Chapter 2Chapter 2

The Negotiation The Negotiation Process:Process:

Four StagesFour Stages

A Key Concept for All A Key Concept for All NegotiationsNegotiations

Negotiator and mediator Theodore Negotiator and mediator Theodore Kheel summarized a critical concept:Kheel summarized a critical concept:2

““Negotiations are about changing Negotiations are about changing the status quo. Unless both parties the status quo. Unless both parties can receive something more than what can receive something more than what the status quo provides, there is the status quo provides, there is nothing for them to negotiate.”nothing for them to negotiate.”

Why? If not, they will choose the Why? If not, they will choose the status quo and walk away.status quo and walk away.2 Theodore W. Kheel, Theodore W. Kheel, The Keys to Conflict ResolutionThe Keys to Conflict Resolution (New York, NY: Focus Walls Eight Windows, 1999). (New York, NY: Focus Walls Eight Windows, 1999).

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Five Negotiation SkillsFive Negotiation Skills Skill 2.1: Skill 2.1: PreparationPreparation before entering a before entering a

negotiation includes deciding a negotiation includes deciding a BATNABATNA Skill 2.2: Consider appropriate Skill 2.2: Consider appropriate ground ground

rulesrules Skill 2.3: Develop an Skill 2.3: Develop an initial offerinitial offer Skill 2.4:Skill 2.4: Anticipate Anticipate posturingposturing Skill 2.5Skill 2.5: : Decide if the negotiation is a Decide if the negotiation is a

single issue or multiple issuessingle issue or multiple issues and if it and if it includes includes two or more partiestwo or more parties and the and the appropriate strategy. Also decide if an appropriate strategy. Also decide if an impasse impasse occurs how it should be resolvedoccurs how it should be resolved

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The Four Stages:The Four Stages:

Stage 1: Stage 1: PreparationPreparation

Stage 2: Opening Stage 2: Opening

StatementsStatements Stage 3: Stage 3:

BargainingBargaining Stage 4: Stage 4:

SettlementSettlement

Opening Statements

Bargaining

Preparation

Settlement

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Historical Development of Historical Development of the Negotiation Processthe Negotiation Process

1930s-50s: “Hard bargaining,” 1930s-50s: “Hard bargaining,” threats, bluffs, little flexibilitythreats, bluffs, little flexibility

1980s: 1980s: Getting to Yes Getting to Yes introduced introduced “win-win” strategy“win-win” strategy

1980s: Game Theory, Howard 1980s: Game Theory, Howard Raiffa’s Raiffa’s The Art and Science of The Art and Science of NegotiationNegotiation

1990s: Interest-based bargaining 1990s: Interest-based bargaining (IBB) problem-solving focus(IBB) problem-solving focus

Today: All these views have Today: All these views have merged to produce a new merged to produce a new understanding of the negotiation understanding of the negotiation processprocess

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Chapter Case: The Budget Chapter Case: The Budget PresentationPresentation

Francis, a newly appointed dept. head, Francis, a newly appointed dept. head, asked the head of another department to asked the head of another department to describe the budget process. She told him describe the budget process. She told him “it’s a vicious, competitive process…we all “it’s a vicious, competitive process…we all know that we are fighting for a share of a know that we are fighting for a share of a fixed pool of funds” fixed pool of funds”

After the meeting you sit down with the After the meeting you sit down with the CEO and try to get the most you can for CEO and try to get the most you can for your department, keeping in mind the your department, keeping in mind the presentation by the other dept. headspresentation by the other dept. heads

How does Francis prepare? Negotiate with How does Francis prepare? Negotiate with the CEO?the CEO?

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Stage 1: PreparationStage 1: Preparation Decide your BATNA - Decide your BATNA - always start with a always start with a

clearly defined BATNA and stick to itclearly defined BATNA and stick to it List all key issuesList all key issues either party will want either party will want

decided. Include tangibles, intangibles, decided. Include tangibles, intangibles, throwaways…the more the better!throwaways…the more the better!

Set prioritiesSet priorities for the key issues by either: 1. for the key issues by either: 1. Ranking; 2. Weights (%); 3. Assign each issue Ranking; 2. Weights (%); 3. Assign each issue to one of four priority levels—Essential, to one of four priority levels—Essential, Important, Desirable, ThrowawayImportant, Desirable, Throwaway

Develop support argumentsDevelop support arguments based on based on information, facts, logicinformation, facts, logic

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What Is What Is BATNABATNA??

BATNA = the BATNA = the BBest est AAlternative lternative TTo a o a NNegotiated egotiated AAgreementgreement

Always decide your BATNA Always decide your BATNA before entering any before entering any negotiation!negotiation!

BATNA = the value or point BATNA = the value or point at which you will choose no at which you will choose no agreement over a settlementagreement over a settlement

BATNA is similar to the “walk-BATNA is similar to the “walk-away” value or pointaway” value or point

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How to Determine Your How to Determine Your BATNA!BATNA!

(Answer the following questions)(Answer the following questions) If the other party withdrew from negotiations If the other party withdrew from negotiations

today, what are your alternatives?today, what are your alternatives? Can you list and place an estimated value on Can you list and place an estimated value on

all the economic variables such as price, all the economic variables such as price, timing, warranty, options, etc.?timing, warranty, options, etc.?

How important is your long-term relationship How important is your long-term relationship with the other party? Can you assign a dollar with the other party? Can you assign a dollar value to it? Does it override other factors?value to it? Does it override other factors?

Can you improve your BATNA by seeking new Can you improve your BATNA by seeking new alternatives to no agreement?alternatives to no agreement?

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Preparation Includes Preparation Includes DevelopingDeveloping Support Support

ArgumentsArguments FactsFacts InformationInformation LogicLogic PersuasionPersuasion Why? You attempt to “level the Why? You attempt to “level the

playing field” or perception of playing field” or perception of power/leveragepower/leverage

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The Basic Stages of Negotiation

Stage 2: Opening Stage 2: Opening SessionSession

Ground Rules:Ground Rules: Consider the “5 Ws”Consider the “5 Ws” Initial offersInitial offers on each issue of on each issue of

importance to either side are importance to either side are presentedpresented

PosturingPosturing to state one’s case, blow to state one’s case, blow off steam, etc., may include off steam, etc., may include presenting conflicting views, presenting conflicting views, concealing objectives, caucusing, concealing objectives, caucusing, inflexibility, unwillingness to inflexibility, unwillingness to compromisecompromise

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Items Identified for Negotiations by a Husband and Wife Building a New Home

with a Limited Upgrades Budget

Ground Rules: Consider “The 5 Ground Rules: Consider “The 5 Ws”Ws”

WWHOHO speaks for each party, is authorized speaks for each party, is authorized to make/reject offers, and how many people to make/reject offers, and how many people will be on each team?will be on each team?

WWHEREHERE will negotiation take place, and will negotiation take place, and what will be the seating arrangement?what will be the seating arrangement?

WWHENHEN will negotiations begin, and how will negotiations begin, and how long will sessions last?long will sessions last?

HOHOWW will offers be made, issues included in will offers be made, issues included in the discussion?the discussion?

WWHATHAT form form of final agreement is of final agreement is acceptable (handshake, verbal, written, acceptable (handshake, verbal, written, notarized)?notarized)?

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Bargaining Styles: Howard Bargaining Styles: Howard Raiffa’s FOTE & POTERaiffa’s FOTE & POTE

FOTE = Full, Open, Truthful Exchange, which FOTE = Full, Open, Truthful Exchange, which includes a completely open, honest, and includes a completely open, honest, and truthful exchange of interests. FOTE is truthful exchange of interests. FOTE is primarily only used by family, friends, long-primarily only used by family, friends, long-time business associates, studentstime business associates, students

POTE = Partial, Open, Truthful Exchange POTE = Partial, Open, Truthful Exchange which includes the concealment of real which includes the concealment of real interests, posturing, bluffing, etc., and causes interests, posturing, bluffing, etc., and causes the parties to practice “the negotiation the parties to practice “the negotiation dance.” POTE is used by most negotiatorsdance.” POTE is used by most negotiators

Why is POTE used more? The parties lack the Why is POTE used more? The parties lack the trust required to engage in FOTEtrust required to engage in FOTE

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““Saving Face”Saving Face”

Both parties need to “save face” or avoid Both parties need to “save face” or avoid embarrassment during and at the end of embarrassment during and at the end of negotiationnegotiation

Both parties need some “gains” to tout, if Both parties need some “gains” to tout, if not why would they settle?not why would they settle?

Neither party presents the final deal as a Neither party presents the final deal as a “win-lose” and could potentially cause “win-lose” and could potentially cause hardship for the other partyhardship for the other party

Why? Payback can be a powerful Why? Payback can be a powerful motivator! Keep in mind future encountersmotivator! Keep in mind future encounters

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Stage 3: BargainingStage 3: Bargaining Two critical variables shape the Two critical variables shape the

negotiation: negotiation: number of parties, number of number of parties, number of issuesissues

Two-party and single issue = “zero-sum” Two-party and single issue = “zero-sum” (assuming no long-term relationship)(assuming no long-term relationship)

Two party and multiple issues = trades to Two party and multiple issues = trades to achieve an efficient settlementachieve an efficient settlement

Three parties and one issue = auction Three parties and one issue = auction processprocess

Three parties and multiple issues = Three parties and multiple issues = consensus by all on some or all issuesconsensus by all on some or all issues

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Common Bargaining Tactics Common Bargaining Tactics to Prepare Forto Prepare For

Extreme (high or low) opening offersExtreme (high or low) opening offers Claiming limited authorityClaiming limited authority Emotional outburstsEmotional outbursts Offering few concessionsOffering few concessions Resisting deadlinesResisting deadlines

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Possible Negotiation Possible Negotiation SituationsSituations

Number of Issues Two Three or More

One Zero-sum Outcome

Auction Process

Multiple Efficient Outcomes

Consensus by all parties on all issues, or only some issues resolved by some parties following their BATNAs

Number of Parties Involved

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Stage 4: SettlementStage 4: Settlement Negotiations result in either a settlement Negotiations result in either a settlement

or an impasse (stalemate)or an impasse (stalemate) Impasse = both parties still seek an Impasse = both parties still seek an

agreement but negotiations have stalledagreement but negotiations have stalled Why do parties declare an impasse even Why do parties declare an impasse even

though they both still seek a settlement? though they both still seek a settlement? Common reasons: (1) noncommunication Common reasons: (1) noncommunication of interests; (2) excessive emotional of interests; (2) excessive emotional involvement; (3) failure of one or both to involvement; (3) failure of one or both to realize the interests of the other party and realize the interests of the other party and thus offer a settlement which exceeds thus offer a settlement which exceeds their BATNA their BATNA

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Beyond Impasse: Third-Beyond Impasse: Third-Party InterventionsParty Interventions

FacilitationFacilitation --- known friend or family --- known friend or family member is trusted to provide assistance member is trusted to provide assistance by meeting separately with both parties by meeting separately with both parties and suggesting a settlementand suggesting a settlement

MediationMediation --- third party assists the --- third party assists the parties in the development of a mutually parties in the development of a mutually acceptable settlementacceptable settlement

ArbitrationArbitration --- third party is empowered --- third party is empowered to make a “final and binding” decision on to make a “final and binding” decision on all unresolved issuesall unresolved issues

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The ClosingThe Closing

With a verbal agreement (if between With a verbal agreement (if between family members or friends); a family members or friends); a handshake; or a written, signed, and handshake; or a written, signed, and dated document the negotiation dated document the negotiation endsends

Both sides realize gains beyond their Both sides realize gains beyond their walk-away point (BATNA)walk-away point (BATNA)

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