Negotiation for Fun and Profit: A Practical Guide Michael Erdle Managing Partner © 2008, Michael Erdle

Introduction  Negotiation Problems  Negotiation Skills  Dispute Resolution In theory there is no difference between theory and practice. In practice, there is. -- Jan van de Snepscheut

Why Do We Negotiate?  To get things we need or want.  To resolve or reduce conflict.  To create value.  To enhance prestige or reputation.

What is Negotiation?  Everything can be negotiated.  Business Relationships “I want to buy your product/service.” “Let’s be partners.”  Personal Relationships “What movie to you want to see?” “Can I borrow the car?”

What is Negotiation?  Negotiation is expressly about specific products, services or actions.  Negotiation is also implicitly about controlling personal feelings and behaviour.  The negotiator must recognize both the visible and hidden elements of negotiation.

How Not to Negotiate  Assume things are non-negotiable.  Don’t prepare.  Make it a “zero-sum” game.  Be inflexible.  Insist on certainty and control.  Fail to understand, evaluate alternatives.  Show impatience.  Reveal too much, too soon.

Negotiation Goals  Identify Issues  What does each side want and need?  Consider Interests  Mutual  Complementary  Conflicting  Create Value  Opportunistic vs. Problem-solving

Distributive Bargaining  “Win-lose” approach  In a zero sum game, the person who makes the first offer is at a disadvantage  sets the outer limits of price, other terms  Improve zero-sum negotiation skills by:  Understanding your objectives  Understanding the other side’s objectives

Negotiation Traps  10 Classic “Hard Bargaining” Ploys  Extreme claims, small concessions  Early commitment – “my hands are tied”  “Take or leave it.”  Unreciprocated offers  Increasing demands  Personal insults  Bluffing and lying  Threats and warnings  Attacking the alternatives  Good cop, bad cop

“Interest-Based” Negotiation  “Win-win” approach – make the pie bigger.  Different people value the same thing differently.  Multiple interests and trade-offs.  Recognize interdependence.  Value the relationship more than the outcome of a single negotiation.

Effective Negotiation  Successful relationships are built on communication and trust.  Negotiation can help to create trust – or decide whether trust is justified.  Example: “The Prisoner’s Dilemma” – classic game theory problem

The Prisoner’s Dilemma  Bob and Alice are arrested near the scene of a burglary and questioned separately by the police.  Each has to choose whether to confess and implicate the other.  If neither one confesses, both will serve one year in jail (carrying burglar tools).  If each confesses and implicates the other, both will go to prison for 5 years.  But, if one confesses and implicates the other, and the other does not confess, the collaborator will go free, and the other will go to prison for 10 years.

The Prisoner’s Dilemma  Options:  confess  don't confess.  Payoffs (penalties) = prison sentences.  Shown in a "payoff table" -- standard in game theory.

The Prisoner’s Dilemma Payoff table for the Prisoners' Dilemma: Alice confesssilent Bob confess silent10 01

The Prisoner’s Dilemma  Lack of trust is the key – neither prisoner can trust the other to remain silent.  So the rational action is to confess.  That produces the best result no matter what the other person does.  But what happens if there’s a series of negotiations?

Repeated Negotiation Series Payoff Matrix Player 2 cooperates Player 2 retaliates Player 1 cooperates 3, 30, 5 Player 1 retaliates 5, 0-1, -1

Repeated Negotiation  “Tit-for-Tat” strategy is most successful.  Four key attributes:  Cooperation  Retaliation  Forgiveness  Generosity

“Tit-for-tat” Negotiation 1.The player always cooperates, unless provoked. 2.The player retaliates, if provoked. 3.The player is quick to forgive. 4.The game must continue long enough for the ‘retaliation and forgiveness’ pattern to affect opponent’s behaviour.

BATNA “Best Alternative To Negotiated Agreement”  Understanding BATNA – yours and the other guy’s – is the most important step in improving your negotiating position.  Improve your BATNA and control the negotiations.

Negotiation Skills  Communication is the key to effective negotiation.  What you say is often less important than how you say it.  Tone  Body language

Negotiation Skills  Understanding and recognition do not mean compromise and concession.  Your own emotions and subconscious brain can hinder your ability to negotiate effectively.

Stroop Test

 The automatic processing of words interferes with the task of naming the colors.  Selecting an appropriate response involves conflict between the right and left half of the brain.  This conflict is involved in many thought processes and emotional responses.  Source: PBS Online

Negotiation Styles  Three common negotiation styles  Competitor  Accommodator  Avoider  Assertive vs. Empathetic  Most effective negotiator is both assertive and empathetic.

Negotiation Skills  Listening  Develop “active listening”.  Understanding  Acknowledge the other person’s perspective.  Flexibility  Be open to other options.  Pragmatism  Be ready to accept the best available option.

Effective Negotiation  Interests vs. Positions  “Needs” vs. “wants”  “Separate the People from the Problem.”  Soft on the person  Hard on the problem  Consider other Options

Effective Negotiation  Use objective alternatives.  Look for a “win-win” solution.  Find ways to improve BATNA.

Dispute Resolution Arbitration / Litigation Mediation Negotiation

Mediation  Interest-based Mediation  Mediator is a facilitator  Focus on interests, not legal rights or obligations  Options for creative solutions  Evaluative Mediation  Neutral evaluation  Based on legal rights & obligations

Mediation  Qualities of a successful mediator:  Subject area knowledge  Negotiation & mediation process skills  Lets parties make key decisions  Creative, problem-solving approach.  Patience

Resources  Cohen: You Can Negotiate Anything, Bantam, 1980  Fischer, Ury and Patton: Getting to Yes, Penguin, 1991  Ury: Getting Past No, Bantam, 1993  Mnookin, Peppet and Tulumello: Beyond Winning, Harvard University Press, 2000

Questions?