Business Negotiations

Business Negotiation
Osvaldas Čiukšys
sadlavso@hotmail.com

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Osvaldas Čiukšys tʃ uː ʃ iː
k s
20 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 agreements
1993 – 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 policy
2002 – 2009 Deputy head of LT Mission in Poland, Ambassador of Lithuania to Latvia
and the Czech Republic: member of various interstate negotiations teams
2009 – 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 2014-2020
2012 – Private business consultant: negotiations, project management,
present business development
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We negotiate since the beginning of the Human Race

Everybody is a Negotiator:

- at home
- among friends
- at work
- with ourselves...

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© Business Negotiations, Osvaldas Čiukšys

Can we learn to negotiate?
Can we be trained to negotiate?

or

Are we born for that and know how to do it by heart?

4

During the last century Negotiations became a Science…

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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

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Negotiation involves the art and science
of drawing up deals that create lasting value

David A. Lax and James K. Sebenius

Negotiation is the process by which people deal with
their differences
Harvard Business School, Roger Fisher

Let us never negotiate out of fear, but let us never fear
to negotiate
John F. Kennedy

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Characteristics of Good Negotiator

General understanding
• open minded
• strong personality
• charm
• knowledgeable
• articulate
• experienced
• motivated
• patience
• assertiveness
• staying detached
• flexible
• understand the other side
• persuasive
• quick

etc.
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Characteristics of Good Negotiator

Expert 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

Commercial negotiators
(attorneys, real estate brokers,
retail sales people) emphasize:
• analytical ability
• self-esteem
• patience
see negotiations as a problem or case solving affair

Industrial 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
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Types of negotiations

1. Distributive negotiation
2. Integrative negotiation

Most business negotiations combine elements of both types

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Other types of negotiations
1. Multiphase negotiation
Implemented over time in different phases
Example: architectural design contract

2. 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

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Distributive negotiation

• Parties compete over the fixed sum or
value. The key question is who will get the
biggest part of the pie? A gain of one side
is made at the expense of the other

• The Seller’s goal is to negotiate as high
price as possible, the Buyer’s goal is to
negotiate as low price as possible. This is
known as Win-Lose or Zero-sum
negotiation

• Thus, the deal is simple, no need for
creativity. Neither party is interested in
long term relations. They take and defend
their positions

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Positional bargaining (1)
SOFT position HARD position
Participants are friends Participants are adversaries
The goal is agreement The goal is victory
Make concessions to cultivate the Demand the concessions as a condition of
relationship the relationship
Be soft on the people and the problem Be hard on the people and the problem
Trust others Distrust others
Change your position easily Dig in to your position
Make offers Make threats
Disclose your bottom line Mislead as to your bottom line
Accept one-sided losses to reach agreement Demand one-sided gains as the price of
agreement
Search for the single answer: the one They Search for the single answer: the one You will
will accept accept
Insist on agreement Insist on your position
Try to avoid a contest of will Try to win a contest of will
Yield to pressure Apply pressure
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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

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Integrative negotiation
• Integrative negotiations tend to occur when the deal involves many
financial and non-financial terms

• Parties cooperate to achieve maximum benefit by integrating their
interests into an agreement

• This is also known as Win-Win negotiation. Both sides try “to make
the pie bigger”

• There are many items and issues to be negotiated ant the goal of each
side is to create as much value as possible for itself and the other side

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Distributive vs. Integrative Negotiation

Characteristics Distributive Integrative

Outcome Win-Lose Win-Win

Motivation Individual gain Joint and individual gain

Interests Opposite Different but not always
opposite
Relationships Short-term Short and Long-term

Issues involved Single Multiple

Ability to make Not flexible Flexible
trade-offs
Solution Not creative Creative

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The Negotiator’s dillema:
cooperate or compete?
David A. Lax and James K. Sebenius

B Cooperates B Competes

A cooperates
Both cooperate
B competes
A Cooperates Both have a good
A has terrible outcome
outcome
B has good outcome
A competes
Both compete
B cooperates
A Competes Both have mediacore
A has good outcome
outcome
B has terrible outcome

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The Answer to Negotiator’s dillema:
respond accordingly

The tit-for-tat strategy is the solution. This process involves starting out with a
cooperative approach: responding to competitive moves with a competitive move
and 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

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Negotiation strategy matrix

+ -
You Win You Lose
+

They Win They Win

You Win You Lose
They Lose They Lose
-

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Primary negotiation strategies

Roger Fisher, William Ury “Getting to YES”
A
S
S
E competing collaborating
R
T
I compromising
V
E
N
E avoiding accommodating
S
S
COOPERATIVENESS

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Choosing right strategy
High

Compete Collaborate
Concern 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
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Negotiation styles (1)

High

Competitor Collaborator
Concern 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
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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

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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

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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

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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

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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

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Interaction of different style negotiators

The best outcome is expected from the same or closest style negotiators

Avoider Accommodator Collaborator Competitor Problem
solver
Avoider good bad bad bad bad

Accommodator bad good good bad good

Collaborator bad good good bad good

Competitor bad bad bad good good

Problem solver bad good good good good

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Main stages of negotiation

Preparation

Exchange of
Information

Bargaining

Closure and
Commitment

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“8 step” approach
by John Benson
Gavin Kennedy
John McMillan

Theory is based on 4 crucial phases of negotiation and 4 minor
steps within the major phases:

A. PREPARE
B. ARGUE
C. Signal
D. PROPOSE
E. Package
F. BARGAIN
G. Close
H. Agree
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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

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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
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Do you really know your main goal?
and the main goal of the other side?

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Ask yourself : are we ready?
Do we really have enough information
or
just see what we want to see and make wrong perceptions?

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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

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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 a
Good 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, delays
Hard 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 lose
Sweeper overarching solutions the track and forget the main
goals, suggests the ways out
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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

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Seating (1)

window window

You

BG GG Ch N HL Sw

Sw HL Ch N GG BG

Opponents

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Seating (2)

window window

You

GG Ch N Sw
BG
You
+
HL
GG? Ch N Sw ?

Opponents

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Seating (3)

window window

You

GG + Sw + Ch N BG +HL

Ch N ?

Opponents

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Seating (4)

window window

You

HL+BG Ch N+GG+Swnp

Sw HL Ch N GG BG

Opponents

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Seating (5)

window window

You Separate room for
negotiating team

+

You Ch N GG Sw
BG
+ You
Opponents HL
Ch N BG GG
r

Opponents

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Seating (6)
Informal meeting
You

Opponents

Ch N Ch N
Sw GG

Sw HL

BG
BG
HL GG

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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

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1. Separate the people from the problem
Separating the people from the problem means separating relationship
issues (or "people problems") from substantive issues, and dealing with
them independently. Face the problem, not the people

1. Try to see the situation from your opponent's perspective
2. Don't deduce your opponent's intentions from your own fears
3. Avoid blaming your opponent for the problem
4. Discuss each other's perceptions
5. Seek opportunities to act inconsistently with your opponent's
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
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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

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3. Invent options for mutual gain

This means negotiators should look for new solutions to the problem that
will allow both sides to win, not just fight over the original positions
which 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

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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

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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

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BATNA: Best Alternative to Negotiated Agreement

1. Invent a list of actions you might conceivably take if no
agreement is reached
2. Improve some of the promising ideas and convert them into
practical alternatives
3. 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

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Business Negotiations, Osvaldas Čiukšys

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

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Reservation Price
The reservation price is the least favorable point at
which one will accept a negotiated agreement
For a seller this means the least amount (minimum) or bottom line they
would 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 also
sometimes referred to as the “walk away” price

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ZOPA: Zone of Possible Agreement

Maximum price Seller Minimal price Seller
wants to get accepts
FIRST OFFER RESERVATION PRICE
Zone of
Possible
Agreement
Seller

Buyer

Maximum price Buyer is Desirable price of
ready to pay Buyer
RESERVATION PRICE FIRST OFFER

54

Sources of power in negotiation

Expertise Legitimate power

Gain, profit or loss
Information

Higher
position, authority Charisma

Territorial, quantitative Negotiating Personal relations
advantage
Power

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Business Negotiations

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