MGT 459 Negotiation

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MGT 459 - Negotiation

• Instruction 2 Preparing to Negotiate

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Think About It

• Its not the plan that is important, its the
  planning. Graeme Edwards
• He who asks a question is a fool for five
  minutes he who does not ask a question remains a
  fool forever. Chinese Proverb

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Outline for Instruction 2

• Assessing yourself
• Assessing the other party
• Assessing the situation
• Basic steps of preparation

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The Fixed-Pie Perception

• Some negotiators resign themselves to
  capitulating (soft bargaining)
• Some negotiators prepare themselves for an attack
  (hard bargaining)
• Other negotiators attempt to compromise (illusion
  of a win-win agreement)

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Preparing to Negotiate

• Prepare yourself
• Prepare to meet the other party
• Prepare for the negotiation situation

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Planning for Negotiation

• Unclear objectives makes it difficult to evaluate
  alternatives
• Weak planning makes for weak arguments
• Quick and clever negotiating may not prevail

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Self-assessment

• Target or aspiration point
• Under-aspiring negotiator suffers from the
  winners curse
• Over-aspiring negotiator is too tough and
  passes up good deals

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Self-assessment

• Target or aspiration point (cont)
• Grass-is-greener negotiator doesnt know what
  he or she wants and engages in reactive
  devaluation

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Self-assessment

• Best Alternative To a Negotiated Agreement
  (BATNA)
• Not what the negotiator deserves
• Not what the negotiator wants
• Prevents the negotiator from falling in love
  with any single option
• Quantified as the reservation point

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Factors that Undermine Preparation

• Focal points
• May be arbitrary
• The not-so-even split
• Sunk costs
• Influence both parties
• Confusing the target point for the reservation
  point
• Leaves no room to bargain
• Negotiating along a single dimension
• Limits potential value of agreement

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Factors that Undermine Preparation

• Endowment effects
• Ownership includes psychological value
• Counterfactual thinking
• Regret arises from what could have been
• Violating the sure thing principle
• If X gt Y under condition 1 and X gt Y under
  condition 2, then X should be gt Y when condition
  is unknown
• Overconfidence effects
• Optimism is good, but third party wont always
  favor you

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Factors that Enhance Preparation

• Identifying alternatives for each issue
• Identifying multiple equivalent packages of
  offers
• Understanding your risk propensity
• Strategic risk Tactics used at the bargaining
  table
• BATNA risk Alternatives not certain
• Contractual risk Parties dont/cant always
  honor the agreement

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Assessing the Other Party

• There may be multiple persons within the other
  party
• The persons in the other party may not be in
  complete agreement
• Try to learn the other partys issues, interests,
  positions and BATNA

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Assessing the Situation - I

• Is the negotiation one shot, long term, or
  repetitive?
• Do the negotiations involve scarce resources,
  conflicts of ideologies, or both?
• Is the negotiation of necessity or opportunity?
• Is the negotiation an exchange or dispute
  situation?
• Are there linkage effects?
• Is agreement required?
• Are there time constraints or other time-related
  costs?
• Are contracts official or unofficial?

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Assessing the Situation - II

• Where do negotiations take place?
• Are negotiations public or private?
• Is third-party intervention a possibility?
• Are there conventions in terms of the process of
  negotiation?
• Do negotiations involve more than one offer by
  each party?
• Do negotiators communicate explicitly or tacitly?
• Is there a power differential among parties?
• Is precedent important?

Source Adapted from Thompson, The Mind and Heart
of the Negotiator, 2005
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Step 1 Define the Issues

• Rarely one single issue
• Identifying more than one issue adds value
• Each issue will have multiple alternatives
• Look for packages or bundles of issues

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Step 2 Define the Bargaining Mix

• Prioritize the issues
• Determine which issues are connected

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Step 3 Define Your Interests

• Substantive
• Process-based
• Relationship-based
• Intangibles

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Step 4 Consult with Others

• Constituents
• Other side
• Issues, agenda, ground rules
• Location
• Time period
• Parties involved
• What if negotiation fails?

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Step 5 Know Your Limits

• Target Point Negotiators most preferred or
  ideal settlement
• Reservation Point Negotiators indifference
  point the deal is worth the same as walking away
  
• BATNA Best Alternative To a Negotiated Agreement

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Step 6 Assess the Other Party and the Situation

• Other party
• Resources, interests, needs
• Objectives
• Reputation and style
• BATNA
• Authority
• Strategy
• The situation

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Step 7 Develop Supporting Arguments

• Logical approach
• Relationship approach
• Persuasion/pressure approach
• Customized approach