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3Margaret Neale, Distinguished ProfessorStanford Graduate School of Business

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In simplest terms, negotiation is a discussion between two or more disputants who are

trying to work out a solution to their problem.

Negotiations typically take place because the parties either wish to create something newthat neither could do on their own (a corporate merger, for example) or because theywant to resolve a problem or dispute between them.

Negotiations involve: Making offers Arguing persuasively Making concessions Acquiring and leveraging information



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The Apartment Rental

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A Two-Party Distributive Negotiation

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There are two main negotiation strategies; Distributive & Integrative

1. Distributive negotiation is the traditional form of bargaining and islargely based on the premise that the outcome of negotiations createswinners and losers, and both parties use any available leverage to make

sure they are the winners.

1. Integrative negotiation is rooted in the idea that the basic interests ofeach side typically complement one another. Therefore:

− Bargaining over positions is avoided;

− People are separated from the problem;

− Focus is placed on interests, not positions;

− Options for mutual gain are invented; and

− Objective criteria are used to select the appropriate resolution to anissue.



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This chart was derived from a more complex chartin Fisher, Roger, Wi lliam Ury, and Bruce Patton.(1991) Getting to Yes: Negotiating AgreementWithout Giving In , Second Edition. New York:Penguin Books. p. 13.

Negotiation StrategiesDistributive v. Integrative

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Distributive NegotiationsStrategies & Tactics

Topics:

1. Understanding the basic elements of a distributive bargaining situation as well asthe strategy and tactics of distributive bargaining

2. Exploring options for closing the deal in a distributive situation

3. Considering the strategic impact of positions taken during a negotiation and therole of concessions

4. Gaining an appreciation for commitment as a communication tactic



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The basic elements of a distributive bargaining situation:

The goals of each party are in direct conflict

Resources are fixed and limited and both parties want to maximize their share

Each party will use a set of strategies to maximize his/her share of the attainableoutcomes

Information is carefully guarded and only given if it provides a strategic advantage,

whilst efforts are made to obtain information from the other party to improve negotiation

power

Negotiation StrategiesDistributive Bargaining

Three reasons why every negotiator should be familiar with distributivebargaining:

1.In business there are often situations that are distributive by nature2.Many people use distributive strategies and tactics exclusively and it isimportant to know how to counter them

3.Every negotiation situation has a potential to require distributive bargainingskills whenever value is being claimed and must be distributed

Distributive bargaining strategies and tactics are useful when you want tomaximize value in a one-off deal and the relationship with the other party is notimportant.

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Note: Distributive bargaining is basically a competition over who will get themost of a limited resource (money). Whether or not one or both parties achievetheir objectives will depend on the strategies and tactics they employ.

Negotiation StrategiesDistributive bargaining



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Ten steps for preparing to negotiate

1. Determine your long-term and short-term interests (goals) and those of TOP

Ask yourself, “Why are you entering into this negotiation?” Why is TOP?” Be sure toconsider both long-term interests and your short-term interests.

Short-term

In the short-term, you may want to complete a sale.

Long-Term

In the long-term you may want to establish a close relationship with your customer,

enhance your business reputation, etc.

Note: To be certain that the perceived interests are aligned with the interests ofyour company (or client) determine if the successful outcome of the negotiation willmake a recognizable and purposeful contribution to the mission and goals of theorganization.

Note: Consider if your own self-interests as agent are compatible with that of theparty or parties you represent (principals).

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Ten steps for preparing to negotiate, continued

2. Determine the best alternative to a negotiated agreement (BATNA)

The purpose of negotiation is to produce an outcome that is preferable to any alternative

possibilities you may have. The best results that you can achieve or obtain without

entering into the negotiation is your BATNA.

Note: You can only have one BATNA.

Note: An alternative form of agreement that you might be able to reach withthe party with whom you are negotiating is not a BATNA.



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3. Identify and prioritize issues; assemble the bargaining mix

An issue is a matter that needs to be settled in order fulfill the interests of the parties. The

bargaining mix is the package of issues to be negotiated

The bargaining mix might contain: Price, quantity, terms and conditions and delivery

date. These are all issues because they can be negotiated.

4. Identify concerns

A concern is a “worry” connected with an issue that in itself is not possible to negotiate.

With respect to the issue of delivery, there may be concern that TOP does not have

the capacity to meet the required delivery schedule. Whilst the concern itself cannotbe negotiated, it may be possible to allay the concern by agreeing on contractual

penalties for late delivery.

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5. Determine your objectives and those of TOP for each issue

An objective is a broadly-worded description of what you feel you need to obtain on an

issue in order to satisfy your interests

Examples:

On the issue of delivery, an objective might be to have sufficient quantities to

maintain your production schedule, but not so much that your company has to hold

excess inventory.

On the issue of price, an objective might be to buy for a price that is low enough to

allow for a 40% mark-up



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6. Set your resistance point (also called reservation point, “walk-away” or bottom line)

on every issue on the basis of your BATNA and any other relevant limiting factors, and

then infer the resistance point for TOP.

That is, for each issue, determine a point beyond which it makes no sense to continue to

negotiate.

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Seller’s settlement range

Buyer’s settlement range

BargainingRange

5,000

4,500

0


7. For each issue determine the Bargaining Range or Zone of Possible Agreement (ZOPA)

This is the range between your resistance point and the estimated resistance point of TOP

Buyer’s resistance point

Seller’s resistance point

4,500 – 5,000=

Start Session 2 in Munich



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BargainingRange

5,000

4,500

0Buyer’s resistance point

Seller’s resistance point

4,500 – 5,000=

Note: You can only set an aspiration point after you know the extent of thebargaining range.Note: If there is a negative bargaining range or if it does not allow you to

set an aspiration point that reflects your objectives (interests), then it maynot be worthwhile to enter into a negotiation.


8. Set an aspiration point or target position within the Bargaining Range (ZOPA) and

determine if it is consistent with your objectives.

Aspiration point

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BargainingRange

5,000

4,500

0Buyer’s reservation point

Seller’s reservation point

4,500 – 5,000

Aspiration point

=


9. Set the opening position (initial offer)Within the context of the negotiation, set an opening offer outside of the bargainingrange.

Buyer’s initial offer

Seller’s initial offer



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Seller‘sBATNA

based onAlternative 1Alternative 2Alternative 3

Other factors?

Buyer‘sBATNA


Other factors?

Seller‘sAspiration Point

Buyer‘s inferred

Resistance Point

Bargaining Range

Seller‘s

Resistance Point

Seller‘s

Opening Offer

Position Envelope

The Position Envelope

For each issue set an opening offer outside the Bargaining Range

5,0004,500

4,800 5,500

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10. Set an agenda

An agenda is a list of the issues to be discussed during the negotiation

• The agenda should only identify issues; not actual offers or arguments• Generally, minor matters are listed at the top and the larger issues at the

end

Note that your proposed agenda provides the other side with a good indicationas to which issues are important to you without your having to reveal too muchinformation



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The Condominium

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Creating a position envelopebased on- Interests- Alternatives (BATNA)- Objectives

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130,000 135,000 140,000 145,000 150,000

Jackson‘sAspiration

Point(private)

Sofia‘sAsking Price

(public)

Jackson‘sResistance

Point(private)

The Condominium

The Buyer‘s View of the Negotiation

Sofia‘sResistance

Point(inferred)

Jackson‘sInitialOffer

(public)

Sofia‘sAspiration

Point(inferred)

133,000

Remember:

The Bargaining Range is the spread between the resistance points. This is sometimesreferred to as the Settlement Range or as the ZOPA (Zone Of Possible Agreement).

A Positive Bargaining Range exists because the buyer‘s resistance point is above theseller‘s..

Bargaining Range (Positive)





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The Automobile

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1. Prepare a position envelope

2. Negotiate in dyads3. Keep a record of your:

1. Opening offer2. Aspiration point3. Resistance point4. Settlement price5. Additional value

A Two-Party Distributive Negotiation

Session 2 Frankfurt

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Issue:Price

ReservationPrice

EstimatedBargaining

Range

AspirationPoint

InitialDemand

Buyer

Seller

The Automobile

Settlement

Buyer gets:

Seller gets:



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Positions taken during a negotiation

The opening offer (initial demand)

Studies show that negotiators who make exaggerated opening offers get highersettlements than those who make modest or low opening offers.

The advantages to an extreme initial demand are:

• room for movement (concessions)

• it acts as a meta-message to the other party signaling that:

- the negotiations are going to take a long time

- more concessions than originally intended may be needed to bridge thedifferences between the two opening positions

- he/she may have incorrectly estimated his/her resistance point

- it gives the other party the feeling that they really “beat you down”

Note: Do not take away your own power by starting low; let the other party doit to you! 27

Standard opening

• In general it is preferable if TOS opens first

Pre-emptive opening

• If your opening will be viewed as unexpected or “extreme” by TOS, then

you should open first to alter their expectations

• An advantage of making the first offer is that is serves as a benchmark.

• If the item being negotiated has a standard or published price, then theseller has effectively opened first.

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2. Sole-source and “tight” marketplaces

When there is only one source for a product or service you want to purchase,then you cannot begin negotiations with an extreme initial demand

Note: In tight and sole-source markets, the law of supply and demand “trumps”

negotiation

3. Emotionally-charged situations

Be more conservative in emotionally sensitive situations. If you are negotiatingpersonal issues such as a divorce, or issues in a family business you shouldnot employ an extreme initial position.

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4. Long-term relationships

The longer and closer the relationship, the less appropriate it is to start with an

extreme initial position.

Note: Trust makes negotiations unnecessary



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There are two disadvantages to making an extreme initial offer:

1.It may be summarily rejected by the other party and bring negotiations to a stop

2.It communicates an attitude of toughness that may be harmful to long-termrelationships

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Note: Never refer to your opening offer as your “opening offer” or “first offer”

Do not accept opening offers; even if they are within your target range

If you do:

• You will most certainly have left concessions on the table. Nobody opens at

their bottom line

• TOS will think they made a bad agreement

• TOS will want revenge

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Rejecting the opening offer

What should you do when an opening offer has been made?

• Flinch

• Reject it with a non-concessionary retort (krunch):

A krunch is:

• simple• adaptable

• a great beginning

• good in sensitive situations

• works even if you are ignorant

• perfect for day-to-day negotiating

• the best way to respond to an unreasonable offer56

“You‘ll have to do better than that!”


The opening stance

At the start of distributing bargaining negotiators should decide on their stance or

attitude for the negotiation.

- competitive?- moderate?

- belligerent?

It is important to think carefully about the message you wish to communicate with

your opening stance and subsequent concessions because there is a tendency for

the other party to respond in kind.

36Note:The opening stance and the opening offer must be congruent.



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Ye Olde Print Shoppe

A Two-Party Interactive Distributive Negotiation

Group negotiation

• Creating an envelope• Formulating offers• Responding to offers by:

- Accepting- Counter-offering- Inquiring into the price- Inquiring into interests and needs

• Interpreting meanings within messages

Start Session 3 in Frankfurt

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Seller‘s

BATNAbased onAlternative 1Alternative 2Alternative 3

Other factors?

Buyer‘sBATNA


Other factors?

Seller‘s

Aspiration Point

Buyer‘s inferredResistance Point

Bargaining Range

Seller‘s

Resistance Point

Seller‘sOpening Offer

23K15K 25K18,5K

Ye Olde Print Shoppe



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Initial concessions

An opening offer is usually met with a counteroffer and these two offers define

the initial bargaining range.

After the first round of offers, the next question is what movement or concessions

are to be made in order to reach agreement.

One can either hold firmly to the opening offer, or make some concessions.

Knowing when to concede and how much to concede is both an art and a science.

The other party will try to work out the logic behind your concessions to identify a

pattern.

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Upload Print shoppe memo


Concession management

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S i z e o f C o n c e s s i o n s i n E

u r o s

Concession number

1

2

3

4

5

1

2 3 4 5

XY,

X

Y

X

Y

X

X = George’s concessionsY = Mario’s concessions

Steeply-tapered pattern

Intransigent pattern



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The message in the concessions.

• TOS will stop negotiating and take the deal you are offering when:

– TOS has obtained an acceptable result vis a vis their positionenvelope

– TOS’s emotional needs have been satisfied

– TOS believes it cannot get any more concessions from you

How do you signal TOS that there are no more concessions?

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Concession pattern Nr. 1: 3,000; 3,000; 3,000; 3,000; 3,000; 2,000

What is the message?:

Would you accept the deal at this point?

If not, what do anticipate will be the next move?

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Note: A large concession after a prolonged period of inflexibility is a poortactic for signalling that you are at or very near to your bottom line.



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Concession pattern Nr. 2: 3,000; 2,000; 2,000; 2, 000; 2,000; 2,000

What is the message?



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Note: A big concession at the beginning followed by inflexibility is a poortactic for signalling that you are at or very near to your bottom line.







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Note: A series of identical concessions is a poor tactic for signalling that you are at

or very near to your bottom line.



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Concession pattern Nr. 4: 3,000; 2,980; 2,940; 2, 850; 2,000




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Note: A series of geometrically increasing concessions is a very poor tactic forsignalling that you are at or very near to your bottom line.




What is the message?:



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Note: A series of random concessions is a very poor tactic that confuses TOS.



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Note: A sizeable initial concession followed by sharply declining moves is a goodtactic that gives you the best chance of closing at or near your target



The pattern of concessions made by a negotiator contains valuable information,

but is not easy to interpret.

When concessions get smaller it normally signals that the concession maker’s

stance is becoming firmer and the resistance point is being approached.

To exploit this, apply The rule of halves whereby each successive

concession moves you roughly halfway from your present position to your target.

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Big

Small

Beginning End

S i z e o f c o n c e s s i o n s

Time

Opening Offer: 3000

Target: 2000

Resistance Point: 1750

1st concession: 2500

2nd concession: 2200

3rd concession: 2080

Steeply-Tapered Concession Pattern(The Rule of Halves)



The problem with the rule of halves is that it is too obvious. Therefore, stay close

to the nominal curve, but “massage” the numbers.

Strict rule of halves: 3,000; 2,500; 2,250; 2,125; 2,062; …..2,000Massaged: 3,000; 2,395; 2,265; 2,109; 2,031…….2,000

,50



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Rules for making concessions

1. To maintain your credibility, either give a plausible reason for makingconcessions, such as:

– …in light of our long-term relationship

– …as a volume discount

– …as part of a package deal

– …because we look forward to your future business

Or, insist on something of value in return (quid pro quo)

– …I would be willing to lower the price to €50, but then I would expect

you to order 100 units

Note: Never make a concession without either a very credible reason or a quidpro quo

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Positions taken during a negotiationRules for making concessions

2. “If” and “but”

• The basic formula for conceding to a demand

TOP wants “X”

I would consider agreeing to “X”, if I w ere to get “Y” in return

• Variations of the basic formula

1. If I were to agree to “X”, then I would not be able to do “Z” 2.. I could agree to something other than “X”, if I were to get “Y” in

return 3. I could agree to something other than “X”, but then I wouldn’t be

able to do “Z”



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3. Be frugal with your concessions

Never waste a concession

If TOP makes a demand and you cannot think of an appropriate “if” or“but”, move on to something else.

“Let’s set that aside for now and come back to it later.”

If nothing comes up during the course of the negotiation, then use thedemand as a deal closer:

“OK. I’ll agree to ‘X’ if we have a deal”.

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4. Avoid saying, “no”

• An unequivocal “no” may create “tension”. Instead, say, “Yes, if…” followed

by a very extreme demand.

Note: Your demand should be extreme enough to guarantee it being rejectedby the other side. In the unlikely event the TOS accepts your outrageousdemand you should be prepared to concede

5. Every request is an opportunity

• Every request from the other side represents an opportunity to obtain aconcession



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6. Equivalent concessions are not necessary

• Always try to get an “if” that is equal to or greater than the concession youare offering

Note: To increase value, ask for multiple items

Note: Always portray every exchange as a victory for TOS

7. Logic is not necessary

• The concessions do not have to have a logical relationshipTOS: We would need a unit of price of €10.00 OS: €10:00 does not work for us, but we would be prepared to giveyou $9.00, in exchange for your customer list

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8. I’ll see what I can do

• An equivocal commitment may sometimes be enough to win a concession

from TOS - But then, you must REALLY try!

• If TOS says, “I’ll try”, either attempt to get a real quid pro quo, or ask for afirm commitment to do “a, b, and c” if their “try” fails.

9. “Gimmies” (Give Me)

• Some things are unworthy of being traded. They are simply included in theagreement

“No problem. We can schedule the delivery for anytime you want.”



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10. Expand the deal

• Look for other areas that can be brought to the bargaining table

11. Your “if” will never disappear

• When TOS rejects your “if”, they also reject the concession, but they never

forget what you were prepared to concede.

“I can lower the price per gizmo to €1.00, but only if you are prepared to order 5,000 gizmos.”

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12. Use the same “if” as often as you would like

• If TOS rejects your proposed “if”, you can use it again in connection with other

proposals.

Boss: I need this report finished before 9:00am tomorrow morning You: OK, if I can leave the office on Friday at 1:00 pm.Boss: That is out of the question. By the way, I need you to help with thepresentation next Monday.You: OK, if I can leave the office on Friday at 1:00 pm.

Note: Never dignify an outrageous opening with a concession…krunch it instead.



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WS2012 Gershon Braun 59


Concession Management

Shaving concessions

• Do not “shave” concessions. If you cannot make a full concession accordingto the pattern of halves, then don’t make any.

Remember: You want TOS to understand your concession pattern!!!

Note: The meaning of a concession depends on where it occurs in thenegotiating process. If a concession comes late in the negotiations, it may meanthat the negotiator has very little room to maneuver.

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Concession Management

Conceding below the target

• The rule of halves no longer applies

– Make only very small moves with great reluctance until you reachyour resistance point

Deadlines

• Technical deadline

– Cut-off date

• Practical deadline

– Negotiations must stop

• If TOP’s last offer is at or near your bottom line, “nibble” and thenclose

• If at the last possible moment TOP’s last offer is below yourbottom line, then declare your bottom line

Note: A bottom line deal is an acceptable outcome. If the position envelopes

did not overlap, then deadlock was an inevitable outcome.



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Positions taken during a negotiationConcession management

Non-monetary concessions• Referrals to other divisions or interested third parties• Warranty, service, quality, and delivery guarantees• Intellectual property rights (software, data, derivative products, copyrights,

patents)• Training and documentation• Assistance in testing new products• Non-hire and non-compete provisions

• External triggering events (if the DAX drops below “X”, then…)• Options (or prohibitions) to do things at future dates.

Note: These types of concessions are a sign of a well-negotiated deal,because they can use the agreement as the basis for a long-term relationship.

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“Hot Buttons”: high value to the receiver, low cost to the provider

• Job title, office location / furnishings, reserved parking space

• Options regarding contract renewals

• Referrals to new sources of business

• High-visibility opportunity to speak before a prestigious group

• Feature article in a trade publication

• Tax advantages through the wording of an agreement

Note: Determine the value to TOS without revealing how significant or insignif icantit is to you



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Recognizing that not all issues are worth the same amount to both parties, skillednegotiators will also suggest different forms of a potential settlement that are worthabout the same to them in multi-issue negotiations. Concessions are made on theissues that are of least value.

Final Offers

Eventually, a negotiator wants to convey the message that there is no further roomfor movement and that the present offer is the final one.

- In spite of urging from the other party, a negotiator can simply be intransigent.The other party may not recognize at first that the last offer was the final oneand to get things moving may volunteer a further concession

- Making the last concession more substantial implies that the negotiator isthrowing in the remainder of the bargaining range.

- “I asked my boss and got a special deal for you.” 63



Escalation: The net worsening of a bargaining position

1. Seller: 500,000

2. Buyer: 440,0003. Seller 480,000

4. Buyer 430,000

You may have to escalate:

• If there is a radical change in circumstances

• If you receive new instructions from your boss

• If you truly forgot an important issue

But be prepared to take a verbal beating!

Buyer‘s last offer (4) is lowerthan the previous offer (2)

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Guidelines for making concessions

1. Give yourself enough room to make concessions

2. Try to get the other party to start revealing their needs and objectives before you make aconcession

3. Be the first to concede on a minor issue but not the first to concede on a major issue

4. Make unimportant concessions and portray them as more valuable than they are

5. Make the other party work hard for every concession you make

6. Use trade-offs to obtain something for every concession you make

7. Generally, concede slowly and give a little with each concession

8. Do not reveal your deadline to the other party

9. Occasionally say, “no” to the other negotiator10. Be careful trying to take back concessions even in tentative negotiations

11. Keep a record of negotiations made in a negotiation to try to identify a pattern

12. Do not concede too often, too soon, or too much

Source: D.W. Hendon, M.H. Roy, and Z.U. Ahmed, “Negotiation concession patterns: a multicountry, multiperiod study”

American Business Review, 21 (2003) pp.75-83

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The BentleyA Two-Party Distributive Negotiation


Keep a record of the- Opening offer- Aspiration point- Resistance point- Monetary concessions

- Amount- Reason or Quid pro quo

- Non-monetary concessions



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Issue:Price

ReservationPoint

BargainingRange

AspirationPoint

InitialDemand

Buyer

Seller

The Automobile

InitialDemand

Justification

Concession

Concession

Concession

Concession

P r e p a r a t i o n

B a r g a i n i n g

S e t t l e m e n t

Buyer

Seller

Commitments

A commitment is taking a bargaining position with some implicit or explicitpledge regarding a future course of action.

The purpose is to remove ambiguity about the negotiators intended course ofaction.

If my client does not get a salary rise, then he will sit out the nextseason

If he gets a salary increase then he will agree to your request toto have all other points submitted for arbitration.

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Note: Once you make a commitment you must follow through on it to maintainyour credibil ity.




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Commitments

Establishing a commitment

Given that strong passionate statements (some of which are bluffs) are madeduring a negotiation, you must convince the other party that you are reallymaking a commitment.

Commitments have three properties:

1. A high degree of finality

2. A high degree of specificity

3. A clear statement of consequences

“We must have a 10% volume discount in the next contract, or we will sign withan alternative supplier next month.”

Specificity: 10% volume discount; Finality: next month ; Consequences: we willsign with an alternative supplier 69

Commitments


Tactical considerations

Commitments may be used to gain advantages, but they also lock the

negotiator into a fixed course of action. They exchange flexibility for certainty ofaction.

When making a commitment it is important to have an exit strategy should, forexample, additional information become available that would make commitmentuntenable.

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Note: Try to prevent the other party from becoming committed, and if they shouldbecome committed, try to keep one or more avenues open for them to get out of thecommitment.



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Commitments


Ways to establish commitment

• Public pronouncement

• Increase the prominence of demands

• Reinforce the threat or promise

• Preventing the other party from committing prematurely

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Commitments

Finding ways to abandon the commitment

Plan a way out

“Given what I have learned from you during this discussion, I see I am going to

have to rethink my position.”

Give TOP a way out

“Given what I’ve told you about the situation , I believe you will agree that yourearlier position no longer holds.”

• Let it die silently

• Make a new proposal that nullifies or modifies the commitment made by theother party.

• If the other party says no to your proposal, you then characterize the proposalas a pilot project, etc.

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Commitments

Finding ways to abandon the commitment

• Restate the commitment

To back down from a commitment you can re-state it with less specificity.

Instead of a 10% volume discount, say, “We need a significant volumediscount”

• Minimize the damage

Claim that backing down from a commitment is a noble act.“In the spirit of the upcoming Christmas holiday, we have decided to….”

Exercise: Wiggle out of the following commitment:If no agreement is reached by midnight tonight, I will call a general strike andinstruct all 40,000 of our members to lay down their tools at 00.01 and walk off the job until further notice.

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What it takes to close a deal

• Satisfy the logical needs of TOP

– The deal must make “sense” and be quantifiable

• Satisfy the emotional needs of TOP

– Prestige, status, face-saving

• Satisfy TOP that you are at or very near to your bottom line

– Throughout the negotiation you must work to establish credibility andtrust



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Settle all issues as a package

Maintain leverage by never settling issues individually

• All agreements are interim until the final handshake

• You have a right to “revisit” all issues at any time during the negotiation


Closing tactics

When it is time to close the deal, negotiators have a number of tactics fromwhich to choose.

Provide Alternatives (“Alternate Advance”)

Instead of making a single, final offer, negotiators can provide two or threealternative packages that are more or less equivalent in value and ask TOP toselect one

Assume the close

In a buy-sell situation, the seller takes out an order form and begins to fill i t in,by first asking for the buyer’s name and address before moving on to moreserious points.

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Closing the deal

Closing tactics

Exploding Offers

The exploding offer contains an extremely tight deadline in order to pressurethe other party to agree quickly. The purpose is to convince the other party toaccept the settlement and to stop considering alternatives.

Sweeteners (“Kickers”)

Another closing tactic is to save a special concession for the close. “I will giveyou ‘X’ if you agree to the deal.”

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Ugli OrangesA Two-Party Distributive Negotiation



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Fundamental distributive strategies:

1.Push TOP to its resistance point

2.Persuade TOP to change their resistance point (re-framing)

3.TOP and / or OS are persuaded to reduce their / our resistance point4.Persuade TOP that the settlement being offered is the best possible underthe circumstances

In all of these strategies, the buyer is attempting to influence the seller’sperceptions of what is possible. Through the exchange of information andpersuasive argumentation each party tries to discover the resistance point ofthe other party and influence it.

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Start session 6 Frankfurt



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Discovering the other party’s resistance point

The more you can learn about TOP’s (target, resistance point, interests,alternatives, pressures, level of confidence, etc.) the more likely you are to be ableto achieve a favorable agreement.

However, communication in a negotiation is usually cryptic because each partyhas information they would like to conceal as well as information they would like toreveal.

As a result, questions are answered with other questions or with incompletestatements to influence the perceptions of TOP.

Negotiator “A” asks “What number are you looking for?”

Negotiator “B“ replies with a question: “What can you offer?”

Negotiator “B” replies with a statement: “Something more reasonable!” 81

Questioning and Active Listening Techniques for Eliciting Information

Types of questions:

- Open-ended: “What is the main reason for your interest in a joint venture?

- Follow-up

- Probing: “Can you be more specific?”

- Clarifying: “What do you mean by that?”

- Facilitating: “That’s helpful, could you please continue?”

82



42

Questioning and Active Listening Techniques for Eliciting Information

Types of active listening :

- Parroting: repeat their main remark virtually word for word- TOP: “I would like 90 days to pay the invoice”

- You: “You would like90 days to pay the invoice”

- Paraphrasing: paraphrase their main remark- You: “You want up 90 days”

- Re-phrasing: repeat their remark by reformulating it in other words- You: “So, after delivery, you want 3 months to settle the account”

- Answer questions with a question:- TOP: “What would you have done in my position?”

- You: “Is it that you are concerned about what to do?”

- Interrupt using clarifying questions:- TOP: “It is not uncommon to have 90 days to pay. Let me give you some examples, blah, blah

- You; “Just a moment. If I understand you correctly…”83

Influencing the other party’s resistance point

Central to planning the strategy and tactics for distributive bargaining is locatingthe other party’s resistance point and how it relates to your own.

The resistance point is a function of the value expected from a particularoutcome which in turn is derived from a cost-benefit analysis. It can also beaffected by market conditions and other issues that make up the bargaining mix(delivery, terms of payment, etc.). Because resistance points are set with greatdeliberation, they should not be changed without there being a very goodreason.

The other party’s understanding of what outcome is possible, is based on itsunderstanding of your situation; i.e. the value you place on a particularoutcome, the costs you attach to delay or difficulty and the cost of a deadlock.

84



43

Influencing the other party’s resistance point, continued

1. The higher the other party estimates your cost of delay, impasse ordeadlock the stronger their resistance point will be.

2. The higher the other party’ estimate of its own cost of delay, impasse ordeadlock the weaker their resistance point will be

3. The less the other party values an issue, the lower their resistance point willbe

4. The more the other party believes that you value an issue, the lower theirresistance point may be.

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Tactical Tasks

Within the fundamental strategies of distributive bargaining there are fourimportant tactical tasks concerned with targets, resistance points and the costof terminating negotiations

1. Assess the other party’s target, resistance point and the costs of terminatingnegotiations

2. Manage the other party’s impression of the negotiator’s target, resistancepoint and cost of terminating negotiations

3. Modify the other party’s perception of his or her own target, resistance point,and cost of terminating negotiation

4. Manipulate the actual costs of delaying or terminating negotiations

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44

Tactical Tasks, continued

Assessing TOP’s resistance point and costs of breaking off negotiations

Indirect Assessment

Determine what information TOP is likely to have used to set target andresistance points and how it interpreted the information. The information cancome from published sources, personal observation or obtained fromknowledgeable experts.

Direct Assessment

It is very difficult to obtain direct information. Sometimes it will be revealed byaccident during a negotiation, sometimes through questioning and activelistening techniques, sometimes it can be obtained through subterfuge, andsometimes it can be provoked

87


Manage the other side’s impressions

It is important to manage the flow of information about your target and resistancepoints whilst at the same time guiding the other party to form a preferred impressionabout them.

Screening ActivitiesThe easiest way to avoid providing the other party with valuable information is tosay or do as little as possible. Avoid making non-verbal cues such as looking bored,disappointed, becoming restless, fidgeting or probing with obvious interest.

To ensure that nothing is inadvertently communicated to the other party do not giveagents all necessary information. In team negotiations only one person shouldspeak.

Present so many issues that the other party cannot detect what is really important.This tactic is referred to as a “Snow Job”.

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Tactical Tasks

Direct Action to Alter Impressions

Selective presentation of information is used by negotiators to:

• Reveal only the facts necessary to support their arguments

• Lead the other party to form an impression of their resistance point

• Create new possibilities for agreement that are more favorable

• Explain or interpret the facts so as to present a logical argument that shows thecosts or risks to you if the other party’s proposals would be implemented.

“If you were in my posit ion, here is the way these facts would look in light of the proposal you have presented.”

• Cite industry standards, benchmarks, appeal to their sense of fairness, arguethat it is for the good of the company, etc. in order to draw a compelling pictureto get the other party to agree with them

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Emotional reaction:

Displaying real or feigned emotional reactions to facts, proposals and possible

outcomes is used by negotiators to communicate to the other party what isimportant to them.

Disappointment or enthusiasm usually suggest that an issue is important, whereasboredom or indifference suggests that it is trivial or unimportant.

A loud, angry outburst or an eager response suggests the matter is very important.

The length of time and amount of detail used in presenting a point or position canalso convey importance.

90



46



Modify the other party’s perceptions

A negotiator can modify the other party’s impressions of his or her own objectivesby making demands, positions and outcomes appear more attractive or lessattractive or by making the cost of obtaining them higher. Another approach is toconceal information.

Manipulate the actual costs of delay or termination

Extending negotiations beyond a deadline can be costly. Threatening to break offnegotiations may place tremendous pressure on the other party.

There are three ways to manipulate the costs of delay:

1.Plan a disruptive action

2.Form an alliance with outsiders

3.Manipulate the negotiation schedule 91



Modify the other party’s perceptions

A negotiator can modify the other party’s impressions of his or her own objectives

by making demands, positions and outcomes appear more attractive or lessattractive or by making the cost of obtaining them higher. Another approach is toconceal information.

Manipulate the actual costs of delay or termination

Extending negotiations beyond a deadline can be costly. Threatening to break offnegotiations may place tremendous pressure on the other party.

There are three ways to manipulate the costs of delay:

1.Plan a disruptive action

2.Form an alliance with outsiders

3.Manipulate the negotiation schedule 92



47

Common Hardball Tactics

These tactics are not recommended because they involve risks such as harmto reputation, lost deals, negative publicity, and the possibility of revenge by theother party.

• Good cop / bad cop

• Lowball / Highball

• Bogey

• The nibble

• Chicken• Intimidation

• Aggressive behavior

• Snow job

• …93

Dealing with hardball tactics

It is important to identify the tactic as soon as possible and understand what itis and how it works. There are several ways to respond. How you respond willdepend on your goals and the broader context of the negotiation. You can:

• Ignore them• Discuss them

• Respond in kind

• Co-opt the other party

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49

Developing a Conceptual Framework

Case: Park Net

Frank Park is the sole owner of Park Net, a cable television system in a smallmunicipality. Park has decided to sell his business.

Gulf Cable, a regional company, has already offered him $10,000,000 in cash, buthe is meeting with C-Com, the national telecommunications giant. Its representative

seems interested in closing a deal very soon.

The Conceptual Framework

17.09.2015 Gershon Braun 97

What will the respective parties do if they do not come to agreement?

What is Frank Park’s BATNA in his negotiation with C-Com?

- Accept the offer of $10 million from Gulf Cable?

- Respond to Gulf Cable with a counter-offer ($11.5 million)?

- Seek out other potential bidders?

On the basis of his BATNA what course of action should Mr. Park take in hisnegotiation with C-Com?

- Demand more than $10 million?

- Accept a lower figure from C-Com plus shares in C-Com?

- Accept $10 million if he can stop working immediately?


1. BATNA




50

What will the respective parties do if they do not come to agreement?,continued

Your BATNA is your preferred course of action should there be no deal. It is notyour bottom line!

Once you have identified your best alternative, you have to put a value on it.

The calculation can be influenced by:

- Ease of consummating the deal

- Time pressure,

- Relationships (good and bad)

- Risk tolerance

Note: A rigid bottom line can be dangerous by blinding you to creative solutions

1. BATNA



What will the respective parties do if they do not come to agreement?, continued

Assessing a BATNA (yours and TOS’s) is both a science and an art Only byconsidering the perceived BATNA’s of both the potential buyer and seller can onesee if an agreement is possible – and if so, whether there is a lot of room to bargain

or just a little.

Assume that all parties are interested in a straight cash transaction.

Mr. Park is prepared to accept the existing offer of $10 million from Gulf Cable

unless C-Com is willing to do better.

C-Com has done a financial analysis that justifies paying up to $13 million. Anyamount above this would be better invested in other acquisitions being considered.

ZOPA: $10 mil $13 mil

1. BATNA







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What are the interests and priorities of the key parties?

One might say that Mr. Park’s interest is simply to maximize the price he getsfor his company. Yet to achieve his interest he needs to take other factors intoconsideration:

- Tax obligations

- Balance near-term need for liquidity against long-term capital appreciation

- Partial payments in shares…how much risk is desirable?

The interests of TOS might include:

- Timing (when to conclude the deal, when to announce it to the markets)

- Retaining the services of Mr. Park during a transition period

Testing assumptions about the interests of TOS involves a certain amount ofrisk and both sides are generally cautious. But without knowing the interests ofTOS, it is difficult to maximize value.

3. Interests & Priorities



What are the interests and priorities of the key parties?, continued

Mr. Park approached the head of Aurora Partners, which owned the cable

system in the neighboring city, in the hopes of merging it with his own company

before selling it. Depending on how the deal is structured, Mr. Park calculated

that he would have to pay a maximum of $10 - $11 million.

Months of due diligence and hard bargaining got him nowhere. Aurora refused

to sell for less than $15 million cash. Mr. Park interpreted the $15 million as the

true walkaway position of Aurora.

But Mr. Park decided to focus on interests and priorities instead of positions.

He asked, “If you think your system is worth $15 million, how much would you

be willing to pay for ours?” Aurora replied, “$14 million”.

After a bit of bargaining they settled on $14.5 million

3. Interests & Priorities





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How can value be created and who will get it?

In the negotiation with Aurora, we saw that they placed a higher value on Mr.Park‘s system than he did.

$11m max. acceptable price for Park to buy

$15m min acceptable price for Aurora to sell

GAP(no ZOPA

)

4. Value



How can value be created and who will get it?, continued

Essentially, buy agreeing to the sale of the system, the parties created $3.5million of surplus value that reflected their different expectations.

$11m max. acceptable price for Park to sell

$14.5m min acceptable price for Aurora to buy

ZOPA

4. Value





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How shall the created value be distributed?

Increased value to seller B

AC

16.5

15.5

14.5

14.5 13.5 12.5

Reduced cost to buyer

B – C represents structures that would yield up to $1 m in tax savings

4. Value



Creatingvalue

ClaimingvalueBetter for the Seller

Better for the Buyer

How can value be created and who will get i t?, continued

4. Value





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What obstacles might prevent agreement?

1.Strategic behavior

– Value differences

2.Environmental circumstances

– Economical, political

3.Psychological / Interpersonal

– Difficulty communicating

– Trust

– Emotions – Stereotyping

– Perceived power and status

4.Institutional

– Corporate policy

– Legal restraints

5. Barriers



How can the various parties influence the negotiation process or its outcomes?

Bargaining power is not only the strength or weakness of your BATNA.

Change the basic architecture of the negotiation• Redefining the set of parties, explore different transactions simultaneously

• Time; exploding offers

• Attack the BATNA of TOS

Power is a complex mix of situational factors:

• Perception

• Knowledge

• Skills

6. Power





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What is the right thing to do?

Ethical components can include:

− Lying

− Bluffing

− Equity of agreements

− Use of force

− Impact on bystanders

−Principal-Agent conflict of interest

7. Ethics



Focus Common Barriers Approach

1- D Tactics

(people & processes)

Interpersonal issues,

Poor communications

„hardball“ attitudes

Act „at the table“ toimprove interpersonal

processes and tactics

2 - D Deal design

(value and substance)

Lack of feasible ordesirable agreements

Go back to the drawingboard to design deals thatunlock value that lasts

3 - D Set-up

(scope and sequence)

Parties, issues, BATNAs,and other elements donot support a viableprocess or valuableagreement

Make moves „away fromthe table“ to create a morefavorable scope andsequence

Source: Sebenius & Lax, Harvard Business Review, November 2003

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The Three Dimensions of Negotiation



57

3-D negotiators induce target players to say yes by:

• improving the proposed deal,

• enhancing their own BATNAs and

• worsening the BATNA of the other parties.

3-D players intend such moves mainly to claim value for themselves, but also to

create value for all sides.

This is done by:

• soliciting outside offers or

• bringing new players into the game

– sometimes to create a formal or informal auction.

118


Millennium Pharmaceuticals

A small start-up in 1993, Millennium Pharmaceuticals became a multi-billion dollarcompany less than ten years later.

“Whenever we feel there’s a possibility of a deal with someone, we immediately call sixother people. This changes the perception on the other side of the table. It also changesyour self-perception. If you believe that there are other people who are interested, your

bluff is not longer a bluff; it’s real.”

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Case Study: Joint-Venture in Mexico

3 potential partners

In a joint venture negotiation in Mexico, a U.S. company had researched possible culturalbarriers and ranked three potential partners according to the competencies it found mostdesirable in those companies.

Impasse

After approaching the negotiation in a culturally sensitive spirit, and in what had appearedto be a logical sequence, the US team had nevertheless come to an impasse with themost attractive partner.

BATNA selection

The team abandoned those talks and opened talks with the second most attractive partner – and again, things were going badly. As each set of negotiations failed, the US firm’sBATNA – a deal with another Mexican company– became progressively worse

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Case Study: Joint-Venture in Mexico

Problem

The US company’s strategy of negotiating in sequence, starting with the mostdesirable company, closed options prematurely and did not take advantage of

competition among the three companies. It inadvertently worsened its ownBATNA

3D Solution: Change the sequencing

Had the US company arranged the negotiating process so that the prospect ofa deal with the most desirable company became its BATNA in talks with itssecond and third most desirable partners, it would have created the equivalentof a simultaneous four-party negotiation; with the US company negotiatingparallel with each of the three Mexican firms, rather than three sequential two-party negotiations.

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Case Study: Kennecott Copper v. Chile

El Teniente Mine – Chile

Kennecott Copper operated the El Teniente (“The Lieutenant”) copper mine for many years

under a licensing agreement with the government of Chile. In the 1960’s there was growing

sentiment in Chile that all mining operations should be nationalized.

In 1969, the Chilean government initiated a process of “negotiated nationalization” to obtain

controlling interest (51%) of the country’s two largest copper mines operated by Anaconda

Copper. There were complaints that the process of using negotiations to regain Chilean

sovereignty over the mines was too slow and was kowtowing to American imperialism.Kennecott realized its El Teniente Mine would be next in line and employed a 3D negotiation

strategy to protect their interests in the mine.

124

Case Study: Kennecott Copper

Problem: Weak BATNA

3D Solution: Weaken TOS’s BATNA, improve your BATNA, bring additionalplayers into the game

1. Kennecott offered to sell a majority equity interest in the mine to Chile2. They offered to use the proceeds from the sale on equity, along with money

from an Import-Export Bank loan to finance a huge expansion of the mine

3. They induced the government of Chile to secure the loan and make theguarantee subject to New York state law

4. Kennecott insured its assets under a U.S. guarantee against expropriation

5. They arranged for the expanded mine‘s output to be sold under long-termcontracts with North American and European customers

6. Collection rights to these contracts were sold to a consortium of European,U.S. and Japanese financial institutions.

125



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Case Study: Microsoft and AOL

Internet browser war

Another way for negotiators to claim value is to shift the issues underdiscussion and the interests at stake. Consider how Microsoft won the browserwar negotiations.

In 1996 AOL was in dire need of a cutting-edge internet browser and bothNetscape and Microsoft were competing for the deal. The technically superior,

market-dominant Netscape Navigator was competing with Microsoft’s InternetExplorer which was struggling to gain a foothold in the marketplace. Aconfident, even arrogant Netscape pushed of a “browser-for-dollars” deal. Theypresented themselves and AOL as smaller companies fighting the same giantenemy – Microsoft.

126



How did 3-D moves swing the negotiations in Microsoft’s favour?

Problem: Weak technology

Microsoft’s web browser was technically inferior to Netscape’s, so Microsoft’schances of winning on those grounds were poor, regardless of i ts negotiating skillsand tactics at the table.

Solution: Microsoft shifted the negotiations away from Netscape’s technicalbrowser-for-dollars deal toward wiser business issues on which it held a decisiveedge. Rather than focus on selling to the technologists, Microsoft concentrated onselling to AOL’s business people. Instead of trying to play the game with a poorhand, Microsoft changed the game to suit the hand it was holding.

127



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In the end it was Microsoft that cut a deal with AOL.

How did 3-D moves swing the negotiations in Microsoft’s favour?

• They offered to provide the Explorer for free and promised to make a seriesof technical adaptations in the future. This seriously weakened Netscape’sbargaining position.

• Microsoft also agreed that AOL Client software would be bundled with thenew Windows operating system.

• Microsoft – a direct competitor of AOL – would place the AOL icon on thewindows desktop right next to the icon for its on on-line service MicrosoftNetwork (MSN). This was a non-monetary concession.

128



AOL’s position on the most valuable desktop real estate in the world wouldpermit it to reach an additional 50 million people per year at effectively no

cost, compared with its $40 to $80 per-customer acquisition cost incurredby carpet bombing the country with AOL disks. Bill Gates sacrificed themedium-term position of MSN to his larger goal of winning the browser war.

3D Solution: Re-structure the negotiation, by changing the interests ofTOS to exploit Microsoft’s strengths in an area where Netscape was weak.

129



63

Working Backwards Using a 3D Strategy

Henry Iverson and his partners purchased Concord Paper & Pulp for 8.5 milliondollars• $700,000 own money and from partners• $7.8 million loan from the Federal Street Bank

–$1.3 million short-term loan against receivables –$6.5 million loan against assets

To make the firm profitable they require additional financing to expandproduction• New recovery boiler with higher production capacity of 100 tons / day would

result in –an increased cash flow of $1.4 million per annum –reduction in pollution levels of 95%

• The total cost of the two year project: $9 million –$6 million to Bathurst & Felsen Engineering (BFE) for the recovery boiler –$3 million to a number of smaller contractors 130

The FS Bank declined their request to provide any further loans because theamount of outside financing is too high (93%).

They would only loan against 50% of unencumbered inventory and 80% ofreceivables.

Mr. Iverson was told that with increased shareholder equity the bank „might“ bewilling to offer a short term construction loan, but only if a reliable third partycould be found to provide takeout financing after two years.

What to do?

Work Backwards Using a 3-D Negotiating Strategy

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1. Insurance

Iverson approached two insurance companies Uniifed Insurance Company(UIC) and Worldwide Insurance (WI) regarding the liquidation of the bank loan.

UIC was the least expensive, but both firms said that CPP is too heavilyleveraged“. Moreover, UIC only wanted to lend money if the loan would besecured by the cash flow of the completed project.

Iverson managed to get them to sign a letter of intent agreeing to provideIverson with a loan for a commitment fee and a share of the increase in profitfrom the expansion of production contingent upon a successful completion of

the project and an increase shareholder equity.

132

2. Economic development

Iverson could not locate any investors, but discovered that the Department ofEconomic Development was willing to give subordinated loans if it could beshown that new jobs would be created; $50,000 for each newly created job.The project would create 30 new jobs, so theoretically, Iverson could count on

$1.5 million in support.

However, a stipulation of the government agency was that 50% of the loan beco- financed by the local authorities.

There was however, no local authority for economic development in the townof Concord.

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Barriers:

- the machinery company Bathurst & Felsen Engineering which was hiredto build the recovery boiler would not continue to work on the projectwithout financial guarantees.

- the rest of the system was entrusted to a number of local companies;none of which were in a position to guarantee the functionality of thecomplete project.

- the bank (FSB) would not provide a loan without a recapitalization anddebt restructuring

- the insurance company (UIC) would not take over the bank loan before asuccessful completion of the expansion project and an increase inshareholder equity

- the Department of Economic Development would not provide a loanwithout matching funds by a local development agency and a guaranteethat jobs would be created.

- the local agency does not exist. 134

3. The Politicians

Iverson made a proposal to the city council that they establish a local office ofeconomic development. It should offer co-financing for his boiler project. Heargued that the construction and operation of the site would create new jobsand dramatically reduce both the pollution and unpleasant odors from theprocessing of pulp. Moreover, the city would collect $180,000 more in property

taxes . The council agreed in principle, but demanded a guarantee ofoperation.

4. The Project Manager

In order to obtain a performance guarantee, Iverson approached Derano, alarge, national company for engineering, construction and projectmanagement. Derano’s Management expressed serious doubts that it wouldbe possible to coordinate a previously planned project with BFE andnumerous local companies. But Iverson offered them a larger than usual feeto undertake the project and to provide a non-recourse guarantee of operation – dependent upon the project obtaining the necessary financing. 135



66

5. Convincing the PoliticiansWith the provisional declaration from Derano Iverson once again visited theConcord city council. They agreed to the establishment of an office of economicdevelopment. It should be instructed to issue bonds in the amount of $500,000backed by tax revenue increases and to sell them to wealthy citizens, suppliersand other firms.

Moreover, the local office of economic development would certify that theexpansion of production facilities would create a specific number of new jobs.

6. Convincing the Department of Economic DevelopmentIverson returned to the department of economic development. He brought with himthe declaration from the city council of Concord for the establishment of a localoffice of economic development which confirmed the creation of new jobs and itswillingness to provide 50% of the financing and Derano’s guarantee of the successof the boiler project.

The Department of Economic Development approved a subordinated loan for 1million dollars – contingent upon Iverson obtaining construction and long-termfinancing.

136

7. Convincing the insurance companyIverson successfully negotiated with the managers of the insurance company(UIC). They agreed to amend the provision in their Letter of Intent regarding anincrease in the amount of shareholder equity so that also a subordinated loanwould also be allowed.The insurance company felt that the financing by the Department of EconomicDevelopment offered them even a better security against defaulting on the loan,thus meeting their interest of having a stable financial cushion

8. Convincing the bankersIverson argued that the loans from the two development agencies wouldfunctionally satisfy the bank’s requirement for more equity. In conversation withthe risk-adverse loan officer Iverson mentioned that the UIC, “a notoriouslydemanding creditor” was willing to treat it as such to financially cushion UIS’spermanent financing. Surely this would be adequate to protect FSB’s brief two-year exposure.

With this condition met – and given Derano’s performance guarantee and thelocal development agency’s certification of job creation – the bank agreed thatUIC’s commitment letter met its interest in guaranteed takeout financing. FSB’snew construction-loan commitment unlocked the EDA – LDA money whichstarted funds flowing to Derano and BFE. The project was launched.

137



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Local BankFederal Street Bank

InsuranceUnified Insurance Company

UIC

Department ofDevelopment

Local Office of Development

PoliticalConcord City Council

Project ManagerDelano

138

Implementing a 3D Negotiation

Good negotiators act in all three dimensions to add, create and to claim value.

Scan widely

Search beyond the immediate deal on the table for elements of potential value. Arethere complementary capabilities and valuations that other players might add?

• Who outside the existing deal might most value an aspect of it?

• Who might help to minimize the costs of production, distribution, risk bearing,etc.?

• Who might supply a missing piece from the current process?

• What issues promise mutual advantage?

• At what point does complexity or conflict of interest call for shrinking the scope ofthe negotiations?

• Are there additional bidders or parties who could favorably alter BATNAs in otherways?

• Can certain issues be linked for leverage? 139



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Map backward and sequence

As with project management, start with the end point and work backwards todevelop a time line and a critical path.

In negotiations, the end point should be a set of value-creating, sustainableagreements among a supportive coalition of parties

Figure out what parties/partners you want to have on board before negotiatingwith a “critical” target party.

“Can we find the guy who can deliver the guy?”

Bill Daley, strategist to President Bill Clinton

140



Manage the information flow

Some negotiations are best approached by gathering all parties together, fully

sharing information, and brainstorming a solution to a shared problem.

Generally, 3D tactics involve deciding how and when information ought to becommunicated or exchanged.

This requires separating and sequencing the flow of information through variousstages of the negotiation process.

141



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Successful negotiators act in all three dimensions to add, create and to claim value.

1D

• Acquiring information through active listening and questioning and then leveraging it

• Employing persuasive argumentation

• Devising suitable tactics

2D

• Crafting deals

3D

• Changing the scope and sequence of the negotiations

142

138

Strategy & Tactics ofIntegrative Negotiations

Objectives

1. Understand the basic elements of an integrative negotiation situation

2. Explore the strategy and tactics of integrative negotiation

3. Consider the key factors that facilitate successful integrative negotiation

4. Gain an understanding of why successful integrative negotiations are often

difficult to achieve



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What makes integrative bargaining different

For a negotiation to be characterized as integrative (win-win), negotiatorsmust:

• focus on commonalities rather than on differences

• attempt to address needs and interests rather than positions

• commit to meeting the needs of all parties involved

• exchange information and ideas

• invent options for mutual gain

• use objective criteria for standards of performance

139

Creating a free flow of information

Negotiators must be willing to reveal their true objectives, their alternatives andto listen to each other carefully.

Awareness of TOP’s alternatives normally results in negotiators being lesslikely to take extreme positions with respect to the setting of resistant points, orin making trade-offs. Moreover, there is an increase in the size of the resource“pie”.

Attempting to understand the real needs and objectives of TOP

In order to satisfy needs, one must first understand them. This requires adiscussion about preferences and priorities.

140



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Emphasizing the commonalities between the parties and minimizingdifferences

Often both parties share a common goal, but they become anchored to theirpositions and lose sight of the collective goal; especially when the goal is notclear or obvious. Therefore, it is important in integrative negotiations to ensurethat both parties are focused on the larger goal.

Searching for solutions that meet the needs and objectives of both sides

Negotiators must be firm about their primary interests and needs, but flexibleabout how these needs and interests are met.

141

Four Key Steps in the Integrative Process

1.Identify and define the problem

2.Understand the problem and bring interests and needs to the surface

3.Generate alternative solutions to the problem

4.Evaluate those alternatives and select among them

Steps 1-3 are important for creating value. The fourth step involves claimingvalue.

Integrative negotiations is a process of identifying Pareto efficient solutions.

The aim is to try to approach a Pareto efficient frontier whereby there is noagreement that would make any party better off without decreasing outcomesto any other party to the negotiation.

Note: First create value collaboratively and then begin the distributivebargaining process of claiming and distributing the value that has been created.

142



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143

Creating Value V a l u e t o t h e B u y e r

Value to the Seller

Claiming Value

IncreasingValue to

Buyer

IncreasingValue to

Seller

Pareto Frontier is the range of outcomes in which the bestpossible as well as the most efficient deal can occur. It isreached when there is a win-win outcome; i.e. where no value is

left on the table, and where both parties to the agreement endup feeling like and are winners.

Efficiency is measured by comparing the amount of resourcesexpended against the expected benefit.


1.Identify and define the problem

The problem definition process is critical for integrative negotiations because it setsbroad parameters regarding what the negotiation is about and provides an initial

framework for approaching the discussion.-Define the problem in a way that is mutually acceptable to both sides.

-State the problem with an eye toward practicality and comprehensiveness

-State the problem as a goal and identify the obstacles to attaining this goal

-De-personalize the problem

-Separate the problem definition from the search for solutions. Develop standards:- How will we know the problem has been solved?

- How will we know that our goal has been attained?

- How would a neutral third party know that our dispute has been settled

- Is there any legitimate interest or position that remains unaddressed by out outcome?

- Is there any legitimate interest or position that has been disenfranchised by our outcome?144





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2. Identify interests and needs, continued

Types of interests

Substantive interests have to do with focal interests (economic, financial,division of resources, etc.)

Process interests have to do with how the negotiation unfolds

Relationship interests have to do with the relationship between the partiesInterests in principle have to do with issues of fairness, acceptability,ethicalness, etc.

147


2. Identify interests and needs, continued

Observations on interests

1.There is almost always more than one type of interest underlying anegotiation

2.Parties can have different types of interests at stake

3.Interests often stem from deeply routed human needs or values

4.Interests can change

5.Surfacing interests

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3. Generate Alternative Solutions

Generating alternative solutions by redefining the problem or the problem set

1.Position Accommodation vs. Position Achievement

Positions are achieved when each party gets exactly what they wanted in theirinitial demand. Strategies that achieve positions include expanding the pie andmodifying the resource pie. Position accommodation is when parties receive aportion of their initial demand.

2. Achieve underlying interests vs. substitute underlying interests

When underlying interests are achieved, the negotiator’s interests arecompletely met.

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3. Generate Alternative Solutions, continued

3. Simple vs. Complex

Some negotiations are quite simple in nature, with only a few issues to settle.Others can be extremely complex, such as lease agreements that covermultiple locations, sizes, and types of property.

4. Person-based vs. Issue-based

In person-based strategies, negotiators make concessions and changepositions so that an agreement is reached by modifying positions on the issuesunder discussion. Issue-based strategies modify the issues under discussion tofit them to the negotiators’ needs and desires.

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Office Location

Samantha and Emma are partners in a successful enterprise called, AdvancedManagement & Consulting Group, which employs eight other non-partnerconsultants.

The partners are deciding where to locate their new office; half their clients aredowntown and half are in the suburbs. There are two possible locations thatthey are considering leasing.

Samantha prefers the downtown location. It has less floor space but is aprestigious address. While its offices are smaller, its locations is equidistantfrom where both partners live.

Emma prefers the location in the suburbs. It has more floor space and largeroffices, and is newer. It is also located closer to Emma’s house, but farther fromSamantha’s.

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Expanding or modifying the pie

1.How can both parties get what they want?

2.Is there a resource shortage?

3.How can resources be expanded to meet the demands of both sides?

Logrolling1.What issues are of higher and lower priority to me?

2.What issues are of higher and lower priority to the other party?

3.Are there any issues that are of high priority to me that are of low priority toTOP, and visa versa?

4.Can I “unbundle” an issue – that is, reduce one larger issue into two smallerissues that can be logrolled?

5.What are things that would be inexpensive for me to give, yet valuable to theother party and could be used as non-specific compensation?

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Questions for Revealing Win-Win Options



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Non-specific Compensation

1.What are TOP’s goals and values?

2.What could I do to make TOP happy and at the same time allow me to get myown way on a key issue?

3.What are things that would be inexpensive for me to give, yet valuable to theother party and could be used as non-specific compensation?

Cost Cutting

1.What risks and costs does my proposal create for the other negotiator2.What can I do to minimize TOP’s risks and costs so that he/she would bemore willing to agree?

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Bridging and Superordination

1.What are TOP’s real underlying interests and needs?

2.What are my own underlying interests and needs?

3.What are the higher and lower priorities for each of us in our underlyinginterests and needs

4.Can we invent a solution that meets the relative priorities, underlyinginterests, and needs of both parties?

Note: Compromise is not considered a win-win option

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4. Evaluate and Select Alternatives

- Narrow the range of solution options

- Evaluate the solutions on the basis of quality, standards and acceptability

- Agree to the criteria in advance of evaluating options

- Be willing to justify personal preferences

- Be alert to the influence of intangibles in selecting options

- Use subgroups to evaluate complex options

- Take time out to cool off

- Explore different ways to logroll- Keep decisions tentative and conditional until all aspects of the proposal are

complete

- Minimize formality and record keeping until final agreements are closed

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Summary

The four key steps in the integrative process are:

1.identifying and defining the problem,

2.identifying interests and needs,

3.generating alternative solutions,

4.evaluating and selecting alternatives

Factors that facilitate successful integrative negotiations

1.Common goal or objective

2.Faith in their problem-solving ability

3.Willingness to believe that the needs of TOP are valid

4.Share a commitment and motivation to work together

5.Ability to trust one another

6.Clear and accurate communication about what each side wants156



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Factors that facilitate successful Integrative negotiations, continued

- Some common objective or goal

- Faith in ability to problem-solve

- A belief in the validity of one’s own position and the perspective of TOP

- Motivation and commitment to work together

- Trust

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Summary

The fundamental structure of an integrative negotiation is one within which theparties are able to define goals that allow both sides to achieve their objectives.Integrative negotiation is the process of defining these goals and engaging in aprocess that permits both parties to maximize their objectives.

Because each party has a high degree of concern for achieving its objectivesthey adopt a collaborative, problem-solving approach.

Negotiators frequently fail at integrative negotiations because they fail to seethe integrative potential of the negotiating situation.

Breakdowns in the process also occur due to distributive assumptions aboutnegotiating, the negotiators previous relationship with each other and short-term perspectives

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Summary

Successful integrative negotiation requires several processes:

1.The parties must understand each other’s true needs and perspectives

2.The parties must create a free flow of information and an open exchange ofideas

3.The parties must focus on their similarities; emphasizing commonalitiesrather than differences

4.The parties must engage in a search for solutions that that meet the goals of

both sides.

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Selected Themes

1. Strategy & Planning

2. Communication3. Perception, Cognition & Emotion

4. Finding & Using Negotiation Power

5. Mechanisms for Influencing

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