Negotiation for Fun and Profit: A Practical Guide Michael Erdle Managing Partner © 2008, Michael Erdle

Introduction Negotiation Problems Negotiation Skills Dispute Resolution In theory there is no difference between theory and practice. In practice, there is. -- Jan van de Snepscheut

Negotiation Problems

Negotiation Skills

Dispute Resolution

In theory there is no difference between theory and practice. In practice, there is. -- Jan van de Snepscheut

Why Do We Negotiate? To get things we need or want. To resolve or reduce conflict. To create value. To enhance prestige or reputation.

To get things we need or want.

To resolve or reduce conflict.

To create value.

To enhance prestige or reputation.

What is Negotiation? Everything can be negotiated. Business Relationships “ I want to buy your product/service.” “ Let’s be partners.” Personal Relationships “ What movie to you want to see?” “ Can I borrow the car?”

Everything can be negotiated.

Business Relationships

“ I want to buy your product/service.”

“ Let’s be partners.”

Personal Relationships

“ What movie to you want to see?”

“ Can I borrow the car?”

What is Negotiation? Negotiation is expressly about specific products, services or actions. Negotiation is also implicitly about controlling personal feelings and behaviour. The negotiator must recognize both the visible and hidden elements of negotiation.

Negotiation is expressly about specific products, services or actions.

Negotiation is also implicitly about controlling personal feelings and behaviour.

The negotiator must recognize both the visible and hidden elements of negotiation.

How Not to Negotiate Assume things are non-negotiable. Don’t prepare. Make it a “zero-sum” game. Be inflexible. Insist on certainty and control. Fail to understand, evaluate alternatives. Show impatience. Reveal too much, too soon.

Assume things are non-negotiable.

Don’t prepare.

Make it a “zero-sum” game.

Be inflexible.

Insist on certainty and control.

Fail to understand, evaluate alternatives.

Show impatience.

Reveal too much, too soon.

Negotiation Goals Identify Issues What does each side want and need? Consider Interests Mutual Complementary Conflicting Create Value Opportunistic vs. Problem-solving

Identify Issues

What does each side want and need?

Consider Interests

Mutual

Complementary

Conflicting

Create Value

Opportunistic vs. Problem-solving

Distributive Bargaining “ Win-lose” approach In a zero sum game, the person who makes the first offer is at a disadvantage sets the outer limits of price, other terms Improve zero-sum negotiation skills by: Understanding your objectives Understanding the other side’s objectives

“ Win-lose” approach

In a zero sum game, the person who makes the first offer is at a disadvantage

sets the outer limits of price, other terms

Improve zero-sum negotiation skills by:

Understanding your objectives

Understanding the other side’s objectives

Negotiation Traps 10 Classic “Hard Bargaining” Ploys Extreme claims, small concessions Early commitment – “my hands are tied” “ Take or leave it.” Unreciprocated offers Increasing demands Personal insults Bluffing and lying Threats and warnings Attacking the alternatives Good cop, bad cop

10 Classic “Hard Bargaining” Ploys

Extreme claims, small concessions

Early commitment – “my hands are tied”

“ Take or leave it.”

Unreciprocated offers

Increasing demands

Personal insults

Bluffing and lying

Threats and warnings

Attacking the alternatives

Good cop, bad cop

“ Interest-Based” Negotiation “ Win-win” approach – make the pie bigger. Different people value the same thing differently. Multiple interests and trade-offs. Recognize interdependence. Value the relationship more than the outcome of a single negotiation.

“ Win-win” approach – make the pie bigger.

Different people value the same thing differently.

Multiple interests and trade-offs.

Recognize interdependence.

Value the relationship more than the outcome of a single negotiation.

Effective Negotiation Successful relationships are built on communication and trust. Negotiation can help to create trust – or decide whether trust is justified. Example: “The Prisoner’s Dilemma” – classic game theory problem

Successful relationships are built on communication and trust.

Negotiation can help to create trust – or decide whether trust is justified.

Example: “The Prisoner’s Dilemma” – classic game theory problem

The Prisoner’s Dilemma Bob and Alice are arrested near the scene of a burglary and questioned separately by the police. Each has to choose whether to confess and implicate the other. If neither one confesses, both will serve one year in jail (carrying burglar tools). If each confesses and implicates the other, both will go to prison for 5 years . 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 .

Bob and Alice are arrested near the scene of a burglary and questioned separately by the police.

Each has to choose whether to confess and implicate the other.

If neither one confesses, both will serve one year in jail (carrying burglar tools).

If each confesses and implicates the other, both will go to prison for 5 years .

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 .

The Prisoner’s Dilemma Options: confess don't confess. Payoffs (penalties) = prison sentences. Shown in a "payoff table" -- standard in game theory.

Options:

confess

don't confess.

Payoffs (penalties) = prison sentences.

Shown in a "payoff table" -- standard in game theory.

The Prisoner’s Dilemma Payoff table for the Prisoners' Dilemma: 1 1 10 0 silent 0 10 5 5 confess Bob silent confess Alice

Payoff table for the Prisoners' Dilemma:

The Prisoner’s Dilemma Lack of trust is the key – neither prisoner can trust the other to remain silent. So the rational action is to confess. That produces the best result no matter what the other person does. But what happens if there’s a series of negotiations?

Lack of trust is the key – neither prisoner can trust the other to remain silent.

So the rational action is to confess.

That produces the best result no matter what the other person does.

But what happens if there’s a series of negotiations?

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

Repeated Negotiation “Tit-for-Tat” strategy is most successful. Four key attributes: Cooperation Retaliation Forgiveness Generosity

“Tit-for-Tat” strategy is most successful.

Four key attributes:

Cooperation

Retaliation

Forgiveness

Generosity

“Tit-for-tat” Negotiation The player always cooperates, unless provoked. The player retaliates, if provoked. The player is quick to forgive. The game must continue long enough for the ‘retaliation and forgiveness’ pattern to affect opponent’s behaviour.

The player always cooperates, unless provoked.

The player retaliates, if provoked.

The player is quick to forgive.

The game must continue long enough for the ‘retaliation and forgiveness’ pattern to affect opponent’s behaviour.

BATNA “ Best Alternative To Negotiated Agreement” Understanding BATNA – yours and the other guy’s – is the most important step in improving your negotiating position. Improve your BATNA and control the negotiations.

“ Best Alternative To Negotiated Agreement”

Understanding BATNA – yours and the other guy’s – is the most important step in improving your negotiating position.

Improve your BATNA and control the negotiations.

Negotiation Skills Communication is the key to effective negotiation. What you say is often less important than how you say it. Tone Body language

Communication is the key to effective negotiation.

What you say is often less important than how you say it.

Tone

Body language

Negotiation Skills Understanding and recognition do not mean compromise and concession. Your own emotions and subconscious brain can hinder your ability to negotiate effectively.

Understanding and recognition do not mean compromise and concession.

Your own emotions and subconscious brain can hinder your ability to negotiate effectively.

Stroop Test

Stroop Test The automatic processing of words interferes with the task of naming the colors. Selecting an appropriate response involves conflict between the right and left half of the brain. This conflict is involved in many thought processes and emotional responses. Source: PBS Online http://www.pbs.org/wgbh/nova/everest/exposure/stroopdesc.html

The automatic processing of words interferes with the task of naming the colors.

Selecting an appropriate response involves conflict between the right and left half of the brain.

This conflict is involved in many thought processes and emotional responses.

Source: PBS Online http://www.pbs.org/wgbh/nova/everest/exposure/stroopdesc.html

Negotiation Styles Three common negotiation styles Competitor Accommodator Avoider Assertive vs. Empathetic Most effective negotiator is both assertive and empathetic.

Three common negotiation styles

Competitor

Accommodator

Avoider

Assertive vs. Empathetic

Most effective negotiator is both assertive and empathetic.

Negotiation Skills Listening Develop “active listening”. Understanding Acknowledge the other person’s perspective. Flexibility Be open to other options. Pragmatism Be ready to accept the best available option.

Listening

Develop “active listening”.

Understanding

Acknowledge the other person’s perspective.

Flexibility

Be open to other options.

Pragmatism

Be ready to accept the best available option.

Effective Negotiation Interests vs. Positions “ Needs” vs. “wants” “ Separate the People from the Problem.” Soft on the person Hard on the problem Consider other Options

Interests vs. Positions

“ Needs” vs. “wants”

“ Separate the People from the Problem.”

Soft on the person

Hard on the problem

Consider other Options

Effective Negotiation Use objective alternatives. Look for a “win-win” solution. Find ways to improve BATNA.

Use objective alternatives.

Look for a “win-win” solution.

Find ways to improve BATNA.

Dispute Resolution Arbitration / Litigation Mediation Negotiation

Mediation Interest-based Mediation Mediator is a facilitator Focus on interests, not legal rights or obligations Options for creative solutions Evaluative Mediation Neutral evaluation Based on legal rights & obligations

Interest-based Mediation

Mediator is a facilitator

Focus on interests, not legal rights or obligations

Options for creative solutions

Evaluative Mediation

Neutral evaluation

Based on legal rights & obligations

Mediation Qualities of a successful mediator: Subject area knowledge Negotiation & mediation process skills Lets parties make key decisions Creative, problem-solving approach. Patience

Qualities of a successful mediator:

Subject area knowledge

Negotiation & mediation process skills

Lets parties make key decisions

Creative, problem-solving approach.

Patience

Resources Cohen: You Can Negotiate Anything , Bantam, 1980 Fischer, Ury and Patton: Getting to Yes , Penguin, 1991 Ury: Getting Past No , Bantam, 1993 Mnookin, Peppet and Tulumello: Beyond Winning , Harvard University Press, 2000

Cohen: You Can Negotiate Anything , Bantam, 1980

Fischer, Ury and Patton: Getting to Yes , Penguin, 1991

Ury: Getting Past No , Bantam, 1993

Mnookin, Peppet and Tulumello: Beyond Winning , Harvard University Press, 2000

Questions?