MASTERING ART OF NEGOTIATION


By
Prof. R K Gupta
Director
S.A. Jain Institute of Management & Technology
Ambala City
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
Phone : 0171-2518670/409
 


Abstract:

Negotiations are everyday feature of people specially the senior executives, politicians and bureaucrats. Some people, attorneys, diplomats, purchasing agents, and union officials negotiate professionally. For these people, negotiating cases, contracts, and other agreements is routine. But, for the rest of us, negotiating may not come as easily, despite the fact we negotiate every day! On a professional level, we may negotiate a sale, a pay raise, or simply argue our point during a meeting.

Negotiation is both Art and science. The psychology of negotiations is now well understood. It required hard work, preparation, and communication ability. If there is an intermediary in negotiation, s/he may well facilitate the negotiations towards success. The negotiation should be open and transparent understanding the viewpoint and requirements of other party and their limitations. When negotiated on a package deal, negotiations have more chance to succeed and attempt should be made to enlarge the pie) Integrative negotiation process) rather than distributive or fixed pie negotiation. Negotiations can only progress if there is Zone of Possible agreement (ZOPA), which means having common area between walk away positions or bottom line of each negotiating party.

There are often multi party negotiations as there may be several interest groups involved in an issue. Just to give one example-The "composite dialogue process" used by India for Indo-Pak bilateral issues is integrative negotiation process and based on concept of principled negotiation. For commercial success of executives, art of negotiation is a must more than merely subject knowledge.

What is negotiation?

Negotiation is trying to get what you desire which other parties give to you (For their own reasons)

Even though we're negotiating all the time, some people are better negotiators than others. That's because most people have never been taught how to negotiate. Luckily, the strategies and techniques that mark a skilled negotiator can be developed by anyone, and can be used in any negotiation.

A real negotiation has three defining characteristics. First, it centers on something perceived as a scarce resource. There never seems to be enough money, so budgets are negotiated. Time is always in short supply, so we negotiate schedules and priorities. Second, the terms of the potential agreement can be varied. (If the terms of the agreement are fixed at the beginning, the process is not a negotiation). Finally, the parties are partially dependent upon one another each party has more to gain by negotiating than by not negotiating.

It is important to view negotiations as win/win situations. In successful negotiations both parties gain something they perceive as valuable. And, they will work to keep up their end of the bargain. Too many people believe negotiations are based on a win/lose model. Resources are viewed as in short supply, so the negotiations are perceived as competitions with a winner and a loser. But, if negotiations are viewed this way, then the party that "loses" will not keep the agreement, or will work hard to make the other party pay for "winning." Often, "win/lose" becomes "lose/lose."
 


(Courtesy: Brad Spangler in article: Zone of Possible Agreement :ZOPA)


Negotiation will proceed forward only if there is a common area called ZOPA (Zone of Possible Agreement). Further a party can negotiate strongly if it has high value BATNA (Best alternative to negotiated agreement) because if a negotiating party has no strong alternative it has no walk away position and will have to surrender in negotiation.

Just recall the famous Dialogue lines of Amitabh Bachhan in Old movie Deewar when he enters into dialogue with Sashi Kapoor his estranged Policeman brother and also the famous Dialogue lines when the British army Captain negotiates for cricket match and its possible rewards with Amir Khan and villagers in another Hit Movie Lagaan. Did Amir Khan have any BATNA? Did the two parties have a ZOPA and walk away positions or RPs(Reserve price).Was it a hard, soft or principled negotiations? Was it a win-loose or win-win game of negotiations?

In order for disputing parties to identify the ZOPA, they must first know their alternatives, and thus their "bottom line" or "walk away position."

  • Alternatives: Parties must determine what alternatives they have to any agreement. Roger Fisher and William Ury introduced the concept of "BATNA" (Best Alternative To a Negotiated Agreement). This is the best course of action that a party can pursue if no agreement is reached.

For example, Ramesh might have two potential buyers for car. Mohan is willing to pay Rs 69500. Ramesh is now negotiating with Chetan. If he will pay more than Mohan (Ramesh's BATNA), he'll sell to him and if he won't pay that much, Ramesh will sell to Mohan. Likewise, if Chetan has found another car he likes for Rs 55,000, then he won't pay more for Ramesh's car than that...may be even a bit less. Chetan's BATNA is Rs 55,000.

  • Bottom Lines or Walk-Away Positions: BATNAs determine each side's bottom lines. If you have an alternative car available for Rs 50,000, Rs 50,000 is your bottom line. If you can sell your car for Rs 70000, that is your bottom line. If you don't do better than that in the negotiation, you'll walk away.

So, a zone of possible agreement exists if there is an overlap between these walk away positions. If there is not, negotiation is very unlikely to succeed. In fact, it will only succeed if one party either realizes that his or her BATNA is not as good as he or she thought, or she decides for some other reason to accept the agreement, even though an alternative option might have yielded better results. (This often happens when parties do not explore or understand their BATNAs well enough.)

Identifying the ZOPA

If both sides know their BATNAs and walk away positions, the parties should be able to communicate, assess proposed agreements, and eventually identify the ZOPA. However, parties often do not know their own BATNAs, and are even less likely to know the other side's BATNA. Often parties may pretend they have a better alternative than they really do, as good alternatives usually translate into more power in the negotiations. This is explained more in the essay on BATNAs. The result of such deception, however, might be the apparent absence of a ZOPA, when one actually did exist. Shared uncertainties may also affect the parties' abilities to assess potential agreements because the parties may be unrealistically optimistic or pessimistic about the possibility of agreement or the value of alternative options.

Having a good BATNA increases your negotiating power. Therefore, it is important to improve your BATNA whenever possible. Good negotiators know when their opponent is desperate for an agreement. When that occurs, they will demand much more, knowing their opponent will have to give in. If the opponent apparently has many options outside of negotiation, however, they are likely to get many more concessions, in an effort to keep them at the negotiating table. Thus making your BATNA as strong as possible before negotiating, and then making that BATNA known to your opponent will strengthen your negotiating position

Negotiations also are involved with Ego of negotiators, emotional issues and confidence. It is quite obvious that every time negotiations are not based only on BATNAs but also on such human factors. Quality of Information about the Walk away positions of other party (parties) and open channel communication are string ingredients to successful negotiations.  One should not gift concessions immediately at one go which lowers the advantage to negotiator and it is always prudent to negotiate various issues in package as stated above to modify individual BATNAs based on only one issue. This approach is based as it attempts on enlarging the cake and giving concessions to each other in areas, which the involved parties value more.

Determining Your BATNA

BATNAs are not always readily apparent. Fisher and Ury outline a simple process for determining your BATNA:

    1. Develop a list of actions you might conceivably take if no agreement is reached;
    2. Improve some of the more promising ideas and convert them into practical options; and
    3. Select, tentatively, the one option that seems best.

BATNAs may be determined for any negotiation situation, whether it be a relatively simple task such as finding a job or a complex problem such as a heated environmental conflict or a protracted ethnic conflict.

Creating and Claiming Value

Creating and claiming value are two of the most fundamental aspects of negotiation strategy that exist in tension with one another. In any negotiation, the parties must decide whether to be competitive, cooperative, or some of both. (This is known as the "negotiator's dilemma," and is similar to the "prisoners' dilemma" in game theory , because the best outcome for one person is not necessarily the best for both, but if both pursue their best option, they will often both get the worst outcome.

Value is created (or the "pie is enlarged") in negotiations through the cooperative process of integrative or interest-based bargaining . This means that the parties in a dispute have managed to find ways to increase the amount of beneficial goods (things they want or that will make their situation better than before) that will be divided between them. This may also be called "joint value" or "joint gains," meaning that new developments are considered improvements by both sides.

The competitive process of claiming value involves dividing up a "fixed pie," or the total amount of value available to the disputing parties. This process is most closely associated with distributive bargaining, in which each side tries to get as much of the pie as possible. The more one side claims, the less the other side gets. This is also known as a "win-lose" negotiation. To claim value in a negotiation, you use competitive tactics to try to convince the other side that he wants what you have to offer much more than you want what he has. Some tactics for "winning" at distributive negotiation include starting high; conceding slowly; exaggerating the value of your concessions; minimizing the value of the other's concessions; concealing information; arguing forcefully for principles that imply favorable settlements; making commitments to accept only highly favorable agreements; and being willing to outwait your opponent.

The Art of Negotiating

In one software available {Ref: Project KickStart} the Art of Negotiating is divided into seven areas of preparation, called modules. A module is a series of questions that cover a particular aspect of your preparation.

  • Subject Matter
    Define what you are negotiating about and all the parties involved.
  • Objectives
    Determine what you and your opponent want from the negotiation.
  • Issues/Positions
    Understand the issues that normally divide the parties. Identify emotional issues and reword them in neutral ways. Plan your questions to guide the negotiation.
  • Needs
    Develop new negotiating alternatives (gambits) based on your needs and those of your opponent. Evaluate the strengths and risks of these gambits before applying them.
  • Climates
    Control the emotional environment of your negotiation. Transform a negative situation into a positive one.
  • Strategies
    Figure out how, where and when you'll approach your opponent and how your opponent will approach you. Be prepared in advance with counter-strategies.
  • Agenda
    Prepare an agenda and if you like, a secret agenda.
  • Prints Reports
    Print customized reports about your negotiation. Share them with colleagues and teammates.
  •  It helps you develop strategic plans by asking you questions that channel thinking more constructively. The program does not use artificial intelligence. And it does not try to offer general solutions to complex, highly individual negotiations.

Preparing for Negotiations:

Much of the work involved in a successful negotiation occurs long before you ever sit down with the other party. A well-prepared negotiator fully understands his own, as well as his opponent's goals and objectives and important information about opposite party, for example, knowing his cost and order book position of a possible supplier. Have the courage to set your own goals high people, who expect more, get more.

    1. Always negotiate with your own team first. There are only advantages to the team approach to negotiations. The Japanese have a wonderful expression: "None of us is as smart as all of us."

    2. Know your walk away position in advance. Prepare for an adverse outcome. If you are not able to negotiate successfully with the other party, how else can you address your needs? You must know all your options before you sit down to negotiate. The party with the best walk away position will always have a pronounced advantage.

    3. Prepare for the negotiation from the other party's perspective. People do things for their own reasons, not yours. Most negotiators only prepare for their own needs. You are not prepared to negotiate until you can state the other party's case better than they can. This gives you tremendous understanding and leverage. 

    4. Open Mind: Always enter the negotiation with an open mind. Look for a better deal for both parties (win-win negotiation).

    5. Negotiate trust first: If people don't trust you, they probably won't share information with you. If people share information with you but don't trust you, anything they say will be designed to deceive or mislead you.

    6. Speak first. The party that speaks first in a negotiation sets the tone for the negotiation. Have your opening remarks scripted and rehearsed. This allows you to establish a positive tone for the negotiation.

    7. Ask questions. The party that asks the most questions in a negotiation determines its content and direction. You control a negotiation not by talking, but rather by asking questions.

    8. Focus on enlarging not dividing the pie . Add elements to the negotiation; do not subtract from it. There are always things that you can do for the other party that won't cost you very much, but will have a high value to them.

    9. During the negotiation, make sure the other party understands the items upon which you agree. Win/win outcomes are built on agreement, not disagreement. Build a strong foundation for the deal. The more items you agree upon, the harder it will be to walk away from the items that separate you. Significant areas of agreement encourage flexibility when addressing disagreements. To make things nonnegotiable, put them in writing. People argue with people. They do not argue with printed documents. Once agreements reach written form, they take on a life of their own.

    10. Check your ego at the door. More negotiations are destroyed by ego than any other factor. Any time negative emotion enters into an exchange, the conversation may continue, but communication stops. You can always tell when a negotiation has become ego-driven. People say things like, "It's the principle." When people say this, they are acting emotionally, not rationally.

    11. Don't stop at the first acceptable outcome. If there is one good outcome, there is a second. And, if there is a second, there is a third, and so on. Try to get the best possible outcome, not merely an acceptable one. The mistake that most negotiators make is stopping at the first outcome they find acceptable.

    12. Never allow a negotiation to boil down to one issue . If it is an important issue to you, you'll be setting yourself up for a win/lose outcome if you focus on just one issue.

    13. Never pre-negotiate with yourself. "Pre-negotiation" is the process of developing a proposal and then reworking it (for example, to lower the price or change terms), before you present it to the other party. The problem is that the concessions you make with yourself have no value to the other party. All you are doing is giving away your bottom line.

    14. Understand why the other person is saying "no." It is usually because someone in his or her organization is blocking the deal. Help the other party negotiate with his or her own people and you will be helping yourself. Everyone has a second negotiation, and this is with the people to whom they report.

    15. Separate the person from the problem. If you see the other party has a problem, there will always be a problem. Try not to confuse positions with people. Your problem is not with the person , but with his thinking. Good negotiators are hard on problems and soft on people.

    16. Make concessions the right way. Never make a concession the minute you know you can make it use time to add value. A quick concession to a win/lose negotiator is viewed as a sign of weakness.

    Our lives and careers are affected by how well we negotiate. Keeping the above techniques in mind will allow one to strengthen the skills, and be prepared for next negotiation.

Further reading:

(On line and off line)

Links have been also been provided on some terms in the text to quickly take the reader to online pages.

1. William L. Ury, "Power Negotiating and BATNAs." New York: Bantam Books, 1993.

2. Interest, Value and the Art of the Best Deal. The Business Times
Available at:
http://www.businesstimes.com.mt/251000/focus.html

3. Reality Testing. Conflict Research Consortium
Available at:
http://www.colorado.edu/conflict/peace/treatment/realtest.htm

4. Roy J. Lewicki, John Minton, David Saunders, "Strategy and Tactics of Distributive Bargaining" in Negotiation, 3rd Edition . Burr Ridge, IL: Irwin-McGraw Hill, 1999. Pages: 70-106

5. David Lax, James Sebenius, "The Negotiator's Dilemma: Creating and Claiming Value" in The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain. New York, NY: Free Press, 1986. Pages: 29-45.
 


Prof. R K Gupta
Director
S.A. Jain Institute of Management & Technology
Ambala City
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
Phone : 0171-2518670/409
 

Source : E-mail October 30, 2004

 

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