Two Kinds of Negotiations
NEGOTIATING
Basic Concepts and Ideas for Management Negotiations
• Distributive: Who will claim the most value; Zero‐sum Negotiation
– Wage negotiations between management and unions
– Buying a car Two Kinds of Negotiations
Distributive v. Integrative
• Distributive
• Integrative: Cooperation to achieve maximum benefits; Win‐win negotiation
– Long term partnerships
– After financial terms or competitive aspects of a deal have been set
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Win‐lose
Individual gain
Opposed interests
Short‐term
Single issue
Not flexible
Not creative
• Integrative
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Win‐win
Joint gain
Congruent interests
Long‐term
Multiple issues
Flexible
Creative
Distributive or Integrative?
Distributive or Integrative? • During an employment interview, a physician knows he only needs the job for six months. Because of that, he intends to negotiate for the highest salary possible, no matter what other benefits may be offered.
• A hospital wants to separate its property from its neighbor with a high wooden fence. The neighbor company thinks a high wooden fence would be an eyesore.
Multiphase and Multiparty Negotiations
• Implemented over time in different phases
Strategies for Multiphase Negotiations
• Familiarity with other party’s communication and negotiation style
• Context allows parties to negotiate based on follow‐through and continuing communication
• Build trust
• One hospital system buying other hospitals
• Monitor other party to insure follow‐up
• A hospital buying group practices
• Walk away from disconcerting negotiations
Multiparty Negotiations
Strategies for Multiparty Negotiations
• More than two party's
• Your party’s interest and coalition interests
• Natural coalitions: Shared interests
• If weak, consider forming a coalition with others
• Single‐issue coalitions: Unite to support or block a single issue
Four Concepts for Establishing a Negotiation Framework
• “A negotiated solution is only advantageous when a better option in not available.”
• Best Alternative to a Negotiated Settlement (BANTA)
• Reservation or walk away price
• Zone of Possible Agreement (ZOPA)
• Value Creation Through Trades
• Breaking other party coalition: successful when if is a single issue coalition
BANTA
• Preferred course of action in the absence of a deal
• Knowing alternative actions absent of a deal
• Point of saying “no” to an unfavorable deal
• Know BANTA before negotiating
You’re negotiating a lease agreement on office equipment with a salesperson (A) for the supplier.
Reservation Price
• Accept the deal only if the A is lower than the highest monthly fee you’re willing to pay.
• Walk‐away point
• Meet with another office equipment supplier to see what their leasing arrangements cost.
• Derived from BANTA, but not the same • Buy used office equipment instead of leasing new equipment. • May be similar if it is only about money
BANTA v. Reservation Price
• When preparing to negotiate with a commercial landlord over a lease for office space, you consider that you are currently paying $20 per square foot. This number is your BATNA.
• You also take into account the fact that the new location would be closer to clients and provide a more attractive workspace, thus you'd be willing to pay $30 per square foot. That's your reservation price. • If more than $30 per square foot is required, you'll walk away and attempt to lease space in a different building. • During the negotiation the landlord insists on $35 per square foot and won't accept anything lower, thereby indicating that his reservation price is $35 per square foot.
Value Creation Through Trades
• Negotiating parties can improve positions by trading the values at their disposal
• Integrated negotiations
• Each party gets something in return for something it values much less
• Book collectors; professional athletes
ZOPA
• Range in which a deal can be made
• Reservation price determines ZOPA’s
– A buyer has set a reservation price of $275,000 for the purchase of a commercial warehouse and would like to pay as little as possible. The seller has set a reservation price of $250,000 and would like to obtain as much as possible. The ZOPA,
– Therefore, is the range between $250,000 and $275,000.
Preparing to Negotiate: 9 Steps To A Deal
1. Determine satisfactory outcomes first
Good for you, good for them
Motivations, concerns, needs of party's
2. Identify opportunities to create value
Common ground, compromise, trades
3. Identify you BATNA and reservation price
Yours and theirs, if possible
Recognize when to hold ‘em, when to fold ‘em
Preparing to Negotiate: 9 Steps To A Deal
4. Improve your BATNA
– Determines “say no” point
– Improve BATNA before and during talks
5. Assess who has authority
– Decision maker; authority of negotiator
– Establish at the beginning of negotiations
6. Study the other side
– Personality, style, background, culture, goals values; personal connections, research
Negotiation Tactics
• At the beginning:
– Positive tone, openness to other sides concerns
– Review agenda
– Discuss expectations
– Offer information about interests and concerns, but be cautious
Tactics for Integrative Negotiations
• Inquire about the other sides interests, needs, concerns
• Provide significant information about your circumstances; your interests, issues constraints.
• Look for differences to create value
• Take your time
Preparing to Negotiate: 9 Steps To A Deal
7. Prepare for flexibility in the process
– Be patient, not always as planned
– New people, unexpected developments
8. Gather objective criteria for fairness
– Continuing relationship with other side
– Explain what is favorable/unfavorable
9. Alter the process in your favor
– Hidden or set agendas; make logistical changes
Tactics for Distributive Negotiations
• Disclose little, learn much
• Establish an anchor: start first offer in the right place
• Make cautious concessionary moves
• Set time lines
• Offer multiple proposals and/or packages
• Signal Interest in closing the deal
Barriers to Agreement
• Die‐hard bargainers
– Know their game
– Be guarded in the information you disclose
– Suggest alternative options if they do not share information
– Be willing to walk away
Barriers to Agreement
• Lack of trust
– Emphasize the need for integrity
– Request documentation
– Add contingencies; penalties for noncompliance or incentives for early performance
• Differences in gender and culture
– Study and realize differences
– Consider assumptions each party brought to the table
• Difficulties in communication
– Ask for a break
– Raise the misunderstood issue for clarification
Mental Errors in Negotiations
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Irrational escalation
Partisan perceptions
Unreasonable expectations
Overconfidence
Unchecked emotions