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Martin Gerstel - The Art of Negotiation

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From the Annual event "The Art of Negotiation" 29/12/10

From the Annual event "The Art of Negotiation" 29/12/10

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  • 1. The Art of NegotiatingThe MIT Enterprise Forum of Israel Tel Aviv University December 29, 2010 © (2010) Martin Gerstel
  • 2. NEGOTIATION“The use of information and power to affect behavior within a web of tension.”** Herb Cohen, “You can Negotiate Anything.” Four months on the New York Times Best Seller List
  • 3. NEGOTIATION “The use of information and power to affect behavior within a web of tension.”* The process of two or more parties attempting to reach agreement regarding an issue when faced with an apparent conflict or disagreement.* Herb Cohen, “You can Negotiate Anything.” Four months on the New York Times Best Seller List
  • 4. THE ART OF NEGOTIATING When to Negotiate
  • 5. WHEN TO NEGOTIATEWhen is it required? – Almost neverWhen can you not? – Almost neverWhen you choose toBut… Always a price Is it worth it?
  • 6. A Common Mistake“Set objective (what you want) and then accomplish it” Objective (What?)•Buy car at lowest cost to resell •Sell car at highest price and then buy car Means to Accomplish Negotiate (How?)
  • 7. Key to Remember! Why? – Why? – Why? Why? •Needs car for summer at less than $9000 cost •Has car unneeded for summer, needs $2000, Objective (What?)•Buy car at lowest cost to resell •Sell car at highest price andthen buy car at end of summer
  • 8. “Why’s” lead to “How’s” “What’s” often lead to trouble Why? •Need car for summer •Need $2000 for trip: have car that is not needed for summer Objective (What?) •Buy car at lowest cost to resell•Sell car at highest price and thenbuy another car at end of summer NOMeans to Accomplish (How?) • Rent Car for summer
  • 9. When to Negotiate?“Negotiation”: The process oftwo or more parties attemptingto reach agreement regardingan issue when faced with anapparent conflict or disagreement.1. Are you sure there is a conflict?2. Is it “worth it” to resolve?
  • 10. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”
  • 11. Assumption or Fact?If someone puts an ad in thenewspaper to sell a car, theywant to sell the car.If someone responds to anad in the newspaper about acar for sale, they want to buya car.
  • 12. THE ART OF NEGOTIATING When to Negotiate “Why” is key, not “What” Question Your Assumptions
  • 13. From my HistoryWhen ALZA first began working withclient companies, overhead rates werenegotiated individually with eachpotential client. This negotiation wasoften the most difficult part of enteringinto a new arrangement. The clientcompany had their accountants go overevery individual line item and arguewith us point by point, trying to reduceour rates.Why was the potential clientdoing this?
  • 14. An Objective (“What”)“We want to have the right tomarket the product in Europe.”
  • 15. “Why’s” lead to “How’s” –“What’s” often lead to trouble Assumptions/Facts (Why?) Objectives (What?) NO Means to Accomplish (How?)
  • 16. An Objective (“What”)“We want to have the right tomarket the product in Europe.” The “Why” Could Be: – We want to become start marketing products in general – The other company is not very strong in Europe – We want to Build Marketing Capability for this product line or geographic area in the future – We want to be closely Identified with This Product
  • 17. An Objective (“What”) A Friend: “Let’s go to Alice’sRestaurant for dinner”
  • 18. An Objective (“What”) A Friend: “Let’s go to Alice’sRestaurant for dinner”The “Why” Could Be: – Alice’s has great steaks – Want a particular dish that is made only by this restaurant – It’s at the Tel Aviv Port near the water – Want a very quiet restaurant – Don’t want to drive too far – ???
  • 19. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”
  • 20. Separate “Needs” from “Wants” “Needs” – Reason you are interested – If not “walk-away” “Wants” – Nice to have – May effect Pricing – Not a “deal-breaker”
  • 21. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”
  • 22. Focus on “Next Best Alternative”Problem: How to determine an objective “value” for your first choice? How much is it really worth to you?
  • 23. Focus on “Next Best Alternative” Problem: How to place an objective “value” on your first choice? How much is it really worth to you? The Value to you of your “first choice” equals: The cost to you of your “Next Best Alternative” PLUSthe value/cost of the difference
  • 24. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”
  • 25. VARIABLES THAT WILLINFLUENCE OUTCOME OF NEGOTIATION The “Big Four”Information
  • 26. Information Usually most important determinant of outcome – About the substance of the negotiation – About the other negotiator/companyKey to Remember You don’t know what the other party really needs/wants (They might not even be aware or willing to admit) Usually, there is a better solution for both parties than the initial positions taken by either
  • 27. VARIABLES THAT WILLINFLUENCE OUTCOME OF NEGOTIATION The “Big Four”InformationPower
  • 28. PowerPower in a negotiation can be obtained by: – Alternatives – Organization/legitimacy – Precedent – Persuasive ability – Expertise – Morality – Blackmail – Persistency – Risk-taking/escalation – AngerImportant to recognize sources of powerfor both you and the other party – Can sometimes be “neutralized” if you’re prepared
  • 29. VARIABLES THAT WILLINFLUENCE OUTCOME OF NEGOTIATION The “Big Four”InformationPowerTime Constraints
  • 30. Time ConstraintsUse of deadlines– Most deadlines are not deadlinesRecognize when passageof time eliminatesalternatives
  • 31. What Would You Do?You are a knowledgeable buyer ofantiques and you find an extremelyrare lamp for sale which you know(without any doubt) is worth at least$100,000, yet the price marked is$500. The Seller is a verysuccessful company that purchasesestates and sells items on individualbasis, and just made a very bigmistake in appraising the lamp.What do you do?
  • 32. What Would You Do?You are a knowledgeable buyer ofantiques and you find an extremely rarelamp for sale which you know (withoutany doubt) is worth at least $100,000, yetthe price marked is $500.What do you do?Suppose the Seller is a widowselling all of her possessionsto get money for a medicaloperation for her only child?
  • 33. What Would You Do?You are a knowledgeable buyer ofantiques and you find an extremely rarelamp for sale which you know (withoutany doubt) is worth at least $100,000, yetthe price marked is $500.What do you do?Suppose you are verywealthy?
  • 34. What Would You Do?You are a knowledgeable buyer ofantiques and you find an extremely rarelamp for sale which you know (withoutany doubt) is worth at least $100,000, yetthe price marked is $500.What do you do?Suppose you are out of workand having problems feedingyour family?
  • 35. VARIABLES THAT WILLINFLUENCE OUTCOME OF NEGOTIATION The “Big Four”InformationPowerTime ConstraintsValues/Needs/Wants/EGOEach of the above can be used byeither party at any time to changethe tone of the negotiations. - Can be “truth” or a “ploy”
  • 36. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” Values
  • 37. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” Values – concept of “negotiables” – key to “win-win” negotiating
  • 38. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare Information
  • 39. WHAT INFORMATION TO SHAREVery Difficult Judgment CallShould try to share informationthat will:– Help in finding a mutual solution– Help other party to understand your needs
  • 40. WORKSHOP EXAMPLE:Buying/Selling CarWhat Information to Share?BUYER – Needs car only for three months – Intends to sell after three monthsSELLER – Selling car reluctantly – will need to buy car after three months return from trip
  • 41. WHAT INFORMATION TO SHAREVery Difficult Judgment CallShould try to share informationthat will: – Help in finding a mutual solution – Help other party to understand your needsBut, need to considerwhether other party can thenuse information to yourdisadvantage
  • 42. WORKSHOP EXAMPLE:Buying/Selling CarWhat Information NOT to Share?BUYER – No Other Alternatives – Time pressureSELLER – No Other Alternatives – Time Pressure
  • 43. HOW DO YOU RESPOND? You’ve been in a very difficultnegotiation for three days. The processdoesn’t seem to be getting anywhere.There doesn’t seem to be an outcomeacceptable to all. On the first day of thenegotiations, you had presented a proposalthat was flatly rejected out of hand by theother party as totally unacceptable, andthey weren’t even willing to discuss it. It is now three days later and theycome back to you with a proposal which isessentially the same as the one that youoffered three days earlier. It is presentedby them as a new and different way topossibly proceed to get around theproblems that your unwillingness to bereasonable has created.
  • 44. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With People
  • 45. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With People – Listen and Respond
  • 46. Listen and RespondWhat “Level” Is the Subject Now Being Discussed? Assumptions/Facts (Why?) Objectives (What?) Means to Accomplish (How/A Proposal?)
  • 47. LISTEN and RESPOND, Is the other person’s statement, or what it is suggesting: Accurate? Reasonable? Acceptable to You?NOT the same as “Reasonable”
  • 48. GIVING YOUR RESPONSEWHAT’S THE DIFFERENCE ? Presenting Your Case In a Court of Law In a Negotiation
  • 49. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With People – Listen and Respond – Show Support for the Other Party – Forget your “Ego needs”
  • 50. Forget Your “Ego” NeedsMost people, particularly if they arerepresenting an organization andhave their associates with them,need to “look good.” If you are in anegotiation and you don’t have thatneed, it can be a tremendousadvantage.Examples:• Giving credit to others for ideas• Lose a lot of battles Painting
  • 51. Win Wars--Lose BattlesNeed to know what the waris– Know Your ObjectivesNeed to look for battles tolose– You negotiate with people
  • 52. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With PeopleDon’t Argue About the Future Orange
  • 53. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With PeopleDon’t Argue About the FutureCompromise is Failure! – “Remember the Orange”
  • 54. A “Make Believe” Raffle The Rules:Highest Bidder Gets$100.00Second Highest Bidder hasto pay me what he/she bid
  • 55. IMPORTANT NEGOTIATIONSUSUALLY CONSIST OF MANY INDIVIDUAL ELEMENTSPoor Negotiators will respondindividually to each elementwithout an overall plan– Try to “maximize” each element regardless of importance to objectivesGood Negotiators willunderstand how theseelements interrelate and effecttheir objectives– See as an “overall package”– Think through before responding
  • 56. THE ART OF NEGOTIATINGWhen to Negotiate“Why” is key, not “What”Question Your AssumptionsSeparate “needs” from “wants”Focus on “Next Best Alternative”Recognize/Neutralize “The Big Four”No “True” ValuesShare InformationYou Negotiate With PeopleCompromise is Failure!Keep the “Big Picture” in Mind
  • 57. Some Additional Hints Always know/understand your alternatives – There always are alternatives Deal with substance, not words – “Ownership” vs. “Right-to-Use” Patents – “Why” not “What” Never negotiate by phone Specifically state the ground rules – Agreements or proposals Disagree with IDEAS, not PEOPLE Quantify/analyze Think about the future Never negotiate alone If in doubt, ask a question Beware of game-players
  • 58. Games Negotiators Play I don’t have the authority This is too complicated, can’t we make it simpler Anger, “winning” by intimidation Inappropriate use of power/escalation Good Guy/Bad Guy I’m really thinking only of your interests Stubborn, confuse and outlast Taking outrageous positions
  • 59. A LITTLE NEGOTIATING PRACTICE STATUS: You have been negotiating an agreement under which a product will be developed and marketed by your partner at their expense based on a license from your company. If successful they will pay your company a royalty. Somehow, during the negotiating process, no one discussed royalty rates, and this is now the only open issue. Everything else has been agreed .
  • 60. A LITTLE NEGOTIATING PRACTICE YOU: “We will require a five percent royalty on sales of the product.” THEY: “The most we are prepared to pay is two percent royalty on sales.” How to you respond?
  • 61. “Why’s” lead to “How’s” –“What’s” often lead to trouble Assumptions/Facts (Why?) Objectives (What?) NO Means to Accomplish (How?)
  • 62. A LITTLE NEGOTIATING PRACTICE YOU: “We will require a five percent royalty on sales of the product.” THEY: “The most we are prepared to pay is two percent royalty on sales.” YOU: “Could you please explain why the maximum you will pay is two percent?”
  • 63. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “This is going to be a relatively small niche product and therefore, looking at the development costs involved, we really can’t justify a royalty higher than two percent.” YOU: ????????
  • 64. LISTEN & RESPOND(Now you “know” the “why”) Is the statement you are responding to: – An Assumption – An Objective, or – A proposal Is the statement you are responding to: 1. Factual 2. Reasonable 3. Acceptable to you
  • 65. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “In view of the fact that we are taking all of the development and commercial risk, and you are taking no risks, we don’t see how a royalty of higher than two percent is justified or reasonable.” YOU: ????????
  • 66. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “Our corporate policy is never to pay more than two percent for licensed- in product candidates at such an early stage.” YOU: ????????
  • 67. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “The product candidate just isn’t worth it. Although it appears to have some unique qualities, your patent coverage is not going to stop “me-too’s”. YOU: ????????
  • 68. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “Product sales will be very limited since this will be a product only for the United States market. We don’t see any possibility of international sales.” YOU: ????????
  • 69. A LITTLE NEGOTIATING PRACTICE YOU: “Could you please explain why the maximum you will pay is two percent?” THEY: “By the time this product gets to the market, there will be many other companies with similar products for the same target and based on the same mechanism. We agree this will be a big product, but only because of our marketing expertise and position in this field, not the characteristics of the product candidate that you are licensing to us. YOU: ????????
  • 70. A LITTLE NEGOTIATING PRACTICE THE END