Negotiation (Harvard Business Essentials Series)

95 Pages·2003·35.191 MB·English

by  Michael Wheeler

Your Mentor
and Guide
to Doing Business
Effectively
Negotiation
Negotiation
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The Harvard Business Essentials Series
The Harvard Business Essentials series is designed to provide com-
prehensive advice, personal coaching, background information, and
guidance on the most relevant topics in business. Drawing on rich
content from Harvard Business School Publishing and other sources, Negotiation
these concise guides are carefully crafted to provide ahighly practi-
calresource for readers with all levels of experience. To assure qual-
ity and accuracy, each volume is closely reviewed by a specialized
content adviser from aworld-classbusiness school.Whether you are
anew manager interested inexpanding your skillsor an experienced
executive looking for a personal resource, these solution-oriented
books offer reliable answers atyour fingertips.
Other books inthe series:
Financefor Managers
Hiring and Keeping the Best People
Managing Change and Transition
Business Communication
Managing Creativity and Innovation
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Harvard BusinessSchool Press IBoston,Massachusetts
Contents
Introduction
xi
1 Types of Negotiation
1
Many Paths toaDeal
Distributive Negotiation
2
Integrative Negotiation
5
Multiple Phases and Multiple Parties
9
SumrningUp
11
Copyright 2003 Harvard Business School Publishing Corporation 2 FourKey Concepts
13
Allrights reserved Your Starting Points
Printed in the United States ofAmerica
07 10 9 8 7 6 Know Your BATNA
15
Reservation Price
No part ofthispublication may be reproduced, stored in orintroduced into aretrieval 23
system, or transmitted, in any form, or byanymeans (electronic, mechanical, photo- ZOPA
24
copying, recording, or otherwise), without the prior permission ofthe publisher. Value Creation Through Trades
26
Requests forpermission should be directed to [email protected],
Summing Up
or mailed to Permissions, Harvard Busin.essSchool Publishing, 28
60 Harvard Way,Boston, Massachusetts 02163.
3 Preparation
29
978-1-59139-111-1 (ISBN 13) Nine Steps toaDeal
Library of Congress Cataloging-in-Publication Data
Step 1:Consider What a Good Outcome Would Be
Harvard business essentials: negotiation
forYou and the Other Side
p.em.- (The Harvard business essentialsseries) 31
Includes bibliographical references and index. Step 2:Identify Potential Value Creation Opportunities
33
ISBN 1-59139-111-3
Step 3:IdentifyYour BATNA and Reservation Price,
1.Negotiation in business.I.Series.
and Do the Same for the Other Side
HD58.6.H3828 2003 34
Step 4:Shore Up YourBATNA
2003009818 35
Step 5:Anticipate theAuthority Issue
36
vi Contents Contents vii
Step 6:Learn AllYou Can About the Other Side's People 7 Mental Errors 95
and Culture, Their Goals,and How They've How to Recognize and Avoid Them
Framed the Issue 39
Escalation 96
Step 7:Prepare for Flexibility in.the Process-
Partisan Perceptions 98
Don't LockYourself into aRigid Sequence 40
Irrational Expectations 100
Step 8:Gather External Standards and Criteria Relevant
Overconfidence 102
to Fairness 40
Unchecked Emotions 104
Step 9:Alter the Process inYour Favor 41
Summing Up 106
Summing Up 43
8 When Relationships Matter 109
4 Table Tactics 45
A DifferentNotion of Winning
How toPlay theGame Well
Why Relationships Matter 110
Getting the Other Side to theTable 46
How Perceptions ofRelationship ValueAffect Negotiations 112
Making aGood Start 48
Doing It Right 115
Tactics forWin-Lose Negotiations 49
Summing Up 119
Tactics for Integrative Negotiations 57
General Tactics:Framing and Continual Evaluation 62 9 Negotiating for Others 121
Summing Up 67 Whose InterestsComeFirst?
5 Frequently Asked Tactical Questions 69 Independent Agents 122
Answers You Need Non-Independent Agents 123
Agency Issues 124
FAQsAbout Price 70
Summing Up 127
FAQsAbout Process 72
FAQsAbout People Problems 74 10 Negotiation Skills 129
Building Organizational Competence
6 Barriers to Agreement 79
How to Recognize and OvercomeThem Continuous Improvement 130
Negotiating asan Organizational Capability 133
Die-Hard Bargainers 80
What Makes an Effective Negotiator? 138
Lack ofTrust 83
Summing Up 140
InformationalVacuums and the Negotiator's Dilemma 84
Structural Impediments 86
Appendix: Useful Implementation Tools 143
Spoilers 87
Notes 151
Differences inGender and Culture 89
Glossary 155
Difficulties in Communication 91
ForFurtherReading 159
The Power ofDialogue 92
Index 165
Summing Up 93
About the Subject Adviser 169
About the Writer 170
Negotiation
Introduction
Negotiation is the means by which people deal with their differ-
ences. Whether those differences involve the purchase of a new au-
tomobile, a labor contract dispute, the terms of a sale, a complex
alliance between two companies, or apeace accord between warring
nations, resolutions are typically sought through negotiations. To ne-
gotiate is to seek mutual agreement through dialogue.
Negotiation is an ever-present feature of our lives both at home
and at work. When a parent and a child talk about how the child
will improve his math scores, they are negotiating. So, too, are two
spouses when they agree on who will do the yard work and who
will do the grocery shopping this weekend. In the workplace, nego-
tiations are even more ubiquitous. Indeed, the Latin root of the word
(negotiatus) means "to carry on business." In modern Spanish, nego-
cios means "business."
A business negotiation may be a formal affair that takes place
across the proverbial bargaining table, in which you haggle over price
and performance or the complex terms of apartnership venture.Al-
ternatively, it may be much less formal, such as a meeting between
you and several fellow employees whose collaboration is needed to
get ajob done. If you are a supervisor, manager, or executive, you
probably spend a good part of your day negotiating with people in-
side or outside your organization-often without even realizing it.
Whether you're closing a sale or getting a subordinate to agree to
certain performance goals, you are negotiating.
Given the role of negotiations in our personal and professional
lives,it's important to improve our negotiating skills.Even a modest
xi
xii
Introduction
Introduction
xiii
improvement in those skills can yield asizable payoff, such asalarger
pay raise, a better deal on a home purchase, or more effective work- techniques such as anchoring and framing, and how you can some-
ing arrangements in the office.This book can help you improve your times alter the negotiation process in your favor. Chapter 5 contin-
skills and make you a more effective negotiator. ues that discussion with answers to frequently asked questions about
negotiating tactics.
Drawing on the best available literature in the field,Harvard Busi-
ness Essentials: Negotiation explains the basic concepts followed by ex- Not every negotiation goes smoothly-even those that involve
pert negotiators and creative problem solvers. It is packed with friendly parties. One or more barriers-such as structural impedi-
practical tips and examples that will help you in your personal life ments, lack of trust, and poor communication-can get in the way of
and in your career.
a successful deal. Chapter 6 identifies these barriers and indicates
how you can avoid them. Chapter 7 discusses mental errors that ne-
gotiators sometime bring to the table.These include overconfidence,
irrational expectations, and the tendency to escalate offers in an ego-
What's Ahead
driven zeal to win. Again, the chapter explains how you can avoid
Chapter 1 explains the basic types of negotiations: the distributive making these errors.
negotiation and the integrative deal. In the first, the value available to Chapter 8 is concerned with relationships. In a onetime trans-
the parties is essentially fixed, and each seeks to claim asmuch of it action, one's future relationships with the other parties do not mat-
aspossible. Here, one party's gain comes at the expense of the others. ter.The goal isto claim asmuch value aspossible. The purchase of a
This type is the so-called zero-sum game. In the second, the parties rug from astreet vendor is atypical example. But many personal and
apply creativity and information sharing to create greater value for business deals involve multiple transactions over time among parties
eventual distribution.
who seek to maintain productive relationships. These deals involve
Chapter 2 moves from negotiation types to four concepts that both tangible values and relationship values.Chapter 8shows you how
every negotiator should understand and know how to apply: the to maneuver in this tricky terrain and how you can separate deal val-
BATNA, or best alternative to a negotiated agreement; the reserva- ues from relationship values.
tion price, the point at which you plan to walk away; the ZOPA, or Chapter 9 is about negotiating for others. In many cases the
zone of possible agreement in which a deal isfeasible; and the value people doing the actual bargaining are independent or employee
created through trades. Each of these concepts is explained and sup- agents of the respective parties: alawyer representing aperson bring-
ported with examples.
ing a personal injury suit, a purchasing manager representing his or
Chapter 3 isabout preparation. You should never enter a negoti- her company in asupplier agreement, a union negotiator represent-
ation cold; instead, first learn asmuch aspossible about your own in- ing a local unit in a dispute with a particular employer. There are
terests and positions and those of the other side. You can prepare often very good reasons to employ an agent in negotiations, as the
yourself using the steps offered in this chapter. chapter explains, but doing sogenerally opens the door to principal!
Once you've learned the basics and know what's needed for agent conflicts.The chapter examines these conflicts and how they can
preparation, you're ready for chapter 4--"Table Tactics." This chap- be avoided or minimized.
ter shows you how to get the other side to the table, how to get It isobviously important for individuals to develop their negoti-
negotiations off to a good start, and how to play the game, no mat- ating skills.But what about organizations? Chapter 10 advances the
ter which type of negotiation is involved. Here you'll learn about idea of developing negotiating skillasan organizational competence.
Imagine what your organization could achieve if its salespeople,
xiv
Introduction
supervisors, managers, and executives were to become progressively
better negotiators. This chapter brings together two powerful con-
cepts, continuous improvement and core competencies, to demon-
strate how training, learning, and the reuse oflearning can be applied
to the development of negotiating skills.
Types of Negotiation
Harvard Business Essentials: Negotiation contains several supple-
ments. The first is an appendix containing worksheets that you may
find helpful. Free interactive versions of these worksheets, aswell as
Many Paths to a Deal
other tools found in this book and in other volumes of the series, are
available and can be downioade.I from the official Harvard Business
Essentials Web site, WWW.elearning.hbsp.org/businesstools. The sec-
ond supplement is aglossary of terms. Every discipline has its special
vocabulary, and negotiating is no exception. When you see a word
Key Topics Covered inThis Chapter
italicized in the text, that's your Cue that the word is defined in the
glossary. Finally,"For Further Reading" identifies books and articles
that can tell you more about topics covered in this book. Ifyou want •
Distributive negotiation: claiming value
to learn more, these publications can help you.
• Integrative negotiation: creatingand
claiming value
• The negotiator's dilemma: trying to
determine whichgame toplay
• Multiphase and multiparty negotiations
Types of Negotiation 3
constant-sum negotiation. The term win-lose isprobably more repre-
sentative of what's involved. Classic examples include the following:
• The sale of a carpet, where the buyer and the seller do not
know one another. There is no relationship; all that matters is
the price, and each side haggles for the best deal. Every gain
by one party represents aloss to the other.
• Wage negotiations between business owners and their union
T employees. The owners know that any amount conceded to the
union will come out of their own pockets-and vice versa.
HERE ARE TWO primary kinds of negotiation.
Chances areyou have been involved in both at one time Inapurely distributive negotiation, the value atstake isfixed, and
or another: each side's goal is to get as much of it aspossible. Consider the ex-
ample of two people negotiating over shares of afreshly baked apple
• Distributive: A negotiation in which the parties compete over
pie. Each aims to negotiate for aslarge aportion of that pie aspossi-
t~e ~stribution of a fixed sum of value.The key question in a
ble, knowing that any concession made to the other party will re-
distributed negotiation is"Who will claim the most val ?"I
ue. n duce his or her share by an equal amount. Or consider this typical
distributive negotiations, again by one side is made at the ex-
business example:
pense of the other.
Acme Manufacturing and asupplier, Best Parts Company, arenegoti-
• Integrative: A negotiation in which the parties cooperate to
ating an agreement under which Best Parts will make and deliver
achieve maximum benefits by integrating their interests into an
10, 000 specified widgets over aperiod of six months. Acme's purchas-
agreement. These deals are about creating value and claiming it.
ing manager has been instructed toget the lowest possible price, so she's
. Few of yo.u~negotiations will be purely distributive. Although pushing for $1.75 per widget. Best Parts's sales manager, on the other
dire~t ~ompetItlOn between the interests and goals of negotiating hand, is trying to maximize theprice his employer receives;he's asking
parties IScommonplace, opportunities to integrate the parties' inter- for $2.00 per widget. Neither is willing to discuss anything but price.
es~ and preferenc~s usually exist. But for the purposes of pedagogy; In the end,Acme Manufacturing gets itsprice. With severalpotential
this chapter examines each type in its pure form. These forms are sellers to turn to,itspurchasing manager holds out until the other side,
compliqted by two other facts of life addressed at the end of the which lacks other sales outlets, caves in and takes $1.75per widget.
chap~er: Negotiations often take place in phases and may involve
multIple parties. The seller's goal in a distributive deal is to negotiate as high a
price aspossible; the buyer's goal isto negotiate asIowa price aspos-
sible.A dollar more to one side is a dollar less to the other. Thus, the
Distributive Negotiation seller and the buyer compete to claim the greatest possible value for
themselves. There isatug of war going on here. Each negotiator aims
The issue in a distributive negotiation is who will claim th
al S e most to "pull" the final deal point as close to his or her side's desired price
vue. orne people refer to this type of negotiation as zero-sum or
aspossible (or even beyond it).