Negotiation: A Toolbox for Managers


Pooja Nanda
Associate Professor
Rai Business School
A-41, MCIE, Mathura Road, New Delhi-110044

The term "negotiate" is to  "confer with another person with a view to compromise or agreement…to arrange or bring about". Thus, Negotiation means taking decision with an objective to create a "win-win" situation for both the parties; for mutual benefit and positive outcome. It also helps to save time, energy, reduce stress, encourage team spirit, enhances productivity and increases profitability. In business Negotiations occurs between an employee and employer, trade union and top management, sales manager and dealers/distributors/bankers and various departments for appropriate allocation of resources.

Fundamental Elements of the Negotiation Process

"... negotiations commonly follow a four-step path: preparation, information exchange, explicit bargaining, and commitment. ... Negotiation is, in short, a kind of universal dance with four stages or steps. And it works best when both parties are experienced dancers."

One of the interesting aspects to negotiation theory is that even the fundamental elements of the process are subject to varying opinions. The quotation above breaks the process down into four phases. I prefer three. Let's review the basics before moving on.

Phase I: Pre-bargaining Phase

1. Information: Learn as much as you can about the problem. What information do you need from the other side?

2. Leverage Evaluation: Evaluate your leverage and the other party's leverage at the outset. This is important because there may be a number of things you can do to improve your leverage or diminish the leverage of the other side. What will you do to enhance your leverage?

3. Analysis: What are the issues?

4. Rapport: Establish rapport with your opponent(s). You need to determine early on if your opponents are going to be cooperative; if not, consider employing a mediator as soon as practical.

5. Goals and expectations: Goals are one thing; expectations are something else.

6. Type of negotiation: What type of negotiation do you expect? Will this be highly competitive, cooperative, or something unusual? Will you be negotiating face to face, by fax, through a mediator, or in some other manner?

7. Budget: Every negotiation has its costs. Lawyers will avoid conflicts with their clients by discussing budgets sooner rather than later. Many times there are a number of choices for enhancing leverage. For example, you may enhance your leverage by taking several depositions, by adding parties to a law suit, by serving subpoenas on witnesses, or by hiring experts. Unless your client has unlimited resources, you will have to make some hard choices, which should be designed to give you the "most bang for your buck".

8. Plan: What's your negotiation plan?

Phase II: Bargaining Phase

1. Logistics : When, where, and how will you negotiate? This can be especially important in multi-party cases.

2. Opening offers: What is the best offer you can justify? Should you make it, or wait to let another party go first?

3. Subsequent offers: How should you adjust your negotiating plan when responding to unanticipated moves by your opponent?

4. Tactics : What sort of tactics will you employ? What sort of tactics is your opponent using on you?

5. Concessions: What concessions will you make? How will you make them?

6. Resolution: What is the best way to resolve the problem? Is there an elegant solution? Be on constant lookout for compromise and creative solutions.

Phase III: Closure Phase

1. Logistics : How and when will you close? At mediation or later on? Who will prepare the final agreement?

2. Documentation: Prepare a closing checklist.

3. Emotional closure: It's one thing to end a legal dispute; it's another to address the underlying interests and needs of the parties. If you neglect the latter, the agreement will probably not sustain.

4. Implementation: It's not over until it is over.

Positive affect in negotiation

Even before the negotiation process starts, people in a positive mood have more confidence, and higher tendencies to plan to use a cooperative strategy. During the negotiation, negotiators who are in a positive mood tend to enjoy the interaction more, show less contentious behavior, use less aggressive tactics and more cooperative strategies. This in turn increases the likelihood that parties will reach their instrumental goals, and enhance the ability to find integrative gains. Indeed, compared with negotiators with negative or natural affectivity, negotiators with positive affectivity reached more agreements and tended to honor those agreements more. Those favorable outcomes are due to better decision making processes, such as flexible thinking, creative problem solving, respect for others' perspectives, willingness to take risks and higher confidence. Post negotiation positive affect has beneficial consequences as well. It increases satisfaction with achieved outcome and influences one's desire for future interactions. The PA aroused by reaching an agreement facilitates the dyadic relationship, which result in affective commitment that sets the stage for subsequent interactions.

PA also has its drawbacks: it distorts perception of self performance, such that performance is judged to be relatively better than it actually is. Thus, studies involving self reports on achieved outcomes might be biased.

Negative affect in negotiation

Negative affect has detrimental effects on various stages in the negotiation process. Although various negative emotions affect negotiation outcomes, by far the most researched is anger. Angry negotiators plan to use more competitive strategies and to cooperate less, even before the negotiation starts. These competitive strategies are related to reduced joint outcomes. During negotiations, anger disrupts the process by reducing the level of trust, clouding parties' judgment, narrowing parties' focus of attention and changing their central goal from reaching agreement to retaliating against the other side. Angry negotiators pay less attention to opponent's interests and are less accurate in judging their interests, thus achieve lower joint gains. Moreover, because anger makes negotiators more self-centered in their preferences, it increases the likelihood that they will reject profitable offers. Anger doesn't help in achieving negotiation goals either: it reduces joint gains and does not help to boost personal gains, as angry negotiators don't succeed in claiming more for themselves. Moreover, negative emotions lead to acceptance of settlements that are not in the positive utility function but rather have a negative utility. However, expression of negative emotions during negotiation can sometimes be beneficial: legitimately expressed anger can be an effective way to show one's commitment, sincerity, and needs.  Moreover, although NA reduces gains in integrative tasks, it is a better strategy than PA in distributive tasks (such as zero-sum).


Finally, to conclude in the words of Wrigley and Moshe Dayan, a) When two men in business always agree, one of them is unnecessary. b) If you want to make peace, you don't talk to your friends, you talk to your enemies.

Pooja Nanda
Associate Professor
Rai Business School
A-41, MCIE, Mathura Road, New Delhi-110044

Source: E-mail December 29, 2008


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