28 Negotiation

Ipshita Bansal

1. Module: Negotiation
2. Learning Outcomes:

By the end of this module, students will be able to understand-

• How parties resolve their conflicts through negotiation.
• Process of Negotiation.
• Qualities of Successful Negotiator.
• Elements of negotiation preparation under various situations.

3. Introduction

Let us never negotiate out of fear, but let us never fear to negotiate.

John. F Kennedy

Be it at home or at office, human beings are constantly negotiating sometimes with their partner, work or family. It is communication process that helps the parties to resolve their conflict and come to amicable terms. Henry Kissinger defined negotiation as, “a process of combining conflicting positions into a common position, under a decision rule of unanimity”

(Kissinger, 1969).

Characteristics of negotiation: –

3.1 Two or more parties– There are two or more parties involved in the process. They may be individuals, groups or even organizations.

3.2 Conflict of needs and desire –The two parties involved have differed interest due to which the conflict arose.

3.3 Hope to crack a better deal – The parties have faith that they would be able to crack a better deal with use of influence on the other party. Figure 1

3.4 Expectation to give and take –Initially the parties put forward their demands but over the time they modify their positions and statements by taking to one another as they try to strike amicable decision.

3.5 Predetermined goals – The agenda is set by the parties beforehand.

4    Approaches to Negotiation

4.1 Bargaining Orientation- Here one party wins at the expense of other i.e. one party’s gain matches the other party’s loss. It is also named as win-lose approach. Here the parties are competitive and are determined to take advantage of each other as the interest of the parties do not match.This is suited when compromising is not regarded as the best option.

4.2 Lose-Lose Orientation –When one party’s interest are threatened by the other; the losing party ensures that the negotiation deal does not serve the interest of the other party too. Due to this both parties end up being losers. This situation arises when the parties ignore each other’s needs or when their sole motive is to hurt the other rather than coming to acceptable solution.

4.3 Compromise –To avoid the lose-lose situation sometimes negotiating partners compromise. They giveup a part of what they previously thought and settle for something lesser. It is the best possible way out when it’s tough to convince either the parties or when in order to partially achieve one’s goal it is important to satisfy the other. It is healthier when the disputed resources are limited. Example, negotiation for pay, terms between trade union and management.

4.4 Win- Win Orientation – This approach is better than other approaches as it confirms satisfaction of both the parties. It is applicable when the needs of both the parties do not conflict.

Since win – win approach is the best approach every one should try to adopt this approach as this leads to long term solution or maintenance of relationships. In order to make this approach work following steps should be taken:-

Determination of needs –Both the parties should try to understand the needs of each other in order to come to an amicable solution. Also, it would make the process easy and smooth.

Listing possible solutions- All the possible solutions that satisfy each other’s needs should be listed and identified.

Evaluation and Implementation of the solution- During this stage all the listed solutions are evaluated and the most promising one is implemented.

Follow Up- Once implemented the plan should be monitored. In case any party is not satisfied and their needs are unmet, the parties can go back to problem-solving procedure and work on better solution or rectify the one that’s implemented.

5        Fundamental Framework of Negotiation

There are four fundamental stances related to negotiation which need to be understood.

5.1 Establishing BATNA (Best Alternative to a Negotiated Agreement): – The Bargaining power of  the  parties  depend  upon  their  BATNA.  One  increasesone’s  BATNA  by  brainstorming, identifying and evaluating the alternatives available. Example, in job a candidate’s bargaining power is dependent on number of job offers he has in hand. The next best offer he relies on is his

BATNA.

Example: – Ram earns 60,000. His company transfers him to a different location. Ram asks for hike in the salary. Ram feels that’s if he rejects the offer he is reducing his chances for further hike in the organization. Ram explores further options and finds a job that pays him 62,000 without making him leave his present city. By identifying the alternative Ram increases his BATNA from 60,000 to 62,000.

5.2 Establishing WATNA (Worst Alternative to a Negotiated Agreement): – It is also called as the ‘worst case scenario’. Here the party tries to anticipate the most damaging outcome if no agreement is reached. It helps the party to decide how flexible one can be during the negotiation deal. In the above example if Ram does not find another job then he will have to establish WATNA and accept the transfer even with out the hike in the salary.

5.3 Walk AwayPoint: – It is the least favorable point at which one party accepts a deal. Anticipating WAP beforehand helps the party to hold a stronger position in the deal. It becomes meaningless if one party does not walk away if the price/ condition/ situationis not met. The negotiating parties will try to test each other during the deal so it becomes all the more important for parties to be firm on their proposed price.

Example: – Buyer and seller negotiate over used car price. Buyer decides he would not pay more than 1,00,000 whereas the seller decides he would not give away the car below 80,000. These prices quoted are called as Walk Away Point (WAP). In such a scenario deal will not take place.

5.4 Zone of Possible Agreement (ZOPA): – It is the range in which deal can take place. Each parties

Walk Away Point (WAP) becomes one end of ZOPA.

The figure illustrates the example of ZOPA.

Source:http://www.9lenses.com/win -enterprise-sales-negotiations

6.1 Preparation: –

One has to prepare well in advance to be successful in the negotiation process. Information plays the key role, the party who has done its homework well will be at better off position as compared to the other. Parties should clearly lay the objectives along with the priorities in their mind. The objectives should be firm but realistic. One must be aware how much one is willing to concede or compromise. Example when one is negotiating for salary with an employer, the incumbent should check what the similar jobs are paying so as to be at better position. Once they have gathered the information they have to work on BATNA, WATNA, WAP and ZOPA to be well equipped.

6.2 Establishment for Negotiator Identities and Tone for Interaction: –

Once the parties are through with preparation stage, they now meet their counterparts. During the commencement of deal the people involved are generally anxious and this frame of mind may adversely affect the dealings. Hence, it is essential to know something about the people involved and about the organization they belong to. This will help to smoothly sail and stir the negotiation dealings. It is essential to take time out to create a rapport with the parties as this depicts professionalism and confidence. Here in this stage small informal talks can take place.

6.3 Information Exchange: –

Once the rapport is build, the parties now move to substantive issues that are to be negotiated. The parties should be cautious and should not rush stating their bargaining positions. Broad and open ended questions should be used to accomplish information. The parties should listen to each other carefully. Interventions should be made to clarify the theme. Judgements should be made once the comprehensions are complete. Blocking techniques can be used by the bargainers when asked about the areas the parties would not like to disclose. In this process tentative negotiations take place without breaking or making the process.

   6.4 Bargaining: –

This stage is heart of the negotiation process. Here the parties claim value for themselves by maximizing their interest. Having clarity of objectives is of utmost importance. Parties should try and visualize the changes that may conclude with deals. Parties can make initial offer and try to get to the midpoint of their positions. Patience and silence are essentially important. People who talk more tend to disclose more information. People involved should try to gauge the emotional words of the people around.

Bargainers debate over the value of the item to be exchanged. Buyers lower the value of the item while the sellers amplify the value. Focus should be on the concession pattern as it will help to assess the positional changes that may take place during the deal.

Consensus-Building is essential as it induces commitment and supports agreement and its implementation.

Bargaining Tactics

Snow Job: – Bargainers load the party with so much information that it gets tough for the party to decide what to include and what to exclude. Technical jargons are used to exaggerate the information and make it more presentable.

Nibble: – Small concessions are asked by the parties just before the closure of the deal. Example can be the party can plead by saying to other “just add this thing”.

Flinch: – In this tactic the party shows negative physical reaction through gestures to a proposal. Example, gasping of air, expression of shock etc. This could be done consciously or unconsciously. Bogey: – Here the bargainers show that the issue of little importance to them is very important. This could be traded for a major concession later.

Brinkmanship: – One party aggressively pushes the other negotiating party to either agree or walk away. It is hard nut approach. Successful brinkmanship persuades the other party that there is no other alternative but to accept the offer.

Deadlines: – One party gives actual or artificial deadline to the other so as to push them to make decision. This method exerts pressure on the other.

6.5 Closing the Deal: –

Towards the end of bargaining stage the parties try to assess the agreement that will be entered soon. Clarity is reached with respect to what will be given and what will be received by each of the parties. This is the most delicate part of the process. It is observed that less competent bargainers quickly move towards concluding the transaction. Though it’s human to appreciate certainty but one should not rush in to the process. During this stage the parties should be calm and composed rather than being anxious. While closing the deal long term benefits should be seen.

Reaching Consensus

Every human being is unique and so are his ways to define consensus. In negotiation process consensus is defined as a substantive agreement on key issues. Parties should be able to live with the outcome of negotiation. It is also considered as hardest part of the process as parties involved may have different views, feelings and attitudes about the result. Consensus aims to please as many as possible.

Building Agreement

Once the consensus is reached, it requires expert skills to convert the generalities into specifics. Fair agreement should be documented that accurately interprets the consensus of the parties.

Setting the Terms of Agreement

Dissatisfaction and chaos is created if the terms of the agreement aren’t clearly laid.

For Example – builder instructs the contractor to lay the flooring of the building. A week passes by and nothing is being worked. Contractor waited for the written agreement while the builder assumed the work has been started. This lead to loss of men and material. So to make the agreement successful it is essential to have clarity at each step.

6.6 Formalizing the agreement:

Once the parties agree on a tentative agreement, they shake hands to end the negotiation discussion and make it public by signing a document.

7. Common Mistakes and Barriers to Negotiation

There are several pitfalls that negotiators fall prey to. One must be aware of them so as to consciously address them during and before the deal.

7.2 Barriers to Negotiation Agreement

The ability to negotiate well with others is not a cake walk, sometimes great negotiators also fail to crack a deal. The common barriers that become hurdle in negotiation deal are explained below:-

Communication

Problems:   –     Communication   is considered successful when a party  is able to communicate its head and heart and the message is interpreted in the same manner by the other. Mere hearing of words  and observing the body language is not communication.

How to Handle?

Know your Subject: – One must be fully equipped with informational details about the deal, people involved etc. this would help in clearly conveying the message without overloading or undermining the information.

Focus on Purpose: – The objective of the deal should be clear in minds of the people, unless it is clear the parties will keep moving on the periphery without focusing on core area.

Know your Audience: – One must understand the audience in order to convey the message effectively. It will be better to know their background, age and their status. Example, if there are cross cultural deals one must be aware of their biases and practices so as to have better connect with them in order to close the deal.

Die-Hard Bargainers: – These people consider the deals as battle.

How to handle?

Understand their moves: – Don’t let them overpower. Be proactive to understand their unreasonable offers and body language.

Keep a check on what information to be disclosed.

Show them that you can walk away: – This helps to keep a check on difficult behavior of the parties and may make them cooperative.

   Lack of Trust: – Sometimes our own prejudices and beliefs make us suspect the side even though they may not have any ill intention.

How to handle?

Be Objective: – Avoid jumping to conclusions and be open mind to receive the information well.

Don’t be too fast in making judgements, delve deeper into data. Consciously try to keep your concerns and biases at bay.

Request documents and insist on enforcement mechanisms.

Be Clear: – The party must clearly know the purpose of the deal. If either of party is unclear, they may fumble and wander around rather than coming to central idea.

Gender and Cultural Differences: – Globalization has made organizations view the world as a single market. Now a days cross cultural deals are common. Being aware of other party’s culture goes a long way. Example, managers from masculine culture will be more assertive and dominating. U.S believing in individualism sill iterate on self-interest while Japan relying on collectivism will emphasize on building relationships.

How to handle?

Research: – Efficient managers do their homework well by researching available literature about other party’s culture.

Understand Assumptions: – Each party may come with their pre-conceived notions to table. It is important to identify and validate them. Else they may prove as a barrier to effective communication too.

Focus on deal and not try to bully the other party: – The group need not be manipulative or coercive to the other. Trying to show that one has greater power or wealth may make the other party defensive.

Spoilers: – When the other party thinks they will lose the deal, few amongst them try to resist and spoil the atmosphere in order to distract the other party.

How to handle?

Identify the potential spoilers: – This will help the party to estimate their power to affect an agreement and also will them (the party) to chalk out a plan for them.

Identify their interest and communicate the benefits: – explaining them the benefits and the matters in detail will help in clear communication. This will also help them in removing additional bag gages that they might would have carried along.

Coalition: – Building rapport and coalition may lead to amicably closing the deal in one’s favor.

8    Qualities of Successful Negotiator

Each negotiation is unique but there are some basic traits that should be present in the negotiator in order to make the process effective. Also it is easier to deal with person who have the following traits in them.

Empathizer: –

Imagine when people show lack of understanding, interest and concern; it’s observed that the other person becomes defensive. An effective Negotiator understands the other party and responds to them rather than just speaking his own ideas. The idea is to keep oneself in other’s shoes and then imagine the situation. This helps to smooth out the rough edges and make the process simpler.

Flexible: –

An effective Negotiator is not rigid and is be ready to compromise on some issues for long term benefit of both the parties.

Patient: –

A good Negotiator patiently tries to listen to what offer the other party desires to make. He does not switch off when the message seems dull or boring. Close mind represents to other person that one is not interested to listen and doesn’t seem bothered about the topic being discussed. A good Negotiator makes sure that the other party is comfortable too.

Fair

A good negotiator is fair in his /her approach. None of us wants to be deceived. People become defensive and offended when they realize they are being cheated by the other person. So while negotiating, party in a stronger position should not totally ignore the needs of the other party as it will result in ill will and even if a deal pertaining to win – lose situation is the agreement is not likely to last long.

Perceptive: –

A good negotiator is very perceptive at picking up cues. He look for the speaker’s main idea and focuses on speaker’s voice quality and body language as they provide vital clues. Also they help to decipher the emotional content of what speaker wishes to claim. It is seen that we think faster than we speak. An effective Negotiator uses this gap by consistently reviewing what speaker has claimed.

Interesting: –

An effective Negotiator is lively and has the ability to stimulate the minds of others too. He is able to capture the attention of all the negotiating persons. In order to retain the interest of the other party he practices voice modulation as a dull monotone induces mental lethargy amongst the participants.

Organized: –

An effective negotiator is always very organized with respect to his thoughts, the information and setting priorities. Gathering information about the participants and deal equips oneself to organize material in an efficient manner. For Example, if the negotiator is unaware about the statistics and financial position of the organization it will be difficult to set realistic deals. The messages conveyed should be in logical and understandable form rather than being broken and distorted.

9. Summary

Over the course of this module we understood nitty-gritty of negotiation.

Negotiation cannot be learnt while following a set procedure and applying them to all. Variety of approaches should be analyzed as per the situation. One must be alert to verbal as well nonverbal clues and they play a major part in negotiation process. Communication is always essential in any interactive process. One must hear and be heard, also person should be able to read between the lines to decipher the information accurately.

References and Extra Readings:-

1. Aboueleish,      Gihan.,       Mastering       Negotiation       Skills.        Available       Online       at http://www.slideshare.net/gihanaboueleish/mastering-negotiation-skills-pdf.
2. Alfredson, Tanya and Cungu, Azeta., (2008). Negotiation Theory and Practice: Review of Literature. Available Online at http://www.fao.org/docs/up/easypol/550/4-5_negotiation_background_paper_179en.pdf.
3. Art of Negotiation. Available Online at http://interactive.snm.org/docs/The%20Art%20of%20Negotiation%20.pdf.
4. Business Communication., (2003). Icfai Centre for Management Research: Hyderabad.
5. Craver, Charles B., The Negotiation Process. American Journal of Trial Advocacy, Vol. 27, p. 271, 2003; GWU Legal Studies Research Paper No. 277; GWU Law School Public Law Research Paper No. 277. Available at SSRN: http://ssrn.com/abstract=987654.
6. Figure 1 Source: https://www.google.co.in/search?q=negotiation&espv=2&biw=1366&bih=667&source=lnms &tbm=isch&sa=X&ved=0CAYQ_AUoAWoVChMIwJu2mcbkyAIVCiOOCh1bgANQ#tbm= isch&q=negotiation+cartoon&imgrc=x3xtPSSsxsVJKM%3A.
7. Kissinger, H.A., 1969. Nuclear Weapons and Foreign Policy. W.W. Norton, New York, USA.
8. Managing Conflict and Negotiation. Available Online at http://www.sagepub.com/sites/default/files/upm-binaries/58510_Nahavandi_Chapter_11_proof.pdf.
9. Negotiation., Available Online at http://www.saylor.org/site/wp-content/uploads/2013/01/BUS209-5.2-Negotiation.pdf.
10. Negotiation Skills: Training Manual. Available Online at http://www.mvc.edu/files/ep-negotiation-skills.pdf.
11. Negotion Skills Available Online at http://cas.upes.ac.in/pdf/NEGOTIATION%20SKILLS.pdf.
12. Rumelt, Richard P., ( 2000). “Number 101: Bargaining at BATNA”. Available Online at http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Notes/101_batna.pdf.
13. The Nature of Negotiation. Available Online at file:///C:/Users/user/Downloads/Lewicki_SampleChapter01.pdf.

Negotiations Exercises

Try visualizing your position and course of action in following deals.

1.   You are trying to buy a leather jacket from a street trader in a foreign country whose local currency is valued at 50,000 to 1 of yours. You really like the jacket, which is a good fit, well made and style. But you think the trader is asking too much. Can you negotiate an acceptable price for both of you? Buyer: You have a maximum of 750,000 units of local currency and 100 units of your own. You also have your credit cards. Decide what you want to pay and the tactics you will employ making concessions. A similar jacket in your country will cost about 130 units of your currency. Trader: You have sold seven of these jackets to foreigners in the last few days. The lowest price you received was 300,000 units, the best prices 800,000 units. Most foreigners did not even haggle with you. The jacket cost you 200,000 units. You know that you can buy them more cheaply with foreign currency than your own, which is shaky on the exchange market. In fact, 30 units of the Buyer’s currency would buy you another jacket. You are determined however to make a good profit on this deal.
2.   You have been analyzing your cash flow for the next thirty days and realize you will be significantly short in meeting your financial commitments. One account you owe equals your shortfall by itself, and the check must be mailed tomorrow. Two other accounts combined also equal your shortfall, and both checks need to be mailed the day after tomorrow. You cannot afford to create a poor credit history because of a pending loan approval with all three accounts being critical credit references. Analyze the power factors, set up your negotiation strategy, walk through a scenario with your partners (observers).

3. You have interviewed a prospective new employee who could be a key member of your team. The new person’s required salary would compromise the integrity of your salary structure, because it is 20% higher than your most senior performer who has been with the company for over 10 years. Finances are tight, yet you believe this person could make a significant impact on future profits. If you paid the required salary for the new person, it would eliminate bonuses for all your staff that you feel they’ve earned this year. You’ve been searching for an individual with this skill level for three months. Analyze the power factors, set up your negotiation strategy, and walk through a scenario with your partners (observers).
4. You are negotiating terms with a supplier of a critical component in your manufacturing process. You receive 100 units monthly. You project needing 150 units for the next 6 months and perhaps as many as 200 units ongoing after that. You’ve been satisfied with the supplier’s quality, however there have been two occasions where late deliveries have forced overtime to meet customer commitments. An out of state vendor has offered you a 20% discount for the 200 units per month for a one year contract. Analyze the power factors, set up your negotiation strategy, and walk through a scenario with your partners (observers).

Source: http://utenportugal.org/wp-content/uploads/Negotiation-exercises.pdf