Business Negotiations

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  • 1. Business Negotiation Osvaldas Čiukšys sadlavso@hotmail.com 1
  • 2. Osvaldas Čiukšys tʃ uː ʃ iː k s20 years of negotiating experience:1991 – 1993 Head of Trade division in Ministries of International Economic Relations and Foreign Affairs: negotiations on free trade, investment protection, economic cooperation agreements1993 – 2000 Head of Foreign trade division of Ogmios group and General Director of Ogmios Laikas Ltd.: negotiations on distributorship and long term commercial contracts with leading world companies (electronics, household appliances, Swiss watches, jewelry )2000 – 2001 Vice-minister of Economy: negotiations on LT accession to EU, 3 negotiation chapters: Free movement of goods, SME and Industrial policy2002 – 2009 Deputy head of LT Mission in Poland, Ambassador of Lithuania to Latvia and the Czech Republic: member of various interstate negotiations teams2009 – 2011 Expert of Ignalina NPP decommissioning, General Director and Corporate Affairs Director of Ignalina NPP: negotiations with main projects contractors, EBRD and EU Commission on NFP 2014-20202012 – Private business consultant: negotiations, project management,present business development 2
  • 3. We negotiate since the beginning of the Human RaceEverybody is a Negotiator: - at home - among friends - at work - with ourselves... 3 © Business Negotiations, Osvaldas Čiukšys
  • 4. Can we learn to negotiate?Can we be trained to negotiate? orAre we born for that and know how to do it by heart? 4 © Business Negotiations, Osvaldas Čiukšys
  • 5. During the last century Negotiations became a Science… 5 © Business Negotiations, Osvaldas Čiukšys
  • 6. Negotiations is • Dialogue between two or more parties, with the intent of coming to a mutually agreed solution, because each party has something the other wants • Communication process between two or more people in which they consider alternatives to arrive to mutually agreeable solutions or mutually satisfactory objectives 6 © Business Negotiations, Osvaldas Čiukšys
  • 7. Negotiation involves the art and scienceof drawing up deals that create lasting value David A. Lax and James K. SebeniusNegotiation is the process by which people deal withtheir differences Harvard Business School, Roger FisherLet us never negotiate out of fear, but let us never fearto negotiate John F. Kennedy 7 © Business Negotiations, Osvaldas Čiukšys
  • 8. Characteristics of Good NegotiatorGeneral understanding• open minded• strong personality• charm• knowledgeable• articulate• experienced• motivated• patience• assertiveness• staying detached• flexible• understand the other side• persuasive• quick etc. 8 © Business Negotiations, Osvaldas Čiukšys
  • 9. Characteristics of Good NegotiatorExpert opinion• preparation and planning skills• knowledge of the subject matter being negotiated• ability to think clearly and rapidly under pressure and uncertainty• ability to perceive and exploit power• communication skills• listening skills• judgment and general intelligence• analytical skills• ability to persuade others• patience• decisiveness• charisma: charming personality• considers lots of options LAW ENFORCEMENT NEGOTIATOR PIN• aware of the process and style of the other person• is flexible• thinks and talks about possible areas of agreement etc. 9 © Business Negotiations, Osvaldas Čiukšys
  • 10. Commercial negotiators(attorneys, real estate brokers,retail sales people) emphasize:• analytical ability• self-esteem• patience see negotiations as a problem or case solving affairIndustrial negotiators(engineers, project managers, IT developers) emphasize:• knowledge of the product• ability to investigate and consider options• ability to accommodate interests of others consider negotiations as a quest for reaching objectives 10 © Business Negotiations, Osvaldas Čiukšys
  • 11. Types of negotiations1. Distributive negotiation2. Integrative negotiationMost business negotiations combine elements of both types 11 © Business Negotiations, Osvaldas Čiukšys
  • 12. Other types of negotiations1. Multiphase negotiation Implemented over time in different phases Example: architectural design contract2. Multiparty negotiation Number of parties with different positions involved Example: international organizations like UN, WTO, OPEC etc. In Multiparty Negotiation coalitions and alliances are formed : - Natural coalitions - Single issue coalitions 12 © Business Negotiations, Osvaldas Čiukšys
  • 13. Distributive negotiation• Parties compete over the fixed sum orvalue. The key question is who will get thebiggest part of the pie? A gain of one sideis made at the expense of the other• The Seller’s goal is to negotiate as highprice as possible, the Buyer’s goal is tonegotiate as low price as possible. This isknown as Win-Lose or Zero-sumnegotiation• Thus, the deal is simple, no need forcreativity. Neither party is interested inlong term relations. They take and defendtheir positions 13 © Business Negotiations, Osvaldas Čiukšys
  • 14. Positional bargaining (1) SOFT position HARD positionParticipants are friends Participants are adversariesThe goal is agreement The goal is victoryMake concessions to cultivate the Demand the concessions as a condition ofrelationship the relationshipBe soft on the people and the problem Be hard on the people and the problemTrust others Distrust othersChange your position easily Dig in to your positionMake offers Make threatsDisclose your bottom line Mislead as to your bottom lineAccept one-sided losses to reach agreement Demand one-sided gains as the price of agreementSearch for the single answer: the one They Search for the single answer: the one You willwill accept acceptInsist on agreement Insist on your positionTry to avoid a contest of will Try to win a contest of willYield to pressure Apply pressure 14 © Business Negotiations, Osvaldas Čiukšys
  • 15. Positional bargaining (2)• Hard style of bargaining dominates a soft one• If the hard style bargainer insists on concessions while soft bargainer avoids confrontation, the negotiation ends in favor of the hard bargainer• The negotiation will produce an agreement, although it may not be a wise one• Arguing over positions endangers an ongoing relationship and is inefficient• In multiparty negotiations positional bargaining is even worse 15 © Business Negotiations, Osvaldas Čiukšys
  • 16. Integrative negotiation• Integrative negotiations tend to occur when the deal involves manyfinancial and non-financial terms• Parties cooperate to achieve maximum benefit by integrating theirinterests into an agreement• This is also known as Win-Win negotiation. Both sides try “to makethe pie bigger”• There are many items and issues to be negotiated ant the goal of eachside is to create as much value as possible for itself and the other side 16 © Business Negotiations, Osvaldas Čiukšys
  • 17. Distributive vs. Integrative NegotiationCharacteristics Distributive Integrative Outcome Win-Lose Win-Win Motivation Individual gain Joint and individual gain Interests Opposite Different but not always oppositeRelationships Short-term Short and Long-termIssues involved Single MultipleAbility to make Not flexible Flexible trade-offs Solution Not creative Creative 17 © Business Negotiations, Osvaldas Čiukšys
  • 18. The Negotiator’s dillema: cooperate or compete? David A. Lax and James K. Sebenius B Cooperates B Competes A cooperates Both cooperate B competesA Cooperates Both have a good A has terrible outcome outcome B has good outcome A competes Both compete B cooperatesA Competes Both have mediacore A has good outcome outcome B has terrible outcome 18 © Business Negotiations, Osvaldas Čiukšys
  • 19. The Answer to Negotiator’s dillema: respond accordinglyThe tit-for-tat strategy is the solution. This process involves starting out with acooperative approach: responding to competitive moves with a competitive moveand responding to a cooperative move with a cooperative move In real world there is no purely Distributive, Integrative as well as Multiphase or Multiparty negotiations Every individual Negotiator decides upon his/her style to which extent he/she wants or needs to be Cooperative or Competing 19 © Business Negotiations, Osvaldas Čiukšys
  • 20. Negotiation strategy matrix + - You Win You Lose+ They Win They Win You Win You Lose They Lose They Lose- 20 © Business Negotiations, Osvaldas Čiukšys
  • 21. Primary negotiation strategies Roger Fisher, William Ury “Getting to YES”ASSE competing collaboratingRTI compromisingVENE avoiding accommodatingSS COOPERATIVENESS 21 © Business Negotiations, Osvaldas Čiukšys
  • 22. Choosing right strategy High Compete CollaborateConcern for Substance be a winner at solve problems any cost so both parties can win Moderate Compromise split the difference agree to any build proposal relationship Avoid Accommodate Low Low Moderate High Concern for Relationship 22 © Business Negotiations, Osvaldas Čiukšys
  • 23. Negotiation styles (1) High Competitor CollaboratorConcern for Substance wants to win at solves the problems any cost Compromiser - of the other side Problem solver expecting the same Moderate in return comes with alternatives and makes the pie avoids to take gives concessions in bigger responsibility order to maintain and make decisions good relations Low Avoider Accommodator Low Moderate High Concern for Relationship 23 © Business Negotiations, Osvaldas Čiukšys
  • 24. Negotiation styles (2)1. Competitor Negotiators that exhibit this style are results- oriented, self-confident, assertive, are focused primarily on the main goals, have a tendency to impose their views upon the other party, and in the extreme can become aggressive and dominating. This style is high in Assertiveness and low in Cooperativeness 24 © Business Negotiations, Osvaldas Čiukšys
  • 25. Negotiation styles (3)2. Avoider Negotiators that use this style are passive, prefer to avoid conflict, make attempts to withdraw from the situation or pass responsibility onto another party, and fail to show adequate concern or make an honest attempt to get to a solution. This style is both low in Assertiveness and low in Cooperativeness 25 © Business Negotiations, Osvaldas Čiukšys
  • 26. Negotiation styles (4)3. Collaborator Negotiators of this style use open and honest communication, focus on finding creative solutions that mutually satisfy both parties, are open to exploring new and novel solutions, and suggest many alternatives for consideration. This style is both high in Assertiveness and high in Cooperativeness 26 © Business Negotiations, Osvaldas Čiukšys
  • 27. Negotiation styles (5)4. Accommodator Negotiators that exhibit this style make attempts to maintain relationships with the other party, smooth over conflicts, downplay differences, and are most concerned with satisfying the needs of the other party. This style is low in Assertiveness but high in Cooperativeness 27 © Business Negotiations, Osvaldas Čiukšys
  • 28. Negotiation styles (6)5. Compromiser – Problem solver Negotiators of this style aim to find the middle ground, come with different alternatives, often split the difference between positions, frequently engage in give and take trade-offs, and accept moderate satisfaction of both parties’ needs. This style is both moderate in Assertiveness and moderate in Cooperativeness 28 © Business Negotiations, Osvaldas Čiukšys
  • 29. Interaction of different style negotiatorsThe best outcome is expected from the same or closest style negotiators Avoider Accommodator Collaborator Competitor Problem solver Avoider good bad bad bad badAccommodator bad good good bad good Collaborator bad good good bad good Competitor bad bad bad good goodProblem solver bad good good good good 29 © Business Negotiations, Osvaldas Čiukšys
  • 30. Main stages of negotiationPreparation Exchange of Information Bargaining Closure and Commitment 30 © Business Negotiations, Osvaldas Čiukšys
  • 31. “8 step” approach by John Benson Gavin Kennedy John McMillanTheory is based on 4 crucial phases of negotiation and 4 minorsteps within the major phases: A. PREPARE B. ARGUE C. Signal D. PROPOSE E. Package F. BARGAIN G. Close H. Agree 31 © Business Negotiations, Osvaldas Čiukšys
  • 32. Preparation• Identify the main goal of negotiation: yours and opponents• Make necessary economic and financial calculations• Prepare technical and other documentation• Design your negotiating team and get the mandate to negotiate• Prepare your position and best alternative (BATNA)• Set the agenda for negotiations• Gather and analyze information about your opponents 32 © Business Negotiations, Osvaldas Čiukšys
  • 33. Preparation: practical aspects• Inform your team about your goals, strategy and agenda. Discuss their roles in negotiation process• Offer opponents to negotiate at your territory• Propose to write down minutes of negotiations• Be the first to send draft agenda• Meet former employees, business partners or clients of your opponents• Invite your opponents to meet informally: dinner or lunch, beer or coffee prior to negotiations• Be the first to send them drafts of documents: contract, technical specification, samples etc.• Offer your help to the other side: interpreter, driver, office, hotel reservation etc.• Take time to relax and be ready to make decisions 33 © Business Negotiations, Osvaldas Čiukšys
  • 34. Do you really know your main goal? and the main goal of the other side? 34 © Business Negotiations, Osvaldas Čiukšys
  • 35. Ask yourself : are we ready? Do we really have enough information orjust see what we want to see and make wrong perceptions? 35 © Business Negotiations, Osvaldas Čiukšys
  • 36. Exchange of information Main rule: only the necessary minimum of valuable information to the other side• Possible exchange of preliminary positions• Composition and authority of the teams• Final agenda of negotiations• Exchange of the draft documents• Practical arrangements: meeting room, refreshments etc.• Informal meeting with the opponents: dinner, lunch, coffee prior to negotiations 36 © Business Negotiations, Osvaldas Čiukšys
  • 37. Team formation (1)Members Roles Functions Chief Leader of the team, experienced , Makes decisions,negotiator not necessarily the oldest gives instructions Agrees with opponents, makes aGood guy Everybody likes him good impression, creates comfort in negotiations Opposite to Good Guy, it’s much easier Stops negotiations when Bad guy to reach an agreement without him necessary, reduces value of opponents’ proposals, points out weaknesses of the other side Serious, knowledgeable, makes the life Writes down the minutes, delaysHard liner of opponents difficult, his opinion is negotiations when needed, helps respected by everybody to take proposals back, strictly follows the agenda, observes Accumulates all proposals, suggests Does not allow the others to loseSweeper overarching solutions the track and forget the main goals, suggests the ways out 37 © Business Negotiations, Osvaldas Čiukšys
  • 38. Team formation (2)• Small and flexible• Knowledgeable and well informed• United: team spirit• Resourceful and creative• All necessary areas well represented• Team members know their roles and functions 38 © Business Negotiations, Osvaldas Čiukšys
  • 39. Seating (1)window window You BG GG Ch N HL Sw Sw HL Ch N GG BG Opponents 39 © Business Negotiations, Osvaldas Čiukšys
  • 40. Seating (2) window window You GG Ch N Sw BGYou + HL GG? Ch N Sw ? Opponents 40 © Business Negotiations, Osvaldas Čiukšys
  • 41. Seating (3)window window You GG + Sw + Ch N BG +HL Ch N ? Opponents 41 © Business Negotiations, Osvaldas Čiukšys
  • 42. Seating (4)window window You HL+BG Ch N+GG+Swnp Sw HL Ch N GG BG Opponents 42 © Business Negotiations, Osvaldas Čiukšys
  • 43. Seating (5) window window You Separate room for negotiating team + You Ch N GG Sw BG + YouOpponents HL Ch N BG GG r Opponents 43 © Business Negotiations, Osvaldas Čiukšys
  • 44. Seating (6)Informal meeting You Opponents Ch N Ch N Sw GG Sw HL BG BG HL GG 44 © Business Negotiations, Osvaldas Čiukšys
  • 45. Main principles of integrative negotiation Roger Fisher, William Ury “Getting to YES” • Separate the people from the problem • Focus on interests, not positions • Invent options for mutual gain • Use objective criteria 45 © Business Negotiations, Osvaldas Čiukšys
  • 46. 1. Separate the people from the problemSeparating the people from the problem means separating relationshipissues (or "people problems") from substantive issues, and dealing withthem independently. Face the problem, not the people 1. Try to see the situation from your opponents perspective 2. Dont deduce your opponents intentions from your own fears 3. Avoid blaming your opponent for the problem 4. Discuss each others perceptions 5. Seek opportunities to act inconsistently with your opponents misperceptions 6. Give your opponent a stake in the outcome by making sure they participate in the negotiation process 7. Make your proposals consistent with the principles and self-image of your opponent 8. Recognize , understand and acknowledge emotions: theirs and yours 9. Don’t react to emotional outbursts and allow to let off steam 10. Listen actively and speak to be understood 11. Speak about yourself, not about them 12. Build a working relationship 46 © Business Negotiations, Osvaldas Čiukšys
  • 47. 2. Focus on interests, not positions Negotiating about interests means negotiating about things that people really want and need, not what they say that they want or need 1. Behind opposed positions lie shared and compatible interests, as well as conflicting ones 2. Identify the interests: ask “Why?” and “Why not” 3. The most powerful interests are basic human needs: security, economic well-being, a sense of belonging, recognition, control over one’s life 4. Give your interest and reasoning first and your conclusions or proposals later 5. Look forward, not back. Instead of asking to justify what they did yesterday, ask who should do what tomorrow? 6. Be concrete but flexible. Think about options that meet your interest, use “illustrative specificity” 7. Be hard on the problems, soft on the people. Help the other side to solve their problems 47 © Business Negotiations, Osvaldas Čiukšys
  • 48. 3. Invent options for mutual gainThis means negotiators should look for new solutions to the problem thatwill allow both sides to win, not just fight over the original positionswhich assume that for one side to win, the other side must lose 1. Brainstorm: invent as many options as possible to reach an agreement 2. Broaden your options by the expertise and changed scope or focus of possible agreement 3. Look for mutual gain indentifying shared interests and matching differing interests 4. Make the opposite side decision easy. Look to agreement from your counterpart perspective and involve him/her in designing the right solution. Invent first, decide later 48 © Business Negotiations, Osvaldas Čiukšys
  • 49. 4. Use objective criteria Insist on objective criteria for decisions. While not always available, if some outside, objective criteria for fairness can be found, this can greatly simplify the negotiation process 1. Find fair standards: market value, precedent, scientific judgment, technical requirements etc. 2. Follow fair procedures: reciprocity, moral standards, reciprocity etc. 3. Agree first on principles and be open to reason. Search for objective criteria together 4. Never yield to pressure, only to principle 49 © Business Negotiations, Osvaldas Čiukšys
  • 50. 5 main conceptual instruments• BATNA – Best Alternative to Negotiated Agreement• Reservation price: walk away price• ZOPA – Zone of Possible Agreement• Value creation through trade-offs• Negotiating power 50 © Business Negotiations, Osvaldas Čiukšys
  • 51. BATNA: Best Alternative to Negotiated Agreement1. Invent a list of actions you might conceivably take if no agreement is reached2. Improve some of the promising ideas and convert them into practical alternatives3. Select one option that seems the best Do not mix it with a Bottom Line: negotiators try to protect themselves by establishing in advance the worst acceptable outcome. The Bottom Line inhibits imagination and creativity 51 Business Negotiations, Osvaldas Čiukšys
  • 52. BATNA• The better your BATNA, the greater your power It gives you additional confidence in negotiations and you can negotiate on the merits• Identify and consider the other side’s BATNA Knowing their alternatives, you can realistically estimate what you can expect from negotiations 52 © Business Negotiations, Osvaldas Čiukšys
  • 53. Reservation PriceThe reservation price is the least favorable point atwhich one will accept a negotiated agreementFor a seller this means the least amount (minimum) or bottom line theywould be prepared to accept, while for a buyer it would mean the most(maximum) or bottom line that they would be prepared to pay. It is alsosometimes referred to as the “walk away” price 53 © Business Negotiations, Osvaldas Čiukšys
  • 54. ZOPA: Zone of Possible Agreement Maximum price Seller Minimal price Seller wants to get accepts FIRST OFFER RESERVATION PRICE Zone of Possible AgreementSeller Buyer Maximum price Buyer is Desirable price of ready to pay Buyer RESERVATION PRICE FIRST OFFER 54 © Business Negotiations, Osvaldas Čiukšys
  • 55. Sources of power in negotiation Expertise Legitimate power Gain, profit or loss Information Higher position, authority CharismaTerritorial, quantitative Negotiating Personal relations advantage Power 55 © Business Negotiations, Osvaldas Čiukšys
  • 56. Questions? 56