Negotiations Midterm

Negotiation

The art and science of securing agreement between two or more parties who are interdependent and seek to optimize their outcomes

BATNA (Best Alternative to Negotiated Agreement)

the negotiator’s preferred course of action in case no agreement is reached

RP (Reservation Price or Reservation Value)

The least favorable point at which one will accept a deal;

for a buyer, it is the highest price they would pay,

for a seller, it is the lowest price they would accept.

this is derived from the BATNA

ZOPA (Zone of Possible Agreement)

the spread between the reservation prices of the buyer and seller, where an agreement would satisfy both parties.

Positive Bargaining Range

When the buyer’s reservation price is above the seller’s

Negative Bargaining Range

when the buyer’s reservation price is below the seller’s and the buyer will not pay more than the seller will minimally accept

these can lead to a stalemate unless one or both parties are persuaded oto change their reservation price

Texoil negotiation was this: Texoil 500k max authorization, Sellers 553k RP

Distributive Negotiation

A claiming value strategy, where there is a fixed pie that parties try to divide, with each party motivated to maximize their own share.

this is usually a win/lose situation

competitive

focuses on single issues

focus on positions (what they want)

conceals information or use it selectively/strategically

short-term relationship

Congruent Negotiation

parties have equal preferences

Integrative Negotiation

A creating value strategy, where parties cooperate to find solutions that can help both achieve their goals.

this is usually a win/win situation

cooperative problem-solving

focuses on multiple issues

focus on interests (their goals and desires)

share information about interests and priorities openly

long-term relationship

Preparing for the Negotiation

Steps:

1. Access your BATNA

2. Calculate your Reservation Value

3. Assess the other party’s BATNA

4. Calculate the other party’s Reservation Value

5. Evaluate the ZOPA

Anchor (The First Offer)

a number that focuses the other party’s attention and expectations

it can strongly influence the final outcome of the negotiation

it can influence the other party’s counteroffer

Only do this if you believe you have sufficient information regarding the other party’s reservation value

if you do this, make sure it falls outside teh ZOPA then make concessions

Contingency Contracts

An agreement that leaves certain elements unresolved until specific conditions are met in the future, allowing flexibility in uncertain situations.

Managing Concessions

1. Do not make these unilaterally.

   1. if you make one, they should also make one

2. Be comfortable with silence

3. label yours

   1. it is important to make clear that these are costly to you

4. Make sure that the other party’s are of similar magnitude to yours and not of lower value

5. You can make these contingent as well

   1. only use as needed

   2. they can make it difficult to build trust and strengthen the relationship

6. Be aware of the effects of diminishing rates

   1. earlier ones tend to be larger than at the end

Logrolling

Negotiating across issues; trading concessions on different issues to maximize value for both parties

This requires that the parties learn about each others priorities

can be better than compromising

Adding Issues

during a negotiation, things come up in the conversation that can create more value for the parties

these can be in addition to things already being negotiated

this is done with the goal of finding the best possible package deal based on a consideration of all the relevant issues

Pareto Improvements

these are changes to a deal that make at least one person better off without making anyone worse off

to find these, look for opportunities to:

1. add issues

2. engage in logrolling

Pareto Efficiency

An agreement where it is impossible to make one party better off without hurting the other party, exhausting all opportunities for value creation.

there is no definitive way of knowing when this point is reached

Preparation for Multi-Issue Negotiations

1. Identify yours and the other party’s multiple interests, issues and priorities

2. create a scoring system

   1. your relative priorities across the various issues

   2. different outcomes on each issue

   3. the value of the different outcomes on each issue

      1. having a common metric

3. Identify your BATNA and your Package Reservation Value

Package Reservation Value (PRV)

The total value (measured in points or another common metric) of an individual's desired outcomes across all negotiation issues.

Strategies for Multi-Issue Negotiations

1. Negotiate multiple issues simultaneously to facilitate logrolling

2. Make Package Offers

   1. you can propose two different deals to help the party understand what trade-offs are possible

   2. the other party can then select their preferred offer and make demands on some issues while offering concessions on others

3. Leverage differences of all types to create value

Post-Negotiation Settlements

these are settlements that are reached after the initial deal is signed

If these derail the original agreement, the two parties can agree that unless they both benefit, they will stick to the original agreement

Investigative Negotiations

1. Do not just ask what - ask why

2. seek to reconcile interests, not demands

3. view demands as opportunities to learn

4. don’t dismiss anything as their problem

5. always ask “why not” when your offer is rejected

Reticent Negotiator Strategies

Strategies to elicit information from these:

1. Invest in building trust before, during and after the negotiation

   1. people are more willing to share info. when they trust the other party

   2. speak their language (across cultures, industries, functions)

2. Ask Questions

3. Give away some information first

4. Negotiate multiple issues simultaneously

5. Make multiple offers simultaneously

Principled Negotiation

A all-purpose strategy developed at Harvard that emphasizes collaboration, focusing on mutual interests and objective criteria rather than adversarial positions.

1. separate the people from the problem

2. focus on interests (why people want something), not positions (what a person wants)

3. invent options for mutual gain

4. insist on using objective criteria

Separate People from the Problem (Principled Negotiations)

negotiators are people first

avoid entangling the people with the substantive issues

Typical people problems:

1. perception

2. emotion

3. communication

Change the Game:

1. substantive issues

2. the process of how you will negotiate substantive issues

   1. you can negotiate the process and change the game

Focus on Interests, Not Positions (Principled Negotiations)

Positions: what a person wants

Interests: why people want something (these drive positions)

Reconcile these and find shared ground

Ask Why/Why Not

put yourself in their shoes

communicate yours and acknowledge theirs

Interests

why people want something (these drive positions)

Positions

what a person wants

Invent Options for Mutual Gain (Principled Negotiations)

Key Obstacles:

1. premature judgment or criticism

2. searching for a single answer

3. assumption of a fixed pie

4. thinking that solving the other partys problem is their problem

Overcoming these obstacles:

1. Separate the act of inventing options from the act of judging them

   1. Brainstorming

2. Broaden the options on the table

   1. look through eyes of different experts

   2. Memorandum of Understanding

3. Search for mutual gains

   1. look for shared interests

   2. reconcile different interests

4. Make the other party’s decision easy

   1. emphasize positive consequences

Insist on using objective criteria (Principled Negotiations)

think of standards for the substantive issues

consider fair procedures for settling differences

1. Frame each issue as a joint search for standards

2. be open to reason as to which standards are most appropriate

   1. compromise is legitimate with differences

   2. find a neutral mediator

3. do no yield to pressure, only to principle

Addressing Communication Problems

1. Listen actively

2. Acknowledge what is being said

3. speak for a purpose

   1. know what you want to say and

   2. what purpose the info will serve

4. speak about yourself, not them

5. avoid directly blaming them for your problem

Cognitive Biases

biases of the mind

1. Fixed Pie

2. Vividness Bias

3. Nonrational escalation of commitment

4. susceptibility to framing

Fixed Pie Bias

The assumption that negotiations involve a fixed amount of value to be divided, ignoring the potential for value creation.

overcoming this:

1. approach this with integrative mindset

2. look to create value to both sides by adding and trading

Vividness Bias

Overpaying attention to vivid features of an offer while overlooking less striking but important aspects. this can lead to poor decisions and suboptimal outcomes

over come this by:

1. creating a scoring system

2. separate information from influence

Nonrational Escalation of Commitment

The phenomenon where negotiators increase their commitment to a failing strategy to justify an earlier decision, usually leading to further losses.

overcome this by:

1. understand the causes and consequences of this

2. anticipate and prepare for the forces you are likely to encounter

3. have a pre-planned exit strategy

4. assign and reward a devils advocate

Susceptibility to framing

our decisions are influenced by the way information is presented to us

one way of this involves emphasizing what a party would gain rather than what they would lose

contrast effect (willams sonoma bread-making machine)

how to overcome this:

1. be aware of your own and adjust your thinking

2. be more involved in the decision

3. think carefully about your choices and provide a rationale

4. pay attention to how you do this with positions and offers

Motivational Biases

bias of the heart (emotions)

a strong urge to see ourselves in a positive light, where we are motivated to see our selves as more competent, generous and more likely to succeed than others

1. emotions and conflicting motivations

2. egocentrism

3. overconfidence and irrational optimism

4. self-serving bias

Emotions and Conflicting Motivations

during a negotiation strong feelings can lead to conflicting inspirations between:

1. what we feel like doing in the heat of the moment (blame the other party)

2. what we think we should do (stay calm)

these can cause us to destroy a deal, damage the relationship and harm us in the long run

avoid this by:

1. anticipating this and plan accordingly

2. be prepared for the negotiation to ensure that you don’t act on impulses in a way that harms your interests

3. hand over control of the negotiation process to someone who is less emotionally involved

Egocentrism

The tendency for judgments to be biased in one's own favor, leading to a skewed perception of fairness.

when presented with identical information we interpret it in different ways, depending on our role

overcome this by:

1. being aware of the bias and seek to correct it in your own behavior

2. assess what is fair under the “veil of ignorance”

overconfidence

refers to unrealistic expectations regarding our own abilities as compared to other people

can lead you to prepare less for a negotiation, or enter negotiations with only one possible solution instead of preparing multiple ones

overcome this by taking the time to assess:

1. abilities

2. probability of success in various endeavors

irrational optimism

regarding our fate involves believing that our future will be better and brighter than that of other people

can lead a negotiator to reject an offer on a house when no better offer is forthcoming, or to turn down the best job offer that htey are likely to receive

overcome this by taking the time to assess:

1. abilities

2. probability of success in various endeavors

Self-serving Bias

The tendency to attribute success to internal factors while attributing failures to external factors.

when we attribute the other party’s cooperativeness to the constraints of the situation rather than to their goodwill or integrity, it becomes difficult to build trust and find win-win solutions

overcome this by:

1. assess reasons behind successes and failures

2. assess reasons behind the other party’s behavior, successes and failures

15 rules for negotiation a job offer

1. Don’t underestimate the importance of likability

2. Help them understand why you deserve what you are requesting

3. Make it clear they can get you

4. Understand the person across the table

5. Understand their constraints

6. Be prepared for tough questions

7. Focus on the questioners intent, not on the question

8. Consider the whole deal

9. Negotiate multiple issues simultaneously, not serially

10. Do not negotiate just to negotiate

11. Think through the timing of offers

12. Avoid, ignore, or downplay ultimatums of any kind

13. Remember they are not out to get you

14. Stay at the table

15. Maintain a sense of perspective

Importance of likability (don’t underestimate this)

Negotiating a Job Offer:

be pleasant and agreeable during negotiations

avoid doing things that hinder your image

manage the inevitable tensions in negotiation

ask for what you deserve without seeming gready

Why you deserve what you are requesting (help them understand)

Negotiating a Job Offer:

help them know why you deserve what you are requesting

provide clear and precise justification for your demands

prove that you are worth the offer you want

think carefully about how best to communicate your message

They can get you (Make it clear)

Negotiating a Job Offer:

if you plan to negotiate for a better package, make it clear that you are serious about working for this employer

having other offers makes you more desirable but the more you emphasize this, the more they may think they won’t get you

if you plan to mention all other options and offers you have, balance that by saying under what conditions you would be happy to fogo those options and accept an offer

The Person across the table (Understand)

Negotiating a Job Offer:

negotiating with your prospective boss is a different from negotiating with an HR Representative

they likeley have different interests and concerns

Constraints (Understand theirs)

Negotiating a Job Offer:

companies have certain ironclad limits such as salary caps that no amount of negotiation can loosen

understanding these improves your ability to find solutions that meet both sides’ interests

Tough Questions (Be prepared)

Negotiating a Job Offer:

anticipate the difficult inquiries you are likely to face and be prepared to answer them

a job candidate is more likely to resort to a lie when they are unprepared

the prepared response avoids the lie and mitigates the perception that the candidate is desperapte

Intent, Not the Question (Focus on this)

Negotiating a Job Offer:

if you get an inquiry that is challenging or unexpected, do not assume the worst

this may be challenging but they are not malicious

when in doubt:

1. ask for clarification on the problem they are trying to solve and

2. show a genuine willingness to help them resolve the issue

Whole Deal (Consider this)

Negotiating a Job Offer:

focus on the big picture not just the salary

think not just about how you are willing to be rewarded but also when

Negotiate Multiple Issues (Simultaneously, not serially)

Negotiating a Job Offer:

communicate your priorities so that you can get what you want on the issues that matter most to you

Logrolling should be facilitated here

Don’t Negotiate just to negotiate

Negotiating a Job Offer:

If something is important to you, negotiate

don’t haggle over every little thing

fighting to get a bit more can rub people the wrong way and negatively impact the process and outcome

Offer Timing (Think through this)

Negotiating a Job Offer:

ideally you want these to arrive close together so that you can compareand select the best one

you can slow or speed up the process of the interviews by asking for a second or third or picking a closer date

this is just a balancing act

Ultimatums (Avoid, ignore or downplay these)

Negotiating a Job Offer:

if you receive this, ignore it, do not dwell on it or make them repeat it because it may not be real and at some point the person who gave it may realize that it could destroy the deal and will want to take it back

they can do that much more easily without losing face if it has never been discussed

if this is real, they will make that clear over time

They are not out to get you (remember)

Negotiating a Job Offer:

if you are far enough along in the process and things are not moving as you would like, be patient

they likely have other pressing concerns and constraints that you do not fully appreciate

stay in touch, but be patient

Stay at the table

Negotiating a Job Offer:

what is not negotiable today may be negotiable tomorrow

when you make a request and they say no, what they are saying is “no-given how I see the world today”

overtime interests and constraints change

be willing to continue the conversation and revisit issues that were left unaddressed or unresolved

Perspective (Maintain a sense of this)

Negotiating a Job Offer:

you can negotiate like a pro and still lose out if you are in the wrong negotiation

1. do you have clear goals and a solid career strategy?

2. are you in the right industry and function?

3. have you performed a thorough job search to find the right job that will lead you to where you want to go?

ultimately achieving your career goals is less about getting the negotiation right and more about getting the job right

once you find the right job, use negotiation principles to negotiate effectively and get the offer you deserve