Negotiation for Fun and Profit:A Practical Guide

Michael ErdleManaging Partner

© 2008, Michael Erdle

Introduction

Negotiation Problems Negotiation SkillsDispute 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.

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?”

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.

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.

Negotiation Goals

Identify Issues What does each side want and need?

Consider Interests Mutual Complementary Conflicting

Create Value Opportunistic vs. Problem-solving

Distributive Bargaining

“Win-lose” approachIn 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 Traps10 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.

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

The Prisoner’s DilemmaBob 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.

The Prisoner’s Dilemma

Payoff table for the Prisoners' Dilemma:

Alice

confess silent

Bobconfess 5 5 0 10silent 10 0 1 1

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?

Repeated Negotiation

SeriesPayoff Matrix

Player 2 cooperates

Player 2 retaliates

Player 1 cooperates 3, 3 0, 5

Player 1 retaliates 5, 0 -1, -1

Repeated Negotiation

“Tit-for-Tat” strategy is most successful. Four key attributes:

Cooperation Retaliation Forgiveness Generosity

“Tit-for-tat” Negotiation

1. The player always cooperates, unless provoked.

2. The player retaliates, if provoked. 3. The player is quick to forgive. 4. 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.

Negotiation Skills

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.

Stroop Test

Stroop TestThe 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 Onlinehttp://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.

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.

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

Effective Negotiation

Use objective alternatives.

Look for a “win-win” solution.

Find ways to improve BATNA.

Dispute Resolution

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

Mediation

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, 1993Mnookin, Peppet and Tulumello: Beyond

Winning, Harvard University Press, 2000

Questions?