Negotiation

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Negotiation

• Ian Harris

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Learning Outcomes
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Ice - Breaker

• Negotiation Split into pairs, one stand up, one
  sit down. The one standing must try and persuade
  the one sitting to give up their chair. You have
  five minutes, you might want to spend the first
  minute thinking about strategy and styles you may
  want to adopt
• If the sitting person is really persuaded by the
  negotiation then please stand up dont block a
  good negotiation just to be churlish

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Teachers Note

• This is a really simple starting point for
  negotiation, the whole point here is for people
  to immediately identify how difficult it can be
  to negotiate
• It will also remind them about how they deal with
  their persuasion styles some will be dominant,
  others subservient some will become frustrated,
  others angry make sure you discuss these
  feelings with them and remind them that at all
  times during a negotiation to get the best
  outcome people must remain polite

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What is negotiation?

• Negotiation is the means by which people deal
  with differences.
• Harvard Business Essentials
• Latin Root of the word negotiatus means to carry
  out business

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An example of negotiation

• XYZ manufacturing make machines using some
  components from Supply ltd. A negotiation
  between the two parties is being made by which
  XYZ ltd will purchase 20,000 components from
  Supply ltd. Split into pairs one negotiating for
  XYZ ltd and the other for Supply ltd.
• Split into two groups of two, one will play XYZs
  role, the other Supply Ltd. Your briefing will
  be handed to you separately you have 5 minutes
  to plan your negotiation, and then 5 minutes to
  undertake the negotiation. When finished spend 5
  minutes to jot down some notes about how you
  felt, what issues were raised but try to get the
  best deal for your company!

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Teachers Note

• At this point there is no right and wrong
  components, unless someones got really stressed
  by this
• Make sure you capture the general feeling from
  each side of the table
• As an aide memoir
• XYZs fix at 1.50 is unrealistic
• The procurement manager would not actually say
  that hes an operational business man
• The price is not that important for Supply Ltd,
  however, cash flow is - 1.50 may be fine, if the
  account is paid by the week they need the cash
  flow

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Handout for XYZ

• XYZ is looking for each component at a price of
  1.50 they have no alternative suppliers for
  these parts, they do have a very healthy cash
  flow and are cash rich currently. However, even
  if they paid 3.00 for each component the impact
  on the sale of the 25K machine is MINIMAL
• Your procurement director has dictated that you
  must not pay more than 1.50 for each component

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Handout for Supply Ltd

• Supply ltd are aware that XYZ cannot get the
  components from anyone else, they are really
  seeking 2.00 per component, however, the
  components only cost Supply ltd 0.20p to make
  and distribute unfortunately XYZ are one of the
  very few customers who still require these
  components and Supply ltd have very poor cash
  flow and their creditors are chasing them for
  late payment of invoices

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Distributive Negotiation vs Integrative
Negotiation
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Styles of Negotiation

• Spend Five minutes outlining some styles of
  negotiation
• You may do this on your own, in pairs or in
  groups of up to 4 people

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The substance of Negotiation

• Preparation
• Exploring what both sides want and exchanging
  information
• Persuading by argument
• Concessions
• Concluding

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Preparation
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Four steps of basic preparation

• Analysis
• Identify the objectives of all sides and
  information sought identify items that are to
  be negotiated
• Evaluation and Formation
• Evaluate the strengths and weaknesses and
  formulate arguments for both parties
• Evaluate openings, bottom lines and formulate
  concessions
• Structure and Strategy
• Plan order of items, approach, presentation etc.

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Analysis

• Firstly identify your position. Think back to
  the XYZ vs. Supply Ltd negotiation.
• Summarise your position
• Then try to summarise your opponents position
• What are your strengths and weaknesses?
• What are their strengths and weaknesses?
• How are you going to open the negotiation?
• What realistically is your bottom line?
• What are your potential concessions?
• What else might you want from them if you cant
  get them down on price?
• Class feedback

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Teachers Note

• Ensure that you tease out of the class the
  situation, and add to it if they dont get all of
  the points
• You may want to introduce the concept of
  blocking, taking the high ground (being fair),
  being fair when you dont have to be (why would
  you want to do this?)

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• XYZs position
• Component was essential
• Could not get the component anywhere else
• Component was a very, very small cost to the
  machine
• Profit Margin on the machine is very high

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• Supply Ltds position
• Few customers
• Poor Cashflow
• Creditor issues (XYZ could easily find this out
  by credit checking them)
• Markup on Component is huge selling it for
  0.30p would still make 50 profit

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The really important parts again

• Evaluate the strengths and weaknesses and
  formulate arguments for both parties
• Evaluate openings, bottom lines and formulate
  concessions

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Concessions Do

• Plan them based upon what is arguable and what
  you/clients wants
• Open high and make staged offers
• Justify each one why should I..? You should
  because
• Use conditional and provisional offers
• If you have few concessions do offer and make
  them slowly
• Do not make more than one at a time
• Always seek to trade concessions try never to
  give without getting something in return

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Concessions Dont

• Agree to separate parts
• Simply split the difference
• Simply retreat to your bottom line
• Interrupt opponent when making an offer
• Use threats, mislead opponent
• Say its your final offer unless it is!

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Golden Rules

• Get the whole list know exactly what you are
  negotiating
• Open High theres only one way you are going to
  go
• Know your bottom line walk away when youve
  reached it
• Trade concessions dont give them away
• Be clear and precise about what is agreed
  re-iterate any verbal agreement and then
  transcribe it
• Politeness is Powerful stay in control, dont
  get frustrated some you will win, some you will
  lose

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BATNA

• What happens if you reach your bottom line and
  cant close the deal?
• What happens if your opponent blocks the
  negotiation
• KNOW YOUR BATNA!
• Best
• Alternative
• To
• Negotiated
• Agreement
• Example of employee sacked but offered 50K
  settlement by employees but decided to take to
  court anyway without knowing the probability of
  improving that offer in court

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The story of King Louis XI

• 1475 100 years war between France and England
• War was continuing
• BATNA was to continue fighting a long and costly
  war
• Negotiated a peace treaty where he paid 50000
  crowns up front and 50000 crowns for every year
  Louis was alive
• MUCH LESS than the cost of fighting a war for one
  year

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But what if you have a weak BATNA

• Improve the strength of your BATNA creatively
  think how you can improve your BATNA (Think
  Outside the BOX)
• Identify the other sides BATNA for comparative
  purposes
• Weaken the strength of your opponents BATNA
• If you are certain you have a very strong BATNA
  then subtly tell your opponents about it

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But how can you identify the other sides BATNA

• Speaking to people in the industry
• Doing secondary desk research
• Reading analysts reports/annual reports
• Asking the company shrouded questions
• Empathising how you would feel in their position

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The Reservation Price

• This is the point at which you will walk away
  from the negotiation, replace price with
  whatever you are negotiating
• Ensure you know the reservation price before you
  enter into any negotiation

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ZOPA Zone of Possible Agreement

• This is the area under which a successful
  agreement can be undertaken
• 120K 130K
• Sellers Min Price Buyers Max Price
• Zone of Possible Agreement is 10K
• 140K 130K
• Sellers Min Price Buyers Max Price
• No zone of possible agreement

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Preparation

• The Nine steps needed prior to a negotiation
• What is a good outcome for you and your
  competitor
• Are there any potential value creation
  opportunities
• Identify the BATNAs
• Shore up your BATNAs
• Anticipate the Authority Issue
• Know the other side
• Maintain your flexibility
• Benchmark fairness
• Altering the Process in your favour

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• Read the following Context
• Scenario from chapter three.doc

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Step 1 what is a good outcome for you and the
other side

• You must always understand what a good outcome
  would be for you!
• After reading the scenario what would be an
  good outcome for Phil?
• What would be an good outcome for Laura?
• What could Phil have done better?
• What questions should Phil have asked?
• What were the interests for Laura why did she
  want to leave for 6 months?
• Note sometimes its impossible for you to
  identify the other sides interests but that
  does not stop you asking some pretty good
  questions

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• Now read LaurasReasons.doc
• If you were Phil, what components might you want
  to introduce into the negotiation now you know
  the background?

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Step 2 Are there any value creation
opportunities

• Is there any common ground if so, there are
  chances to create some value around the situation
• Laura could be offered reduced hours from 9am to
  2pm
• Laura could work from home and telecommute
• Savings made could help fund a temp to make up
  the short-fall in hours
• Are these better options for Laura?
• Value opportunities explain why companies offer
  over the share value for companys when they are
  trying to acquire new companies

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Step 3 Identify BATNAs and Reservation Price

• What is Phils BATNA?
• Firstly, he does not seem to have considered this
  component
• He can refuse the meeting and then deal with HR
  and a disgruntled employee or he can
• Hire a replacement and hope they are as good as
  Laura
• Whats Lauras BATNA?
• It too is weak, and her chosen position is weak
  She has no option but to negotiate with Phil,
  ultimately her BATNA may be to resign and then
  look for a job in 6 months time

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Shore up your BATNA

• Phil could have identified a suitable replacement
  for Laura thus shoring up his Batna is Laura
  really that irreplaceable
• Laura could have emphasised and reinforced with
  her co-workers her necessity to the smooth
  running of the department

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Step 5 Anticipate the Authority Issue

• Who is in authority and are they sitting at the
  table
• Ask who has the final responsibility for signing
• If not at the table, persuade them to enter into
  the negotiation, by broaching the question
• Who, what, when, are great questions to ask here
  who is the signatory, what do they sign for,
  when is a signature likely to occur

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What happens if the decision maker is NOT at the
table

• You can ensure that no commitment will be
  evident as an outcome from the negotiation if
  they cannot commit, why should you
• Talk about the interests of the parties so that
  when the decision maker is available you have a
  better view of their drivers
• Make sure any prices/conditions negotiated are
  above your Reservation Price

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Step 6 Know the other side

• If I know who I am dealing with I can play to my
  strengths and their weaknesses
• What is the person/company I am negotiating with
  trying to achieve? How critical is the deal to
  their business
• Trained negotiators know this, they find out as
  much as they can about their competitor

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Step 7 - Flexibility

• Have a plan, but be prepared to throw the plan
• Patience is good, as is consistency and
  politeness
• If you are an ops person, you may not be
  particularly flexible, you may have a very just
  do it now attitude
• If you cant modify your core attitude, get
  someone else to negotiate for you

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Step 8 What is fair?

• Fairness and Reasonableness matters
• Being fair is essential to prevent blocking
• There are numerous fairness criterion
• Some will be more important to you
• The ones that are less favourable need to be
  explained away

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Step 9 Alter the process in your favour

• Sometimes the odds are against you
• Internally, you will be able to modify the
  environment, externally this is much more
  difficult

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Getting around the table
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Firstly you need to assure a mutual need

• To negotiate you must have a mutual need
• People are only motivated to communicate or
  negotiate when they think they have a need
• Hence you may need to incentivise the meeting in
  some way
• Or to communicate the costs of not negotiating
• Or find people who can get access to help you
  (especially for internal negotiation)

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When at the meeting

• Have refreshments people communicate better
• Dont be afraid of the small talk
• Starts relationship building
• Tells you about the style of the other person
• Allows you to baseline the communications will
  they be formal or informal
• A gentle way to start is by explaining your
  perspective and the agenda proposed

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• The context of the meeting and its development
  will change depending upon whether it is
  distributive or integrative

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Distributive win/lose
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Anchoring a concept

• Anchors provide extremely strong psychological
  reference points
• Research shows that many completed negotiations
  are very close to the Anchor point
• Anchors provide a reference point but they must
  be justified offering 1.50 for a new Porsche
  may be an anchor but we all know that the
  salesman will just think you are a (.)anker

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Anchors the risks

• If the anchor point is set too high then the
  negotiator may decide there is nothing to
  negotiate
• The negotiator may become personally insulted
• May result in no ZOPA
• ReadAnchoringandCounterAnchoring.doc

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Counter Anchoring

• But what happens if the other side makes the
  first offer? How do you counteract that
  significant psychological barrier?
• Read Part 2 of ReadAnchoringandCounterAnchoring.d
  oc

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• Instead of acknowledging the price, talk about
  generalities, outline specifics, and then justify
  the figure that you want to anchor around
• If you acknowledge the anchor, you will have
  trouble bringing the negotiation back on your
  terms
• To counter anchor you have to justify why your
  counter anchor is more appropriate then the
  original anchor

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Concessionary Moves

• In any distributive deal, concessionary moves are
  initiated often known as bartering
• Concessionary moves may be small or big, big
  suggest that the seller is likely to drop more
  dramatically
• Small concessionary moves suggest the price is
  close to the reservation price
• This is where understanding both parties BATNAs
  is very useful
• If you are ever in this position and people are
  bartering over 10-20K just remember how long it
  would take you to clear that much revenue
• See Part 3, ReadAnchoringandCounterAnchoring.doc

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• Read Part 4 and Part five of ReadAnchoringandCount
  erAnchoring.doc
• To understand BATNA and Time Constraining better

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Closing

• Dont just push the close on the opponent
• Let them know when a close is imminent
• Leave some wiggle room, just in case they cannot
  make the commitment then and there
• Ensure that they understand that any concession
  asked for after closing will change the offer on
  the table
• In brief terms write down the terms, not legally
  binding, but still a good point of reference

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• Some key aide memoirs

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• People behave differently
• There is a difference between style and
  strategy
• Styles
• Aggressive, Friendly, Condescending, Interested,
  Nervous, Shy, Hard to Understand
• Strategies
• Competitive (fight over the pie)
• Co-operative (agree on how to divide the pie)
• Collaborative (can we enlarge the pie?)

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The substance of Negotiation

• Preparation
• Exploring what both sides want and exchanging
  information
• Persuading by argument
• Concessions
• Concluding

57
Four steps of basic preparation

• Analysis
• Identify the objectives of all sides and
  information sought identify items that are to
  be negotiated
• Evaluation and Formation
• Evaluate the strengths and weaknesses and
  formulate arguments for both parties
• Evaluate openings, bottom lines and formulate
  concessions
• Structure and Strategy
• Plan order of items, approach, presentation etc.

58
Concessions Do

• Plan them based upon what is arguable and what
  you/clients wants
• Open high and make staged offers
• Justify each one why should I..? You should
  because
• Use conditional and provisional offers
• If you have few concessions do offer and make
  them slowly
• Do not make more than one at a time
• Always seek to trade concessions try never to
  give without getting something in return

59
Concessions Dont

• Agree to separate parts
• Simply split the difference
• Simply retreat to your bottom line
• Interrupt opponent when making an offer
• Use threats, mislead opponent
• Say its your final offer unless it is!

60
Golden Rules

• Get the whole list know exactly what you are
  negotiating
• Open High theres only one way you are going to
  go
• Know your bottom line walk away when youve
  reached it
• Trade concessions dont give them away
• Be clear and precise about what is agreed
  re-iterate any verbal agreement and then
  transcribe it
• Politeness is Powerful stay in control, dont
  get frustrated some you will win, some you will
  lose

61
Negotiation Exercise

• See Triangle Exercise

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Equipment Needed

• Nobo Boards and Paper 1 per 4 people
• Data Projector
• Laptop
• Video Camera and Video Camera Stand, Microphone

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Pre-Requisites

• Self Awareness
• Persuasion Styles