Negotiation - Power & Influence
Published by Drew Okawa at Smashwords
Copyright 2008 Drew Okawa
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Disclaimer: The content of this book is for informational purposes only. It should not be construed as personal, business or legal advice. The information herein should therefore not be relied upon as a substitute for personal, business or legal advice. This book is not intended to provide or confirm a judgment nor is any claim made as to practical efficacy. No claims herein have been evaluated by any governing counselling, business, management, or legal authority within Australia or any other country. The author and publisher cannot be held liable in any way for results stemming from the practical use of this information as the information herein is provided “as is”, without warranty of any kind, either expressed or implied. Those wishing guidance on the subject matter should seek direct and customised advice. New methods, techniques and best practices are being developed daily in the fields of business, management, and law. The information contained within this might not be current, complete, reliable, or accurate. Please Note: This book has been developed specifically for Australia’s domestic business environment and does not directly address issues of cross-cultural communication. It does not contain a model for international negotiations.
A Note on Gender Equality: Throughout this material every attempt has been made to refer to both genders with regard to non-specific references and examples. Attempts have also been made to represent both genders equally in specific examples and given scenarios. When talking generally of a negotiator and/or opponent, it is the author’s intention to imply both the female and male gender. These are intentionally listed in alphabetical order - for example, “her/his”, “her/him, and “he/she”.
General Introduction
The definition of ‘Negotiation’
Negotiation is basically a process used by parties in an attempt to reach agreement. A negotiation may relate to interactions such as a sale & purchase, dispute resolution, or join venture proposal.
Technically, a negotiation requires at least two parties with a decision being made regarding their interdependent ambitions.
A successful negotiation by definition, will lead to parties being at least adequately satisfied with the proposed final agreement. Alternatively, the negotiation may break down with parties resorting to their best alternative to reaching an agreement. This option is known as the Best Alternative To a Negotiated Agreement (BATNA). If negotiations are unsuccessful, a party may feel that choosing their BATNA is more advantageous than achieving an unfavourable agreement.
As a business professional, you would find yourself in some form of negotiation most days if not every day. It may be with a colleague, client, associate, or supplier. There are many different negotiating situations including:
When you look for a better deal from your preferred suppliers.
When you approach your CEO for a promotion and salary increase.
When you try to bring various internal departments together to implement a new strategy.
When you seek to resolve a dispute with a client.
Negotiation Key Participants
Often those engaged in negotiations with each other will be referred to as ‘parties’. It may be as simple as two people negotiating a contract together. Therefore Party A is negotiating with Party B. However, in many cases negotiations involve more than two individuals. There can also be companies, businesses, families, lawyers, counsellors, business advisors, agents and other representatives involved.
The following are working definitions designed to categorise the key participants of a negotiation and summarise their associated roles.
Vital Entities
There must be at least two Vital Entities for a negotiation to take place. If an agreement is reached, it will be an agreement ‘between’ or ‘for and on behalf of’ each Vital Entity. That said, it’s not essential to have each Vital Entity present throughout the negotiation process. They may be personally present or be represented by somebody acting on their behalf. In the case of a non-human Vital Entity, it requires representation. For example, a negotiation could be between a company and an individual. Both are entities and in this case, both would be Vital Entities of the negotiation. However, a company would need a representative such as its director to negotiate on its behalf.
Representatives of a Vital Entity
A representative for a Vital Entity may be for example, a lawyer, a counsellor, or business manager. These representatives may have very broad authority to make decisions on behalf of those they represent, or may only have very limited authority, and may need to seek instructions from those they represent for all but the most minor of details. A reasonably common occurrence in negotiations is a member of a company representing the company but having to seek instructions, clarification or authority from others within the company. In addition, there may also be one or several advisors requiring input into the research, assessment and decision making processes encountered during negotiations.
Whilst trying not to get too distracted from the practical aspects of negotiating, these roles can be split into that of, Principal Decision Makers, Agents, and Advisors.
A Principal Decision Maker will have sign-off authority on any final draft of an agreement. The Principal Decision Maker may relinquish part or all of her/his authority to an Agent acting on her/his behalf.
An Agent acts on behalf of a Principal Decision Maker and should act in the Principal Decision Maker’s best interests. An Agent may or may not bring valuable knowledge and counselling skills to their role. The Agent may have absolute authority (being allowed to make a final decision to conclude a negotiation) or limited authority (whereby he/she will have to seek instructions from the Principal Decision Maker on some or all decisions as part of the negotiation). The Agent may work for the same or a different entity to that of the Principal Decision Maker.
An Advisor offers advice or guidance to the Principal Decision Maker and/or to the Principal Decision Maker’s Agent, but will not act on behalf of either in the actual negotiation process (i.e. will not interact with the other party).
The easiest way to understand the role each plays is to look at an example:
A large marketing company (Limelight Pty Ltd) require documents to be sent via courier on a regular basis. For high-volume work, courier companies are willing to negotiate special pricing with such potential clients in order to win a contract for their work. A year ago Limelight entered into a contract with Speedy Couriers Pty Ltd. The contract is now up for renewal and the parties have met to try and negotiate a new agreement.
This is a business to business interaction and both Limelight and Speedy Couriers are the Vital Entities and therefore the reason the negotiation is taking place.
Party A (Vital Entity A) is Limelight Pty Ltd.
The CEO of Limelight has the final say as to whether or not the company agrees to any new pricing and terms resulting from the negotiation. This makes the CEO, Party A’s Principal Decision Maker.
The Contracts Manager of Limelight frequently negotiates agreements on behalf of the company. In some cases, he’ll have the final say on approving a contract, but in this case (being such a critical contract) he’ll carry out negotiations but will have to refer the final decision to the CEO. Therefore in this instance, the Contracts Manager is Party A’s Agent (with limited authority).
Party B (Vital Entity B) is Speedy Couriers Pty Ltd.
The CEO of Speedy Couriers allows his Business Development Manager to negotiate the terms of all new business. The CEO allows the Client Liaison Manager to negotiate the renewal of contracts with existing clients. Therefore in this example, the Client Liaison Manager is the Agent (with full authority) for Speedy Couriers.
Unfortunately, Speedy Couriers deal with quite a lot of disputes in their business in relation to insurance issues and damage of client goods in transit. For this reason, they have an in-house lawyer in their team of staff. The lawyer also makes herself available to both the Business Development Manager and the Client Liaison Manager to look over contracts and advise them of the implications of agreeing to such terms. She doesn’t however get directly involved in the negotiation process. Therefore, Speedy Couriers’ in-house lawyer takes the role of Advisor in these matters.
Figure 0.1
Limelight Pty Ltd (left)& Speedy Couriers Pty Ltd (right)
(See Table 0.1 for key to symbols)
Table 0.1
Circle with inset square = Vital Entity
Red square = Principal Decision Maker
Red circle = Agent with full authority
Blue circle = Agent with limited authority
Yellow circle = Agent with extremely limited authority
Pink star = Advisor
The following are additional examples highlighting the vastness of combinations available for negotiation settings:
Example One
Party A is a property development company, City Construction Pty Ltd (Vital Entity) and is represented by a law firm. The issue of the negotiation, being the environmental impact of development, is a particularly specialised one. Therefore, the law firm has engaged the services of an industry expert (Advisor) to give the firm advice on several aspects of the case. The CEO of City Constructions (Principal Decision Maker) has maintained that she requires the final say on any negotiation and the law firm (Agent with limited authority) must refer major decisions back to her for instructions and/or approval.
Party B is a local community group called Enviro Advocate Inc. (Vital Entity). It has a management team of three (Principal Decision Makers). The management team has sent one of its construction and sustainability specialists to attend the negotiation on its behalf. The attendee Agent (with full authority) is permitted by the management team, to make all decisions necessary as representative of Enviro Advocate.
Figure 0.2
City Construction Pty Ltd (left) & Enviro Advocate Inc (right)
(See Table 0.1 for key to symbols)
Example Two
Party A is a retailer, Sports Gear Pty Ltd (Vital Entity). The director (Principal Decision Maker) would like a couple of high profile footballers from his favourite club to make an appearance at the store on the day he launches a new line of equipment. After some enquiries, the director finds that in order to arrange the footballers to appear, he must contact the club rather than deal directly with players.
Party B is the Whiteville Football Club Ltd (Vital Entity). As part of the players’ contracts, the club has its players agree to a small number of social and corporate appearances. The football club is represented by a management group (Agent with full authority). In this and similar matters, the CEO of the club (Principal Decision Maker) has given the management group full authority to reach agreement on the club’s behalf. The management group is often approached about engagement opportunities and therefore has a small team of in-house negotiators (Agent with full authority) to negotiate and book such appointments. The negotiators are given full authority, to the extent to which the club has authorised the management team to act on its behalf.
Figure 0.3
Sports Gear Pty Ltd (left) & Whiteville Football Club Ltd (right)
(See Table 0.1 for key to symbols)
Example Three
Party A is an individual, Jerry Porter (Vital Entity and Principal Decision Maker). He was leaving a fast food restaurant after eating a meal there when he slipped on some wet floor tiles and injured himself. He approached Avid & Associates (Agent with full authority), a law firm specialising in personal injury claims. He agreed to Avid & Associates’ terms of engagement and has granted them full authority to negotiate with the restaurant in order to achieve an amount of compensation. Avid & Associates are using one of their junior lawyers (Agent with extremely limited authority) to handle this matter. However the junior lawyer must refer all issues and decisions to one of the firm’s senior associates. The junior lawyer will have phone access to a senior associate during any negotiations with the other party.
Party B is A. R. Kimble Pty Ltd (Vital Entity) trading as, Deep Fried Land. The director of A. R. Kimble Pty Ltd (Principal Decision Maker) has engaged his solicitors, Fine & Crimp Barristers and Solicitors to handle the matter for him and has given one of its partners (Agent with full authority) full authority to do so. The partner will seek the expert advice of a ceramics specialist (Advisor) to try and add strength to his client’s case.
Figure 0.4
Jerry Porter (left) & A. R. Kimble Pty Ltd (right)
(See Table 0.1 for key to symbols)
PART A - Negotiation Strategies & Methods
Overview
It’s easier for somebody to become an effective and confident negotiator if they’re able to readily identify and use basic Strategies and Methods common to the art of negotiation.
A negotiation Strategy is the approach that a party takes in a negotiation.
A negotiation Method is the means used by the party to achieve as close to the ultimate outcome as possible given its choice of Strategy.
To use an analogy, if Strategy is the menu item, then Method is the recipe used to cook the dish. For a great meal, you have to select the right item from the menu and it also has to be prepared well. Both elements contribute to the final outcome.
Some negotiators analyse the Strategies and Methods they use more than others. For some, every statement made to an opponent is premeditated and very much part of a conscious decision on what to say. Other negotiators will adopt a Strategy and draw from particular Methods and tools without consciously identifying their options or selection.
Generally, the only negotiators who have a good chance of maximising their success whilst merely ‘feeling their way through’ the process, are those that are extremely skilled and seasoned negotiators, or those entering the negotiation in a considerably more power situation than their opponents.
Negotiators, especially those with less experience, can benefit greatly from making conscious and well thought out decisions throughout each negotiation. This includes identifying the Strategy and Methods they’ve chosen and the reason for their choices.
The following descriptions of different negotiation Strategies and Methods are not meant as an endorsement of each or any. This section simply aims to summarise and compare each Strategy whilst placing them into a practical context. Some Strategies and Methods can involve unethical and antisocial behaviour. Therefore you may find you’re only comfortable using a selection of the Strategies and Methods described. However, it’s important for negotiators to be aware of them all as any may be used against you by an unscrupulous opponent.
Section 1. Negotiation Strategies
Introduction
Strategy is a negotiator’s approach to a negotiation. It reflects the negotiator’s belief as to whether that which is being negotiated is of a fixed amount or is expandable. A negotiator’s choice of Strategy will largely determine how he/she interacts with her/his opponent.
1.1 Distributive Strategy
1.1.1 Distributive Strategy - Overview
This Strategy is also known as “Fixed-pie”, or “Value Claiming” strategy.
The basic mindset of a negotiator adopting Distributive Strategy is for her/him to try and claim all the profit or the maximum share of that which is being negotiated. The idea is for her/him to end up with as close to all the ‘pie’ as possible.
Furthermore, the mentality is that the article/item (‘pie’) being negotiated is of fixed value or size. Therefore focus is on obtaining the most and leaving as little as possible for the opponent. Distributive Strategy doesn’t promote working with one’s opponent to explore opportunities to increase the overall value or size of the article/item (‘pie’) being negotiated.
1.1.2 Distributive Strategy – Typical User Profile
The following are typical of a negotiator adopting Distributive Strategy in her/his negotiation:
# Exhibiting aggressive and intimidating behaviour.
# Insistent on negotiating in her/his offices rather than yours or a neutral location.
# Setting her/his office up so that you’re uncomfortably situated throughout the negotiation.
# Prepared to sacrifice ongoing relationships for immediate/short term gains.
# Willing to make fun of or ridicule your position/views.
# Prepared to make personal (verbal) attacks on you, regardless of the view you’re presenting.
# Perhaps be very pleasant in order to extract what he/she wants from you.
In the case of an opponent who’s a typical Distributive Strategy user, he/she certainly isn’t considerate of your situation at all… it’s all about self-gain. The points we’ve just look at reflect this. The last point may appear the odd one out, and generally this strategy does call for at least somewhat of an unpleasant forcefulness in one’s approach to the negotiation. However, a negotiator may still be very pleasant when interacting with their opponent. That is, just as long as they feel it’ll help them get as much as possible of the fixed amount from the interaction, whilst giving up as little as possible.
1.1.3 Distributive Strategy – How to use it
The following are tactical points to consider if wishing to utilise Distributive Strategy in your negotiations:
# Keep the negotiation as narrow as possible, disallowing your opponent to discover the Interests* behind what you’re openly striving to claim.
# Be as secretive as possible with your own information (including your Interests and true goals of the negotiation). Allow your opponent only to know the bare essentials necessary to participate in the negotiation.
# Appear disinterested in your opponent’s own Interests and goals. At the same time, try and work out what they are and what the minimum he/she will accept in order to reach a settlement.
# If advantageous, jumble the information you give your opponent in order to disguise your true goals of the negotiation. This may include misleading and outright lying to your opponent.
# Be unpredictable. Back-track over points your opponent thought were tentatively agreed on. In order to unnerve your opponent, jump around from one point to another without firm resolution.
# Be selfish and talk selfishly. Treat your goals of the negotiation as your given right.
# Make extreme claims and remain persistent about achieving them.
# Compromise as little as possible and only when absolutely necessary.
# Create issues you don’t even care about, just so you can use them as apparent ‘concessions’ for your opponent later in the negotiation.
# Create pressure through setting deadlines, pushing your opponent to make decisions without proper assessment, and repeating demands.
# Use your opponent’s mistakes to your advantage.
# If you’re confident in your ability to utilise Distributive Strategy, then keep the number of people negotiating (on your side) to a minimum. If you’re not, then you may wish to have many people on your side in order to intimidate your opponent’s side. However, you should control what your side says and have the others (on your side) merely chorus you.
# For final decision-making authority, consider referring these to an unknown superior (do not allow your opponent to meet this person. Most times, this will be a fictitious character you’ve created to help with using Distributive Strategy tactics).
* For a definition of Interests in context of Positions and Interests, see 1.4.2 Positions and Interests.
1.1.4 Distributive Strategy – Effectiveness Summary
Distributive Strategy may be suitable if:
# Your goals are in direct and absolute conflict with those of your opponent.
# The negotiation is a single, isolated opportunity to obtain part of a fixed amount (“fixed pie”) and given the negotiating environment, the ‘pie’ can’t be expanded.
# Your relationship with your opponent is unimportant.
Distributive Strategy is rendered somewhat ineffective if your opponent is:
# Intolerable and impolite.
# Unreasonable and unrealistic.
# Unsure of the value of that which is being negotiated.
# Perceptive and intelligent.
If, there’s no way of working together with your opponent in any capacity, or you’re unconcerned with maintaining a positive, ongoing relationship with your opponent, and no matter how much you were to work with your opponent, there’s no provision for expanding the pie, you may opt for distributive strategy.
Distributive Strategy fails, where your opponent doesn’t respond in a predictable way to your attempts. It may be that he/she has adopted the same approach as you, in which case, a forceful, distributive approach will be met with strong resistance. Or, perhaps he/she’s failed to even develop a realistic view of the focus of the negotiations, grossly under or over-valuing that which is being negotiated.
It makes it tougher to get somebody to give something up in the way you’ve planned if they think it’s worth say, three times what it actually is. Or perhaps he/she sees right through your strategy and is able to generate an effective countermeasure.
1.2 Integrative Strategy
1.2.1 Integrative Strategy - Overview
This Strategy is also known as “Expanding-pie”, “Value Creating”, or “Win-Win” strategy.
The basic mindset of a negotiator adopting Integrative Strategy is for her/him to try and find a solution that best fits the needs of all parties. This may be achieved over time, with multiple negotiations containing compromise from both sides. Alternatively, it may also be reached by all parties working together to expand the value or size of that which is being negotiated.
Integrative Strategy promotes working with your opponent and discussing problem-solving principles and methodologies. It encompasses seeking reasonable outcomes and offering your opponent reasonable accommodations.
Expanding the value or size of the ‘pie’ is an important feature of this negotiation strategy. Basically, this involves adding elements to a negotiation in order to help one or both/all parties gain more from the result.
These are usually elements which are valued differently by each party and often, they have the characteristic of allowing one side to make a substantial gain, without the other side having to give up anything of great value to them.
These elements can be found even in negotiations that initially appear completely inflexible.
There’s a classic example that demonstrates this very well:
Two girls are fighting over the last orange in the fruit bowl. Both want it and neither is willing to allow the other to have it. After much arguing their mother intervenes. She could take the distributive approach, figuring the only way to resolve the feud is to take the orange, cut it in half, and give each girl half. However, she decides to see if there’s a better solution. She asks the first girl why she wants the orange. The girl replies, “Because I want to peel it and eat it.” She asks the second girl, and she responds, “Because I need the orange peel to add to the fruit cake I’m about to make.” Suddenly the girls realise that they can both get what they want. The orange can be peeled and whilst the first girl eats the inside of the orange, the second girl can use the peel when cooking her cake.
1.2.2 Integrative Strategy – Typical User Profile
The following are typical of a negotiator adopting Integrative Strategy in their negotiations:
# Exhibiting professional and mostly pleasant behaviour.
# Willing at least to be civil and respectful.
# Happy to negotiate in a neutral or comfortable location.
# Likely to remain calm throughout the negotiation process.
# Looking to build trust with her/his opponent for a long-term relationship.
# Prepared to discuss issues and Interests rather than personalities.
1.2.3 Integrative Strategy – How to use it
The following are tactical points to consider if wishing to utilise Integrative Strategy in your negotiations:
# Try to find principles, upon which decisions in connection to the negotiation, are to be made. This includes objective criteria and legitimacy.
# Offer allowances and concessions (where suitable) to your opponent.
# Discuss the aspects important to you with your opponent. You should describe your Interests and attempt to understand your opponent’s Interests.
# Take the time to listen properly to what your opponent has to say.
# Be willing to strategically disclose your information.
# Ask investigative/problem-solving questions of your opponent.
# Negotiate with integrity and honesty.
# Separate the people from the issues/problems being worked through.
# When negotiating, try and focus on Interests and principles, not Positions.
# Each party should try and directly include their key decision makers in as much of the negotiation process as possible. Attempt to facilitate and encourage the inclusion of as many constructive contributors from each party as possible.
# If settlement appears challenging, look for potential gains from your opponent as well as gains you can offer in return. This will effectively be expanding the ‘pie’ and possibly creating a ‘package deal’ with positive elements for both parties.
# Make multiple, simultaneous offers.
# Hold a think-tank to try and uncover as many options for settlement as possible.
# Allow plenty of time for discussions and break the negotiation into a series of meetings if necessary.
# Before settlement, ensure your opponent understands the terms of settlement and their consequences.
# Look to benefit from differences (e.g. the different worth you and your opponent place on certain elements of the negotiation).
1.2.4 Integrative Strategy – Effectiveness Summary
Integrative Strategy may be suitable if:
# You and your opponent have differing strengths of preference across numerous issues in connection to the negotiation.
# Negotiations are recurring or ongoing between parties.
# Your relationship with your opponent is important.
Integrative Strategy is rendered somewhat ineffective if your opponent is:
# Unintelligent.
# Unrealistic.
# Lacking perceptiveness or creativity.
# Unsure of what he/she is seeking from the negotiation.
In the case of a negotiator who’s a typical Integrative Strategy user, he/she’s likely to be more considerate of an opponent. The negotiation won’t be about grabbing as much as possible with total disregard for an opponent. The points we’ve just look at reflect this. A negotiator can be strong, at the same time as using Integrative strategy. It’s just like a piece of bamboo. It’s strong, yet very flexible, which means it can bend a lot more than other woods, without necessarily breaking.
Also, typical Integrative Strategy users are happy to begin building long-term relationships with their opponents, even if they can’t yet see when they’re next going to interact with them. The idea is that when they do happen to interact in the future, if ever, they’ll share a good rapport and there won’t be any resentment between them from previous dealings.
Integrative Strategy falters, where one party is inconsiderate of everybody’s situation but their own. Even without actually being able to label it, all parties must be intelligent enough to at least understand the concept of integrative negotiation, and how working together with your opponent to some degree may reap positive results for all concerned.
Integrative strategy is also hindered by one or more parties being unsure of their goals, not knowing the value they place on particular components of the negotiation, or not being able to generate or consider creative solutions to a situation.
1.3 Mixed-motive Strategy
1.3.1 Mixed-motive Strategy - Overview
The basic mindset of a negotiator adopting Mixed-motive Strategy is for he/she to try and create overall value and then claim as much of that value as possible (without compromising her/his integrity). The Strategy is about working with your opponent to expand the overall value or size of that which is being negotiated. Then once the ‘pie’ has been expanded and the needs of all (or at least most) parties have been meet (as far as practicable), claiming as big a piece of the ‘pie’ as possible.
In many negotiations, there will be elements of both Integrative Strategy and Distributive Strategy. There will be time spent with your opponent considering how best to create a positive outcome for all and time spent in competition with your opponent, staking your own claim to what is attainable. Therefore, a combination of Strategies often eventuates. It may be the case that the negotiation moves from an Integrative strategic approach between parties to a Distributive strategic approach once the ‘pie’ has been fully expanded.
1.3.2 Mixed-motive Strategy – Commonly Exhibited Elements
Because this Strategy is a basic blend of both Distributive and Integrative Strategies, it’s less defined in terms of elements to its approach. There are many combinations and ways of blending the two to suit a particular negotiation. However, the following are commonly exhibited by a negotiator adopting a basic Mixed-motive Strategy in her/his negotiations: