Negotiation and
Conflict Resolution
Chapter 13
What Is Negotiation?
 Process of formal communication,
either face-to-face or via electronic
means, where two or more people
come together to seek mutual
agreement about issue or issues
 Involves management of time, information,
and power between individuals and
organizations who are interdependent
2
What Is Negotiation?
 Relationships between people, not just
organizations
 Persuasion
 Negotiation skills can be honed and
practiced
 Supports implementation of supply
management strategies and plans
3
Common Terms Used in Negotiation
 BATNA
 Best alternative to a negotiated agreement
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Positions
Interests
Needs
Wants
4
BATNA
 Bottom line or reservation point
 BATNA should never be revealed to
other party
 All settlements must be judged in light
of all other viable alternatives existing
at time of the agreement
5
Positions
 Negotiator’s opening offers
 Represent the optimistic or ideal target
value of issues being negotiated
 Stated demands at negotiation table
6
Interests
 Unspoken motivations or reasons that
underlies any given position(s)
 Unlikely to be explicitly declared or
acknowledged during negotiation
 May not be directly germane to stated
position
 Often personal in nature
7
Key Points on Interests
 Learn to play detective
 Try to discern other party’s interests
through series of open-ended, probing
questions
 Then listen carefully
 Always focus on other party’s
underlying interests, not its stated
positions
8
Needs vs. Wants
 Needs
 Negotiated outcomes that negotiator must
achieve
 Wants
 Negotiated outcomes that a negotiator
would like to have
 May often be exchanged as concessions
9
Triangle Talk
Step 3:
“Propose Action in a Way that They Can Accept”
Step 1:
“Know
Exactly
What You
Want”
The
Negotiation
Process
Step 2:
“Know
Exactly
What They
Want”
10
Know Exactly What You Want
 Determine and write down specific
goals and objectives
 Helps retain clear focus and minimize
distraction
 Can be referred to readily during
negotiation
 The more clearly defined, the more likely
that they can be achieved
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Know Exactly What They Want
 Attempt to discern other party’s likely
needs and wants
 Estimate underlying interests to other
party’s stated positions
 Beware of expecting other party to
think in same way
 Ask probing, open-ended questions to
confirm or counter assumptions
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Propose Action in a Way
that They Can Accept
 Frame your own needs in terms of
other party’s needs
 Make it easy for other party to say
“Yes”
 Remain fair, flexible, and reasonable
13
The Negotiation Framework
in Supply Management
Identify or anticipate sourcing requirement
Determine if negotiation or bidding is required
Plan for the negotiation
Conduct the negotiation
Execute the agreement
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Identify or Anticipate
the Sourcing Requirement
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Purchase requisitions
Inventory counts
Reorder point systems
New product development
New facilities
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Determine If Negotiation or Bidding
Is Required
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Is bid process inadequate?
Are many non-price issues involved?
Is contract large?
Are technical requirements complex?
Does contract involve plant and
equipment?
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Determine If Negotiation of Bidding
Is Required
 Does contract involve a partnership?
 Will supplier perform value-adding
activities?
 Will there be high risk and uncertainty?
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Reasons for Negotiation
 Total contract value or volume is large
 Complex technical requirements
 Product and process requirements and
specifications may still be evolving
 Purchase involves utilization of capitalintensive plant and equipment
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Reasons for Negotiation
 Agreement involves special or
collaborative relationship
 Supplier will perform important valueadding activities, requiring …
 Appropriate compensation
 Performance standards
 Performance metrics
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Planning for the Negotiation
 Better planning  better outcomes
 Use of electronic communication tools
vs. face-to-face negotiations
 Expensive and time consuming travel
 Use of online RFPs and RFQs
 Quick turnaround on changes
 Allows simultaneous negotiations with
multiple suppliers
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Points to Focus On
 Defining issues
 Assembling issues
and defining
bargaining mix
 Defining interests
 Defining own
objectives and
opening bids
 Assessing
constituents and
social context
 Analyzing other
party
 Planning issue
presentation and
defense
 Defining protocols
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Phases of the Negotiation
 Phase I
 Fact finding and information sharing
 Clarify or confirm information
 Phase II
 Recess to assess new information and
findings
 Assess relative strengths and weaknesses
 Review and revise objectives and
positions, if necessary
 Organize agenda
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Phases of the Negotiation
 Phase III
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Meet face-to-face or electronically
Narrow differences on issues
Offer proposals and counterproposals
Exchange concessions
 Phase IV
 Seek agreement
 Conclude negotiation
 Agree to follow-on activities
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Being an Effective Negotiator
 Willing to compromise or revise goals
 When faced with new information
 View issues independently
 Establish upper and lower ranges for
each major issue
 Explore more options
 Build on common ground between
parties
24
Being an Effective Negotiator
 Avoid making irritating comments
 Avoid argumentation
 Too many reasons can dilute an argument
 Make fewer counterproposals
 Too many concessions
 Too much compromising
 May indicate lack of adequate planning
and show invulnerability
25
Negotiation Planning
 Develop plan and overall strategy
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Specific strategies
Research
Actions
Tactics
26
Reasons for Failed Negotiations
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Neglect other party’s problems
Focus too much on price
Focus on positions instead of interests
Focus too much on common ground
Neglect BATNAs
Over-adjust perceptions during
negotiation
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Analyze Each Party’s
Strengths and Weaknesses
 Understand through research and
experience
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Personality
Negotiation style
Education and experience
History
 Assess relative strengths and
weaknesses, i.e., your “due diligence”
 Each negotiation experience is unique
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Gather Relevant Information
 Previous experience with other party
 What happened between parties?
 Was negotiator satisfied with previous
outcome?
 Are we negotiating with same people or
with new negotiators?
 What were important issues to supplier?
To buyer?
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Gather Relevant Information
 Previous experience with other party
 What were areas of disagreement?
 Is there anything about previous protocols
that should be changed?
 What is relative power between parties?
 Who has most to lose? To gain?
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Sources of Information
 Other buyers or organizations with
experience with supplier
 Published sources of information
 Trade journals, other business
publications, and Internet websites
 Trade association and government data
 Annual reports
 Financial evaluations and databases
 Direct inquiry with supplier
31
Recognize Your Counterpart’s Needs
 Must consider long-term success
 Issues critical to supplier may not be
issues critical to buyer, and vice versa
 Give-and-take must be considered
 Each party should not expect to prevail in
all issues
 Setting priorities for concessions and
issue tradeoffs
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Identify Facts and Issues
 Fact
 Reality or truth that parties can state and
successfully verify
 Issue
 Items or topics to be resolved
 Triangle Talk is a helpful tool
33
Establish a Position on Each Issue
 Need for agility and flexibility
 Range of positions
 Minimum acceptable position (BATNA)
 Maximum, or ideal, position
 Most likely outcome
 Overlapping positions create
bargaining or settlement zone
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Bargaining Zone Example
Buyer
Zone of
Likely
Agreement
$11.15
Aspiration
Point
BATNA
$11.45
BATNA
Aspiration
Point
$11.00
$11.50
Note:
Example shown is typical
buyer-seller price negotiation
Seller
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Develop the Negotiation Strategy
and Accompanying Tactics
 Strategy
 Overall approach used to reach mutually
beneficial agreement
 Tactic
 Art or skill of employing available means
to accomplish an end, objective, or
strategy
 Includes supporting action plan and
activities
36
Practice the Negotiation
 Applies to complex and formal
negotiations that are …
 Large dollar amount
 Long span of time
 Crucial to success of organization
 Mock or simulated negotiation
 Helps raise awareness of unanticipated
questions and issues
 Role play other party to develop empathy
37
Power in Negotiation
 Power
 Ability to influence another person or
organization to do something
 Power by itself is neither good nor bad
 It is actual application or use of power that
makes it good or bad
 Sources of negotiating power
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Sources of Negotiating Power
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Informational power
Reward power
Coercive power
Legitimate power
Expert power
Referent power
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Informational Power
 Ready access to relevant and useful
information
 Presentation of facts, data, and
persuasive arguments
 Need for selective disclosure
 Can be manipulated by withholding
information or by providing false
information
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Reward Power
 One party is able to offer something of
perceived value to other
 Direct attempt to exert control
 Individuals respond and behave
accordingly when valued rewards are
available
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Coercive Power
 Taking away or withholding something
of value to other party
 Ability to punish
 Financially, physically, or mentally
 Can have damaging effects on longterm relationships
 Promotes retaliation or getting even
42
Legitimate Power
 Power based on job position held
 The higher the job position or title, the
greater the power inferred
 May be separate from reward power or
coercive power
 Buyer has legitimate power due to
his/her ability to award contract
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Expert Power
 Special form of informational power
 Development and retention of body of
knowledge
 Often represented by verifiable
credentials
 Reduces likelihood of refuting position
 Other party must value expertise in order
to be effective
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Referent Power
 Comes from attraction based on
socially acceptable personal qualities
and attributes
 Personality or attractiveness
characteristics such as …
 Physical
 Honesty
 Charisma
 Friendliness
 Sensitivity
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Application of Power
 Used to support one’s advantage
 Need to be careful not to abuse power
 Damaged relationships
 Invited retaliation
 Diminished value of that power
 Some types of power interact
synergistically with others
 Example – expert and referent power
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Concessions
 Movement away from position that has
perceived value to other party to gain
something of value
 Give-and-take process is normal in most
negotiations
 Need to avoid giving away concessions
without receiving something of equal or
greater value in return
 Always keep BATNA in mind
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Concessions
 Without effective concessions strategy,
negotiation may result in impasse
 Concessions should be made in
decreasing increments, not increasing
ones
 Increasing concession values encourage
other party to wait you out for even greater
concessions
 Based on length and cost of negotiation
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Guidelines for Making Concessions
 Give yourself enough room to make
concessions
 Try to get other party to reveal his/her
needs and objectives first
 Be first to concede on a minor issue
but not first on a major one
 Make unimportant concessions and
portray them as valuable
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Guidelines for Making Concessions
 Make other party work hard for every
concession made
 Use tradeoffs to obtain something for
every concession you make
 Generally, concede slowly and give
little with each concession
 Do not reveal your deadline to other
party – ever
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Guidelines for Making Concessions
 Occasionally, say “No” to other party
 Be careful trying to take back
concessions, even tentative ones
 Keep a record of concessions made
and try to identify a patterns
 Do not concede too soon, too often, or
too much
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Negotiation Tactics:
Trying to Reach Agreement
 Short-term plans and actions employed
to ...
 Execute strategy
 Cause a conscious change in other party’s
position
 Influence others to achieve one’s own
objectives
 Can be either ethical or unethical
 Tricks or ploys
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Common Negotiation Tactics
 Low ball
 Honesty and
openness
 Questions
 Caucus
 Trial balloon
 Price increase
 High ball
 Best and final
offer
 Silence
 Planned
concessions
 Venue
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Cialdini’s Power of Influence
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Reciprocation
Consistency
Social proof
Liking
Authority
Scarcity
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Reciprocation
 Obligation to give something back of
equal or greater value to someone after
having received something from them
 Creates powerful obligation response
 Can be used effectively when giving
concessions
 Patterns of concession
 Quid pro quo
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Consistency
 People tend to want to be perceived as
being consistent in their beliefs and
actions
 Otherwise considered to be irrational
 It is difficult to back away from
something already agreed to
 Beware of the consistency trap
 Small commitments often lead to much
larger ones
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Social Proof
 Looking to behavior of others to
determine what is desirable,
appropriate, and correct
 Power of endorsement
 Everyone else is doing it
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Liking
 People work well and are more
agreeable with others that we like or
who are like us
 Get to know other party better to build
on relationship when concessions are
being offered
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Authority
 People are more likely to accept
positions, arguments, and directions
from recognized authority figures
 Power of titles and perceived
importance
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Scarcity
 Can also be “perception” of potential
scarcity
 “Act now!”
 “For a limited time only!”
 “Offer expires tomorrow!”
 Suppliers often use potential price
increases as a scarcity technique
 “Twenty percent price increase effective at
the first of the month!”
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Overcoming Tactics
 Modify tactics when they don’t work
 Prepare for likely tactics to be used
against you
 Tactics are more effective on you if you
are unprepared, stressed, under severe
deadlines, inexperienced, fatigued, or
disinterested
 Try not to react without thinking
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Win-Win Negotiation
 Win-lose
 Competitive or distributive bargaining
 “Fixed sum game” perception
 Win-win
 Collaboration or integrative bargaining
 Expand the value or resources available to
all participants
 Requires time, patience, and creativity
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Win-Win Methods
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Expand the pie
Logroll
Use nonspecific compensation
Cut costs for compliance
Find bridge solution
63
International Negotiation
 Added complexity and challenge, with
different
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Languages
Customs
Laws
Cultures
 Extra time and effort required
 Culture shock
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International Negotiation
 Barriers and obstacles
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Miscommunication
Time limitations
Cultural differences
Limited authority of foreign negotiators
 Need for knowledgeable translators
 Culture and language
 Industry and business concepts
65
Culture Shock
 Negotiator’s pre-existing values,
beliefs, rules, and decision-making
schema are challenged
 Emotions run higher
 May encounter substantial
 Anxiety
 Disorientation
 Confusion
66
Characteristics to Overcome Barriers
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Patience
Knowledge of contract agreement
Honest and polite attitude
Familiarity with foreign cultures and
customs
 Recognize that common words may
have different meanings, even between
similar countries or cultures
67
Caveats when Negotiating Overseas
 Don’t think that everyone else thinks
and negotiates like you do
 There is danger in stereotyping or
oversimplifying the interpersonal
characteristics of other cultures
 There is always substantial interpersonal
variation within any culture
 However, there are often common
tendencies
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Impact of Electronic Media
on Negotiations
 Electronically-based negotiations tend
to equalize differences between parties
 Normal visual and auditory clues are
diminished or not readily apparent
 Status differences and social differences
are less discernible
 Problem of being anonymous
69
Impact of Electronic Media
on Negotiations
 E-negotiations take more time than
face-to-face negotiations
 Outcomes tend to be less satisfying
 E-negotiations are more impersonal
and do not promote rapport
 Interchange is often more aggressive
and less diplomatic
 Messages are often misconstrued and
taken out of context
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Impact of Electronic Media
on Negotiations
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Negotiators tend take more risks
Real time vs. asynchronous
Loss of information richness
More difficult to provide feedback and
conduct active listening
 E-negotiators ask fewer questions and
tend to make more assumptions
 What does “silence” mean?
71
Mitigating the Negative Effects of
Electronic Negotiation
 Conduct an initial face-to-face meeting
to build rapport
 At a minimum, have an extended telephone
conversation
 Take extra time to carefully reread and
edit e-mails before sending them
 They are irretrievable and can be easily
forwarded to others
 Double-check “to:” and “cc:” addresses
72
Mitigating the Negative Effects of
Electronic Negotiation
 Use generally accepted e-mail protocols
 Clear, concise language
 No all caps, excessive punctuation
symbols, underlining, bolding, italics, or
“off-the-cuff” comments
 Don’t copy e-mail to recipient’s
superiors
 Perceived as you not trusting the recipient
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