Negotiation Midterm
-Having an understanding of negotiation allows you to use it as a lens to evaluate complex social reality
Negotiation is not just hard bargaining tactics, but it is managing people and relationships
-Evaluate the tie between individuals
Even non-professional negotiators can learn to take advantage of the negotiation lens!
Productivity
Leadership
Knowledge creation
2. Experience is the best teacher
3. There is one right way to negotiate
4. In every negotiation there is a winner and a loser
5. Good negotiators are tough
6. Men are better negotiators
7. It’s better to negotiate with people you know well
8. Negotiation is about the bottom line
9. You will know when you’ve had a successful negotiation
10. Always go with your gut
Request a more reasonable offer
Make a counter offer
-Goals of both parties are in direct opposition
-Resources are fixed and limited
-A gain by one party is a commensurate loss by the other party
-Goals may be in alignment with each other
-Growing the pie as much as possible
-A gain by one party may also be a gain by the other; same with loss
Impasse is sub-optimal when positive zone
Reach agreement is a mistake for somebody when negative zone
In reality, its extent is hard to determine a priori
-BATNA
How can you set a target point or an aspiration point without knowing the other party’s reservation point?
-Preparation + Information
The most advantageous course of action a party can take if negotiations fail and an agreement cannot be reached
Reservation Point is a number – the highest (lowest) dollar amount that you must get to make the deal worthwhile for you
Turning a possible behavior into a number is tricky
2. Information Exchange
3. Explicit Bargaining
4. Negotiated Agreement
-Leverage: use your situational advantage
-Types of leverage: positive, negative, normative
Strategies
-Influence your counterpart’s perceptions to claim value
Tactics
-Concession patterns and tough techniques to implement your strategy
Leverage: Which side, at any given moment, has the most to lose if they don’t reach an agreement?
But remember what really matters is the other party’s perception of your leverage. You have the leverage the other party thinks you have
Leverage: Capacity to cause serious damage to, or inflict a huge cost on, the other party
-You can have little or no power in terms of resources yet negative leverage (example: “I thought we were here to negotiate” clip)
-Negotiate off the Kelly Blue Book Value
-Will not discuss price until all other aspects have been discussed (Many of these are cultural – national, organizational, etc.)
Provides authority, consistency, shared meaning
-e.g., Beware of “consistency traps”
Justice Norms: equity, equality, need
Influence counterpart’s perceived alternatives
Get counterpart to move closer to reservation point
Get counterpart to feel this is the best settlement
-ego satisfaction and feelings matter; they don’t know your RP; subjective value
Offer reason, be persuasive; ask for a rationale and point out flaws
Make them think you are in a strong leverage position (their alternatives are much worse if no deal)
*Hardball tactics (Lewicki reading)
Congratulate them on the deal
Discuss them
Respond in kind
*Co-opt the other party
Assume the close, get out the paperwork
Split the difference, simple and effective
Exploding offers, deals that expire quickly
Sweeteners: “If we close, I’ll throw in…”
Identify BATNA, RP, TP, & AP
Shape counterpart’s perception of ZOPA, BATNAs, and leverage positions
Invoke standards and norms strategically
Make your counterpart believe they got the best deal possible
Can you unbundle one issue into multiple issues?
Can other issues be brought in?
Can side deals be made?
Do parties have different preferences across issues?
Have to identify which issues can help you create value (integrative) and which can help you claim value (distributive)
Value creation is determined by whether or not the negotiation is efficient
The pie is as big as possible
The fairest solution is one that maximizes the product of the differences between the utility of the agreement and the utility of non agreement for party A and for party B
“Win/Lose” bias
End up leaving value on the table
Negotiate on the issues that will allow you to grow the pie
Claim your part of the pie
Negotiate with integrity for a good implementation
Strategies
Tactics
-asking questions
-doing your resources
Trust
-sharing information
-act honestly
-find commonalities
Differences
-do you value the same things?
-don’t let emotions drive the discussions
Focus on interests, not positions
-interests: fears, concerns, unmet needs
Invent options for mutual gain
-get creative and don’t dismiss new ideas too quickly
Use objective criteria to evaluate options
-legal requirements, norms, market prices, professional standards
-look for relationships between issues to capitalize on different interests
*-i.e., Logrolling
Make multiple equivalent offers simultaneously
Capitalize on different preferences!
Perspective taking
Trust
Invent Mutual Gain
Separate the person from the problem
Share appropriate information
Don’t let your assumptions get in the way!
Power as a property of the relationship; not of the individual
-social power
Coercive Power vs. Influence Power
-negative sanctions vs. positive
You can have little power and a lot of leverage in a specific situation/negotiation (and vice versa)
-Improve your own BATNA
-Influence the other party’s BATNA
Role Power
-Role/title/position
Relationships
-Coalitions
Psychological Power
-Feeling in control/confident
E.g., reciprocity, precedent, ethics, fairness
-Contractually established (most concrete)
-Legally established through precedent
-Best practices in industry
-Socially recognized norms (most abstract)
Can be invoked even (especially) by the powerless
-Influence by rights =/= Coercion by power
Have to ask questions and do research to understand the interests
-Humble inquiry
Interests provide opportunities for creative agreements
When negotiations have broken down and parties are at an impasse
When someone violates a rule or breaks a law
Be ready to follow through with the threat if necessary to preserve your credibility
Combine threats and interests based approaches
When making a threat, give a chance to the other party to turn off your threat without losing face
Acting on a threat takes away your power
Using power can result in higher resource consumption and/or opportunities lost
-escalation of commitment
Power contests can injure people/relationships and can lead to the desire for revenge
Rights are usually less costly, but can still impose costs
-do not return rights for rights or power for power
-instead, redirect towards problem solving
No unilateral concessions
-essentially is rewarding bad behavior
Combining Communication Types
-“If you do x, I could do y, but why don’t we do z?”
Label the process
-“We both know how contract disputes work. The’s move on…”
-Are the public interests aligned with the organization’s interests?
Despite power advantages, rights-based opposition can be quite potent
-Rights-based moves focus from a power struggle to normative expectations
Coalitions can neutralize power advantages
-they can generate and enhance OR neutralize power
One size does not fit all
-Just because something worked in one context does not mean it can be applied blindly in another
Based on three assumptions
But, neoclassical economics is not representative of how people actually behave
Individuals maximize utility and maximize profits
People act on the basis of relevant information
-Limitations in access to information
-Limitations in information processing (calculating)
-Limitations in motivation to optimize (satisficing)
Systematic cognitive biases emerge: not just noise
Systematic – we can predict directionality
Error – departure from accurate judgement
Lack of Awareness – unintended decision making error
-Last two digits of your social security number….
-Is the population of Indonesia greater than or less than 50 million?
Then they fail to adjust their scaling properly
-Making offers/concessions within the constricted zone
Question your counterpart’s offers and ask them to explain their rationale for those key figures
Plot out the pattern of offers and concessions
Avoid risk when problems framed positively (gains)
Seek risk when problems framed negatively (losses)
Losses loom larger than gains (by ~2 times)
-Done to justify prior commitment to that behavior
-Both self-justification (self-image) and others
-There is a cultural bias towards consistency
-Don’t want to be a “flip flopper” (think politics)
Foot-in-the-door technique: start with a small request, makes a bigger one more likely
Recognize your own level of commitment. Stop and ask yourself whether the sunk costs are worth moving forward
Natural inclination to go with the current or previous decision
Example: organ donors
Ask yourself what your options are; don’t let the status quo be your only option
Irrationally filtering out disconfirming information
Leads to overconfidence, which is problematic
-impedes information sharing, creative problem
-leads to more impasses
Have humility: your partner may hold unique information
Gain Perspective: ask others to play devil’s advocate
When a person’s subjective confidence in his or her judgements is reliably greater than the objective accuracy of those judgements
Use third parties to help establish facts
All parties were disappointed
Raised resentment in Germany and other countries that didn’t obtain desired territories
Prone to error due to the fact that our experience and knowledge is limited
Shapes information to be confirmatory
Leads to overconfidence, assumptions, and blind spots
Aggravated the situation because it was interpreted as an accusation that Germany was the only country responsible for the evil of the war
German headquarters was in the hotel basement – with hidden microphones
Germans were left to wait without a reason
Made them incapable of assessing the situation objectively, which led to unreasonable sanctions
German delegation’s anger at the way they had been treated and at the supposed “war guilt clause”
German national sense of humiliation, which would then lead to nationalistic sentiments as well as an acute desire for revenge
Don’t assume your conceptions are correct or the only existing
Be aware of the stereotypes the other party may have about you and what you can do to alter those perceptions
Cool off and reappraise the situation
Think long-term: people may not forget and harbor resentment for a long time
The traits ranked as least important for a successful negotiator are all female stereotypes
Women are less aggressive/competitive
Initial differences in salary negotiations between men and women yield $500K in accumulated wealth over the course of a career
-women who gain more in distributive negotiations are more negatively evaluated
-women who initiate a salary conversation with their managers are viewed as less likable than men who do the same
Stereotype threat
-women perform worse on math tests when they are subtly primed with a negative stereotype about women’s math performance
Stereotype Reactance
-on the contrary, women outperform men when they are explicitly reminded of a negative stereotype
Carefully craft your language so that it seems like a conversation and not a threat
Think about the people outside the negotiation whom you are representing
Research what male colleagues in a similar position are making; use it as a target price
Know the norms – is negotiating acceptable?
Depends on power dynamics and appropriateness of anger (think tactical usage)
Become angry yourself (genuinely)
Be unwilling to act with that opponent again
Make enemies
-tense body, agitated, higher heart rate
Take a Break
-do not ruminate on the incident
-think about a pleasant situation
Avoid negotiator bias (view our intentions as pure and theirs as hostile)
-are our motives really that pure?
-think of possible explanations for their behavior
Assess whether it’s genuine or strategic
If genuine, determine the source
Either way, never concede to satiate anger!
Apologize if your fault
Help them to save face
Involve a mediator if necessary
Silence makes them realize that they look ridiculous or that you feel sorry for them
It deprives them of arguments to use against you
Short-lived and intense reaction to a stimulus
Emotional Registration (internally experienced)
Emotional Experience (internally experienced)
Expressive Cues (externally visible)
Registration can run from subconscious to explicit
Two dimensions: Valence (good/bad) and activation (high/low energy)
Both verbal and non-verbal
Expressive Cues become the stimulus for the counterpart
Ask Questions
-“You are telling me you like this outcome, but you seem uneasy. Is something making you uncomfortable?”
-“You say you’re angry, but you seem somewhat pleased. Are you truly upset about something? Or are you trying to intimidate me?”
Other Awareness – perceiving emotion
Using Emotions – facilitating emotion
Regulating Emotion – managing emotions
Understanding their motives, cognition, and emotions can enhance your position
Slowing thinking down and being more aware will help you avoid falling victim to biases and stereotypes
Helps build trust between you and your counterpart
Examples: Did that make you angry? Why didn’t you say something to the group?
Examples: How did you feel about that? What are you going to do next?
Example: What is happening right her, right now, between us?
Examples: What’s going on here? Can you give me an example?
Listener does not give any cue nor looks for any cues
Tests your understanding of what they are saying (verbal content)
Shows your sensitivity to how they are saying it (non-verbal cues)
Quick reassurance
Advising
Digging for information
Patronizing
Preaching
Interrupting
-fundamental notions of bargaining, what is expected, what is acceptable, etc. is in part determined by culture
Culture exists on many levels
-country
-gender
-level in an organization
-organizational culture
A way of thinking, behaving, or working that exists in a particular society
Values, beliefs, and norms lie much deeper
Assumptions come from an even deeper part of the culture iceberg
At the same time, because there are cultural differences, it may be very difficult to tap that potential
-Priority given to the self (i.e., assertive)
-Organizations reward individuals
-Preference for more formal dispute resolution
Collectivists:
-Priority given to the group (i.e., cooperative)
-Organizations reward groups
-Preference for more informal dispute resolution
Implications for negotiation:
-Identification of the parties involved
-Duration of the negotiation process
-In-group favoritism
-People treated according to social status
-Superiors have power in resolving conflicts
Low power distance:
-People generally are treated equally, regardless of social status
-People are empowered to solve conflicts together
Implications for negotiation:
-Choosing representatives
-Negotiation conduct
-Finalizing the deal
-Information is communicated directly and explicitly
-The message holds the meaning
High-context (indirect communication):
-Information is communicated implicitly, thorough the context and behavioral cues
-Meaning may need to be inferred
Implications for negotiation:
-Difference in information-exchange strategies
-Integrative agreements
High power distance vs. Low power distance
High-context vs. Low-context
Look for side issues that could be added to the deal
Search for differences in the parties’ perceptions that could be capitalized on by a contingent contract
-an if/then agreement
-utilizes parties’ different forecasts or preferences
-specifies the actions negotiation parties are to take if a certain circumstance (a contingency) materializes
Based on differences in expectations of outcomes
Leveling the playing field
Diagnosing deceit
Reducing risk
Motivating performance
-Each of two companies is confident that it can sell 50M of the other’s product in the first year
Contingent Contract
-Each side’s ownership hinges on first year sales
-If both achieve targets or miss by same amount, they each own half of the venture
-If one side misses more than the other, it will forfeit its equity
A contingent contract with a baseline payment and a sliding scale of payments based on post-acquisition performance allows the sale to go forward but delays the determination of terms until the information has become symmetrical
Contingent contracts are particularly useful because they allow a negotiator to test the other side’s veracity in a nonconfrontational matter
Example: A retailer is making a purchase from a vendor. Demand is uncertain.
-If demand is higher than expected, vendor receives a share of profits
-If demand is lower than expected, vendor takes back merchandise and reimburses buyer
Firm/employee:
-salary based on productivity
-sales commissions
-CEO compensation based on stock performance
-Athlete salary based on field performance
Firm/client:
-Consultancy fee based on the actual success of the project or performance after the intervention; not flat fee
May signal distrust if not presented and discussed openly
Could create perverse incentives
-ongoing relationships
Enforceability
-deferred value
Transparency
-need to observe and measure both sides’ performance
-think about both perspectives
-Ground yourself in context of neg
Negotiating with the right parties?
-who else involved? need to bring people in to fix issues?
-who else has a stake?
-what relationships exist among parties?
-who can I bring on my side? who might join the other side?
-whom should I talk to first?
-whom should I contact simultaneously?
Approaching the parties at the right time?
-strengthen BATNA enough beforehand
What information to provide to each of the parties?
-let them know I have other options without scaring or threatening them
Third party dispute intervention – each party interacts with the mediator/arbitrator
Principal-Agent Negotiation – Agents interact with one another on behalf of their respective principals
Agenda Control does induce some stability and predictability
Coalitions help agenda setters to achieve goal
People tend to have “coalitional integrity”
Can provide an opportunity to reduce competition by finding common interests among traditionally competitive parties
Bind people together, even in non-rational ways
Work together for common effectiveness and results
Members have group-interest, not self interest
Practical knowledge of relevant environment (i.e. lobbying, finding allies, effective talking points, media/PR)
Conflicting goals (what to do) and strategies (how to do it)
Jealousy between members, minor disagreements
Too much time required, formality, etc. (by definition, coalitions are secondary to their organizations)
Too small – low power
How to divide pie within the coalition? (Think norms!)
Litigation limits the involvement of represented parties
Litigation puts a decision in the hands of a judge or jury (remember that we’re all prone to cognitive biases!
Litigation is often more distributive in nature even though the dispute in question likely has non-legal issues at stake
-Voice: high
-Process Control: low
-Outcome Control: high
-Satisfaction: high
Arbitration
-Voice: high
-Process Control: high
-Outcome Control: low
-Satisfaction: medium
Litigation
-Voice: low
-Process Control: low
-Outcome Control: low
-Satisfaction: low
The parties retain control over the process, but a third party is given control of the outcome
-each party presents position
-arbitrator makes decision
-can be voluntary or binding
-can rule in favor of one party of suggest a split
Motivates parties to make settlement before arbitration
Saves face because disputants can blame the arbitration process
-gives voice to participants
Keeps disputants out of court system
Not public (unlike litigation)
Not under auspices of legal system
Not available for all disputes
The parties retain control of the outcome, but a third party guides the process
-Each party explains the facts to help a mediator identify and understand the issues
-The mediator does not impose or recommend a solution, but works with the parties to achieve a negotiated agreement
-Let them vent, then cool off, then get to work
Motivate parties to find a solution before litigation
Gives disputants control over the outcome, which must be agreed to by both sides
-Parties are satisfied and committed to the solution
Restore civility and trust into the relationship
Non binding
When parties refuse to cooperate/emotions are high/parties don’t want to be involved in the problem solving process
Parties are not able to talk face-to-face
No legal counsel present; if issue deserves legal attention this could be a problem
Performance issues
Harassment Complaints
Termination
Ombudz
Negotiation
Facilitation
Mediation
Early Neutral Evaluation
Arbitration
Litigation
Formality
Attorney/Client Centricity
Focus (factual/legal issues vs. problem resolution)
Split the Baby vs. Creative solutions
Contractually obligated vs. Voluntary
Binding vs. non-binding
Navigate
Illuminate
Educate
It is necessary to think clearly about how much information you are authorized to reveal
Lying and half truths can get you into trouble
Bias towards agreements: if your BATNA is better – walk away!