Essentials of negotiation skills

Essentials of Negotiation skills

Outline:

Introduction ………………………………………..………………………2

First Step: Preparation & Planning ………………………………………...5

Second Step: Negotiation, The Key Tactics ……………………………....12

Third Step: Closing the Deal ……………………………………………...14

Fourth Step: Evaluation & Feedback …………………………………….16

Extra: What is my negotiation style? ……………………………………..18

Essential to Negotiation Skills Page 2

Introduction

About Professor Georges Siedel

Williamson Family Professor of Business

Administration and Thurnau Professor of Business

LawUniversity of Michigan.

George Siedel teaches undergraduate and graduate courses on

negotiation and dispute resolution at the Ross School of Business,

University of Michigan. He also served as a visiting professor at

Harvard University and Stanford University, a Visiting Scholar at

University of California, Berkeley, and a Visiting Fellow at

Cambridge University, where he completed his graduate legal studies.

As a Fulbright Scholar, he held a Distinguished Chair in the

Humanities and Social Sciences.

George has taught and lectured on negotiation in Europe, Asia, Latin America, Africa and Australia. He

taught an annual negotiation seminar for several years in Hong Kong and currently teaches annually in

Italy and Eastern Europe. He has taught negotiation to business owners, corporate leaders, entrepreneurs,

athletic directors, attorneys and physicians. George has received several teaching awards, including the

2014 Executive Program Professor of the Year Award from an international consortium of leading

universities.

As Associate Dean at the Ross School his negotiations included the founding of Ross centers in Paris and

Hong Kong. In addition to teaching negotiation, George heads the Carson Scholar Program, a public

policy program in Washington, DC for outstanding Ross students. He has also received several national

research awards, including the Hoeber Award, The Ralph Bunche Award and the Maurer Award, as well

as an international case writing award.


What is Negotiation?Negotiation is a method by which people settle differences. It is a process by which compromise or

agreement is reached while avoiding argument and dispute.

In any disagreement, individuals understandably aim to achieve the best possible outcome for their

position (or perhaps an organization they represent). However, the principles of fairness, seeking mutual

benefit and maintaining a relationship are the keys to a successful outcome.

To make it simple, a negotiation is the process of communication between two or more parties in order to

reach an agreement. Negotiation isn’t just limited to the business or legal world; it is used in our daily

lives, and the simplest things we do regularly.

Importance of NegotiationConflict has never benefitted anyone, instead it adds to one’s tensions and anxiety. It is better to discuss

things and reach to an alternative benefitting all. Issues must not be dragged unnecessarily and efforts

must be made to come to a conclusion involving the interests of all.

Negotiation is essential everywhere. It is not only the corporate where negotiation is important but also in

our daily lives. We all must try our level best to adopt negotiation skills to avoid misunderstandings and

lead a peaceful and a stress free life.

Negotiation also helps in effective buying. Every individual needs to save money for the rainy days. You

just can’t spend money like anything. One must try his level best to negotiate with the second party to

reduce the costs to the best extent possible. If you do not negotiate well you will end up spending more

than required.

Negotiation is important but do not forget to be polite and dignified. Convince the shopkeeper as to

why the price of a particular item should be a little less than what he has quoted. Discuss with the store

owner. He will feel happy after all he needs to sell his products and even he looks forward to a loyal

customer. It is better if both the parties negotiate with each other and come to a price which would satisfy

both of them. (The customer as well as the store owner). The customer would afford to buy his product at

a reasonable price and the store owner would also manage to earn his profits. Ask for discounts when you

go out for shopping.


Negotiation reduces conflicts and improves the relation among individuals. We are human beings and

unlike animals we live in societies and need people around. How would you feel if your next door

neighbors don’t talk to you? People can’t stay all alone. They need the company of others to share

happiness, sorrows and take each other’s help whenever required. Try to understand the other person as

well.

An individual must learn the skills to an effective negotiation to lead a happy and a peaceful life.

Negotiation is essential for better bonding among individuals, lesser conflicts and a happy life.


First Step: Preparation & PlanningPreparing and planning the negotiation is the most important phase in a successful negotiation. It involves

the analysis of a negotiation, the setting of a negotiation environment, and knowing about the other

party’s interests and background. It is also important to know and measure the level of experience of

oneself and the importance of a deal, so you can decide, whether to heir an expert agent or not. We will

discuss all these points in details in this section.

Should I negotiate in the first place?The first question in negotiation, is that am I ready mentally and emotionally to negotiate? It depends

from one to another. Some people prefer not to negotiate at all, and to save their breath for other things, or

simply they tend to not bother. On the other hand, there are some people who negotiate in every matter in

their lives, even if it is of a small significance.

To know whether to negotiate or not, we should put into consideration the following:

Am I mentally ready for this negotiation?

What is the cost of not negotiating?

What is my BATNA (Best Alternative to Negotiated Agreement)?

What are the rewards associated to a successful negotiation?

Am I emotionally ready to negotiate?


The difference between interest based negotiation & position based negotiationPosition based negotiation

Also called positional bargaining, it is a traditional way where people routinely engage in. What this

means is that each side takes a position, argues for it, and makes concessions to reach a compromise. The

classic example of this “negotiating minuet” is the haggling that takes place between a customer and the

owner of a secondhand store: “How much do you want for this dish” “I could sell it to you for $75”; “It’s

dented, I’ll give you $15”; “I won’t take less than $60”; “I won’t pay more than $25” – and so on. This

form of negotiation depends upon successively taking – and then giving up- a sequence of positions.

In any negotiation agreement, a negotiator must be ready to face this kind of position based negotiation at

any stage in the negotiation.

Interest based negotiation

On the other hand, there is the interest based negotiation, which emphasis on the importance to build a

relationship with the other party, rather than focusing on the result of one time negotiation. The interest

based paradigm intent is to reach a mutual acceptable outcome to benefit both parties. The interest based

negotiation focuses on “win win” rather than the “zero sum game” of the positional bargaining.

A negotiator should search for the other party’s interest and try to build a larger picture, in order to

communicate it and reach the best deal possible.

Types of negotiation: Dispute Resolution or Deal Making?The most important thing for a negotiator to know is, whether he is into a dispute resolution type or deal

making type of negotiation. The main difference is, that deal making negotiation always involves an

interest based paradigm, where both parties are looking to get the best agreement possible through goal

alignment strategies. On the other hand dispute resolution, is a position based paradigm, where each party

holds on a certain position, and tries to defend it from the “enemy” which is the 2nd party.

There are many ways to solve disputes, which will be illustrated in the next figure.


ADR

Power Litigation Arbitration Mediation Negotiation Avoidance

Alternative Dispute Resolution (ADR)

On the following scale, we can see on the far left Power, which is considered an extreme solution to problem, “if it doesn’t work, then we will take it by force.”

Another way to solve disputes, which we use in our civilized world, is the court system. Litigation is the by far the most common way to solve disputes between two or more parties with different interests.

The less common ways are Arbitration and Mediation, which will be discussed further in later section. In brief, arbitration could be considered as a private litigation, where mediation is considered a 3rd party negotiation. Both methods involve a third party, but the role is different.

We have also, the negotiation which is used to as a dispute resolution technique as discussed before.

Finally, another way to solve a dispute is by avoidance, which is simply “doing nothing” about it, and accept the results.

Analyzing the negotiationWhen analyzing our negotiation, the first question that should be asked, is what is the goal from this

negotiation? Am I making a deal? Or solving a dispute?

After answering that question, one should gather the facts and information about the negotiation. The

information needed by a negotiator to make a successful deal or solve a certain dispute is:

What is the negotiation goal?

What issues are most important to you to reach this goal? (any considerations)

Why are these issues important?

What is my BATNA?

What is the reservation price/cost?

What is the most likely price range?

Stretching goals

An example of a deal making negotiation, here we have

Patrick who wants to sell his car, Patrick needs at least


4000$ to finance his new truck that he have ordered, he wants to keep his car for 3 more weeks until the

truck will arrive.

The market value of the car is 5000$. If Patrick couldn’t find a buyer who will buy the car for at least

4500$, his friend Thomas is willing to purchase it from him for 4000$, and also he agrees to let Patrick

keep the car for 3 more weeks until his new truck arrives.

What should Patrick do?

4500 6000

Patrick’s reservation Price ZOPA: 5000 Stretching Goals

3500 5500

Stretching goals Buyer’s reservation price

We also know that Patrick’s BATNA is his friend Thomas’ deal; what we don’t know here, is the BATNA of the buyer.


The BATNA in dispute resolutionWe’ve discussed the BATNA in deal making negotiations, it is the alternative of a deal making, either

another deal, or no deal at all. There is a great way though to better weight your decisions in case of a

deal making or dispute resolution. We can use a problem solving technique called the decision tree.

A decision tree could be shown in the following example:

Probabilities of A

A

B Probabilities of B

When establishing the decision tree, make sure to draw decision variables as “squares” and

probabilities as “circles” or vice versa, for easy reading.

Make sure to use a common denominator for easy calculations of the weighted average, in order

to come up with the best decision.


Decision variable

Cross Cultural NegotiationIn the cross culture negotiation, the negotiator must make sure of some points in the negotiation plan.

First of all, one should know the general and common cultural background of the other party. Second, the

negotiator must adopt in moderation some of the cultural values of the other parties, with respect. Finally,

a negotiator should conduct a gap analysis to know the main differences between the cultures.

Ethical Standards

As we can see in the figure above, there is an overlap relationship between ethical standards and legal

ethics. In negotiation there are some concepts which come under the legal framework, some other

concepts that come under the ethical standards, and some other that come in the overlap area between

both legal ethics and ethical standards. We are going to discuss some of it in this section.

Legal ethics:

Are rules enforced by law, which means that any violation of these legal ethics will result in a legal punishment? Such as:

Fraud Unconscionability ( no bargaining power situation and unreasonable terms) Fiduciary duty (trust & loyalty)


Ethical Standards:

Those are voluntary ethical and standards guidelines, which are well known by the people such as honesty and integrity. Some of these standards may arise from the following:

1. Organizational standards. (If your employer has a Code of Conduct, does it provide standards for your negotiations?)

2. Someone you admire. (What would someone you admire do in your situation?)

3. Family test. (How would you feel when describing to your family what you did during a negotiation?)

4. Newspaper test. (How would you feel if a newspaper article in the local paper described what you did during a negotiation?)

5. Golden Rule. (Treat others as you want to be treated. Keep in mind that fairness is very important to the other side.)

Should I use an agent or not?Now the question of getting an agent or not, varies based on the situation. One may consider the

following before seeking out an agent to do the negotiation for you:

Expertise: Do you have the experience needed in order to engage in the particular negotiation?

Do you need special expertise?

Time: Do you have enough time for negotiation?

Cost/ Benefit: Is it worth hiring an agent? Is the risk associated with losing the deal higher than

the cost of agent?

Effort: Do I need to do lots of efforts in the negotiation? If yes, can I do this effort?

Relationship with negotiated party: especially in dispute resolution, where the case tends to be

tense, confronting the other party may result in a tension or shift of interests due to emotional

intervention. A use of an outside party such as the agent may facilitate the negotiation and make

it smoother.

It is important when engaging with an agent, to know the extent of authority that the agent is entitled

with, and what kind of authority is he/she having. This is very important to know before negotiating

anything, because sometimes after negotiating things with the agent, he/she might not have the authority

needed to get things done, and has to refer to a higher level of management for example, which make this

negotiation almost worthless.


Second Step: Negotiating, the key tactics

Knowing the other sideThe first tactic in implementing the negotiation, after analyzing and planning it, is to know the other

party. The key word here is to spend time to know the other party, let your negotiation goal is to make a

relationship with the other party, how can we do that?

Be a good listener, make sure to listen more than you talk, let the other party unfold his

“cards”. Try to think deeply about what the other party says rather than thinking of a

response to tell, this is called active listening.

Ask a lot of questions, people love to talk about themselves.

Avoid you favorite topics, because you will end up talking too much, and that is not a good

idea.

Using power in negotiationThe second tactic is to use power in negotiation, the question here, what are the sources of power for a

negotiator? The answer is simple, it is information, collecting information about the other party, his/her

needs, way of thinking, position; this will help you as a negotiator to come up with tactics along the way

in order to persuade or solve a certain problem. Especially knowing about the other party’s BATNA, the

BATNA is one of the key elements to a negotiation, and knowing the BATNA gives you an advantage in

the negotiation. The idea here is to weaken the other party’s BATNA and strengthen yours, why? Because

the BATNA represents the best alternative to a negotiation, the better the alternative is the desirable it

will be.

Developing negotiation power using BATNA

Your Best Alternative to a Negotiated Agreement (BATNA) is your source of power during a negotiation.

Your BATNA gives you leverage to walk away if the other side doesn’t give you a better deal than your

best alternative.

To develop your power, answer the following questions:

1. What is my BATNA? (This should be the first question that you ask yourself when preparing for

negotiations. If your BATNA is better than what the other side can offer, walk away from the

negotiation.)


2. Should I disclose my BATNA to the other side during negotiations? (As a general rule, you will

want to disclose a strong BATNA because that signals your strength and you will want to hide a

weak BATNA.)

3. If I have a weak BATNA, should I lie about my alternatives? (Lying is never recommended and

in this situation it is especially dangerous because courts have held that lying about BATNAs can

be considered fraud. See Chapter 4, “Decide How to Answer Ethical Questions,” in Negotiating

for Success.

4. Do I know what the other side’s BATNA is? How can I find their BATNA? (This is the way that

you will determine the strength of the other side. Decide what questions to ask during the

negotiation to find the other side’s BATNA.)

5. How can I weaken the other side’s BATNA? (In other words, how can you weaken the other

side’s power? Before the negotiation, try to predict their BATNA and think about how you can

weaken it.)

6. How can I strengthen my BATNA? (In other words, how can you strengthen your power during

the negotiation?)

Psychological tools & trapsWe are going to show some psychological tools & traps which may benefit the negotiator in deal making

or dispute resolution if used wisely.

Remember that these tools can become traps when the other side uses them.

1. Don’t assume that you are negotiating over a fixed pie (and avoid reactive devaluation).

According to the mythical fixed pie assumption, we assume that our interests are indirect

conflict with the interests of the other side.

2. Use anchoring in developing a first offer strategy. The anchoring technique is that we tend to

anchor on the initial value when estimating uncertain objects.

3. Avoid overconfidence when making negotiation decisions. This is a human nature to be

overconfident, it is a strong management tool, but it should be set aside when making decisions.


4. Frame the other side’s choices to your advantage. When options are framed positively, we tend

to be risk averse; and when they are framed negatively, we tend to be risk takers.

5. Look beyond easily available information. According to the availability technique, we are

influenced by the information most easily available.

6. Look at all negotiations from the other side’s perspective.

7. Encourage reciprocity from the other side. This is the feel of repaying someone back.

8. Use the contrast principle. Which states that things look different when presented in sequence.

9. Don’t lose sight of the big picture—the gorilla in the room. Always, when you get in the thick of

thin, try to take a step back to see the whole picture.

Third Step: Closing the deal & creating the contract

What is a contract? A contract is an agreement enforceable by law. There are two major sources of contract law, the first is

the civil law, and the second is the common law.

What is an agreement?An agreement is reached when an offer from party A is met with an acceptance from party B for example.

If offer is met with an acceptance, then an agreement is made. An agreement is considered a contract if

the four elements are realized, the four elements are as follow:

Elements of a contract:

Is there an agreement?

Is there any considerations?

Is the agreement legal?

Should it be a written agreement?


IF those elements are satisfied within an agreement, then the agreement is considered a contract and it is

bound, which means that it is enforceable by law. Sometimes it happens that when negotiating a deal,

there are written offers, and agreements, which could mistakenly be considered as contracts, what should

we do to avoid such a problem as negotiators?

Simply when using frameworks of agreement such as letter of intent, preprinted lease, agreement in

principles, and memorandum of agreement. State clearly that this document represents only negotiations

and that it is not intent to be a final contract.

Contract Law ChecklistNegotiations take place within the “shadow of the law.” Even when hiring an attorney to review your

final contract, you should use the following checklist during negotiations to ensure that you your

agreement will be enforceable.

1. Are you using a preliminary document? (If you are using a preliminary document—often called a

letter of intent, memorandum of understanding or agreement in principle—state in the document

that it is for negotiating purposes only and not a final contract.)

2. Have you reached a final agreement? (After the other side makes an offer, be careful when adding

terms to your “acceptance.” A counteroffer can terminate their offer.)

3. Have both sides given up something? (This is the consideration requirement. Be especially

careful to meet this requirement when you are amending a contract.)

4. Is the agreement legal? (Remember that legality requirements extend beyond violation of

criminal law and can include violations of public policy.)

5. Is the agreement in writing? (Even when not required by law, it is sound practice to put all your

agreements—including contract modifications—in writing.)

6. Does your written contract include all the terms that you negotiated? (Although the law varies

from country to country, there is a risk that courts will not enforce agreements that are not part of

the written contract.)

7. Are there any implied terms that are not part of the written contract? (In addition to implied

terms, courts might also review your courts might look at your past dealings with the other side

when interpreting the contract.)


Fourth Step: The End Game

Dispute preventionPerhaps one of the best ways to handle dispute resolution, is to solve the dispute source, and prevent it

from happening, this will save us lots of costs, effort and relationships. Dispute prevention methods vary

from informal apology to a formal written apology, it could be through social media feedback section,

and many other things. What is important here is the idea of preventing a small problem potential

escalation to a law suit in courts.

ADR tools 1. Corporate pledge: a statement that states that company A will resolve to negotiation or other

ADR techniques before going to a full scale litigation in case of dispute resolution with company

B, for example.

2. Screens: could be binding ADR process through litigation or arbitration, or non binding ADR

process through negotiation or mediation.

3. Contract clauses: pre-dispute or post dispute

4. Online Dispute resolution

Arbitration techniqueWe can say that arbitration is a sort of private litigation session, conducted by both affected parties with a

3rd party, who acts as the arbitrator. Arbitration is a formal session, where the arbitrator hears the claims

and the testaments of both parties in order to come up with a sound judgment on the case. The arbitrator

may or may not be a lawyer, an expert in a certain field, will have the sufficient expertise to conduct

arbitration. Both parties are also allowed to bring their lawyers to represent them.

Mediation techniqueAs arbitration, mediation involves a third party, and is considered an ADR technique, however, the

mediation session most likely aim to solve a certain problem and offering advice rather than giving a

judgment on a particular case. There are 3 types of mediation, facilitative, evaluative and transformative.


Contract performance & evaluationComplete the following assessment after negotiating House on Elm Street. Do not read the instructions

below before completing your negotiation!

Self-Assessment

1. What did you do well?

2. How can you improve?

Feedback for the Other Side

1. What did the other side do well?

2. How can the other side improve?

Prepare numbered lists when answering these four

questions. Please try to provide feedback to the other

side during a meeting. If a meeting is not possible,

written feedback is acceptable.

Be as honest and candid as possible. This is a rare

opportunity to share information about your negotiation

strategy and skills. Please make the most of this

opportunity. Use the results to prepare a plan for

improving your negotiation skills in the future.


Extra: What is your negotiation style?Instructions: Listed below are ten important traits of a person’s negotiating style and approach. Each trait

demonstrates a wide range of variations, which can be organized along a continuum, as has been done

below.

With respect to each trait, indicate with an X where your own negotiating style and approach in business

negotiation falls along each continuum.

1. Goal: What is your goal in business negotiations: a binding contract or the creation of a relationship?

2. Attitudes: What is your attitude toward negotiation: win/lose or win/win?

3. Personal Styles: During negotiations, is your personal style informal or formal?

4. Communications: Is your communication style in negotiation direct (for instance, clear and definite

proposals and answers) or indirect (for instance, vague, evasive answers)?

5. Time Sensitivity: In the negotiation process, is your sensitivity to time high (for instance, you want to

make a deal quickly) or low (you negotiate slowly)?


6. Emotionalism: During negotiations, is your emotionalism high (that is, you have a tendency to display

your emotions) or low (you hide your feelings)?

7. Agreement Form: Do you prefer agreements that are specific (that is, detailed) or general?

8. Agreement Building: Do you view negotiation as bottom up (reach agreement on details first) or top

down (begin with agreement on general principle)?

9. Team Organization: As a member of a negotiating team, do you prefer having one leader who has

authority to make a decision or decision making by consensus?

10. Risk Taking: Is your tendency to take risks during negotiations high (for instance, your opening offer

to sell is extremely high) or low?

