BargainingForAdvantage_BIZPDA

WISDOM IN A NUTSHELL

BARGAINING FOR ADVANTAGE

Negotiation Strategies for ReasonablePeople

By G. Richard Shell

Penguin Books, June 2000 ISBN 0 14 02.8191 6

286 pages

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Bargaining For Advantage

The Big Idea

This book is a guide to better negotiation practice, not a substitute for it. It will show that while negotiation is not a rocket science, it is not simple intuition either. No matter who you are, your intuition will fail you in important bargaining situations. To improve, you need to shed your assumptions about the process and open yourself to new ideas. The approach to negotiation this book uses is called Information-Based Bargaining. This approach focuses on three main aspects of negotiation: solid planning and preparation before you start, careful listening so you can find out what the other side really wants, and attending to the “signals” the other party sends through his or her conduct once bargaining gets underway.

PART I: THE SIX FOUNDATIONS OF EFFECTIVE NEGOTIATION

CHAPTER ONE: THE FIRST FOUNDATION: YOUR BARGAINING STYLE

A StoryTwo men entered a conference room in an office tower high above Lexington Avenue in New York City. On one side of the table sat Peter Jovanovich, the Chief Executive of Harcourt Brace Jovanovich (HBJ), a company now on the edge of financial ruin. As the son of one of the firm’s founders, Jovanovich was deeply committed to preserving the family’s legacy. Across the table sat Dick Smith, the aggressive leader of General Cinema, a large conglomerate probing for a corporate foothold in the publishing business. Both sides have carefully prepared their “scripts” for the opening of the negotiation. Smith was to be a suitor and had planned a detailed presentation on General Cinema’s financial strength and reputation. Jovanovich’s team, was also very positive about the deal, and prepared Jovanovich for the role of “listener.” He would be interested but noncommital. He would not tip his hand or show his urgency.

On cue, Smith began his opening speech, but within seconds Jovanovich interrupted. The HBJ advisers stirred. This was not in the script. Jovanovich spoke and placed a small box on the table between him and Smith. “My father always gave a watch like this to his partners at the beginning of a new business relationship,” he said. “This is meant to signify my sincere belief that General Cinema is the right buyer of HBJ.” It was a risky admission, and both men knew it.

The anxiety in the room eased.

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What is Negotiation?A negotiation is an interactive communication process that may take place whenever we want something from someone else or another person wants something from us.

The Five Basic Bargaining Styles Behind the bewildering array of personality differences, psychologists have isolated five basic negotiation personality types based on the way people prefer handling interpersonal conflict. The five types are, in descending order of aggressiveness: competitors, problem solvers, “compromisers,” “accommodators,” and conflict “avoiders.” No system of categorization is perfect, but this one is better than average because the potential for interpersonal conflict is what gives negotiation its characteristic “edge.”

Your Bargaining Styles All negotiations begin with you. The first foundation of effective negotiation is your personal bargaining style – the way you communicate when you face a situation containing interpersonal conflict. Your success as an effective negotiator depends on candidly assessing your strengths and weaknesses as a communicator.

Some people have a wide “bandwidth” when it comes to bargaining styles. They can adapt easily to many different types of situation and “opponents.” Others are more limited in their range of effective action. They may be quite strong in situations requiring competitive instincts but weak when it comes to relationships. Or they may be strong in cooperative skills and weak if the situation calls for hardball tactics.

Many negotiation experts try to teach people a single, all-purpose style, which is often not helpful or realistic. Your job is to find out who you are as a negotiator and then work to be more effective with the skills you have – not try to become someone you are not.

What predispositions do you bring to the bargaining table? Are you a cooperative sort of person, striving to meet everyone’s goals so people leave the negotiation table feeling good? Or are you a more competitive type who is less concerned with how the other party feels and more interested in how well you do?

Regardless of your answer, your job as a negotiator is to understand your style preferences, see how they match up with the situation, plan your path through the four steps that negotiations follow, and try your best to be effective by preparing, forming high expectations, listening to the other party, and acting with integrity in the process.

Information-based bargaining proceeds from the assumption that you will get better results for yourself and achieve more for others who depend on you by



tirelessly searching for key information about the parties and the situation. Your success then turns on using this information skillfully as bargaining goes forward.

Your Bargaining Style: A Checklist • Determine your basic style preferences • Acquire a willingness to prepare • Set high expectations • Have the patience to listen • Make a commitment to personal integrity

CHAPTER TWO: THE SECOND FOUNDATION: YOUR GOALS AND EXPECTATIONS

Morita and SonyIn 1955, a small Japanese company called Sony Corporation had a new product: a $29.95 miniature transistor radio. The radio was selling well in Japan, but Sony’s energetic leader, Akio Morita, was not satisfied. He wanted to introduce Sony’s radio to the world’s biggest consumer market: the United States. Morita went to New York City to see if he could interest American retailers in selling Sony’s new radio. He ran into a problem: The tiny radio was unlike anything Americans had ever seen. Morita was persistent, however, and he soon attracted the interest of Bulova, one of the most respected names in electronics of its day. But Bulova offered to buy the radios for distribution in order to sell them under its own brand name. Morita cabled his executive board in Japan for instructions. The board enthusiastically cabled back its response: Forget about the problem with the brand name and take the order. Morita thought it over carefully for a week and returned to Bulova to continue the negotiations. He told Bulova he would like to make a deal, but he could not accept the condition that they sell it under their brand name. The deal didn’t push through and Morita received, eventually, a more modest order from another American distributor. This one let Morita keep the Sony name on the radio. The miniature radio caught the American public’s eye – along with the name Sony. Of his negotiations with Bulova, Morita later wrote, “I said then and I have said it often since: It was the best decision I have ever made.”

Goals: You’ll Never Hit the Target if you don’t Aim In Lewis Caroll’s “Alice’s Adventures in Wonderland,” Alice finds herself at a crossroads where a Cheshire Cat materializes. Alice asks the Cat, “Would you tell me please, which way I ought to go from here?” The Cat replies, “That depends a good deal on where you want to get to.” “I don’t much care where,” says Alice. “Then it doesn’t matter which way you go,” the Cat replies. To become an effective negotiator, you must find out where you want to go – and why. That means committing yourself to specific, justifiable goals. It also means taking the time to transform your goals from simple targets into genuine – and appropriately high – expectations. What is the difference between a simple goal



and something that has matured into a genuine expectation? Basically one thing: your attitude. Goals are things we strive toward that are usually beyond the range of our past achievements. Such things as investment goals, weight loss goals, and athletic goals are typical. We set goals to give ourselves direction but we are not greatly surprised or disappointed if we fall short.

What you really want Since setting goals is so vital to effective preparation, how should you do it? Use the following simple steps: 1. Think carefully about what you really want – and remember that money is

often a means, not and end. 2. Set an optimistic – but justifiable – target. 3. Be specific. 4. Get committed. Write down your goal and if possible discuss the goal with

someone else. 5. Carry your goal with you into the negotiation.

Goals and ExpectationsThe first important step in preparation is to commit to specific, justifiable goals. Why are clarity of purpose and optimism so helpful in negotiations? First, once you set your sights on a concrete, challenging goal, you will become more motivated. The intuitive part of your mind – the part that works and learns “below the surface” while you are getting ordinary things done during the day – will become a powerful ally and problem solver. You will become more focused, persistent and achievement-oriented, and you will be more likely to come up with good arguments and new ideas about how to get what you want. You will also avoid the common trap of becoming focused on your bottom line too early. This “goal focus” gains you a significant advantage over the average person, who is inclined to pay more attention to his or her bottom line than to any other single bargaining point.

Second, your clarity will communicate confidence and resolve to the other party. You will convey the message that you have high expectations for both yourself and the deal. And perhaps no other personal variable makes such a difference in negotiation as the quiet feeling of confidence, self-esteem, and commitment that emanates from people who know what they want and why they should get it.

CHAPTER THREE: THE THIRD FOUNDATION: AUTHORITATIVE STANDARDS AND NORMS

The Third Foundation In addition to the power of clear goals, negotiations harness one of human nature’s most basic psychological drives: our need to maintain (at least in our own eyes) an appearance of consistency and fairness in our words and deeds.



Standards and Norms Arguments about standards, norms, positioning themes, and authority are the bread and butter of negotiation. But there is another important truth about the criteria of fairness and consistency: Unless the issue is relatively trivial or the social roles especially strong, authoritative standards and crisp positioning themes alone seldom carry the day against negotiators with high aspirations. When stakes are high, people do not make a concession just because they are caught making an inconsistent statement or realize that the other side has a good argument. They make it because they decide after careful consideration that it is within their reach and helps them advance toward their goal. A quote from J.P. Morgan succinctly summarizes this point: “There are usually two reasons people do things – a good one and the real one.”

Put another way: A reasoned argument supporting your position is an admission ticket that establishes your request as legitimate and gets the other side’s attention. But argument alone is seldom sufficient to achieve bargaining success. Your request must also be within the zone of the other party’s capability and interests, and your manner of communicating the standard you wish to apply must be persuasive. In the end, only two things determine the right price of something: what a buyer is willing to pay and what a seller is willing to accept.

Gaining Normal Leverage: A Checklist • Survey the applicable standards and norms. Identify the ones the other party

views as legitimate. • Prepare supporting data and arguments. • Anticipate the arguments the other side will make. • Prepare a positioning theme and anticipate the other side’s. • If necessary, consider making your arguments before a sympathetic

audience.

CHAPTER FOUR: THE FOURTH FOUNDATION: RELATIONSHIPS

The Fourth Foundation Negotiation is about people – their goals, needs, and interests. Your ability to form and manage personal associations at the bargaining table is therefore the Fourth Foundation of Effective Negotiation. Personal relationships create a level of trust and confidence between people that eases anxiety and facilitates communication. The relationship factor is a critical variable in your ability to succeed as a negotiator. Here are some tips that will help you get the most from relationships every time you negotiate.

The Relationship Factor: A Checklist • Gain access and credibility through relationship networks.



• Build working relationships across the table with small steps such as gifts, favors, disclosures or concessions.

• Avoid reciprocity and relationship traps like trusting too quickly, letting others make you feel guilty and mixing big business with personal friendships.

• Always follow the “Rule of Reciprocity”: • Be reliable and trustworthy • Be fair to those who are fair to you • When other parties treat you unfairly, let them know about it

CHAPTER FIVE: THE FIFTH FOUNDATION: THE OTHER PARTY’S INTERESTS

The Other PartyFinding out what the other party is worried about sounds simple, but our basic attitudes about negotiation make this surprisingly difficult to do. Most people tend to assume that other people’s needs conflict with their own. They also restrict their field of vision to the issues that they themselves are troubled by, forgetting that the other side often has its own problem based on its own worldview.

The best negotiators overcome these assumptions with a relentless curiosity about what is really motivating the other side. Indeed, a research suggests that they spend up to four times more time thinking in a strategic way about what the world looks like to the other party than average negotiators.

The lesson here is simple: Find the shared interests that will motivate negotiators on the other side to agree with your proposal and explore why they might say “no.” These inquiries will give you a checklist for proceeding with the negotiation. Lead with the areas you have in common, then probe for and try to meet the other side’s objections one by one with the lowest cost concessions you can make. As you move into the areas in which you have genuine and significant conflicts, you will have gained the momentum you need to keep talks going.

Exploring the Other Party’s Interests: A Checklist • Locate the decision maker • How might it serve the other party’s interests to help you achieve your

goals? • Why might the other party say “no”? • What low-cost options might remove the other party’s objections?



CHAPTER SIX: THE SIXTH FOUNDATION: LEVERAGE

LeverageLeverage is a critical factor in negotiation. The party with the least to lose from no deal generally is the party that can afford to insist that critical deal terms break its way. You can improve your leverage using many different moves, including finding good alternatives to achieve your goals away from the table, gaining control over assets the other side needs, forming coalitions, arranging the situation so the other party will lose face if there is no deal, showing the other negotiator you have the power to make him worse off materially, and so on.

Watch out for the common misconceptions about leverage. Even less powerful people can have leverage in any given situation. And leverage is a dynamic factor based as much on perception as fact. Finally, you can gain power within an organization by showing passionate commitment rather than cool indifference. That is just the opposite of the way leverage works in most market transactions.

Ask yourself, which side has the most to lose from no deal? For whom is time a factor? Can I improve my alternatives or make the other party’s worse? Can I gain control over something the other party needs? Can I commit the other party to norms that favor my result? Can I form a coalition to improve my position?

PART II: THE NEGOTIATION PROCESS

CHAPTER SEVEN: STEP 1: PREPARING YOUR STRATEGY

PreparationGood preparation, like in most endeavors, is a crucial part in the negotiation process. First, using the Situational Matrix, you should determine the basic situation you face. What strategies are best suited to deal with the situation?

Next, you need to combine your situational analysis with the knowledge you have about your own stylistic preferences to determine how well suited you are to negotiate the problem. If you are basically non-confrontational, you will have a hard time doing well in a Transaction unless you are negotiating against someone just like yourself. If you are aggressively competitive, you will lack some of the tact needed to handle a Relationship situation that calls for delicate diplomacy.

Third, try to imagine how the other party views the situation. Do they see the relationship as important? Do the stakes matter as much to them as they do to you? The situational analysis prepares you to anticipate the range of strategies the other side can be expected to use. Finally, combine the information you have gathered on the situation with your insights into the Six Foundations to develop a specific bargaining plan. Use this



plan to formulate a list of questions to ask the other side early in the discussion phase to test your assumptions.

If all this sounds like too much work for the time you have available, remember that even a few minutes spent reviewing the Six Foundations and the Situational Matrix before you start will yield significant benefits. In fact, research indicates that the single most important step in becoming an effective negotiator is acquiring a habit of preparation. John Wooden, the legendary basketball coach, once summed up the truth about preparation with a phrase: Failing to prepare is preparing to fail.

CHAPTER EIGHT: STEP 2: EXCHANGING INFORMATION

Information Exchange ProcessThe information exchange process is the crucial first stage of the interactive phase of negotiations. In general, it accomplishes three purposes. First, the parties establish open communication by setting, if the situation favors this, a friendly and personal tone. Second, they determine the interest and issues to be negotiated and share information about their perceptions on these matters. Finally, they send signals regarding their respective leverage positions.

Information exchange should be handled differently in different situations. The more the stakes matter relative to the relationship, the more strategic the parties are likely to be. Hard-nosed opening statements and bluffing regarding the issues can be expected in a Transaction situation, whereas the rapport-building effort may be the most important aspect of a Relationship situation. In many cultures of the world, extensive rapport building is a precondition to any negotiation regardless of context.

The preliminary information exchange stage has ended and the bargaining stage has begun when one side or the other makes a concrete plausible opening offer that requires a reciprocal response.

Information Exchange: A Checklist • Establish rapport • Obtain information on interests, issues, and perceptions • Signal regarding your leverage



CHAPTER NINE: STEP 3: OPENING AND MAKING CONCESSIONS

Making ConcessionsAs you move through the opening and concession-making stage, remember that your strategy and tactics should be determined by three main elements: the situation, your leverage, and your own and your counterpart’s style.

Each of the four quadrants in the Situational Matrix carries its own presumed best concession strategy: competitive for Transactions, accommodating for Relationships, and interest-based problem solving for Balanced Concerns. Compromise is a useful tool – though not a preferred strategy – in all three situations.

As your leverage goes down, your need to soften your approach rises. And as your leverage rises, your need to accommodate goes down – regardless of the situation you are in.

A word of advice for accommodating people: When two accommodating negotiators get together, they have no need to concession-making tactics. They will simply cooperate as best they can to solve each other’s problems. Both would probably do better to work harder at their goals. But their simple, straightforward approach to bargaining will usually work well enough to get them through.

And a word of advice for competitive people: When you lock horns with another competitive negotiator, the risk of impasse is high. You should remember that you are there to deal, not win a war. Look for face-saving, neutral methods to defuse any bargaining crises you help create.

CHAPTER TEN: STEP 4: CLOSING AND GAINING MOMENTUM

The final stage of negotiation, closing and gaining commitment, poses some significant challenges. In competitive situations a number of strong psychological levers, including the scarcity effect and overcommitment to the process, can cause one side to panic when it would be better off making calmer, more rational decision.

Yet holding out poses risks, too. The other side may have genuine leverage and take its business elsewhere. Firmness can also lead to impasse. Although disagreement often prompts parties to become more creative in their search for solutions, it can also put deals and relationships in jeopardy. How you close



therefore requires a measure of judgment, not just passionate commitment to your goals.

Finally, negotiations are not over until the parties have secured commitments to performance. Agreements alone are not enough unless the relationships and trust between the parties are deep and stable. The secret of making commitments is simple: Set the situation up so the other party has something to lose if it fails to perform. And be willing to take a similar step yourself.

CHAPTER ELEVEN: BARGAINING WITH THE DEVIL WITHOUT LOSING YOUR SOUL: ETHICS IN NEGOTIATION

Ethical dilemmas are at the center of many bargaining encounters. There is no escaping the fact that deception is part of negotiation. And there is no escaping the importance people place on personal integrity in their dealings with others at the bargaining table. One ethical slip and your credibility is lost not just for one but for many deals. Effective negotiators take the issue of personal integrity very seriously. Ineffective negotiators do not.

How do you balance these two contradictory factors? There are three frameworks for thinking about ethical issues: the Poker School, the Idealist School, and the Pragmatist School. Nonetheless, you are better off sticking to your own tried and tested rules as much as possible. Where you come out on bargaining ethics, of course, is a matter for you to decide. But remember: Negotiators who value personal integrity can be counted on to behave consistently, using a thoughtful set of personal values that they could, if necessary, explain and defend others.

CHAPTER TWELVE: CONCLUSION: ON BECOMING AN EFFECTIVE NEGOTIATOR

Personality and style are crucial variables in negotiations. The more you know about your own style, the better you will be able to take advantage of your strengths and compensate for your weaknesses. Moreover, your understanding of your own style will greatly help you in interpreting the style and personality of the people you face.

Do not rely too much on stereotypes, however, whether of the gender or cultural sort. Your judgments about other people at the bargaining table are vital to your success. The best way to make those judgments is to ask questions, listen, and gather solid information about who they really are as individuals. Then be willing to admit you were wrong when they do something that surprises you.


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