Negotiation Fundamentals

Negotiation Fundamentals

• 80% of CEOs fail to maximize value in negotiations.
• Integrative agreements aim to maximize joint economic value for all parties.
• Many negotiators feel forced to choose between achieving their goals and maintaining good relationships.
• Effective negotiators adhere to principles.
• Some negotiators operate under the misconception that negotiations have a fixed sum, where gains for one party mean losses for the other.
• Most negotiators are valuable sum.
• Negotiators can create joint value through integrative approaches.
• Understanding counterparties' interests and priorities is important for negotiation.
• Negotiation is a skill that improves with practice and experience.
• Economic value and relationships/trust are always at stake in any negotiation.
• It should be assumed that details of negotiations are public and have long term implications.
• Fewer than 4% of managers achieve win-win deals.
• This course emphasizes creating value, claiming value, and building trust.
• Feedback, strategy, and focused practice are key to improving negotiation skills.
• Research and preparation are vital for successful negotiations.

Key Terms

• Endowment Effect: People value items they own more highly.
• Valuation: Personal assessment of an item's worth, regardless of ownership.
• Dispute: A claim made by one party and rejected by another.
• Never accept a contract less than your BATNA, which can/should change as negotiations and leverage evolve.
• Target Point: The ideal outcome of an agreement.
• BATNAs: Determined by objective reality.
• Sunk Cost: Money already spent or allocated by contract.
• Single-issue negotiations: Involve a fixed sum (distributed).
• Single-issue negotiations can be expanded to integrative negotiation potential by adding outcomes.
• Negotiators who focus on minimizing losses make fewer concessions and reach fewer agreements.
• More risk-averse negotiators are more likely to make concessions.
• A counterparty's BATNA is the most important information to have or find out.
• Linkage Effect: How previous negotiations affect future ones.
• Concessions tend to increase as deadlines approach.
• Negotiators with a fixed pie mindset tend to soft or hard bargain, or compromise at the midpoint.
• Approach negotiations as a mixed motive vs fixed pie
• People are riskier in reducing loss versus risking gains.
• Revealing your reservation point (RP) removes the other party's incentive to offer more, so be prepared to offer it.
• When formulating counteroffers/concessions, negotiators need to consider the concession reciprocity, the concession patter the magnitude and timing to predict their next move.
• Re-anchor when a counterparty makes an outrageous offer.
• Improving one's BATNA enhances their ability to win a greater share of the bargaining zone.
• Revealing your BATNA or RP greatly reduces your power.
• Boulwarism: Involves making a first and final offer.
• Counteroffers provide opportunities to re-anchor.
• Goal is securing a deal as close to your counterparty's RP as possible.
• Winner's Curse: Indicates that aspirations weren't set high enough in the negotiation.
• Make the final offer in a well-prepared negotiation.
• Match, but never exceed, the magnitude of your counterparty's concession.
• Lying about BATNA or RP reduces the size of the bargaining zone.
• Set aspirations/target points high but realistic.
• Chilling Effect: An offer so extreme that the other party withdraws.
• Prevention-focused negotiators who set goals in the upper end of the ZOPA are less likely to concede and outperform promotion-focused negotiators.
• Practitioner-Research Paradox: Scientific research negotiators should make first offer called first mover advantage.
• Conceding more when closer to a deal is more effective than early concessions.
• Negotiators arguing constraints/limitations perform better than discrediting item value.
• Only use a final offer when you mean it and don't acknowledge what they said, say "so let me consider your offer and get back."
• Integrative Negotiations: Win-win negotiations.
• Share interests/priorities, but NOT BATNA/reservation point.
• MESO: Multiple Equivalent Simultaneous Offers.
• Logrolling: Trade-offs on issues of differing value.
• Post Settlement Agreements: Upgrade agreements with the safety of current contracts.
• Pre Settlement Agreement: Designed to be replaced but are binding.
• Inductive Reasoning: Draws conclusions from counterparties responses.
• Most negotiations end up being mixed motive.
• Pareto Optimal: All resources claimed in an integrative outcome.
• 7% of negotiators seek counterparties preferences.
• Cooperative vs cooperative negotiators end up in lose-lose.
• Implicit Theories: Stereotypes.
• The best nonverbal behavior as a predictor was the head tilt which predicted behavior above 55%.
• 3 types of motivational orientations: Individualistic, cooperative, competitive.

Approaches

• Interests-Based Approach: Disputes reconcile in ways that affect both parties.
• Power-Based Approach: Leverages rank, uses threats and intimidation.
• Rights-Based Approach: Leverages standards of behavior, seniority, and legal rights.
• Reciprocation is an ineffective way to move someone away from a power dispute.

Emotional Intelligence

• ability to understand emotions in yourself and others to generate positive outcomes.
• Negotiators who make a huge emotional response to an opening offer tend to claim more value.
• Anger is highly effective in mixed-motive negotiations to gain concessions when in power.
• Disappointment is an effective way to show emotion regardless of power.
• Ambivalence creates joint gains.
• Emotional inconsistency allows for the most profitable success in a negotiation.
• Social dilemmas lead to lose-lose outcomes if each side uses their point of view.
• Incidental expressions of anger in a negotiator's past can influence trust in unrelated settings in the negotiators future (blowback effect).
• Deterrence-Based Trust: Based on consistency of behavior.
• Identification-Based Trust: Having empathy with another party.
• Communal norms and relationships do not keep track of who has put in what.
• Knowledge based trust comes from experience and information about your counterparty.
• Task conflict is a depersonalized form of conflict outside of people involved.
• Reciprocity Principle: Makes negotiators feel obligated to return gestures.
• The first step in preparing a relationship is to arrange a meeting
• Schmoozing or small social exchanges can build liking and trust.
• Friends tend to use equality based division on resources where business uses merit.
• Lying about your BATNA could incur legal issues due to material value but not with your reservation point.
• Alluding to alternatives you do not have is misrepresentation.
• Traditional competitive bargaining strategy is to open with a very high or low offer.
• Higher gains economically bread more tendency to deceive.
• Empathy negotiators tend to avoid unethical negotiation behaviors.
• Power based negotiators benefit highly from perspective taking.
• Ethics are cultural, contextual, and interpersonal norms that make certain behavior unacceptable.
• Groups tend to be more dishonest than individuals in a similar bargaining position.
• Halo and forked tail are examples of reputation and preconceived bias that extends to the future.
• When dealing with a liar, negotiators will rely on distributive tactics due to lack of trust.
• Women are more ethical.
• 25% of MBA studies showed they would use exaggerations in negotiation.
• Perspective Taking: Putting yourself in your counterparty's shoes.
• Paltering: The risky use of truth to intentionally mislead is common in negotiations.