Accommodation Strategy-D4

Negotiation-Unit3.pptx

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Negotiation

Unit 3

Summary

Negotiation is a ubiquitous part of everyone’s lives. In other words, people – including you – negotiate all the time. On any given day you will negotiate with friends, your spouse, your children, coworkers, subordinates, your boss, business partners, suppliers, buyers/customers, and just about any other individual of which you can think. In order to effectively navigate the multitude of negotiations in which you find yourself engaged, it is imperative to enlighten yourself about what it is and how to approach it. The purpose of this module is to help you to better understand negotiation and develop tactical competence to improve how you negotiate.

Why do we negotiate?

Research suggests that we negotiate for one of three reasons: (Lewicki, Barry, and Saunders, 2010)

To agree about whether and how to divide a limited resource(s)

To create something that neither party could do on their own

To resolve a problem or dispute between parties

What is Negotiation?

Many definitions exist, but a simple (yet accurate) one is:

Negotiation is a process by which two or more parties attempt to resolve their opposing interests.

Characteristics of Negotiation

The following characteristics help us to understand what negotiation is and basic elements common in negotiation:

2 or more parties – Specifically, negotiation involves two or more individuals, groups, or organizations.

Conflicting interests (needs, desires…) – This essentially means that what one party wants is not what the other one wants, or is possibly completely incongruent with the other party achieving their needs and desires.

Negotiation is a choice – parties engaged in negotiation do so because they think it will provide them some benefit, or be advantageous in some manner. Typically, individuals think that negotiating is a better alternative to simply agreeing to what is currently being offered.

Characteristics of Negotiation (continued)

The following characteristics help us to understand what negotiation is and basic elements common in negotiation:

“Give-and-take” is expected – both parties in a negotiation see give-and-take as fundamental to negotiation, such that parties expect: offers, concessions (i.e. moving from one’s position), counter-offers (i.e. responding to one’s offer with one’s own offer), and further concessions (by the other party).

An agreement is desired – if parties are negotiating (again, it is a choice), it usually means that they prefer to work to resolve a disagreement or reach a mutual agreement, rather than break a contract or fight openly about their incompatible interests.

Negotiation involves tangle and intangible factors – Tangible things often make up the majority of discussions. However, intangibles cannot be ignored, and are sometimes even more important than tangibles.

Negotiation Fundamentals

There are certain things that are important to every negotiator. The importance of discovering these points before the negotiation (i.e. back-and-forth) will be discussed next, but those important points are:

Target – a target is what a person hopes to achieve in a negotiation. This can be thought of as the “best case scenario.” While a negotiator may not be overly optimistic about achieving their target, it is very important to establish this goal. An important thing it does for us is it helps us to frame (we will discuss more about framing later) the negotiation in a way that encourages an outcome that is favorable.

Resistance Point – one’s resistance point is the lowest (highest) point or amount they are willing to go. Often referred to as a “walk-away point”, the resistance is the point where agreeing to something lower (higher) is worse than not coming to an agreement (a.k.a. impasse). Knowing your resistance point is critical, in order to avoid accepting something that will make you worse off than you currently are, and it helps you to avoid making critical mistakes when the emotions, which are typical in negotiation, become heightened.

Negotiation Fundamentals (continued)

Initial Offer – the initial offer is the first offer made in a negotiation. Therefore, it is only the party to “go first” that has one. The initial offer is important, because the party who makes the initial offer in a negotiation typically achieves a more advantageous outcome. This may seem inconsistent with popular opinions of “letting the other person make the first offer”, however, research has found that when a party is more informed they should make the first offer.

BATNA – This is an acronym that stands for the Best Alternative To the Negotiated Agreement. A BATNA is essentially whatever alternative a party has if they are not able to come to an agreement with the other party. This is sometimes referred to as a “fall back.” The BATNA might be an offer that a party has already had from a different party, and can often be used as leverage when trying to get a better deal.

Negotiation Fundamentals (continued)

Zone of Possible Agreement/Bargaining Range – The zone of possible agreement (the acronym ZOPA is sometimes used) represents the presence (or absence) of overlap between the two party’s resistance points. If there is an overlap (e.g. a buyers’ resistance point is $14, and the sellers’ resistance is $8), this is said to be a positive zone of potential agreement. If there is no overlap (e.g. a buyers’ resistance point is $10, while the sellers’ resistance is $13). These two scenarios are shown on the next slide. Without knowing the other party’s target and resistance point, it is impossible to know whether a positive or negative ZOPA exists; this is why it is so important to gather as much information as possible before the negotiation begins.

Note: It is also important to know that if a positive ZOPA exists, an agreement should be made. However, if a negative ZOPA exists, it is less likely that an agreement will (and sometimes should) be made. Yet, a strong negotiator may be able to influence her/his counterpart to adjust their initial resistance and target.

Zone of Possible Agreement

Strategy & Planning

If there is one thing that is most likely to lead to ineffective negotiation, it is due to a lack of planning. When most people think about negotiation, it brings up thoughts about the possibly intense back-and-forth exchanges between parties. That is an important part of any negotiation, however, the planning that takes place before parties sit down at the ‘negotiation table’ has a bigger impact on the outcomes of the negotiation.

Planning

These are some main objectives to consider during the planning process:

Determining your goal – the first thing any party should do before negotiating is to decide what their goal is or what they hope to achieve. Knowing this goal helps parties to implement the most effective strategy for helping them to achieve that goal (see styles/approaches below). Setting your goal should also include establishing your target (see above) and your resistance points.

Preparation – it is important to consider everything that is likely to take place during a negotiation. This may include figuring out who all the parties are (those directly and/or indirectly involved), who the main negotiators will be, who the decision makers are, where the negotiations will take place, etc. It is impossible to prepare for every detail of a negotiation, but the better a party does at thinking of these things ahead of time, the more prepared they will be at the negotiation table.

Planning (continued)

These are some main objectives to consider during the planning process:

Information Gathering – The old adage that ‘information is power’ is extremely relevant in negotiation. In fact, the most effective way for a negotiator to gain power is to gather as much information as possible before they sit down at the negotiation table. The more information one can have about the other party, the better they will be at influencing the other party to agree to their offer. If one can gather information about the other party’s target and resistance points, they will likely be able to reach an agreement that is good for both parties, or one that helps them to best achieve their goals.

Strategy / Approach

Before you begin any negotiation, answering the following two questions will help a negotiator determine the overall strategy they should use to approach the negotiation:

How important is the substantive outcome of the negotiation to me?

How important is my relationship with the other party? (or how important is it to me that the other party achieves their substantive outcomes?)

Answering those questions will help a negotiator to select 1 of 5 primary negotiation strategies: Collaborating, Competing, Accommodating, Avoiding, and Compromising. See the two dimension framework from Pruitt and Rubin (1986) on the next slide to match a strategy with the answers to the 2 questions above.

Strategy / Approach (continued)

Importance of relationship to me

Importance of outcome to me

High

Low

Strategies – based on the questions and framework from previous slides

Collaborating – If you have determined that the outcome(s) of the negotiation as well as the relationship, you should consider adopting a collaborative strategy. This strategy involves trying to reach an agreement that is beneficial for both parties. Because of this, the strategy is often referred to as a win-win negotiation.

A collaborative (win-win) approach often sounds good in theory, but is a difficult strategy to implement, because parties often think competitively during a negotiation, and often shift to trying to gain as much value as possible (referred to as claiming value).

Strategies (continued) – based on the questions and framework from previous slides

Competing – If your outcomes are more important to you than is your relationship with the other party, a competing strategy might be the most effective. For this strategy, parties should use tactics that attempt to move the other party off their positions and to (hopefully) adjust their resistance point to get closer to your target.

Some effective tactics for influencing the other party is by framing the negotiation with an extreme opening offer, by making small concessions, by intimidating the other party, by making a strong demand followed by a threat (e.g. if you don’t agree to ___, then I will walk), attempting to change the other’s perception about the value of things, convince them of the cost of delay (this often pressures the other party to make larger concessions), and to convince the other party that it is their best option.

Strategies (continued) – based on the questions and framework from previous slides

Accommodating – If the relationship (or the other party achieving his/her goals) is more important to you than the substantive outcomes you are negotiating about, then an accommodating strategy should be used. This approach can also be used if you will have a series of separate negotiations with a party, of which future negotiations might be more important to you. In those instances, an accommodating approach is often referred to as lose-win, because you may achieve less substantive outcomes in the current negotiation (“lose”), in order to position yourself to achieve favorable substantive outcomes in a future negotiation.

Avoiding – An avoiding strategy should be used if neither the substantive outcome nor the relationship with the other party is important. In that instance, it can be better to just avoid negotiating altogether. This approach may be used if the outcomes are not important, and when engaging in negotiation has the potential to damage professional or personal relationships.

Strategies (continued) – based on the questions and framework from previous slides

Compromising – While compromise seems to be a buzz word, a compromising strategy is really a less than desirable approach to negotiation. Compromising, which usually results in parties “meeting in the middle.” That may sound OK in theory, but in practice it usually results in a lot of money being left on the table. A compromising approach is akin to a halfhearted attempt to collaborate. Thus, as an overall strategy, compromising is not a very effective approach. However, there is a time when compromising can be used to reach an agreement when two parties are close to an agreement. Whether a party applies a competitive, collaborative, or accommodating approach, there often comes a point when parties are close, but have not reached an agreement. At that point, a compromising strategy may be beneficial, because there may be no more value to create, yet it would be good for both parties to meet in the middle rather than reach an impasse.