- Negotiation Process
- Prepare
- 1.1 Decide if you should negotiate at all
- 1.2 Decide if a negotiation is position-based or interest-based
- 1.3 Decide if a negotiation is dispute-resolution or deal-making
- 1.4 Complete a negotiation analysis
- 1.5 Conduct cross-cultural negotiations
- 1.6 Resolve ethical issues in negotiations
- 1.7 Decide if you should use an agent in a negotiation
- Negotiate
- Close: Create Contract
- Perform and Evaluate
- Prepare
- Resources
- Prepare: plan your negotiation strategy
- Negotiate: Use key tactics for success
- Close: Create a contract
- Perform and Evaluate: achieve positive results
- Don't negotiate when it doesn't make sense (e.g. negotiating prices at a supermarket)
- Don't negotiate if the required effort exceeds potential gains (e.g. takes too much time for analysis)
Don't ask somebody else what they want (what's their position), instead ask why they want it (what's their underlying interest).
Example: Dividing an anchovies pizza:
- Position-based: one person cuts the pizza in half, the other person chooses the piece.
- Interest-based: ask both sides why they want the pizza - it's possible one party wants the pizza because he likes anchovies (wants the center but not crust), and the other party wants the crust. By identifying interests a win-win situation is created - parties got what they want without taking away what the other party wants.
| Dividing the pie | Enlarging the pie |
|---|---|
| Distributive | Integrative |
| Competitive | Cooperative |
| Win / Lose | Win / Win |
| Zero Sum | Non-zero Sum |
| Adversarial | Problem-solving |
| Position-based | Interest-based |
| Claiming Value | Creating Value |
| Deal making | Dispute resolution |
|---|---|
| Forward Looking | Backward Looking |
| Competitive | Position-based |
| Problem Solving | Adversarial |
Spectrum of dispute resolution processes:
- Avoidance
- Negotiation
- Mediation
- Arbitration
- Litigation
- Power
These processes can be looked at through different lenses:
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Alternative Dispute Resolution (ADR): Negotiation, Mediation, Arbitration.
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Third Party Processes: Mediation, Arbitration, Litigation.
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Power, Rights (Litigation, Arbitration), Interests (Mediation, Negotiation).
Reservation price - the least favourable point (e.g. lowest price for seller) at which one will accept a negotiated agreement. There is a risk in choosing a too large stretch goal - you may lose credibility.
Stretch goal - the most favourable point (e.g. highest price for seller) that one can justify in an agreement.
Expected price - most likely price.
Best Alternative To a Negotiated Agreement (BATNA) - the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached. In dispute resolution BATNA is often litigation or arbitration.
Zone Of Potential Agreement (ZOPA) - where the deal can take place, the range between reservation prices of the counterparties.
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Surface culture - negotiation style. Deep culture - underlying values and beliefs.
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Be sensitive to culture but don't stereotype.
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Should you adapt the culture of the other side? There are a few problems with adaptation: (1) both sides might modify behaviour, (2) you don't fully understand the local culture. Therefore: moderate adaptation is often better than major adaptation. Ultimately the success of negotiation depends on respect of each other rather than style.
Law-based Ethical Standards:
- Fraud - false representation of a material fact that is relied on by the other side
- Example: if during negotiation you lied to the other side about your reservation price, it's not a fraud, because this is not relied on by the other side.
- Fiduciary Duty - a high duty of trust and loyalty. As an employee you owe the duty of trust and loyalty to your employer. E.g. as an agent for making a deal for a company you can't accept a finders fee from the other company.
- Unconscionability - violates principles of good conscience. It is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining power, that they are contrary to good conscience. Typically, an unconscionable contract is held to be unenforceable because no reasonable or informed person would otherwise agree to it.
General Ethical Standards
- Organization standards - companies can have standards guiding the decisions in certain situations.
- Mentor - what would someone you admire do in the situation.
- Personal standards: Gut test, Family and Newspaper (ask yourself if you would be embarassed to have your family members learn about your actions), Golder Rule (treat others as you want to be treated).
- Is the agent a better negotiator?
- Does the agent have more experience in negotiating the issues?
- Does the negotiation involve a technical matter that requires the expertise of an agent?
- How much time do I have to invest in a negotiation?
- What is my rerelationship with the other side?
When you are dealing with an agent you have to ask if the agent has the authority from the principal to do the deal. E.g. general managers have no authority to guarantee loans made by employees.
Contingency Fee - fee charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court. Contingency fees are usually calculated as a percentage of the client's net recovery.
Class Actions - is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group.
Discovery - is a pre-trial procedure in a lawsuit, in which each party can obtain evidence from the other party by means of discovery devices such as a request for answers to interrogatories, request for production of documents, request for admissions and depositions.
Punitive damages - damages exceeding simple compensation and awarded to punish the defendant.
The American rule provides that each party is responsible for paying its own attorney's fees. It contrasts with the English rule, under which the losing party pays the prevailing party's attorneys' fees.
- Avoid your favorite topic - or else you'll probably talk too much.
- Ask a lot of questions. People love to talk about themselves and often will think you are a great conversationalist if you talk about them.
- Listening is crucial. Dan Naian has learned to summarize what the other person says. ("So you think that..." or "So what you are saying is...") "A conversation can go on indefinitely if you do this" he says.
Information is the main source of power in a negotiation - ask questions and listen carefully to the answers.
Knowing your BATNA and the other side's BATNA gives you power in a negotiation.
- Improve your BATNA - improve your power.
- Develop alternatives. You would never do a deal without talking to anyone else.
- Tell your BATNA to the other side if it's strong.
- Weaken their BATNA - weaken their power.
- Tell the other side if their BATNA is weak.
Forming a coalition is another powerful form of negitation.
- Mythical Fixed Pie Assumption: we assume that our interests are in direct conflict with the interests of the other side.
- Reactive devaluation: during negotiation, because we think of the other side as a competitor we tend to react to their proposals by devaluing them. When you fall into this trap you lose the opportunity to consider what might be a great proposal that satisfies your interests.
- Anchoring: we anchor on an initial value when estimating the value of uncertain objects.
- Overconfidence: we are overconfident that our judgements are correct.
- When making decision try to be realistic. When implementing ideas you can be optimistic.
- Framing: the way that options are framed cause us to be risk averse (if positive frame) or risk seeking (if negative frame).
- Availability: we are influenced by information that is most easily available.
- Escalation: the most successful negotiators look at negotiations from the perspective of the other side.
- Reciprocation: we feel the need to replay what someone has given us.
A contract is an agreement enforceable by law.
Global perspective: a system of contract law is fundamental for enforcing the right of all individuals to hold, buy and sell property.
Business perspective: obtaining a contract is the primary goal of a business entity. This is when value creation happens.
Personal perspective: in the world of contracts you as the writer control the script and produce the play.
First variable: type of legal system:
- Civil Law (code) - normally contracts are shorter
- Common Law (Precedence) - normally contracts are longer
Second variable: type of contract:
- Services - Common/Civil Law
- Real Property - Common/Civil Law
- Products (Goods) - Uniform Law: US Uniform Commercial Code; UN convention on contracts for the international Sale of Goods.
- Is there an agreement?
- If you make a counter offer then the initial offer is invalidated.
- Framework agreement is an agreement between two parties that recognizes that the parties have not come to a
final agreement on all matters relevant to the relationship between them, but have come to agreement on enough matters
to move forward with the relationship, with further details to be agreed to in the future. Examples of framework
agreement documents:
- Memorandum of Understanding
- Letter of Intent
- Agreement in Principle
- Memorandum of Agreement
- Is there consideration?
- For deal to be binding both sides have to give up something. E.g. contract for giving a gift is not enforceable.
- Is the agreement legal?
- E.g. non-compete agreement between a company an an employee: employee can't work for a competitor for a certain amount of time. Is this agreement enforceable? It depends. The court will decide if the agreement is too broad, in terms of geographical area or in terms of interests involved. Generally these agreements are legal, but if they are crafted too broadly they are not legal.
- Must the deal be in writing?
- Parol Evidence Rule: the court will only count what's in the final written agreement, and ignore all prior written or verbal negotiations.
- Real estate agreements must be in writing
The first principle of preventive law is that it is often more important to predict what people will do than to predict what a court will do... Winning a lawsuit can be ruinous.
Alternative Dispute Resolution (ADR) methods, such as Mediation and Arbitration, offer many advantages comparing to litigation:
- Reduced cost
- Faster resolution
- Privacy
- Less adversity in effect
A mini-trial is an alternative method for resolving a legal dispute from a formal court trial. A mini-trial is really not a trial at all. Rather, it is a settlement process in which the parties present highly summarized versions of their respective cases to a panel of officials who represent each party (plus a "neutral" official) and who have authority to settle the dispute. The presentation generally takes place outside of the courtroom, in a private forum. After the parties have presented their best case, the panel convenes and tries to settle the matter.
Private judging is an approach that stands as a midway between arbitration and litigation in terms of formality and control of the parties. In private judging the parties present their case to a judge in a privately maintained courtroom with all the appurtenances of the formal judicial process. Judges who sit for private judging are mainly retired or former public judges who are having subject matter expertise. This approach is gaining popularity in commercial situations because disputes can be concluded much quicker than under the traditional court system. It is also called as rent-a-judge.
Mediation and Arbitration can be used not only for dispute resolution but also for deal making.
Corporate Pledge is a pledge that companies can adopt as a matter of corporate policy. It instructs companies to use negotiation or ADR techniques for dispute resolution before pursuing full-scale litigation. It helps avoid the reactive devaluation trap when one of the sides proposes to resolve the dispute with negotiation or ADRs. The proposal will not be devalued by the other side with the Corporate Pledge.
Screens is a list of questions that help to choose whether to use negotiation, mediation, arbitration or litigation.
Contract Clauses which states to use one of ADRs in case of dispute.
Online Dispute Resolution
Assessment questions:
- Established a relationship?
- Searched for underlying interests?
- Asked questions and listened to the answers?
- Found out whether the other side had authority?
- Used an effective "first price" strategy?
- Looked at negotiation from the other side?
- Used reciprocity when trading interests?
- Kept a big picture perspective?
- Successful Negotiation: Essential Strategies and Skills https://www.coursera.org/learn/negotiation-skills/home