Chelst & Canbolat Value Added Decision Making 04/08/12 1 Chapter 15 Author: Hal Stack The Other Perspective Chapter 15: Negotiated Decisions  Relevance of other perspective  Negotiations – Mutual acceptance of decision with negotiating partner:  Key: Understand other perspective’s concerns  Ethical – Decision may impact others  Key: Perceive impact  Game Theory –reaction by competitor  Key: Anticipate actions and factor into initial actions

Chelst & Canbolat Value Added Decision Making 04/08/12 2 Chapter 15 Author: Hal Stack Activity—Your experience with negotiations Successful or Unsuccessful, One time or part of long-term relationship?  Personal  Purchase  Parent and child  Home contractor or landlord  Business  Customer problem  Contract  Contract dispute  Other: volunteer organization

Chelst & Canbolat Value Added Decision Making 04/08/12 3 Chapter 15 Author: Hal Stack Issues to be Negotiated  Tangible  Price  Duration  Coverage  Intangible – underlying psychological motivation  Fairness  Precedent setting  Reputation

Chelst & Canbolat Value Added Decision Making 04/08/12 4 Chapter 15 Author: Hal Stack Types of Negotiations  Single issue such as price – very limiting  Distributive “fixed” pie – your increased share comes from my decreased share  Multi-issue – preferred  bigger pie  Issues important to my side are not “as” important to your side  Job security  Number of jobs  Market opportunities for supplier or reputation  Profits  Deal making involves upfront negotiations  Conflict resolution  emotional

Chelst & Canbolat Value Added Decision Making 04/08/12 5 Chapter 15 Author: Hal Stack Interests instead of bargaining positions  Position = one party’s solution to negotiations  Argue relative merits of each position  Attack merits of other position and often ignore concerns  Confrontational win-lose: may just split the difference  2011 National debt negotiations and budget deficits  Interests = underlying needs  Why is this important to you?  Egypt and Israel in Sinai  Israel security and Egyptian sovereignty  Salary request motivation  Individual: Financial need or financial security or ego,  Company: precedents, total cost, flexibility

Chelst & Canbolat Value Added Decision Making 04/08/12 6 Chapter 15 Author: Hal Stack Frame Issues  Define the issue: What is the issue? Why is it important to us?  What is the current situation?  Who is affected and how are they affected?  What has contributed to making this an issue?  What will happen if nothing is done?  Identify stakeholder interests involved: What is at stake for you and other key stakeholders on this issue?  Different generations or classes of people!!  Ongoing 2012 US (and European) budget debates  NBA stars vs masses  Retirees, existing workers, and new workers

Chelst & Canbolat Value Added Decision Making 04/08/12 7 Chapter 15 Author: Hal Stack Activity – Health care benefits  Position of Employer: Employees must pay more of the cost of health insurance.  Interest of Employer: _______________________________  Position of Union: The employees will not pay more.  Interest of Union and Employees: _______________________________

Chelst & Canbolat Value Added Decision Making 04/08/12 8 Chapter 15 Author: Hal Stack KEY: Understanding other sides interests  Problem: Biased partisan perceptions  I am reasonable and you are not  Creating value vs claiming share of value  Requires sharing information about preferences and concerns  Openness and trust  Negotiations are a dynamic process with biases  Escalation of commitment, confirmation bias, sunk cost, endowment affect of having something, anchoring, overconfidence of winning  NBA 2011 strike – negotiate salaries as share of wealth

Chelst & Canbolat Value Added Decision Making 04/08/12 9 Chapter 15 Author: Hal Stack Negotiation Process Steps  Preparation  Assessment of  Self – Goals to achieve and BATNA  Other party – Goals to achieve and BATNA  Situation: importance of relationship, time pressures, and differences in power (unions)  Raise cap on national debt  Value Creation  Strategies: Solve the other’s problems, beneficial trades and contingent contracts  Tactics: Ask questions, build trust, share information  Value Claiming  Closure of negotiations

Chelst & Canbolat Value Added Decision Making 04/08/12 10 Chapter 15 Author: Hal Stack Table 15.2: Negotiating the purchase of a used car: Information Seller’s InformationBuyer’s Information The seller needs a larger vehicle that will enable him to expand his business, in which he delivers and sets up computers for a local computer store. The buyer, a commuter student at the local college, has $3,450 to spend. Borrowing funds from family and friends is not possible. The Blue Book retail value of the car is $4,000 and a dealer has offered $3,350 as a trade-in on a new car. The buyer wants a small, fuel efficient car for getting to school and to his part-time job. A local mechanic has certified that the car is in good condition except for the wear on the tires. The buyer hopes to purchase the vehicle for $3,100 and have sufficient money remaining for insurance. The seller has advertised the car for $3,750. Possible area of tradeoff – Payment schedule: less money upfront but more in total

Chelst & Canbolat Value Added Decision Making 04/08/12 11 Chapter 15 Author: Hal Stack Figure 15.1: Zone of Possible Agreement (ZOPA) Buyer Seller Target Price ($3,100) Target Price ($3,750) Reservation Price ($3,450) Reservation Price ($3,350) ZOPA BATNA = Best Alternative To No Agreement ZOPA = Zone Of Possible Agreement: Overlap Region

Chelst & Canbolat Value Added Decision Making 04/08/12 12 Chapter 15 Author: Hal Stack Job Offer & Assessing other needs  Initial offer an anchor?  Company  Salary scale or signing bonus?  Immediate need to fill position  Location (jobs in Detroit)  Financial situation: short term vs long-term  Uncertainty of performance  Worker  Has current job? Or out of work 6 months?  Financial stress and debt (student loans)  Willingness to relocate  Need for security  Spouse status  External  Job market for skills

Chelst & Canbolat Value Added Decision Making 04/08/12 13 Chapter 15 Author: Hal Stack Solve other sides problem  Face saving gestures  Job security for workers  Health care coverage for seniors  Day care for younger people  Provide stable and predictable costs for company

Chelst & Canbolat Value Added Decision Making 04/08/12 14 Chapter 15 Author: Hal Stack Contingent contracts: If-Then  Differences in forecast and understanding  Royalties on sales  Performance of athlete  Growth in cost of living or cost of health care  Profitability or revenues  Sports team and union contracts  share of revenues  Car market and plant closings  Length of productive performance  Differences in attitude towards risk and time value  How much for sure and how much contingent on uncertain developments in economy or performance  Money now or later

Chelst & Canbolat Value Added Decision Making 04/08/12 15 Chapter 15 Author: Hal Stack Table 15.4 Planning Document for each issue

Chelst & Canbolat Value Added Decision Making 04/08/12 16 Chapter 15 Author: Hal Stack Long-term relationship & negotiations risks  Use of Power to impose solution  Threat of overseas outsourcing (American Axle)  Threat of bankruptcy  Threat of no new business to supplier  Post settlement negotiations – changes only if both benefit from better solution  US budget – imposed automatic deficit reduction if no alternative reached

Chelst & Canbolat Value Added Decision Making 04/08/12 17 Chapter 15 Author: Hal Stack Sports: negotiation a deal  A major league catcher, nearing the end of his career, is hoping to negotiate a contract with a major league team in his hometown. Looking for a career after playing career ends  The same team finds itself in need of an experienced catcher. because of injury  How should the parties prepare for these negotiations? What issues are likely to arise?

Chelst & Canbolat Value Added Decision Making 04/08/12 18 Chapter 15 Author: Hal Stack Sports Player – Interests & Goals Sports Player – Interests & Goals

Chelst & Canbolat Value Added Decision Making 04/08/12 19 Chapter 15 Author: Hal Stack Sports Player – Interests & BATNA Sports Player – Interests & BATNA

Chelst & Canbolat Value Added Decision Making 04/08/12 20 Chapter 15 Author: Hal Stack Team & Catcher Perspectives: Creative Solutions  Uncertainties, Interests and concerns  Fitness of catcher and performance  Return of injured player  one-year contract  Team performance and revenue  Career after baseball playing  Broadcasting career in his hometown,  Contract eases him into doing color commentary on television.  Working with the catcher to sponsor baseball camps  Set up speaking engagements in the community  Contingent contracts  Uncertainty of fitness –games played, team success  Salary: base plus partial linked to performance  Salary fairness  Separate salary for his work as a broadcaster  self-image: salary be appropriate to his status

Chelst & Canbolat Value Added Decision Making 04/08/12 21 Chapter 15 Author: Hal Stack Baseball and Free Agency  More and more players are seeking long-term contracts in their mid-20s as they are in the early prime years and a couple of years from free agency.  Want to stay in one city  Willing to give up free agency which would maximize salary but carries risk  Number of years of salary guaranteed

Chelst & Canbolat Value Added Decision Making 04/08/12 22 Chapter 15 Author: Hal Stack Hospital and IT Contractor Dispute  Hospital dispute with IT supplier over the implementation of electronic record system.  Failure to resolve this dispute will cost the hospital several million dollars  Hospital is on the verge of bankruptcy.  Without resolution, IT company will  Damage its credibility in a rapidly growing market and  Lose much of the money it has invested in the project.  Lawsuits and counter suits  How should the parties proceed?

Chelst & Canbolat Value Added Decision Making 04/08/12 23 Chapter 15 Author: Hal Stack Ethical Issues  Deception vs integrity  Claim that impossible to…  I have no choice but to…  Puffing – bragging about capabilities  NO fraudulent claims – misrepresentation of material fact the other party relies upon  Three frameworks  Poker school – game with rules but everything else is OK  Idealist – element of social life: candid but still do not reveal everything, do not volunteer information  Pragmatist – concern about questionable behavior that affects reputation  Research your bargaining partner’s reputation

Chelst & Canbolat Value Added Decision Making 04/08/12 24 Chapter 15 Author: Hal Stack Hospital and IT Contractor Interests Hospital  Working system  Increased net revenue  System in place quickly  Reputation  Staff acceptance and use of system Computer Co.  Profitability  Future sales to health systems  Tested generic data entry software  Reputation  Staff acceptance and use of system

Chelst & Canbolat Value Added Decision Making 04/08/12 25 Chapter 15 Author: Hal Stack