Negotiation andNegotiation andConflict ResolutionConflict Resolution

Chapter 13Chapter 13

What Is Negotiation?

Process of formal communication, Process of formal communication, either face-to-face or via electronic either face-to-face or via electronic means, where two or more people means, where two or more people come together to seek mutual come together to seek mutual agreement about issue or issuesagreement about issue or issues Involves management of time, information, Involves management of time, information,

and power between individuals and and power between individuals and organizations who are interdependentorganizations who are interdependent

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What Is Negotiation?

Relationships between people, not just Relationships between people, not just organizationsorganizations

PersuasionPersuasion Negotiation skills can be honed and Negotiation skills can be honed and

practicedpracticed Supports implementation of supply Supports implementation of supply

management strategies and plansmanagement strategies and plans

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Common Terms Used in Negotiation

BATNABATNA BBest est aalternative lternative tto a o a nnegotiated egotiated aagreementgreement

PositionsPositions InterestsInterests Needs Needs WantsWants

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BATNA

Bottom line or reservation pointBottom line or reservation point BATNA should never be revealed to BATNA should never be revealed to

other partyother party All settlements must be judged in light All settlements must be judged in light

of all other viable alternatives existing of all other viable alternatives existing at time of the agreementat time of the agreement

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Positions

Negotiator’s opening offersNegotiator’s opening offers Represent the optimistic or ideal target Represent the optimistic or ideal target

value of issues being negotiatedvalue of issues being negotiated

Stated demands at negotiation tableStated demands at negotiation table

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Interests

Unspoken motivations or reasons that Unspoken motivations or reasons that underlies any given position(s)underlies any given position(s)

Unlikely to be explicitly declared or Unlikely to be explicitly declared or acknowledged during negotiationacknowledged during negotiation

May not be directly germane to stated May not be directly germane to stated positionposition

Often personal in natureOften personal in nature

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Key Points on Interests

Learn to play detectiveLearn to play detective Try to discern other party’s interests Try to discern other party’s interests

through series of open-ended, probing through series of open-ended, probing questionsquestions

Then listen carefullyThen listen carefully

Always focus on other party’s Always focus on other party’s underlying interests, underlying interests, notnot its stated its stated positionspositions

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Needs vs. Wants

NeedsNeeds Negotiated outcomes that negotiator Negotiated outcomes that negotiator mustmust

achieveachieve

WantsWants Negotiated outcomes that a negotiator Negotiated outcomes that a negotiator

would would likelike to have to have May often be exchanged as concessionsMay often be exchanged as concessions

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Triangle Talk

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TheTheNegotiation Negotiation

ProcessProcess

Step 1:Step 1:““Know Know Exactly Exactly

What You What You Want”Want”

Step 2:Step 2:““Know Know Exactly Exactly

What They What They Want”Want”

Step 3:Step 3:““Propose Action in a Way that They Can Accept”Propose Action in a Way that They Can Accept”

Know Exactly What You Want

Determine and write down specific Determine and write down specific goals and objectivesgoals and objectives Helps retain clear focus and minimize Helps retain clear focus and minimize

distractiondistraction Can be referred to readily during Can be referred to readily during

negotiationnegotiation The more clearly defined, the more likely The more clearly defined, the more likely

that they can be achievedthat they can be achieved

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Know Exactly What They Want

Attempt to discern other party’s likely Attempt to discern other party’s likely needs and wantsneeds and wants

Estimate underlying interests to other Estimate underlying interests to other party’s stated positionsparty’s stated positions

Beware of expecting other party to Beware of expecting other party to think in same waythink in same way

Ask probing, open-ended questions to Ask probing, open-ended questions to confirm or counter assumptionsconfirm or counter assumptions

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Propose Action in a Waythat They Can Accept

Frame your own needs in terms of Frame your own needs in terms of other party’s needsother party’s needs

Make it easy for other party to say Make it easy for other party to say “Yes”“Yes”

Remain fair, flexible, and reasonableRemain fair, flexible, and reasonable

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The Negotiation Frameworkin Supply Management

1414

Identify or Anticipatethe Sourcing Requirement

Purchase requisitionsPurchase requisitions Inventory countsInventory counts Reorder point systemsReorder point systems New product developmentNew product development New facilitiesNew facilities

1515

Determine If Negotiation or Bidding Is Required

Is bid process inadequate?Is bid process inadequate? Are many non-price issues involved?Are many non-price issues involved? Is contract large?Is contract large? Are technical requirements complex?Are technical requirements complex? Does contract involve plant and Does contract involve plant and

equipment?equipment?

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Determine If Negotiation of BiddingIs Required

Does contract involve a partnership?Does contract involve a partnership? Will supplier perform value-adding Will supplier perform value-adding

activities?activities? Will there be high risk and uncertainty?Will there be high risk and uncertainty?

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Reasons for Negotiation

Total contract value or volume is largeTotal contract value or volume is large Complex technical requirementsComplex technical requirements

Product and process requirements and Product and process requirements and specifications may still be evolvingspecifications may still be evolving

Purchase involves utilization of capital-Purchase involves utilization of capital-intensive plant and equipmentintensive plant and equipment

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Reasons for Negotiation

Agreement involves special or Agreement involves special or collaborative relationshipcollaborative relationship

Supplier will perform important value-Supplier will perform important value-adding activities, requiring …adding activities, requiring … Appropriate compensationAppropriate compensation Performance standardsPerformance standards Performance metricsPerformance metrics

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Planning for the Negotiation

Better planning Better planning better outcomes better outcomes Use of electronic communication tools Use of electronic communication tools

vs. face-to-face negotiationsvs. face-to-face negotiations Expensive and time consuming travelExpensive and time consuming travel

Use of online RFPs and RFQsUse of online RFPs and RFQs Quick turnaround on changesQuick turnaround on changes Allows simultaneous negotiations with Allows simultaneous negotiations with

multiple suppliersmultiple suppliers

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Points to Focus On

Defining issuesDefining issues Assembling issues Assembling issues

and defining and defining bargaining mixbargaining mix

Defining interestsDefining interests Defining own Defining own

objectives and objectives and opening bidsopening bids

Assessing Assessing constituents and constituents and social contextsocial context

Analyzing other Analyzing other partyparty

Planning issue Planning issue presentation and presentation and defensedefense

Defining protocolsDefining protocols

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Phases of the Negotiation Phase IPhase I

Fact finding and information sharingFact finding and information sharing Clarify or confirm informationClarify or confirm information

Phase IIPhase II Recess to assess new information and Recess to assess new information and

findingsfindings Assess relative strengths and weaknessesAssess relative strengths and weaknesses Review and revise objectives and positions, Review and revise objectives and positions,

if necessaryif necessary Organize agendaOrganize agenda

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Phases of the Negotiation

Phase IIIPhase III Meet face-to-face or electronicallyMeet face-to-face or electronically Narrow differences on issuesNarrow differences on issues Offer proposals and counterproposalsOffer proposals and counterproposals Exchange concessionsExchange concessions

Phase IVPhase IV Seek agreementSeek agreement Conclude negotiationConclude negotiation Agree to follow-on activitiesAgree to follow-on activities

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Being an Effective Negotiator

Willing to compromise or revise goalsWilling to compromise or revise goals When faced with new informationWhen faced with new information

View issues independentlyView issues independently Establish upper and lower ranges for Establish upper and lower ranges for

each major issueeach major issue Explore more optionsExplore more options Build on common ground between Build on common ground between

partiesparties

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Being an Effective Negotiator

Avoid making irritating commentsAvoid making irritating comments Avoid argumentationAvoid argumentation

Too many reasons can dilute an argumentToo many reasons can dilute an argument

Make fewer counterproposalsMake fewer counterproposals Too many concessionsToo many concessions Too much compromisingToo much compromising May indicate lack of adequate planning May indicate lack of adequate planning

and show invulnerabilityand show invulnerability

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Negotiation Planning

Develop plan and overall strategyDevelop plan and overall strategy Specific strategiesSpecific strategies ResearchResearch ActionsActions Tactics Tactics

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Reasons for Failed Negotiations

Neglect other party’s problemsNeglect other party’s problems Focus too much on priceFocus too much on price Focus on positions instead of interestsFocus on positions instead of interests Focus too much on common groundFocus too much on common ground Neglect BATNAsNeglect BATNAs Over-adjust perceptions during Over-adjust perceptions during

negotiationnegotiation

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Analyze Each Party’sStrengths and Weaknesses

Understand through research and Understand through research and experienceexperience PersonalityPersonality Negotiation styleNegotiation style Education and experienceEducation and experience HistoryHistory

Assess relative strengths and Assess relative strengths and weaknesses, i.e., your “due diligence”weaknesses, i.e., your “due diligence” Each negotiation experience is uniqueEach negotiation experience is unique

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Gather Relevant Information

Previous experience with other partyPrevious experience with other party What happened between parties?What happened between parties? Was negotiator satisfied with previous Was negotiator satisfied with previous

outcome?outcome? Are we negotiating with same people or Are we negotiating with same people or

with new negotiators?with new negotiators? What were important issues to supplier? What were important issues to supplier?

To buyer?To buyer?

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Gather Relevant Information

Previous experience with other partyPrevious experience with other party What were areas of disagreement?What were areas of disagreement? Is there anything about previous protocols Is there anything about previous protocols

that should be changed?that should be changed? What is relative power between parties?What is relative power between parties? Who has most to lose? To gain?Who has most to lose? To gain?

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Sources of Information

Other buyers or organizations with Other buyers or organizations with experience with supplierexperience with supplier

Published sources of informationPublished sources of information Trade journals, other business Trade journals, other business

publications, and Internet websitespublications, and Internet websites Trade association and government dataTrade association and government data Annual reportsAnnual reports Financial evaluations and databasesFinancial evaluations and databases Direct inquiry with supplierDirect inquiry with supplier

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Recognize Your Counterpart’s Needs

Must consider long-term successMust consider long-term success Issues critical to supplier may not be Issues critical to supplier may not be

issues critical to buyer, and vice versaissues critical to buyer, and vice versa Give-and-take must be consideredGive-and-take must be considered

Each party should not expect to prevail in Each party should not expect to prevail in all issuesall issues

Setting priorities for concessions and Setting priorities for concessions and issue tradeoffs issue tradeoffs

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Identify Facts and Issues

FactFact Reality or truth that parties can state and Reality or truth that parties can state and

successfully verifysuccessfully verify

IssueIssue Items or topics to be resolvedItems or topics to be resolved

Triangle Talk is a helpful toolTriangle Talk is a helpful tool

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Establish a Position on Each Issue

Need for agility and flexibilityNeed for agility and flexibility Range of positionsRange of positions

Minimum acceptable position (BATNA)Minimum acceptable position (BATNA) Maximum, or ideal, positionMaximum, or ideal, position Most likely outcomeMost likely outcome

Overlapping positions create Overlapping positions create bargaining or settlement zonebargaining or settlement zone

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Bargaining Zone Example

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Buyer

SellerSeller

Asp

iration

A

spiratio

n

Po

int

Po

int

Asp

irat

ion

P

oin

t

BA

TN

AB

AT

NA

BA

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AZone of Likely

Agreement

Note:Note:

Example shown is typical Example shown is typical buyer-seller price negotiationbuyer-seller price negotiation

$11.45

$$11.1511.15

$11.00

$$11.5011.50

Develop the Negotiation Strategyand Accompanying Tactics

StrategyStrategy Overall approach used to reach mutually Overall approach used to reach mutually

beneficial agreementbeneficial agreement

TacticTactic Art or skill of employing available means Art or skill of employing available means

to accomplish an end, objective, or to accomplish an end, objective, or strategystrategy

Includes supporting action plan and Includes supporting action plan and activitiesactivities

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Practice the Negotiation

Applies to complex and formal Applies to complex and formal negotiations that are …negotiations that are … Large dollar amountLarge dollar amount Long span of timeLong span of time Crucial to success of organizationCrucial to success of organization

Mock or simulated negotiationMock or simulated negotiation Helps raise awareness of unanticipated Helps raise awareness of unanticipated

questions and issuesquestions and issues Role play other party to develop empathyRole play other party to develop empathy

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Power in Negotiation

Power Power Ability to influence another person or Ability to influence another person or

organization to do somethingorganization to do something

Power by itself is neither good nor badPower by itself is neither good nor bad It is actual application or use of power that It is actual application or use of power that

makes it good or badmakes it good or bad

Sources of negotiating powerSources of negotiating power

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Sources of Negotiating Power

Informational powerInformational power Reward powerReward power Coercive powerCoercive power Legitimate powerLegitimate power Expert powerExpert power Referent powerReferent power

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Informational Power

Ready access to relevant and useful Ready access to relevant and useful informationinformation

Presentation of facts, data, and Presentation of facts, data, and persuasive argumentspersuasive arguments Need for selective disclosureNeed for selective disclosure Can be manipulated by withholding Can be manipulated by withholding

information or by providing false information or by providing false informationinformation

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Reward Power

One party is able to offer something of One party is able to offer something of perceived value to otherperceived value to other

Direct attempt to exert controlDirect attempt to exert control Individuals respond and behave Individuals respond and behave

accordingly when valued rewards are accordingly when valued rewards are availableavailable

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Coercive Power

Taking away or withholding something Taking away or withholding something of value to other partyof value to other party

Ability to punishAbility to punish Financially, physically, or mentallyFinancially, physically, or mentally

Can have damaging effects on long-Can have damaging effects on long-term relationshipsterm relationships

Promotes retaliation or getting evenPromotes retaliation or getting even

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Legitimate Power

Power based on job position heldPower based on job position held The higher the job position or title, the The higher the job position or title, the

greater the power inferredgreater the power inferred May be separate from reward power or May be separate from reward power or

coercive powercoercive power Buyer has legitimate power due to Buyer has legitimate power due to

his/her ability to award contracthis/her ability to award contract

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Expert Power

Special form of informational powerSpecial form of informational power Development and retention of body of Development and retention of body of

knowledgeknowledge

Often represented by verifiable Often represented by verifiable credentialscredentials

Reduces likelihood of refuting positionReduces likelihood of refuting position Other party must value expertise in order Other party must value expertise in order

to be effectiveto be effective

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Referent Power

Comes from attraction based on Comes from attraction based on socially acceptable personal qualities socially acceptable personal qualities and attributesand attributes Personality or attractiveness Personality or attractiveness

characteristics such as …characteristics such as … PhysicalPhysical HonestyHonesty CharismaCharisma FriendlinessFriendliness SensitivitySensitivity

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Application of Power

Used to support one’s advantageUsed to support one’s advantage Need to be careful not to abuse powerNeed to be careful not to abuse power

Damaged relationshipsDamaged relationships Invited retaliationInvited retaliation Diminished value of that powerDiminished value of that power

Some types of power interact Some types of power interact synergistically with otherssynergistically with others Example – expert and referent powerExample – expert and referent power

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Concessions

Movement away from position that has Movement away from position that has perceived value to other party to gain perceived value to other party to gain something of valuesomething of value Give-and-take process is normal in most Give-and-take process is normal in most

negotiationsnegotiations

Need to avoid giving away concessions Need to avoid giving away concessions without receiving something of equal or without receiving something of equal or greater value in returngreater value in return Always keep BATNA in mindAlways keep BATNA in mind

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Concessions

Without effective concessions strategy, Without effective concessions strategy, negotiation may result in impassenegotiation may result in impasse

Concessions should be made in Concessions should be made in decreasing increments, decreasing increments, notnot increasing increasing onesones Increasing concession values encourage Increasing concession values encourage

other party to wait you out for even greater other party to wait you out for even greater concessionsconcessions

Based on length and cost of negotiationBased on length and cost of negotiation

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Guidelines for Making Concessions

Give yourself enough room to make Give yourself enough room to make concessionsconcessions

Try to get other party to reveal his/her Try to get other party to reveal his/her needs and objectives firstneeds and objectives first

Be first to concede on a minor issue Be first to concede on a minor issue but but notnot first on a major one first on a major one

Make unimportant concessions and Make unimportant concessions and portray them as valuableportray them as valuable

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Guidelines for Making Concessions

Make other party work hard for every Make other party work hard for every concession madeconcession made

Use tradeoffs to obtain something for Use tradeoffs to obtain something for every concession you makeevery concession you make

Generally, concede slowly and give Generally, concede slowly and give little with each concessionlittle with each concession

Do not reveal your deadline to other Do not reveal your deadline to other party – everparty – ever

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Guidelines for Making Concessions

Occasionally, say “No” to other partyOccasionally, say “No” to other party Be careful trying to take back Be careful trying to take back

concessions, even tentative onesconcessions, even tentative ones Keep a record of concessions made Keep a record of concessions made

and try to identify a patternsand try to identify a patterns Do not concede too soon, too often, or Do not concede too soon, too often, or

too muchtoo much

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Negotiation Tactics:Trying to Reach Agreement

Short-term plans and actions employed Short-term plans and actions employed to ...to ... Execute strategyExecute strategy Cause a conscious change in other party’s Cause a conscious change in other party’s

positionposition Influence others to achieve one’s own Influence others to achieve one’s own

objectivesobjectives

Can be either ethical or unethicalCan be either ethical or unethical Tricks or ploysTricks or ploys

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Common Negotiation Tactics

Low ballLow ball Honesty and Honesty and

opennessopenness QuestionsQuestions CaucusCaucus Trial balloonTrial balloon Price increasePrice increase

High ballHigh ball Best and final Best and final

offeroffer SilenceSilence Planned Planned

concessionsconcessions VenueVenue

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Cialdini’s Power of Influence

ReciprocationReciprocation ConsistencyConsistency Social proofSocial proof LikingLiking AuthorityAuthority ScarcityScarcity

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Reciprocation

Obligation to give something back of Obligation to give something back of equal or greater value to someone after equal or greater value to someone after having received something from themhaving received something from them

Creates powerful obligation responseCreates powerful obligation response Can be used effectively when giving Can be used effectively when giving

concessionsconcessions Patterns of concessionPatterns of concession

Quid pro quoQuid pro quo

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Consistency

People tend to want to be perceived as People tend to want to be perceived as being consistent in their beliefs and being consistent in their beliefs and actionsactions Otherwise considered to be irrationalOtherwise considered to be irrational

It is difficult to back away from It is difficult to back away from something already agreed tosomething already agreed to

Beware of the consistency trapBeware of the consistency trap Small commitments often lead to much Small commitments often lead to much

larger oneslarger ones

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Social Proof

Looking to behavior of others to Looking to behavior of others to determine what is desirable, determine what is desirable, appropriate, and correctappropriate, and correct

Power of endorsementPower of endorsement Everyone else is doing itEveryone else is doing it

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Liking

People work well and are more People work well and are more agreeable with others that we like or agreeable with others that we like or who are like uswho are like us

Get to know other party better to build Get to know other party better to build on relationship when concessions are on relationship when concessions are being offeredbeing offered

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Authority

People are more likely to accept People are more likely to accept positions, arguments, and directions positions, arguments, and directions from recognized authority figuresfrom recognized authority figures

Power of titles and perceived Power of titles and perceived importanceimportance

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Scarcity

Can also be “Can also be “perception”perception” of potential of potential scarcityscarcity ““Act now!”Act now!” ““For a limited time only!”For a limited time only!” ““Offer expires tomorrow!”Offer expires tomorrow!”

Suppliers often use potential price Suppliers often use potential price increases as a scarcity techniqueincreases as a scarcity technique ““Twenty percent price increase effective at Twenty percent price increase effective at

the first of the month!”the first of the month!”

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Overcoming Tactics

Modify tactics when they don’t workModify tactics when they don’t work Prepare for likely tactics to be used Prepare for likely tactics to be used

against youagainst you Tactics are more effective on you if you Tactics are more effective on you if you

are unprepared, stressed, under severe are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or deadlines, inexperienced, fatigued, or disinteresteddisinterested

Try not to react without thinkingTry not to react without thinking

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Win-Win Negotiation

Win-lose Win-lose Competitive or distributive bargainingCompetitive or distributive bargaining ““Fixed sum game” perceptionFixed sum game” perception

Win-winWin-win Collaboration or integrative bargainingCollaboration or integrative bargaining Expand the value or resources available to Expand the value or resources available to

all participantsall participants Requires time, patience, and creativityRequires time, patience, and creativity

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Win-Win Methods

Expand the pieExpand the pie LogrollLogroll Use nonspecific compensationUse nonspecific compensation Cut costs for complianceCut costs for compliance Find bridge solutionFind bridge solution

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International Negotiation

Added complexity and challenge, with Added complexity and challenge, with differentdifferent LanguagesLanguages CustomsCustoms LawsLaws Cultures Cultures

Extra time and effort requiredExtra time and effort required Culture shockCulture shock

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International Negotiation

Barriers and obstaclesBarriers and obstacles MiscommunicationMiscommunication Time limitationsTime limitations Cultural differencesCultural differences Limited authority of foreign negotiatorsLimited authority of foreign negotiators

Need for knowledgeable translatorsNeed for knowledgeable translators Culture and languageCulture and language Industry and business conceptsIndustry and business concepts

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Culture Shock

Negotiator’s pre-existing values, Negotiator’s pre-existing values, beliefs, rules, and decision-making beliefs, rules, and decision-making schema are challengedschema are challenged

Emotions run higherEmotions run higher May encounter substantialMay encounter substantial

AnxietyAnxiety DisorientationDisorientation Confusion Confusion

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Characteristics to Overcome Barriers

PatiencePatience Knowledge of contract agreementKnowledge of contract agreement Honest and polite attitudeHonest and polite attitude Familiarity with foreign cultures and Familiarity with foreign cultures and

customscustoms Recognize that common words may Recognize that common words may

have different meanings, even between have different meanings, even between similar countries or culturessimilar countries or cultures

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Caveats when Negotiating Overseas

Don’t think that everyone else thinks Don’t think that everyone else thinks and negotiates like you doand negotiates like you do

There is danger in stereotyping or There is danger in stereotyping or oversimplifying the interpersonal oversimplifying the interpersonal characteristics of other culturescharacteristics of other cultures There is always substantial interpersonal There is always substantial interpersonal

variation within any culturevariation within any culture However, there are often common However, there are often common

tendenciestendencies6868

Impact of Electronic Mediaon Negotiations

Electronically-based negotiations tend Electronically-based negotiations tend to equalize differences between partiesto equalize differences between parties Normal visual and auditory clues are Normal visual and auditory clues are

diminished or not readily apparentdiminished or not readily apparent Status differences and social differences Status differences and social differences

are less discernibleare less discernible Problem of being anonymousProblem of being anonymous

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Impact of Electronic Mediaon Negotiations

E-negotiations take more time than face-E-negotiations take more time than face-to-face negotiationsto-face negotiations

Outcomes tend to be less satisfyingOutcomes tend to be less satisfying E-negotiations are more impersonal and E-negotiations are more impersonal and

do not promote rapportdo not promote rapport Interchange is often more aggressive Interchange is often more aggressive

and less diplomaticand less diplomatic Messages are often misconstrued and Messages are often misconstrued and

taken out of contexttaken out of context7070

Impact of Electronic Mediaon Negotiations

Negotiators tend take more risksNegotiators tend take more risks Real time vs. asynchronousReal time vs. asynchronous Loss of information richnessLoss of information richness More difficult to provide feedback and More difficult to provide feedback and

conduct active listeningconduct active listening E-negotiators ask fewer questions and E-negotiators ask fewer questions and

tend to make more assumptionstend to make more assumptions What does “silence” mean?What does “silence” mean?

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Mitigating the Negative Effects of Electronic Negotiation

Conduct an initial face-to-face meeting Conduct an initial face-to-face meeting to build rapportto build rapport At a minimum, have an extended telephone At a minimum, have an extended telephone

conversationconversation

Take extra time to carefully reread and Take extra time to carefully reread and edit e-mails before sending themedit e-mails before sending them They are irretrievable and can be easily They are irretrievable and can be easily

forwarded to othersforwarded to others Double-check “to:” and “cc:” addressesDouble-check “to:” and “cc:” addresses

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Mitigating the Negative Effects of Electronic Negotiation

Use generally accepted e-mail protocolsUse generally accepted e-mail protocols Clear, concise languageClear, concise language No all caps, excessive punctuation No all caps, excessive punctuation

symbols, underlining, bolding, italics, or symbols, underlining, bolding, italics, or “off-the-cuff” comments“off-the-cuff” comments

Don’t copy e-mail to recipient’s Don’t copy e-mail to recipient’s superiorssuperiors Perceived as you not trusting the recipientPerceived as you not trusting the recipient

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