BUSINESS MANAGEMENT
Chapter 1: Negotiations
Contents
Negotiation is…..................................................................................................................... 3
The Mind and Heart .............................................................................................................. 3
Relationships versus Economics ....................................................................................... 3
Satisficing v s. Optimizing .................................................................................................. 3
Short vs Long-Term Relationships..................................................................................... 4
Intra- v s. Inter-Organizational Negotiation ........................................................................ 4
Low-versus High-Stakes Negotiation ................................................................................. 4
Win-Win, Win-Lose, and Lose-Lose ...................................................................................... 4
Win-Win Negotiations ........................................................................................................ 4
Win-Lose Negotiations ...................................................................................................... 4
Lose-Lose Negotiations ..................................................................................................... 4
Negotiation as a Core Management Competency ................................................................. 5
The knowledge economy ................................................................................................... 5
Specialized expertise......................................................................................................... 5
Information technology ...................................................................................................... 6
Globalization...................................................................................................................... 6
Negotiation Traps.................................................................................................................. 6
Becoming an Effective Negotiator ......................................................................................... 7
Investigations of contract negotiations consider four key objectives when assessing the
quality of contracts:............................................................................................................ 7
Evaluating the Success of Negotiation............................................................................... 7
Prior to Negotiation ........................................................................................................ 7
Negotiation..................................................................................................................... 7
Post-Negotiation ............................................................................................................ 7
There are three key elements to improving your negotiation skills: .................................... 8
Feedback ....................................................................................................................... 8
Strategy ......................................................................................................................... 8
Focused practice............................................................................................................ 8
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Debunking Negotiation Myths ............................................................................................... 9
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Negotiation is…
• Your key communication and influence tool.
• Negotiation is an interpersonal decision-making process necessary whenever we
cannot achieve our objectives singlehandedly.
• Not just about resources – it is equally about relationships and trust.
The Mind and Heart
• Across the sections of The Mind and Heart of the Negotiator, we focus on the mind of
the negotiator as it involves the development of deliberate, rational, and thoughtful
strategies for negotiation.
• We also focus on the heart of the negotiator, because ultimately, we care about
relationships and trust.
• We base all our teaching and best practices on scientific research in the areas of
economics and psychology, reflecting the idea that both the bottom line and our
relationships are important.
Relationships versus Economics
• In virtually any negotiation, two things are at stake:
o economic value (i.e., money and scarce resources) and
o people (relationships and trust).
• Many people believe they need to choose between getting what they want or being
liked. These negotiators often believe that by “taking one for the team,” they can later
maximize their economic gain.
• This strategy is not advisable because we negotiate in long-term relationships with
people who have short-term memories. The relational sacrifice we make today may
not be remembered or reciprocated by the receiving party tomorrow.
• When people make economic sacrifices in hopes of securing or maintaining
relationships, they are often disappointed.
Satisficing v s. Optimizing
• Satisficing refers to doing just enough to reach one’s minimum goals, not pushing to
maximize one’s potential gains.
• Optimizing negotiators capture all of the potential gain in a situation.
• Over the long run, satisficing (or the acceptance of mediocrity) can be detrimental to
individuals and companies, especially when a variety of effective negotiation
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strategies and skills can be effectively employed to dramatically increase economic
gains.
Short vs Long-Term Relationships
• Negotiators often struggle with which strategy they should use in a single-shot
negotiation versus negotiations that could potentially recur with the same party again
in the future.
• All negotiators should assume that the details of their negotiation will be accessible
for anyone to view and that all negotiations have long-term implications.
Intra- v s. Inter-Organizational Negotiation
• At first blush, it would seem that internal negotiations might go more smoothly and
collaboratively than external negotiations.
• However, envy and internal competition may in fact loom larger when people
negotiate internally versus externally.
Low-versus High-Stakes Negotiation
• Given that there are no costs for attempting to optimize, all negotiators are advised to
treat each negotiation—however small the stakes may be involved—as a significant
opportunity to enhance economic and relational outcomes.
Win-Win, Win-Lose, and Lose-Lose
Win-Win Negotiations
• …are situations in which both negotiations optimize the potential joint gains.
• …are also known as integrative agreements because the outcome is one that
creatively combines parties’ interests in a way that maximizes the joint economic
value.
Win-Lose Negotiations
• …refer to situations in which one party prevails at the other party’s expense.
• This may be because one party has threatened the other party or that one party has
capitulated to the other party.
Lose-Lose Negotiations
• …refer to situations in which both parties have made sacrifices that are ultimately
unwise or unnecessary, resulting in an outcome that both parties find less than
satisfying.
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Negotiation as a Core Management Competency
Key reasons effective negotiation skills are important:
• The knowledge economy
• Specialized expertise
• Information technology
• Globalization
The knowledge economy
• Over 70 000 businesses have developed since 2010, therefore many companies
have disrupted traditional business models, spurring managers to reinvent
themselves as knowledge brokers in the information economy.
• Because the nature of knowledge work changes rapidly, managers of all ages are
continuously negotiating their professional identity, acquiring new skills, and moving
into new jobs, industries, and markets.
• Most people do not stay in the same job that they take upon graduating from college
or receiving their MBA degree.
• Many career coaches encourage millennials to change jobs every 3–4 years. The
job-hopper is not simply in pursuit of higher wages; they are willing to take pay cuts
for the right job in a positive work culture and career growth.
Specialized expertise
• People must continually create possibilities, integrate their interests with others, and
recognize the inevitability of competition both within and between companies.
• Managers must be in a near-constant mode of negotiating opportunities.
• Negotiation comes into play when people participate in joint ventures, partnerships,
product launches, reorganizations, and project teams.
• The increasing interdependence of people within organizations, both laterally and
hierarchically, implies that people need to know how to integrate their interests and
work across business units and functional areas.
• The increasing degree of specialization and expertise held by businesspeople
indicates that people are more and more dependent on others.
• However, other people do not always have similar incentive structures, so managers
must know how to promote their own interests while simultaneously creating joint
value for their organizations.
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Information technology
• With technology that makes it possible to communicate with people anywhere in the
world, managers are expected to negotiate at a moment’s notice.
• Because customers expect companies to be accessible to them 24/7, businesses
have reimagined how to respond quickly.
• E.g., People can directly speak and negotiate with business accounts on Instagram.
Globalization
• Most managers must effectively cross-cultural boundaries to do their jobs. Setting
aside obvious language and currency issues, globalization presents challenges in
terms of different norms of communication.
• Managers need to develop negotiation skills that can be successfully employed with
people of different nationalities, backgrounds, and personalities. Consequently, a
negotiator who has developed a bargaining style that works only within a narrow
subset of the business world will suffer, unless they broaden their negotiation skills to
effectively work with different people across functional units, industries, and cultures.
Negotiation Traps
The four major shortcomings between disputants in a negotiation:
• Leaving money on the table
o (Also known as “lose–lose” negotiation)
o occurs when negotiators fail to recognize and capitalize on their win–win
potential.
• Settling for too little
o (Also known as “the winner’s curse”)
o occurs when negotiators make a too-large concession, resulting in a too-small
share of the bargaining pie.
• Walking away from the table
o occurs when negotiators reject terms offered by the other party that are
demonstrably better than any other option available to them. Sometimes this
shortcoming is traceable to hubris or pride; other times it results from gross
miscalculation.
• Settling for terms that are worse than your best alternative
o (Also known as the “agreement bias”)
o occurs when negotiators feel obligated to reach agreement even when the
settlement terms are not as good as their other alternatives.
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Becoming an Effective Negotiator
Investigations of contract negotiations consider four key objectives when
assessing the quality of contracts:
• What is the likelihood of reaching a good agreement?
• Does the agreement fulfill its intended purpose?
• Will the agreement last?
• Will the agreement lead to subsequent negotiations?
Evaluating the Success of Negotiation
Prior to Negotiation
• Initiate negotiation
• Preparation
o Planning worksheet
o Assess B A T N A
o Develop reservation price
o Develop target price (aspiration)
Negotiation
• Strategy
o Opening
o First offer(s)
o Counter-offers
o Substantiation and persuasion
o Concessions
• Agreements
o Efficiency
o Economic value
o Individual gain
o Joint gain
• Relational value
o Satisfaction
o Fairness
Post-Negotiation
• Post-deal implementation
• Durability
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• Reputation
• Willingness to negotiate again
• Trust
There are three key elements to improving your negotiation skills:
• Diagnostic feedback
• Analysis of success/failure of negotiation
• Focused behavioural practice
Feedback
• People with more experience grow more confident, but the accuracy of their
judgment and the effectiveness of their behaviour do not increase in a commensurate
fashion.
• Overconfidence can be detrimental because it may lead people to take unwise risks.
• In most real-world negotiation situations, managers do not receive feedback on how
well they are doing.
• People who are provided with feedback immediately following their negotiation are
more likely to adjust their strategies and perform better in subsequent negotiations.
• Information about the counterparty’s interests and priorities are particularly important.
• For example, negotiators who received feedback about the counterparty’s interests
immediately following a negotiation showed the greatest improvement in subsequent
negotiations.
Strategy
• Once a negotiator has learned that they have not optimized in a given situation, the
obvious question becomes, “What should I have done differently?”
• It is beneficial for students of negotiation to learn negotiation skills in an industry or
domain that they are unfamiliar with.
o Why? Learning negotiation skills only in a context in which one has depth of
expertise may lead to context-dependence, such that the skills do not
transfer.
Focused practice
• A key step in learning to be an effective negotiator is behavioural practice. It is one
thing to passively learn about negotiation skills, it is quite another to put them into
practice via simulations.
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Debunking Negotiation Myths
• Myth 1: Negotiations are fixed sum.
o Whatever is good for one person must be bad for the other party.
o The truth is that most negotiations are not purely fixed-sum; in fact, most
negotiations are variable-sum, meaning that if parties work together, they can
create more joint value than if they are purely combative.
• Myth 2: You need to be either tough or soft.
o Most negotiators believe they must choose between behaving in a tough (and
sometimes punitive) fashion or being “reasonable” to the point of soft and
concessionary.
o The truly effective negotiator is neither “tough as nails” nor “soft as pudding,”
but rather, principled.
o Effective negotiators follow an “enlightened” view of negotiation and correctly
recognize that to achieve their own outcomes they must work effectively with
the other party (and hence, cooperate) but must also leverage their own
power and strengths.
• Myth 3: Good negotiators are born with the skill.
o A pervasive belief is that effective negotiation skills are something that people
are born with, not something that can be readily learned.
o Effective negotiation requires practice and feedback.
o People who view negotiation as a challenge are more successful in reaching
high-quality deals than people who view negotiation as threatening.
Moreover, people who believe that negotiation ability can be improved with
experience and practice are more likely to discover win–win agreements than
people who believe that negotiation skills are not teachable.
• Myth 4: Good negotiators reply on their intuition.
o Effective negotiation involves deliberate thought and preparation and is quite
systematic.
o Excellent negotiators are not guided by intuition; rather, they are deliberate
planners. As a general rule, don’t rely on your intuition unless you are an
expert.
