Class section: BIEM 16
Cod. 30288
Managerial Skills Seminar
T2:Negotiation
Prof. Alberto Monti
Previously on Communication
• Soft skills are fundamental in differentiating you from other job
candidates (given a similar set of knowledge; WEF)
• It’s a long-life process and what you need to do is to take this
opportunity to test yourself against these 4 topics to see where you
stand and your limits in order to develop your own skills
• Communication is the premises for developing any complex soft skills.
We cannot avoid to communicate
• More than words… is your body language (FBI), tone of voice, the
context, and the ability to read the relationships between senderreceiver (Gran Torino) → what and how you say it and fidelity of the
communication
• If you know the dimensions that can reduce your effectiveness and
therefore the fidelity of your message, you can prepare yourself to
increase the chance that more than the 10% of what you are saying will
be remembered
Introduction
What is Negotiation?
• Negotiation is something that everyone does, almost daily
Negotiation is a “discussion between two or more parties with the
apparent aim of resolving divergent interests”
-- Pruitt and Carnevale, Negotiation in Social Conflict (p. 2)
or
Negotiation is “an interpersonal decision making process necessary
whenever we cannot achieve our objectives single-handedly”
-- Thompson, The Mind and Heart of the Negotiatior (p. 2)
• Negotiation examples
– Friends
– Colleagues/classmates/coworkers
– Significant others
Introduction
Characteristics Common to All Negotiation Situations
• There are two or more parties
• There is a conflict of interest
• Parties negotiate because they think they can get a
better deal than by taking what the other side will give
them
• Parties prefer to search for agreement over:
- Fight openly
- Capitulate
- Break off contact
- Take dispute to a 3rd party
Introduction
Characteristics Common to All Negotiation Situations
• Parties expect give and take.
– They expect both sides will modify or give in somewhat on their
opening statements, requests, or demands
• Successful negotiation involves:
– The resolving of tangibles (e.g., the price or the terms of
agreement)
– The resolution of intangibles (the underlying psychological
motivations)
Introduction
Interdependence
• In negotiation, both parties need each other
• This mutual dependency is called interdependence
– Interdependent goals are an important aspect of negotiation
• One potential consequence of interdependent
relationships is value creation
• The other potential consequence of interdependent
relationships is conflict
Introduction
Why Should Negotiation Be a Core Management Skill?
• Dynamic, mobile nature of business
– It means people must renegotiate their existence in
organizations throughout their careers
• Increasing interdependence of people within
organizations
• Increasingly competitive business world
• Increasingly diverse business world
Does negotiation skill matter for firms?
Grennan AER 2012
• Puzzle
– Why do different hospitals
pay different prices for the
exact same product:
coronary stents?
• Explanation
– Bargaining ability
differences
• Results
– Bargaining ability explains 79% of this price variation
– Bargaining ability has impact on firm profitability
• + 1-SD bargaining ability → + 5% in profits for manufacturers.
• + 1-SD bargaining ability → + 11% profits for hospitals
Should negotiation skills matter to you?
Imagine two college graduates, Bob and Jill, both 22 years
old
– first job offer, salary of
$25,000/year
– negotiates and gets his
offer raised to
$30,000/year
– 3% raise each year
– At age 60: salary =
$92,243
– Savings of $361,171
– first job offer, salary of
$25,000/year
– does not negotiate,
accepts salary offering
– 3% raise each year
– At age 60: salary =
$76,870
Why does negotiation matter to you?
Why we negotiate…
• We require things from others
• Others often require things from us
• These things are often valuable or scarce
So…
• It can pay to be good at negotiating
• Negotiating is a learned skill
Important terms
• Target or aspiration point
– What you want out of the negotiation (best case)
• Resistance point or reservation price
– You’d still be OK here, but no lower (higher)
• Bargaining zone or zone of agreement
– The area between buyer’s & seller’s resistance points
• Best alternative to a negotiated agreement
– Your plan B – allows you to walk if needed
Exercise
Yerba Mate
• Read instructions (15 min)
• Fill out two questions on the information sheet
– Do not share your info with the partner
Remember:
– Do not physically exchange your role with your counterpart
– Do not let the other party to see your information sheet
– Do not make up facts that are not in your confidential role instruction
– However, you can use your information creatively
• Negotiate for 25 min
• Fill out the Subjective Value Inventory (SVI) (5 minutes)
Yerba Mate
Debriefing Questions 1
• According to Thompson “the party who makes the first offer
obtains a better final outcomes” since “first offer act as an
anchor point correlating at least .85 with the final outcome”
• It influences the tone of the discussion (coop vs comp)
• Is always good to do it? Which is a good one?
• Yes, if you are really prepared
• It should be slightly lower than the other party’s RP to be
powerful
• It should be stated with confidence, without ranges and
justified with objective criteria
• The first offer effect can be dampened by focusing on your
own AP or other party’s RP when you counter offer or
rejecting it
Yerba Mate
Distributive Skills Review Questions
• Why do you think your outcome was
different from others’ outcome?
Different reference point focus
➢Did you focus on your RP or AP?
Starting anchor position
➢Did you or the other negotiator make
the opening offer?
42
What was your experience?
Style
• Friendly versus confrontational
• Receptive, understanding, serious
Process
• Steady open conversation
• Private deliberation with formal (counter) offers
Information disclosure
• Lie, obfuscate, confuse
• Share, demonstrate, verify
Perspective
• Short term: get the best possible deal now
• Long term: build relationship for future exchange
Yerba Mate
Key Learning Points
This exercise should have helped you to
understand:
• the importance of planning and
preparation
• making first offers
• the effects of strong anchors
• how to identify and use one’s BATNA
• making principled concessions
43
Tactical Issues in Distributive Bargaining
Who should make the initial offer?
• The anchoring effect
Anchoring is a cognitive bias
• describes the common human tendency to rely too heavily
on the first piece of information offered (the "anchor")
when making decisions.
• occurs when individuals use an initial piece of information
to make subsequent judgments
• once an anchor is set, other judgments are made by
adjusting away from that anchor, and there is a bias
toward interpreting other information around the anchor
Tactical Issues in Distributive Bargaining
Who should make the initial offer? And When?
• According to Thompson “the party who makes the first offer
obtains a better final outcomes” since “first offer act as an
anchor point correlating at least .85 with the final outcome”
• When the price of the item is not clearly defined (e.g. car sales)
• Salary negotiations
• However, quick counters can reestablish the “anchor”
How high or low should it be?
• As high/low as possible without losing credibility
• AKA Planning is fundamental (more on this)
• Aggressive first offers typically lead to good results, because
they give the other party the opportunity to ask for (and receive)
concessions → (more next slides)
More tactical issues
How large should concessions be?
• Reciprocity builds good faith
• Concessions need not be symmetric
• Concessions are highly correlated with satisfaction with the
negotiation outcome – if your opponent feels that you
compromised, he will be more satisfied
When should you make concessions?
• Don’t make large concessions at the end!
• Never EVER make a concession without something in return:
e.g., “if you give me that, I give you this”
• May communicate weakness (especially if you “give up a lot”
and immediately)
• Must be reciprocated
More tactical issues
• Patterns of concession making
Concession Size ($)
Sanda
Linda
Sandra makes 3 concessions
for a total of $12
5
4
Linda makes 4 concessions
for a total of $10
3
2
1
0
0
1
2
3
4
Concession Number
5
Even though the total
value of the concessions
is roughly the same, who
might be advantaged here if
one claims she’s conceded
all she can?
More tactical issues
Should you split the difference?
• You can if she offers. But don’t you offer first.
• She feels better if she offers and you accept.
Should you bluff? (lie?)
• If it is one time only not a repeat game
• If your reputation as a liar matters then don’t
Planning is important
“Everybody has a plan until they get hit”
– Joe Louis
• Very important part of negotiation
• Overconfidence can lead to lack of preparation
• Consequences of Lack of Preparation
– Don’t know what is a good agreement
– Might wrongly assume the other party is like yourself
– Cannot evaluate alternative agreements
Key Issues in Planning
•
•
•
•
Identify the issues
Identify the priorities
Estimate important issues to counterparty
Identify your best alternative to a
negotiated agreement (BATNA)
• Determine own
– Target points
– Resistance points
Key Issues in Planning
• Identify zone of agreement
– Estimate other party’s target & resistance points
• Determine best way to present your
opening offer (or counteroffer)
– Provide strong rationale for your position
• Prepare for tricks and bargaining tactics
Distributive Bargaining
Keys to Effectiveness
• Keys to effective distributive bargaining are:
– Discovering the other party’s resistance point
– Influencing the other party’s resistance point
• Push for settlement near opponent’s resistance point
• Get the other party to reduce their resistance point
• If settlement range is negative either:
– Get the other side to reduce their resistance point
– Modify your own resistance point (if you don’t think to have
alternatives)
– Or ….. walk away (You have a clear and appealing BATNA)
Learning objectives
• To get more experience in distributives types of
negotiation
• To dig into how to define our Aspiration Point and
Resistance Point.
• To start grasping how our “mind” can fool ourselves
26
Exercise
Sugar Bowl
• Read instructions (10 min)
• Negotiate (15 min)
• Remember:
– Do not physically exchange your role with your counterpart
– Do not let the other party to see your information sheet
• NOTE:
– After the negotiation, indicates how much you were satisfied with the deal
using a scale from 1 to 7 with 1 = not at all satisfied and 7 = Completely
satisfied
– WAIT FOR MY COMMAND BEFORE submitting your result,
– then DO NOT DISCUSS
• TIPS:
– Do your best with the information you are given
– Embellish only where needed
27
Sugar Bowl
Concluding remarks
• Preparation
– Key predictor of success is the ability to take the perspective of the other
party
– Unfortunately, it is difficult to focus both on your and other party’s goals
when communicating strategically (Dillard & Marshall, 2003)
– If you focus on your needs and desperations (I am talking about the
sellers) you will likely to make less optimistic opening offers, demand
fewer concessions and ultimately claim a lesser outcome (value)
(Galinsky et al., 2002)
• Bargaining Processes
• Is first offer still a good strategy or not?
– Research indicates that making an extreme opening offer in situation like
this where you have a pretty good idea about the market value is
beneficial to the offered in terms of the value claimed
• Satisfaction (more to come)
– Disconnect: Actual vs Perceived performance
– Expectations drive evaluation
28
Am I going to regret this?
Counterfactual Thinking
• “What might have been…”
• Silver medalists feel less happy than bronze medalists
(Medvec, Madey, & Gilovich, 1995)
• More likely when initial offer is accepted
– Negotiators less satisfied with the outcome when first offer is accepted,
holding outcomes constant
– This emerged even when the objective outcomes of negotiators whose
first offers were immediately accepted were equal to or better than the
outcomes of negotiators whose first offers were not immediately
accepted.
• It is positively related to the amount of preparation for a
subsequent negotiation
• May keep negotiators from making first offer
– This can be bad as first offerers have advantage of being able to anchor
negotiation in their favor
Am I going to regret this?
Counterfactual Thinking: When Your Offer is Accepted
I could have done better…
very 7
much
6
5
Source: Galinsky, Seiden, Kim, & Medvec, 2002
4,8
3,6
4
very
3
little
2
3,1
1
First offer
immediately
accepted
First offer accepted Third offer accepted
after delay
Fixed pie perception
• Assuming your interests and other party’s
interests are opposed
– 80% of negotiators have this perception
– Leads to information availability errors (Pinkley, Griffith, &
Northcraft, 1995)
• More prevalent in individualist cultures like U.S.
due to focus on self (vs. other) interests (Gelfand &
Christakopulou, 1999)
• Fixed pie perceptions made worse under high
time pressure (De Dreu, 2003)
Summary
The “Major Sins” of Negotiation
• Leaving money on the table
– Failing to recognize the potential
• Settling for too little
– Winner’s curse
• Walking away from the table
– Rejecting offers that are better than any other option (Hubris, Pride, or
miscalculation)
• Settling for terms worse than the alternative
– Agreement bias
…of course moving first is not always
a good idea
Baekeland, Leo Hendrik 1863‐1944
Leo Baekeland sold the rights to his
invention, Velox photographic printing
paper, to Eastman Kodak in1899. It
was the first commercially successful
photographic paper and he sold it to
Eastman Kodak for $1 million.
Baekeland had planned to ask
$50,000 and to go down to $25,000 if
necessary, but fortunately for him,
Eastman spoke first.
Amount of Opening Offer
“If agreement is usually found
between the two starting points, there
is no point in making moderate offers.
Good technique would suggest a
point of departure far more extreme
than one is willing to accept.”
Distributive Bargaining
Aggressive first move: Buyer
Seller’s Bargaining Range
Positive Bargaining Zone
Buyer’s Bargaining Range
$5
$10
$15
$20
ST, Seller’s Target Point
BR, Buyer’s Reservation Point
SR, Seller’s Reservation Point
BT, Buyer’s Target Point
Outrageous Aggressive
Moderate
Distributive Bargaining
Aggressive first move: Buyer
Seller’s Bargaining Range
Positive Bargaining Zone
Buyer’s Bargaining Range
$5
$10
$15
$20
ST, Seller’s Target Point
BR, Buyer’s Reservation Point
SR, Seller’s Reservation Point
BT, Buyer’s Target Point
•Targeted inside the ZOPA
•Give away bargaining zone
•Risk: Winner’s Curse
Moderate
Distributive Bargaining
Aggressive first move: Buyer
Seller’s Bargaining Range
Positive Bargaining Zone
Buyer’s Bargaining Range
$5
$10
$15
$20
ST, Seller’s Target Point
BR, Buyer’s Reservation Point
SR, Seller’s Reservation Point
BT, Buyer’s Target Point
Outrageous
•Outside the ZOPA
•Likely to antagonize the other side
Distributive Bargaining
Aggressive first move: Buyer
Seller’s Bargaining Range
Positive Bargaining Zone
Buyer’s Bargaining Range
$5
$10
$15
$20
ST, Seller’s Target Point
BR, Buyer’s Reservation Point
SR, Seller’s Reservation Point
BT, Buyer’s Target Point
Aggressive
•Ought to be credible,
although may not be acceptable
Distributive Bargaining
Pie-Slicing Strategies
• Know your BATNA
• Research the other party’s BATNA / resistance point
• Set high aspirations
• Make the first offer
• Make an aggressive offer
• Counteroffer immediately
Distributive Bargaining
Counter offering
Peripheral reframing strategy:
• Take time. Don’t give in your target yet. Slowly
try and adjust their frame:
– Shift focus from their target to your target
– Shift focus from their target to their BATNA
– Last resort :Focus away from substance to context
Direct reframing strategy:
• Counter offer immediately with an ambitious
offer to attenuate the anchoring effect of their
initial offer
Distributive Bargaining
First Offers / BATNA: Galinsky and Mussweiler (2001)
25
24,8
21,5
Price
20
21,6
19,7
Who made
first offer
30
Seller
Buyer
15
Agreements are more
favorable to seller when
seller makes first offer
and vice-versa.
However, considering the
opponent’s BATNA
negated the framing effect.
10
Upshot? Make first offer,
consider opponent’s BATNA.
5
0
NO
YES
Opponent BATNA Considered?
Distributive Bargaining
Pie-Slicing Strategies
•
•
•
•
•
•
•
•
Know your BATNA
Research the other party’s BATNA / resistance point
Set high aspirations
Make the first offer
Make an aggressive offer
Counteroffer immediately
Avoid stating ranges
Make bilateral (not unilateral) concessions
– Pattern of concessions
– Degree of concessions
Distributive Bargaining
Pie-Slicing Strategies (II)
• Use objective-appearing rationale to support your offers
– Remember that objective criteria are as such depending on the
rules and system of references adopted by the parties.
• Appeal to norms of fairness
– Here you should be concerned about the which rule of fairness
to apply and the preferences and values of the counterpart.
• Don’t fall for the “even split” plot (PERIOD!!!!!)
Distributive Bargaining
The Most Commonly Asked Questions
• Should I reveal my reservation point?
– Usually no, unless the bargaining zone is small. Not for building
trust, other strategies
• Should I lie about my reservation price?
– No (already said several times). Unethical, strategically wrong
(reduces the bargaining zone) and should stick to it even
though you can get a fair deal. It hurts reputation.
– So if you don’t believe in being ethical just do for your selfinterest!!!
• How can I tell whether someone is lying to me?
Distributive Bargaining
Detecting lies
Direct Methods
• Triangulation
– Ask direct questions and look for inconsistencies
• Objective evidence
– To substantiate the claim of the counterpart
Indirect methods
• Use rich modes of communication
• Do not rely on a person’s face
• Tone of voice
• Micro-expressions
• Discrepancies among the above
• Eye contact
• Be aware of egocentric bias
Distributive Bargaining
The Most Commonly Asked Questions
• Should I reveal my reservation point?
• Should I lie about my reservation price?
• How can I tell whether someone is lying to me?
• Should I try to talk the other party out of his or her
reservation point?
– The other person might resent it
• Should I attempt to be fair?
– Yes, it reduces other person resistance. Additionally you want to
help the other party to save the face (not humiliate).
• Should I make a “final offer” or commit to a position?
– Yes, only if you’re ready to walk away (it it’s real)
Exercise
Kukui Nuts
• Negotiate (15 min)
• Remember:
– Do not physically exchange your role with your
counterpart
– Do not let the other party to see your information
sheet
– WAIT FOR MY COMMAND BEFORE submitting your result,
– then DO NOT DISCUSS
• TIPS:
– Do your best with the information you are given
– Embellish only where needed
47
Position “classic” bargaining
• Mode
– Take a position, argue for it, compromise
• Problems
– Creates lock in
– Escalation of commitment
– Impasses
– Endangers long term relationship
– End up making suboptimal compromises
An alternative: Negotiate on the merits
• People
– Separate people from substance of problem
– Communicate clearly, regulate emotions
• Interests
– Focus on the important interests not the positions
– Find there they overlap; ask “why?”; reframe issues
• Broaden options
– Find opportunities for mutual gain
– Generate an array of possibilities before deciding
• Use objective criteria
– Ensure result is based on an objective standard
How to obtain win-win agreements?
• This requires information!!
• Make the pie bigger (if you can)
– Examples from other situations?
• Selling a house
• Salary negotiations
• Union/labor agreements
• This requires creativity
– Think about objects of negotiation differently
• E.g. orange have two main components
Two types of negotiation
Distributive bargaining
• “A negotiation
approach in which
the goals of the
parties are in
conflict, and each
party seeks to
maximize its
resources.”
Quick and Nelson, 2010: 432
Integrative negotiation
• “A negotiation
approach that
focuses on the
merits of the issues
and seeks a winwin solution.”
Quick and Nelson, 2010: 432
Integrative Bargaining:
Telltale Signs of Win-Win Potential
• Does negotiation contain more than one issue?
– Allows for possibility of trading off to achieve joint gain
• Though increased # issues results in lower negotiator satisfaction
due to counterfactual thinking (Naquin, 2003)
• Can other issues be brought in?
– Bring in issues that were not previously considered
• Can side deals be made?
– Example: logrolling, etc.
• Do parties have different preferences across negotiation
issues?
– By definition this is win-win potential!
Integrative Bargaining:
Strategies That Do Work
•
•
•
•
•
•
•
•
Focus on commonalties rather than differences
Address needs and interests, not positions
Commit to meeting the needs of all
Exchange information and ideas
Invent options for mutual gain
Use objective criteria for standards of performance
Depersonalize the problem
Separate the problem definition from the search for
solutions
Integrative Bargaining:
Strategies That Do Work
• Bargain in teams….Why?
• Teams increase the size of the pie (Morgan & Tindale,
2002)
• They exchange much more information about their
interests and priorities (Carnevale, 2007)
• It is not even necessary that they meet in privately
caucus (Thompson et al, 1998)
• However, in extremely competitive tasks teams are more
likely to behave in a competitive fashion (Morgan &
Tindale, 2002)
Integrative Bargaining:
Groups Are Better
Source: Morgan and Tindale (2002)
Integrative Bargaining:
But Friends Are Worse
Joint Profit
Source: Thompson & DeHarpport (1998)
• People negotiate worse
agreements with friends
when it is framed as
negotiation—why?
• Concern for relationship
maintenance decreases
their aspirations
• Recommendation: Frame
negotiations as problemsolving—friends reach better
joint outcomes when task is
framed as problem-solving
Integrative Bargaining:
Take Learning Orientation
• One set of teams were
instructed to create a
learning process that
would “yield an
improvement in their
negotiating skills”
• Other set of teams were
instructed to “achieve
maximum total gains”
• Teams with learning
orientation reached more
profitable agreements
10500
10000
Joint Profit
9500
Performance
teams
9000
8500
8000
7500
Learning
teams
7000
6500
6000
First
Last
Negotiation Round
Integrative Bargaining:
Strategies That Do Work
•
•
•
•
•
•
Bargain in teams
Ask diagnostic questions (find out interests)
Un-bundle the issues
Make package deals, not single-issue offers
Make multiple offers simultaneously
Avoid distributive reputation
– Individuals view negotiators with distributive reputation as having
questionable intentions and use more distributive tactics
(Tinsley, O’Connor, & Sullivan, 2002)
Integrative Bargaining:
Capitalizing on Differences
• Valuation: negotiators have different strength of preference for
different issues (logrolling)
• Expectations: negotiation involves uncertainty so negotiators differ
in what they expect in the future; each can ‘bet’ on its expectation
• Risk: negotiators might agree on the probability of certain events but
feel differently about taking risks, so one party absorb more risk for
more now and other can settle for slightly less of a ‘sure thing’
• Time preferences: people may value the same event quite
differently depending on when it occurs (house completion)
• Capabilities: people differ in capabilities, endowments, and skills –
what might be hard for one party might be easy for other
• REMEMBER THAT SOME OF THE BASIC DIFFERENCES WE
CAN CAPITALIZE ON ARE BASED ON CULTURAL
DIFFERENCES →
Cross-Cultural Negotiation
How do cultural differences influence negotiation?
• Differing definitions of negotiation
– competitive (U.S.) vs. information-sharing (Japan)
• Differing degrees of protocol
– formal (titles, cards) vs. informal (U.S.)
• Differing views about time
– punctual/fast (U.S.) vs. flexible/slow
• Differing risk propensities
– risk-seeking (U.S.) vs. risk-adverse
• Communication
– Direct (U.S.) vs. indirect