Archive for the ‘Negotiations’ Category

Multiparty Negotiations

Thursday, 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.

Prepare five times longer than you negotiate

Saturday, 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.

Don’t just jump in

Wednesday, 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

Thursday, 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.

“Nemawashi”

Friday, 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

Tuesday, 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.

The opportunity in the recession

Thursday, March 12th, 2009

The opportunity in the recession—
Protocol to make you feel comfortable negotiating for anything

30% off!, limited offer- 75% off!, everything must go!   These aren’t just signs on retail stores.  These are signs of the time in all businesses.  The current economy provides a great opportunity to position your business for future growth.  You can negotiate (or re-negotiate) better deals on almost everything right now—equipment, office space, employees, contractors, professional services.   Knowing how and when (always!) to negotiate, provides you this opportunity.  Below are some “Negotiation Protocols” that should help you feel comfortable negotiating for anything.

Negotiation Protocol

  • Greetings; approach negotiations in a friendly manner and discuss common ground
  • Share your own interests openly and inquire about the interests of others
  • Share your own priorities and understand other’s priorities
  • Summarize and clarify; ask questions
  • Offer proposal/multiple proposals (it is often good to offer multiple proposals of equal value)
  • Allow other to ask questions; give break-time before they counter propose
  • Refocus on joint goals and problem solve together

Remember that a successful negotiation is one where both parties walk away satisfied with an agreement.  You should never feel “bad” about negotiating if you follow the above protocol.

Should you negotiate your job offer?

Tuesday, February 17th, 2009

Over the last three months, an average of 20,000 Americans have lost their job each day. In these times, if you are lucky enough to get a job offer, shouldn’t you just take what you are offered?

Absolutely not!  Even in tough times, most companies expect you to negotiate.  They won’t show their eagerness to negotiate.  After all, they are hoping that you will accept their first offer.  You need to watch for subtle signals that hiring managers are open to negotiation.  For example, many managers may say “why don’t you look over the offer and call me if you have any questions”.  This is an invitation to negotiate.  It is acceptable to ask the manager whether parts of the contract are negotiable.  They may not give a resounding “yes” but will ask you what you had in mind (another invitation) or state what isn’t negotiable “we don’t negotiate salary”.

Especially in hard times, negotiating non-salary compensation is a great way to increase the value of a compensation package.  Some items that employers may be particularly amenable to negotiating in tough times include:

  • Vacation, sick days, personal days
  • Maternity / family leave
  • Flex-time
  • Professional training
  • Job sharing
  • Start date
  • Frequent flier miles
  • Stock options
  • Performance bonuses
  • Accelerated review time with potential salary increase
  • Job duties

The most important thing you can do prior to negotiating any part of your offered compensation package is research.  What you earned in your last job may no longer be relevant during a recession.  Visit salary.com to see how your offer compares with others in similar industries / positions.  Call competitor companies and ask about their salary structures and ranges.  Talk to friends and friends of friends.  Try to get a sense of how many people were vying for the position you are being offered.  Uncover what other recent offers have been made in similar industries / positions.  Knowing what you should realistically aim for is the most important starting point of any negotiation.

Some other resources on Negotiating in tough times:

To learn more, we invite you to attend our two day UC Berkeley Center for Executive Education Negotiation program

Major Sins of Negotiating

Monday, January 5th, 2009

I have several consultant friends who are continuing to hold out for the same amount of money they made a year ago, in better economic times.  They are mostly unemployed.  Unless they have more savings than I know about, they have committed perhaps the largest negotiating sin—lack of research.  Research shows that you can achieve the best negotiation outcomes by spending 5x longer preparing for a negotiation than you will actually spend in a negotiation.  My friends have not done their research.  If they had, they would know that consultant pay is plummeting and they have more competition than ever over for their services.  Other major sins of negotiating include: 

  • Leaving money on the table
  • Walking away from the table when there is a good offer
  • Settling for terms that are worse than walking away 

An interesting data point on this last sin: 97% of students in my classes don’t recognize when the best deal is no deal.  After working hard through a negotiation, they don’t want to “fail” to reach one.  They have expended time and effort and want this to be worth something.  It may help to remember that the other side has incurred these same “sunk costs”. 

Who Should Make the First Offer?

Monday, December 1st, 2008

Who should make the first offer?

Who should put the first offer on the table in a negotiation?  You, or the other side?  In my UC Berkeley Executive Education Negotiation class, generally about 80% of participants say “the other side should”.  This is a common misperception.

The opening offer creates the focal point or the “anchor” around which discussion takes place.  Research in the field of negotiations shows that the outcome of the negotiation will tend to settle around that initial anchor.

Why do most people like to have the other side open first?  Usually because they want to know what the other side is thinking and adjust around that offer.  However, adjusting one’s offer based on what the other party has said, gives away power.  The burden of adjusting away from the initial anchor also now sits squarely on the shoulders of the recipient of the offer—a challenging task.  Some hope that the other side will make a too good to be true offer—but how often does that occur?  Less than 1% of the time?  Does it then make sense to give away power 99% of the time?

A skilled negotiator will always prepare thoroughly before starting a negotiation in order to set the initial anchor.  In many industries, especially high tech, there is uncertainty around what a service/product should be valued at.  As a result, there is a feeling that the first person to make an offer loses.  This is not true.  The other side has no idea what the value should be either.  Thus, the person who makes the initial offer sets expectations and will have power over the negotiated outcome.  The only exception to this guideline is in salary negotiations– where it is often better to have the other side make the first offer.  We will discuss this in more detail in an upcoming blog.

In upcoming posts we will also discuss when to make an offer, how to make your first offer (package multiple items!), and what to do about extreme offers.