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The Art of Negotiating
The MIT Enterprise Forumof Israel
Tel Aviv University
December 29, 2010
© (2010) Martin Gerstel
NEGOTIATION
“The use of information and power to affect behavior within a web of tension.”*within a web of tension.”*
* Herb Cohen, “You can Negotiate Anything.” Four months on
the New York Times Best Seller List
NEGOTIATION
“The use of information and power to affect behavior within a web of tension.”*
The process of two or more The process of two or more parties attempting to reach agreement regarding an issue when faced with an apparent conflict or disagreement.
* Herb Cohen, “You can Negotiate Anything.” Four months on
the New York Times Best Seller List
THE ART OF NEGOTIATING
� When to Negotiate
WHEN TO NEGOTIATE
� When is it required?
– Almost never
� When can you not?
– Almost never– Almost never
When you choose to
But…Always a priceIs it worth it?
A Common Mistake
“Set objective (what you want)
and then accomplish it”
Objective (What?)
Means to AccomplishNegotiate (How?)
Objective (What?)•Buy car at lowest cost to resell
•Sell car at highest price and then buy car
Key to Remember!
Why? – Why? – Why?
Why?•Needs car for summer at
less than $9000 cost•Has car unneeded for summer, needs $2000, summer, needs $2000,
Objective (What?)•Buy car at lowest cost to resell
•Sell car at highest price and then buy car at end of summer
“Why’s” lead to “How’s” “What’s” often lead to trouble
Why?•Need car for summer
•Need $2000 for trip: have car that is not needed for summer
Means to Accomplish (How?)• Rent Car for summer
NO
Objective (What?)•Buy car at lowest cost to resell
•Sell car at highest price and then
buy another car at end of summer
When to Negotiate?
“Negotiation”: The process of two or more parties attempting to reach agreement regarding an issue when faced with an apparent conflict or disagreement.apparent conflict or disagreement.
1. Are you sure there is a conflict?
2. Is it “worth it” to resolve?
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
Assumption or Fact?
� If someone puts an ad in the newspaper to sell a car, they want to sell the car.
� If someone responds to an � If someone responds to an ad in the newspaper about a car for sale, they want to buy a car.
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
When ALZA first began working with
client companies, overhead rates were
negotiated individually with each
potential client. This negotiation was
often the most difficult part of entering
into a new arrangement. The client
From my History
into a new arrangement. The client
company had their accountants go over
every individual line item and argue
with us point by point, trying to reduce
our rates.
Why was the potential client
doing this?
An Objective (“What”)
“We want to have the right to
market the product in Europe.”
“Why’s” lead to “How’s” –
“What’s” often lead to trouble
Assumptions/Facts(Why?)
Objectives(What?)
Means to Accomplish(How?)
NO
An Objective (“What”)
“We want to have the right to
market the product in Europe.”
� The “Why” Could Be:
– We want to become start marketing products in general
– The other company is not very strong in Europe
– We want to Build Marketing Capability for this product line or geographic area in the future
– We want to be closely Identified with This Product
An Objective (“What”)
A Friend: “Let’s go to Alice’s
Restaurant for dinner”
The “Why” Could Be:
– Alice’s has great steaks
An Objective (“What”)
A Friend: “Let’s go to Alice’s
Restaurant for dinner”
– Alice’s has great steaks
– Want a particular dish that is made only by this restaurant
– It’s at the Tel Aviv Port near the water
– Want a very quiet restaurant
– Don’t want to drive too far
– ???
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
Separate “Needs” from
“Wants”
� “Needs”
– Reason you are interested
– If not “walk-away”
� “Wants”
– Nice to have
– May effect Pricing
– Not a “deal-breaker”
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
Focus on
“Next Best Alternative”
Problem: How to determine an
objective “value” for your first
choice? How much is it really
worth to you?worth to you?
Focus on
“Next Best Alternative”
Problem: How to place an
objective “value” on your first
choice? How much is it really
worth to you?
The Value to you of your
“first choice” equals:
The cost to you of your
“Next Best Alternative”
PLUS
the value/cost of the difference
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
� Information
Information
� Usually most important determinant of outcome
– About the substance of the negotiation
– About the other negotiator/company
Key to Remember
� You don’t know what the other party really needs/wants (They might not even be aware or willing to admit)
� Usually, there is a better solution for both parties than the initial positions taken by either
VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
� Information
� Power� Power
Power
� Power in a negotiation can be obtained by:
– Alternatives
– Organization/legitimacy
– Precedent
– Persuasive ability
– Expertise
– Morality– Morality
– Blackmail
– Persistency
– Risk-taking/escalation
– Anger
� Important to recognize sources of power for both you and the other party
– Can sometimes be “neutralized” if you’re prepared
VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
� Information
� Power� Power
� Time Constraints
Time Constraints
� Use of deadlines
– Most deadlines are not
deadlines
� Recognize when passage � Recognize when passage of time eliminates alternatives
What Would You Do?
You are a knowledgeable buyer of
antiques and you find an extremely
rare lamp for sale which you know
(without any doubt) is worth at least
$100,000, yet the price marked is $100,000, yet the price marked is
$500. The Seller is a very
successful company that purchases
estates and sells items on individual
basis, and just made a very big
mistake in appraising the lamp.
What do you do?
What Would You Do?
You are a knowledgeable buyer of
antiques and you find an extremely rare
lamp for sale which you know (without
any doubt) is worth at least $100,000, yet
the price marked is $500.
What do you do?What do you do?
Suppose the Seller is a widow selling all of her possessions to get money for a medical operation for her only child?
What Would You Do?
You are a knowledgeable buyer of
antiques and you find an extremely rare
lamp for sale which you know (without
any doubt) is worth at least $100,000, yet
the price marked is $500.
What do you do?What do you do?
Suppose you are very wealthy?
What Would You Do?
You are a knowledgeable buyer of
antiques and you find an extremely rare
lamp for sale which you know (without
any doubt) is worth at least $100,000, yet
the price marked is $500.
What do you do?What do you do?
Suppose you are out of work and having problems feeding your family?
VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
� Information
� Power� Power
� Time Constraints
� Values/Needs/Wants/EGO
Each of the above can be used by either party at any time to change the tone of the negotiations.
- Can be “truth” or a “ploy”
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
– concept of “negotiables”
– key to “win-win” negotiating
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
WHAT INFORMATION
TO SHARE
Very Difficult Judgment Call
� Should try to share information
that will:
– Help in finding a mutual solution– Help in finding a mutual solution
– Help other party to understand your needs
WORKSHOP EXAMPLE:
Buying/Selling Car
What Information to Share?
� BUYER– Needs car only for three months– Needs car only for three months
– Intends to sell after three months
� SELLER– Selling car reluctantly
– will need to buy car after three months return from trip
WHAT INFORMATION
TO SHARE
Very Difficult Judgment Call
� Should try to share information
that will:
– Help in finding a mutual solution
– Help other party to understand – Help other party to understand
your needs
� But, need to consider whether other party can then use information to your disadvantage
WORKSHOP EXAMPLE:
Buying/Selling Car
What Information NOT to Share?
� BUYER
– No Other Alternatives
– Time pressure – Time pressure
� SELLER
– No Other Alternatives
– Time Pressure
HOW DO YOU RESPOND?You’ve been in a very difficult
negotiation for three days. The process
doesn’t seem to be getting anywhere.
There doesn’t seem to be an outcome
acceptable to all. On the first day of the
negotiations, you had presented a proposal
that was flatly rejected out of hand by the
other party as totally unacceptable, and
they weren’t even willing to discuss it.they weren’t even willing to discuss it.
It is now three days later and they
come back to you with a proposal which is
essentially the same as the one that you
offered three days earlier. It is presented
by them as a new and different way to
possibly proceed to get around the
problems that your unwillingness to be
reasonable has created.
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
– Listen and Respond
Listen and RespondWhat “Level” Is the Subject Now
Being Discussed?
Assumptions/Facts(Why?)
Objectives(What?)
Means to Accomplish(How/A Proposal?)
LISTEN and RESPOND,
Accurate?
�Is the other person’s statement, or what it is suggesting:
Reasonable?
Acceptable to You?NOT the same as “Reasonable”
GIVING YOUR RESPONSE
WHAT’S THE DIFFERENCE ?
Presenting Your Case
� In a Court of Law
� In a Negotiation
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
– Listen and Respond
– Show Support for the Other Party
– Forget your “Ego needs”
Forget Your
“Ego” Needs
Most people, particularly if they are
representing an organization and
have their associates with them,
need to “look good.” If you are in a
negotiation and you don’t have that
need, it can be a tremendous
advantage.
Examples:
• Giving credit to others for ideas
• Lose a lot of battles
Painting
Win Wars--Lose
Battles
� Need to know what the war is
– Know Your Objectives– Know Your Objectives
� Need to look for battles to lose
– You negotiate with people
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
� Don’t Argue About the Future
Orange
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
� Don’t Argue About the Future
� Compromise is Failure!
– “Remember the Orange”
A “Make Believe”
Raffle
The Rules:
� Highest Bidder Gets $100.00$100.00
� Second Highest Bidder has to pay me what he/she bid
IMPORTANT NEGOTIATIONS
USUALLY CONSIST OF MANY
INDIVIDUAL ELEMENTS
� Poor Negotiators will respond
individually to each element
without an overall plan
– Try to “maximize” each element
regardless of importance to regardless of importance to
objectives
� Good Negotiators will understand how these elements interrelate and effect their objectives
– See as an “overall package”
– Think through before responding
THE ART OF NEGOTIATING
� When to Negotiate
� “Why” is key, not “What”
� Question Your Assumptions
� Separate “needs” from “wants”
� Focus on “Next Best Alternative”
� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”
� No “True” Values
� Share Information
� You Negotiate With People
� Compromise is Failure!
� Keep the “Big Picture” in Mind
Some Additional Hints
� Always know/understand your alternatives
– There always are alternatives
� Deal with substance, not words– “Ownership” vs. “Right-to-Use”
Patents– “Why” not “What”
� Never negotiate by phone� Never negotiate by phone
� Specifically state the ground rules– Agreements or proposals
� Disagree with IDEAS, not PEOPLE
� Quantify/analyze
� Think about the future
� Never negotiate alone
� If in doubt, ask a question
� Beware of game-players
Games Negotiators Play
� I don’t have the authority
� This is too complicated, can’t we
make it simpler
� Anger, “winning” by intimidation
� Inappropriate use of � Inappropriate use of
power/escalation
� Good Guy/Bad Guy
� I’m really thinking only of your
interests
� Stubborn, confuse and outlast
� Taking outrageous positions
A LITTLE NEGOTIATING PRACTICE
� STATUS: You have been negotiating an agreement under which a product will be developed and marketed by your partner at their expense based on a license their expense based on a license from your company. If successful they will pay your company a royalty. Somehow, during the negotiating process, no one discussed royalty rates, and this is now the only open issue. Everything else has been agreed .
A LITTLE NEGOTIATING PRACTICE
� YOU: “We will require a five percent royalty on sales of the product.”
� THEY: “The most we are prepared to pay is two percent royalty THEY: “The most we are prepared to pay is two percent royalty on sales.”
How to you respond?
“Why’s” lead to “How’s” –
“What’s” often lead to trouble
Assumptions/Facts(Why?)
Objectives(What?)
Means to Accomplish(How?)
NO
A LITTLE NEGOTIATING PRACTICE
� YOU: “We will require a five percent royalty on sales of the product.”
� THEY: “The most we are prepared to pay is two percent royalty THEY: “The most we are prepared to pay is two percent royalty on sales.”
� YOU: “Could you please explain why the maximum you will pay is two percent?”
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain
why the maximum you will pay is two
percent?”
� THEY: “This is going to be a � THEY: “This is going to be a relatively small niche product and therefore, looking at the development costs involved, we really can’t justify a royalty higher than two percent.”
� YOU: ????????
LISTEN & RESPOND
(Now you “know” the “why”)
� Is the statement you are responding to:
– An Assumption
– An Objective, or
– A proposal
� Is the statement you are responding to:
1. Factual
2. Reasonable
3. Acceptable to you
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain
why the maximum you will pay is two
percent?”
� THEY: “In view of the fact that we are taking all of the that we are taking all of the development and commercial risk, and you are taking no risks, we don’t see how a royalty of higher than two percent is justified or reasonable.”
� YOU: ????????
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain
why the maximum you will pay is two
percent?”
THEY: “Our corporate � THEY: “Our corporate policy is never to pay more than two percent for licensed-in product candidates at such an early stage.”
� YOU: ????????
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain
why the maximum you will pay is two
percent?”
� THEY: “The product candidate just isn’t worth it. candidate just isn’t worth it. Although it appears to have some unique qualities, your patent coverage is not going to stop “me-too’s”.
� YOU: ????????
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain why
the maximum you will pay is two
percent?”
� THEY: “Product sales will be very limited since this will be a product limited since this will be a product only for the United States market. We don’t see any possibility of international sales.”
� YOU: ????????
A LITTLE NEGOTIATING PRACTICE
� YOU: “Could you please explain
why the maximum you will pay is two
percent?”
� THEY: “By the time this product gets to the market, there will be many other companies with similar products for the same target and products for the same target and based on the same mechanism. We agree this will be a big product, but only because of our marketing expertise and position in this field, not the characteristics of the product candidate that you are licensing to us.
� YOU: ????????
A LITTLE NEGOTIATING PRACTICE
THE ENDTHE END