Negotiation Analysis: Preparation and Strategy - University of Houston

The Role of Analysis / Preparation in Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2025 Law Office of Paul W. Fulbright, PLLC  Overview  How do PREPARATION and ANALYSIS make a Difference in Negotiation?  IN GENERAL, “Prepar...

The Role of Analysis / Preparation in Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2025 Law Office of Paul W. Fulbright, PLLC  Overview  How do PREPARATION and ANALYSIS make a Difference in Negotiation?  IN GENERAL, “Prepare Early, Prepare Often.”  SPECIFIC “KEYS TO SUCCESS”: 1. Know Your BATNA 2. Analyze the Interests and People (Whenever Possible, Focusing on the Interests) 3. Plan to be Surprised – and Adapt 4. Develop Options 5. Use Objective Criteria 6. Pay Attention to Process (for example, the Ordering of Issues)  General v. Specific Keys to Success in Analysis / Preparation for Negotiation IN GENERAL – “Prepare Early, Prepare Often.”: First, you need to prepare. Even if you Second, have a great advanc youit need BATNA, won’t to do listen you anywell goodduring unlessthe negotiation, you’ve so that you given the negotiation e. your can adjust somestrategy thought in the negotiation as The first task is hard, the second task is. proceeds. SPECIFIC “KEYS TO SUCCESS” in Your very hard Analysis / Preparation: 1. Know Your BATNA and Set Goals: Knowing your BATNA means you’ll never accept a bad deal, and you’ll most likely negotiate a better one. Also, setting goals has been proven to help. 2. Analyze the Interests and the People: Whenever possible, you want to keep the negotiation focused on interests, rather than ego, as that will invite the parties to collaborate in solving any problems that arise. You have to do this both before and during the negotiation. Sometimes, the specific people on either side can be a problem. You have to deal with that too. 3. Plan to be Surprised – And Adapt: If you listen to the other side, you’ll learn. Then, ADAPT. 4. Develop Options: The greatest negotiators all have one thing in common – they are incredibly creative at coming up with more options, more alternatives, so that both parties can accomplish their objectives (a “win-win” solution). Develop some ideas before your first meeting! negotiation. Negotiating one-issue-at-a-time v. groups of issues can have an 3 5. Objective impact too. Criteria: Make fairness and the use of objective criteria a theme,  #1: KNOW YOUR BATNA AND SET GOALS. Key #1: Know Your BATNA and Set AMBITIOUS : Knowing your BATNA means Goals never accept a bad deal. Setting ambitious goals means you’ll you’ll most likely negotiate a better one. 1. The BATNA Effect on Bargaining Strength: Each party’s BATNA has an enormous effect on their bargaining strength. Use of BATNA Analysis is far more useful, in far more situations, producing far better results, far faster, than almost any other approach. 2. Constantly Strive to Improve Your BATNA – Even After the Negotiation Begins: The negotiation isn’t done until the contract is signed OR the parties abandon their efforts to reach a deal. Many times, there are lots of changes in the context & deal right up until the hour before signing. Each time your BATNA improves, your leverage (and your potential deal) improves. Recall the Example of Sam (moving to Iowa) and Ben: If Sam has a friend who could stay behind in Texas and sell the car for $7,500, then Sam’s BATNA isn’t $6,000. He’s managed to raise it back up to $7,500. 3. Estimate the Other Side’s BATNA: The better your estimate of the other side’s BATNA, the better your estimate of their real position and the greater your ability to persuade them. More Sam & Ben: Assume Sam has no friend to help, and that he has carelessly revealed that he must move to Iowa now where he will only get $6,000 for the car.  #2: ANALYZE THE INTERESTS AND THE PEOPLE Key #2: Analyze the Interests and the : People The Parable of the Orange: Two children are fighting over an orange. The “wise” parents slice the orange in half. Then – surprise! – the first child eats all of the fruit (throwing away all of the peel). The second uses all of the peel in a pie (throwing away all of the fruit). What a waste. The parents weren’t so wise - they failed to ask questions about what each kid really wanted. Focus the Negotiation on Interests: During the negotiation, you will want to keep the negotiation focused on interests, rather than on positions or ego. Why? Collaboration: Focusing on interests leads to collaboration leads to win- win’s = better “Talking deals. ) and During the Changing your Talking Points On i Buy In: Second, Points” Response What when people You Negotiation (in ); jointly create Ask “Why?” solutions, the questions Fly they ; (c)“buy Echoin” to the back what n to solution. heard to make sure you heard See/Hear (b)it correctly a lot other side to feel heard); (and to help theyou’ve (d) Think Learn aboutthe about theOther other side’s Side’sStakeholders; Interests: (a) (e)Focus Assemble a list asBoth on Interests you Before go; (f) Remember (in Preparingthat your differences can be hugely beneficial – something that is a small cost to you could be a HUGE benefit to the other side – so don’t trivialize ANY concern raised by the other side (a real key to success). (g) People Block What They Don’t Like. You have to Figure Out WHY They’re Blocking. Be “Hard on the Problem, Easy on the People”: Insist that everyone be a for and respect to problem-solver, so the thatother side, always the agreement letting both satisfies sets of interests as everyone 5  #3: PLAN TO BE SURPRISED – AND THEN ADAPT !!! Key #3: PLAN to be Surprised – And Then : When we prepare to negotiate, we ADAPT! become consumed in our own view of thealmost ALWAYS world. We analyze analyze analyze, and we naturally think constantly about what WE believe the used car we’re selling / buying is worth. It’s Worth What WE AGREE It’s Worth – The Willing Buyer and Willing Seller: However, it’s critical to remember --- an item being sold is worth WHATEVER a willing seller and buyer agree to. That Agreed-To Sales Price could be a LOT HIGHER or a LOT LOWER than True, negotiation. what wewe often think begin the car is preparations our worth (particularly with aifFMV we’ve focused analysis, on FMV). and But never forget That’s that’s one ofthat helpful. yourreasons the key counterparty may that the FairbeMarket in a DESPERATE Value (FMV) situation conceptiniswhich NOT as he/she helpful to is pay FAR willing a guide MORE as or thedemand BATNA FAR concept LESSinthan your FMV analysis would. And that suggest result in your making a LOT more or less than you might have otherwise maymade on the deal. That’s Why LISTENING is SOOO Important in Negotiation – It’s EVERYTHING: When we listen to the other side, and study their body language, we occasionally learn that they’re willing to pay a lot more, or accept a lot less, than our FMV analysis would have suggested. “Should I Speak First on Price in a Negotiation?”: If you know nothing about an item’s value, letting the other side speak first is often advantageous. If you have done substantial study, then speaking first can establish an “anchor” about the  #3: PLAN TO BE SURPRISED – AND THEN ADAPT !!! Key #3: PLAN to be Surprised – And Then ADAPT!: (continued) It’s Worth Repeating – LISTENING is SOOO Important in Negotiation: Even if you’ve prepared thoroughly, you should PLAN to be SURPRISED (to learn that your EXPECTATIONS WERE WRONG). Listening may reveal your counterparty is desperate. Not listening won’t. EXAMPLE: Wow! I Let Them Speak First, and They OPENED with a Figure that I could Happily Accept Right NOW!: This happens more often than you might think, and it’s important to consider your next step with great care. Option #1: Quickly ACCEPT (Without Looking Eager): If the other side has just OPENED by offering you more than you expected, then one obvious option is to quickly accept (without looking eager). (Do NOT look eager, or the other side might realize that they offered far more than was necessary and then try to find some way to back out of the deal.) The advantage of Quickly Accepting is simple. Until the Parties have Accepted (Agreed on) a Deal, either party can typically legally walk away for any reason or no reason. Also, if you continue to push for an even better price, you might lose a deal that already satisfies your interests. Option #2: Issue a Modest Counter-Offer to Try to Secure an Even Better Deal: Most parties don’t OPEN with their best-and-final offer. They expect NeithertoOption negotiate is.ALWAYS So, you might secure Correct: Eachanoption even features better deal than you benefits thought possible by asking for more. In many cases, the other side will continue7 and risks.  #4: DEVELOP OPTIONS Key #4: Be Creative – Develop Options: The greatest negotiators all have one thing in common – they are incredibly creative at coming up with more options, more alternatives, so that both parties can accomplish their objectives (a “win-win” solution). A Key Warning Sign – Only 2 Possible Solutions: When you look at an issue, and you only see TWO ways to resolve it (one favorable to you, the other not), you’re NOT working hard enough. Look at the Problem Differently. Each party should have 4-6 different ideas for addressing each problem. Brainstorm first, Decide second: Have your team engage in free-wheeling “idea generation” about potential solutions to a problem (in a “no criticisms allowed” environment, preferably supplemented with food and drink). AFTER generating 50 ideas (many of which are truly wild and impractical), see how the best parts of these ideas can be used to generate practical options. When your teams feel stumped, exchange more information: Stop halving the orange. Clarify the interests further by asking more questions, consulting experts, consulting “fresh eyes” (newcomers to the problems), consulting different Stakeholders, breaking the agreement into pieces, adjusting deadlines. Remember: differences can drive deals. Why does Tom sell his IBM stock to Harry, AND why  #4: DEVELOP OPTIONS Key #4: Develop Options (Continued): Type I “Distributive” Negotiations: These are typically negotiations that feature a “zero-sum game” (that is, a direct conflict over certain important interests or perhaps a competition over a limited resource). Also known as “Competitive / Adversarial / ME First / Problem-Apportioning / Zero-Sum” Negotiations. “Zero-Sum” Games: A zero-sum game is a game in which there is a fixed pie, and 2 parties are trying to decide how to divide it between them. Each time I increase the size of my slice by an inch, your slice is decreased in size by an inch. These are the hardest kinds of environments in which to negotiate. EXPECT to work harder on these. Example – Complex Valuations: The following all represent situations in which the parties must agree to a $ figure in a situation in which the value of the asset is uncertain. When the contract price / settlement value / $ figure goes up by 1, the “seller” gains a dollar, and the “buyer” loses a dollar. Example #1: Sale of an expensive (but used) asset. Example #2: Settlement  #4: DEVELOP OPTIONS Key #4: Develop Options (Continued): Type I “Distributive” Negotiations (continued): Key to Success – Rigorous Analysis (“Homework”): Because the conflict between the parties is so stark / dramatic, the key to succeeding in the negotiation is to out-perform the other side in analysis / homework. That is, for example, (a) you analyze the BATNA’s of both parties in greater depth; (b) you analyze potential $ values with greater care; (c) you spend more time preparing your presentation of your arguments; (d) you spend more time anticipating their arguments (and preparing responses thereto); (e) etc. Key to Success – Locating Zone of Possible Agreement (“ZoPA”): Even though the parties are fighting hard about price, each party usually has a range of values that it would find acceptable. The key to success lies in asking questions, and carefully listening, and carefully observing, the communications from the other team. Nonverbal cues (“body language”) can reveal how firm / flexible they actually are in their positioning on price. Remember: negotiators can’t legally engage in a material misrepresentation, but they can and WILL deceive you about the overall price flexibility they actually 1 or terms they’re willing to accept. have?  #4: DEVELOP OPTIONS Key #4: Develop Options (Continued): Type II “Integrative” Negotiations: These are typically negotiations that feature a “non- zero-sum game”. That is, there isn’t a single fight over ONE limited resource (as in distributive negotiations). Rather, in integrative negotiations, there are usually several interests so that cooperation (not competition) and “horse trading” become real possibilities. Also known as “Cooperative / Collaborative / WE First / Problem-Solving / Non-Zero-Sum” Negotiations. “Non-Zero-Sum” Games: A non-zero-sum game is a game in which there is a pie, but the perception is that it might be possible to increase the size of the pie (develop a solution where both parties gain). If so, then, even if the division isn’t exactly equal, the parties don’t care, because the overall amount of pie they each enjoy is larger. Key Lesson model (giving–each Recall kidthe the Parable ofwhole part of the orange that the Orange: In the heorange Manyslicing negotiators example, the of treating a current negotiation as a “distributive” into the trap wanted). fall parents chose negotiation, though a distributive even it might actually bemodel (giving each converted an half into kid an orange) instead “integrative” if of an integrative negotiation negotiators could just come up with a way to “enlarge the the pie”. 1  #4: DEVELOP OPTIONS Key #4: Develop Options (Continued): Type II “Integrative” Negotiations (continued): Key to Success – CREATIVE Analysis (“Thinking Outside the Box”): Want to become famous as a negotiator? Here’s how it happens. The two sides are deadlocked. Worse, they’re depressed, because no one can see a way out of the jam. Just as everyone is about to call it quits for the night, Sam asks one more time for Bob to explain one of the key issues behind their latest offer. Sam asks more questions. “Explain it to me again,” he says, “and talk to me like I’m in the 6th grade.” He approaches the subject from different vantage points. He is relentless. And, then, suddenly, he smiles. He proceeds to outline an entirely new way of approaching the conflict. His idea is a little rough around the edges, and it would take work to develop it into a practical solution. But, suddenly, the air in the room is filled with a new kind of electricity. Everyone can tell – this is an idea that just might work.  #5: FAIRNESS AND THE USE OF OBJECTIVE CRITERIA Key #5: Use Objective Criteria: Make fairness and use of objective criteria a theme, so that the negotiation is about interests, not ego. Brainstorm on this in advance. If Alpha demonstrates Seasoned Negotiatorsfairness KnowtoItBeta early on, Beta – “Investing will frequently in Fairness” Closes reciprocate Deals: late to Alpha. If, instead, Alpha ignores Beta’s concerns, it later sees the same thing r “Whatin return. goes around comes around.” What is “fairness”? Typically, it means: (a) freedom from bias; (b) reliance upon principles; and (c) objective reasonableness based on the differing positions of all affected stakeholders (that is, we don’t treat all parties the same; we try to give each what they reasonably deserve). Examples of objective criteria / objective principles: market value; professional standards; full cost (under generally accepted accounting principles); scientific judgment; efficiency; legal precedent; reciprocity; fair procedures (such as dividing the pie: “one cuts, the other chooses”; coin tosses; bidding; arbitration). Key Questions: “HOW did you arrive at that figure?”, “What’s that estimate BASED ON?”, “Why is that approach REASONABLE?”, “What’s your PERSPECTIVE?”  #6: PAY ATTENTION TO PROCESS AND THE ORDERING OF ISSUES Key #6: Process / Ordering of Issues: Sometimes the order in which topics are discussed affects how we think about them and negotiate about them. The “Decide on the Spot” Approach to the Joint Meeting to Discuss the Contract: Inexperienced business executives almost invariably suggest that, in a meeting, the 2 sides simply “walk through the contract live,” starting with Paragraph 1 (¶1), proceeding to the end, deciding issues as they arise on the spot (if possible). Tunnel Vision: With this one-issue-at-a-time approach, the negotiating team members never see the “big picture”, only the specific ¶1 before them. Then, ¶2, ¶3, … Trivializes Many Issues: Let’s say that, during the discussion, Party A (Seller) agrees to accommodate Party B (Buyer) on 17 issues, and B agrees to accommodate A on 8 issues. With 25 issues resolved, only 2 remain. By having walked through and decided the first 25 issues, it can feel psychologically (even just an hour later) as if those issues never even existed. Magnifies a Few Issues: With only 2 issues remaining, it can feel as if the entire deal now  #6: PAY ATTENTION TO PROCESS AND THE ORDERING OF ISSUES Key #6: Process / Ordering of Issues (continued): The “Let’s Take Turns” Approach / “Batch” Approach to Discussing the Contract: Draft #1 by A: Party A’s (Seller’s) team confers privately and prepares an initial Draft #1 of the Agreement. At Meeting #1, it walks Party B (Buyer) through the ENTIRE draft, and the meeting is adjourned. A talks, B listens. Responsive Draft #2 by B: Party B’s team confers privately and prepares a revised Draft #2. At a Meeting #2, it walks Party A through the draft, calling attention to each change. B talks, A listens. Draft #3 by A: Party A’s team confers privately and prepares a revised Draft #3 which it presents at Meeting #3. Once again, A talks, B listens. And so on. The Key: At each meeting, 1 party is talking, and the other party is listening. GENIUS! So, by yielding(a) Advantages: onYou 17 present items, and an holding entire setfirm(batch) on only of 2,items you look incredibly (high-, medium-, If donelow- and correctly, reasonablevalue even if both. (b)revisions) andsides you do it, “surrender” later there is a feeling of joint ownership the low-value proposals of the while agreement, “holding and firm” neither onfeels side the high-value ones. (Note: solely “responsible” for You the don’t reveal.what your high-, last 2 issues med-, Other and low-value remaining Issues: items are.) Other examples of “process issues” exist. Example: Sometimes, try to tacklewill negotiators easier issues first to build momentum. Other times, negotiators will propose tackling the harder issues first. Many such “process” examples 1 exist.