Welcome to our negotiations blog

written by UC Berkeley Negotiations professor Holly Schroth

Multiparty Negotiations

September 30th, 2010

A very typical multiparty negotiation in high-tech is the cross-functional team, where representatives of different departments meet together as a task force to achieve a common goal. There are several key challenges that can arise in multiparty negotiations. The first is to understand who are the parties involved in the negotiation and whether all of the affected parties will be present at the table. It is also helpful to understand the relationships between the different parties (that is, who may form coalitions with each other, who may have had poor relationships in the past, and so forth) and how these relationships may affect the negotiation. When the negotiations with multiple parties are done sequentially rather than having everyone at the table, linkage effects (that is, how each agreement affects subsequent agreements) must be considered. Multiparty negotiations take more time than dyadic negotiations, and those involved may have different timetables for achieving outcomes. It is very important to understand the different parties’ issues, interests, and goals and formulate a strategy for each of the parties (see Brett 1991 for review). Negotiators should consider the following strategies when negotiating within a team whether cross-functional or in preparation for negotiating with another party.

Facilitator:

A facilitator helps keep the negotiation on track by focusing discussion, encouraging the quieter people (who may hold vital information) to speak, helping to tone down overly aggressive group members, summarizing for the poor listeners, and moving the group toward agreement. The facilitator should set the vision of what the negotiation process will look like—preparing the team for what to expect in order to gain acceptance for the process (which may be new to them). The facilitator should have the parties introduce themselves, their functional area, and discuss the agenda and time line for a negotiated agreement. Ground rules such as not criticizing before all ideas are on the table, one person speaking at a time, and no personal attacks, can help manage  the process. The facilitator should also introduce the concepts of superordinate goal, no agreement alternative, visual matrix, and decision rule (see the following).  The facilitator should be a neutral party, but if it is not possible, then effective facilitators who are also party to the negotiation should clarify their dual role in the process and let the other participants know when they are acting as facilitator or participant. Beware that facilitators who also negotiate may unconsciously bias the discussion in a way that favors their viewpoint by allowing those who have similar views to have more airtime or cutting off those who disagree with them.

Superordinate goals:

The team should agree upon a “superordinate” or joint goal before negotiating the issues of concern. Reminding the team of their superordinate goal helps refocus them from their own self-interests to the interests of the team. When a team member appears to be withholding information or is not considering others’ information, reminding that person of the team goal can help him make a concession while saving face (for example, suggesting that “I’m sacrificing for the group”).

No-agreement alternatives:

The no-agreement alternative is the team BATNA (best alternative to a negotiated agreement). What will happen if the team does not reach an agreement? Who benefits from no agreement occurring? For example, whereas R & D may be compensated for innovative designs that would necessitate a costly change, Production may be compensated by keeping costs down and would benefit by no changes being made to the existing product. The no-agreement alternative may be favorable to some, but not to others, and this should be openly discussed as a team. If an agreement does not seem to be forthcoming because some individuals are more concerned about their own interests, reminding the group of the no-agreement alternative (if the alternative is bleak for everyone) can help encourage concession making.

Visual Matrices:

Cross-functional teams go awry when they allow team members to state a position or get bogged down in opinions. Once a position is made visible (as on a board), it is very difficult to move negotiators off the position because they have become publicly committed to it.  The facilitator should avoid having team members take a position and instead try to gather the facts about the issue of discussion to add information to a matrix. Separating facts from opinions can help to reduce the emotional element of the negotiation (opinions can be emotion laden) leading to rational problem-solving-based negotiation.  Gathering the facts may be expedited through e-mail collection and then presented to the team for discussion.

The matrix helps clarify the issues that are to be negotiated and the facts on which each party has based her position (the position not being recorded). It is much easier for negotiators to change their position if they can see that it may have been based on faulty assumptions or no concrete evidence. Unlike other negotiations, where interests are a focal discussion point, meeting the personal interests of each team member can lead to a poor decision for the company (for example, decisions become a series of compromises based on self-interests and not on the company’s best interests). Team members are more quickly able to reach a mutually satisfactory agreement the sooner the facilitator can put a fact-based package solution on the table to discuss.

Decision Rule:

How the team decides to reach an agreement can have a great impact on the implementation and success of the negotiated outcome. A majority vote inherently leaves people out who may then feel less committed to follow through with the settlement and may purposefully sabotage it. Majority votes can be swayed easily by strong coalitions that may not represent the best interests of the company (Thompson et al. 1988). Unanimous or consensus votes involve joint problem solving because all members’ ideas must be considered. Group members will be more committed and are usually more satisfied with a consensus-based process because they feel that they were heard (Brett 1991). Issue-by-issue voting in a team environment will encourage coalition formation and may lead to unsound agreements.

Don’t focus on the money

February 19th, 2010

Information sharing, packaging and flexibility:  Naïve negotiators tend to negotiate issue by issue and attempt to “win” on each issue.  Skilled negotiators create value by prioritizing their issues and trading off low priority for high priority issues.  They recognize that it is important to try to keep all issues on the table to allow for flexibility in trading off issues.  A common mistake for negotiators is to start discussing money too soon.  This tends to be an emotional and contentious issue, and can set up the negotiation as a single issue problem or lead to issue by issue negotiating.  A good way to start sharing information is to identify all of the issues to be negotiated, sharing one issue as being of lesser priority than another and then asking the other party to share a priority as well.  Stating “The warranty length is less important to me than the duration of contract,” and then asking “What about for you?” helps the other party feel more comfortable about opening up.   In contrast, asking “What is your most important issue?” is likely to lead to a vague or untruthful response because the other party is hesitant to reveal such critical information before any trust or reciprocity has been established.  Negotiators who are able to find common ground early in the process are more likely to be able to build trust (Butler, 1999).

Prepare five times longer than you negotiate

January 30th, 2010

Detailed planning and preparation are critical for a satisfying process and achieving one’s goals in a negotiation.  A general rule for preparing is to spend about five times longer in the planning stage then one thinks the actual negotiation will take.  Why can’t negotiators just “fly by the seat of their pants?”  The more negotiators know about themselves and what they want, and the more they know about the others in the negotiation and their values, needs, constraints, interests and style, the more they can control the process of the negotiation and steer the negotiation toward an outcome that is mutually satisfying (Pruitt & Carnevale, 1993).   With careful planning, there should be few surprises and negotiators can be confident about their offers and actions.  Key concepts that every strategic negotiator should prepare are:  resistance point, aspiration point, BATNA (aka Best Alternative to a Negotiated Agreement), issues and interests, and objective criteria.

How to prepare for an important negotiation

November 22nd, 2009

As I’ve stated in previous posts, preparation is the key to a successful negotiation outcome.  Here are some elements you should prepare before entering into a negotiation:
Resistance point:  A resistance point is the point at which the negotiator will walk away from the table.  This bottom line value of a negotiator may also be referred to as resistance price or reservation price/point.  It is not just a monetary value but a total value assigned to all of the issues for an entire package.  The resistance point is set prior to negotiating while the negotiator is in a rational state and should never be changed at the table because of influence (e.g., intimidation, attractiveness or confidence) exerted by the other negotiator (Galinsky, Mussweiler, & Medvec, 2002).  A negotiator’s resistance point should never be revealed to the other party who will likely push for the deal to close at that point.  Nor should negotiators lie about their resistance point.  If a negotiator continues to entertain discussion beyond a previously stated bottom line, credibility is lost.  Although negotiators may inquire about each other’s resistance point, it is wise not to answer or, instead, give a vague answer (e.g., “My resistance point depends on many factors”) before moving onto another topic.   When negotiating, if there is concern that the resistance point was set in error, it is recommended that a negotiator step away from the table to do more research before changing it.  A resistance point should never be changed at the table and negotiators should not agree to a deal beyond their resistance point.  Many negotiators are resistant to close a deal near their bottom line (but not beyond it) thinking this shows weakness or failure, but it is important to realize that this offer is still better than any alternative to this agreement (see BATNA).  If the other party’s proposal is beyond a negotiator’s resistance point, it is important to tell the other side that a deal cannot be made at the present proposal but allow a face saving way for the other side to re-approach the deal, in case they misstated their resistance point and want to continue negotiating.  The resistance points of the two parties involved in a negotiation defines what is called the zone of possible agreement (ZOPA), the area where an agreement can be made.  Negotiators cannot determine prior to discussion whether a ZOPA actually exists. 

Aspiration point:  An aspiration point is where a negotiator would ideally and realistically like to settle.  Similar to the resistance point, this is also set prior to a negotiation and is based on research.  The aspiration point sets the ceiling to counteract the power of the floor (resistance point).  Setting a realistic but optimistic aspiration point helps parties to work harder to think more creatively to find value in order to achieve their goals (Thompson, 1995).  A common mistake made by many managers, however, is setting the aspiration point unrealistically high.  Those with unrealistically high aspirations will tend to use an opening offer (anchor) that is too extreme, which may lead to distributive behaviors from the other side, reducing the likelihood of a settlement.  In addition, negotiators who realize their error will tend to lose confidence in their requests and dismiss their aspiration point, refocusing efforts toward their bottom line and settling for too little.  When putting a first proposal on the table, negotiators will usually start with a package that is just a bit better than their aspiration point or at their aspiration point. When setting their aspiration point, negotiators should consider the size and amount of concessions they can make without losing credibility, if they need to settle at their resistance point (see concession making). 

Best alternative to a negotiated agreement (BATNA):  The negotiators’ BATNA are the alternatives that are available if they walk away from the negotiation (see Fisher, Ury, & Patton, 1991, for review).  Those with a strong BATNA have increased leverage in a negotiation. If there are several alternative vendors who can supply the same part, the buyer is in a strong position to use leverage.  However, if there is only one vendor who can supply the needed part, the buyer has little leverage and is at the mercy of the other party.  A weak BATNA should never be revealed because the other side can take advantage of it and push the negotiator to his or her resistance point.  A strong BATNA may be revealed as a point of information for the other side, especially if the other negotiators are not realistic in their proposal and need to have their expectations adjusted.  It is important to reveal a strong BATNA as information and not wield it as a threat, which can damage relations.  Instead of threatening to use a competitor’s product which often leads to an attack-defense spiral, negotiators can express concern about the price difference with the nearest competitor and suggest a preference for trying to work out an agreement if possible.   Unless a strong BATNA is specific, it will not be viewed as credible.

Some negotiators claim not to have a BATNA; it may just be a poor one.  Negotiators should always try to strengthen their BATNA prior to negotiating because it can increase their leverage.  A strong BATNA also helps the negotiator to project confidence in a negotiation, another source of power.  The perception of the strength of the negotiator’s BATNA can be just as important as the reality of that strength.  Negotiators that have a weak BATNA can still try to project confidence so that the other party does not realize how weak the negotiators’ alternative is and take advantage of them.  Some negotiators will go so far as to “leak” a strong BATNA by casually talking to others, hoping the information reaches its target, to try to influence the other side’s expectations and aspirations.  Negotiators who believe the other party has a strong BATNA tend to be less optimistic about what they can achieve in a negotiation and are prepared to make more concessions than if they believe the other party has a weak BATNA.  It is useful to try to uncover the other side’s BATNA by doing some research; this information may influence how negotiators interpret the strength of their own BATNA.  Customers may threaten to use their BATNA (e.g., a competitor’s product such as a microprocessor) in an attempt to get a lower price.  However, an outwardly strong BATNA of the customer may actually be weak if it is discovered that the customer would have to redesign their devices (e.g., flat screen televisions) at a great expense in order to accommodate the design differences of the competitor’s product.   

Issues:   Issues are what is to be discussed in the negotiation between the parties.  A common mistake that is made in a negotiation is to overly focus on one issue (e.g., money) which tends to lead parties to take on a distributive approach.  Including additional issues in a negotiation helps the parties to increase value (also known as expanding the pie), allowing for integrative negotiations to occur.  It is important for negotiators to put themselves in the other side’s shoes in order to understand whether there are issues of importance to the other side that may need to be considered.  Value can be created in a negotiation by trading off low priority issues for high priority issues (aka logrolling).   A top priority for the marketing department may be an earlier launch date while the length of duration of hardware support or warranty for end users is a lesser priority. To the engineering department, a shorter duration of hardware support or warranty may be of greater priority than an earlier launch date.  The logrolling solution is to agree to an earlier launch date in exchange for a reduced period of customer support.  In order to logroll, it is very important that both parties have an understanding of the importance of the different issues and communicate these preferences.  A common mistake is to make trade-offs based on a logical association between issues rather than priorities.  Negotiators often try to trade monetary items such as purchase price and royalties although a more optimal solution based on priorities may exchange a monetary value (e.g., purchase price) for a non-monetary value (e.g., contract duration or product labeling.)  Negotiation is not about logic but about satisfying each other’s preferences.  Some preferences of the other party may appear illogical, but it doesn’t matter if it costs little to satisfy these preferences and each side gets something of greater value in return. 

Interests:   Interests are the underlying reasons a negotiator has for holding a position in a negotiation.  A vendor may take an initial position of selling their software application for $65,000.  This is what they hope their customer will pay but a key interest may be to “land a big name client to attract other customers” or “to sell more lifetime licenses” for their product.  Interests can be any underlying need, concern, or desire that the negotiators may have.  Interests need not be rational and can often prevent a deal from being made if they are not addressed.  For example, an agreement may have been reached with a vendor, but a higher level manager may intervene to request an additional concession simply because he or she wants to put his or her “mark” on the deal.  Negotiators tend not to reveal their interests until they feel that they can trust the other side.   It may take some time to build a strong enough relationship so that the other side is willing to reveal these concerns.  The integrative approach to negotiation seeks to identify and address the different parties’ interests as a strategy to achieve mutual gains.

Objective criteria:  A standard or precedent that can serve as a benchmark for legitimizing the fairness of the current offer is called objective criteria (Fisher, Ury, & Patton, 1991).  Competitor prices presented for comparison can be considered as objective data.   Coming to the table with objective criteria can be a source of power, supporting the negotiator’s anchor and making it difficult to refute its legitimacy.  It is important to realize, however, that the selection of objective criteria can itself be subjective.  The competitor’s prices may be for products that contain less expensive features than those offered at your company (and this is not clearly stated on the price comparison data).  Negotiators should always bring their own objective criteria to the table and be willing to question and possibly discount the other party’s objective criteria.

Researching the other party:   It is important to research the culture of the other party’s company, and the other party themselves, in order understand how they may approach the negotiation.  For example, a company may be known in the industry to have a very competitive approach to negotiating.  Knowing this will influence the selection of negotiation strategies that are likely to be effective in dealing with this company and their negotiators.  In addition, it may be useful to search for third parties who may provide information about the other negotiators’ style and values.  A negotiator can use an Internet search to uncover information about the person and others who may know his or her reputation.  A search might reveal that a person is competitive, likes to use ultimatums and gambits, over-talks, or on the other hand is a “nice” person who is “fair” and doesn’t entertain competitor information.  The high-tech world is relatively small and it is easy to find out about another party.  With this in mind, it is important to be aware of your own reputation because while you are researching others, they will be researching you.

Definition of a successful negotiator

October 5th, 2009

It always is in the interest of negotiators to maximize their outcomes, but it is not in their interest to do so at the other party’s expense.  The negative reputation that will ensue from the imbalanced deal will not only prohibit future deals but will also taint any subsequent negotiations by creating a competitive climate where the opportunity for joint gains is greatly reduced (see Schroth, in press-a, for review).  Those who maintain a positive reputation and treat their clients, customers and partners well will enjoy the benefits of greater deal potential and joint outcomes (Novemsky & Schweitzer, 2004).   Skilled negotiators are always concerned about achieving mutually satisfying agreements because they know that this will impact their future success as a negotiator both within their own organization and beyond.

Don’t just jump in

September 16th, 2009

Often negotiators are in such a hurry that they forgo any relationship-building activities, jumping right into negotiations.  In cultures outside the United States, considerable time is spent building the relationship before any discussion of the business at hand.  Such relationship activities may include gatherings in informal settings where it is easier to discuss unrelated topics.  In many countries it is not uncommon to spend considerable time sightseeing and entertaining prior to discussing the potential deal.  Time so spent, rather than being “wasted,” is considered invaluable because it strengthens the understanding of each other’s values, priorities, and interests.  Although often viewed as less important by engineers, relationship building activities can lead to better outcomes than deal-focused approaches.  Once a negotiator feels comfortable with the other party, the dialogue tends to be more free-flowing.  Relationship building can be enhanced by interacting face to face rather than through phone, instant messaging or email.  The less rich the communication media the more difficult it is to establish trust (Wellens, 1989).  This is a challenge in high-tech when many teams are both virtual and global.  To overcome this barrier it is best to travel where necessary to build the relationship in person before using other forms of communication (see section on e-negotiations).  The effective negotiator must be willing to adapt to the location, time zones, etc. of others.

Common Pitfalls of Negotiators

August 13th, 2009

Negotiators seem to suffer the same common pitfalls regardless of their industry or culture.  One of the most common problems is that they often settle for too little (Thompson, 2005).   This occurs because negotiators, concerned with their bottom line, tend to focus on what they must get rather than exerting their efforts towards achieving what they would ideally like to get.  This effect is especially strong when negotiators are given a minimum value by their manager that they must achieve, but no indicator of an ideal value.  A related problem is leaving money on the table.  Negotiators leave money on the table when they fail to recognize opportunities for trading value (e.g., giving away an issue of little importance to gain on an issue of much greater importance) or for bringing in additional value by introducing new options for both parties.  This is seen as a lose-lose negotiation because both sides have missed the potential for achieving greater rewards, accepting mediocrity or a split-the-difference solution instead.  Some parties may walk away from a good deal because they do not recognize it as being better than their bottom line.  Others may accept a deal that is worse than their no deal alternative because considerable time, effort or money was sunk into the negotiation, making it painful to walk away.  All of these negotiation pitfalls have in common the problem of poor preparation, i.e., not understanding what is valued.

To learn more about avoiding these pitfulls, sign-up for my three day UC Berkeley, Haas School of Business Negotiations Program.

Multi-Party Negotiations

June 12th, 2009

A very common type of multi-party negotiation in high-tech is the cross functional team, where representatives of different departments meet together as a task force to achieve a common goal. Another common multi-party negotiation involves several parties within and outside of the organization.  For example, an engineer may negotiate internally with a product manager who in turn will negotiate with the customer who may be negotiating with other vendors, their legal counsel or their customers.

There are several key challenges that can arise in multi-party negotiations.  The first is to understand who are the parties involved in the negotiation and whether all of the affected parties will be present at the table.  In addition, it is helpful to understand the relationships between the different parties (i.e., who may form coalitions with each other, who may have had poor relationships in the past, etc.) and how these relationships may impact the negotiation.

When the negotiations with multiple parties are done sequentially rather than having everyone at the table, linkage effects (i.e., how each agreement impacts subsequent agreements) must be considered.  Multi-party negotiations take more time than dyadic negotiations and those involved may have different time tables for achieving outcomes.  It is very important to understand the different parties’ issues, interests and goals and formulate a strategy for each of the parties.

“Nemawashi”

May 15th, 2009

Informal negotiations between subsets of the negotiating parties, prior to the formal negotiations, often take place behind the scenes and away from the formal negotiation venue.  This “shadow negotiating” is a common occurrence in business and is an important method used by savvy negotiators to gain information and influence the process (Kolb & Williams, 2001).  There are three main strategies that negotiators can use to gain leverage in the shadows: power moves, process moves and appreciative moves.

Power moves can bring reluctant negotiators to the table, by helping them realize that they are better off engaging in a negotiation than not.  Some suggested power moves include: highlighting the advantage to be gained by negotiating (i.e., incentive levers), making clear the negative consequences of not engaging in a negotiation (i.e., pressure levers) and enlisting allies to increase the degree of incentive or pressure levers.

Process moves
are designed to influence the process itself by changing the ground rules under which negotiations play out.  Negotiators can influence the process by changing the agenda or engaging in consensus building away from the table.

Appreciative moves are about building trust and encouraging open communication so that the other negotiators feel that they can express their views without fear of conflict.  When differences and interests are surfaced, it is then that creative problem solving can occur.

These strategic moves in the shadow negotiation can greatly impact the outcome of the final negotiated agreement.  In Japan, shadow negotiations are routine, with an agreement almost assured before the formal negotiations begin.  “Nemawashi,” (preparing the ground) as this practice is known, avoids the possibility of an impasse in the formal negotiations and the resulting loss of face.

Cross-Cultural Negotiations

April 14th, 2009

Most of us do business with people from other countries, or at least other cultures.   We all know that negotiation practices vary from country to country. So what should you do differently if your team is cross-cultural or you negotiate across borders?

First, understand the other party’s stereotype of you.  Check out globesmart.com and executiveplanet.com.

Secondly, avoid engaging in behaviors that reinforce these stereotypes.  For example, if you are of U.S. origin people may expect you to be arrogant, ethnocentric, pushy, impatient…  Knowing that your negotiating partners may expect this of you, you can temper your behavior.

Next, understand norms of the other culture.  Knowing, understanding, and demonstrating another culture’s norms can earn you a great deal of respect.   For example, if you hand someone of Japanese origin your business card with both hands, they will likely be impressed that you have taken the time to understand an easy to follow norm of their culture.  Likewise, in some cultures it is okay to address most people by their first name.  In some countries, such as Germany, it is more appropriate to initially address people by their title and last name.  To learn more about many cultural norms, I suggest reading: Kiss, Bow, or Shake Hands: How to Do Business in Sixty Countries.

Lastly, understand how decisions are made in other cultures.  For example, in most of the world, decisions take much more time than in the U.S.  Building relationships and brainstorming may be important precursors to decision making in many cultures.

As with most issues related to negotiations, research is the key.  The more informed you are about what people might think of you as well as what they may expect, the better perceived you will be in dealing with them.