Sunday, May 31, 2009

Negotiation Problems

Problems that arise in negotiations can be many, but usually are concentrated in a few key areas. I often need to remind students that having a plan for potential issues is far more effective than figuring out how to “cross that bridge when we come to it”. There are a few problems that occur more predictably than others and today I will describe a few of them.

Trust – What should you do when you feel the other side is making promises that they don’t intend to keep, or that they are bluffing, or being dishonest in some other way?
1) A good first step is to spell out that the negotiation assumes that any information and representations are truthful and accurate, and that either party should feel free to ask for evidence at any time. This is a step to make the other side think twice.
2) Ask for documentation that can be used to verify claims and representations. Actually DOING what you said you would do (by asking for evidence) lets the other side know that you mean business.
3) Include contingencies in the deal such as security deposits, earnest money, escrow, penalties (for non-performance), or bonuses (for better-than-required performance).
4) If the other side continues to evade and avoid a straight-forward dealing style that you can cope with, indicate that you will walk away from the deal rather than get caught up in a deal with someone you can’t trust. And actually DO IT if you must; if you threaten to walk away and then don’t, they will see that you need the deal badly and at that point will know they can do anything they want.

Communication – Sometimes there are basic communication problems that are overlooked in the heat of negotiation.
1) Are you sure you understand what the other side means? Do you understand what their terms are? So you understand how they value the items at stake? Clarify all of this. Articulate clearly and concisely what you think is in play, and ask them to do the same with you. The ideal situation would be to articulate all the aspects of the deal in a series of simple sentences that you both can review.
2) Keep notes and have a “parking lot” in which you record elements of the deal as they are discussed and agreed to. It reduces the amount of remarks like “I didn’t agree to that” or “We never discussed that”.
3) Be aware of cultural differences between you and the other party. If you have followed this series, you know you should have looked into these before you started.
4) Sometimes it helps to change spokespeople. Not to change the team members necessarily, but the role of spokesperson can be rotated to see if another style of communication may help.
5) Be Empathetic. Be careful to understand the deal from the other side’s perspective. Ask an impartial third party or a colleague to make sure you are being objective. Sometimes, it helps to have a moderator.

Contestants – There are some people that see negotiations as a competition and feel they need to beat you on every term. These are usually people that are inexperienced and don’t know how to judge the value of the deal on the table.
1) Don’t treat them as you would treat someone that is really working with you. Don’t disclose information and let them know it is because they are being so overly aggressive that you really don’t feel that they value your interests at all. This would allow you to use the “trust” toolset as well (see above).
2) If you have been following the series, you’ll remember that you need to know your BATNA and your walk away price, and you need to estimate theirs. Recognize that you have a position that you can tolerate and anything beyond that position is not reasonable. Never be intimidated, just stick to your position and try to work with them to add value and make a good deal.
3) Again, make sure they know that you will walk away if you don’t believe that they, like you, are looking for a fair deal for both parties

Opposers and Resisters – There may be times when you are in a negotiation with someone that doesn’t WANT the deal to work. This happens when they have overvalued their position and can’t come to terms with the reality of the situation. I am reminded of an inventor selling their interest in an invention that they think will change the world when, in reality, there is only a modest market. They can’t be reasoned with and they feel that if all the negotiations fail, they will somehow be better able to realize their dream.
1) Find the benefits for the opposer and communicate them clearly. If you can turn their attention from what they are losing to what they are gaining, it will help put them in a better frame of mind.
2) If there are people on the other side that are not as persistent as the opposer is, try to form a coalition with them. Let them know that they could benefit if they could help the opposer see reason.
3) Since you are ALWAYS looking for ways to increase the value of the deal, and you can see that this opposer values control, you may look for a way to allow them some control or a continuing role in the project after the deal is complete. This might make the deal less difficult for them.

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Monday, May 25, 2009

Tactics in Distributive Negotiations

On April 26th, I started this short series on Negotiation, based on lessons learned from the Harvard Negotiations Project. I described two kinds of negotiations; Distributive and Integrative. Integrative are the ones in which you be very creative, and are the most likely to create win-win outcomes. Last week I discussed some basic tactics for those. Today, I am discussing tactics Distributive negotiations.

In Distributive negotiations, there is a fixed amount of value to be distributed between the negotiating parties. If you are buying (or selling) a boat for example,, there is the boat and the money. How those things get divided between the two parties is all that is involved. The person with the boat wants to get top dollar and the person with the money wants to pay the lowest price. This a potential win-lose if I overpay (or underpay) for the boat. These kinds of negotiations are usually conducted when there is no thought of a long term relationship between parties. Our interests are opposed (everything I “give up” to you, is something I lose). My motivation is individual gain.

This kind of negotiation is handled very much like an ADVOCACY argument in which you are in a competition. Winning the competition is based on getting more than you give (in your own opinion) and CAN be a win-win if, for instance, you have always wanted a boat like mine and are willing to pay a little more than market because I will transfer my dock to you at no charge so you don’t have to move it AND I am tired of my boat and would far rather have some cash to put in a pool.

Here are some tips:

  • Don’t tell me how you’ve ALWAYS wanted a boat like this one. Don’t tell me about how you just had a windfall and that money is “no object”. Don’t let me know anything significant about your situation.

  • Same tip in reverse. Find out as much as you can about my situation. Why am I selling the boat? Am I desperate for cash? Is the boat due for some expensive repairs or upgrades? Is it due for a required inspection that I don’t think it will pass? If you can learn enough to get a close estimate of my walk-away price, things will be much easier for you.

  • Understand the implications of an ‘anchor’. The anchor is the first price mentioned in the negotiation that both sides are willing to talk about. There is a great deal of good evidence that shows a strong correlation between the anchor and the final price in a Distributive negotiation, so be very careful NOT to entertain lowball offers from the other side (“I’d like to talk a bit more before we start talking prices”). Then talk about your interests and concerns. Try to find out more about the other side’s position. Don’t spend time talking about unreasonable anchors, and don’t get offended. That kind of offer is a sign of inexperience, and if you hang in you have a good chance of getting the right deal against an inexperienced opponent.

  • Be prepared with SOUND REASONING to defend your offer. My personal rule is that I try to offer just a little more than my estimate of the other side’s walk-away price AND I never offer an amount I wouldn’t accept if I was in the other side’s shoes. I have seldom seen anything sour a deal faster than one side trying to cheat the other with NO reasoning to support the offer.
  • Speaking of reasoning, don’t forget to ask questions. Questioning how a price is arrived out or asking “What is your basis for considering that to be a fair offer?” is perfectly acceptable. You should be able to answer the questions if they are asked of you. This is where sound reasoning and a variety of evidence (comps, list process, etc.) come in handy. Don’t come on too strong.

  • When you start negotiating the price, take your time. Move your price around slowly and try to move in small increments. Large swings may signal the other side that you are not taking things very seriously. Let the other side know when you are close to an acceptable price so they know that there you aren’t going to participate in too much more dealing. Add an expiration date to any offers you make to keep other side from extending things in order to find a better price elsewhere.

  • Write down the terms. Write down the terms. Write down the terms. Write down the terms. Do NOT leave things to memory. Write down the terms and affix your signatures to them. If they don’t express the final terms, that’s great…just make SURE that is noted on the document. When the final terms are decided, write down the terms. Write down the terms. Write down the terms.

  • Speak of the other party positively. Don’t brag about what a great deal you got. This leaves the other side feeling that they did the best they could and preserves your reputation as a “fair dealer” intact. That reputation will make all your future deals with others that have heard of you much easier.

I will wrap up this series within two weeks and start another topic. I am planning to do more on building great relationships. If you have anything specific that you would like me to cover, write me at gregg.oliver@PathfinderCommunication.com You can also start a NEW topic at the Pathfinder Group on LinkedIn.

Go to http://www.linkedin.com/groups?gid=1958793&trk=hb_side_g

and start a NEW topic or comment on an existing one.

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    Monday, May 18, 2009

    Negotiation Tactics

    When you enter a negotiation, like almost any communication, it is important to have a collaborative mindset. If the other side feels that you are trying to take advantage, that you are insincere, that you are disrespectful of them or of the process, then it is just that much more difficult to come to a mutually satisfactory agreement. One of the BIG differences in a negotiation is that you should be wary of how much “good will” you extend unless the other side is reciprocating. It is alright to “go first” but make sure the other side is reciprocates in both the size and the quality of their gesture, or you will begin to feel like YOU are the one being taken advantage of, and that is no fun.

    Before any dealing begins, review the agenda and discuss your expectations for the various points in it with the other side. Stay positive and treat the other side with respect. Feel free to have casual conversation and LISTEN to what they have to share. If they are more formal, then follow their lead. It may be that they feel informality is a sign of inexperience, or of a lack of seriousness on your part.

    In an integrative negotiation, take your time making a proposal. This kind of negotiation is about making a deal together, finding ways to create value for each other. It is very important to explore each other’s issues and concerns before rushing to make any offers.

    Be as forthcoming as possible about your interests. Let them know why you want to make a deal, why you are dealing with them, your priorities and preferences, and also any constraints you may have. These will all help the creative minds in the room to see new ways that you can create value for each other.

    The key to the ways you create value for each other is in the DIFFERENCES between you; if your two organizations are identical, then you are limited in how you can help each other. Look for mutual interests and cooperative opportunities.

    Once the proposals are on the table, examine them carefully, looking for ways to improve them. Improve them by mutual brainstorming. Talk about the PROBLEM you are trying solve and then list some solutions that you feel the differences between the two organizations can create. Then try to apply the various solutions to the problem.

    Next time, we'll look at tactics for a DISTRIBUTIVE negotiation which is more of a "contest" kind of negotiation.

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    Sunday, May 10, 2009

    Laundry Day

    This week, I am going to offer a laundry list of thoughts regarding negotiation. This list is meant to add to your perspective if you have viewed negotiation as a skill that you are born with, and not one you really learn.

    Negotiation is a communication skill and is learned in the same way as the other communication skills. First we develop an understanding of it at a theoretical level, which allows us to use theory to make predictions regarding likely outcomes of actions. Second, we practice. As we practice, we see how outcomes vary from our predictions and refine our methods so that our actions produce predictable results. This is covered in class, when we cover HOW to practice a skill in order to optimize the mastery of it.

    Negotiation is skill that can and has been analyzed and modeled to show that certain considerations and strategies fundamentally affect the outcome of the negotiation. This has been very well documented in a simple reference book named “Negotiating Outcomes” published by the Harvard Business School Press. As I said this week I am offering a laundry list of such considerations and strategies. Think about these. This material has never been included in any of my classes, but will be in my next series of classes to be held his summer. More on that later.

    The key to negotiating well is planning. That is part of the model that just doesn’t change. You are far more likely to get the outcome you want if you start the process after having considered and formulated perspectives on some crucial variables. Below is a partial list.

    Considerations that influence the development of your walk-away price.
    - What is the real value TO YOU of the deal being presented?
    - How does that compare to your best alternative (BATNA)?
    - Are there other (non-dollar) values to be considered (relationships, time constraints)?
    - What is the lowest amount you would consider (dollar and non-dollar)?

    Considerations that influence your alternatives.
    - Make a list of your alternatives to getting what you want if this negotiation fails to produce an agreement.
    - What conditions weaken your alternatives?
    - Can you make arrangements with other parties (suppliers, peers, customers, etc.) to improve them?
    - Of all the alternatives, which is the most favorable?

    Considerations that influence your understanding of the OTHER side’s alternatives.
    - Have you asked questions within the industry (their suppliers or customers) that may help you determine how valuable the deal is to them?
    - Do they value what they are offering you, or is it about to be a liability to them?
    - Do they value what you are offering them more highly than you do?
    - Have you looked at credible documents describing the state of their business (annual reports, business journals, etc.)?
    - Have you put yourself in their position to try and really understand what their perspective is? Did it make sense?
    - Is there anything you can do to weaken their alternatives?
    - How much does the other side know about YOUR interest in the outcome?

    Considerations that influence the tone and depth of the negotiation.
    - How long can you spend on preparing for the negotiation? How long can you actually spend negotiating?
    - What do you think represents a fair deal and how did you arrive at that?
    - Would the other side accept that definition?
    - What is the extent of your authority in the negotiation?
    - Are you presenting a non-negotiable position?
    - On what points can you be flexible?
    - Can you negotiate as long as you meet a specific objective?
    - Will a negotiated deal need approval before it can be finalized?
    - Can you negotiate financial parameters? Non-financial parameters?
    - How much are you permitted to share about your company’s current or future business?
    - What terms are you authorized to change and by how much?
    - Who is authorized to make changes outside of the scope of your authority?
    - What authority does the OTHER party have?

    This list is a good list with which you start planning how to BEGIN. Think for a minute about the impact of not considering ANY ONE of the above, and being surprised by it later.

    Next week we’ll talk about some tactics.

    Insist on great business results! Go to Pathfinder Communication

    Sunday, May 3, 2009

    Negotiation, Part 2

    Last week, we spoke about negotiations as being the ultimate expression of communication skills. Entering into such a discussion is nothing to be taken lightly. Planning is the key to getting a good outcome, and there are four things that must be carefully thought through BEFORE you begin your talks if you plan to meet your objectives:

    1) BATNA (Best Alternative to a Negotiated Agreement) – This term was developed by leaders of the Harvard Program for Negotiation and appears again in the book “Getting to Yes” by Roger Fisher and William Ury. It simply means “what are your options if you fail to reach an agreement”. Let’s take a simple example; a pending job offer. If you are exclusively considering salary, then your BATNA is you current job’s salary. That is, if you can’t come to an agreement on the offer, then your best alternative is to continue earning your current salary. You may see reasons why you should consider things other than salary (i.e., stability of your current job, length of commute, attractiveness of duties, benefits, etc.). We’ll cover those “alternative sources of value” at #4 below.

    2) Reservation Price – This is the least value you’ll accept and still come to an agreement. Also called the “walk-away” price. This is sometimes the same as the BATNA IF price is the only consideration in the negotiation.

    3) Zone of agreement – Remember that the other side has a BATNA and Reservation Price too. If your reservation and theirs overlap favorably, you have a Zone of Agreement. For example, you are willing to pay $55,000 for a friend’s boat and they are willing to take $50,000 IF you can take possession tomorrow (or if you buy it “as is” or if you also assume their contract for dock rental). You have to decide the relative value of paying $55,000 for the boat only vs. the risk of the “as is” clause or the potential exposure of the dock rental contract.

    4) Alternative Value Sources – Last week, we spoke about the advantages of integrative negotiations. Those were negotiations in which we introduced creative ways to add value in order to end with a “win-win” agreement. In #1 above, we spoke about some of the alternative value sources that accompany job changes; in #3 above, some alternative value sources that could accompany a boat purchase.

    The BATNA is your understanding of what you’ll do if the deal doesn’t materialize. This is where negotiations begin to distinguish themselves as advocacy rather than collaboration. You would NOT want your counterpart to know what your BATNA is (unless it is very strong) and you would very much want to know what your counterpart’s BATNA is if you could be relatively sure that the information was sound. It is, therefore, very important to:

    1) Develop the strongest BATNA you can.
    2) Research to discover what your counterpart’s BATNA SHOULD be.
    3) Think through what your counterpart probably thinks your BATNA is.

    This speculation about BATNA should be done with great caution because it has been demonstrated many times in various studies that it is difficult to estimate your counterpart’s BATNA objectively. When supplied with identical balance sheets, business information, and income statements, negotiators that want to BUY something tend to estimate its value to be low, while those SELLING it will estimate its value as high. This is true even in studies when the parties are instructed to ignore who will be buying and who will be selling. Disinterested (neutral) control groups in the same studies will set the value in-between.

    The Reservation Price is derived from the BATNA and these may be the same if price is the only consideration. More on this in the example below.

    The Zone of Agreement is easy to see. If you are buying and I am selling, and you are willing to pay a price higher than my reservation price, there is a zone of agreement. If that situation is reversed, and there is a GAP between our reservation prices, then there is no amount of negotiation that will achieve our objective UNLESS we can find alternative sources of value that “sweeten the deal” for both of us. Alternative sources of value are usually things that are more valuable to one party than the other.

    EXAMPLE: Let’s say I am an amateur book collector and so are you. I have a book by William F. Buckley that is worth $100 to most collectors if they can find a copy in good condition like mine. I have no other way to set the price except by its usual value (also called comparable value or “comp value”), and offer it for sale at $100. You indicate to me that you would like to buy it. If price is the only important detail, then we can make a deal now. But let’s say I discover that you have a collection of books by Buckley and that this one completes your collection. I might rightly decide that it is worth MORE to you than other collectors because a complete collection is worth more than a partial one. That is the value of me knowing your BATNA; it’s not just about the book for you, it is about the COLLECTION. So I reset my price at $200. Let’s say that you know that I especially love first editions and you have one by Sir Arthur Conan Doyle. I might see that as such a desirable thing that I would offer a straight trade with no cash exchange at all. That is an example of you exploiting an alternative source of value; my love for first editions blinds me and I am willing to give you something you value very much that I don’t really care about in exchange for something I value highly that means relatively little to you. A good deal for both of us and an example of “win-win”.

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