What is Negotiation?
Negotiation is the mean by which people deal with their differences. Whether those differences involve purchase of a new automobile, a labor contract dispute, the terms of sale, a complex alliance between two companies, or a peace accord between warring nations, resolutions are typically sought through negotiations. To negotiate is to seek mutual agreement through dialogue.
A business negotiation may be a formal affair that takes place across the proverbial bargaining table, in which you haggle over price and performance.
It could be much more casual, such as meetings of a manager with his subordinate employees whose collaboration is needed to get a job done.
If you are a supervisor, manager, or executive, you spend probably a good part of your day negotiating with people inside or outside your organization – often without even realizing it.
Given the role of negotiations in our personal and professional lives, it is important to improve our negotiating skills. Even a modest improvement in those skills can yield a sizable payoff, such as larger pay raise, a better deal on a home purchase, or more effective working arrangements in the office.
Types of negotiations
Distributive Negotiation: A negotiation in which the parties compete over the distribution of a fixed sum of value. The key question in a distributed negotiation is “who will claim the most Value”?. In distributive negotiations, a gain by one side is made at the expense of the other.
Distributive Negotiation can also be referred as a Zero-sum, or constant-sum, or the win-lose situation.
A seller’s goal is to negotiate as high as possible, a buyer’s goal is to negotiate as low as possible.
Distributive negotiation is more like a tug of war, each negotiator aims to “pull” the final deal point as close to his or her side’s desired price as possible.
Information plays an important role in Distributive Negotiation. The less the other side knows about your weaknesses and real preferences, and the more it knows about your bargaining strength, the better will be your position.
Key points to remember to achieve success in Distributive negotiation
The first offer can become a strong psychological anchor point, that one sets the bargaining range. The negotiation outcomes often correlate with the first offer. So start at the right place.
Do not disclose any significant information about your circumstances-Including why you want to make a deal, your real Interests or business constraints, your preferences among issues or options, or the point at which you would walk away from the table. It is advantageous, however to let the other side know that you have the good option if this falls through.
Information about the other side can benefit you. Learn as much as possible about the other side’s circumstances and preferences-Including why they want to make a deal, their real Interests and business constraints, and their preferences among issues or options.
Exploit what you learn about the other side in setting your first offer or demand.
Don’t overshoot. If you claim aggressively or greedily, the other side may walk away. You will have lost the opportunity to make a deal.
Integrative Negotiation: A negotiation in which the parties cooperate to achieve maximum benefits by integrating their interests into an agreement. These deals are about creating values and claiming it.
In Integrative negotiation your task is two fold:
1) to create as much as value for you as well as for the other side.
2) to claim value for your self.
Integrative negotiation could also be termed as win-win situation.
Integrative negotiation could also be termed as collaborative bargaining, for this type of negotiation, the parties should look for creative options, and not focus on which concessions to make.
You have to believe that its in your interest to look for ways to benefit your negotiating counterpart, your goal is not to hurt them, but to help them at little cost to your self and have them help you at little cost to them.
The more creative you are at coming up with things that are good for both of you the happier both of you will be.
Fisher, Ury, and Patton’s popular book, Getting to yes shifted people’s focus from I-Win-you-lose situations to Integrative Negotiations in which each party can claim satisfaction.
They provide approaches both for creating value (focus on Interests, not position, separate people from problems) and for “principled” value claiming (Identify objective standards)
Key points to Remember the Integrative Negotiation
Provide significant information about their circumstances.
Explain why they want to make a deal.
Talk about their real interests or business constraints.
Reveal and explain in general terms their preferences among issues or options.
Consider and Reveal any additional capabilities or resources they have that might meet the other side’s interests and could be added to the deal.
Use what they learn to find creative options that will meet the interests of both the parties to get the greatest extent possible.
The negotiator’s Dilemma
The Negotiator’s Dilemma describes the situation faced by people who enter any type of bargaining situation. They must determine which game to play
1) Aggressively claim the value currently on the table (and possibly come out as a loser) which is the type of distributive negotiation, or
2) Work with the other side to create even better opportunities that can be shared, which is the type of Integrative Negotiation.
Multiple Phases and multiple parties
Many negotiation involves more than two parties, and they sometime take place in phases, each devoted to one of several important issues. Each representing a “Type” of negotiation.
Multiphase negotiation and the prospect of future dealings offer important advantages for parties who are trust worthy and who would like to foster cooperative behavior.
Early phases allow the parties to built trust by performing their agreements as promised.
A failure to perform warns other side to be careful and to create enforcement mechanisms for agreements.
Business and professional Negotiations commonly involve more than two parties, and more than two people.
Coalitions can form among the parties. Coalition makes it possible for weaker parties to gather the strength to push through their preferred proposals, or at least to block those they find acceptable.
There are at least two types of coalitions:
a) A Natural coalition of allies who share a broad range of common Interests. A natural coalition is hard to break
Eg: an environment agency and a citizen's nature conservation group might form a coalition to block development initiatives even without explicit agreement to do so.
A single-issue coalition, in which parties that differ on other issues unite to support or block single issue. E.g.: A labor union and a nature conservation group might form a coalition to block an antiunion developer from building a shopping mall in a wooded area. Each has a very different reasons for joining the blocking coalition, which makes it feasible for the other side to put a wedge between them.
The challenge of multiparty negotiation is managing coalitions, breaking them apart or keeping them together depending on your own interest
Key concepts in Negotiation
Any successful negotiation must have a fundamental framework based on knowing the following:
The alternative to negotiation
The minimum threshold for negotiated deal.
How flexible a party is willing to be, and what trade-offs it is willing to make.
Four concept for essential for negotiation
BATNA (best alternative to a negotiated agreement)
ZOPA (Zone for possible agreement)
Switching to Integrative Negotiation.
BATNA: A concept developed by Roger Fisher and William Ury, it is one’s preferred course of action in the absence of a deal.
Knowing your BATNA means knowing what you will do or what will happen if you fail to reach agreement in the negotiation at hand.
People who enter negotiations without this knowledge put themselves in a bad position, being unclear about their BATNA’s.
Strong and Weak BATNA’s
If your BATNA is strong you can negotiate for more favorable terms, Knowing that you have something better to fall back.
A weak BATNA puts you in a weak bargaining position, whenever a negotiator has a weak BATNA it is difficult to walk away from the proposal.
Take a minute to think about your own best alternative to whatever deal you are presently negotiating. Do you have one? Is it strong or weak? Can you quantify it?
Improving your position
Improve your BATNA
1. Anything that can be done to improve your BATNA will strengthen your position.
2. If you have the strong BATNA and if you are certain that its much stronger than anything the other side can muster, then discretely let the other side know that you’re negotiating from a strong point.
Identify other side’s BATNA
Knowing other sides BATNA is extremely helpful when you can obtain it. You can do this by:
1. Contacting sources within the industry
2. Checking potentially relevant business publications.
3. Reviewing annual reports (or public Filings)
4. Asking questions informally of the negotiator or others within the company.
5. Imagining what our interests, preferences, and your needs, would be if you were in their position.
Weaken other party’s BATNA
Anything that weakens the other side’s alternative to a deal will improve your relative position.
When you have no alternative
No negotiator is in a weak position than one with no alternative to a deal. In this case, the other side can dictate the terms, The BATNA less party is a deal taker not a deal maker.
BATNA is not always simple
Most business negotiations involve many variables, some of which cannot be quantified, this makes for a fuzzy BATNA.
In transactions that involves price and various other features you can make BATNA less fuzzy by assigning a monitory value to the various features and adjusting the BATNA value by that amount.
Price is not always the fulcrum of negotiated deals. Qualitative issues also matters.
The reservation price (also referred to as a walk-away) is the least favorable point at which one will accept a deal. Your reservation price should be arrived from your BATNA, but it is not usually the same thing.
ZOPA (zone of possible agreement) is the area or range in which a deal that satisfies both parties can take place, it is the set of agreements that potentially satisfy both parties.
Each party’s reservation price determines one end of ZOPA.
The ZOPA itself exist in the overlap between these high and low limits, that is between party’s reservation price.
Value Creation Through Trades
Negotiating parties can improve their positions by trading the values at their disposal.
Value creation through trades occurs in the context of integrated negotiations. It usually takes the form of each party getting something it wants in return for something it values much less.
For a supplier, that greater value might take the form of an extended delivery period. For the customer, having deliveries spread out during the month might be of no great consequence, but for supplier with strained production facilities it may be very important.
For a customer, greater the value at low cost might take the form of three months repair services if needed. For a vendor who has great confidence that its product will need no repairs during that period, free service is nothing of consequence. In providing it to the customer values the repair service highly.
For an employee, the opportunity to work from a home office two days each week may produce great satisfaction while costing the employer nothing.