Business Negotiation Slides PDF

Business negotiation 2024-2025 Professor Paulo MARZIONNA For this session Read Getting to Yes - Chapters, 1, 2 and 3 (Mandatory) There is a quiz, worth 5% of the final grade in the beginning of the class Watch the section 1 (mandatory) and section 2 (recommended) from the online...

Business negotiation 2024-2025 Professor Paulo MARZIONNA For this session Read Getting to Yes - Chapters, 1, 2 and 3 (Mandatory) There is a quiz, worth 5% of the final grade in the beginning of the class Watch the section 1 (mandatory) and section 2 (recommended) from the online-content Start working on the final group project (recommended) Approaching negotiations Business negotiation Session 2 Getting to Yes – Quiz 1 Duration: You have 10 minutes to complete this quiz. Questions: The quiz consists of 10 questions. Answer Submission: Please submit your answers using the provided answer table. Answers not entered in the answer table will not be considered. Answer Format: Write your answers in CAPITAL LETTERS. Ensure your handwriting is clear and legible. Important: Don’t forget to include your name in the answer sheet  2 negotiation exercises: Last session Distributive Integrative  Target (aspiration) point What you reasonably expect to obtain Basic Reservation (walkaway/resistance) point elements of The worst option you are ready to accept in the negotiation distributive BATNA (Best Alternative to Negotiated Agreement) negotiation Your best plan B for the negotiation ZOPA (Zone of Possible Agreement or Bargaining Range) Range delimited by the resistance points of the negotiators First (initial) offer Who does it and the value (ability to anchor the negotiation) Should you prepare before a negotiation? Why? For how long? What should you prepare?  Negotiations consist of several phases: Preparation phase Bargaining phase The Post-negotiation phase Preparation is probably the most important phase importance of because without preparation negotiators may fail to: preparation Properly evaluate their BATNA Obtain important information Understand each other’s strengths and weaknesses Set reasonable goals How much time should be dedicated to preparing? No less than the expected duration of the negotiation An example of how we traditionally negotiate A discussion about curfew time How do we usually negotiate? “I want this” “I will pay $X” “I will not accept less than Y” “If you give me Z, I can give you W” THOSE ARE ALL POSITIONS IN A NEGOTIATION  Is it a good strategy to negotiate over positions? The problems of negotiating over positions Parties enter negotiations because their positions are incompatible Negotiating exclusively over positions means that parties need to compromise (yield / step back) It can be difficult and frustrating Expectation that there is a « winner » and a « loser » A negotiation that focuses on positions is usually ineffective because: It produces less optimal outcomes It jeopardizes the relationship between negotiators What is the alternative to negotiating over positions? Negotiating over interests What are interests? The needs, desires, concerns, fears – all that someone cares about or wants  Conflict between Position: "I want you to turn down the music volume" POSITIONS roommates: Interest: “I need silence to sleep, rest, work, etc." (WHAT YOU SAY YOU WANT) Conflict between Position: "I want to you to follow this procedure, VS. company which is determined by the internal company regulation" INTERESTS departments: Interest: “I need to have control over quality/risk/etc." (WHAT YOU REALLY WANT) Conflict between Position: "I want you to come to work on Saturday" manager and Interest: "The customer needs to receive the relevant information, properly revised, by Monday" employee: Reviewing your interests when preparing Behind every position there is an interest An interest is the need, the value or the motivation that justifies the position The interest is the answer to the question « why do I want this? » Example : You want a high salary because you need to pay a high rent for your apartment Interests of different negotiators may be compatible although the initial positions seem to be incompatible Example : The company may provide you with a low-priced company apartments, which would make it ok for you to earn a little bit less From positions to interests Negotiation is about communication, and communication is about information In a negotiation, the most important information is the information relative to your interests If you have prepared well, you should have information about your interests During the negotiation, it is crucial to exchange information about your interests: Negotiators who provide information about their interests to the other party are likely to improve their outcomes (or profits) by over 10 percent How to get to know each other’s interests Provide information about your interests: “Actually the quality of the product is more important to me than the quantity, although I care about both.” “A 10% decrease on down payment would be more valuable to me than a 10% decrease in price.” “If I were to rank order the issues’ importance, insurance is more important than price.” How to get to know each other’s interests Gather information about the other party’s interests: “Which one is more important to you? Shareholding ratio or patent stakes?” “What is more valuable to you: increasing the length of warranty or insurance coverage?” “If I were to increase payment on product X but decrease the payment on product Y, would that be better for you?”  “What do you want? What is your offer?” When negotiating over positions, the main question is WHAT? When negotiating over interests, the main question is ….? WHY  Move from stated positions… « I want this » A key question: … to the underlying interests Why? « This is the reason I need it » Because positions are most often incompatible but interests are not always incompatible Simulation: Stepping Stones Negotiating a job contract As an entrepreneur, you will probably need to recruit collaborators and negotiate the terms of their job contracts with them As an employee, you will probably have to negotiate the terms of your job contracts throughout your career Today’s simulation: A first job contract negotiation Instructions Roles: A job candidate and a recruiter Your goal: Get as many points as possible Instructions: Read your confidential instructions, prepare individually for about 25 https://bit.ly/StonesPre minutes and fill the pre-negotiation form (https://bit.ly/StonesPre ) Negotiate for about 25 minutes and insert the results in the form Debriefing General questions How did you feel? How does it compare to previous exercises? Were you satisfied with the result? Were you able to put into practice your initial planning? General questions Was this a distributive or integrative negotiation? Why? Was this a zero-sum game? Game structure 8 issues to negotiate (5 options each) What are the best deals? A non-zero-sum game In this simulation, the resources can be expanded (a non-zero-sum game): There is room for value creation The joint gain is not always the same This was (apparently) an integrative negotiation Strategies in integrative negotiations Creating Value Claiming Value Knowing distributive tactics might be important in this stage Were you able to “expand the pie”? How? To create value: Get to know the other party (and yourself) To the candidates: What were the most important issues for recruiters? (And what were the most important issues for you?) To the recruiters: What were the most important issues for candidates? (And what were the most important issues for you?) Importance of issues ISSUE RECRUITER CANDIDATE BONUS 6 2 NON-COMPETE 4* 4* START DATE 2 6 PROJECT 4* 4* VOLUNTEER HOURS 8 3 STOCK OPTIONS 3 8 SALARY 1 1 REMOTE WORK 7 7 Importance of issues ISSUE RECRUITER CANDIDATE BONUS 6 2 NON-COMPETE 4* 4* START DATE 2 6 PROJECT 4* 4* VOLUNTEER HOURS 8 3 STOCK OPTIONS 3 8 SALARY 1 1 REMOTE WORK 7 7 Importance of issues ISSUE RECRUITER CANDIDATE BONUS 6 2 NON-COMPETE 4* 4* START DATE 2 6 PROJECT 4* 4* VOLUNTEER HOURS 8 3 STOCK OPTIONS 3 8 SALARY 1 1 REMOTE WORK 7 7 Distributive issues ISSUE OPTION RECRUITER CANDIDATE SALARY €40,000 -6000 0 €38,000 -4500 -1500 €36,000 -3000 -3000 €34,000 -1500 -4500 €32,000 0 -6000 NON COMPETE None 0 2400 3 months 600 1800 6 months 1200 1200 9 months 1800 600 12 months 2400 0 Exchange issues ISSUE OPTION RECRUITER CANDIDATE START DATE Sep 1st 0 1600 Aug 15 1000 1200 Aug 1st 2000 800 July 1st 3000 400 June 1st 4000 0 BONUS €15,000 0 4000 €12,500 400 3000 €10,000 800 2000 €7,500 1200 1000 €5,000 1600 0 Exchange issues ISSUE OPTION RECRUITER CANDIDATE VOLUNTEER 8h/week 0 3200 HOURS 6h/week 200 2400 4h/week 400 1600 2h/week 600 800 None 800 0 STOCK OPTIONS 2000 0 800 1500 800 600 1000 1600 400 500 2400 200 0 3200 0 Compatible issues ISSUE OPTION RECRUITER CANDIDATE PROJECT Project E 0 0 Project D -600 -600 Project C -1200 -1200 Project B -1800 -1800 Project A -2400 -2400 REMOTE WORK Fully Remote 1200 1200 2 days in office 900 900 3 days in office 600 600 4 days in office 300 300 100% in office 0 0 How could you use all this information to negotiate? Option 1: Exchange the exchange issues Agree on compatible issues Option 2: Bluff about compatible and exchange issues to gain power in distributive issues E.g., lie about the importance of specific issues What are the risks and benefits of each option? To facilitate integrative negotiations Create a common objective or goal Elicit cooperation rather than competition Believe in the ability to solve a problem Look at things from your perspective and from the perspective of the other party Perspective Taking (and empathy) to have insight into the structure of preferences in the dyad To facilitate integrative negotiations Communicate clearly Build trust Show your motivation and commitment to work with the other party Make preliminary agreements What was your BATNA? What was your resistance point? Recruiter You have an alternate candidate in mind who meets the job requirements and has indicated interest in the role. However, this alternative candidate does not match the passion and qualifications of the first-choice candidate. The alternate candidate is asking for an annual base salary of €38,000, has agreed to a non- compete clause of 6 months, can start on June 1st, is asking for a signing bonus of €5,000, prefers a remote work arrangement with 3 days in the office, expects stock options of 1500 shares, has expressed interest in Project D, and is happy with 6 hours/month for personal projects or volunteering. While this candidate is a viable option, you still find the current candidate's qualifications and passion more in line with your company's values and goals. Total points: 3,300 points Candidate You have received another job offer from a startup company. They are offering an annual base salary of €36,000, a non-compete clause of 9 months, a start date on August 1st, a signing bonus of €10,000, a remote work arrangement with 2 days in the office, stock options of 2000 shares, an assignment to a project similar to Project C, and 6 hours/week for personal projects or volunteering. Although this offer from the startup has its merits, you still prefer to work for this larger company due to its reputation, potential for career development and alignment with your long-term goals. Total points: 3,300 points Was this simulation realistic? How does it compare to a real-life negotiation about a job offer? What is the most important issue when you are negotiating a job offer? Is there really room for integrative solutions?  Ensuring free flow of information between the parties Without enough information, it is difficult to succeed in an integrative negotiation. Attempts to understand the other party's interests, not just their positions Parties may have different interests in a negotiation The more experienced party may have to help less experienced party to identify their interests Emphasis on commonalities between the parties, minimizing the importance of differences INTEGRATIVE Search for creative solutions that meet the BARGAINING objectives of all parties involved Parties must be firm about their interests, but flexible about how to achieve those interests. Identify and Surface Generate Evaluate Formalize define the interests alternative and select the problem and needs solutions alternatives agreement Value creation Value distribution STAGES  Define the problem in a way that is acceptable to all parties Both must agree to start the negotiation by defining the problem in a neutral way. Keep the problem definition simple and clear If there are several issues in the negotiation, it is important to define how these issues are related (address them separately or together?) Define the problem as a goal to be achieved, identifying possible obstacles Try to be as clear and precise as possible about the goals Separate people (or departments) from problems IDENTIFY AND Accept that parties may have different perspectives on the same problem DEFINE THE Separate the problem definition from the possible solutions PROBLEM Do not start talking about solutions before you define the problem.  Define the criteria to evaluate proposed solutions before creating solutions SEPARATE THE PROBLEM How will we know if the DEFINITION FROM problem has been resolved? THE POSSIBLE How will we know if the SOLUTIONS objectives have been achieved? Identify and Surface Generate Evaluate Formalize define the interests alternative and select the problem and needs solutions alternatives agreement Value creation Value distribution STAGES  Focus on Focus on process substantive interests: each interests: each party had their party received a voice heard in the fair share at the negotiation? end? Focus on relationship interests: what is Focus on interests the future of the of principles: will IDENTIFY THE relationship the solution be fair? INTERESTS OF THE between the parties? PARTIES  Negotiations usually involve multiple interests Each party may have interests of different nature Interests can change It is important to make interests visible – sometimes not even the parties themsleves are aware of their own interests Why is this important to me/you? INTERESTS Why do I want this result? What will happen if I don't achieve this goal? Achieving the goal will lead to what? Identify and Surface Generate Evaluate Formalize define the interests alternative and select the problem and needs solutions alternatives agreement Value creation Value distribution STAGES  Redefine the problem: “Expand the pie, and then divide it” Mutual concessions on points valued differently by the parties (logroll) Concessions not related to the negotiation. E.g. future concessions or other ways of compensating for giving up your interests at that moment Lower the costs associated with accepting the non-ideal solution GENERATE ALTERNATIVE Generate multiple solutions: SOLUTIONS Brainstorming Survey, including with third parties Think of a third alternative (bridge solution) Identify and Surface Generate Evaluate Formalize define the interests alternative and select the problem and needs solutions alternatives agreement Value creation Value distribution STAGES  Narrow the range of solution options Focus on alternatives that are preferred by at least one party Insist on objective criteria for evaluating alternatives Evaluate the quality of the result and acceptance by the parties EVALUATE AND Define the selection criteria in advance SELECT ALTERNATIVES Justify your preferences  Be alert to the infuence of intangible interests (e.g,. reputation) Take time out to cool off Minimize any formalization until the deal is closed EVALUATE AND Explore different types of mutual SELECT concessions/logroll: ALTERNATIVES Based on differences in risk preference Based on differences in expectations about the future Based on diferences in time preference AND…  BATNAs are also applicable to BE PREPARED TO integrative bargaining ABANDON A BAD DEAL For next session Read Getting to Yes - Chapters 6, 7, 8 and "Ten questions people ask" (Mandatory) There will be a quiz, worth 5% of the final grade in the beginning of the next class Don’t be late for next class, otherwise you will miss the quiz (and 10% of your grade) Watch the section 2 (mandatory) and section 3 (highly recommended) from the online-content Start working on the final group project (highly recommended) The groups are already defined on MyCourses