficult to say “no” to things that are logical and valuable. Too many people fail to give proper attention to this third building block of persuasion. They have an idea that makes sense to them, but don’t take the time to see it from the prospective of the people whose approval and collaboration they need. What they should do is consider the case from the perspective of decision makers.

The Language of Persuasion The three building blocks just described are necessary but insufficient for success in most cases of persuasion. They may get you close to the finish line but close doesn’t count. You’ll need one more thing to carry you over the finish line—persuasive language. You need persuasive language that addresses the head (logic) in some cases, and the heart (emotions) in others—and both in some cases. © American Management Association. All rights reserved. http://www.amanet.org/

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Tips for Building a Credible Case 1. Check your assumptions. Think through the things that must happen for your idea to succeed: a change in the work routine, an increase in the budget, the training of personnel, and so forth. Be sure that your assumptions are reasonable and that your audience will agree that they are reasonable. 2. Think of feasible alternatives to your idea, as well as their strengths and weaknesses. If someone says, “We should do it this way instead,” you’ll be prepared to point out the weaknesses of that alternative. 3. Develop a contingency plan. A contingency plan identifies actions that can be taken if your idea doesn’t work. For example, “We’ll keep the old telecom system on line as a backup. That way, if the new system has bugs, we’ll still be able to communicate while we work them out.” 4. Obtain endorsements for your case. When people see endorsements or testimonials from people they know and respect, they are more likely to open their minds to your proposal. “This telecom system will improve our productivity. But don’t take my word for it. Here’s a list of companies that have been using the same system for one or more years.” Head language is most appropriate when the decision hinges on quantifiable information, and when the people involved are analytical, and dataoriented: accountants, engineers, securities analysts, scientists, and so forth. Head language appeals to the logical mind, which demands tangible evidence in support of the proposal. A person negotiating the purchase of a small business, for example, will use that business’s history of revenues and operating expenses to explain why he or she is unwilling to pay more than a certain amount for the enterprise. This negotiator will come armed with comparison data to support his or her case: “Here is information I’ve obtained on three recent sales of similar businesses in this area. In each case, the buyer paid no more than two-times operating earnings, which is what I’m prepared to offer you today.” In some cases, however, persuasion is more effective when it speaks to the heart. In their book, The Art of Woo: Using Strategic Persuasion to Sell Your Ideas, G. Richard Shell and Mario Moussa provide an example of persuasive language aimed at the heart. They tell the story of how rock star Bono enlisted the help of the late Senator Jesse Helms in the global war against AIDS. Bono and Helms seemed to inhabit separate universes. Bono, the sunglasses-wearing Irish rocker, represented the entertainment world and a culture that the powerful, Christian-right conservative from North Carolina naturally despised. But Helms, at the time, was head of the Senate Foreign Relations Committee, and wielded enormous power. Bono had to win him over in order to achieve his objective. As Shell and Moussa tell it, Bono initially tried to enlist Helms in his war on AIDS using facts and figures. He was appealing to Helms’s head, but he quickly saw that the data was boring Helms. So he changed his method of persuasion, going after Helms’s heart. Knowing that Helms was a deeply religious AMACOM Self Study Program http://www.amaselfstudy.org/

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Christian and well-versed in the Bible, Bono altered his appeal. He began talking about Christ’s concern for the poor and the afflicted. He made a case that AIDS was the modern equivalent of Biblical-era leprosy. This shift in language and imagery captured Helms’s attention and, before long, it secured a commitment from the senator to support the war against AIDS.  Every great public speaker understands the power of an emotional appeal. Consider Winston Churchill’s famous radio broadcast to the British people in the early days of World War II, when their army had been defeated at Dunkirk in France and the island nation stood alone against the more powerful forces of Nazi Germany. Churchill did not provide dull statistics to his listeners. Instead, he spoke to their hearts, evoking the emotional courage they would need to carry on during the weeks and months ahead. “Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be. We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender. . .” In the business world, the power of the emotional appeal is evidenced in the advertising that companies use to persuade people to buy. Check it out for yourself the next time you view a TV or print ad. Persuasive Language Persuasive language also emphasizes benefits. Every salesperson knows the difference between features and benefits. When someone says “This computer has a 2.33 megahertz processor and a Verex bus,” that person is describing features. Features are a means to an end and are often necessary in that they set the groundwork. You should communicate them, especially if your audience is technically oriented, or if the discussion calls for a full airing of the details. But benefits are what really persuade people. They are the ends that people seek. Here are some examples of persuasive speech that emphasize benefits:

• • •

“Because this is such a fast computer, you won’t be sitting there waiting and waiting. And we all hate waiting . . . ” “If we adopt the new work process I’ve described (features), we will improve employee productivity by 20 percent. And that will save our department $180,000 every year. That’s money we could share between our shareholders and employees.” “If you are willing to accept our offer, I can have a check on your desk within 24 hours.”

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Notice the appealing benefits stated in those cases. Here’s another example: “The current work process has served us well for the past five years. But the pace of competition calls for something new and better. The new process I’ve described will take us to a higher level of performance. It will make our work faster, more error-free, and more satisfying to customers. And that improved performance will show up in our paychecks. And who can argue with that?” Be Positive and Affirmative in Communicating Your Ideas Few things are as annoying as people who cannot make an unqualified statement. The expression “I think that . . .” is their preferred opener to every statement: “I think that our offer will benefit both of our companies.” “I think that we should change our process” or worse, “I think that what I meant in that report was . . .” If you’re trying to persuade someone to adopt your view, don’t say, “I think that . . .” You might as well say, “I’m not sure, but . . .” These qualifications tell listeners that you may be wrong, or that you lack confidence in your recommendation, or that you’re offering a personal opinion. Instead, be affirmative and say: “Our offer will benefit both companies.” “We must change our process.” If you have built a credible case, you can make affirmative statements with confidence. And, in turn, your confidence will inspire confidence in your listeners. Also, minimize the use of if. “If we manage to change our process, productivity will improve.” If is another qualifier. Instead, be affirmative and say something like this: “When we change the process . . .” or “Once we’ve changed the process, productivity will improve.”

“Wanted: A One-Handed Economist” Economists have developed a reputation for rarely making straightforward statements. President Harry Truman once complained about his “On the one hand. . . but on the other hand” economic advisors. Their equivocating prompted Truman to joke that he was looking for a onehanded economist.

Exercise 6-4 Using Affirmative Language Try your hand at converting qualified, equivocating statements into more persuasive language. Read each of the qualified statements that follow; then rewrite each as a statement that demonstrates confidence.

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Exercise 6-4 continued from previous page. 1. I think what we meant in that report is that we should rethink our pricing strategy.

2. If I’m right about this, the company should develop new products.

Persuasion is an important workplace communication skill that everyone should master. The four building blocks of persuasion are trust, understanding of others, a credible case, and persuasive language. To build trust, always behave in a trustworthy way. Increase your understanding of the people you are trying to persuade and be aware of how decisions are made in your organization. Go a step further and identify the key decision makers for the decision you are trying to influence. Build a credible case by checking your assumptions, being aware of alternatives to your idea, developing a contingency plan, and obtaining endorsements from others. Finally, to be successful as a persuader, use the language of persuasion. Emphasize the benefits of your proposal, speak to both the intellect (head) and the emotions (heart) of your target audience, use positive and definite language, and, when possible, cite endorsements, from others.

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Review Questions

1. A contingency plan:

1. (b)

(a) is the same as a credible case. (b) identifies actions to be taken if the original plan fails. (c) should not be communicated because it suggests that you don’t have faith in your plan. (d) gives people an opportunity to communicate about their goals.

2. A communicative process through which we alter or affect the attitudes, 2. (d) beliefs, or actions of others is called: (a) dialogue. (b) debate. (c) contingency planning. (d) persuasion.

3. Trust is:

3. (a)

(a) a condition wherein we have confidence in the character, ability, and/or truthfulness of someone else. (b) a product of a person’s receptivity to particular ideas. (c) communication that harmonizes beliefs. (d) a key element in planning.

4. Which of the following is one of the building blocks of persuasion?

4. (b)

(a) The ability to speak and write well (b) Understanding the people you aim to persuade (c) Organizational authority (d) Control over resources

5. When trying to persuade others, be sure to emphasize: (a) the benefits of your proposal to listeners. (b) the features of your proposal to listeners. (c) your organizational authority. (d) your influence within the company.

Do you have questions? Comments? Need clarification? Call Educational Services at 1-800-225-3215 or e-mail at [email protected]. AMACOM Self Study Program http://www.amaselfstudy.org/

5. (a)

7 Practical Tactics

Learning Objectives By the end of this chapter, you should be able to:

• • • • • •

Frame the issue in your favor. Understand how to use a price anchor. Use time to your advantage. Formulate a “packaged” deal. Make concessions wisely. Close the deal.

Now that you understand the steps that good negotiators go through in preparing themselves, getting the other party to the table, understanding where best to begin, and so forth, let’s consider some practical tactics you can use to come out with the deal you want. There’s nothing mysterious about these tactics, and they are not the only negotiating tactics available, but they can give you a big advantage over most of the people you will deal with.

FRAME THE ISSUE YOUR WAY A frame is the mental window through which we view the world or a particular problem or issue (Luecke, 46). A frame influences how we see, hear, and interpret the world around us. Have you ever heard the expression, “If you’re a hammer, everything looks like a nail?” That’s an example of framing in action. So is the following example: Constance and Howard are discussing her proposal to design and develop a portable amplifier/speaker system for acoustic instruments. As an electrical engineer, Constance sees the proposal as primarily a technical challenge: packing high quality electronics and a

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rechargeable battery into a small box weighing less than twenty pounds. “This could be accomplished using mostly off-the-shelf components and a wireless receiver that we’d have to design from scratch,” she thinks. Howard sees the proposal through a different lens. As a marketing manager, he immediately begins thinking about the business issues: “What’s the market demand for such a product? Can it be differentiated from competing portable amps for acoustic instruments? What are the market’s price constraints?” As a consequence of their training, work, and outlook, Constance and Howard bring two very different frames to the same issue. Each sees the new product proposal through very different eyes. Can you imagine the communication barrier these two will encounter when they sit down to discuss the implementation of Constance’s idea? She will want to talk about technical issues; he will insist that they address the business issues. As a negotiator, you can gain advantage if you can get the other side to adopt your framing of the issues at hand. For example, if you are negotiating wages with shop employees, you might frame the situation in terms of how well you are currently paying them relative to what local competitors are paying their shop employees. For example, you might say: “Yes, we are agreeable to some wage adjustments for the coming year, but you have to recognize that your average wage and benefits are $18.50 per hour—that’s 15 percent above what Acme Assembly and Jones Industries, our two local competitors, are paying their people to do essentially the same work.” Of course, if he or she is alert to what you are doing, the leader of the shop workers will try to shrug off your frame and impose one that is more favorable to him or her: “Yes, Acme and Jones are paying less, but they are also getting less in return from their workers. While Acme and Jones are just breaking even, this company has become more profitable in each of the past four years—in large part because of our productivity. Just look at your per-unit cost of assembly!” Whoever successfully frames the issues will have a leg up in the negotiations that follow—that’s because the other side is negotiating on the framer’s terms. Here’s another example: Sheila, a project manager, is responsible for developing and installing a new corporate e-commerce website. She wants senior management to increase the project’s budget from $500,000 to $650,000 to accommodate unanticipated changes. Knowing that management will argue against her request strictly in financial terms, she frames her request in terms of performance—how her plan will improve the performance of the system and of the organization as a whole: “As our team has gathered input from each of the product groups, AMACOM Self Study Program http://www.amaselfstudy.org/

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we’ve learned about their needs, and what it will take to make the system more adaptable to product and pricing changes, and to make the customer experience better. This will, of course, cost more but it will improve website performance by at least 25 percent.” In this case, the Sheila has tried to reframe the issue away from money to something that is of equal importance to management: performance. If her framing is successful, negotiation will center less on the added cost of the website, but on how changes could make it more useful to the product groups and to customers—a potential win-win.

Think About It . . . Think for a moment about the last negotiation in which you were involved. How was the key issue framed?

Did you frame the key issue, or did the other side? ___________________________________

Setting the agenda is another way to frame negotiations in a way that suits your interests. An agenda is a plan for which things will be considered and, in most cases, in which order. If you can set the agenda, you can arrange things so that the issues that matter most to you will be addressed in your discussions with the other party, and not get lost in the shuffle. For example, if you are planning to meet with your boss about an important project, and if your major concern is lack of collaboration by the marketing department, you’ll want that issue at the top of the agenda, not near the end. Putting your concern near the end might result in its not being addressed for lack of time or some other reason. Your boss might say, “Well, we’re out of time. I guess we’ll have to deal with your problem with the marketing department some other time, perhaps in three weeks, after I return from vacation.”

Exercise 7-1 Setting the Agenda Let’s return to the story of Constance, the electrical engineer, and Howard, the marketing manager. Howard says, “Okay, Constance, let’s have a formal meeting to discuss your proposal for a new, portable amp/speaker system. You bring your people and I’ll bring mine. Just to get the ball rolling, I’ll write a proposed agenda for the meeting.” Exercise 7-1 continues on next page. © American Management Association. All rights reserved. http://www.amanet.org/

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Exercise 7-1 continued from previous page. Now, take Howard’s part and write up a brief agenda, listing the issues that you think should be covered. Give a nod to Constance’s technical concerns, but slant the agenda toward the business issues.

Do you see how control of the agenda can shape the discussion and possible negotiations in your favor?

SET AN ANCHOR In the vocabulary of negotiating, an anchor is a psychological reference point for subsequent discussion. For example, when you go looking for a house to purchase, the listing agent will have already dropped an anchor: “The Perfect Condo in a Prestige Neighborhood—and only $350,000.” For most buyers, the listed price will become the reference point for negotiation with the seller. In the absence of other information, they will assume that the listed price has some validity (Hammond, et al., 1999), even though it is higher than one needs to pay. For example, in this case the prospective condo buyer might offer $295,000, expecting a counter-offer from the seller somewhere below the listing price—say, $325,000. An anchor creates a perception of a possible outcome. If the anchor holds, the deal will be negotiated somewhere near the anchor price, and the party that sets the anchor in an area favorable to him or her will have gained an important advantage in the negotiation. Where should you place the anchor? If you are a seller, and if you have some notion of the buyer’s reserve price (the maximum the buyer will pay), try dropping your anchor just below that price. Then, be prepared to justify that price when the buyer tries to talk you down. Recognize, however, that your ability to set the anchor will be limited by competitive force. For example, in the previous “Perfect Condo” example, the price must generally reflect what similar condos in the city or neighborhood are selling for. An outrageously high price would be ridiculed and you would not be trusted by the other side. AMACOM Self Study Program http://www.amaselfstudy.org/

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If the other party has already set an anchor price—one that you view as wide of the mark—try to “counter anchor.” For example, if you were a potential buyer for the condo mentioned earlier, you might say something like this: “I respect your wish to get the most for your condo—which is a very nice property. You have every reason to be proud of it. However, based on my analysis of comparable properties with similar amenities and desirable locations, I believe that $350,000 overstates its true market value. My research of six comparable condo sales in this area over the past 14 months indicates a going rate of $224 per square foot of livable space. Since your condo has 1,320 square feet, that means that $295,000 is closer to its true market value. If you are willing to entertain that price, I’d be glad to discuss the sale with you.” To justify the validity of your anchor, you would then show the other party the data you’ve connected on the six comparable condos, including, in this case, a table showing the price per square foot of the eight properties examined (Exhibit 7-1).

xhibit 7-1 Condo Price Comparisons

Location

Recorded Sale Price

Square Feet of Living Space

Cost per Square Foot

13 Broad St. #322

$429,000

1,850

$232

13 Broad St. #434

$359,000

1,675

$217

761 Jefferson Ave.

$285,000

1,420

$200

57 River St.

$315,000

1,525

$206

101 Courtland Ave.

$475,000

1,835

$259

36 Federal St.

$375,000

1,780

$211

Average price/square foot = $224

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Assuming that $295,000 is above the seller’s reserve price (the lowest she’ll take for her condo), there’s a good chance that your counter-anchor will hold. Bargaining will then take place around that point. Negotiating Tip You can inoculate yourself against the anchor effect by doing some homework. Before you even see what the other side has put down as its anchor, do your own research and try to determine what a reasonable price (plus or minus) would be. If you do that, you will not be influenced by the psychological power of the anchor. If you don’t have an opportunity to prepare, treat the other side’s anchor as nothing more than a point for open discussion. Ask, “Where did this number come from?” Insist on detailed evidence in support of the anchor.

USE TIME TO YOUR ADVANTAGE Time is a valuable commodity and can often be used to your advantage when negotiating. If you are a seller with no compelling reason to sell right away, time is your ally. For example, KrazyKid Toy Company would like to sell one of its warehouse facilities for $2.5 million and relocate its inventory and fulfillment operation to a more central location. But since the company doesn’t need the money at the moment and can make do with the current warehouse, it is in no big rush. Time is on its side. If the company gets an offer of less than $2.5 million, it can reject the offer and wait for a better one. But time can also be an enemy. Consider this example: Biocellular Corporation is an entrepreneurial company in the startup phase. Its small team of microbiologists is working hard to develop a breakthrough medical therapy. Thanks to a big cash infusion from three individual investors, the company currently has $1.5 million in the bank. However, its “burn rate”—the amount it spends on salaries, supplies, rent, and so forth—is $400,000 per month. That means Biocellular has less than four months in which to take in more cash: from new investors, a government research grant, or the sale of products that are still in development. If it fails to take in more cash within four months, it will likely go out of business. Fortunately, Biocellular’s CEO has entered into negotiations with a venture capital firm with very deep pockets. The venture capitalists are talking about a $3–$5 million investment. That’s the good news. The bad news is that the VCs are driving a very hard bargain. As a condition of their investment, they want voting control over the board of directors. They also want to replace the current CEO, whom they view as inexperienced, with one of their own people. These terms are hard for the CEO to accept. Still, unless he can AMACOM Self Study Program http://www.amaselfstudy.org/

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obtain an infusion of cash soon, the company is likely to fail, taking down the value of his own investment with it. “If I only had more time to find a better option,” he tells himself. Biocellular’s CEO and the venture capitalist on the other side of the negotiation are in very different places with respect to time. Free of time pressure, the VC can drive a hard bargain. They can say “Take it or leave it.” The CEO, on the other hand, is in a tight spot. His bargaining position weakens with every passing week. The lesson in our examples (KrazyKid and Biocellular) is that you should think about time as you enter any negotiation. Is time on your side or is it working against you? If time is working against you, you may want to avoid a negotiation.

The Exploding Offer If time is on your side, consider using an exploding offer, an offer that is valid only up to a certain time in the future. Beyond that point in time, the offer “explodes”—that is, it is no longer valid. Poof ! This type of offer is often effective when the other party is resisting any commitment, playing one party off against another, or generally dragging its feet. The exploding offer also gives the other side little time in which to find or develop an alternative, as in this example: Jennifer is the purchasing manager for an electronics manufacturer and is in the midst of negotiating a contract with MemoryTek, one of its components suppliers. Jennifer is eager to wrap up an agreement since her company needs an assured supply of components. She knows through industry intelligence that MemoryTek has been talking with other electronics manufacturers, which explains why it is taking so long to reach an agreement around prices, supply quantities, and the timing of component deliveries. She surmises that MemoryTek is trying to improve its alternative. Seeing no movement from the other side, Jennifer decides to “put a little fire” under the MemoryTek negotiators. On October 1 she sends them an offer by email—one that they will probably regard as reasonable. The offer states the items and quantities, the prices her company will pay, delivery schedules, and so forth. She concludes her communication as follows: “This offer is good until 5:00 PM on October 8.” In this example, Jennifer is using time as a lever to generate action from the other side. The MemoryTek negotiators might accept or reject it. They might ask for changes—but they must do something. Think of how the MemoryTek team might respond. They now have a reasonable offer—not great, but reasonable—and it will expire in one week. They might do better elsewhere, but what’s the likelihood of cutting a deal with another electronics manufacturer in one week? Recalling the adage that

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a bird in the hand is worth two in the bush, the MemoryTek team may see its safest course as accepting Jennifer’s exploding offer. Negotiating Tip Time has an impact on the progress of negotiations and the willingness of parties to make concessions. When it serves your purposes, create time pressure on the other side to move discussion along or to resolve a deadlock. Try these tactics:

• • • •

Let the other side think that your supply of what it wants is limited. “We have only three of these pickup trucks in stock.” Refer to an imminent price increase. Make a limited-time offer (such as the exploding offer). Make an offer contingent on an immediate response.

Be wary, however, of creating a false deadline. A skilled opponent will call your bluff by ignoring it. Once the deadline passes, you’ll lose your credibility.

OFFER A PACKAGE OR OPTIONS Not every potential resolution must take the form of a single offer like this: “Helen, we are prepared to offer you $550,000 for your dry cleaning establishment.” Instead, smart deals often take the form of a package. That way, if the other side is dissatisfied with one aspect of the package, say the price, he or she may be attracted to some other part of the package, such as the timing of the transaction. Here’s a typical example that any business owner can relate to: “Here’s what we propose, Helen. We can pay you $550,000 for ownership of the dry cleaning business, and we are willing to close on that deal anytime over the next four months at your convenience. Furthermore, we can offer you half-time employment at $2,000 per month for the twelve months following the sale. That will provide income for you and keep the business on an even keel as we learn to operate it. Finally, as an incentive for you to help us through the transition, we are prepared to give you five percent of EBITDA (earnings before interest, taxes, depreciation, and amortization) above the $40,000 mark for the first two years after the sale. That way, if we win, you win.” Multi-option deals such as this one provide plenty of win-win opportunities. In this example, the package includes the offered price, the timing of the sale, part-time employment for the current owner, and a reward for healthy profits. Not every one of these package options may attract the other side, but there’s a good chance that one or more will. AMACOM Self Study Program http://www.amaselfstudy.org/

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How should you create a package offer? Begin by understanding interests—yours and the other party’s. In our example, the buyers may understand enough about Helen, the business owner, to know that she will need some income after she sells her dry-cleaning establishment—thus, their offer of parttime employment and profit sharing. The buyers in this example also understood their own interest in getting some experienced help in running the establishment—Helen’s participation will increase the likelihood of their success! Understanding interests, and packaging deals to meet them, is one of the most effective ways of creating win-win outcomes. Other occasions for deal packaging are available when the value at stake can be partitioned in some way. In these situations, you can offer several optional agreements. For instance, in negotiations between companies and their union employees, companies typically create several agreement options involving the things that employees value. The total value is partitioned in terms of pay, retirement benefits, healthcare benefits, sick leave, vacation time, and so forth. Some people will respond more favorably to an offer of different options because options offer them choices—they don’t feel that they are being put into a “take it or leave it” situation. Consider this simple example: John owns a small bakery, directly across a small parking lot from Alfredo’s Grocery Store. Alfredo would like to buy the bakery and convert it into a liquor store. But what would he do with all the baking ovens, bread racks, and other equipment in John’s shop? It’s possible that the baking equipment could be auctioned off, which would be a time-consuming chore. It’s also possible that John would like to keep the equipment. So Alfredo, the grocer, makes this proposal to his baker neighbor. “I’ll give you $375,000 for the property as is. Alternatively, I’ll pay $320,000 and you can keep all the baking equipment. But you’ll be responsible for moving it out of the building by the closing date.” This second option might be more attractive to John if he has any thoughts about opening a bakery elsewhere in the future, in which case he’d have all the equipment needed for a new business. That option also appeals to Alfredo, who would rather avoid the hassle of having to sell or move baking equipment that has little value for him.

Exercise 7-2 Packaging Optional Offers Opportunities for packaging optional agreements are available when the value under negotiation can be partitioned in some way. Try your hand at creating three different optional agreements using the following facts: • You are the seller. • The sale being negotiated involves a 22-foot sailboat, which has a 5-horsepower detachable outboard motor, a second set of sails, GPS navigational electronics, and a trailer for towing. Can you think of ways you might partition the offer? List three in the space provided: Exercise 7-2 continues on next page. © American Management Association. All rights reserved. http://www.amanet.org/

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Exercise 7-2 continued from previous page. 1. __________________________________________________________________________ 2. __________________________________________________________________________ 3. __________________________________________________________________________ How might these alternative options create more value for you and for the other side? ____________________________________________________________________________ ____________________________________________________________________________

Identify Options that Address Differences As you look for opportunities to create package options, remember the advice given earlier in this course: understand the other party’s interests in the negotiation. If you understand those interests, you’ll be more successful in packaging an offer. In many cases, identifiable differences between negotiating parties can lead to win-win agreements. Here are three common areas where differences are often found: 1. Risk Every rational person is a risk-avoider to a greater or lesser extent; however, people who carefully avoid risk in some aspects of their lives or work may be risk-takers in others. For instance, Audrey is super-careful when she gets behind the wheel of her car and will not go over the speed limit. However, every month or so she puts $300 into her purse and drives 70 miles to a gambling casino where she knows the odds are stacked against her. A great many industries and business practices have evolved to exploit risk differences. The insurance industry is one. For a certain price, companies in this industry assume the risks (of death, injury, sickness, property damage, etc.) that their customers want to offload. Futures markets provide the same service to commodity producers, such as farmers. An Iowa farmer who wants to avoid the risk of corn prices being unexpectedly low at harvest time will sell a futures contract to deliver a fixed quantity of corn for a stipulated price at a fixed date in the future. The farmer doesn’t know where corn prices will be at harvest time; he or she is content to give up an upside opportunity (the chance that prices will skyrocket) in order to avoid downside risk. That contract sale locks in the price for the farmer. On the other side of that transaction, the buyer of the contract is a risk-taker; that person is betting that the value of corn will be even higher at harvest time than the farmer anticipated, producing a big profit. Without this joining together of risk-avoiders and risktakers, many aspects of life and commerce would not function smoothly. Negotiators and salespeople can often find opportunities for agreement in people’s different attitudes toward risk. The author recently wrote a case AMACOM Self Study Program http://www.amaselfstudy.org/

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study of an entrepreneurial advertising agency where this was strikingly true. The agency’s founder, Richie, was eager to build a relationship with a large corporation that spent tens of millions on TV advertising each year, but was getting nowhere. The corporate ad executive didn’t trust him. After all, Richie was a newcomer with no track record for getting results. Finally, Richie told the corporate ad executive, “If you’ll run $10,000 worth of TV time through our agency, I will guarantee that you’ll get the results I promised. If you don’t get those results, I won’t send you a bill. I’ll eat the cost. The executive jumped at the chance to shift his risk to Richie, who got $10,000 worth of new business and, in the end, a long-term, profitable customer. In this case, Richie was a risk-taker and his new client was a risk-avoider. Each got what he wanted in the agreement. 2. Expectations of the Future This is another area of difference where win-win agreement can often be identified. Here, one party has a rosier future outlook than another. Consider the case of a condominium buyer in the Boston area during the overheated housing market of the late 1980s. The buyer in this case was attracted to a new unit situated between the campuses of MIT and Harvard University that the developer was offering for $195,000. The buyer was concerned that the overheated market would collapse within the next year or two, driving down the housing values. “If I have to sell two or three years from now because of a job transfer or some other reason,” he told the developer, “I’d lose my shirt. And I cannot afford a big loss.” The developer tried to reassure him. “This is a booming area, and we expect housing prices to continue increasing for many more years.” The prospective buyer was not convinced. Nevertheless, he saw an opportunity for an agreement. He told the developer, “If you’re so confident that this unit will increase in value, I’ll make you this offer: I’ll buy it for $190,000. However, in the purchase agreement, you must agree to buy it back from me for $190,000 at any time of my choosing within two years of the sale.” The developer thought about that offer and then began negotiating the details of the sale. In the end, the buyer paid $192,000 for the condo unit and the seller agreed that he would buy the unit back at $188,000 at the buyer’s option anytime within the next two years. In this arrangement, the developer got what he wanted—a sale—and the buyer got what he wanted—protection against a substantial drop in the condo’s market value over a two-year period. 3. Time Issues In some cases negotiators want to make a deal, but cannot because of one timing issue or another. The condo case described above could have been construed as frustrated by timing. The condo developer wanted to sell right away whereas the buyer, fearful of a collapse in housing prices, might have been content to rent in the near term. There are plenty of workplace examples of timing issues. For instance, a team of product developers is eager to begin work on a new cell phone concept, but the R&D lab wants to spend more time testing the phone’s new tech© American Management Association. All rights reserved. http://www.amanet.org/

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nology. Development cannot begin until the lab completes its tasks. Similar time differences affect people’s promotions and assignments. Consider the following case: Astrid worked at a major museum in a southwestern U.S. city. She was eager to move up from her position as assistant museum curator to curator. She was qualified and had the backing of the museum’s director, Patricia. The only thing holding Astrid back was Ernst, the current curator. At 66, Ernst was already past his normal retirement age, but he wanted to put in two more years. Because of Ernst’s past contributions and age discrimination laws, Patricia would not attempt to push the curator into retirement, which frustrated Astrid. “I’ve been waiting for him to retire for the past few years,” she complained. Patricia was worried. Astrid was bright, highly mobile, and was gaining a reputation in her area of expertise, pre-Columbian Mesoamerican artifacts. Another museum might lure her away. Even if she stayed, Astrid would be unhappy working in Ernst’s shadow and, as a result, less productive. The problem, as Patricia saw it, was timing. This led her to a potential solution, which she proposed to Astrid. “Astrid,” she began, “I believe that I have a solution that will help the museum and help you in your career. I should tell you that I’ve spoken to Ernst about his plans and have offered him a $30,000 lump sum separation payment if he will agree to leave in one year instead of two. He is agreeable to that offer. I also have a plan for you in the interim—something that I know will be a career-enhancing experience while you wait to move up to Ernst’s post. Four months from now, we’ll need an experienced curator to move temporarily to Honolulu to install our traveling exhibit of Navajo pottery at the Bishop Museum. That will be a three-month assignment. Normally, Ernst would assume that responsibility, but I’m offering it to you if you want it. Once you return from Honolulu, you’ll have only a few more months to wait before Ernst retires and you step into the job of curator.” Do you see how this manager confronted a critical timing difference in negotiating a resolution? She made arrangements that satisfied Ernst’s and Astrid’s interests, as well as the interests of the museum.

MAKE CONCESSIONS WISELY At some point in their deliberations, most negotiators must make concessions. Very often, making a concession is the only way to break through an impasse and move forward to a resolution. Here are three practical tactics you can employ when you find yourself in this position:

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Don’t be too quick in making concessions. Never concede anything of critical value to you. Look for proportionality in how concessions are being made.

Don’t Be Too Quick If you’ve ever been a distance runner, you know how tempting it is as you tire to drop back from a run to a jog, or from a jog to a walk. Letting up the pace feels so good! In the business of negotiating, there’s a similar temptation to offer concessions when the going gets tough and pressure is on. Because negotiations are often stressful and charged with conflict, we are tempted to drop one of our demands or give up something we value in order to relieve the stress. After all, few people like stress or conflict. If you want to be an effective negotiator, however, you must resist the temptation to offer concessions too quickly. Here are three ways to do this:

1. Be conscious of the problem (the temptation). Tell yourself, “Don’t give in yet.” 2. Keep talking. As the other side presses you for a concession, bring up some related issue and keep the conversation going. This may cause the other side to feel more stressed than you—and to be the first to make a concession. 3. Take a break. When the pressure to make a concession seems irresistible, ask to take a coffee or bathroom break, or to meet with your negotiating team. This will give you an opportunity to decompress and regain your energy.

Never Concede Anything of Critical Value In one of his podcasted “Tips on Negotiating,” Harvard Professor Josh Lerner suggests that negotiators always come to the table knowing which issues are of critical value to them, which are important, and which are unimportant. Unimportant issues are, by definition, easily conceded to the other side since they have no value to you. However, if the other side asks for and accepts what you’ve conceded, that’s an indication that they consider your concession valuable to them. You’ve given them something they value and they now owe you something in return. Remind them of this when you’re looking for a concession from their side. Consider this example: “We’ve already agreed to give you an extra four days of vacation and a company car. So I don’t think that it’s unreasonable for me to ask you to travel to St. Louis a few times each year to assess the performance of our managers there. What do you say?” Important issues should not be conceded without a fight or without tangible reciprocity from the other side. For example, in negotiating a service agreement with a customer, payment within 30 days of completion of the work would probably be an important issue to you. After all, you have bills to

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pay. The customer would ideally like 60 days to pay; like everyone else, this customer would like to hold onto her cash as long as possible. While 30-day terms are important to you, they probably aren’t a deal breaker, and so you might be willing to make a concession—especially if you can get something you value in return from this customer. Critical issues, however, are at the core of your position and should never be conceded. This is where you draw the line, and where you should be ready to walk away. Negotiating Tip Giving and getting concessions creates a potential for win-win opportunities. Remember what you learned earlier in this course: if each side can trade off something of little value to itself but of real value to the other party, then each party will gain without disadvantaging the other. So, keep your eyes open for those opportunities!

Insist on Proportionality If your negotiation is moving along, with each side making one or more concessions, keep track of the concessions made by each side. Make a mental note or write on your scratch pad. The purpose for keeping track is to avoid making a disproportionate number of concessions than you’re receiving in return. You should demand reciprocity. Thus, when the other side asks for yet another concession, you might say, “I’ve already conceded on three points to your one. So, before you ask for another concession, let’s talk about what you’re willing to give me.” The number of concessions isn’t the only measure of proportionality. You must also consider the value of the concessions being made. If you have conceded on two important issues while the other side has conceded on two unimportant ones, there is a proportionality problem. Bring that to the other side’s attention and insist on concession reciprocity.

CLOSE THE DEAL Assuming that you hit no deal-breaking impediments, you’ll eventually get to the point of closing your negotiations. That conclusion will be more successful if you do a few things:

•

Don’t allow the other side to reopen issues that have already been settled. For example, if you’ve already agreed on the price, the timing of the transaction, and other terms, don’t allow the other side to reopen any of those issues as you draft the final document. This is why it’s a good idea to write down agreements on individual issues as they are resolved. If the other side insists on reopening one issue, take that as your right to re-open all issues negotiated up to that point. Neither party should have the right to pick and choose. AMACOM Self Study Program http://www.amaselfstudy.org/

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You might say something like this: “If you weren’t happy with the price, you should have said so earlier, before we agreed on that point. But if you insist on renegotiating the price, then that will affect the terms and timing of the sale since we see these as a total package. Is that what you want?” Put it in writing. Either a verbal restatement of the agreement, a handshake, or a meticulous formal contract is in order, depending on the situation. Written agreements, of course, are always best. Even deals between family members benefit from written agreements. Include enforcement mechanisms. Many negotiations involve promises. “I’ll do this if you’ll do that.” But what if someone fails to make good on his or her promises? Your agreement should spell out consequences. For example, “If interest and principal is not paid as scheduled, the entire outstanding balance of the loan will be due immediately.” Or, “Failure to complete the work stipulated in this agreement by May 15, 2010 will result in a $500 per day penalty.”

Closing the deal is the payoff, so don’t fall down at the end. Work toward a solid closure, in writing when appropriate, with enough built-in enforcement mechanisms to hold it together over the term of the agreement. Negotiating Tip Some negotiations falter in the final stages when one issue cannot be settled. The parties may, for example, have agreed on six or seven difficult issues, but are unable to bridge a final gap, such as price. If agreement on that one issue seems impossible, don’t give up. Start looking for value trading opportunities. For instance, Jonas is negotiating with his boss about a salary increase. The boss has gone as high as he can go given his budget and his need to maintain equity among other employees doing the same work. But Jonas has a higher paying offer from a competing company and is ready to walk. They are at an impasse. “Look, Jonas,” the boss says, “I’ve gone as high as I can go. I simply cannot give you another $20,000 in salary. But I may be able to offer something equally valuable.” “Like what?” asks Jonas. “Well, I’ve spoke with the human resources people, and they have agreed to send you to the four-week executive education program at Stanford Business School this winter—if you agree. It wouldn’t be $20,000 in your pocket this year, but what you learn there will pay dividends for the rest of your career. And spending January in sunny Palo Alto sure beats shivering here in Detroit, doesn’t it?” The secret to breaking impasses like this one is to understand the other side’s interests and then be creative in finding ways to satisfy them.

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A frame is the mental window through which we view the world or a particular problem or issue. You may gain a negotiating advantage if you can get the other party to accept your framing or accept your agenda for discussing the issue. An anchor is a psychological reference point (e.g., the listing price for a home). If the other party accepts your anchor, price discussion will take place around that number. Anchoring is most effective when it is realistic and supported by data. If you are a buyer, don’t blindly accept the other person’s anchor; use research to determine a reasonable price. As you negotiate, use time to your advantage. First, avoid situations in which you don’t have enough time to find alternatives to the deal on the table. Second, use an “exploding offer” to apply time pressure to the other side if it is dragging its feet or searching for an alterative to your offer. Win-win resolutions can often be attained when one party offers the other a package deal or set of options. A package might include the price, the timing of the transaction, performance bonuses, and so forth. The logic behind a package deal is that if the other side isn’t happy about one part of the deal, he or she might be attracted to other parts. The starting point for a package deal is an understanding of one’s own interests and those of the other party. Many negotiators find that they must make concessions in reaching a deal. The chapter suggests that you not be too quick in offering concessions. When you must offer a concession, however, offer things that matter little to you but that the other side values. Never concede anything of critical value to you. Insist on proportionality in how concessions are made. If you concede something of value, ask for something of equivalent value in return. Finally, when negotiations result in an agreement, don’t allow the other side to reopen issues that have already been settled. Ideally, your agreement should be made in writing with enforcement mechanisms.

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NEGOTIATIONS IN THE CONTEMPORARY WORKPLACE

Review Questions

1. An exploding offer can be an effective tactic when the other side:

1. (c)

(a) has a better alternative to dealing with you. (b) knows that time is on its side. (c) has little time in which to find an alterative to your deal. (d) thinks your anchor price is far too high.

2. The starting point for creating a package offer is to:

2. (d)

(a) define the area of agreement. (b) create the right atmosphere. (c) give the other side enough time to develop alternatives. (d) understand one’s own interests and those of the other party.

3. “We’re asking $1.6 million for the building and another $180,000 for the

3. (c)

parking lot across the street” is an example of: (a) front-running the deal. (b) a price ploy. (c) the anchoring tactic. (d) the take-it-or-leave-it tactic.

4. Negotiating parties can sometimes reach a resolution if one party is

4. (b)

willing to accept the __________ that the other party is unwilling to accept. (a) rewards (b) risks (c) benefits (d) opportunities

5. Which of the following can give you a tactical advantage in a negotiation? 5. (d) (a) Making an offer that you know the other side will not accept (b) Encouraging the other side to make an immediate concession (c) Using a personal verbal attack (d) Getting the other side to adopt your framing of the issue

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8 The Human Side of Negotiating Tactics Learning Objectives By the end of this chapter, you should be able to:

• List four ways to be assertive in negotiations. • Explain the importance of demonstrating re• • • •

spect and preserving self-esteem during negotiations. Identify several practical approaches to handling difficult people. Describe how a weak party can deal with a stronger one. Explain the importance of continuous learning. Describe the role of attitude and personal preference in negotiations.

BE ASSERTIVE IN PURSUIT OF YOUR INTERESTS Assertiveness is the ability to communicate and stand up for one’s interests while respecting those of others. It is an important capability in a negotiator. Without it, the negotiator may be unable to get what he or she needs. Assertiveness is different from aggressiveness—that difference is found in the phrase “while respecting those of others.” Unlike the aggressive negotiator, an assertive person does not attempt to diminish or belittle the feelings, rights, interests, or entitlements of others. He or she does not dissemble or attempt to manipulate. Instead, the assertive person is clear about what he or she needs, and will remind the other side of those needs when they are being ignored or abused. This approach, as you’d imagine, is conducive to win-win

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outcomes since it encourages similar behavior on the other side. Some people are insufficiently assertive in their negotiations. They think that being assertive will create conflict, which they hope to avoid. They do not want to offend, create a crisis, or invite an attack. Unfortunately, that passive approach may result in not getting what they want. You can become more assertive if you take these four approaches:

1. Be clear in stating what you need from an agreement. Your language should be straightforward and unambiguous. The other side shouldn’t have to interpret your meaning. 2. Repeat your position if the message doesn’t appear to get through. “We appreciate the fact that you have other obligations to fulfill, but as we stated earlier, we need full-time tech support.” Remember, people don’t always get it the first time, especially if it’s something they don’t want to hear. And in some cases, coming back to the same message again and again will help the other side understand your serious intent. 3. Be frank. Beating around the bush may help you avoid conflict, but it will never get you want you want. It’s always better to be upfront about what you think is important and what you need from a negotiation. Often that means saying “no” to the other side. Saying “no” need not create conflict or hostility toward you. Say something like this: “I respect you for asking $100,000 for your consulting services, you are certainly a competent professional. But $100,000 is more than our company is willing to pay for that type of work. Is there a way we can work together within our budget?” Notice that this statement doesn’t “beat around the bush” about the company’s unwillingness to pay what the other side wants. Notice too that it shows respect (“you are certainly a competent professional”). But being frank lets the other person know that the company will not pay $100,000 for the work in question, the consultant’s professionalism notwithstanding. 4. Employ appropriate body language and voice tone. Some experts believe that more than half of what we hear come through our eyes, not our ears—that is, through observed body language. Voice tone also imparts meaning. If you are slouched in your chair, not maintaining eye contact, and speaking in a faint voice, you will appear passive, not assertive, to the other side. Effective communicators support their verbal communications with appropriate body language. So, when you say, “This is what we need from the deal,” do so in a commanding voice. Look the other person in the eye as you say it. Sit up straight in your chair as you speak—better yet, stand. Assertiveness is a learnable personal skill, acquired through practice. But don’t wait until you are in an important negotiation to begin practicing—start today. Whenever you are discussing household duties with family members, working with fellow employees, or dealing with a salesperson at an electronics store, consciously adopt the four approaches to assertiveness described above. If you do that often enough, they will become habits of mind and behavior, and naturally carry over to formal negotiating sessions.

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Exercise 8-1 How Assertive Were You? Think back to the last time you had to negotiate with someone over a matter that was important to you—at work, at home, or in some other forum. Describe the situation. Then, answer these questions. Briefly describe the situation:

How clear were you at stating what you wanted? What specifically did you say to make your needs clear?

Did you have to repeat your statement about what you wanted? If yes, how did the other person respond?

Were you up-front and frank, or did you “beat around the bush”?

What nonverbal language on your part was associated with the discussion?

Looking back, what could you have done to be more assertive?

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UNDERSTAND THE ROLE OF RESPECT AND SELF-ESTEEM Because negotiation is a deeply human activity, success requires that its practitioners recognize the humanity of all participants. This is accomplished by demonstrating respect and avoiding language that may challenge the other side’s self-esteem and cause them to “lose face” with their peers and constituents. If you are in a stronger position than the other person, you may be asking yourself, “Why is this important?” The answer is that successful negotiations— and the faithful execution of agreements in the months and years that follow—require a substantial level of rationality on the part of all parties. These parties must rationally see a final agreement as in their interests. This will not happen if any parties feel demeaned or feel that they have lost face. If so, they will turn from their rational interests to settling scores—that is, inflicting damage on you. Even in cases in which it ends up with the short end of the stick, the other party must rationally see that failing to abide by an agreement is not in its best interest. That will not happen when other parties feel disrespected or shamed. Consider the 1919 Versailles Treaty, which ended World War I. That treaty was a lopsided set of agreements imposed upon the defeated Germans by the victorious Allied Powers: Britain, the United States, France, and Italy. It declared Germany responsible for the war, took away parts of its territory, and required reparation payments that war-ravaged Germany was unable to make. Many historians believe that German bitterness over the humiliating terms of the Versailles Treaty led to the rise of the nationalist Nazi party and, eventually, to World War II. Eager to regain face and restore its honor as a nation, Germany secretly violated many terms of the Treaty, building the air force, submarine fleet, and mobile tank divisions that would spring upon Allied Powers beginning in 1939. The ill-fated Versailles Treaty contains a lesson worth remembering. That lesson is to show respect and to avoid words or actions that assault the self-esteem of other party. Even if you get the better part of the deal, your failure to observe this common sense lesson will later cause you grief. Here are a few ways in which you can show respect and help maintain the self-esteem of the other party:

• • •

Be cordial and friendly. “Before we get started, is there anything we can do to make you more comfortable? Would you like some coffee or tea?” Separate the person from the problem. Instead of saying, “You aren’t a reliable supplier,” consider a factual statement, “We found quality problems with six of the past ten component deliveries.” Demonstrate your concern that the other person’s interests are given due consideration. “We both have something to gain in this. It’s important that we have reliable tech support, and your firm will benefit from having a regular customer.”

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PREPARE TO HANDLE DIFFICULT PEOPLE You are bound to encounter people who are aggressive in their demands or who, for whatever reason, simply make the pursuit of mutual self-interest difficult or impossible. As a negotiator, you must be prepared for these individuals. We provide two examples here: the aggressive bargainer and the “take it or leave it” negotiator.

The Aggressive Bargainer Aggressive bargainers open with an unreasonable position, hoping to anchor an agreement in their favor. They may also behave in a belligerent, threatening way, hoping that you will make concessions as a means of appeasement. If you know your best alternative to negotiating and if your reserve price is clearly in mind—you will be less easily intimidated. When faced with an extreme demand—such as an intolerably low-ball offer from the aggressive bargainer, here’s a tactical response. Restate the demand in your own words: “If I understand you correctly, you want us to supply 12,000 memory chips at $4.00 apiece, with 4,000 delivered on August 1st, another 4,000 on September 8th, and the balance on October 15 of this year. Is that what you’re saying?” The other person is sure to answer in the affirmative: “That’s exactly right, and it’s exactly what we want from you.” If the demand is ridiculous, don’t get angry or act offended. Don’t even think about turning the annoying person into a turnip and feeding him or her to the pigs! Instead, reflect on your BATNA, your best alternative to this offer. Think too about your interests, and what it will take to make this deal worthwhile from your perspective. And don’t forget to think about the other person’s best alternative. After all, the person in this example needs something from you— memory chips—and he or she needs them in specific quantities on certain dates. If he or she cannot get them from you, this person may be in big trouble. And if his or her offering price is ridiculously low, he or she is unlikely to get them from anyone else. These thoughts should guide your response. Another approach to handling a ridiculous offer from an aggressive negotiator is to simply brush it aside. Employing the lessons about assertiveness described earlier, you might say something like this: “We appreciate your offer, and we can certainly oblige you on chip quantities and delivery dates. And we will be glad to do so at $5.50 per chip.” Don’t counter with your own list of unreasonable demands; doing so will merely raise tensions and produce a stalemate. You should, however, ask for more than you expect. Doing so will give you some bargaining room (or “wiggle room”). If you start off with your bottom line offer, you’ll have no room to maneuver. In our example, the negotiator’s countering at $5.50 leaves room for bargaining, perhaps down to $4.75 per chip. Another approach to dealing with a person who is aggressive, unyielding, and trying to take advantage of you, is to give that person a quizzical look, as if to say (without stating it), “Are we dealing with a fool?” Then, firmly but politely say something like this: “We would have no interest in that arrangement. Is that your real offer?” This response puts the ball into the other side’s court to make a concession that will keep you from walking away. © American Management Association. All rights reserved. http://www.amanet.org/

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The “Take It or Leave It” Negotiator Another aggressive tactic designed to extract the most from you is the “take it or leave it” ploy. “We’ll pay you $120,000 if you can develop, install, and test the new software by April 15. That’s our best offer, take it or leave it.” Some negotiators try this ploy when they believe that other side has no better alternative. In a case such as this one, the negotiator may think that you have no other software projects to work on, and that you’ll take the low offer simply to keep your employees busy and to bring in a little revenue. If you understand your BATNA, you’ll know what will happen if you fail to agree. And if you understand the other person’s BATNA, you’ll know if he or she will be damaged by not hiring you. When faced with this take it or leave it ploy, restate your position and its benefits to the other side. “We understand the application you’re looking for and have developed and installed it successfully for other companies. If we could begin working with your tech department within two weeks, we could have the application successfully installed by April 15. However, the price you mentioned is not tenable from our perspective.” Let the other side know that its offer is unworkable and unacceptable as it stands—and that you will leave it. If your confidence needs some bucking up, remember that the other side has an interest in making a deal. Why else would they be talking to you? Your “leaving it” might be costly for them. Even if they found a rival desperate enough to take the job for $120,000, would that rival have your experience in the application? Would that rival be able to complete the job satisfactorily by April 15? If you’ve gained insights into the other side’s best alternative to a deal, you may see that walking away is not a good option for them. Negotiating Tip If the other side throws a temper tantrum, be very clear that that you will not negotiate in the face of that behavior. Stand up (an assertive form of body language) and say: “We will not continue until you have regained your composure. Our group will adjourn to the cafeteria while you do that. Let us know when we can reconvene.” If the same behavior is repeated once you reconvene, walk out. Then, ask that person’s company or boss to replace the person who caused the problem. Another approach to dealing with the temper tantrum is to remain stone-faced while the person vents his or her emotions. Once he or she has stopped venting, ask, “Are you finished? Can we now get back to business?” Do this and the person will see that you are onto his or her game, and that you are unfazed by the tantrum.

Both examples described here—the aggressive bargainer and the “take it or leave it” negotiator—are associated with win-lose deals. In each case, the other side is trying to capture as much value as it can at your expense. This behavior may be a conscious choice on the part of those negotiators. It may be the result of not knowing any better. In other words, these negotiators may AMACOM Self Study Program http://www.amaselfstudy.org/

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be inexperienced and assume that the best way to get what they need is to come on like a bull in a china shop. It may be possible to change this win-lose dynamic by turning the conversation to interests—theirs, yours, and the interests you share with one another.

Exercise 8-2 Practice Makes Perfect As with other difficult interpersonal situations, your negotiation performance will improve with practice. You can obtain some of that practice—and with none of the downside risk—through role playing. Script the basic framework of a negotiating situation, then ask a friend or co-worker to play the part of the aggressive negotiating partner. Try to respond to his or her unreasonable demands or behavior using the advice given in the preceding section. Then switch roles, with you playing the bad guy.

DEAL WITH POWER IMBALANCES In some cases, you will find yourself in a weak position: Example A: You need something from your boss, but your boss is in a more powerful position, since you look to him or her for your paycheck. He or she can easily brush you off. Example B: You may have a great idea for a new product line, but the CFO, who enjoys the CEO’s confidence in most matters, thinks it’s a lousy idea and is standing in your way. When you bring the matter up at meetings, the CFO changes the subject. Example C: A customer, Beta Corporation, accounts for 40 percent of your annual sales. It is now squeezing you for price concessions; you’re afraid to push back or walk away because of the leverage this customer has over you. You don’t want to do anything that would risk losing this account. The bad news is that there is no sure way to turn the tables in your favor in any of these situations. However, there are things you can try to rectify the unequal distribution of power in these and similar circumstances:

• • •

Concentrate on interests, not power. Join forces with like-minded parties. Improve your BATNA.

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Concentrate on Interests, Not Power Don’t automatically assume that you have no leverage over the more powerful party. In Example A, for instance, your boss clearly has more power and might be able to brush off your request like an annoying gnat. But, assuming that you’re doing a good job, your boss needs you. Without you, your boss would fail to meet his or her objectives. Always remember that. Suppose that your boss insists that you work late Thursday night to complete an important project by Friday, but you need that night off to attend your daughter’s high school play performance. Besides, you’ve already worked until 8:00 PM on Monday night at the boss’s request. Instead of worrying about the power imbalance, think about the boss’s interest (completing the project by Friday) and how you might satisfy that interest while getting what you need (Thursday night off).You might say, “I have a family obligation on Thursday night. So, if you have no objection, I’ll come into the office at 6:00 AM on Friday and complete the project for you by 9:00.” If the boss sees your plan as a way to get the project done on time, he or she is likely to agree to your proposition.

Join Forces with Like-Minded Parties In Example B, we see a common workplace power imbalance. A powerful executive, the CFO, is playing a blocking role, and you, the weaker party, appear unable to do anything about it. However, all is not lost if you can muster organizational power equal to or greater than that of the CFO. How is this possible? The best way is to look for potential allies—people who share your objective or interest. Weak parties have used alliances and coalitions throughout history to challenge those with greater power. The weak city states of Greece joined together to defeat the more powerful Persian army in fifth century BCE. Cortes and his three-hundred followers managed to topple a powerful Aztec empire with hundreds of thousands of warriors thanks, in large part, to the help of Mexican nations that were eager to free themselves from Aztec oppression. Great Britain would likely have succumbed to Nazi Germany in World War II had it not been allied with the United States and Russia. Examples of successful coalitions like these are almost endless, both on the world stage and in the realm of business. Before you give into a greater power at work, think about joining forces with parties that share your interests and objectives. In the case of our Example B, you might enlist the support of the Vice President of Marketing and the Vice President of Sales. One or both may have a natural interest in developing a new product line. The collective power of both you and these allies may be enough to neutralize or overcome the power of the CFO.

Improve Your BATNA Your BATNA is your best alternative to a negotiated agreement—your best option if negotiations fail. If a power imbalance has made your BATNA less than promising, think of what you might do to improve it. Go back for a mo-

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ment to Example C, the case in which you have a very important customer, Beta Company, which is using its power to pressure you for price concessions. This customer clearly understands that it has the upper hand. If it were to award its business to someone else, say the Acme Company, your company might sink like a rock! Acme Company may be your customer’s best alternative to doing business with you. You might not be able to do anything about this power imbalance in the short run, but you would be wise to develop other customer relationships over time—perhaps to the point where Beta Company would represent only 20 percent of your sales, not 40 percent. This would improve your BATNA, giving you a stronger bargaining hand. You might also give some thought to taking down Beta Corporation’s BATNA a peg or two by, for example, by acquiring Acme Company. Doing that would, in effect, take away Beta’s best alternative to doing business with you.

Exercise 8-3 Power Shift Describe a situation in which you are in a weak negotiating position. Then, using one or more of the three solutions given, indicate how you could shift the power balance more in your favor. (If you’re not currently in a weak negotiating position, draw an example from a situation you have observed at work or elsewhere.) The situation:

How could you shift the power balance?

KEEP LEARNING Continuous learning is another important human element of successful negotiation. The effective negotiator learns as much as possible about the interests, strengths, weaknesses, and BATNAs of others before negotiations begin. But learning should not end in the preparatory phase; it should continue, even © American Management Association. All rights reserved. http://www.amanet.org/

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as negotiations are taking place. Opportunities for learning during negotiations are many. Exhibit 8-1 provides examples of things you can do and say to draw out responses from which you can learn. Each response from the other side provides information you can use to improve your offer, understand the other person’s key interests, and so forth.

xhibit 8-1 Learn by Doing and Saying

Things to Do Make an offer and see how the other party responds. If you get a negative response to your offer, reconfigure the offer and observe the new response. When negotiating with an opposing team, observe how members of that team interact among themselves. This will tell you which member is most influential and whether there is unity or dissention among them. Ask open-ended questions—questions that cannot be answered with “yes” or “no.” For example: “What would be an ideal outcome from your prospective?” Ask clarifying questions, such as “Could you give me an example of what you mean?” Invite the other side to make its best offer.

Things to Say “What are you looking for in this negotiation?” “Are you authorized to make the decision on this, or must you consult with your boss?” “What is your objection to our offer?” “Which of these two proposals comes closest to satisfying your needs?” “How would my suggestion add to or detract from what you’re trying to accomplish?” “What would you be willing to trade off if I agreed to do . . . ?”

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Exercise 8-4 Learn While Negotiating You can learn a great deal during negotiation if you are alert, ask questions, and take the right actions. Here’s a case that will give you some practice: Octavia is sales manager for Home Goods, a household appliance manufacturer. She is trying to negotiate a deal with a department store. The store already carries many Home Goods products, along with those of other manufacturers, but Octavia would like it to establish an exclusive Home Goods display section. The store manager appears cool to Octavia’s idea, but hasn’t said why or stated his objections. Octavia wonders if his objections could be overcome if she paid a monthly fee to have a separate section in his store. Put yourself in Octavia’s position and, using Exhibit 8-1 as a guide, list at least two things you would do and two things you would say or ask to learn more about the store manager’s objections and how they might be overcome.

Things to Do 1.

2.

Things to Say / Ask 1.

2.

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Experienced negotiators make learning a continuing process, from the preparation phase though actual engagement. You can do the same by using your encounters with other parties to ask questions, make offers, and generally “test the water.” As you do this, observe their reactions and listen to their responses.

THE ROLE OF ATTITUDE AND PERSONAL PREFERENCES While we’re on the subject of human aspects of negotiations, it’s appropriate to say something about attitudes and personal preferences, which are both aspects of our inner selves. The craft of negotiation involves not only skills and tactics, but also our attitudes and preferences. Negotiating skills and tactics can be learned and perfected through practice. Attitude and personal preferences are quite different. Speaking of hiring practices at Southwest Airlines, company co-founder Herb Kelleher once said that Southwest looked above all else for people with the right attitude toward customers and fellow employees—people who were upbeat, outgoing, and who understood the role of service and teamwork. In his view, Southwest could teach new employees the technical skills they needed to be successful, but it could not teach them the right attitude. There is a parallel here in what is required to be a successful negotiator. The skills can be taught, but attitude must come from within. Attitude is a mental disposition that involves beliefs, feelings, values, and preferences for particular behaviors. Now that you’ve had a chance to study and practice the key principles of workplace negotiations, take a moment to repeat the self-assessment from Chapter 1 (Exhibit 8-2).

xhibit 8-2 Self-Assessment: Do you have the makings of a good negotiator? Read each question and reflect on how accurately it describes you. Indicate your view with the appropriate number score. You’ll find scoring instructions at the end. 1 Never

2 Rarely

3 Sometimes

4 Frequently

5 Always

I always prepare for important work. I know what’s important to me and what is not. I try to understand the views and interests of others. I am most satisfied when everyone comes away a winner. Exercise 8-2 continues on next page. AMACOM Self Study Program http://www.amaselfstudy.org/

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Exhibit 8-2 continued from previous page. 1 Never

2 Rarely

3 Sometimes

4 Frequently

5 Always

My reputation at work is that of a creative problem-solver. The people I work with regard me as trustworthy and fair-minded. I enjoy working with customers and with people in other departments. I am a patient person when it comes to solving problems. I spend as much or more time listening as speaking. I know how to determine what is a good deal or a bad deal for me. I find the motivations of other people interesting. I’m not opposed to compromising on some things when it results in a greater good. The people I work with would say that I’m assertive yet reasonable. I would rather speak with a customer who has a complaint than work in my office on a report. I’m not easily intimidated when dealing with others.

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Exhibit 8-2 continued from previous page. Scoring instructions: 1. Total each column. 2. Add the five scores to get your total score. Write that total score here: ______ 3. Divide your total score by 15 (the number of questions) to obtain your average score. Write your average score here: _____ An average score between 4 and 5 suggests that, once you’ve learned and developed the relevant skills, you’re likely to be an effective negotiator. The same is true if you scored between 3 and 4, with a bit of work on your attitude, preferences, and behaviors. If you scored below 3, you’ll need to pay extra attention to the principles of negotiation and work on developing your skills. Compare your score with the score you obtained earlier. Do you notice any differences? While you may not be able to see significant changes at this point, you should be able to identify those areas where your attitude, preferences, and behaviors either help you or hold you back when the situation calls for negotiation. Keep in mind that all these attributes can be improved with study and practice.

Negotiators must be assertive; that is, they must be able to communicate and stand up for their interests while respecting those of others. You can become assertive by clearly stating what you need from an agreement, repeating your position on the message that doesn’t get through the first time, being frank and not beating around the bush, and supporting your statements with appropriate body language and tone of voice. A good negotiator recognizes the humanity of all participants by showing respect and avoiding language that may challenge the self-esteem of others. Some people are difficult to negotiate with. Aggressive bargainers will try to set an initial price anchor that is unreasonably low. They may be belligerent and try to bully you into make concessions. They may throw temper tantrums. Don’t be unhinged by those behaviors. Think of your alternatives and know when it makes sense to walk away. And remember that these people need something from you, otherwise they wouldn’t be negotiating. In some situations you may find yourself in a weak position relative to the other side. If so, concentrate on interests and see if you can improve your position by allying with like-minded parties. You may also be able to strengthen your position by improving your BATNA. Above all, keep learning as you negotiate. Keep your eyes and ears open, ask questions, listen carefully, and notice how people respond to your offers. Also, stop and reflect on the outcome of every negotiating experience. What went well? What went wrong? How could you have done better? The answers to those questions will help you in your next negotiation. AMACOM Self Study Program http://www.amaselfstudy.org/

NEGOTIATIONS IN THE CONTEMPORARY WORKPLACE

Review Questions

1. During the course of negotiations, one should try to learn more about:

1. (c)

(a) the principles of negotiating. (b) opportunities to make concessions. (c) the interests and alternatives of other participants. (d) one’s own weaknesses.

2. An important difference between assertive and aggressive negotiations

2. (d)

is that: (a) assertive negotiators are more easily manipulated. (b) assertive negotiators insist on getting their way no matter what. (c) there is no difference. (d) aggressive negotiators do not respect the interests of others.

3. Which of the following is a useful tactic for learning more about the

3. (a)

other side while engaged in a negotiation? (a) Make an offer and see how they respond. (b) Dominate the discussion. (c) Point out the worst-case scenario. (d) Negotiate via email.

4. When a rival negotiator has a temper tantrum, you should:

4. (b)

(a) try to learn the source of his or her anger. (b) discontinue negotiations until he or she has regained composure. (c) permanently discontinue negotiations. (d) offer a concession and see how he or she responds.

5. If you find yourself in a weak position relative to the other negotiator, you might strengthen your position by: (a) offering a concession. (b) joining forces with like-minded parties. (c) threatening to walk away. (d) insisting that your interests be honored.

Do you have questions? Comments? Need clarification? Call Educational Services at 1-800-225-3215 or e-mail at [email protected]. © American Management Association. All rights reserved. http://www.amanet.org/

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9 Common Errors Made by Negotiators Learning Objectives By the end of this chapter, you should be able to:

• Describe how overconfidence can result in • • •

poor outcomes. Explain why irrational expectations often lead to stalemate or failed negotiations. Explain why winning at any cost may be a loser’s game. Identify actions you can take to build personal relationships with negotiating partners.

A great many sporting events are won by contestants who make the fewest mistakes. In amateur tennis, for example, a careful, disciplined player of average ability can often defeat a faster, more powerful opponent by simply committing fewer errors—specifically, by hitting fewer out-of-bounds or into the net. Negotiators can also improve outcomes by avoiding errors, particularly mental errors and those sparked by personal emotions. This chapter examines several typical errors and suggests how each can be avoided: overconfidence, irrational expectations about negotiations, willingness to win at any cost, and failure to pay attention to relationships with negotiating partners.

OVERCONFIDENCE Overconfidence is a mental trap that encourages negotiators to feel more informed, more powerful, and more in control than they are in reality. Overconfident people feel that they can handle a negotiation with little preparation or consideration of the interests and strengths of other participants. Overconfidence encourages a person or team to: (1) leave their own beliefs and as-

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sumptions unexamined and unchallenged, (2) discount or disregard information that contradicts what they already believe, and (3) underestimate the people with whom they will negotiate. The consequences of these mental errors can be severe. Confident that everything will go their way, negotiators fail to gather and weigh facts; they do not think through their BATNAs and reserve prices; they do not make an effort to consider the interests of other parties or how value can be created through trades; they do not adequately assess the negotiating skills and bargaining strength of their opponents.

Think About It . . . Has overconfidence ever caused you to make a mistake? Perhaps you were so confident of your ability that you failed to study sufficiently for an exam. Whatever the case, briefly describe the situation and how overconfidence led to an unhappy outcome for you.

What did you learn from that experience?

The best time to neutralize overconfidence is in the pre-negotiation phase. Ask a trusted and respected associate to play the part of devil’s advocate and objective truth-teller. This person should challenge your assumptions and point out weaknesses. He or she should cite the strengths of the other side, articulate its interests, and encourage you to be creative in developing package offers and valuable trades.

IRRATIONAL EXPECTATIONS Every negotiator has an expectation of how a deal might turn out or what it might produce. Very often that expected outcome is expressed as a range; for example, an out-of-court agreement might result in settlement between $10,000 and $30,000. To have expectations is quite natural.

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Exercise 9-1 What Are Your Expectations? This exercise will help you understand expectations and what they are based on—if anything. Consider your current situation at work. As an employee, you’re probably entitled to a stated number of vacation days. Your boss, however, mostly likely has something to say about when you actually use those vacation days, since he or she must keep the business operating smoothly and accommodate the vacation-day requests of several subordinates. Let’s suppose that you plan to ask your boss for a week off beginning July 2. Now, do the following: 1. Record your expectations of the boss’s reaction to your request.

2. What facts or other evidence have led you to those expectations?

3. Will your boss raise one or more objections? If you think so, write down these expected objections.

4. If you expect objections, on what basis are you expecting them?

5. Finally, do you expect that your boss will accede to your request for that particular week off? Please write down the answer and explain why.

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Some expectations are irrational. Expectations are irrational when they exceed the facts of the situation. For instance, when a supplier expects a customer to accept a price of $20 per unit for a commodity-like product that is readily available from other vendors for $10 per unit, then that is probably an irrational expectation. A company official who expects unionized employees to agree to a sharp reduction in salary or health benefits without a fight may also be afflicted by an irrational expectation. Irrational expectations lead to a stalemate or deal failure because they, in effect, eliminate the area of potential agreement between the parties. Recall in Chapter 3 that the area of potential agreement is the range (often stated in terms of price) within which a deal will satisfy both parties. Going back to the first example in the previous paragraph, if the supplier’s irrational expectation of $20 per unit is higher than the customer’s rational expectation (based on available alternatives) of paying no more than $10 per unit, there is no area of potential agreement. Negotiations will end in failure unless the supplier adjusts its expectations to conform with the facts of the situation. The antidote to irrational expectations is to avoid forming any expectations until you’ve undertaken a thorough gathering and review of relevant facts: about the economics of the deal, what other deal participants are capable of doing (their alternatives), the context of the situation, and so forth. These facts, in turn, will be the basis of your “rational” expectations.

TRYING TO WIN AT ANY COST Our society glorifies the idea of winning. When the late Vince Lombardi, perhaps the greatest football coach of the 1960s, told interviewers that “Winning isn’t everything, it’s the only thing,” people nodded in agreement. Unfortunately, this conventional wisdom doesn’t take into account the cost of victory, which can be the winner’s undoing. Consider, as an example, the Battle of Chancellorsville, fought in the spring of 1863 between the armies of the United States and the rebellious Confederate States. The battle was won by Confederate General Robert E. Lee despite being outnumbered five to two on the battlefield. Many historians point to Chancellorsville as Lee’s greatest victory in the long Civil War. They also note that the cost of victory irreparably weakened the Confederate forces. Lee lost almost 25 percent of his army—soldiers whom the Confederacy could not replace. He also lost several key generals, including “Stonewall” Jackson, his most effective and aggressive sub-commander. Lee compared the loss of Jackson to “losing my right arm.” So much for winning. In the business world, the error of winning at any cost is often driven by the ego and competitive instincts of the negotiator. Max Bazerman and Margaret Neale, authors of Negotiating Rationally, coined the term irrational escalation to describe the error of continuing on a course of action beyond the point where value is obtainable. Consider, for example, two ego-driven participants in an auction for a painting. Determined not to lose, these individuals continue to outbid each other well past the point of the painting’s true value. These bidders turn a straightforward contest for value into a contest of personal egos AMACOM Self Study Program http://www.amaselfstudy.org/

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in which the ultimate “winner” loses a great deal of money. In the business world, irrational escalation is frequently observed when one company attempts to gain control of another through a hostile takeover. As the takeover target raises its defenses, the leader of the acquisition group offers more and more to the target’s shareholders. This executive is so intent on winning (and avoiding the personal shame of a loss) that he or she may pay much more than the target is worth, turning what began as a good deal into one that will fail to earn a positive return on investment. The 1986 case of Robert Campeau’s $8.2-billion takeover of Federated Department Stores, owner of Bloomingdale’s and other U.S. retail chains, provides a cautionary example. The crushing debt taken on by Toronto-based Campeau Corporation in its acquisition of Federated ultimately led to financial collapse and bankruptcy. In the aftermath of this business fiasco, the New York Times told its readers that “It took the special genius of Robert Campeau, chairman of the Campeau Corporation, to figure out how to bankrupt more than 250 profitable department stores. The dramatic jolt to Bloomingdale’s, Abraham & Straus, Jordan Marsh, and the other proud stores reflects his overreaching grasp and oversized ego.” (New York Times, 1990). This type of irrational behavior may escalate further when another bidder enters the takeover contest. Each contestant tries to outbid the other in an effort to gain control of the target company, driving up the price and driving down value to the eventual victor. What begins as a sensible business proposition turns into a contest of wills between two or more headstrong executives who believe, like coach Lombardi, that “winning is everything.” And because CEOs are the ones calling the shots and raising the bids in these contests for corporate control, there may be no one willing to say, “This makes no sense. You’re damaging our interests. Stop what you’re doing!” Although you may never negotiate a multi-billion dollar deal such as the Federated takeover, your natural desire to win may cloud your judgment in future negotiations. The best protection against irrational win-at-any-cost behavior is the reserve point (or reserve price)—a concept introduced in Chapter 3. This is the point at which a deal makes no sense—the point, or price, where walking away is in one’s best interests. If you are negotiating as an individual, have that point firmly fixed in your conscious mind. Don’t allow your ego to carry you beyond that point unless new information compels you to change your reserve point. If you are negotiating as a team, agree as a team that you will not go beyond a certain point. Group pressure may be sufficient to keep the “I’ve gotta win” impulses of its individual members in check.

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Negotiating Tip Sometimes it isn’t possible to negotiate a satisfactory outcome. There may be a fundamental disagreement that no amount of give and take can resolve. There may be no zone of potential agreement. This doesn’t necessarily mean that differences must go unresolved. There are two other ways of settling differences: arbitration and mediation. Arbitration refers to the use of an impartial third party to hear both sides of a dispute and render a decision, which may or may not be binding. It may be helpful when both sides cannot or will not budge from their positions. Mediation is the attempt by an impartial third party to help disputing parties communicate, negotiate, and reach agreement. Unlike an arbitrator, a mediator is a facilitator; he or she does not decide the outcome. Mediation is generally voluntary and nonbinding.

Think About It . . . Have you ever fallen victim to irrational escalation? Have you ever observed someone else committing this mental error? If you have, describe the situation and its outcome below.

How do you think this situation could have been avoided?

GIVE RELATIONSHIPS ADEQUATE ATTENTION Negotiating, at its core, is a person-to-person enterprise. Whether we’re haggling with a flea market vendor over the price of a used table, trying to talk armed bank robbers into releasing a dozen hostages, purchasing a small busiAMACOM Self Study Program http://www.amaselfstudy.org/

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ness from its owner, or attempting to create a cease-fire between warring nations, negotiations involve interpersonal relationships. Building those relationships requires patience. Inexperienced negotiators are usually eager to get right down to business. “Let’s talk about the issues.” “Tell me what you want and I’ll tell you what I want.” “Can we make a deal?” They give little attention to formalities, to getting to know the other party on a personal level, or to developing mutual trust. Jumping right in may be fine for superficial negotiations, but complex dealings involving big, complex issues demand something more. Consider the following example: In a case familiar to the author, the founder of a business was negotiating his company’s sale to a larger corporation. The sale involved the usual technical and financial issues: the price the buyer would pay (in cash and common stock), a four-year non-compete agreement signed by the seller, representations and warranties by the seller, and so forth. But to the company’s founder, those matters paled in importance to more human issues. The seller wanted to cash out and move on, but he also wanted assurances about the future well-being of his employees and faithful customers. He also wanted to assure himself that the new owners shared his business values, that they had integrity, and that they would operate the business in a responsible way. The business, after all, was his legacy. While the lawyers and financial people could handle all the technical detail of the sale, the seller’s need for assurances about the intangible, human issues could only be satisfied by building a relationship with the prospective new owners. So, over a period of months the seller and his team got to know the buyers through meetings, leisurely lunches, and golf outings. These personal interactions resulted in a high level of trust and understanding that allowed the deal to go forward to a successful conclusion. In the end, the seller was assured that he could sleep at night knowing that he’d sold his business to the right people. Building a relationship requires time and patience on the part of transaction-oriented people. However, time spent on relationship-building pays dividends when thorny issues present themselves. People who trust each other and enjoy a good relationship can usually cut through those difficult issues more quickly. Here are some things you can do to build a relationship with your negotiating partners:

• • •

Be patient and give yourself plenty of time. Relationships don’t fall into place overnight, and difficult negotiating partners are often slow in coming to the table or making necessary concessions. Build effective communications into your dealings. Communication through many channels and at many levels is important. Get to know people at a personal level. In the Far East, the Middle East, and Latin America people never discuss business until they’ve gotten to

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•

know something about your company, and about you and your family. And they expect you to show the same interest in them. Even in North America and Northern Europe, where those formalities are less often observed, business deals proceed more smoothly when the participants understand each other at a human level. Demonstrate that you are a reliable negotiating partner—that is, that you have the authority to make the relevant decisions, and that you make good on your promises.

As in many sports, negotiators often succeed by simply making fewer errors than their opponents. The chapter described four errors to avoid: overconfidence, irrational expectations, willingness to win at any cost, and failure to pay attention to relationships with negotiating partners. Overconfidence is a mental trap that encourages negotiators to feel more informed, more powerful, and more in control than they are in reality. The best time to neutralize overconfidence is in the preparatory phase, when a negotiator should challenge his or her assumptions, identify his or her own weaknesses and the strengths of the other side, and so forth. Irrational expectations are another mental error. These occur when expectations exceed the facts of the situation. They result in a stalemate or deal failure when they eliminate any potential area of agreement between the parties. The antidote to irrational expectations is objective knowledge of relevant facts. Another error is winning at any cost, an error often driven by ego and competitive instincts. The term irrational escalation was used to describe this problem, which compels a person to continue a course of action beyond the point where value is obtainable. A negotiator can avoid this error by keeping his or her reserve price (or walk-away price) clearly in mind. Finally, some negotiations stall out or end badly when people fail to develop workable relationships with each other. Good relationships foster the understanding and trust on which mutually agreeable outcomes are often based.

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NEGOTIATIONS IN THE CONTEMPORARY WORKPLACE

Review Questions

1. ______________ is an attempt by an impartial third party to help the

1. (c)

two sides in a dispute to communicate, negotiate, and reach agreement. (a) Arbitration (b) Disintermediation (c) Mediation (d) Suspension

2. Driven by their personal desire to win, two participants in an auction

2. (d)

for a classic automobile continue to outbid each other beyond its known value. This is an example of: (a) irrational expectations. (b) value-creation. (c) overconfidence. (d) irrational escalation.

3. Building the personal relationships that many successful negotiations

3. (d)

require usually involves: (a) a generous budget. (b) an assertive attitude. (c) counseling. (d) patience.

4. ____________ is a mental error that usually causes the unwary

4. (b)

negotiator to discount or disregard information that contradicts what he or she already believes. (a) Prejudgment (b) Overconfidence (c) Irrational expectation (d) Impatience

5. ____________ is a type of human error that often eliminates the area of potential agreement between parties. (a) The urge to win at any cost (b) Irrational expectation (c) Playing the devil’s advocate (d) Overconfidence

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Bibliography

Acuff, Frank. How to Negotiate Anything with Anyone Anywhere Around the World. (New York: AMACOM Books, 1993). A quick and easy read that will give you insights into cross-border negotiations. Bazerman, Max H., and Margaret A. Neale. Negotiating Rationally. (New York: Free Press, 1994) (paperback edition). A book frequently used in MBA and executive education courses, Bazerman and Neale identify typical errors made by negotiators, offer advice on how to avoid them, and also how to take advantage of the errors of others. Fisher, Roger, William Ury, and Bruce Patton. Getting to Yes: Negotiating Agreement Without Giving In, 2nd Edition. (New York: Penguin, 1991). A product of the Harvard Negotiation Project, this popular and practical book encourages its readers to separate the people from the problem, focus on interests instead of people’s positions, and work with other negotiators to create win-win outcomes. Hall, Edward T. Beyond Culture. (New York: Anchor Books, 1976). Written by a cultural anthrophologist, this book helps readers understand how culture affects both verbal and non-verbal communications, such as space and time. Hammond, John S., Ralph L. Keeney, and Howard Raifa. Smart Choices: A Practical Guide to Making Better Decisions. (Boston: Harvard Business School Press, 1999). Though it’s a book on decision making, aspiring negotiators can learn much from this practical and highly readable book, particularly from the chapter on mental “traps” that decision makers (and negotiators) often fall into.

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Luecke, Richard. Power, Influence, and Persuasion. (Boston: Harvard Business School Publishing, 2005). Part of the Harvard Business Essentials Series, this book takes a broad look at how managers and employees can impact the decisions and actions of their organizations, stressing the very necessary role of power, influence, and persuasion in organizational work. “Robert Campeau’s Special Genius,” New York Times, January 17, 1990. Source for Chapter 9’s example of irrational escalation. Sebenius, James. “Six Habits of Merely Effective Negotiators.” Harvard Business Review. (Boston: Harvard Business School Publishing, April, 2001). Good ideas from one of the most noted researchers on negotiations. Shell, G. Richard and Mario Mousa. The Art of Woo: Using Strategic Persuasion to Sell Your Ideas. (New York: Penguin, 2008). “Woo” in the lexicon of these Wharton School professors, means “winning others over.” Wooing, in their view, is an important organizational skill or art that people must master in becoming effective persuaders and effective at work. Watkins, Michael. Breakthrough Business Negotiations. (New York: Jossey-Bass, 2002). A very useful book for managers, particularly in its sections on dealing with power imbalances, building coalitions, and managing conflict.

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Glossary

Arbitration The use of an impartial third party to hear both sides of a dispute and to render a decision, which is usually binding. Arbitration may be helpful when two sides cannot or will not budge from their positions. Assertiveness The ability to communicate and stand up for one’s interests while respecting those of others. Anchor

In negotiations, a psychological reference point for subsequent discussion.

Anchoring A negotiating tactic in which one party establishes an initial position around which it hopes negotiators will make adjustments. Agenda

A plan for which things will be considered and, in most cases, in which order.

Area of potential agreement The area in which an agreement can take place. The parties’ reservation prices define the boundaries of this area. BATNA Best Alternative to a Negotiated Agreement. One’s BATNA describes the best option available if one fails to reach agreement in a negotiation. Command-and-control A model of management in which information relative to customers and operations flows upward through the chain-of-command to the top, where decisions are made; directives based on those decisions are then communicated downward through the same chain of command. Conflict avoiders People who are so uncomfortable with conflict that they will alter their behavior or their position in order to avoid unpleasantness. Employee empowerment A management style that gives subordinates substantial discretion in how they accomplish their missions.

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Exploding offer An offer with an explicit expiration date. For example: “This offer is good until noon on Tuesday.” Frame The mental window through which people view the world or a particular problem or issue. Irrational escalation A term phrased by Max Bazerman and Margaret Neale that describes a negotiator’s continuing on a course of action beyond the point where value is obtainable, for example, two ego-driven participants in an auction bidding against each other past the point of the object’s true value. Mediation The attempt by an impartial third party to help disputing parties communicate, negotiate, and reach agreement. Unlike an arbitrator, a mediator is a facilitator; he or she does not decide the outcome. Mediation is generally voluntary and nonbinding. Open-ended questions Questions that cannot be answered with “yes” or “no”; openended questions usually begin with “what,” “when,” or “how.” Persuasion A communicative process through which we alter or affect the attitudes, beliefs, or actions of others. Thought leader

A person to whom others listen when important matters are on the table.

Trust A condition wherein we have reliance or confidence in the character, ability, or truthfulness of someone else. Win-lose negotiations A type of negotiation in which all value gained by one party is obtained at the expense of the other party. Sometimes called a “zero sum” game. A win-lose negotiation assumes that the value at issue is fixed. Win-win negotiation A type of negotiation in which the parties cooperate to achieve mutual benefit. Both parties gain value in this type of negotiation. Zero sum negotiation

See Win-lose negotiations.

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Online Resources

There’s some good information on negotiation techniques and tactics to be found on the Internet. If you’d like to learn more, surf the following sites, which are listed under key topics. Some of the URLs are long and complex, so copy the URLs that interest you, then paste them into the address line of your Internet browser. That way you’ll avoid spelling errors.

Persuasion Each of these sites has an essay listing three or more things you can do to be more persuasive. http://www.sideroad.com/Sales/persuasive-communication.html http://www.sideroad.com/Business_Communication/persuasive_communication-business.html

Communicating with Difficult People This subject was covered very briefly in the course. If you find yourself dealing with a difficult person and need more ideas, try this site. http://www.sideroad.com/Business_Communication/communicatingwith-difficult-people.html Sometimes the problem isn’t the other person; you’re simply dealing with a sensitive or difficult matter—a “difficult conversation.” The following link will take you to an article that explains how to engage in those difficult conversations. It is written by a certified mediator. http://www.mediate.com/articles/persingerT7.cfm

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General Information Harvard Business School operates a very useful free website called Working Knowledge. Every week it has new, practical articles by business scholars on different aspects of business, including negotiation. Older, archived articles are easily found and retrieved. When last viewed, the site had 27 archived articles on the subject of negotiation. http://hbswk.hbs.edu/ Not wanting to be outdone by Harvard, a major rival, the University of Pennsylvania’s Wharton School of Business has a similar site, Knowledge@Wharton. It too has hundreds of practical, current articles on all aspect of business, including negotiation. To find the negotiation articles, go to the home page, then type “negotiation” into the site’s search engine. http://knowledge.wharton.upenn.edu/ Another general online source is the Harvard Negotiation Project located at the Harvard Law School. The Project’s director is William Ury, co-author of the best-selling book Getting to Yes: Negotiating Agreements Without Giving In. The Project publishes a monthly newsletter, which you can subscribe to directly from the site ($149.00 for U.S. subscribers). If you don’t want to subscribe, you can still download a selected article each month from the current monthly issue. For information on the newsletter and the free download, go to: https://www.pon.harvard.edu/publications/newsletter/subscribe.php

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Post-Test

Best Practice Workplace Negotiations Course Code 96022 INSTRUCTIONS: Record your answers on one of the scannable forms enclosed. Please follow the directions on the form carefully. Be sure to keep a copy of the completed answer form for your records. No photocopies will be graded. When completed, mail your answer form to: Educational Services American Management Association P.O. Box 133 Florida, NY 10921

1. When a negotiator’s expectations exceed those supported by the facts of the situation, those expectations can be described as: (a) uncompromising. (b) ambiguous. (c) irrational. (d) disoriented. 2. ______________ is the price at which the negotiator has decided it makes more sense to walk away than to accept a deal. (a) The area of agreement (b) The step-up point (c) The “line in the sand” (d) The reserve price

Do you have questions? Comments? Need clarification? Call Educational Services at 1-800-225-3215 or e-mail at [email protected]. © American Management Association. All rights reserved. http://www.amanet.org/

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3. Part of being an effective persuader is:

4.

5.

6.

7.

8.

9.

(a) appealing strictly to the emotions of people in the group. (b) capitalizing on misinformation. (c) pointing out the worst-case scenario. (d) identifying the key decision makers. Negotiations that successfully address the _____________ of the parties are more likely to create a win-win solution than those that merely wrestle over positions. (a) prejudgments (b) interests (c) behavioral habits (d) latent fears Some negotiators favor a strategy of beginning with the small, least contentious issues. The logic behind this approach is that beginning with the easy things gives the participants opportunities to: (a) learn how to outmaneuver the other side. (b) build trust and to observe the progress that often comes from working together. (c) avoid dealing with the hard issues. (d) master the smallest details. An exchange in which you can give up something of little or modest value to you, but of great value to someone else is a: (a) zero sum game. (b) win-lose deal. (c) lose-win deal. (d) value-creating trade. One value that may motivate participants to attempt a win-win resolution is: (a) the best possible price. (b) loss avoidance. (c) certainty. (d) a long-term relationship with each other. In setting up a physical negotiation place, which of the following arrangements is most likely to encourage people representing two contending sides to feel more part of a team? (a) Seat the teams on opposite sides of the table, facing each other. (b) Seat people randomly around a circular table. (c) Situate opposing teams in separate rooms and use a “go between” for communication purposes. (d) Seat the teams at separate tables, facing each other. One of the building blocks of persuasion is: (a) trust. (b) practice. (c) overconfidence. (d) observing others.

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POST-TEST

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10. The price range within which a deal will satisfy both parties is the:

11.

12.

13.

14.

15.

16.

17.

(a) price ratio. (b) area of agreement. (c) bid-ask spread. (d) area of non-agreement. A tactic for encouraging a reluctant or disinterested party to negotiate with you is to: (a) act as though you are equally reluctant or disinterested. (b) sweeten the deal with incentives. (c) play the waiting game. (d) apply a blend of assertiveness and aggression. Whenever possible, a person should avoid entering into a negotiation if he or she lacks: (a) a 40 percent or better chance of getting what he or she wants. (b) body language skills (c) one or more feasible alternatives to a negotiated agreement. (d) good selling techniques. Which of the following is a common beginning point for a negotiation? (a) Offer the other side a concession as a signal of good will. (b) Tackle the most difficult issues first. (c) Engage with participants who have no authority to make a deal. (d) Survey one’s own constituency. Which of the following actions can a negotiator undertake when he or she finds himself or herself at odds with a more powerful party? (a) Offer a concession to placate the other side. (b) Reduce his or her expectations. (c) Refuse to negotiate. (d) Find an ally. Negotiation is a means of resolving differences and conflicts between individuals, organizations, and other entities when imposed settlements are either not possible or: (a) not desirable. (b) best for one party. (c) likely to produce a win-lose outcome. (d) likely to result in a short-term gain. Concessions are sometimes necessary during negotiations. When you make one, however, insist on __________________ from the other side. (a) a disproportionate response (b) agreement to your basic demands (c) an exploding offer (d) a reciprocal concession Few things are as effective in quashing an unreasonable position or demand as: (a) a strong bluff. (b) being a sympathetic listener. (c) intuition. (d) solid, relevant facts. © American Management Association. All rights reserved. http://www.amanet.org/

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18. One key phase of the negotiating process is:

19.

20.

21.

22.

23.

24.

25.

(a) hypothesis testing. (b) interest alignment. (c) preparation. (d) calling the bluff. The use of an impartial third party to hear both sides of a dispute and to render a decision, which is usually binding, is called: (a) arbitration. (b) disintermediation. (c) mediation. (d) winner take all. Negotiation is a career-enhancing skill because of the: (a) continued use of command-and-control management. (b) ability of managers to impose conflict resolution. (c) more frequent cases of interpersonal conflict in today’s organizations due to cultural differences. (d) frequency with which it is used in the employee-empowered workplace. One of potential characteristics of win-lose negotiating is: (a) the value at issue can be expanded. (b) there are no more than two participants. (c) the resolution is imposed by one party. (d) price is all that matters. One way to expand the value of a deal for other parties is to: (a) consider a change in the timing of the transaction under negotiation. (b) adopt a bait-and-switch tactic. (c) insist on one’s initial position. (d) offer a concession. Price is often all that matters when the object of a negotiation is: (a) unique. (b) generally unavailable. (c) made-to-order. (d) a commodity-like item. If possible, you should negotiate with a person who has: (a) a boss waiting in the wings. (b) a certificate in negotiating science. (c) more negotiating experience than you. (d) the authority to make a deal. A type of negotiation in which anything gained by one party is achieved at the expense of the other is sometimes called: (a) a zero sum game. (b) a loser’s game. (c) an Abilene Paradox. (d) a win-win deal.

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Index

Abraham and Strauss, 123 affirmative language, 82 agenda definition of, 133 setting the, 87 aggressive bargainers, 107, 108 agreement, areas of, 33–35 Albanians, 66 alliances, 30, 110 Allied Powers, 106 alternative(s) and areas of agreement, 33–35 complications within, 28 considering, when preparing persuasive case, 80 determining, 45–47 doing nothing as, 29 as means of getting parties to the table, 56–57 as negotiating tool, 25–30 reserve price as, 31–33 strengthening of, 30 anchoring, 133 anchors, 88–90, 133 anger, neutralizing, 23 arbitration, 124, 133 area of potential agreement, 33–35, 122, 133 areas of agreement, 33–35 assertiveness, 103–104, 133 assumptions, checking, 79 attitude, 114 automobile dealers, 18, 49, 58 automobile industry, 20, 22, 67

Bargainers, aggressive, 107, 108 bargaining room, 107

Baskin-Robbins, 46 BATNA (Best Alternative to a Negotiated Agreement), ix, 133 and bargaining power, 28 and dealing with aggressive bargainers, 107 and dealing with power imbalances, 110–111 and dealing with “take it or leave it” negotiators, 108 understanding the other side’s, 47 Bazerman, Max, on irrational escalation, 122 Begin, Menachem, 56 benefits, as form of persuasion, 81–82 Bloomingdale’s, 123 body language, 104 Bono, 80–81 Bosnia, 67 Bosnian War (1990s), 66, 67 Bush, George W., 57

Camp David Accords, 56 Campeau, Robert, 123 Campeau Corporation, 123 cars, see automobile entries Carter, Jimmy, 56 case, building a, 78–80 Chancellorsville, Battle of, 122 checking assumptions, 79 Christ, 81 Chrysler, 22 Churchill, Winston, 81 Civil War, 122

clarifying questions, 65 closing deals, 98–99 coalitions, forming, 30, 110 collaborations, 5 command-and-control management, 4, 133 commodity(-ies), 18 common error(s), 119–120, 122–126 disregarding relationships as, 124–126 irrational expectations as, 120, 122 overconfidence as, 119–120 winning at any cost as, 122– 123 Communist Party, 17 compromise, 22 concessions critical issues in, 97–98 knowing when to offer, 97 tactical use of, 96–98 conflict avoiders, 133 contingency plans, 80 continuous learning, 111–112, 114 Cortes, Hernan, 110 counter-anchor, 89–90 critical issues, importance of not conceding, 98 Croats, 66 cultural differences, 61–64, 124–125 customers, as source of information on negotiators, 48

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Dayton Peace Agreement, 66, 67 decision-makers, identifying, 76–78 Dell, 20 difficult issues, beginning with, 67–68 difficult people handling, 107–109 resources on communicating with, 135 diplomacy, 55 doing nothing, as alternative, 29 Dunkin’ Donuts, 46

Easy issues, beginning with, 66 economists, 82 Egypt, 56 employee empowerment, ix, 4–5, 133 endorsements, 80 enforcement mechanisms, 99 engagement of negotiating participants, 8, 53–58 errors, common, see common error(s) escalation, irrational, 122–123 expectations future, 95 irrational, 120, 122 exploding offers, 91–92, 134

Fact gathering, 41, 44–45 false deadlines, 92 Federated Department Stores, 123 Fisher, Roger, on BATNA, 28 Ford Motor Company, 20, 22 formal negotiations, 2–3 frames (framing), 85–87, 134 frankness, 104 future expectations, 95

General Motors, 20, 22 general principles, agreeing on, 66–67 Germany, 106 Getting to Yes (Roger Fisher and William Ury), 28, 136 Great Britain, 110 Greece, ancient, 110 Guiness, Alec, 7

Harvard Business School, 136 Helms, Jesse, 80–81 Herzegovina, 67

high-context cultures, 62–64 Holbrooke, Richard, on general principles, 66 hostile takeovers, 123

Imbalances, power, 109–111 important issues, conceding, 97–98 informal negotiations, 3–4 insurance industry, 94 interests and closing deals, 99 and dealing with aggressive bargainers, 109 definition of, 40 and getting negotiators to the table, 56 identification of, 40–41 as motivation to negotiate, 55 and power imbalances, 110 and respect, 106 Iran, 54, 55, 57–58 irrational escalation, 122–123, 134 irrational expectations, 120, 122 irrationality, 56 Israel, 56, 66

Jackson, Thomas “Stonewall,” 122 joint ventures, 44 Jordan Marsh, 123 just-in-time (JIT) inventory control, 20

Kelleher, Herb, on employee attitude, 114 Kissinger, Henry, on beginning with easy issues, 66 Korean Conflict, 58

Labor unions, 30, 67 language of persuasion, 80–82 learning continuous, 111–112, 114 from negotiating experience, 8 Lee, Robert E., 122 limited-time offers, 92, see also exploding offers line of authority, 48 logic, 80 Lombardi, Vince, on winning, 122 lose-lose situations, 22–23 low-context cultures, 62–64

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Managers, decision making by, 76 mediation, 124, 134 mergers and acquisitions, 44 Moussa, Mario, on emotional persuasion, 80–81 multi-option deals, 92–96

Nazi Party, 106 Neale, Margaret, on irrational escalation, 122 Negotiating Rationally (Max Bazerman and Margaret Neale), 122 negotiating skills, importance of, 4–5 negotiating style, 48 negotiating table, shape/layout of, 59–60 negotiation(s) basics of, 1–12 case example of, 9–12 definition of, 1 importance of skills for, xiii, 4–5 lose-lose, 22–23 process of, 7–9 win-lose, 15–18 win-win, 19–21 nothing, doing, 29 nuclear weapons, 1 Open-ended questions, 64, 134 optimizing, 19, 20 option(s) considering future expectations in, 95 as practical tactic, 92–96 risk-reduction as, 94–95 time issues in, 95–96 original equipment manufacturers (OEMs), 20 overconfidence, 119–120

Pacific islands, 43 packages, 92–96 Palestinians, 66 Paris Peace Accords (1973), 1 Persia, 110 personal space, 62 persuasion, 71–82 and building a credible case, 78–80 definition of, 60, 134 as essential skill, 71–72 establishing trust for, 74

INDEX

foundation of, 73–82 of key decision makers and thought leaders, 76–78 language of, 80–82 resources on, 135 and understanding the decision-making process, 76 and understanding your audience, 75–78 persuasive language, 81–82 positive language, 82 power imbalances, 109–111 practical tactics, see tactic(s) preliminary task(s), 8, 53–68 creating appropriate setting as, 58–60 determining where best to begin as, 65–68 getting the other side to the table as, 53–58 listening and learning as, 64–65 understanding cultural differences as, 61–64 preparation(s), 8, 39–48 and determining alternatives/reserve price, 45–47 and fact-gathering, 44–45 and identification of interests, 40–41 and learning about other negotiators, 48 and looking for value-creating trades, 42–44 and tips for counteracting anchor effect, 90 and tips for understanding other side’s interests, 41 price increases, 92, see also reserve price(s) principles, agreeing on general, 66–67 process, negotiating, 7–9 proportionality, 98

Qualified statements, 82 Rank (of negotiator), 48 rationality, 56 reciprocity, concessions and, 98 relationships consideration of, 124–126 in win-win negotiations, 19 reliability of negotiating party,

19 reopening, 98–99 research, 90 reserve point, 32–33, 123 reserve price(s), 31–33 and anchors, 88 establishment of, 45–47 as protection against win-atany-cost behavior, 123 tips for negotiating with, 47 resolution of negotiations, 8, 98–99 respect, tactical use of, 106 “ripening,” 57–58 risk, offering options to reduce, 94–95 Russia, 110

Sadat, Anwar al, 56 salary.com, 32 salespeople and risk management, 94–95 as source of information on negotiators, 48 self-esteem, 106 self-understanding, 39 Serbs, 66 settings for negotiation(s), 58–60 setting the agenda, 87 Shell, G. Richard, on emotional persuasion, 80–81 Southwest Airlines, 114 Soviet Union, 17, 110 style, negotiation, 48 suboptimizing, 19 supply-chain management, 20 sweeteners, 55–56 synergy, 44

Table, shape/layout of, 59–60 tactic(s), 85–99, 103–104, 106–112, 114 assertiveness as, 103–104 attitude and personal preferences as, 114 for closing the deal, 98–99 concessions as, 96–98 continuous learning as, 111– 112, 114 exploding offers as, 91–92 framing as, 85–87 for handling aggressive bargainers, 107 for handling difficult people, 107–109 for handling power

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imbalances, 109–111 for handling “take it or leave it” negotiators, 108–109 packages or options as, 92–96 respect/self-esteem as, 106 setting an anchor as, 88–90 time use as, 90–92 understanding relationships as, 124–126 “take it or leave it” stance packages/options for avoiding, 93 tactics for handling, 108–109 takeovers, hostile, 123 temper tantrums, tips for dealing with, 108 third parties, 56 thought leader(s), 76–78, 134 time and exploding offers, 91–92 as factor in creating options, 95–96 tactical use of, 90–92 tips for exploiting, 92 time-out, 23 timing of transactions, 19 in win-win negotiations, 19 tips on best interests of negotiators, 56 on closing deals, 99 on concessions in negotiations, 98 on counteracting anchor effect, 90 on creating time pressure in negotiations, 92 on dealing with temper tantrums, 108 on fact-gathering, 23 on negotiating with reserve price/BATNA, 47 on salvaging lose-lose situations, 23 on understanding other side’s interests, 41 on using arbitration or mediation, 124 tone of voice, assertiveness and, 104 tools for negotiations, 25–35 Trulia.com, 32 Truman, Harry, on language of economists, 82 trust, 61, 74, 134

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BEST PRACTICE WORKPLACE NEGOTIATIONS

Understanding other negotiators, 75–78 unimportant issues, conceding on, 97 unions, 30, 67 United Nations Security Council, 67 unqualified statements, 82 Ury, William, 28, 136

Value of concessions, 98 of trades, 44 value-creating trades looking for, 42–44 and synergy, 44 and win-win negotiations, 21 value-trading opportunities, 99 Versailles Treaty, 106 Vietnam Conflict, 1, 58 voice tone, assertiveness and, 104

Wharton School of Business, 136 “wiggle room,” 107 win-lose negotiations, 15–18, 108–109, 134 winning at any cost, 122–123 win-win negotiations, 19–21 and assertiveness, 103–104 and concessions, 98 definition of, 134 work process, 7 World War I, 58, 106 World War II, 81, 106, 110 written agreements, 98–99

Yugoslavia, Federal Republic of, 67

Zero sum negotiations, 15 Zillow.com, 32

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