Negotiation for Fun and Profit: A Practical Guide


Published on

Part of the CIBC Presents Entrpreneurship 101 lecture series. For more information including a session webcast, visit:

The art of effective negotiation; how to build lasting agreements without becoming either a bully or a wimp. The art of negotiation touches every aspect of our lives -- we routinely negotiate with our spouses, our children, our landlord, our employer, and so on. It is equally important in business -- we negotiate with our customers, our suppliers and our investors. This lecture, \"Negotiation for Fun and Profit,\" is given by Michael Erdle, managing partner of Deeth Williams Wall. Michael is a specialist in mediation and arbitration and gives a thorough grounding in the basics of negotiating skills.

Case studies focus on issues situations most entrepreneurs will face: research projects, starting a business venture, obtaining investors and licensing a product or invention.

Published in: Business, Education
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Negotiation for Fun and Profit: A Practical Guide

  1. 1. Negotiation for Fun and Profit: A Practical Guide Michael Erdle Managing Partner © 2008, Michael Erdle
  2. 2. Introduction <ul><li>Negotiation Problems </li></ul><ul><li>Negotiation Skills </li></ul><ul><li>Dispute Resolution </li></ul><ul><li>In theory there is no difference between theory and practice. In practice, there is. -- Jan van de Snepscheut </li></ul>
  3. 3. Why Do We Negotiate? <ul><li>To get things we need or want. </li></ul><ul><li>To resolve or reduce conflict. </li></ul><ul><li>To create value. </li></ul><ul><li>To enhance prestige or reputation. </li></ul>
  4. 4. What is Negotiation? <ul><li>Everything can be negotiated. </li></ul><ul><ul><li>Business Relationships </li></ul></ul><ul><ul><ul><li>“ I want to buy your product/service.” </li></ul></ul></ul><ul><ul><ul><li>“ Let’s be partners.” </li></ul></ul></ul><ul><ul><li>Personal Relationships </li></ul></ul><ul><ul><ul><li>“ What movie to you want to see?” </li></ul></ul></ul><ul><ul><ul><li>“ Can I borrow the car?” </li></ul></ul></ul>
  5. 5. What is Negotiation? <ul><li>Negotiation is expressly about specific products, services or actions. </li></ul><ul><li>Negotiation is also implicitly about controlling personal feelings and behaviour. </li></ul><ul><li>The negotiator must recognize both the visible and hidden elements of negotiation. </li></ul>
  6. 6. How Not to Negotiate <ul><li>Assume things are non-negotiable. </li></ul><ul><li>Don’t prepare. </li></ul><ul><li>Make it a “zero-sum” game. </li></ul><ul><li>Be inflexible. </li></ul><ul><li>Insist on certainty and control. </li></ul><ul><li>Fail to understand, evaluate alternatives. </li></ul><ul><li>Show impatience. </li></ul><ul><li>Reveal too much, too soon. </li></ul>
  7. 7. Negotiation Goals <ul><li>Identify Issues </li></ul><ul><ul><li>What does each side want and need? </li></ul></ul><ul><li>Consider Interests </li></ul><ul><ul><li>Mutual </li></ul></ul><ul><ul><li>Complementary </li></ul></ul><ul><ul><li>Conflicting </li></ul></ul><ul><li>Create Value </li></ul><ul><ul><li>Opportunistic vs. Problem-solving </li></ul></ul>
  8. 8. Distributive Bargaining <ul><li>“ Win-lose” approach </li></ul><ul><li>In a zero sum game, the person who makes the first offer is at a disadvantage </li></ul><ul><ul><li>sets the outer limits of price, other terms </li></ul></ul><ul><li>Improve zero-sum negotiation skills by: </li></ul><ul><ul><li>Understanding your objectives </li></ul></ul><ul><ul><li>Understanding the other side’s objectives </li></ul></ul>
  9. 9. Negotiation Traps <ul><li>10 Classic “Hard Bargaining” Ploys </li></ul><ul><ul><li>Extreme claims, small concessions </li></ul></ul><ul><ul><li>Early commitment – “my hands are tied” </li></ul></ul><ul><ul><li>“ Take or leave it.” </li></ul></ul><ul><ul><li>Unreciprocated offers </li></ul></ul><ul><ul><li>Increasing demands </li></ul></ul><ul><ul><li>Personal insults </li></ul></ul><ul><ul><li>Bluffing and lying </li></ul></ul><ul><ul><li>Threats and warnings </li></ul></ul><ul><ul><li>Attacking the alternatives </li></ul></ul><ul><ul><li>Good cop, bad cop </li></ul></ul>
  10. 10. “ Interest-Based” Negotiation <ul><li>“ Win-win” approach – make the pie bigger. </li></ul><ul><li>Different people value the same thing differently. </li></ul><ul><li>Multiple interests and trade-offs. </li></ul><ul><li>Recognize interdependence. </li></ul><ul><li>Value the relationship more than the outcome of a single negotiation. </li></ul>
  11. 11. Effective Negotiation <ul><li>Successful relationships are built on communication and trust. </li></ul><ul><li>Negotiation can help to create trust – or decide whether trust is justified. </li></ul><ul><li>Example: “The Prisoner’s Dilemma” – classic game theory problem </li></ul>
  12. 12. The Prisoner’s Dilemma <ul><li>Bob and Alice are arrested near the scene of a burglary and questioned separately by the police. </li></ul><ul><li>Each has to choose whether to confess and implicate the other. </li></ul><ul><ul><li>If neither one confesses, both will serve one year in jail (carrying burglar tools). </li></ul></ul><ul><ul><li>If each confesses and implicates the other, both will go to prison for 5 years . </li></ul></ul><ul><ul><li>But, if one confesses and implicates the other, and the other does not confess, the collaborator will go free, and the other will go to prison for 10 years . </li></ul></ul>
  13. 13. The Prisoner’s Dilemma <ul><li>Options: </li></ul><ul><ul><li>confess </li></ul></ul><ul><ul><li>don't confess. </li></ul></ul><ul><li>Payoffs (penalties) = prison sentences. </li></ul><ul><li>Shown in a &quot;payoff table&quot; -- standard in game theory. </li></ul>
  14. 14. The Prisoner’s Dilemma <ul><li>Payoff table for the Prisoners' Dilemma: </li></ul>1 1 10 0 silent 0 10 5 5 confess Bob silent confess Alice
  15. 15. The Prisoner’s Dilemma <ul><li>Lack of trust is the key – neither prisoner can trust the other to remain silent. </li></ul><ul><li>So the rational action is to confess. </li></ul><ul><li>That produces the best result no matter what the other person does. </li></ul><ul><li>But what happens if there’s a series of negotiations? </li></ul>
  16. 16. Repeated Negotiation -1 , -1 5 , 0 Player 1 retaliates 0 , 5 3 , 3 Player 1 cooperates Player 2 retaliates Player 2 cooperates Series Payoff Matrix
  17. 17. Repeated Negotiation <ul><li>“Tit-for-Tat” strategy is most successful. </li></ul><ul><li>Four key attributes: </li></ul><ul><ul><li>Cooperation </li></ul></ul><ul><ul><li>Retaliation </li></ul></ul><ul><ul><li>Forgiveness </li></ul></ul><ul><ul><li>Generosity </li></ul></ul>
  18. 18. “Tit-for-tat” Negotiation <ul><li>The player always cooperates, unless provoked. </li></ul><ul><li>The player retaliates, if provoked. </li></ul><ul><li>The player is quick to forgive. </li></ul><ul><li>The game must continue long enough for the ‘retaliation and forgiveness’ pattern to affect opponent’s behaviour. </li></ul>
  19. 19. BATNA <ul><li>“ Best Alternative To Negotiated Agreement” </li></ul><ul><li>Understanding BATNA – yours and the other guy’s – is the most important step in improving your negotiating position. </li></ul><ul><li>Improve your BATNA and control the negotiations. </li></ul>
  20. 20. Negotiation Skills <ul><li>Communication is the key to effective negotiation. </li></ul><ul><li>What you say is often less important than how you say it. </li></ul><ul><ul><li>Tone </li></ul></ul><ul><ul><li>Body language </li></ul></ul>
  21. 21. Negotiation Skills <ul><li>Understanding and recognition do not mean compromise and concession. </li></ul><ul><li>Your own emotions and subconscious brain can hinder your ability to negotiate effectively. </li></ul>
  22. 22. Stroop Test
  23. 23. Stroop Test <ul><li>The automatic processing of words interferes with the task of naming the colors. </li></ul><ul><li>Selecting an appropriate response involves conflict between the right and left half of the brain. </li></ul><ul><li>This conflict is involved in many thought processes and emotional responses. </li></ul><ul><ul><li>Source: PBS Online </li></ul></ul>
  24. 24. Negotiation Styles <ul><li>Three common negotiation styles </li></ul><ul><ul><li>Competitor </li></ul></ul><ul><ul><li>Accommodator </li></ul></ul><ul><ul><li>Avoider </li></ul></ul><ul><li>Assertive vs. Empathetic </li></ul><ul><li>Most effective negotiator is both assertive and empathetic. </li></ul>
  25. 25. Negotiation Skills <ul><li>Listening </li></ul><ul><ul><li>Develop “active listening”. </li></ul></ul><ul><li>Understanding </li></ul><ul><ul><li>Acknowledge the other person’s perspective. </li></ul></ul><ul><li>Flexibility </li></ul><ul><ul><li>Be open to other options. </li></ul></ul><ul><li>Pragmatism </li></ul><ul><ul><li>Be ready to accept the best available option. </li></ul></ul>
  26. 26. Effective Negotiation <ul><li>Interests vs. Positions </li></ul><ul><ul><li>“ Needs” vs. “wants” </li></ul></ul><ul><li>“ Separate the People from the Problem.” </li></ul><ul><ul><li>Soft on the person </li></ul></ul><ul><ul><li>Hard on the problem </li></ul></ul><ul><li>Consider other Options </li></ul>
  27. 27. Effective Negotiation <ul><li>Use objective alternatives. </li></ul><ul><li>Look for a “win-win” solution. </li></ul><ul><li>Find ways to improve BATNA. </li></ul>
  28. 28. Dispute Resolution Arbitration / Litigation Mediation Negotiation
  29. 29. Mediation <ul><li>Interest-based Mediation </li></ul><ul><ul><li>Mediator is a facilitator </li></ul></ul><ul><ul><li>Focus on interests, not legal rights or obligations </li></ul></ul><ul><ul><li>Options for creative solutions </li></ul></ul><ul><li>Evaluative Mediation </li></ul><ul><ul><li>Neutral evaluation </li></ul></ul><ul><ul><li>Based on legal rights & obligations </li></ul></ul>
  30. 30. Mediation <ul><li>Qualities of a successful mediator: </li></ul><ul><ul><li>Subject area knowledge </li></ul></ul><ul><ul><li>Negotiation & mediation process skills </li></ul></ul><ul><ul><li>Lets parties make key decisions </li></ul></ul><ul><ul><li>Creative, problem-solving approach. </li></ul></ul><ul><ul><li>Patience </li></ul></ul>
  31. 31. Resources <ul><li>Cohen: You Can Negotiate Anything , Bantam, 1980 </li></ul><ul><li>Fischer, Ury and Patton: Getting to Yes , Penguin, 1991 </li></ul><ul><li>Ury: Getting Past No , Bantam, 1993 </li></ul><ul><li>Mnookin, Peppet and Tulumello: Beyond Winning , Harvard University Press, 2000 </li></ul>
  32. 32. Questions?