Case studies and essay questions Previous exams with …edu.hioa.no/ivar/fag/Negotiation/Case...

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Case studies and essay

questions

Previous exams with solutions

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Case: Iceberg

Eight weeks ago Iceberg Limited opened its newly built food retail store on a prestige site it acquired at a premium price from Papete Investments Plc. It has invested a great deal in marketing its frozen food operations around the theme of ‘customer confidence’. The refrigerator system was manufactured and installed by Keep–it–Cold Limited for £250 000, who also have the maintenance contract costed at 7.5% of the contract value per year – £18750 – (though for the next 12 months the equipment remains under warranty) with a 2 hour call-out commitment. Keep–it–Cold is sited in a nearby city, 130 miles to the north of Iceberg's new store and it services clients up to a radius of 150 miles from its depot.

On Friday of last week at 2 p.m., the visual alarm on one of the refrigerated display cabinets in the delicatessen section became active, indicating that the temperature had risen slightly above the regulation 3 to 5 degrees range. A member of staff called Keep–it–Cold to request a visit by their service engineer. She agreed that the alarm was not of sufficient seriousness to require an immediate response and also agreed that the service visit could be postponed until the next day. This suited Keep–it–Cold because that afternoon all of their service engineers had been assigned to calls to the north of their depot and were furthest away from Iceberg's store.

When the store was opened by the deputy manager next morning at 8 a.m., he discovered that the entire refrigeration system for the whole store had gone down during the night and that all of the display cabinets and the storage rooms were close to room temperature. There was no way that any of the contents of the store could be saved and every unit had to be emptied and their contents disposed of in sealed bins. This represented a stock loss of £40 000.

To compound the problem, the service engineer arrived at 11 a.m. instead of 8 a.m. when she was expected. She explained that she had been working up to 2 a.m. that morning on a major emergency 200 miles away. She had ‘signed on’ for duty at 9.00 a.m. and had gotten to Iceberg as fast as she could.

Meanwhile, at Iceberg, the deputy manager had been on the telephone several times to Keep–it–Cold, exhibiting various degrees of rage about what had happened on Friday and had become increasingly angry about the non-appearance of an engineer. He was told that on the basis of the conversation with his colleague on the previous day it had been agreed that the alarm did not indicate a major emergency and that they had not received any calls between 2 p.m. and when the store had closed at 8 p.m. to indicate that the alarm had gone from an initial indicator warning through the subsequent warning levels to ‘critical’. As far as they understood, the initial warning stage had remained static and they had no reason to revise their non-emergency grading of the problem.

The deputy manager stated that his member of staff did not have the authority to agree anything with Keep–it–Cold about service responses and that she had clearly been ‘persuaded’ (later described as ‘intimidated’) by whoever had answered her call to accept a lower and ‘wholly unacceptable’ response. His case was weakened by being unable to explain why she had not reported to him or another manager their response to her call. That week the Store Manager was on holiday and his deputy had taken his ‘half day’ that Friday afternoon.

When Iceberg's security monitoring service had rung Iceberg's Regional Office to report the initial alarm in one of the stores, they were told that Iceberg ‘was aware of the situation’ (because the employee had reported to them at 2.30 p.m. that she had requested a service call from Keep–it–Cold – though not, unfortunately that the engineer was not coming until the next day). They had received the same response when, throughout the night, their electronic

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monitors picked up the other alarms. Iceberg's Night Unit assumed that Keep–it–Cold engineers were on the premises dealing with the problem. They had not rung the store nor Keep–it–Cold to check their assumption.

The initial phone calls between Iceberg and Keep–it–Cold were argumentative and blame seeking. Whatever had happened the previous day, Iceberg insisted that Keep–it–Cold's engineers should have been on their premises at 8 a.m. Keep–it–Cold insisted that they were in no way responsible as they were not informed of the worsening situation either by Iceberg's local staff, or its Regional Office, and they had no direct link to Iceberg's monitoring service.

Iceberg calculated that it had lost £56 000 as a result (£40 000 stock, £14 000 net profit and £2000 in labour costs) on what would normally have been a busy week-end. This was apart from the inestimable damage to their reputation with their customers, especially as the store was brand new in the area and the equipment was only eight weeks old. They demanded compensation from Keep–it–Cold and warned them that their reputation was at risk too because, once this incident was reported to Iceberg's head office, it could put in jeopardy their maintenance contracts and their role as a major supplier of refrigeration equipment to the whole group (256 stores across the country, with one new store a month scheduled for the next two years).

How serious the implications were for Keep–it–Cold is a matter of conjecture but the business relationship was at risk to some extent. They had a good reputation generally but were convinced that they were not solely to blame and that the local store management had much to answer for because of their absence that afternoon, as did Iceberg's regional office for how they had responded to the calls from their monitoring service that night.

A meeting has been called to discuss the problem.

1. What is the main common interest of Iceberg and Keep–it–Cold in this dispute?

(8 marks)

2. How far should Iceberg push for compensation?

(8 marks)

3. Should Keep–it–Cold resist or pay compensation?

(8 marks)

4. What proposal might Iceberg make to resolve the dispute?

(8 marks)

5. What would jeopardize Iceberg's and Keep–it–Cold's chances of resolving the immediate problem?

(8 marks)

Essay Question 1

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In what circumstances is negotiation an appropriate method for making decisions and why does persuasion work well and coercion not work well in conjunction with negotiation?

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Case Airport Authority

The Airport Authority (AA) has been under considerable pressure from the Regional Government to increase capacity at Changow Airport. Originally built fifty years ago as a small regional airport serving a population of 250 000, Changow's single runway is at full capacity for 20 hours of the day. The region's population has climbed to over 5 million and much of this growth in air travel is due to the rapid economic expansion of the region from industry and tourism.

The options facing the AA are not attractive. To increase capacity at Changow presents some serious engineering problems on the only available land to the north, over which a new runway must be built. The problems are due to local geology and some regular flooding from the Hankse River delta flowing nearby. A residential population of about 1 million lives within an area of 15 kilometres to the north of the airport and they believe that their lives would be affected severely by a major new runway.

Moreover, economic developments close to the airport crowd right up to the southern boundary, which is the only suitable means of access from Changow city for a wider road. The land close to the east and west boundaries contains mainly high income residential properties, mixed with isolated green sites, containing rare natural plants, exotic birds and other small wildlife. The State Government recently designated some of these areas as ‘National Heritage Sites’.

The other option is to build a completely new airport at Fongow, at a distance of forty kilometres from Changow, in agricultural land, presently farmed by thousands of small holders, whose families have worked the land there for many generations. New access roads would be needed, plus, perhaps a railway system which would require many bridges and tunnels, and the airport would be close to high wooded hills. There are doubts about the operational feasibility of building an airport so far from the regional capital.

The local political representatives, all members of the governing coalition, favour expansion of Changow airport on the grounds of ‘national economic development’, ‘social progress’ and national pride. So does local business, which claims that the current airport is holding back economic expansion in the region. Airport passengers, business and tourist alike, are plagued by long delays to flights and missed connections, and traffic jams during access and egress along the airport's single and inadequate southern road to Changow city.

Public disquiet about proposals to expand Changow airport have surfaced and are attracting media interest. The main opposition comes from local residents around the airport, though they do not yet form a majority. On the southern boundary, people living along the main road to the airport oppose widening the road because this would mean demolishing many thousands of homes. People living just behind these houses oppose widening because this brings the new road right up to their properties. A ‘Homes Before Roads’ campaign is underway.

People to the north oppose a new airport runway because of the impact during construction and afterwards on the residents who would have to move to make way for it, and on those left behind, who would be near aircraft taking off and landing. A ‘Hands off the Hankse’ campaign has been formed.

Assume that you were asked to advise the State Government on how to defuse opposition to the new runway. What answers would you give to the following questions?

1. What are the interests of residents who oppose the new runway?

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(8 marks)

2. What negotiable issues might serve those interests?

(8 marks)

3. What are the interests of the state government?

(8 marks)

4. What negotiable issues might serve the state government's interests?

(8 marks)

5. Is there a potential overlap on the positions of the residents and the State Government?

(8 marks)

Total of 40 marks

Essay Question 2

How does the concept of the negotiator's surplus assist the analysis of practical negotiation problems?

(20 marks)

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Slobovic

Gunter Slobovic, Financial Director at Ivory Press Plc, has a formidable reputation as a ‘hard nosed’ negotiator. He does not agree to anything easily, especially if it costs money and he does not normally indulge in social pleasantries, unless it gets him concessions from whatever is proposed to him by suppliers unlucky enough to have him on their ‘slow paying’ clients’ list and due for a ‘motivational’ visit.

While occasionally affable, Gunter is unfriendly. He is always in a hurry to finish a meeting with a supplier and go somewhere else. He gives the impression that time is so scarce for a busy man like him that whatever time he spends with you, the people who should be benefiting from his presence that very moment are making a supreme sacrifice in him stopping long enough to say ‘hello’. So he doesn’t say much more, except ‘good bye’.

Most visitors are intimidated by Slobovic's manner and usually drop on his desk the paperwork about their visit and get out as fast as they can. Those (few) brave enough to stay and conduct their business suffer indignities, including being kept waiting well beyond their appointed interview time, having to endure constant interruptions while in his presence, having to ignore obvious signs that he is not listening very attentively, having to put up with sneers about their company or its services and suffer being threatened with outrageous consequences if they do not ‘sharpen their pencils’.

In short, Gunter Slobovic is a difficult person with whom to deal. Only his firm's growth and profitability as a customer saves it from being dropped by suppliers as ‘more trouble than it is worth’ (though over the years, several firms have done just that, because they cannot endure the personal costs of trying to deal with Gunter).

He is also abusive, given to ‘bad language’, highly prejudiced about ‘foreigners’ (and not too fond of younger people) and can be outright rude when challenged over his statements during a debate. He also theatrically switches off his hearing aid when he doesn't want to listen to anything he disapproves of, such as a complaint about a late payment, an announcement of a price increase, or a refusal of a concession that he thinks he is justified in (rudely) demanding.

A new account manager has joined the finance and investment team of your merchant bank recently and she is about to visit Gunter to discuss his requirement for a stand-by finance package to cover a proposed acquisition programme his firm is putting in place, with a view to some rapid acquisitions in their business sector. Your company wants to be involved in this acquisition programme because Ivory Press's plans are sound and likely to be profitable and Gunter's firm could grow from a $170 million turnover to $400 million in three years.

This could become a major first account for your new manager and you want her to do well (you recruited her from a rival merchant bank). She has come to you for some advice in handling Gunter – she has heard of his reputation on the ‘grapevine’ – and asks you the following questions:

1. How should I respond to Slobovic's bad behaviour?

(8 marks)

2. How much will the fact that Slobovic wants something from us soften his approach – and should it stiffen mine?

(8 marks)

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3. Is it better for me to go in pretty close to our ‘best price’ or should I go in ‘high’ and leave room to negotiate?

(8 marks)

4. Should I let him know what I think of his expected rude behaviour or should I ignore it and stick close to the business in hand?

(8 marks)

5. Should I match or contrast Slobovic's behaviour?

(8 marks)

Total of 40 marks

Essay 3

How would you make the case for Principled Negotiation?

(20 marks)

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Negotiations Faculty of Social Sciences

Exam March 2014

3rd year/Exchange Students

Case Study

Dragons’ Den

Troy is the sole shareholder in his small design company. He recently applied for, and was granted, a patent on his latest product – the SkiBug – a revolutionary product designed for the multi-million-pound babycare industry. He has shown the SkiBug to several parent groups and to a large babycare retailer and has had very positive feedback. Troy’s only problem is capital. To fund production of the SkiBug, with proper marketing to meet his customer demand projection, he would need some heavy investment. Without investment, his product is worthless as he could never produce, market and sell it in a sufficient quantity to get a return. Ideally, he needs a backer who can help within the industry, someone with a background in turning ideas into retail success, as money, though important, is not the only thing Troy lacks. To this end, Troy has arranged a meeting with two Investment Capitalists. He has met with both previously and completed his presentation. Essentially he is looking for £100 000, and is willing to offer up to a maximum of 35% equity in his company, though he has initially asked both investors for £120 000 based on 25% equity. Troy has a touch choice ahead as both investors are keen on the project – do doubt seeing its future potential in sales. He has received two bids: Investor 1 Investor 2 Investment £ 100 000 £ 120 000 Equity share 40 % 45 %

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Experience Marketing Retail Extras offered Design & Marketing Contacts into sector

Troy is cautious about the equity share issue, as both Investors want much more than he has been prepared to agree on. He certainly does not want to lose overall control of his company – but without investment, the value of his company is very little. Troy needs to make a decision at today’s meeting, as he really needs to get the investment in place and move forward as soon as possible. There is room to negotiate with both investors, but not much, and Troy is aware that he does not want to lose their interest!

Questions

1. What are the interests of Troy going into this negotiation? (8 marks)

2. What are the interests of the investors in this negotiation with Troy? (8 marks)

3. What are the negotiable issues in the case and their related priorities for each party?

(8 marks) 4. How might Troy set his entry and exit points in this negotiation?

(8 marks) 5. What justification would you give for a proposal that Troy might offer to Investor 1?

(8 marks) (Total 40 marks)

Essay Questions

Essay 1

‘I can’t believe they think we will just do what they want! I’m going in there and demanding compensation!’ shouted Greg after opening his email. Ellie was a little surprised to hear Greg so angry. He wasn’t normally like that; something must have been said to upset him so much. She tried to persuade him to calm down, but he was determined to go into the meeting to fight his corner. Explain why destructive debate behaviours can lead to a deadlock in negotiations, and why constructive behaviours can help.

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(20 marks)

Essay 2

Cialdini discusses the Milgram Study where the subject was instructed to teach word-pairs to a participant known as the learner. When the learner made a mistake, the subject was instructed to punish the learner by giving him a shock, each mistake leading to an increasingly strong electric charge. Milgram Study aimed at getting an answer to the following question: “For how long will someone continue to give shocks to another person if they are told to do so, even if they thought they could be seriously hurt?” The level of obedience in the Milgram study was a surprise to the researchers. Required: a) Describe four factors that were thought to contribute to this high level of

obedience.

b) How can a person defend himself from what Cialdini calls the “detrimental effects of influence”?

(20 marks)

Essay 3

Hari was a soft Blue negotiator and always felt he was giving away too much in negotiations. His boss was particularly unhappy with his last deal, where Hari agreed to give free servicing for three years to a new client. Although not catastrophic, it could end up costing the company as much as £10 000. Hari’s excuse, that he wanted to get the new client signed up and that maybe the company could negotiate a better deal next time, hadn’t been received well. So Hari had decided to change his negotiation style for the next negotiation – he was going to play Red and get the best deal possible, and not worry about the relationship at all. What is the best style to use during any negotiation and why?

(20 marks)

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Exam March 2013


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The Magic Carpet

WKS plc. has been a customer of Global Carpets (GC) for 20 years. They have a global purchasing agreement which is due for renewal next year. WKS regularly gives this Sales Manager of GC £2 million of business per annum for various UK projects. This particular project is worth £500,000. The London office of WKS is moving to a new HQ building in the city in 6 weeks’ time and the carpets are scheduled to be fully fitted by GC in 3 weeks’ time. The Sales Manager of GC, Petrov, has been requested to attend an urgent meeting with Marcus, the Facilities Manager of WKS, to discuss a problem which has occurred with the carpet currently being installed. Up to this point there has always been a good business relationship between the Sales Department of GC and the Facilities Department of WKS. Marcus is in charge of the new HQ project. In only six weeks’ time the entire office will move into the new building. All aspects of the work have so far been completed on time, however, the latest delivery from Global Carpets has colour mismatching from batch to batch. To add to this, the new CEO from New York is due to move to the London office to take up his new post on completion of the new HQ. Marcus fears any visible defects in the new office will draw unwanted attention onto himself. Although the project has run smoothly so far, it is slightly over budget, by around £15,000, so any savings that can be made at this stage will reflect well on his performance with the new CEO. The deadline given to GC to have the carpets fully fitted was for the end of week three. While Marcus would like this to remain on schedule, some flexibility has arisen due to some early completion of some aspects of the re-fit. Marcus reckons he could give them up to one more week and still remain on schedule. While this re-fit has been taking place a decision has been made by WKS to occupy a new building in Edinburgh on the same scale as the new London HQ. This will require fitting out in around 4 months’ time. However, if the current problem is not resolved satisfactorily, Marcus may be forced to look for an alternative supplier for that job. It is 3pm on Friday and Marcus needs to have this resolved by the end of business today to ensure the schedule does not suffer.

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Questions

1. What are the interests of Marcus in this case? (8 marks)

2. What are the issues of Marcus in this case? (8 marks)

3. What would Marcus’s completed preparation planner look like? (8 marks)

4. How might constructive debate benefit Marcus in this case? (8 marks)

5. What proposal could Marcus suggest to Petrov to resolve this problem and why? (8 marks)

Essay 1

“We need to project a strong image in this negotiation. I don’t want the other side to think we are weak.” said Chen. “That’s all very well”, countered Lee, “but what if that comes across as aggressive. It’s a new supplier and if we play this correctly, we could have a long relationship with them.” “Exactly, if we are weak to start with, we might never recover!” warned Chen. Why do 51 per cent of people play red in the opening round of the red-blue game? (20 marks)

Essay 2

Isobel needs to make a final sale today to take her over her sales quota for the quarter and earn her the much needed bonus for her upcoming holiday. There is a ‘hot prospect’ customer in the shop looking at buying a camcorder, and has indicated if there is a deal to be done, he might buy it today. Unfortunately, the model which the customer, Mr. Morrice, is looking at has a very tight margin and Isobel can’t afford to knock too much off the asking price without attracting the wrath of her Store Manager. The camera price is £299, and she can go as low as £260, but no more for this model. Mr. Morrice has made an offer of only £250. It is close to her exit, but Isobel just cannot sell the camera for that price. Describe the above negotiating problem with reference to Distributive Bargaining, and explain how Isobel might improve her negotiation performance. (20 marks)

Essay 3 Neville was not at all pleased. He had covered for Irene several times when she needed to meet her daughter from school early, and he had worked late twice last year helping Irene cope with a sudden inrush of orders close to the Christmas holiday. Because of this, he had

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felt confident that Irene would return the favour now that he needed to leave early to collect his car from the garage. Irene met his call for assistance with an uncomprehending stare, and then with a mumbled pretext of some reason or other as to why she could not cover for him. Three months later Irene asked Neville again whether he would cover for her. This time Neville said “No” and did not explain why. Describe which principle of influence was not met by Irene and explain why Neville rejected her request. What is the process of “rejection – then – retreat” and might this have been used by Irene to achieve Neville’s help? Suggest an alternative influence approach that Irene could have used on Neville. (20 marks)

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Exam March 2012


Date: 22nd March 2012

Time: 4 hours, 9:00-13:00

Total number of pages including the cover page: 4

Answers are accepted in English or Norwegian.

Reference aids allowed: One dictionary: Native language - English /

English - native language or English - English

Note: The candidate must ensure that the answer set is complete. The

candidates’ name must not be written on the answer sheets. Please write

with a blue or black ballpoint pen.

NNEG08V

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Demon’s Paperwork Vision Ecosse is a major advertising agency which combines acute creative power

with a sound feel for commercial realities. Its directors enthuse about creative as well

as commercial success. They contract out a number of specialist services to freelance

specialists, leaving Vision Ecosse to concentrate its resources on creative staff.

There is competition to work for Vision Ecosse because of its high reputation in media

work and the prestige accounts it attracts. This has led Vision Ecosse to exploit its

bargaining power on occasion, particularly with newly formed independent suppliers.

One such is Demon Photos, a specialist photographic agency, which has accepted

several low price assignments for Vision Ecosse. ‘We might as well benefit from

Demon’s hunger now because if they succeed and become established in the business

as they surely will, they will charge us through the nose,’ said the MD of Vision

Ecosse. Initially, Vision Ecosse staff congratulated themselves on acquiring the

services of Demon Photos at such good (low) rates; their work is excellent and their

service terrific. Further investigation revealed that their paperwork creates 20-30 per

cent extra work (and telephone calls) to reconcile their despatch notes and invoices.

Work spent on sorting out the Demon Photo’s account detracts from credit control and

accounts payable for the rest of the supplier and client base. With this in mind, the

accountant at Vision Ecosse had suggested that if it would help to sort out the

paperwork, it could be worth paying Demon up to £45 per photo set instead of the

current £25, and they would still be saving money as it would free up so much time

from the accounts staff each month.

Vision Ecosse’s accounts department complains that invoices seldom carry the

appropriate reference numbers, or they are incorrect, the contents in the photo-cases do

not match the despatch notes they come with or the invoice received later, and the

photo sets are often incomplete, necessitating several part-deliveries over different

days. Reconciling the paperwork inevitably delays payment to Demon Photos of its

invoices, whose credit control people send annoying ‘pay up or else’ letters to Vision

Ecosse. Demon Photos protest that the misleading paperwork is mainly the fault of

Vision Ecosse. It accuses their staff of constant changes in the priorities of the work

they order. Demon Photos often have to change their shooting arrangements at the last

moment, which is inconvenient when the locations are in different parts of the country

and a photo crew wastes time travelling; its people in the photo labs are badgered to

deliver products one-or-two at a time by Vision Ecosse personnel; and Vision Ecosse

is so far behind with payments for completed work (often already published in glossy

magazines or on bill boards) that Demon Photos’ bank is questioning its cash flow.

‘Low prices’, said its MD, ‘are the root of this problem and as the amounts owed are

small compared to the amount we are owed, we feel Vision Ecosse is exploiting its

position to delay payment for as long as it can. If we had known how much paperwork

VE would cause us, we would have charged more to pay for more back office staff. If

we can increase our prices to £60 per photos set, we could see a profit from this client

and begin to grow the business, but the least we could accept is £35 which will cover

the bare minimum of extra staff to help us maintain this contract.” Managers in both

firms have asked whether the relationship with the other is worth the hassle.

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Questions 1. What are the interests for Vision Ecosse and Demon Photos?

(8 marks)

2. How could the contentious issue of price be expressed as a distributive bargain

problem?

(8 marks)

3. How could constructive debate help to resolve this negotiation problem?

(8 marks)

4. Discuss a possible proposal that Vision Ecosse might give to Demon Photos to

resolve this negotiation.

(8 marks)

5. If the new price for the photo set is agreed as £39, what are the respective buyers

and sellers surpluses?

(8 marks)

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Essay Questions

Essay 1

“The meeting with Santos this week is going to be difficult. He’s renowned as a tough

negotiator – very aggressive and domineering. How are we going to deal with him?”

asked Ramos. “Easy,” replied Martinez, “I’ve always found being tough in a

negotiation very effective. I don’t see why that should change just because he will be

tough too.” “Surely that won’t work. If both of you play tough then it can only end in

deadlock. Maybe we should contrast his behaviour, and be submissive?” suggested

Ramos. Martinez replied “That won’t work either, he’ll just take advantage of us, at

least if we play tough and aggressive he can’t do that!”

What advice would you give to Ramos and Martinez about practising the purple

principle of assertive conditionality when dealing with any aggressive Red, submissive

Blue, or assertive Purple negotiating style?

(20 marks)

Essay 2

Trish and Jean have been neighbours for 20 years, but they haven’t spoken to each

other for over 15 years. Trish had complained to Jean about the size of her hedge; it

was blocking out the sun from her garden and she wanted it cut down to size, or else.

Jean had not liked being told what to do, and besides if it was too low there would be

no privacy, so she had refused. Trish retaliated by refusing to let Jean use the shortcut

down her path for Jean to put her bins out. It meant Jean had to use her own path, but

to get to it had to lift her bin up three steps. It was very inconvenient. Neither Trish nor

Jean were happy, but they refused to talk about it to each other or be the first to back

down. Using this context, how does the prisoner’s dilemma game assist our analysis of

negotiation?

(20 marks)

Essay 3

“I really think that my work over the past year warrants a pay increase, above the rate

of inflation.” said Chen. “I have achieved all the targets you set, and my work quality

is undeniable.” “While I agree your work over the past year has been excellent, there is

simply no room in our wages budget to give any increases this year.” responded Wu.

“You have put me in a difficult position. I really need to increase my pay, I have a

baby on the way, and my family needs to buy a more suitable car. If I can’t get the pay

rise I deserve from this company, I will have to think about changing my job.” Using

the above case, show why the distinctions between interests, issues and positions are

important in negotiation?

(20 marks)

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English


Exam March 2011


Date: Friday 22nd March 2011

Time: 4 hours, 9:00-13:00





Note: The candidate must ensure that the answer set is complete. The

candidates’ name must not be written on the answer sheets. Please write

with a blue or black ballpoint pen.

NNEG08V

21

Case Study

Stefan had been sent out today by his wife Ingrid with instructions not to come back until he has finalised the deal on their new kitchen. After weeks of searching for the perfect kitchen, Ingrid had decided she wanted the ‘Cuisinere’ style from Kitchens4U. It was one of the more expensive ranges, but it had just the right look for the house and, after all, ‘quality kitchens pay for themselves when it comes to selling property’, or so she had told Stefan when he complained about the cost.

The most important thing was that Stefan had to order the kitchen today. If the purchase is delayed any longer there would not be enough time to have it fitted before Christmas, and since Stefan had made the mistake of inviting several of his relatives to stay over the festive period, having the new kitchen is imperative – at least according to his wife. And Stefan liked nothing more than to keep his wife happy; after all, if Ingrid was happy, so was Stefan.

Having said that, Stefan was never one to simply agree to a price. The original quote from Kitchens4U was for £12,500. The price, he was told, included everything from the units and appliances to delivery, and their fitting by the store’s experts.

Stefan’s original budget for the new kitchen had been £9,000 but, as usual, Ingrid wanted only the best and the price had shot up. Stefan needed to negotiate a better price with the salesman from Kitchens4U if he was going to afford the project and keep Ingrid happy. He was prepared to go as far as £11,500 (the total in his savings account), but any more than that and it was no longer affordable. The closer he could get to the original budget the better.

Jonas, the salesman for Kitchens4U, was thinking about his options for his appointment with Stefan. He knew there would be pressure on his price – after all it was expensive and he had seen the look of surprise in Stefan’s face when he had visited the store. Jonas just hoped the pressure would not be too great as he really needed this sale today. It was the end of his sales quarter and he was within reach of his quota; with this sale he would earn a substantial bonus and a free weekend trip to Barcelona. He was prepared to do almost anything to achieve the sale, but he couldn’t sell the kitchen for a loss. The lowest price he could consider is £10,000. Of course, going that low would result in an uncomfortable meeting with his manager on Monday.

There could be some flexibility if Stefan was prepared to take the kitchen sooner than the usual 6 week delivery as a brand new range was due to arrive in 2 weeks and clearing out the old stock would be advantageous. It would mean the stock could be delivered to Stefan in 2 weeks, but would not be fitted until the usual 6 weeks as the fitters were booked that far in advance. If this was possible, Jonas had permission from his manager to reduce the price by a further £500.

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Required:

1. What are the interests of Stefan and Jonas?

(8 marks)

2. Represent the above problem as a distributive bargaining problem.

(8 marks)

3. What tradables could Jonas and Stefan use to improve the negotiation?

(8 marks)

4. What proposal could Jonas suggest to Stefan?

(8 marks)

5. If the purchase price is agreed at £10,950, what is the buyer’s and seller’s surplus?

(8 marks)

Essay Questions

Essay 1

To: [email protected] From : [email protected]

Sean

We liked your proposal for the use of your call centre facilities. However there are several aspects we would need to discuss (price, schedules and quality guarantees) before we can agree to use your company. Can you come in for a meeting on Friday to finalise the agreement?

Kind regards

Kim

Kim Southgate Purchasing Manager

How could the 4-phase approach to negotiation benefit Sean?

(20 marks)

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Essay 2

“John can you help me decide how to tackle my negotiations next week?” asked Ruby. “What is the problem?” enquired John. “Well, on Monday I am meeting Erik, and he is very aggressive and always demands discounts. Then on Wednesday I am meeting with Stuart, who is always very quiet, co-operative and happy to agree to most of our prices. And finally James, who is quite assertive and likes to trade. I am just a little confused as to how best to behave with each of them? Should I match or contrast their behaviours?”

Explain how the different styles of behaviour are best tackled by Ruby.

(20 marks)

Essay 3

“It’s very simple Steve, we really like your quality workmanship, and can agree that your furniture is second to none on the market, however your prices are simply too high for us. We would be more than happy to place a large order with you, but only if you reduce your prices by 40%.”

The use of manipulative ploys is commonplace, but are they helpful in a negotiation?

(20 marks)

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English


Exam March 2010


Date: Friday 19th March 2010

Time: 4 hours, 9:00-13:00





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Case Study: Wind Power Generator

WindGen, a Brazilian company, manufactures and supplies wind turbines for offshore wind power installations. WindGen wishes to sell a set of 20 wind turbines to E-Power (Scotland), a recently privatised company, and E-Power wishes to purchase a set of 20 wind turbines from WindGen. E-Power is keen for this transaction to go ahead.

E-Power is prepared to pay up to £1.2 million for these wind turbines provided it achieves satisfaction on certain points. Otherwise, the value of these wind turbines falls to as little as £500 000.

It is very important that E-Power gets full warranty protection and it would like liquidated damages if WindGen does not install the wind turbine within 3 months of ordering. WindGen could insure this as one of their business risks, but they want to charge the premiums for this to E-Power. E-Power would like WindGen to accept a repairing obligation for the next 3 years.

It is essential to E-Power that the wind turbines are up and running in its offshore Scotia Field within the next 3 months and it would like there to be significant (20%) liquidated damages if this does not occur, but it would settle for as low as 10%.

WindGen would like the currency of the contract to be Euro, while E-Power wants it denominated in US dollars, but E-Power can be fairly relaxed on this point.

Price is a thorny one for WindGen. Any payment below £750 000 and it would make no profits. This really is the fundamental point as far as WindGen is concerned, especially as E-Power wants the wind turbine delivered to its newly proven development bloc, situated in the North Sea, and insists that it is installed in an extremely narrow weather window.

WindGen has offered to guarantee the working condition of the wind turbine for the next year on a full repair or replacement basis, but it is very reluctant to go beyond that because of the expense and the technical risks that are always associated with new fields.

WindGen has indicated that it is willing to have the wind turbine operational within the next 3 months. It has also indicated its willingness to consider liquidated damages if the wind turbines are not installed within the 3 months following E-Power’s order, and it has suggested a figure of 3%.

It says it wants a strong force majeure (‘excusable delay’) clause to protect it against unforeseen delays beyond its control, such as the weather and unforeseen technical difficulties arising in the North Sea.

Required:

1. What are E-Power’s interests in this case?

(8 marks)

2. What are WindGen’s interests?

(8 marks)


(8 marks)

4. How might E-Power set its entry & exit points in this negotiation?

(8 marks)

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5. What justification would you give for a proposal that E-Power might offer to WindGen?

(8 marks)

Essay Questions

Essay 1

Jose was preparing for a negotiation with a new client, but wasn’t sure how to open the discussions. He didn’t want to be too soft and give the new client a chance to push him early on for discounts, but at the same time he was worried about going in too hard and putting the new client off before their relationship had a chance to begin. Jose felt that both options were risky, but he needed to decide quickly before his meeting. Getting it wrong at this early stage could cause problems in the long term with the client.

Why and how does the Prisoner’s Dilemma game assist our analysis of the problem of trust in negotiation, and how could it help Jose with his decision?

(20 marks)

Essay 2

“You seem very worried Terry,” said Sophie. “Yes, so would you be in my shoes. The last time I had a negotiation with Tristan he pushed for unrealistic deadlines, opened with outrageous terms and even walked out of the meeting when I didn’t give him enough concessions. I had to give away so much just to keep him as a client, it hardly seems worth it. It really undermined my confidence, and I have to face him again tomorrow, what should I do?” He replied.

Why do some negotiators practise manipulative ploys?

(20 marks)

Essay 3

“Do we have to negotiate? There must be another way to get this proposal agreed within the company?” Jan suggested.

Why might you use an alternative to negotiation when making decisions and what are the possible advantages and disadvantages of doing so?

(20 marks)

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Examiners solution 2010

Case Solution

1. What are E-Power’s interests in this case?

(8 marks)

Interests are the motivations for preferring specific solutions to problems. They are the

‘fears, hopes and concerns’ of E-Power. They are reasons ‘why’ E-Power wants certain

things to happen.

E-Power is a profit making privatised company and its prime interests are to maintain or

raise shareholder value in a sustainable manner. In the case, its main interest is to

acquire a wind turbine and have it operating quickly because, presumably, it has a need for a working wind turbine on its offshore field (the need is not specified).

E-Power’s interests are constrained by the need to limit its expenditures even if all its

requirements are met, and limit them even more if they are not. The wind turbines

deliver its interests but not at any price. Presumably, E-Power will search the market if WindGen cannot meet its needs.

For undisclosed reasons, E-Power must cover its risks if the wind turbines are not

operating quickly and if it needs repairs within 3 years. This suggests that they are covering their risks, which makes them an interest.

2. What are WindGen’s interests?

(8 marks)

Definition of interests as in Question 1.

As a commercial venture, WindGen’s main interest is to make sustainable profits and maintain or increase shareholder value.

WindGen only meets its interests if it meets E-Power’s agreed requirements on the

delivery date and some part of its requirement for a warranty. It wishes to reduce its obligations on liquidated damages as this might jeopardise its profits.

Price is related to its main interests in profitable business and price is related to delivery within the time stated and the weather window.


(8 marks)

A negotiable issue is the agenda item. It is quantifiable and it delivers the party’s interests. It is what the negotiator ‘wants’.

Negotiable issues are prioritised because negotiators have varying degrees of preference

for what they want and it is these differences in value of each issue which gives the

negotiators trading possibilities when it comes to proposing and bargaining.

Issues can be prioritised as High (must get or no deal), Medium (would like to get within

ranges or it puts pressure on the viability of the deal) and Low (would like to get, but will not affect the deal).

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In this case the issues and priorities for the parties can be shown as follows:

Issues WindGen priority E-Power priority

Price of the Wind turbine High Med

Installation date Low High

Currency Low Low

Warranty Low High

Liquidated damages Med Low

Force majeure definition High Med

4. How might E-Power set its entry & exit points in this negotiation?

(8 marks)

Entry and Exit points are part of the preparation process. They are the ranges within

which a negotiator is prepared to deal. Entry point is where they are willing to start the

negotiation and the exit point is the point beyond which they are unwilling (or even unable) to deal. Entry points should be defensible and credible.

From E-powers point of view, they might set the entry and exit points for the issues as follows:

Issues Entry Exit

Price of the Wind turbine £500 000 £1.2m

Installation date 2 months 3 months

Currency US$ Euro

Warranty 5 years 3 years

Liquidated damages 20% 10%

Force majeure definition Strong Medium

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5. What justification would you give for a proposal that E-Power might offer to

WindGen?

(8 marks)

A proposal is a tentative suggestion, specific or vague in the condition, but always vague

in the offer and should be presented in the ‘IF–THEN’ format. For example, ‘if you give me some of what I want, then I could give you some of what you want’.

‘If you agree to deliver the wind turbine on site and operating satisfactorily within three

months and accept liquidated damages at 20 per cent, then we could pay more than $900 000 dollars for it’ might be where E-Power would start.

It would justify the proposal as meeting its minimum terms – delivery on time and

operating is a prime interest of E-Power. Everything must click because downtime and

late delivery cannot be tolerated in view of the expense of shutting the field for

maintenance and repairs.

The liquidated damages are set high to discourage any ambiguity about E-Power’s

requirements, as are the premium costs for insurance against WindGen’s failures. Narrow

force majeure provisions (‘acts of God’ only) are required to protect E-Power’s interests as are the requirement to pay in US dollars.

Essay 1

Why and how does the Prisoner’s Dilemma game assist our analysis of the problem of trust in negotiation, and how could it help Jose with his decision?

(20 marks)

The original Prisoner’s Dilemma (PD) type games explored the tension between coping with the risks of co-ordination and suffering from the lower or negative pay-offs from defection. The games can be played without content (the red and blue game) or with content using a short scenario (the original PD game, or the Currency game, or the War and Peace game, etc.). Many authors have analysed the games and their derivatives (Game Theory) in a variety of disciplines, as well as in negotiation studies. While the question specifies the PD game, it would be acceptable to discuss the other games as long as they have a structure based on the PD type of games (broadly, doing what is best for oneself as opposed to doing what is best for both parties).

First, a brief description of PD games is required, with some understanding shown of the structure of the game rather than merely describing it. In essence, PD is about the risks of trust and about the behaviours prompted by defensive intentions to protect from exploitation (or red play) by the other party, or of having aggressive intentions to exploit the other party in the hope that it will play blue. PD shows that because of these risks, players acting independently are often led to choices (or plays) which produce sub-optimal outcomes (lose–lose; lose–win; win–lose) compared to what they could have achieved if they had been able to co-ordinate their play (win–win).

By illustration we can describe the original scenario for PD (the numbers representing the pay-offs vary between accounts and are less important than understanding the nature of the dilemma).

Brief account of the PD game. Two persons have been arrested on suspicion of having committed a serious crime and have been placed in separate cells with no possibility for communication between them. The District Attorney (the game was created in the United States in 1950) has insufficient evidence to secure a conviction in a court but has sufficient evidence to be sure that the prisoners carried out the crime. He devises an offer to be put to each prisoner separately which will assist him getting at least one, if not both, of them convicted. Each prisoner is told that a deal is possible when they make a choice between confessing to the crime and not confessing. If they confess and their partner does not, then their evidence will be used to convict the non-confessor, who will receive 20 years and they will be released. If they confess and their partner confesses, they will both receive 10 years (it was a serious crime). If they do not confess but their partner does, the outcome will be reversed with them getting 20 years and their partner being released. If neither of them

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confesses, they will both be convicted on a lesser charge and receive 3 years. The dilemma is: what should a prisoner do?

On the face of it, the choice of confessing and not confessing is easy; both of them should not confess because this has the minimum risk of only 3 years, and, if they could safely co-ordinate their choices to deliver a win–win outcome, this choice would be best for both of them. But the scenario precludes safe co-ordination – each prisoner is in a separate cell and has to make his choice without knowing what the other has chosen. If for them both not confessing is the optimum choice (though not of course for society and the upholding of law and order) they run the risk that their partner might not choose this option.

What of their choices without a safe and sure means of co-ordination?

If prisoner A decides not to confess, he must be sure that his partner, prisoner B, does not confess as well, otherwise he risks 20 years in prison if prisoner B confesses. If he believes prisoner B will confess, his best choice (self-protection) is to confess as well, because 10 years in prison (lose–lose) is better than 20 years. Also, if he confesses and finds that his partner has not confessed, he will go free (he wins, his partner loses), and going free beats 10 years.

However, as neither prisoner can be sure what his partner will do, they cannot formulate an optimum or safe win–win strategy. Hence they are in a dilemma: ‘if my partner thinks I will not confess, he may not confess too, which is to our mutual (win–win) benefit, or will he confess (i.e. defect) to my certain disadvantage? If, however, he is likely to defect by confessing, should I stick to my choice of not confessing or should I change my mind and confess? ‘What is my partner thinking about, what I think he is thinking about, what I am thinking he is thinking …?

Even if the players can co-ordinate their play before they are separated and can reach an agreement not to confess in pursuit of the win–win outcome of only 3 years each, how can either be sure that the other will stick to the deal? If your partner defects and confesses, twenty years in jail is an expensive way to learn about the vagaries of one’s partner’s promises. This leads the players to choose a sub-optimal lose–lose play (in this game, defection by confessing) resulting in each serving 10 years. They will also have the dubious benefit of having ten years to explain to each other why they defected and confessed – was it a failed attempt to trap the other into doing twenty years so that the defector could go free?

The players are driven to a sub-optimal play not because they want to but because they have to. Defection is forced upon them because they think the other will defect (protection of self to avoid twenty years in prison). Trust to achieve a win–win is overwhelmed by the risks of trust (them losing and their partner winning).

In negotiation there are similar dilemmas and similar problems of trust. We negotiate because we do not know the outcome that is satisfactory to both parties; we know what may be satisfactory to us and we also know that whatever that satisfactory outcome is, we would be even happier with a deal that is even more satisfactory to us. Caution is advisable but suspicion breeds self-protection and a failure to co-ordinate or to deliver the fruits of co-ordination.

The concept of win–win outcomes is in widespread use in negotiation literature. The win–win or Nash outcome (48 each in red versus blue games which maximises the product of their net gains) is available but rarely occurs because players are driven either by self protection (‘I’ll play red because I believe my partner will play red’) or by exploitation (‘I’ll play red because I am sure my partner will play blue’).

An elaboration of the implications of the Nash solution only being chosen by 8 per cent of playing pairs in red–blue games (from observation) gains extra marks.

The act of playing red is self-fulfilling. If both play red they confirm the self-protection motive; if one plays blue and loses to red play, they switch to red play in the next round to protect themselves (brief reference to Tit-for-Tat strategies gain marks). The player who played red to exploit now faces the prospect that his partner is alerted to his exploitative intentions which will force the blue player to switch to red in retaliation. Should the red player stick with red play to protect himself or switch to red as an ‘apology’? The road to a lose–lose outcome is wide and slippery.

In one-off exchanges (like the original PD) red play predominates because trust is perceived to be too risky – they both end up doing ten years. In red–blue, just under half of the players play blue in the first round, but

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red is still the choice of just over half of the players. Many partners manage to agree on mutual blue play before the game is over but the rest get stuck into a red–red cycle and end up with lower positive scores than they needed to (i.e. well short of a Nash solution).

Over many negotiations, players can learn to find ways of co-operating to produce win–win outcomes. The evolution of blue–blue play from Tit-for-Tat strategies ensures that negotiated outcomes produce better results than the alternatives of defection or cheating (e.g. ‘nibbling’). Win–win negotiation successes dominate exploitative and coercive distribution of whatever is at stake because people who feel cheated avoid cheaters, which is why, over the long run, negotiation is more closely associated with wealth creation and harmonious relations than coercion and violence. Negotiators learn to play blue–blue with those with whom they have strong relationships and to avoid people who defect to exploit them. This does not obviate the need to be wary of unproven negotiating partners. There is risk in trust.

Jose needs to be careful of his approach to the new client. By looking at the simplified PD – the red/Blue game, his best approach is to use Tit-For-Tat. Devised by Axlerod, the TFT method states:

1. Always start out by co-operating.

2. Reward/punishment responses from then on based on what the other person plays in the previous round.

For his meeting with the new client, Jose should start the negotiation in an open and co-operative manner. If this is reciprocated, this behaviour can continue and over time trust will be developed.

If it is not reciprocated, Jose can switch to protect himself from risk and become less accommodating. Only when the client shows a move back to co-operating should Jose do the same. He should not hold any grudges, but move forward towards co-operation again.

Essay 2

Why do some negotiators practise manipulative ploys?

(20 marks)

This is not a repetition of Question 1 and references to PD or red and blue dilemma games will NOT attract marks. It is about the tactical choices made by negotiators in ‘live’ negotiations. Examples from real negotiations will attract discretionary marks.

Identification of red manipulative behaviour (briefly contrasted with blue behaviour but not an in-depth exposition) is essential: aggression, open coercion, threatening, bullying, ‘taking’, etc. Identification of ‘devious’ red behaviour – the act of gaining red outcomes from hiding your red intentions.

Defining the purpose of manipulation: to influence the perceptions of the outcome and lower these expectations so that the red manipulator gains more than the other player (“more for me means less for you”). As these ‘gains’ (even if only short-term) can be significant, the red manipulator has an economic incentive to behave in this manner.

Most candidates describe the three most famous ploys, reproduced in the text, namely The ‘Bogey’, the ‘Krunch’ and the ‘Nibble’. Many candidates list others (e.g. ‘Russian Front’, ‘Good guy/Bad guy’, ‘Mother Hubbard’, ‘Salami’, etc.).

The Essay should be about ‘why’ negotiators manipulate and not just a description of famous ploys.

All red behaviour is manipulative. Basically, red behaviour aims to get something for nothing (e.g. ‘more for me means less for you’). It can come in several forms from outright bullying, intimidation, domineering and aggression. It can also be more subtle, even good mannered and, on occasion, covert. In contrast, purple behaviour, aims to trade something for something (e.g. ‘more for me means more for you’) but in its submissive blue form ends up giving something for nothing, which is the reverse stance of the negotiator relying on red behaviour.

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Tactical ploys can work with the submissive blue negotiator. In fact, without submissive blue negotiators there would be no role for tactical ploys. Only if the tactical negotiator gets something for nothing from somebody prepared to give something for nothing is it worth being a manipulator. Against assertive blue negotiators, tactical ploys are useless because assertive negotiators insist on the exchange principle: ‘if you give me some of what I want then I will give your some of what you want’. They see one-way red deals for what they are – attempts to exploit them.

Experience is a great teacher and people subjected to tactical ploys soon learn that they were disadvantaged in the exchange and they seek to protect themselves from similar exploitation on later occasions. There are two motives for playing red: to exploit the other player (take advantage of their blue gullibility) or to protect oneself from the other player (‘do unto others before they do it unto you’). These two motives explain why negotiators resort to tactical ploys.

The exploiter motive corresponds to the image of the ‘street-wise’ dealer and attracts a large audience of would-be ‘tough guys’, ready to mix it with other tough guys. They seek to win at the other negotiator’s expense. They get a buzz from defeating the other negotiator, from winning the largest slice of whatever is going, from getting something for nothing (or very little in exchange). They thrive in short term businesses (used car sales, estate and house agents and brokers, and the one-off contracts). Above a certain level they can increase the costs of a business sector way beyond their personal gains, e.g. the construction industry with its myriad of claims and counter claims for variations and defects. Chester Karass made a successful career teaching people how to survive in the negotiation (i.e. tactical ploys) jungle.

The protector motive is a more acceptable cause of resorting to tactical ploys. This is summed up in the text as: ‘I defect, i.e. use ploys, not because I want to but because I must’. Like the footballer who justifies his fouling of other players because it is necessary to ‘get his retaliation in first’. It is fear of what the other negotiator might intend to do to you that drives you to ploys. I expect him to try to cheat me by padding his prices, and hence, it is legitimate to hit him with the Krunch (‘you have to do better than that’). Of course, exposure to the Krunch teaches negotiators to pad their prices because they expect to be Krunched, which perpetuates the ploy cycle.

Expecting the Nibble to be employed by your customer; you Nibble back, slicing something off here and something off there. You pad your prices to allow for late payments and demands for freebies. She ‘Bogeys’ you – ‘I love your product but my budget won’t allow me to place an order’, so your padded prices serve to protect your true price. You come down in price in response to her bogey, so the next time round she hits you with the Krunch! To make money you Nibble. And so it goes on, until you are so accomplished at ploys that you forget that your original motivation was to protect yourself. Meanwhile, your behaviour is indistinguishable from the exploiter. Indeed, you can justify exploitation on the grounds that this enables you to get back what you lost to other exploiters!

Evaluation of the weaknesses of tactical ploys – and the benefits of assertive purple trading in support of the above analysis can be worth marks but as a substitute for answering the questions on why ploys are resorted to, they are less convincing.

Evidence of understanding how some other identified red ploys (‘tough guy/soft guy’, ‘over-valuing a feature of the deal’, ‘setting pre-conditions’, ‘high initial demands’, ‘threats’ and ‘pre-emptory deadlines’, etc.,) are intended to work will attract marks. Brief reference to some of the ‘blue’ ploys can supplement but not substitute for an answer.

Evidence of understanding the structure of ‘Dominance’, ‘Shaping’ and ‘Closing’ manipulations may attract discretionary remarks, but only in an evaluative context and not as pure description of the phases.

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Essay 3

Why might you use an alternative to negotiation when making decisions and what are the possible advantages and disadvantages of doing so?

(20 marks)

Negotiation is one among several ways of making decisions. It is not appropriate in all circumstances, nor is it a better means of making a decision than others.

Negotiation is a widely used option where conditions for it exist. These conditions normally include the mutual dependence of each decision-maker on the other. If someone needs your consent for you to do something he/she wants you to do and to which you cannot unilaterally say ‘no,’ nor can he/she make you do it, it may be possible to negotiate something that meets both your own and that person’s concerns. This usually involves you getting something, tangible or intangible, in return for your consent. But if you have nothing to trade – he/she does not need anything you have, including your consent, nor does he/she have anything in his/her gift that would persuade you to consent – then negotiation is unlikely to be appropriate.

Negotiation is the process by which we obtain what we want from someone who wants something from us. It is a two-way transaction. It is about exchanging something for something. Because negotiation takes time and, perhaps, considerable effort, it should be used only when the likely outcome justifies the ‘costs’ in terms of time and effort. Spending thirty minutes in a retail shop negotiating to get a cent off from the price of a packet of rice, suggests you value your time to be worth 2 cents an hour.

Negotiation is not about a foregone conclusion; the outcomes may vary considerably. They are not predictable. When you need someone’s consent, negotiation may be appropriate (you could try persuasion first).

The benefits of negotiation include the likely willingness of the negotiators who have contributed to the joint decision to the implementation of what they have agreed. Could be illustrated by the Benefits of Bargaining diagram:

Figure 8.1 ‘The benefits of bargaining’ from the text

A short description of Figure 8.1 is required.

Other decision making methods include:

Persuasion, Saying No, Chance, Problem Solving, Arbitration, Mediation, Coercion,

Instruction and Giving In.

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One party to a decision can simply reject it. ‘No’ is an appropriate decision in some circumstances (when you cannot accept the proposal but you can endure the consequences of rejecting it) and not in others (when you cannot endure the consequences of rejection – such as in a Russian Front ploy).

You could try persuasion, which is what most selling skills are about. Probably the first thing everybody tries. Sometimes it works; as often it does not. Some methods of persuasion are more successful than others (showing how somebody will benefit from the decision is better than rubbing their noses in how much it will hurt them if they reject it). There are also the various techniques of influencing skills. Persuasion may be least costly when it works, but time consuming when it does not. Rejection of a persuasive effort may provoke bad feelings, especially when a party feels its efforts have been rejected out of malice or some other negative motivation.

Problem solving is often given greater credence than it merits in practice. The ideal of problem solving is excellent and it can be made to work providing the parties to the decision agree that they share the problem – so that it becomes a joint problem with a joint solution – and that the parties trust each other in all respects. If either condition is absent, it may end in tears and reversion to some other method. Principled Negotiation is one such problem solving method (brief elaboration is worth extra marks).

You could toss a coin or its equivalent – and many do. This leaves the outcome to chance and not to the influence of the parties. If you are indifferent between the proposed outcomes or you have no other option, then a 50 per cent chance of an outcome you want to happen may not unduly worry you. But where the stakes are high, you have a lot of risk by allowing chance to determine what you get.

It is possible to resort to arbitration, providing you can agree on the arbiter(s) and the method to use, such as pendulum, panel or individual arbitration (brief exposition of these systems is worth extra marks). Arbitration takes the decision out of the hands of the parties and hands it to ‘neutral’ third party. Neutrality is not always possible and arbitration may be abused. A party can deliberately deadlock a negotiation in order to get the final decision passed to arbitration. If the Arbiter improves on the other party’s last offer, then the party that deliberately deadlocked to invoke arbitration has done better than it would have got by accepting the ‘final’ offer. They also can respond by rejecting the arbiter’s decision but this may not help them if the arbiter sticks with the decision.

The coercive method applied to decision-making is a risky strategy – it can result in compliance with the enforcer’s demands, or result in retaliation with counter-coercion (perhaps violence). There are times when coercion is probably effective, such as when the party has the means and the will to enforce compliance, but coercion is damaging of relationships and may result in a steadily worsening situation.

Instruction is a legitimate method of decision making, provided the person instructed accepts the instruction and has the means to carry it out. You do not need to negotiate or even discuss every instruction that you give with the people who are paid to carry them out. The main point of a supervisor – supervised relationship is the economy of a decision making process by which those who are normally contracted to accept instruction will in fact implement instructions without further ado.

The other side of instruction and coercion is that of giving in, which is something we all do from time to time. Life would be difficult if we did not do so. Insisting on negotiating everything would be time consuming and stressful and in the main pointless. However, giving in on issues during a negotiation would also be self-defeating because once a negotiator gives in on one issue the other negotiator will expect – and push for – that person to give in on other issues.

It is also possible that a decision could be made to postpone a decision on the substantive issue(s). This sometimes buries the issue in delay and prevarication. Sometimes an inquiry, for example, can bury the issue in boredom – by the time the decision is announced (if it ever is), most people have forgotten its relevance.

The important thing to remember is that no single decision making method is superior in all circumstance to another. It all depends on the circumstances.

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www.hio.no

English


Exam March 2009


Date: Thursday 17th March 2009

Time: 4 hours, 9:00-13:00





NIFH06V

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Case study

Andre is looking for a plot of land upon which to build a house and not far from where he lives presently, in a small fishing village on a Greek island. A half-hectare plot has been for sale for nearly three years. The owner, a former resident on the island, had used two local real estate agencies in succession without concluding a sale.

Last week another, different, real estate agency erected a ‘for-sale’ board on the site and Andre checked the sale particulars on the Internet. The asking price is $250 000, which was $20 000 above the price asked for the plot on the owner’s previous attempts to sell it. Interestingly, the owner had not dropped his price despite his failure to sell.

Andre enquired about the plot at the mayor’s office in Zante, the island’s only town, 18 kilometres away, seeking details of any planning restrictions affecting the site and what was expected from any building or buildings erected there. He was assured there were no planning restrictions on what could be built on it.

He contacted the selling agent, Ms Voutos, who claimed there had already been many enquiries from people living on the island and from Athens, where Giorgo Krimpas, the owner, lived. She also said that Giorgo was determined to get his price of $250 000, that he was in no hurry to sell, and that he insisted that all negotiations were to be conducted through herself.

Andre thought the owner might be in a strong bargaining position by demonstrating his firmness on price and by recently increasing the price to $250 000. Leaving everything to his agent, Ms Voutos, her commission presumably rested on her getting Giorgo his price in view of the alleged interest in the site.

Andre’s problem boiled down to where to open his negotiations. Should he offer the asking price? If not, should he go over it? How far should he go under it? If either, which price should he offer?

He had insufficient finance in place to pay close to the asking price for the land, given that, in addition to the land price, he had to finance the clearing of the land of bush and overgrowth, much of it a disused and neglected old olive grove, plus the accumulated rubbish dumped on it over the years. Then he had to undertake landscaping on the sloping ground and build a boundary fence, pay the architect’s fees, install all the electricity, water and sewage utilities, and construct a 500-metre private access road. Lastly, he had to finance the construction of his house, plus a swimming pool.

Andre did not like dealing with agents; he preferred direct negotiations between principals. He did not like Giorgo’s aggressive price tactics of increasing his price to $250 000 when he couldn’t sell the land for three years at $230 000. In these circumstances, he was determined that he would not accept Giorgo’s opening price. If a commercial developer took an interest in the site, which was large

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enough to build three or four houses for holiday lets during the summer season, this could create problems for Andre’s ambitions.

Required:

1. In this transaction what are Giorgo and Andre’s interests?

(8 marks)

2. How would you describe the distributed bargaining problem between Andre and

Giorgo/Ms. Voutos?

(8 marks)

3. Why would Giorgo use an agent such as Ms. Voutos?

(8 marks)

4. How might Andre deal with Giorgo’s apparently strong bargaining position with a

conditional bargain for Andre to settle at less than, but no more than, $250 000?

(8 marks)

5. If Andre’s entry price for the land is $220 000 and his exit price is $245 000, and Ms

Voutos entry price is $250 000 and her exit price is $240 000, explain the concept of

Negotiator’s Surplus and identify the necessary conditions for a deal to be agreed

between the buyer and the agent (subject to Giorgo’s veto as principal seller).

(8 marks)

Essay Questions

Essay 1

‘Look,’ said Ramos, ‘we dealt with these people some weeks ago and they played it very tough indeed. They kept interrupting, didn’t accept what we said, demanded we cut our prices, wanted lots of extras, and wouldn’t take no for an answer. Let’s admit it, we did badly. The deal is hardly profitable and now they are back to re-negotiate the Argentinean communications’ deal. So how are we going to play it?’ ‘Perhaps, they will play it softer as the deal they have is already a good one for them’, offered Martinez. ‘How should we play it if they come across all friendly?’ Ramos replied ‘Let us go in hard and pull back items we were too soft on last time. Let’s give them a

taste of their own medicine.’

Why should a negotiator always practise the purple principle of assertive conditionality when dealing with any aggressive Red, submissive Blue, or assertive Purple negotiating style?

(20 marks)

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Essay 2

Yvonne had listened carefully to what Ruth said about the terms under which she would buy the television series from Yvonne’s media production company. Ruth had said: ‘I absolutely love the series, Yvonne. It is the best I have seen for a new 10-programme series this year and I want to make it work for Channel 10.

But you will have to review your pricing structure and the repeat fees because my budget for new programmes is already down 20 per cent and the Board is nervous about risking so much on a new, unproven show. It may be a great success in India, but this is Mauritius and we do not have the population to pay the rates you want. Now come back to me with revised figures attuned to my situation with my advertising revenues and I’ll fast track your programme series through the Board, because I just love it, but I cannot stretch to your rates.’

Discuss why negotiators resort to manipulative ploys and what may be the likely consequences?

(20 marks)

Essay 3

‘I made them stick to the contract,’ said Melanie. ‘They signed it and they must live with it.’ Rose disagreed, saying, ‘Yes, but, this is a fairly good client and they decided to switch their systems and did not need the Alpha Plus service. We should have given them a break and kept the business connection.’ ‘But the contract had two years to run and was highly profitable, Rose, and we would have given up good profits that made us look good at Head Office. So I told them ‘no’, and there’s nothing they could do about it but pay up.’ ‘Don’t you see, Melanie, they have now written in refusing to renew their contract, and have informed us they will not buy any systems from us again in future. That’s $250 000 per year now gone to our rivals.’

How does the prisoner’s dilemma game assist our analysis of negotiation?

(20 marks)

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OUC 2009 Examiner's Solution

Case Solution

1. In this transaction what are Giorgo and Andre’s interests?

(8 marks)

Interests are the motivations for preferring certain solutions to the

negotiation problem compared to others. Interests are ‘why’ the bargainer wants the solution to the negotiation issue.

In Giorgo’s case his interests include:

to obtain a price for his land that provides a clear profit from the transaction;

to conclude the deal and to receive the agreed payment at low risk that complications will be avoided, such as post-sale disputes;

no imposed legal burdens; no claims associated with ‘buyer’s post-sale regrets; no delays in full

payment; no ‘come-backs’;

to have several serious buyers competing for the land.

In Andre’s case his interests include:

to pay a price for the land that provides a cost-effective opportunity to erect the house he aspires to;

to obtain clear legal title; to have the seller meet his agreed obligations without any legal

complications subsequently arising;

to have the seller fulfil his obligations arising from the agreement; to ensure that the seller’s sale’s particulars are accurate and

truthful; not to have serious competition for the land.

2. How would you describe the distributed bargaining problem between Andre and

Giorgo/Ms. Voutos?

(8 marks)

The distributed bargain is a means of generalising the dilemmas facing the parties

in a negotiation over a single issue, such as price. Giorgo has set an entry price of

$250 000 for the land and Andre has to choose an entry price in response. The

range between Giorgo’s entry Price and Andre’s entry Price constitutes the

negotiation range.

Andre should know that a negotiator does not (normally) accept the first price that the other negotiator opens with. Why? Because negotiators usually think in terms of ranges, not fixed prices, and if a negotiator’s

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entry price is $250 000, it is likely that his exit price is less than his

entry price. The difference between the entry price and the exit price is the seller’s negotiating range; the gap between the buyer’s entry price

and the exit price is the buyer’s negotiating range.

In Figure 2.4 (from the Text) the seller’s and buyer’s range overlap in that the least

the seller is willing to accept (the exit price) is less than the most the buyer is willing

to pay (the buyer’s exit price). The extent of the overlap in exit prices constitutes

the ‘Settlement range’, meaning that at any price within the settlement range, a

settlement is possible.

Figure 2.4 The negotiators’ exit prices overlap

Assume that the most Andre will pay for the land is $245 000 and the least that

Giorgo will accept is $230 000, then the settlement range is $15 000. Of course, the

range depends entirely on the choice of exit price each party makes. Giorgo knows

three bits of information – his entry and exit prices and Andre’s entry price; he

does not know Andre’s exit price. Andre knows his entry and exit price and

Giorgo’s entry price but does not know his exit price.

Choosing exit prices is not shared information. Why Giorgo’s entry price is

$250 000 is not stated. Andre has to think about Giorgo’s choice. What does it tell

him about Giorgo’s intentions? What should his response be? $220 000, $230 000,

$240 000? Andre has to think about how real is the competition? How candid is Ms

Voutos about the number of enquiries? How many of the enquiries about the land

are serious about wishing to buy and able to do so?

As long as the negotiation is about a single issue, price, it is likely to be zero-sum –

what Andre gains from Giorgo lowering his price, Giorgo loses; and what Giorgo

gains by Andre raising his price, Andre loses. If the competition for the land is non-

existent, Andre can expect Giorgo to settle closer to Andre’s entry price; if the

competition is real, Giorgo can expect Andre to settle closer Giorgo’s entry price. In

some circumstances, depending on the competition and the credibility of the other

negotiators bargaining claims, either party could settle lower (seller) or above

(buyer) their exit prices.

3. Why would Giorgo use an agent such as Ms. Voutos?

(8 marks)

Giorgo lives in Athens, capital of Greece, and the land is on a Greek island. It is convenient for Giorgo to delegate the showing and selling of

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the land to Ms. Voutos who lives on the island and she can handle all

enquiries about the land and its selling price.

Using an agent has other advantages. Many enquiries will not really be serious and

dealing with them on his visit to the island would waste Giorgo’s time, and not

being present could lose otherwise interested and serious potential buyers, if his

business kept Giorgo away at crucial times.

Ms Voutos can handle enquiries about price and can limit the initial information on

the sale to Giorgo’s entry price. Without Giorgo’s instructions to negotiate

downwards on price, she acts as a barrier to a price collapse.

She can establish any prospective purchaser’s entry price and pass this information to Giorgo, who can decide to relay new instructions to her or

can visit the island to continue or conclude the negotiations.

She also collects valuable information about prospective buyers and their

circumstances, leaving Giorgo in a stronger negotiating position.

4. How might Andre deal with Giorgo’s apparently strong bargaining position with a

conditional bargain for Andre to settle at less than, but no more than, €250 000?

(8 marks)

Giorgo’s bargaining position is apparently strong because he does not appear to be

in a hurry to sell his land after 3 years. Andre needs to test this assumption. Why is

he selling now?

On what basis has he set his price at $250 000? This should be explored; perhaps

checked by a local land valuation specialist. What are other development lands

selling for on the island? Is there any local development about to happen that would

influence the price of land near the village? Does he need the money? What do local

people (family?) know about Giorgo’s personal and business affairs that would

affect price or the need to sell?

Conditional bargains are formed by using the format of ‘IF–THEN’: ‘If you

give me this that I want, Then I shall give you that which you want’. By stating your conditions and linking them to your offer you immediately form a two-sided bargain that they have to agree to as a whole and not

just to agree to accept the offer without its linked condition.

Andre needs to assemble a conditional bargain and for this he needs to think about

possible conditions related to his purchase offer. The clearest area may be by trying

to off-load some of the costs of the work on to Giorgo, if Andre is to be persuaded to

raise his purchase price offer. Looking at the work schedule he needs to complete

and pay for on top of the purchase of the land from Giorgo, potential candidates to

select from are:

Two possible items for Giorgo to accept are:

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clearing of the land of bush, overgrowth, old olive grove;

clearing the accumulated rubbish.

Increasingly unlikely, certainly as full cost items, but perhaps by selecting individual items from them are:

landscaping the sloping ground;

constructing a boundary fence; installing electricity, water and sewage utilities; constructing a 500-metre private access road.

Other areas might be for Giorgo to pay legal fees for a transfer of title; government

taxes on land sales, and such like.

A conditional bargain could be: If you clear the land of all overgrowth and old olive

trees, and pay the registration of title fee, then I will increase my offer for the land

from $235 000 to $242 000’.

5. If Andre’s entry price for the land is $220 000 and his exit price is $245 000, and Ms

Voutos entry price is $250 000 and her exit price is $240 000, explain the concept of

Negotiator’s Surplus and identify the necessary conditions for a deal to be agreed

between the buyer and the agent (subject to Giorgo’s veto as principal seller).

(8 marks)

Enter and explain the data on the distributed bargain diagram:

Figure 2.4 The negotiators’ exit prices overlap

Define terms: the negotiating range is the range of prices between the seller’s and

buyer’s Entry prices; the sellers and buyers negotiating ranges are the range of

prices between their entry and their exit positions.

The negotiating surplus is the range of prices between the overlap in their Exit

prices.

The necessary conditions for a deal to be agreed between the buyer and the agent is

that the agent’s (acting for the seller) exit price is less than the buyer’s exit price

(s<b).

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The final deal is subject to Giorgo’s veto as principal (seller) over what his agent

has negotiated with the buyer. This is a drawback for the buyer of negotiating with

agents and not the principal, and is why principals use agents.

OUC 2009 Examiner's Solution

Essay 1

Why should a negotiator always practise the purple principle of assertive conditionality when dealing with any aggressive Red, submissive Blue, or assertive Purple negotiating style?

(20 marks)

Assertive purple proposal language centres on conditionality, or in the IF-THEN format: ‘If you do this for me, Then I will consider doing that for you’. While loose proposal language is better than making no proposals at all, assertive proposal language is better all round. Unassertive language sends the wrong signals, namely that you are unsure of your case, that you are not fully committed to your stance, and that you will retreat if pushed. What you invite you provoke.

Weak unassertive language uses words such as ‘I would like’, ‘I wish’, and I hope’, and it often gets the conditionality principle round the wrong way. For example, instead of making a proposal statement (IF you...Then I...) it asks a proposal question: IF I...will you? But asking a proposal question invites a refusal or a conditional acceptance, which squeezes out another concession (‘Only if you...’).

In a negotiation with an aggressive red-style negotiator, weak language is positively fatal. The red stylist exploits weaker negotiators. Weak language encourages anybody with a proclivity for red behaviour to be more red than usual.

The two extremes of style are Red (‘more for me means less for you’) and Blue (‘less for me means more for you’). Effective negotiators work in the purple style of conditional bargaining. This means they are assertive (but not aggressive) and accommodating (but not submissive). The use of assertive purple conditionality (‘IF–THEN’) is appropriate in dealing with either extreme (including devious) red and extreme blue. The recommended strategy for dealing with red players in the red–blue game, uses tit-for-tat, which is a purple strategy, because the blue player responds with a red only if the other player plays red and with a blue play always when the red player switches to blue.

The bombastic, aggressive red stylist – usually wanting something for nothing – is

unable to intimidate the assertive purple stylist who insists on applying the principle of: ‘give me some of what I want and I will give you some of what you want’. The aggressive red cannot get anything from the assertive purple. Aggressive red gets something for nothing from the submissive blue. The more subtle devious red stylist also wants something for nothing but cannot ruffle the insistence of an assertive purple negotiator. As the conditionality principle is the basis of all assertive purple proposals, the subtle red stylist is stuck with either revealing their red nature, or accepting that the decision is going to be made only by trading (IF–THEN).

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A normally extreme blue stylist – the submissive, the cringing and the weak – expects little from the negotiation and usually is not disappointed. But assertive purple stylists do not behave differently with submissive types – to do so would be to exploit them in the way a red stylist attempts. By consistently applying the conditionality principle of ‘IF–THEN’, the submissive is treated no differently. For once they are treated as partners and they are offered something back for what they give in exchange. By showing the submissive how to trade conditionally they also learn how to stand up to the red stylists who normally dominate them.

This leaves the assertive purple negotiator up against another assertive purple negotiator. As both negotiators are using the same conditionality principle (IF–THEN), they experience no problems of understanding what each is about. Both insist on getting something specific back for what they give and both formulate their tentative proposals in the same way. Negotiations can proceed to a conclusion without either of them being exploited (though the terms they settle upon can vary).

Essay 2

Discuss why negotiators resort to manipulative ploys and what may be the likely consequences?

(20 marks)

This Essay is about the tactical choices made by negotiators in ‘live’ negotiations. Examples from real negotiations attract discretionary marks.

Define the purpose of manipulation: to influence the perceptions of the outcome and lower these expectations so that ‘more for me means less for you’.

Describe the most famous, the ‘Bogey’, the ‘Krunch’, the ‘Nibble’, and others (e.g.

‘Russian Front’, ‘Good guy/Bad guy’, ‘Mother Hubbard’, ‘Salami’, etc.).

‘Why’ negotiators manipulate is more important that a mere description of famous ploys.

Contrast red, blue and purple behaviour. All red behaviour is manipulative because it aims to get something for nothing, and includes bullying, intimidation, domineering and aggression. Also more subtle, even good mannered and, on occasion, covert.

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Purple behaviour, trades something for something (e.g. ‘more for me means more for you’) but submissive blue gives something for nothing, and gives in to red behaviour.

Tactical ploys work with submissive blue negotiators. Ploy negotiators who get something for nothing from somebody prepared to give them something for nothing receive a pay-off for their manipulations. Assertive purple negotiators make ploys useless because they insist on the exchange principle: ‘if you give me some of what I want, then I will give your some of what you want’. One-way red deals aim to exploit them.

Experience teaches people subjected to tactical ploys that they are disadvantaged in the exchange from which they seek to protect. Two motives for playing red: to exploit the other player (take advantage of their blue gullibility) or to protect oneself from the other player (‘do unto others before they do it unto you’). These motives explain why negotiators resort to tactical ploys.

The exploiter motive creates ‘street-wise’ dealers and ‘tough guys’. They seek to win at the other negotiator’s expense by ‘defeating’ her and from ‘winning’. They are found in short-term businesses, used car sales, estate and house agents and brokers, and the one-off contracts. They increase the costs of a business sector, e.g., construction industry and its claims and counter claims for variations and defects.

‘Dominance’, ‘Shaping’ and ‘Closing’ manipulations attracts discretionary remarks in an evaluative context.

Essay 3

How does the prisoner’s dilemma game assist our analysis of negotiation?

(20 marks)

The original prisoner’s dilemma type games explored the tension between coping with the risks of co-ordination and suffering from the lower or negative pay-offs from defection. The games can be played without content (the red and blue game) or with content through a short scenario (the original prisoner’s dilemma game, or the currency game, etc.). Over forty years, an abundance of literature has appeared analysing the games and their derivatives (Game Theory) and they are applied in a variety of disciplines, as well as in negotiation studies. While the question specifies the prisoner’s dilemma game, it would be acceptable to discuss the other games as long as they have a structure based on the prisoner’s dilemma type of games (e.g. currency, red versus blue, war and peace, etc.).

First, a brief description of a prisoner’s dilemma game is required, with some understanding shown of the underlying structure of the game rather than merely describing it in great detail (and describing all known prisoner dilemma games in detail does not gain marks). In essence, prisoner’s dilemma is about the risks of trust and the choice of behaviours prompted by defensive intentions to protect from exploitation and aggressive intentions to exploit. It shows that because of these risks, players acting independently are often led to choices (or plays) which produce sub-optimal outcomes (lose–lose; lose–win; win–lose) compared to what they could have achieved if they had been able to co-ordinate their choices (win–win).

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Describe the original scenario for Prisoner’s Dilemma (the numbers representing the pay-offs vary between accounts and are less important than understanding the nature of the dilemma).

In the original scenario of the two prisoners each prisoner is told that the terms and outcomes of a possible deal is possible when they make a choice between confessing to the crime and not confessing. The dilemma is: what should a prisoner do?

On the face of it, the choice of confessing (defection) and not confessing is easy; both of them should not confess because this has the minimum risk, and, if they could safely co-ordinate their choices to deliver a win–win outcome this choice would be best for both of them. But the game precludes safe co-ordination and as neither prisoner can be sure what his partner will do, they cannot formulate an optimum or safe win–win strategy. Hence they are in a dilemma ‘If my partner thinks I will not confess, he may not confess too, to our mutual (win–win) benefit, or will he confess (i.e. defect) to my certain disadvantage? If, however, he is likely to defect by confessing, should I stick to my choice of not confessing or should I change my mind and confess? ‘What is my partner thinking about, what I think he is thinking about, what I am thinking he is thinking……?

The players are driven to a sub-optimal play not because they want to but because they must. Defection is forced upon them because they think the other will defect (protection of self). Trust to achieve a win–win is overwhelmed by the risks of trust (them losing and their partner winning).

In negotiation there are similar dilemmas and similar problems of trust. We negotiate because we do not know the outcome that is satisfactory to both parties – we know what may be satisfactory to us and we also know that whatever that satisfactory outcome is, we would be even happier with a deal that is even more satisfactory to us. Caution is advisable but suspicion breeds self-protection and a failure to co-ordinate by delivering the fruits of co-ordination.

The concept of win–win outcomes is in widespread use in negotiation literature. The win–win or Nash outcome is available but rarely occurs because players are driven either by self- protection (‘I’ll play red because I believe my partner will play red’) or by exploitation (‘I’ll play red because I am sure my partner will play blue’). Or in the scenario above the question: ‘I’ll play red because my partner has no choice but to play Blue under the terms of our contract’. This amounts to ‘I defect not because I must but because I want to’. The outcome is predictable.

The act of playing red is self-fulfilling. If both play red they confirm the self-protection motive; if one plays blue and loses to red play, they switch to red play to protect themselves. The player who played red to exploit the victim now faces the prospect that his partner is alerted to his exploitative intentions which will force the blue player to switch to red in retaliation. The road to a lose-lose outcome is wide and slippery.

At the first opportunity the other player stops doing business with the red player and meanwhile bad mouths that player at every opportunity with other business people.

In one-off exchanges red play predominates because trust is perceived to be too risky. Playing red in a multi-round game, such as red-blue, the prevalence of blue play by one of the players in the first round increases to just under half of the players, but red is still the choice of just over half of the players. Many partners manage to agree on mutual blue play before the game is over but the rest get stuck into a red-red cycle

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and end up with lower positive scores than they needed to (i.e. well short of a Nash solution).

On the whole, over enough negotiations, players apparently learn from the disadvantages of protective defection and intentional exploitation, to find ways of cooperating to produce win–win outcomes, and the evolution of blue–blue play ensures that negotiated outcomes in the longer run produce better results than the alternatives. Win–win negotiation successes dominate exploitative and coercive distribution of whatever is at stake – which is why, over the long run, negotiation is more closely associated with wealth creation and harmonious relations than its alternatives. Negotiators can be trained to play blue–blue.

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Negotiations and Influencing

Faculty of Business, Public administration and Social work

Exam March 2007

2nd year/Exchange Students

Date:

Time: 4 hours, 9:00-13:00





NIFH06V

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Case Question

World billiards has a global following among players, fans, TV audiences, and gamblers. Its televised tournaments are beamed into 140 countries and it is hugely popular throughout the world, especially in the Far East and India where gambling is a big business. World billiards is organised through national associations which negotiate their own agreements with their national TV companies around tournaments sponsored, until recently, by top cigarette brands.

Since recent legislation to ban cigarette sponsorship, the national associations face a funding crisis. International billiards has always been associated with cigarette brands and no obvious replacements appear to be viable. This has created an opportunity to re-organise the sport and wrest it from the national associations, who are amateurs in commercial realities, by forming a break-away international body.

World Billiards Live (WBlive.com), a recently formed internet start up dot.com, aims to re-organise world billiards completely through an internet portal which will market to the global audience and will feature live audio commentaries from new tournaments, on-line gambling and games, merchandising of kit and accessories, plus live interviews with players.

The problem is one of establishing WBlive.com quickly with enough of the world's best players – the top 20 at least – under 5 year contracts to create a series of top tournaments for TV and the internet. This means completely replacing, or sidelining, the national associations. Without all the top players, WBlive.com would provoke rivals to appear, and fragment the sport (like boxing). Golf and tennis play under the auspices of their national associations (discipline, rules, selection, etc.,) but the television rights are managed by commercial companies, as are most of the players.

Eddie Coyle Sports Management manages the business affairs of the world's six top players (and another 15 in the top 50) and has been approached in confidence by WBlive.com to commit to the new organisation. His company has been offered a $1 million signing-on fee for a five year exclusive contract for each of his players (and any others he signs), a minimum participation fee of $100 000 for each tournament any of them play in (plus any prize or place money they win), and a percentage of the TV, sponsorship and merchandising fees.

If Eddie Coyle's players sign with WBlive.com, or if their potential involvement becomes public, they will be expelled from their national associations and will be unable to play in official world tournaments. If the majority of the world's top twenty to thirty players sign with WBlive.com, however, this ban may not have much effect, especially if WBlive.com also signs up lower ranking players and the next generation of ‘stars’. The TV companies want to show the world's top players to their audiences and, therefore, they will deal with whichever organisation has the top players under contract.

If the WBlive.com deal fails, this could cost all of Coyle's players a serious loss of career earnings if they were excluded from the international game. If it succeeds, then they would earn fees many times greater than those they earn under the auspices of their moribund and inefficient national associations.

Eddie Coyle Sports Management has asked you for advice as he wants to improve WBlive.com's offer giving, in addition to more money, greater protection to his players and more control over their future.

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1. How would you assess the interests of the players?

2. What negotiable issues might Eddie Coyle Sports Management raise to protect

the players' interests?

3. What are Eddie Coyle Sports Management's interests and what issues should

he negotiate to deliver them?

4. How might you assess the power balance between WBlive.com and Eddie Coyle

Sports Management?

5. How might WBlive.com neutralise threats to ban their players?

Essay 1

How would you demonstrate the theoretical benefits of bargaining?

Essay 2


Essay 3

'I keep myself to myself and don’t bother anybody,' Jake said, 'Yet I am still in trouble with Al. He says I am not a team player, but that’s not true. I follow whatever he tells me to do, to the letter, and I get the job done. There’s no satisfying his demands to do more. I don’t know what to do and I am thinking of quitting. 'Don’t be daft, Jake, that’s silly talk,' advised Fred. 'That’s OK for you to say that,' replied Jake, 'You’ve got a future here. I haven’t.' 'Look Jake, pull yourself together and stop worrying about nothing,' said Fred, dismissing Jake’s sour mood, without finding out more about what was troubling him. He felt Jake exaggerated his problems. If Jake couldn't take Al’s bad tempers, he would quit, which would be a pity because he would make a reliable member of his influence group who are trying to change the organisation’s policies, including its reliance on low quality team leaders like Al. If only Al would back off …

How does wallowing help an influence game and what consequences follow if a wallowing sequence is missed?

Essay 4

Frank was angry with Fatima for proposing that her department recruit its own lecturer in statistics instead of paying Frank’s department to supply statistics lecturers for her economics students. If others followed Fatima’s proposal, it would reduce his department’s earnings from service teaching in the University and cause redundancies. If he resisted Fatima, he would be seen to be more interested in his department than in the University. As he knew that he was being considered for promotion to Vice-Principal, the essential step to becoming Principal, he knew he had to be seen as a University, not just a department, man. But ending service teaching would reduce his department’s resources and negatively affect the careers of those left in it. He pondered what to do.

How might you apply your knowledge of Prisoner’s Dilemma to explain the nature of the problem faced by Frank?

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Solutions to Case Questions

Case Solution

1. How would you assess the interests of the players?

A statement or definition of interests, such as ‘Interests are the motivations (fears, hopes, concerns) of a party that show “why” one solution is preferred to another. They encompass the overriding goals of the party’.

Unlike many competitive sports the careers of billiards players can last well into their 50s, though their high fee playing careers at the top of the profession are likely to be over by the time they are 30. Players, therefore, have an interest in becoming and remaining the world's best players and in maximising their incomes in the short time they contest for the largest prize money. They also have an interest in any re-organisation of the international tournaments that increases their incomes from prize money, TV fees, merchandising and sponsorships.

Because they earn fees by competing against the best players and because this is what attracts television audiences (and from TV, gamblers are also attracted, which fuels the demand for TV access to tournaments), players have an interest in co-operating with the current organisers of the international tournaments (presently the national associations). To be banned for indiscipline, etc., or for participating in matches outside the auspices of the governing bodies, or for illegal activities like deliberately throwing matches on behalf of gambling syndicates, would deprive them of their income, perhaps end their careers.

2. What negotiable issues might Eddie Coyle Sports Management raise to protect the players' interests?

Negotiable issues are the agenda items for the negotiation. They are the subjects of the decisions both parties must agree upon if there is to be a settlement. They address the interests of the parties by delivering solutions acceptable in the circumstances.

The three main interests of the players are: to maximise career earnings in the short term; secure higher earnings per tournament; avoid trouble with the sport's governing bodies. Eddie Coyle Sports Management must protect the players' interests while exploring with WBlive.com its prospects for re-organising the game to deliver higher earnings to the players. The first negotiable issue must be the securing of strict ‘privacy and confidentiality agreements’ on behalf of the players to prevent damaging leakages of their potential involvement to the national bodies (which would threaten them with expulsion).

The financial proposals from WBlive.com, while an advance on the current earnings of the players, need to be improved to address the important interests of maximising career earnings. This places guaranteed appearance fees, prize and place money, shares of merchandising, TV rights, including appearances and interviews, and sponsorships on the agenda. Perhaps also pensions, illness and injury (particularly if they are career threatening), expenses and training academies for promising new players.

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To protect the players' interests from career damaging leakages, an insurance bond is required guaranteeing large compensation to each player in the event of their expulsion from the official game or of legal action against them from their national associations. This could be viewed as ‘earnest money’ from WBlive.com – if they agree to a bond they are earnest; if they do not, they are not serious.

NB: comparable safeguards or negotiable issues are acceptable for earning marks.

3. What are Eddie Coyle Sports Management's interests and what issues should he negotiate to deliver them?

Interests as defined above:

Eddie Coyle Sports Management's interests are broadly compatible with the players. If the players are successful, then Eddie Coyle succeeds in earning his profits from providing management services. However, Eddie Coyle's interests are both in the short-term careers of individual players and in the long term careers of managing all existing and new players. His horizons are longer than those of individual players.

A player risks his career; so does Eddie Coyle. If the players are expelled, their managing organisation will be too. Each player would lose his career fees, Eddie Coyle would lose his profits from all of the players on his books and all those who would be on his books in the years to come. Eddie Coyle has much to lose (as has his staff). To protect this interest, Eddie Coyle would require complete assurances that WBlive.com was going to succeed before he committed his organisation and his players to it. He would want to negotiate a large bond in place; plus close involvement in the management of WBlive.com (large block of shares and seats on the Board), perhaps a merger of the two organisations, or a take-over of WBlive.com.

He would want a large say, preferably control, of how the break-away is prepared and then carried through. This is crucial because inept handling of this matter could jeopardise the futures of his company and that of his players. He could achieve his goal by having himself appointed as the negotiator with the national associations, where his expertise from dealing with them over the years would be invaluable. He is also likely to want a bigger stake in WBlive.com than cash advances. Shares, and share option schemes, would be likely to feature in his agenda.

4. How might you assess the power balance between WBlive.com and Eddie Coyle Sports Management?

[A general answer on the balance of power might be enough to gain a bare pass,

depending on the content. An answer that refers to either Barruch and Lawyer's

dependency model or to Atkinson's measure of power tool (Module 10) would

gain marks but going into deep detail on the models at the expense of analysis

would not be necessary for a case study question].

Power, like the wind, is felt rather than seen. It is the ability to get people to do what they otherwise would not. Power is a subjective concept and difficult to quantify or measure.

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WBlive.com, if they are backed by substantial investment to fund the technology and to pay the signing-on costs, have considerable power but only if they can attract sufficient of the top ranking players to make their tournaments interesting for TV viewers and gamblers. Hence, their monetary power might buy them players. For this to work they definitely need Eddie Coyle Sports Management because it manages the business affairs of the world's six top players (and another 15 in the top 50). To work, the plan requires WBlive.com to sign the world's top twenty to thirty players and they need Eddie Coyle Sports Management six top players to give it credibility.

Because the plan would be difficult without Eddie Coyle Sports Management's players, this gives considerable power to them. In their absence from WBlive.com, the national associations could run plausible tournaments, though this would be a diminishing asset depending on their age profiles. Four of the world's top 10 players are outside of the Coyle organisation at this moment but they may not be enough to attract the viewing public or the gamblers.

In this situation, the power balance is fairly equal in that the parties need each other, because the prospect of greatly enhanced playing and TV fees would attract players to WBlive.com and the prospect of promoting the world's best players is what attracts WBlive.com to Eddie Coyle Sports Management.

5. How might WBlive.com neutralise threats to ban their players?

This question is about dealing with the ‘problem’ of the national associations. At present WBlive.com and Eddie Coyle Sports Management plan to break away from the auspices of national associations in order to unfreeze the commercial prospects for billiards from the hands of some uncommercial people. The implied threat that such a breakaway organisation would have its players banned is a serious problem because it will cause talented players to hesitate in case the scheme founders.

Such a situation suggests trying another tack, such as trying to integrate the national associations into the scheme by giving them a role in running the sporting side of the game and leaving WBlive.com to run the commercial side. In effect, WBlive.com would ‘buy-off’ the national associations and neutralise them into a non-commercial role (this has happened in professional boxing where promoters generate the money and the national associations set the rules, decide the rankings, and determine disciplinary matters, like refereeing).

Separating the roles has some merits. It creates credible contests. In contrast, where the commercial side also runs the sporting side (professional wrestling, for instance) the credibility of the contests is in severe doubt. For gambling, the credibility of the contests is the main issue; without it, serious money moves on.

There are problems for WBlive.com in revealing their plans to the national association before they go ahead and sign up the players. What WBlive.com reveals before it has signed contracts can be copied by the national associations if they can find another commercial partner. If WBlive.com or the national associations create a hostile situation once the plan is announced, it would make a partnership difficult to put together. Seizing the services of the players is necessary before seeking accommodations with the national associations, the act of doing which could jeopardise the chances of accommodation.

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Solutions to Essay Questions

Essay 1

How would you demonstrate the theoretical benefits of bargaining?

(20 marks)

People negotiate because they wish to change the status quo in some way. By doing so they benefit (improve their satisfaction or utility) but in situations where they cannot benefit themselves without also benefiting the other party, they most negotiate the changes to gain the other party's consent to avoid the other party exercising a veto.

This can be represented by a simple diagram.

Both parties are at X, enjoying utilities P' and Q' respectively. They have an opportunity to raise their utilities if they can agree to a division of the potential enhanced total utility in a joint move to a position within the triangle X, A, D. If they fail to agree, they remain at X.

Party P would prefer to move from X to A, capturing all of the increase in utility, P*, leaving Q no better off (and no worse off) at Q'. Likewise, party Q would prefer to move from X to D, gaining all the increase in utility represented by Q*. But neither move is likely to be accepted because the non-gainer would veto the other's proposal.

In anticipation of this outcome, party P may propose that they move to positions close to B giving P a utility of P# and Q a utility Q” (where P# > than Q”) and Q proposing that they move to positions close to C, giving Q a utility of Q# and P a utility P” (where Q# > than P”). Again, all such propositions are subject to the other's veto.

Now how close to these preferred positions they get and the unequal divisions of the increase in utility such positions imply, would depend on many factors, such as the bargaining powers of the parties, their negotiating skills, their perceptions of which outcomes would provoke the other party's veto, etc. All positions between A and D improve both parties' utility, but some improve it more than others. A position between

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B and C would be a possible agreed outcome, with each gaining more utility than positions between AB or CD.

As both have improved their utility over the distribution available at X (utility P', Q') they have both benefited from bargaining if they can agree on a division somewhere between B and C. Agreement in these circumstances is better than a failure to agree.

Essay 2


(20 marks)

Principled Negotiation (PN) was proposed by Fisher & Ury in 1981 (Getting to yes). Their background as lawyers perhaps indicates why PN is useful as a theoretical framework for dispute resolution. It is based on resolving disputes using objective criteria without resorting to pressure. It rejects ‘positional bargaining’, or what it calls ‘traditional negotiation’, represented by haggling and seeks to find more ‘rational’ ways to behave than lying, shouting, domineering and such like. Its theoretical roots lie in rational decision making (Herbert Simon).

The four prescriptions are:

a. Separate the people from the problem.

Whenever possible separating the people from the problem is a sensible way to start negotiations. Far too often negotiators fail to reach agreement because they focus on personalities and subjective issues not directly related to the problem they are trying to resolve. For example, in a pay dispute, the personal likes and dislikes of managers and employees, and the union officials, may well impede agreement. Sometimes the people are very much the problem. But by separating the people from the problem, the negotiations can focus on the solution. To do otherwise prolongs the negotiations and risks their disruption.

b. Focus on interests not positions.

Interests and positions are intertwined and often may not be clearly separated. In many disputes, particularly long running disputes, the protagonists' main activity is to defend past positions, over which a great deal of emotion has been invested. This leads to positional posturing and a stubborn refusal to explore other potential solutions.

This prescription is a very sensible goal to hold to throughout any negotiation. This is particular true when faced with a ‘difficult’ negotiator who indulges in red play and personal acrimony.

Also, when interests cannot be reconciled, the negotiators can ‘agree to disagree’ and focus on positions and issues in order to alleviate the symptoms of the dispute.

c. Generate a range of options before deciding.

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The intention is that during the debate and proposal phases a number of alternatives are considered. A brain storming session that enables each side to make suggestions without commitment and prior judgement is one way to break a deadlock. In the absence of involvement of the other party in joint brainstorming, the Principled Negotiator should conduct the session separately.

d. Insist on objective criteria.

If objective criteria suggest themselves, it is sensible to apply them to the solution. Few things are really objective (even validation of disarmament by inspection) and how a deal is implemented can be affected by the criteria used. However, in the case of a noise dispute, it is clearly better to address noise levels by dBA measurements than by subjective assessments of what is ‘noisy’.

PN is a framework and though its prescriptions may not be suitable in all may cases, if sensible flexibility is applied to the prescriptions, they are likely to be helpful.

Essay 3

How does wallowing help an influence game and what consequences follow if a wallowing sequence is missed?

The main idea behind influencing is that ‘good ideas alone are not enough’; the most meritorious course of action needs more support than it own merits for it to be enacted by others. Influencing techniques assist the adoption of meritorious ideas by others.

Influencing involves other people; close up and personal. People who know you may be more inclined to support your meritorious idea over others if they are persuaded that your idea is of higher priority than the other meritorious ideas they could vote for, go with or not oppose. This gives you two tasks as an influencer: first, link your name to the idea; second, improve its sense of priority in the mind of the influenced other players.

Wallowing is one such technique in influencing games. It involves engaging the people you wish to influence in dialogues in which their hopes, interests, issues, fears and concerns dominate the discussion. It is not about showing how important something is to you, how much you need/deserve whatever you are proposing, or even assuming that it is self-evident why they should agree to it for themselves.

The technique is simple to understand in itself but it is difficult to execute because (particularly for most males) it runs counter to how we have tended to behave in conversation with others. Briefly, we are often too egotistic to take the time to properly converse with people we wish to influence. In a wallowing sequence, we are more likely to be listening than talking; more interested in what they are saying to us telling them what they should be doing. Worse, we often cut-off trains of thought and topics of conversation they initiate, and on which they would elaborate, if only they were given the chance, before they have had a chance to wallow in their own concerns. Fred, in the scenario, is making a typical error as an influencer by cutting off Jake’s opening steps to his wallow.

During contact with a prospective influencing partner they may raise an issue, or concern, or a question, of which you know the answer, or for which you have a

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meritorious proposal, or you see an opportunity to take the conversation into an area towards which you wish it go. This is a critical moment in a wallowing sequence; miss it and the moment is lost; catch it and, like Shakespeare’s ‘tide in the affairs of men’, you go on to winning an ally.

The error would be to jump in with your meritorious proposal. You have not yet prepared the ground properly because they are not yet ready to give it their full attention or its appropriate priority. To do this you must delay proposing your idea and, instead, concentrate on getting them to expand on their concerns by answering carefully your directed questions.

In the scenario, Jake is upset and angry about his treatment by Al. Fred wants Jake to stay, despite Al’s behaviour, with a view to persuading him to become an assistant. Hence, there is no point wishing Al would ‘back off’; the task is to persuade Jake to develop a resistance to Al’s intimidation. Telling Jake not to be ‘silly’ is no way to get him to stick around and join the team. Fred should now take Jake into a wallow sequence: ask him about Al’s behaviour; how he feels about it; what is the best way to cope with Al; seek agreement that it would be better if Al was ‘neutralised’ and the organisation’s polices were changed ('what kind of person would you like to see in charge of the team?'; 'How do you think that might be organised?'; 'Would you be happier if Al moved elsewhere?', and so on).

The more the prospect talks about his problems (prompted by questions and obvious sympathy and solidarity) the more the issue moves up his internal agenda and takes greater importance in his attention. At some moment his attention is fully on his problem and its importance for him is at its highest. Recognising this ‘moment’ is of paramount importance to the influencer. It is only brought about by the skilful intervention of the influencer’s questions that gradually draw the prospect into focussing on his problem and discussing a future with the problem removed.

Having heard in full Jake’s problems, Fred chooses when to generalise with his solution (change the organisation’s current team structure – or whatever). For this he needs the active support of people like Jake. We have no information of exactly what Fred’s plans are, how many others support them, so nothing is expected from candidates in this area. The question is about getting to this point in the sequence. Moving Jake to the point where Fred can reveal something about his influence game to change the situation is far better than dampening down his complaints about Al, telling him he his being ‘silly’, worrying about ‘nothing’ and offering Jake no credible hope that his misery will end is bound to suggest that Fred is running a half-hearted influence game with little prospects of success. This is likely to hasten Jake’s departure, but even if he doesn’t quit his judgement of Fred has been damaged, perhaps permanently.

Essay 4

How might you apply your knowledge of Prisoner’s Dilemma to explain the nature of the problem faced by Frank?

The Prisoner Dilemma game analyses the situation when there is a conflict between a strategy of doing what is best for self and what is best for the group. The student is expected to apply this concept to the scenario or to a similar scenario with which he or she is familiar.

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An exposition by the candidate of either the original Prisoner’s Dilemma (PD) game or any of the derivative games (Red v Blue; War and Peace; Currency; or ‘Effusi’s game from the Text) is necessary but not sufficient for a pass mark (nor is purely describing more than one of the games). Candidates must also relate PD to Frank’s situation in the scenario for a pass in the essay.

Taking Slug and Gripper for the PD, they have been arrested for a serious crime for which there is insufficient evidence of their guilt. They are offered a deal by the prosecuting authorities: if one of them confesses and the other does not, the confessor goes free and the non-confessor gets 12 years in jail; if both confess they each get 5 years and if neither confess they get 1 year (or some such similar tariff).

The relevance for influence is whether Frank acts exclusively in his personal interest (acquiesce by doing nothing about Fatima’s proposal to better his promotion prospects in the University) or he can act to protect his department’s interests (out of loyalty to his staff’s interests). This is the fundamental choice in PD games, including the game of life: do we do what is best is best for ourselves (defect because we ‘must’ or defect because we ‘want’ to) or do we do what is best for others (Nash: maximise the product of the net gains)?

From Fatima’s view point, she would see Frank’s likely reaction to her proposal as him acting predictably to defend his department’s interests. This prospect would invite an influencing contest between Fatima and Frank, with each fighting for their department’s interests. If Fatima ‘wins’, then Frank’s department will lose budget and eventually would lose personnel, especially if the precedent spreads, but Frank might be sufficiently aloof that it does not damage his career hopes; if Frank ‘wins’, then Fatima’s department would grow and Frank would lose personal promotion prospects, though his colleagues would be happier with Frank and for themselves.

The Principal might judge Frank’s reaction as a test of his suitability for promotion to Vice-Principal; does he take a departmental stance or a University wide stance? If Frank accepts Fatima’s proposal, she may be surprised at first, until his promotion is announced, and then conclude, cynically, that Frank was ‘bought off’. His staff would react angrily no doubt and believe Frank ‘sold them out’.

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English/

Norwegian

Negotiations and Influencing Faculty of Business, Public administration and Social work

Exam March 2006

2nd year/Exchange Students

Date: Thursday 23rd March 2006

Time: 4 hours, 9:00-13:00





NIFH06V

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Case Study

Mavji Patel owns a tailoring business in St Lucia in the Caribbean. His main product line is in mail-order of made-to-measure jackets and trousers. These had been his father’s most recent activity before he handed over his business to Mavji on retirement; his father’s original trade was the general repair of men’s clothes, which still accounted for a declining percentage of Patel Suits’ total profit, with most of the rest in mail-order suits. Mavji had taken the business to the current mix of products, marketed under his father’s slogan, “Patel Suits You”. Recently, Mavji had designed a new lightweight suit (‘Patel Specials’) which doubled as formal wear for business or smart casual, and this was currently growing towards twenty per cent of total profit.

The Internet had created new marketing opportunities and Mavji found that customers from other parts of the Caribbean were measuring themselves for ‘Patel Suits’ (Internet business divided approximately 50–50 between made-to-measure and ‘Patel Specials’). He had invested money and time into his Patel website, acquired a secure credit card facility and took on an extra employee to process the orders and ship them. If Internet demand continued to grow, he would need additional help in the cutting and stitching room; perhaps also new machinery to open another production line.

A month ago, Patel Suits received a visit from Wilson Maraj, the owner of Maraj Men’s Clothes in Jamaica and clearly a talented salesman, who had bought a few of the ‘Patel Specials’ and had been impressed with his customers’ responses, some of whom also bought other made-to-measure items. He told Mavji Patel that he believed he could sell all the ‘Patel Suits’ he could import into Jamaica (more if they were manufactured locally) and that he wanted to set up a deal from which they would both make ‘mighty profits’.

Wilson said there were several issues to agree upon before they could go into some kind of business relationship. These included, he said: a) pricing; b) Jamaican Internet sales; c) an exclusive distributorship in Jamaica; d) licensed manufacturing in Jamaica.

Patel pondered his options before responding to Maraj’s proposition. He wanted to expand his business, but also wanted to retain control of his branded products. He saw the ‘Patel Specials’ as the first of several designs he had in mind and he thought there was a lot of room for growth in developing the mail-order made-to-measure business. Growing through local distributors, such as Wilson Maraj (who had passed an initial scrutiny of his business and personal affairs), could become a model for the future of Patel Suits in the Caribbean; hence, Mavji Patel was not keen on granting him exclusivity or a licence to manufacture locally until, at least, he had proved himself; also Mavji Patel had more knowledge of the prospects for his suits in the Caribbean. On the other hand, depending on the pricing issue, he could use the profits from Jamaica to fund his direct expansion elsewhere via the Internet.

Required:

a) How would you assess the interests of Mavji Patel for these negotiations?

b) How might you set out in a Planner the interests, issues and positions of Wilson Maraj for the negotiations?

c) Why might it be better for Mavji and Wilson to link rather than separate the negotiable issues in their bargaining behaviour?

d) Why are Internet sales to customers in Jamaica a negotiable issue?

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e) What degree (if any) of exclusive distribution rights in Jamaica for

Wilson Maraj might Mavji Patel agree to?

Essay 1

This is a 60 page contract’, said Abdullah, Vice-President of Delphi Computing, ‘and we must go through it issue by issue, quickly disposing of those that are non-contentious and then taking the remainder as they come. Leaving them unsettled will cause massive confusion, so I suggest we seek agreement on as many as possible, which, as usual, will probably settle everything except the price. That way we will finish the negotiations before Thursday and we can go home.

Why might you advise a negotiator to link issues when proposing or bargaining in preference to separating them?

Essay 2

Look, George, I do not care what you say or which option you choose to do. Either reimburse me $200 000 or I will see you in court’, shouted Eleanor Weston, Vice-President Contracts. She had called the meeting with George Preston, from Castle Communications and it had been stormy because all their intra-company telecommunications had gone down for 12 hours when the main frame crashed and the two back-up systems also failed. Weston claimed her ‘best and final bid’ had been lost in transit to a client and she had missed the bid deadline, and she wanted immediate compensation for the wasted costs of preparing her bid (the $200 000) and intended to consult lawyers with a view to suing Castle Communications for her not getting the contract too.

How might you attempt to deal with a difficult negotiator when you wish to conclude a deal and she appears not to care too much whether she takes you to court or not?

Essay 3

'Mahamad voted for the Omega Project at this morning’s meeting', reported Ahmed to Dan O’Reilly, CEO of Phoenix (Middle East), 'and his contribution to the debate was very positive.' Dan and the others were surprised because Mahamad had consistently opposed or undermined every one of Dan’s initiatives for the past year or so. 'That shows how badly he wants to be appointed director of the Dubai project. I think we should squeeze him for more concessions before we decide who to appoint,' said Hadji, adding, with a grin, 'and then appoint somebody else, for all the trouble he has caused us.' 'Maybe not', said Dan. 'We should proceed to push Mahamad’s nomination and let him know that we do not bear grudges. We always repay good deeds, quickly.'

In what way might the reciprocation principle support lessons in strategy from games derived from Prisoner’s Dilemma?

Essay 4

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Edwina sat thinking, long and hard about how to bring Wolfgang into play on her side. She knew Wolfgang, but not well, as he did not say much at the monthly management meetings of the consortium and she had not dealt with him outside these meetings. He ran the facilities side of the joint venture which tended to tick away without problems. So far there had been no hold-ups in the schedule and, therefore, no reasons for Wolfgang to need support from Edwina nor scope for ‘quid-pro-quo’ side-deals. She wondered how ambitious he was for a higher profile in the consortium or was he looking for promotion within his own parent company? Where did he see himself being in three or so years? 'Everybody wants something', she mused, 'but what did Wolfgang want and was it feasible to support him getting it?'

In what manner might an Influence Grid help Edwina begin to draw Wolfgang into her influence campaign where his support would be helpful?

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Case Solution

1. How would you assess the interests of Mavji Patel for these negotiations?

(8 marks)

Interests are the fears, hopes and concerns that motivate the negotiator to

engage in the negotiation of issues and positions. The intention is that the

negotiated outcome delivers or meets their interests to some acceptable extent.

Mavji Patel’s interests are influenced by the fact that his clothing business

is on the verge of a growth phase. Should he decide that he wishes to grow

his business (which is not automatically certain) he has several options,

two of which are to grow organically or to grow by forming some sort of

business relationship with partners like Wilson Maraj. A third option is to

grow through a combination of organic growth and through local

partnerships.

Both options involve risks which is in his interest to minimise. His main

interest in business is to make a profit on his investment sufficient to cover

his costs, fund new investment in production, marketing and distribution,

and set aside for contingencies and opportunities.

With a new product (the ‘Patel Specials’) and new routes to market (the Internet

and new locations across the Caribbean), Mavji has an interest in keeping tight

control over his products (who distributes or handles them; who sells them; who is

associated with them locally in distant markets) and for this reason he is nervous

about distant manufacturing, despite its cost advantages (savings on shipping, insurance, customs duties) but with risks in quality and revenue.

[Candidates may select other interests and their marks will depend on the credibility of their exposition.]

2. How might you set out in a Planner the interests, issues and positions of Wilson Maraj for the negotiations?

(8 marks)

Interests are ‘why’ we prefer this solution to a negotiating problem compared to

other solutions. Issues are items for the negotiation agenda (how we intend to

deliver our interests) and positions are points within the range (negotiators think in

ranges, not fixed positions) of feasible values between our Entry (where we open) and our Exit (where we close) points.

The Negotek® PREP Planner is a useful pro-forma for preparing for a

negotiation because it sets out in an easily readable fashion the key data

that will be used when you meet the other party. By assigning priorities (H:

high; M: medium and L: low) to the issues, the negotiator can see at a glance where most flexibility for trading lies.

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Range

Issue Priority Entry Exit

Pricing H List –40% List

Internet sales M 100% Credited to

Maraj sales (net of

shipping)

20 per cent to Maraj

Exclusivity H Total Phased until Sales

meet targets

Local manufacturing L Licensed, all products Licensed for some

products

[NB: The candidate’s specifications of the Ranges on the Planner are less important

for marks than evidence of understanding the format.]

Negotiable issues and ranges (positions):

a. Pricing: discounted from the ‘List Price’, needed if non-exclusive; list price (two

different marketing campaigns implied);

b. Jamaican Internet sales – bound to be a problem because Maraj’s

marketing contributes to customer awareness; Internet finds

customers independently claims Mavji;

c. Total exclusivity unlikely at start; d. Licence for manufacturing or fitting in Jamaica.

[Or some such description of possible ranges and compromises.]

3. Why might it be better for Mavji and Wilson to link rather than separate the

negotiable issues in their bargaining behaviour?

(8 marks)

There are a number of issues possible in this negotiation and separating them for a

negotiated decision on their individual merits abandons, unnecessarily, useful

opportunities for trading. It also turns each negotiation issue into a zero-sum

bargain: what Marvji gains Maraj loses. Such negotiations are characterised by

higher tensions and greater fragility than negotiations that follow linking behaviours and are more likely to deadlock.

Not all negotiable issues are valued the same (their priorities differ) and

there may be room for greater flexibility in the negotiation range on some

negotiable issues compared to others, providing they can be traded for

issues of greater value or higher priority.

We negotiate because we value things differently and linking issues in

trades takes advantage of this characteristic. If we can exchange things of

lower priority or value for things of higher priority or value to us, we can ‘compensate’ for movement in the issues.

Negotiation is the management of movement and linking enables

movement to take place to mutual benefit because the parties receive in

their trades higher net value items than they give up. If this is true for both

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parties, the resultant traded agreement is closer to being optimal for both

parties (and closer to the Nash solution).

4. Why are Internet sales to customers in Jamaica a negotiable issue?

(8 marks)

Internet sales would become negotiable in the situation faced by the

parties in Jamaica because of the uncertainty of which party created the

sale. Was it Maraj’s marketing in Jamaica that prompted the customer to

order a suit on the Internet? Did the potential customers read an advert, or

see one on TV, or hear it on Radio, attend a sponsored event, all paid for by

Maraj Might Men’s Clothes to promote Patel Suits? Did they hear about

Patel Suits by word of mouth from someone who received some form of

advertising from Maraj? Who knows? How do we prove it? All Mavji knows

is that a Jamaican customer ordered a suit on the Internet site.

The interests of Maraj and Mavji are different on this issue. Maraj prefers to

receive credit for Internet sales from Jamaica because his marketing

campaign causes some customer interest in purchasing a Patel suit. How

they exercise their decision to purchase is less important, in his view, than

the sequence of events that led them to Patel Suits. Mavji prefers to receive

all revenue from Internet sales because he created the web site, facilitates

customer purchases, and supplies product direct to customers without

Maraj having to do anything.

If unresolved it will cause problems. Maraj will compete against Mavji

(itself not a good idea) by pressing for higher discounts for products he

ships in and sells direct to customers. If he can sell below Mavi’s direct sale

price (plus shipping), can offer on the spot repairs and service, and

generally act closer to his customers, he can deter Jamaican buyers from

dealing impersonally with Mavji in far away St Lucia. If there is no

difference in price and this hurts Jamaican direct sales from Maraj, there

may not be as successful a venture as both expected.

By cooperating, Maraj and Mavji can mutually gain. This requires movement

from both of them. Full credit for Internet sales would be a disincentive for

Mavji, but some recognition of the seamless marketing activity is possible.

How much is negotiable? It may be administratively more efficient for

Maraj to place his orders through the Internet to Mavji, enabling

consolidation of order for lower cost shipping from St Lucia to Jamaica, and

for Maraj to take responsibility for all customers who order through the

Internet and those who order from Maraj. People prefer local ‘service’ for

clothes, adding some comfort to them as purchasers.

[Looking for some evidence of solving the problem with a negotiated solution]

5. What degree (if any) of exclusive distribution rights in Jamaica for Wilson Maraj might Mavji Patel agree to?

(8 marks)

The degree of exclusivity accorded to a local distributor by a Licensor is

often a major issue in these kinds of negotiations. The distributor prefers

complete exclusivity, i.e., to be the sole distributor for a defined territory,

such as a country, so that all expenditures on marketing the product

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become beneficial to the distributor and not to any rivals. Licensors prefer

not to grant exclusive rights if they can avoid them so that they can appoint

more than one distributor to force them to compete for sales, believing that

a sole distributor may not work as hard to sell the product if they have a

monopoly, or may take on more than one distributorship for competing

products from other licensors and not thereby give their full attention to the Licensor’s products.

These differences in approach are not absolute and the degree to which

exclusivity may apply is negotiable. For example, Mavji may insist that in

exchange for awarding exclusivity that Maraj Mighty Men’s Clothes

distribute only Patel Suits in Jamaica. This may be feasible and the facts of

the actual circumstances of suit sales in Jamaica would decide on how

feasible was such a trade-off and how strongly Patel believes his suits could

be differentiated from other suits in the market. It is along these

negotiating lines that the optimal degree of exclusivity would be decided,

running from total exclusivity for Maraj, accompanied by the total exclusion

of other brands of suits, through to no exclusivity awarded to either party.

There is a possibility that Mavji Patel might consider a limited form to

exclusivity, at least for the early years of the relationship. Patel produces

many products: the made-to-measure range of suits; the ‘Patel Specials’;

and the repair of clothes (his father’s original business). Maraj, primarily,

was a salesman and not a manufacturer, and until reliable manufacturer

was located in Jamaica he did not see Maraj managing such a venture. As a

seller of Patel Suits, Maraj showed promise and Mavji could encourage him

with a limited exclusivity, either in general made-to-measure items or in

tailor-made ‘Patel Specials’, and reserve complete exclusivity until he was satisfied he had chosen the right partner.

Essay 1

Why might you advise a negotiator to link issues when proposing or bargaining in preference to separating them?

Essentially, negotiation is about the exchange of proposals. In fact, you could say that nothing really happens in negotiation until somebody makes a proposal because we can only negotiate proposals. Yet proposals and bargains tend to take a relatively small part of the face-to-face contact between the parties (about 20 per cent).

In addition to advice to make proposals in the conditional format (If-Then), it is important that negotiators think in terms of both ranges between their entry and exit points and in linking issues together to form linked trades. The alternative is to separate issues and negotiate each one in turn. It is in the contrast between linking and separating that the advice to link is based.

Take the single-issue negotiation. This can arise when there is only one issue on the table, either because there is only issues to start with or because the elimination of all the other issues leaves one left to be determined. A seller may negotiate with a buyer the price of something – a vase or a empty house – that cannot be sub-divided. Accepting that there is a range between the Entry and Exit prices of the buyers and the sellers, we have the classic distributive bargain.

Figure 2.1

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A movement of the seller towards the buyer’s price is a zero-sum transaction; what the seller loses the buyer gains. All such movements cause ‘psychic pain’ to the party that moves towards the other because ‘losses’ are keenly felt. Hence negotiators tend to resist movement when they can.

Assuming there is an overlap in the Exit points of the parties we have a settlement range.

Figure 2.4

The existence of a settlement range does not ameliorate the psychic pain, though its existence is better than its absence (i.e., a ‘Gap’). It enables an agreement to be reached somewhere within the settlement range. However, what causes movement from the negotiator’s Entry price towards the Exit price may have little intrinsic merit. It could be any of many reasons to do with time, other pressures, fatigue, anxiety to get a deal, wishing to please someone, acting from fear, and so on.

A problem with single issue distributive bargaining carries over from these considerations. Taking several issues separately in the same deal it could be (and often is) the case that movements agreed towards the other party’s entry price are made independent of the requirements for movement on the other issues and, in retrospect, where more movement is required on the single issue being negotiated later it may be that the negotiator has ‘run out’ of room for further movement even though such room was available on the earlier issues but is now ‘used up’. In short, earlier movements or ‘concessions’ were ‘wasted’ that would be very useful on the later issues.

This problem could be averted by linking all issues as required to negotiate movement within the affordable budget for movement. In this approach, the concept of negotiable tradables is introduced. A tradable is anything that the parties have discretion over and which one of the parties values more than the other. In effect, the tradable introduces a sub-issue, which is linked to the main issue. If several tradables are introduced, there are several sub-issues or associated issues in negotiation and not just a single issue. The trade-off is not just movement along a single dimension, but movement among the several tradables. The more tradables (or just one) adds greater flexibility for movement. It reduces the psychic pain of ‘giving in’ by associating movement on issue 1 with compensatory movement on issue (or tradable) 2.

Examples of the use of tradables (multiple-issues) attract marks (Land and Peace in the Israel-Egypt negotiations, and so on).

Negotiators in preparation should compose lists of tradable in their business that are suitable to be used to extract compensatory movements across the issues. They should also adopt the negotiation stance of not confining themselves to settlement on single issues. They can use the stance of ‘nothing is agreed until everything is agreed’ and that any agreement on a single issue is only provisional and that it is open to further negotiation in association with other issues should the need arise.

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Thinking in terms of linked package deals across multiple issues is productive of greater flexibility and avoids bitter fights for movement on a single issue basis. The settlement on this basis more closely corresponds to the specific needs of the parties because some of the sub-issues or tradables may be of low value to the negotiator agreeing to them in exchange for movement on an issue or issues with which he or she values highly. A movement on price may be tolerable if there is movement on when the increased price is due to be paid. Such a linked trade may suit both parties for entirely different reasons.

Essay 2

How might you attempt to deal with a difficult negotiator when you wish to conclude a deal and she appears not to care too much whether she takes you to court or not?

Some negotiators are ‘difficult’ to negotiate with. Their difficult behaviour may be caused by several influences on them. It could be they believe they have reason to be ‘difficult’ (your organisation or you let them down badly once too often). It may also be the case that they have found that acting difficult gets them concessions or better deals and they have perfected the art of appearing to be difficult. Hence, care is needed in attributing causes to a negotiators difficult behaviour.

If you have reason to believe that your organisation has let someone down badly, you had better tackle those reasons on their merits. Putting right wrongs you have created is a good place to start. Having an argument about them is less helpful, though this does not mean that you have to concur with the grounds for every complaint, serious or trivial. That is the meaning of judging each case on its merits. If some action of your organisation has caused stress to the other party, an apology for causing the stress is the minimum you should do.

In the scenario, the possibility of being taken to court suggests that there is some degree of failure to meet a contractual performance. No details are given but assume for the purposes of the essay that there is some substance in the claim but that you want to negotiate a settlement in preference to the expense of a trial of the case. The problem is that the other party appears to be indifferent to a deal or a trial. Her indifference may be part of the ‘act’, it may be genuine and the threat is real. Again, you are in judgement on the merits of the case.

You must separate the other party’s attitudes and behaviour from the prospective outcome. People are entitled to express themselves in the manner they wish. If you let their behaviour, no matter how negative, influence the outcome then you are vulnerable to their behaviour deciding the outcome. The link between their behaviour and the outcome should be cut. Likewise, their behaviour should not determine your behaviour. Being professional on all occasions is the goal of the negotiator.

Listening to their complaints and its consequences for them is essential. Asking questions, not arguing about facts, and empathising with their mood as they recount the problem are positive reactions. Attacking, blaming, even doubting, behaviours are not good ideas when trying to move someone from a detrimental intention towards a settlement by negotiation. They provoke negative responses: attack and they defend; blame and they justify; and doubt and they show determined certainty in their case.

The other main element of your response is to move the solution towards a negotiated trade in support of the movement caused by the merits of their case. How much this would cost you depends on the gravity of what happened. If ‘total’ blame attaches to your organisation it will probably cost you a great deal (still cheaper than a court order to do so); if neglect on both sides contributed to the problem some sharing of the costs of a remedy can be negotiated. If you are truly ‘blameless’, it may be wise to offer some contribution for ‘goodwill’ (if you wish to retain the account). They may come to see the futility of resort to law if you handle their rehearsal of the problem sensitively, otherwise you may provoke an expensive ‘nuisance’ claim that has little chance of pleasing either party.

Essay 3

In what way might the reciprocation principle support lessons in strategy from games derived from Prisoner’s Dilemma?

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In the scenario, Mahamad and Dan have experienced a run of negative relations. Mahamad surprisingly switched to support something Dan was sponsoring. The issue is what does Dan do next? This is a case for a Tit-for-Tat strategy.

Reciprocation is a basic human behaviour. While altruism is also known and widely practised, much of that passes for altruism is in fact various forms of reciprocation. The principle of reciprocation is sometimes misunderstood. It is objected that Mrs A did a favour of some kind to Mrs B without any previous intention or expectation whatsoever that Mrs B would reciprocate; the favour, it is asserted vigorously, was purely motivated by a desire to help Mrs B in her moment of difficulty. That belief, and assertion, from Mrs A is perfectly acceptable and its truth in no way contradicts the principle of reciprocation.

Reciprocation comes into play when, at a later date, a Mrs B, say, is in a position to reciprocate a proportionate favour to Mrs A. If she does not do so, the principle of reciprocation has been breached. The question is now how Mrs A feels about this. It could be she is unmoved by Mrs B’s breach; fair enough and perfectly acceptable. Her act was pure altruism. But experience and observation suggests that most people put into a similar situation to Mrs A’s after a breach of reciprocation would resent Mrs B’s breach. The principle then is formed in the breach and is not dependent on prior intentions.

In influence behaviour, reciprocation is an important exchange. Unlike bargaining, which is explicit and usually simultaneous, reciprocation is implicit and sequential. A breach of the bargaining exchange – a party not delivering that which it promised in the conditional proposition (‘If you do this for me, then I will do that for you’) – is a breach of an explicitly stated promise and, under the law of contracts, it is enforceable with all the attendant consequences of a breach of contract. A breach in the reciprocal exchange – party not delivering that which is implicit in open-ended exchange (‘One good turn deserves another’) is a breach of an implicit, vague unenforceable expectation to reciprocate in some similar manner at some vague time in the future. No third parties are involved (the law for example); the breach is often private to the parties, not remarked upon (though it may be to friends) and for which there is no redress.

There are real consequences for breaches of the reciprocations principle in influence situations. Just as ‘one good turn deserves another’, a breach of reciprocation interrupts the mutual exchange of good turns and, in extreme circumstances, can mean a conscious intention to do the other serious ‘bad turns’, as and when possible. From an influencing point of view, such a reaction could be disastrous. Where opportunities exist to do damage to your interests, you can be sure that resentful people will act against you.

Prisoner’s dilemma (PD) games refer to the strategic choices that people are faced with in certain types of situation where they have a choice of doing what is best for themselves or doing what is best for both parties. Acting for themselves alone they may make considerable gains, but what is true for one party is potentially true for the other. If both attempt to do what is best for themselves, they could end up with an outcome that is significantly worse for them both. This has been shown in PD games; parties make choices that make them both worse off, though they intended to make themselves better off at the others expense. The outcome from the choice that makes them both better off is certain, though not as attractive as the outcome that would make one of them better off, provided the other player chose to make both better off. The defection choice leaves the naïve, trusting party stranded with the worst possible outcome.

[Overly-long expositions of PD are not needed and candidates should not score well for presenting long such accounts in their answers.]

Axelrod derived interesting results from a computer tournament in which various strategies were played to select the better strategy out of the universe of possible strategies. The winning strategy was Tit-for-Tat. This had three rules: always open with a strategy that aimed to do what is best for both parties (in PD, the Blue play; known as be ‘nice’); then always play next what the other party played in the previous round (be ‘ruthless’ but predictable – if they play ‘red’, you play ‘red’); if they switch from ‘red’ play to ‘blue’ play, always instantly ‘forgive’ previous ‘red’ play and play ‘blue’ in reciprocation, no matter how long they had played ‘red’ and you had played ‘red’ or you played ‘blue’ and they played ‘blue’ in reciprocation.

The differences between Hadj’s suggested strategy and Dan’s centre on the ‘retaliation’ strategy of Hadji and Dan’s TFT strategy. Hadji continues to bear a grudge against Mahamad for his previous ‘red’ play; Dan prefers to instantly switch from ‘red’ to ‘blue’ if Mahamad switches to Blue (instant forgiveness). By doing so, Mahamad should notice Dan’s switch to blue because it instantly follows the switch from the ‘red’ play which Mahamad instigated and Dan followed (his public support for Mahamad’s nomination as Director of the Dubai project). Where the reward is close to the event that promotes it, the chances of the party learning of the

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connection are very high. Any steps that delay the connection reduce the chances of connection action with the reward (which is why Hadj’s reaction is rejected by Dan). The Tit-for-Tat strategy reinforces the Reciprocation Principle.

Essay 4

Edwina is starting almost from scratch with Wolfgang and needs to approach her influence task carefully. The Influence Grid is one way to do this. It is an extension of the Key Players Grid because it adds detail to a key player’s name and their relationship with you.

Exhibit 7.8 The key players grid

[Candidates should explain, either here or throughout their answer the main

headings of the diagram]

At present, Wolfgang is a Potential Ally (PA) and his name is entered under the Identify column and marker ‘PA’. The little knowledge of Wolfgang that she has must be analysed as best she can. Anything that occurs to her would be recorded in the column marked ‘Analyse’. She knows his facilities function shows no signs of problems or of not working smoothly. If it had such problems they would soon emerge in a meeting of the several parties forming a ‘consortium’. None are reported and she can assume Wolfgang is competent.

From the information in the scenario, Edwina knows very little about Wolfgang and has not got much to go on about his views of the world and his place in it. She has to resolve the problem of the absence of information about him – she can ask others who know him better; engage him in conversation, informally and formally on official business. Here, she has an opportunity for some GOYA and GOTT (even some GOTEM – ‘get on the e-mail’) by thinking creatively of reasons to contact him. Her activities in this area are purpose driven – she needs to know what sort of manager Wolfgang is and what makes him tick. Is he ambitious, is he looking for the ‘quiet life’, or does he want to do and achieve more; what does he think of their colleagues in the consortium, is he critical of aspects of their work or other individuals, what sorts of things, people, events annoy him, how cynical, if at all, is he about his work, colleagues, bosses and customers, is he disappointed with his career progress, and what does he want to do about his role, position and prospects, and so on? Care is need in this work because some people do not include relative strangers, like Edwina, within their world and they might resent her trying to enter it. If this in the case, Edwina will have to work round it (and perhaps Wolfgang).

Whatever turns up from her analysis, she should assess what resources she might have, or can access, that are relevant to Wolfgang’s world. These resources may be work-related or in some other area (Edwina knows, say, the Principal of the college that Wolfgang’s son is attending, or she knows a good supplier of swimming pools, etc.,). How she manages the transfer of such resources to Wolfgang without embarrassing or compromising him in some way also requires sensitive treatment. Where the resources are solely work-related there would be established protocols and procedures covering them and these should always be followed.

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Most organisations, even the most rigid of bureaucracies, have scope for the informal transactions of influence – doing ‘good turns’, avoiding ‘bad’ turns; reciprocation, and the currencies of influence. Edwina should deploy the resources she selects from them in a determined manner. She is still looking for ways in which to draw Wolfgang into supporting her influence campaign (the scenario does not disclose exactly what her campaign is about).

It may be some time before Edwina can fill in much in the Diagnosis column. Here she is evaluating her relationship with Wolfgang – is he an ally or is he still only a potential ally, or is he merely a distant functionary with whom she has no relationship at all? Or has Wolfgang moved on from being a potential ally to an ally? In the diagnosis, Edwina must be honest with herself. There is no point in her being self-deceived. Worse, there is no point misreading the relationship to assume it is stronger than it really is, especially if the diagnosis of the relationship is used to convince others that she has stronger support than she really has. Third party incidents could reveal that Edwina has misled her allies and this could undermine her actual support. Outright denials by others that they agree with Edwina’s proposals could be embarrassing to those who act on the basis of what Edwina told them. They may not forgive her and may revise her reputation for candour.

If assumed allies have not been contacted by Edwina recently, their views may have changed or their ardour for a change been dampened by events, other views they have heard or simply the fact that they were never really that keen on Edwina’s proposals from the start (but did not have the heart to be frank with her). A consensus withers from neglect. Other agendas intrude on their thinking and priorities change. So she had better keep in regular contact with her allies and potential allies.

In the case of Wolfgang, she has much work to do for the first parts of the Key Players Grid and from what she finds out she has to commence working on her information to bring him into play by selecting the appropriate means of her approach. She may have to adjust her plans in the light of what she learns about his interests, aspirations and preferences. Hence, the Selection column is a direct prelude to the Implementation column.

How quickly Wolfgang may be brought into the ‘team’ and directly participate in the influence campaign requires much more detail than available in the short scenario. That is why emphasis in the answer would tend to concentrate on the first four columns of the six column Key Players Grid.

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Exam March 2005

Case Study – Games of Many Halves

Both satellite and cable television channels require a decoder box to receive the signal on the customer’s television. Selling decoders to customers is a marketing challenge because the choice of a television company’s package determines the decoder.

Television programming is driven by the sale of airtime to advertisers. Hence, purchasers of television rights of sporting events sell these programmes to the cable television companies that can attract large key audiences for advertisers of branded products.

Satellite companies with ‘thinner,’ but national, coverage have purchased the rights for most main sports. They sell access to these events to customers with their decoders and, in the US and Europe, also sell to regional cable television companies. Mutually beneficial deals emerged whereby some customers receive sport plus advertisements via satellite and others via cable television, depending on their decoders. The sports fan is attractive to advertisers, particularly as they tend to be males from middle and lower socio-economic groups, with high collective spends.

The fourth largest cable television network, Box, with 6 million subscribers with its decoders, is engaged in a tight negotiation with NEST, which accounts for 15.5 per cent of media conglomerate, Bisley, its owner, over a 20 per cent increase in its programming fees for its sports programmes. Owl Networks, a smaller rival of NEST, has also proposed a 35 per cent hike in its fees, a move connected with its recent acquisition of a satellite company, opening up the prospect of direct competition with Box in some regions.

Sports programming is expensive. Box currently pays NEST a blanket $2.61 a month for each of its subscribers, and the 20 per cent increase would raise its monthly fees to NEST from $15.7 million to $18.4 million, (i.e. from $188 million to $220 million a year, or by $32 million). NEST sports accounts for 4 per cent of Box’s customers but 18 per cent of its programming costs. Owl accounts for 4 per cent of Box’s customers and 14 per cent of its programming costs.

The negotiations, predictably, have been stormy and are being held in a mahogany panelled Wall Street ‘clubby’ conference suite, provided by a merchant bank. Statements emanating from the negotiations show a wide gap between the parties. For Box, its CEO announced, ‘he would not be meeting the latest demands from NEST or the separate demands from Owl and would not renew contracts for their programmes.’ The NEST CEO replied that ‘If they don’t sign, we won’t transmit’, leaving the prospect of no sport on television for millions of customer’s. ‘That would stink’, said the head of sport at Box. ‘It would be devastating for everyone in sport because no transmissions means no advertisers and no more big time income into the sports.’

Box’s proposed solution for any (small) increase above inflation was to allow cable suppliers to ‘tier’ the providers’ sport’s packages by charging an extra ‘pay per view’ fee for sports fans only. This has been rejected by both NEST and Owl as ‘a non-starter’, and Owl’s CEO called Box’s reactions as ‘comic relief’. Owl has described their 35 per cent increase as ‘merely a starting bid in the haggling’ and warned Box that if they failed to secure a renewal of their sport transmission it could intensively market its decoders and compete directly in several new regions. A NEST press release stated that if ‘Box did drop its services, it would be a great disservice to its subscribers and it would hurt Box more than NEST because NEST is a bigger part of Box’s whole business, including its advertising revenues, than Box is of NEST, and only satellite rivals would gain’.

Required:

1. What do you consider to be useful and what counter-productive in the public statements of the negotiators?

(8 marks)

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2. What did Owl imply by its statement that the 35 per cent increase was ‘merely a

starting bid in the haggling’?

(8 marks)

3. What might be missing from Box’s assessment that the NEST sports network

accounts for 4 per cent of the viewers and 18 per cent of its programming costs, and why might it be significant?

(8 marks)

4. Which party has most to lose from the threats and the consequences if they are carried out?

(8 marks)

5. Why would a tiered, pay-per-view, price system be in the interests of Box and against the interests of NEST and Owl?

(8 marks)

Essay Questions

Essay 1

Arnold reviewed the recent experience of his negotiations with his suppliers of cooking oil for his restaurants and was concerned that they always seemed to get off to a bad start with the suppliers insisting that their prices had to rise. But once they moved to a discussion about why they had to rise this time, or by how much they were promising to raise them this time, and for how long they would hold their new prices, it invariably ended in prolonged rows, shouting, threatening and bad tempered exchanges. He felt there had to be another way of doing business, starting with recognising that he could not keep passing price increases to customers. He had read about ‘win–win’ negotiation in a newspaper and wondered if that would help him?

Assuming that win–win negotiating can, in principle, help Arnold, why is it that his negotiations are likely still to end in lose–lose outcomes?

(20 marks)

Essay 2

‘Look,’ said Henri, ‘you are far too soft on Marcel. He has been pushing for months to take over your territory and enlarge his own, as part of his plan to become vice-president of sales. Why don’t you stand up to him?’ ‘It’s not my style, that’s all,’ said Michael. ‘I don’t like disrupting a reasonable working relationship by arguing over minor changes in sales territory when we have so much else to discuss. OK, he’s loud, aggressive and manipulative, but that’s his personality. You can’t change people’s personalities. It’s much better to adapt to them, as long as you are aware of their personality type. I’m aware and he won’t win.’

What, if anything, is there to be gained by negotiators personality typing the people with whom they deal?

(20 marks)

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Essay 3

‘What is the point of studying negotiation as a phased process,’ asked Ndala, ‘when the people I negotiate with have never heard of the four phases and do not care about anything other than getting the best deal, often at my expense?’ Mwanga thought for a moment and then addressed the question from his obviously worried colleague.

How might Mwanga have answered Ndala to the effect that knowledge of the Four Phases would more likely contribute to a more acceptable negotiated outcome than ignorance of them?

(20 marks)

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March 2005 Examiner's Solutions

Note from the Examiner: Please note that these solutions are for guidance and students are not expected to supply word-for-word answers. Their answers should contain the points identified here, though their modes of expression of them will vary for each person. Good examples that illustrate a student's answer normally attract extra marks.


Case Solution

1. What do you consider to be useful and what counter-productive in the

public statements of the negotiators?

(8 marks)

Commercial negotiations are usually conducted away from public scrutiny, unlike

international political and domestic labour disputes. This is because commercial

negotiations are private matters between the parties. Only when there is a public

interest in the outcome, or when it is deemed to be newsworthy for some reason (a

take-over, a change in senior personnel, a significant merger or break-up, an issue

of public policy at stake, or a bankruptcy, or criminal offence), does the negotiation become headline news.

Because it is unusual, the participants sometimes go public from lack of experience,

or are provoked into answering each other’s statements and charges. Obviously, the

non-appearance of sport on television is a matter of high public interest because it

affects the lives of famous and celebrity sports personalities, and the viewing public

and the news media will be working hard to secure public comments, and report

rumours, on the negotiations. The protagonists will want to use public criticism of

each other’s conduct and letting the wider public into the issues at stake could help

mobilise public opinion for or against the proposed changes. By informing the public

of the issues, this allows for a wider discussion than one that is confined to the

negotiating table.

The downside is that the making of public commitments to do or not do this or that

makes it harder for movement to be secured because changing public stances could

lead to a loss of face and an awareness of such an outcome may inhibit a negotiator

who is identified with a ‘no surrender’ stance. Also, arguing in public, particularly

when the exchanges slide into personal confrontation and hurtful personal

comments (‘comic relief’) which are difficult to put aside, tend to be barriers to movement even when it is manifestly in the interests of the parties to do so.

A moratorium on public statements, except those that are jointly prepared, is a

more helpful policy than allowing each party to make public statements, the purpose of which is not to inform but to attack the other’s behaviour, proposals or motives.

2. What did Owl imply by its statement that the 35 per cent increase was ‘merely a starting bid in the haggling’?

(8 marks)

The proposal to raise programme fees by 35 per cent is an Entry price. It is the price

at which Owl opened the negotiations. Negotiators think in ranges not fixed positions

and the implication is that there will be movement from the entry price along a

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range leading to the Exit price – the price beyond which the negotiator intends not

to move, though circumstances can change or new information is considered causing a review of an Exit price.

That Owl made the statement attributed to them is surprising and could only have

been in response to heavy pressure from Box at the size of the proposed increase

and the general consideration that the rise is unsustainable. Even making such a

move, followed by a frank disavowal of the seriousness of its entry price,

undermines Owl’s credibility. It reveals their manipulative approach to negotiation

and highlights their exploitative intentions. No reasons appear to have been given

(or at least made public) for the increase in programme fees. These reasons may be

related to continual increases in the bid prices for television sports rights from sports

organisations (advised by consultants). The sporting bodies know that without

television rights the market position of television programme sellers is severely

undermined – so do advertisers.

Haggling is a word for the single-issue price problem. It is usually a zero sum game

– what the buyer gains from a lower price, the seller loses from a higher price, and

vice versa. Movement is only possible along the price range between the entry

points of both parties and is obtained by time or business pressure, wily persuasion

or threats. This causes ‘psychic pain’ as movement is conceded because there is

nothing else to trade. Owl implies that the solution price will be haggled over and

because it will be lower than 35 per cent it wants to structure Box’s expectations by

starting ‘high’, while Box wants to do the opposite and achieve a lower price nearer to inflation.

But Box has signalled with its proposal for a tiered price that it wants to introduce

another solution and the Entry price of NEST is 20 per cent, considerably less than

35 per cent. As this too is an entry price, implying a lower though as yet settlement

price, and a lower exit price, the initiative would pass to Box which can play one off

against the other. If it settles with NEST first below 20 per cent, this could bring

about a lower settlement price with Owl too. On the other hand, if it settles with Owl

first above 20 per cent, it induces pressure towards a higher settlement price with

NEST. It is interesting that it is Owl people who have dismissed ‘pay-per-view’ outright.

3. What might be missing from Box’s assessment that the NEST sports

network accounts for 4 per cent of the viewers and 18 per cent of its

programming costs, and why might it be significant?

(8 marks)

Among the programming costs of transmitting NEST sports programmes will be the

programme fee charged by NEST. Increasing costs by $32 million a year to $220

million is no small sum, all of which has to be recovered by revenues from

advertising and the subscriptions of its six million viewers. No details of these

revenues are given in the case but it is from these revenues that Box’s profits

emanate. In making the statement about 4 per cent of its viewers costing 18 per

cent on its programming costs, there are no data as to Box’s revenues and profits and, therefore, it is not possible to determine the seriousness of these data.

In rewriting the 4:18 ratio we get: 96 per cent of the viewers cost 82 per cent of the

programming costs (96:82), a less alarming ratio. Sport entertainment is expensive;

it is live, it has constant commentaries, it has highly paid ‘stars’ and is usually long

(over an hour, often much longer), all encapsulated in the programme fee paid to

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the network supplying it. As it comes in a package for a fee, there is not much room

for negotiation to reduce it. Usually, the negotiations are about increases in the fee.

Another missing part is the relationship between adult male sports fans and their

attractiveness to advertisers. It is the attractiveness to advertisers that influences

the negotiated fees. They are regarded as difficult to access grouping covering

middle and lower socio-economic groups but with high collective spending patterns.

Advertisers will pay good fees to place their products in front of these groups.

Revenues minus costs equal gross profit, and it is the profit from covering major

sports events and series which is the critical number. A 20 or 35 per cent increase in

fees can represent larger percentage cuts in net profits, even push then into losses.

This last might be part of a case for a lower increase in programme fees, depending

on the numbers, which, presumably, Box negotiators have done their staff work

upon. Data is always more convincing that rhetoric. There is also a spill-over effect

from having popular sporting events or series on a cable or satellite service. Though

a minority of viewers might purchase a decoder system for the sports (or any other

channel), the fact that a household has a particular system and uses it has

attractions to advertisers too. In multi-person households, others watch the other

channels besides the sports, and advertisers know that other viewers in the

household watch the other channels and can design their advertising around placing

their products before them while they watch cartoons, soaps, documentaries and the

news and current affairs programmes. The sports audience is attached to other

audiences, bringing in advertising revenues to Box. But Box without the magnet of

sports may take lower advertising revenues on its other channels and this must be a

consideration in the ambitions of NEST to raise its programme fees. This could be a critical consideration in the argument over fees.

4. Which party has most to lose from the threats and the consequences if they

are carried out?

(8 marks)

There seem to be two main threats on the table. Box announced it will not pay the

new price hikes; NEST responded that in that event it would not transmit its sports

channel to Box. Owl has announced that if Box failed to secure a renewal of its

sports transmission then Owl would go head to head in selling its satellite decoders

(recently acquired) in certain regions and compete using its own sports channel with a ‘sportless’ Box.

In the short term, all parties would lose from an implementation of their threats and

counter-threats. Disruption in consumer services loses customers and generates

hostility to those perceived to have caused it. If the disruption lasts, some

customers will not return. For Box, this causes a loss of advertising revenue and new

subscriptions; for NEST or Owl, they lose programme fees and still have the heavy

costs of sports programming, including paying their licence fees to the sports with

less revenue from the television networks. In addition, Owl, since its recent

purchase of a satellite service might be provoked into activating the service –

initially in certain regions and later nationwide – building up a customer base for its

sport channel, which once started may be difficult to unwind in the event of a future

settlement with Box.

Box is the fourth largest cable operator and much will depend on the fortunes of the

other cable operators. Aggressive expansions of the other networks into the Box

dominated regions may further weaken Box and even herald its demise. If all the

networks refuse to pay the price hike (unlikely and probably illegal under anti-trust

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laws), then NEST and Owl may have to think again. It is already prompting thoughts

of vertical integration in Owl on a small scale. If followed through on a national

scale, plus the entry of NEST into a similar venture (even buying up cable television

networks), this would change the market and have implications on advertising,

sports sponsorship and independent networks. The disruption might entice new

entrants too. The bargaining stances of the current players would be affected, perhaps terminally.

Who would lose most requires more data for the industry and the economic

strengths of the negotiating parties, plus details of the pressures that may be

exerted by advertisers, sports bodies and viewers on the deadlocked negotiating

partners. Of as much importance in negotiating are the perceptions of the

negotiating bodies; how do they see their likely losses? These perceptions determine

their stances. Threats may have an element of bluff in them with no real intention of

carrying them out. As commitment in threat making is important, the bluff has to

act with credible intent; the more credible the intent the more the target has to

assume the worst and prepare for it; the more it prepares for it, and visibly

demonstrates its commitment, the more the bluff strives to prove the seriousness of its intentions to carry out the threat. Thus, threat cycles can escalate out of control.

5. Why would a tiered, pay-per-view, price system be in the interests of Box and against the interests of NEST and Owl?

(8 marks)

Under the current arrangements, Box pays Nest a capitation fee of $2.61 per

subscriber to its cable television services. It has six million subscribers, or $15.6

million. This has the advantage of ease of calculation (and audit). It does not require

a check on how many subscribers are watching particular events and, given the

number of events, it does not need a complicated calculation of which households

watched the World Series and which the NFL (or the World Cup, or Wimbledon, or

the Davis Cup, or Formula One, or World Wrestling Entertainment, etc). All

subscribers to Box pay the same fee whether they watch particular sport events or

all sports programmes or none. Audience measuring systems can measure particular

audiences – advertisers use them – but NEST and Owl prefer the capitation fee as it

specifies their incomes and is more reliable than other systems, probably producing less revenue for them.

In a pay-per-view system, those who wish to watch the sports channel pay a fee on

top of their subscription fee. They may even pay and additional fee for specific

sports events. Technology makes this easier by allowing this to be done on screen

with the remote control. Seems fairer, that those who want to watch sports pay

more than those who don’t (though they may pay subscription plus fees for other

viewing interests, such as a History Channel, Discovery, a foreign language news

service, etc.) This adds a degree of uncertainty for NEST and Owl, or at least

potential variability in revenue. As their total revenue falls on fewer households, it

raises the per head fee, though it more clearly identifies for advertisers specificity in

the target marketing segment, which means they target their intended customer

and waste fewer of their advertising dollars (for which they may be prepared to pay more for airtime).

For Box, a tiered pay-per-view regime could be cheaper as making it too expensive

for subscribers will reduce demand. This at least is a consideration in restraining fee

hikes. What is good for Box in these regimes may be considered bad for NEST and

Owl, depending on the pay-per-view fee they negotiate. This would come down to

data. What audience is required at various fees to make it worthwhile for NEST and

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Owl to switch fee regimes? What fee cap is required to make the audience that will

make it attractive to advertisers?

Could Box negotiate some special deals with another high value sports event

provider to add to its offering using pay-per-view or do its contracts give NEST or

Owl exclusivity? If it could do individual occasional deals of main events, it might be

able to label some of NEST’s or Owl’s offering as ‘golden events’ too and introduce

pay-per-view via this means. This is an exercise in finding creative tradables to put on the table by way of solutions.


Essay 1

Assuming that win–win negotiating can, in principle, help Arnold, why is it that his negotiations are likely still to end in lose–lose outcomes?

(20 marks)

There is a widespread prejudice in favour of the notion of win–win negotiation. This is sometimes no more than a feeling that both sides should feel happy with the result. If both parties gain something from their resultant agreement, it is considered to be more stable than if one of them harbours resentment at losing while the other is perceived to gain unfairly. Because we negotiate when we value things differently, it should be the case that all negotiations produce win–win; at the very least what we gain is not necessarily in the same terms of what they gain, as we are comparing different value systems. Achieving my need for cash is not in conflict with your need for achieving access to a marketing outlet.

Too easily this is easily transformed into an assumption that win–win negotiation ought to be the norm. What ought to be is not necessarily the case.

The dilemma game shows that win–win is not the normal outcome. People who play dilemma for the first time mostly choose to play red rather than blue. They do so because they either intend to exploit the other player’s expected blue play or because they wish to protect themselves from the other’s expected red play. Few players gain the maximum of 36 points each. What one gains by playing red, the other loses when playing blue. Red behaviour begets red behaviour as former blue players switch to red in retaliation. If both play red, both lose points (lose–lose).

The example in the text of the war or peace choice for countries shows that they would both gain most by both assuming, and acting upon, peaceful behaviour by their neighbours, but the risk of doing so if the other (secretly) prepares for war is too costly if a neighbour defects and becomes belligerent. So both prepare for the other starting a war and achieve a sub-optimal outcome – scarce resources are diverted from productive civilian GNP (or lose–lose). All countries have some expenditures on defence, following Adam Smith’s dictum that ‘defence is more important than opulence’ because opulent countries that neglect their defence may lose their opulence with their independence.

Negotiators can behave according to the view that ‘more for you means less for me but that’s OK if we maintain a good relationship’ (a blue approach) or ‘more for me means less for you because I need to gain the best result’ (a red approach). From these attitudes different sequences of negotiating behaviour follow.

Playing blue if the other player plays blue can lead to win–win but as most people have red attitudes or fear red attitudes in others, they play red. If they do, the blue player is disadvantaged (lose–win leading to lose–lose) by the red player’s protective defection: ‘I defect, not because I want to but because I must’, or the red player’s exploitative defection: ‘I play red not because I must but because I want to’.

Win–win as a principled philosophy is not an adequate guide to negotiating behaviour. Intention alone is not an outcome. Behaviour is conditioned by the behaviour of others. Win–win players up against

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lose–win players either quickly adjust their play or they lose more than they intended. Negotiators who have experienced red play (lose–win) subsequently anticipate red play.

Establishing a win–win relationship takes effort and time. People can learn to trust specific other people and to distrust the rest. Dealing with the two styles (red and blue) is part of gaining experience as a negotiator. (Examples) If you work in a red environment (e.g., construction) the norm is lose–lose. Breaking out from lose–lose is costly and difficult. Merely knowing that it is better to be win–win is only helpful if you can find potential blue partners to change the game.

Few negotiating situations lend themselves to win–win behaviour because of the prevalence of red–red exchanges and the dilemma of trust. The greater the need for trust the greater the risk. Playing either red or blue is sub-optimal because neither leads to a win–win automatically. What is required in negotiation is strategy that increases the likelihood of win–win. This is found in the use of the conditional proposition (‘If you do “X” for me, then and only then will I do “Y” for you’). The red side of the negotiator (what I want) is balanced by the blue side (what I will do for you). This is the Purple stance which in negotiation ensures that any agreement provides a win outcome for each party.

Examples of red and blue behaviours to illustrate the point that the dilemma of trust leads to protective red play but that blue play can be introduced to train the other negotiators in the better deals that are possible if they change their behaviour attract marks.

Long expositions of the prisoner’s dilemma do not attract extra marks (perhaps 1 mark at most). References to the red–blue game should also should not be marked generously. Only sufficient exposition of the red–blue game is required to demonstrate that students understand its main conclusions about choices of behaviour.

Essay 2

What, if anything, is there to be gained by negotiators personality typing the people with whom they deal?

(20 marks)

Rubin and Brown (1975) identified two variables that determine the personality of negotiators: their interpersonal and their motivational orientations. By interpersonal orientation they meant their sociability towards other people – do they react or not react to other people’s behaviour? By their motivational orientation they meant whether they tend to be competitive or cooperative. This suggests some rather blunt criteria.

Using these orientations as dimensions, we get four basic personality types: collaborators; competitors; accommodators; and avoiders. Negotiators are alleged to be one of the four types. They are characterised as follows:

Collaborators are relationship oriented and seek pragmatic solutions to problems. This makes them good team players because they involve everybody in the decision.

Competitors rely on power rather than relationships (red players). They use ploys and bluffs and generally seek personal advantage when negotiating.

Accommodators are relationship oriented and try to placate and smooth over difficulties whenever conflict threatens (collaborators would talk it through without making unnecessary concessions).

Avoiders rely on precedents, rules, and procedures to avoid changes to the status quo and they do not like the tensions of negotiation, hence they avoid negotiating if they can.

Most people probably display a mixture of the four types at different times, though they may be predominant in one type for most of the time. Which type is the likely to be the ‘best’ negotiator is a pointless question, because all personality types negotiate with other personality types! Which personality is dominant at a given moment is difficult to identify if there is a small difference between the four types present in the same person.

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Other limitations of personality typing are both conceptual and behavioural. Negotiations are in pairs. Thus, for 4 types there are 16 possible combinations (with the same type and with each of the three other types). This is compounded if there are teams of negotiators in each party, each drawn from the four personality types. Such complexity makes it difficult to identify the appropriate personality influence of the types on the outcome. It becomes unmanageable when negotiating in teams.

Also, certain negotiation behaviours appear to work well when used and others usually work badly. Behaviours that work can be enhanced through training and those that do not can be reduced if not eliminated. If behaviour training can override personality traits, of what value is there identifying personality as an influence on the outcome? Why not concentrate on training the appropriate behaviours?

The main practical problem is identifying somebody else’s personality type (as a prelude to overcoming it) during the stressful environment of a negotiation. Even if achieved (in scientific exercises it requires 9 extensive tests lasting several hours to identify a person’s dominant personality), the negotiator has then to match it to his or her personality and behave accordingly. Again this may mean overriding his or her personality, which, if achievable, why concern oneself with personality? It is also prone to errors and misreading.

Evidence suggests that if personality has an influence it is only in the opening sessions of a negotiation and is displaced quickly by reactions to each other’s behaviours. From this limitation it is better to study their negotiating behaviours, whatever their personality traits, and apply the appropriate (purple?) behaviours that generally work.

Being aware of Marcel’s personality type is useful but not enough. Dealing with a difficult red player in competitive mode is not about his personality because many other personalities can behave in this manner (or lack of them). It is Marcel’s behaviour that is important and Michael has to cope with that. Recognising Marcel’s personality produces nothing useful for Michael. Suppose Marcel does not exhibit the characteristics attributed to his perceived personality at their next meeting, what then? Does Michael continue as if he was behaving in the usual manner or does he react to his behaviour?

Essay 3

How might Mwanga have answered Ndala to the effect that knowledge of the Four Phases would more likely contribute to a more acceptable negotiated outcome than ignorance of them?

(20 marks)

You are expected to demonstrate that you understand (from Modules 3, 4, 5, and 6 in the text) the role of the Four Phases in negotiation, irrespective of whether a negotiator is aware of them. Everybody, aware or unaware, is a Four-Phase negotiator, but the aware negotiator is better placed to conduct the negotiation process.

The four phases are: prepare, debate, propose and bargain and something about the role or main activity of each phase should be described.

Preparation is about establishing what the negotiation is about, which means identifying one’s Interests (why a negotiator prefers this to that solution; the negotiator’s motives), the negotiable Issues that will deliver those interests (what the negotiator wants), the priorities (high, medium and low) for each of the Issues, and the negotiable Ranges, including the Entry and Exit Positions (how the negotiator proposes to define the issues). A Negotek Prep Planner format diagram would be helpful for full marks.

Debate may be constructive or destructive and it shapes the tone of the negotiation, creates obstacles, prolongs discord or can initiate cooperation. Examples of constructive debate (neutral statements, assurance, questioning, summarising and signalling – SAQSS) are expected, as are examples of destructive argument (irritating, asserting, interrupting, blocking, point scoring, attacking, blaming, and threatening). A Time Track format diagram would be helpful for full marks.

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Proposing is about tentative solutions to the negotiated problem. Demonstrating understanding of the significance of assertive (‘want’, ‘require’, ‘must have’) but tentative proposal language, compared to unassertive phrases (‘wish’, ‘hope’, ‘like’) is necessary and a demonstration of the nature of the format of a proposal: specific or non-specific in the condition but always non-specific in the offer. Explaining the better way to make and respond to a proposal, with reference to the use of tradables is essential.

Bargaining is about specific solutions and emphasis on the IF–THEN conditional format of a bargain, which is specific in both the condition and the offer is expected. For full marks it is essential that candidates demonstrate understanding of the importance of linking issues (nothing is agreed until everything is agreed) and of the various closing techniques (Summary, Traded Movement, Adjournment, Or else) .

Becoming aware of the four phases assist sin improving outcomes because, by identifying the skills associated with each phase, the negotiator who consciously practises those skills that have been shown to work well in their appropriate phase and to avoid those behaviours that are shown not to be constructive, will do better than the unaware negotiator, who stumbles through the phases and makes more mistakes with inappropriate behaviour.

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Exam 2004: Case Study – Solvent Solutions

Sanchez Delgado is a bio-chemist who has developed a completely new industrial solvent. From a technical point of view the solvent is a long way ahead of anything else in production or under research by the major solvent manufacturers operating in this market, most of which appear to be merely refining their existing technologies. Delgado has completed the necessary laboratory trials of his new product and has achieved quite outstanding results in comparison to benchmark trials with existing commercial products. But Delgado does not have sufficient capital to turn his laboratory prototype into a commercial product.

The usual sources of Funding funds have turned down Delgado because they have become risk averse having made major losses during the recession and through defaulting dot.com borrowers. He is now engaged in negotiations with the Nothing Ventured Fund who see the potential for the new solvent despite the undoubted risks, and who are willing to advance the necessary funding (US$75 million) but only if they can secure their investment against the profits from Delgado's other patented products. To this end, they have insisted that they hold a large share of the equity (at least 48 per cent) of Delgado's company.

They have asserted that they are only interested in making a profit from their involvement by selling their shares at the appropriate time and have no long term plans to maintain their share holding beyond five to ten years but the performance and financial conditions of their investment give them pre-emption rights to acquire all of Delgado's company should he default on his covenants to meet their targets. They also want a say in who Delgado appoints to run the solvent project, specifically in the recruitment of the Business Development and Marketing Vice-Presidents.

Delgado plans to exploit his new solvent, possibly by licensing it to one of the major European producers of solvents with, perhaps, in-house production in Mexico and joint ventures with Chinese manufacturers. Delgado is considering the proposal to give Nothing Ventured Fund up to 40 per cent of his company's equity, because he is desperate to gain access to funding. He is convinced that once the new solvent is adopted as an international standard it will produce millions of dollars profit for all concerned.

Mr Delgado has asked you, as a consultant negotiator, to assist in the negotiations to find a way to secure the funding and protect his and Nothing Ventured Fund's legitimate interests. He is also interested in any general advice you can give in forthcoming negotiations.

Required:

1. Where is Delgado vulnerable in the proposal from Nothing Ventured Fund?

(8 marks)

2. What are Delgado's longer term interests?

(8 marks)

3. What proposal could you suggest to reconcile Delgado's and Nothing Ventured Fund's interests?

(8 marks)

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4. What are the basic elements of an agreement that he should consider when deciding whether to license his product?

(8 marks)

5. What kind of BATNA could Delgado develop to strengthen him in his negotiations?

(8 marks)

Essay Questions

Essay 1

Why do signals assist movement without giving in?

(20 marks)

Essay 2

In what ways is Principled Negotiation flawed as a negotiation method?

(20 marks)

Essay 3

Why do 51 per cent of people play red in the opening round of the red–blue game?

(20 marks)

(Total of 100 marks)

END OF PAPER

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Solutions

Note from the Examiner: Please note that these solutions are for guidance and students are not expected to supply word-for-word answers. Their answers should contain the points identified here, though their modes of expression of them will vary for each person. Good examples that illustrate a student's answer normally attract extra marks.


Case Solution

1. Where is Delgado vulnerable in the proposal from Nothing Ventured Fund?

(8 marks)

Delgado is in the weaker negotiating position because he has fewer options than the venture fund managers. He has a potential winner but has insufficient capital to develop and produce it; the Fund has capital and numerous options to place them in viable ventures. Therefore, the Fund proposes to secure its investment by a significant minority shareholding of Delgado's company. True, it claims only to have limited objectives, largely confined to making a profit, and not to maintaining their holdings, but the performance and financial conditions of their investment give them pre-emption rights to acquire all of Delgado's company should he default on his covenants to meet their targets.

Delgado is vulnerable because under the default conditions he does not have an assured control of his company (markets could change); and he cannot enforce a limited duration for the Fund's involvement. The Fund could change its mind and stay with its shareholding and perhaps engineer the circumstances in which they seize control, thus taking a larger share of future profits.

With a ‘say’ in the appointment of specific Vice Presidents, they could insist in interfering in the marketing and future developments of Delgado's product, such as turning to profit churning through licensing – with the attendant risks of technological leakage's to rivals – or they could gain control and enforce a decision to sell Delgado's technology and patents to a major player for short-term cash, cutting out any longer term intentions that Delgado might have about staying in the business.

The Fund could weary of the technology and sell out their shares to a (hostile) third party without considering Delgado's interests. The third party could fall out with Delgado and marginalise his future involvement.

In summary, Delgado needs to maintain control of his company or have in place a mechanism for ensuring that he can take control back from the Fund should circumstances arise to force his default.

2. What are Delgado's longer term interests?

(8 marks)

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Interests are the reasons why a negotiator wants something. They are the motivators, the concerns or the benefits and drawbacks that arise from agreeing to certain positions on the negotiable issues.

Delgado's longer-term interests are to ensure his ownership of future income streams arising from the commercial exploitation of his solvent, to protect his patents and rights in the product (and his other products) so that he can continue to develop them commercially, and to protect his reputation as the person who changed the technology of the solvent industry.

Whatever he agrees to now will affect the future. A careless agreement could jeopardise his longer-term interests. Hence, he should identify them in order to take account of them in the negotiations.

The solvent industry, however, is static in technological changes (it is not ‘rocket science’) and his short-term interest is to get an early agreement to establish his product before somebody else discovers and exploits the same simple technology. He needs to keep control of his company – or some mechanism for reestablishing it – to ensure his future interests, but short-term pressures could force him to compromise in this area and thus deny him his longer terms interests.

3. What proposal could you suggest to reconcile Delgado's and Nothing Ventured Fund's interests?

(8 marks)

Delgado needs to test the Fund's intentions and his proposal should accomplish this objective. He could set out a formula that takes his and the Fund's interests into account. How they react to it would test their intentions.

Delgado's proposal could include the following elements:

a) A division of the equity starting with a minority (ratio to be decided) held by the Fund and gradually reducing (timetable to be decided) as the Fund's initial investment is repaid from Delgado's share of the profit stream from sales, royalties, and general income from the exploitation of the solvent.

b) Commitment that initial profits would be used to earn-out the Fund's shares with an option for Delgado at any time during the agreement to buy-out the Fund for a sum, such as some multiple of the profits.

c) All development, production, licensing and joint venture decisions to be taken by Delgado.

d) Delgado to have first option to buy the Fund's equity, at the lesser of the price established by some multiple of the profits or the price offered by a third party, should the Fund want to sell out.

What are the basic elements of an agreement that he should consider when deciding whether to license his product?

(8 marks)

Licensing is an alternative to establishing one's own manufacturing operations in other territories or to exporting to that territory. The relative cost of each method of commercially exploiting his product needs to be considered. Exporting directly or through agents is the simplest consideration; setting up wholly owned manufacturing is more risky. Licensing a

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local manufacturer is also risky if Delgado loses control but less costly to Delgado if it works. If the balance favours licensing, Delgado should consider some of the following:

a) Protection of his intellectual property rights, including local patents, in the solvent product and future derivatives.

b) Protection of his technology.

c) Strictly and exactly what he is licensing to avoid doubts about future developments.

d) The division between himself and the licensee of the net revenue from sales in the defined territory.

e) What share of the costs is the responsibility of each party?

f) How much of the development costs can Delgado recover from the licensee?

g) The conditions under which the licence can be terminated.

h) Should exports to third countries by the licensee be permitted and if so under what conditions?

What kind of BATNA could Delgado develop to strengthen him in his negotiations?

(8 marks)

BATNA means the Best Alternative to a Negotiated Agreement and was introduced by Fisher & Ury in Getting to YES. Briefly it defines the negotiator's alternative option to agreeing to the present terms for agreement offered by the other party. BATNA's provides data on the walk-away or take it positions open to the negotiator. They strengthen the negotiator to the extent that the BATNA is credible to the other party; they underscore the weakness if there is no BATNA at least as good as the current deal on offer.

Delgado is relatively weak in negotiations with the Fund. Time spent considering – or developing – an alternative to accepting these terms could strengthen his negotiating position. For instance, if he can establish a better offer from a major player to buy up his new solvent, he might be able to improve the Fund's offer in his favour if the Fund does not want to be cut out from profits. However, if the best alternative offer is worse than that offered by the Fund, he would have to seriously consider accepting the Fund's offer, albeit after he makes a considerable effort to improve its terms.

In negotiating with potential licensees, Delgado can improve his position by developing a strong BATNA, such as better terms from rivals to the licensee, or fully costing the alternative of local manufacturing.

Possibilities for Delgado's BATNA include: offers from other Venture Funds; possible joint ventures with major players or manufacturers; and selling out to somebody else.

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Essay 1

Why do signals assist movement without giving in?

(20 marks)

Negotiators manage their movement from initial positions on the negotiable issues towards agreement with the other party who starts with different initial positions on the same issues. Every negotiation starts with at least two initial solutions to every problem – I want higher prices than you claim you are prepared to pay; you want a larger number of small quantities delivered to more sites by earlier dates than I am offering at present. You prefer lower prices and I prefer to deliver large quantities to fewer sites. Both of us know that to reach agreement on each disputed issue there has to be some movement towards each other from where we claim to be at the start of our negotiation. It is not that we start at different positions just to go through a negotiation dance – our entry positions reflect our different preferences

The problem of movement is worsened by the usual rhetoric associated with opening statements, which can create another barrier to movement. For example, you insist that the issue is too important for you contemplate a change in your position and, by implication you consider it unthinkable to move in case it undermines the strength of your current stance. The mutual effect of our immovable stances is deadlock – we won't do business. Each side appears determined to force the other to surrender. Indeed, where the dispute is deeply felt, it becomes intractable as evidenced in several of the world's trouble spots.

How then to unfreeze deadlock? Signalling is one helpful device, which is common to everyday dialogue and is used by negotiators either to initiate movement through signalling or to respond to signals to follow with movement. How can signals initiate movement without giving in? The key to initiating movement lies in the use of language. Initial positions are often stated in the absolutes of ‘no’, ‘never’, ‘impossible’, ‘cannot be considered’, ‘absolutely essential’, ‘no surrender’, ‘no comprise is possible’, ‘no way’, ‘over my dead body’, ‘cannot be less than’, ‘not an inch’, ‘till hell freezes over’, and so on. This language conveys our determination and asserts the strength of our case. Conducting negotiations in the media makes it even more difficult because public stances are made to intimidate the other side and to reassure our constituency, and they are difficult to modify without serious loss of face.

Yet when the parties exchange views in support of initial positions, opportunities abound to signal. Effective listening is not normal when feelings are provoked by extreme language especially when threats are made.

Signals seek receptivity to the idea of possible movement and assurance that a signal will not be treated as if the signaller is about to ride the slippery slope to surrender. Signals carry a heavy price if they are taken as such by the receiver, who might re-double verbal pressure on the signaller. Frustrated signallers might retreat the stance of ‘no movement’ if they feel taken advantage of.

The addition of ‘as things stand’ to the sentence ‘I cannot give you a better price’ changes the message. By qualifying the absolute message, the negotiator signals that a change is possible if circumstances changed. A negotiator can choose to open up discussion on what changes in the situation would be required to secure a change in price.

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Signalling by qualifying absolute language is commonplace. ‘Impossible’ becomes ‘difficult’; ‘never’ becomes ‘not normally’; ‘won't’ becomes ‘unlikely’; ‘cannot’ becomes ‘in current circumstances’, and so on. (Similar examples are acceptable.)

The ‘no change’/‘some change’ deadlock is broken if debate shifts to the circumstances required to initiate change. Discussing these circumstances could bring possible price or other changes onto the agenda. True, the signaller may want greater changes than the other negotiator is willing to contemplate, while the listener may prefer larger changes than the signaller prefers. But the issue of no movement at all has shifted to the terms for some movement. Negotiation uncovers the terms for agreeing to trade what each wants.

Signals invite the exploration of the signalled shift or other potential shifts in emphasis. They do not expose the negotiator to a too hasty commitment to move. Its not effective to quote a price, for example, and immediately to add that if the price is unacceptable to the listener that your are ‘prepared to offer other prices’. If the listener rejects the signal outright (‘I am not changing the circumstances’), the signaller is no worse off because no commitment to move was made. Signals can become a bridge to a proposal if they are reciprocated by exploration of what has been implied by the signal (‘when you say it is difficult to make the change, to what specific difficulties are you alluding?’). The difficulties are an indication of the obstacles preventing the signaller from moving but if the listener addresses those difficulties some movement may be possible. A route out of deadlock has been indicated and it is up to the negotiators to respond to signals, at least to test the prospects for ending the deadlock, if not to follow through with proposals that embody movement.

Essay 2

In what ways is Principled Negotiation flawed as a negotiation method?

(20 marks)

Principle Negotiation supports four prescriptions:

1. Separate the people from the problem. 2. Focus on interests, not positions. 3. Generate options for mutual gain. 4. Insist on objective criteria.

Separating the people from a problem is good advice because people can sometimes get in the way of a deal. They are too emotionally committed to one solution (theirs) over anybody else's. Also, our own attitude to the negotiation can be influenced by our feelings towards the other party. However, people are important in negotiation and ignoring this truth and rigidly applying this prescription could undermine a negotiation process and the outcome. The relationship, for example, between the people can assist, as well as disrupt, the negotiation process. The tension between the substance of the negotiation – the issues – and the relationship between the parties is ever present. It is not that one is more important than the other. Which takes precedence at any one moment in a negotiation depends on the roles, positive or negative, that the people and the problem contribute towards a solution.

Similarly with the second prescription – to focus on interests and not positions – when negotiators are stuck in a positional standoff, it is good advice to park to one side the positions each are taking while we consider the interests of each side. Interests are why somebody wants something and positions are what they want. By looking at their interests – and our own – we might find another way of solving the problem. At the very least we will understand better their commitment to their position. Looking at our own interests, we will review the depth of our

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commitment to our own positions. It is a helpful way of coping with deadlock. The problem is that a standoff is not solved automatically by applying this prescription, particularly when our interests are in conflict to such an extent that they are mutually exclusive. This constitutes a major weakness of this prescription when applied to the real world.

Traditional (phased process) negotiators advise that we switch focus from interests to the practical application of the positions that might be negotiable while our interests are not. For example, the conflict of interests between a terrorist and his victims or the target of his terrorism may not be negotiable, but we can still negotiate over such things as communications, food, medicine, comforts and safety, and take respective positions on them, with a view to resolving these issues without intruding on the major causal interests behind the terrorists' actions. While principles are non-negotiable, their application might be.

Searching for options for mutual gain is always good advice. It is the one prescription of Principled Negotiation that would be difficult to fault. The more options we generate the more likely we shall be able to find a mutually satisfactory solution. A joint search for options is likely to be more productive that a one-sided search. But too many options, particularly from one side, might signal (unintentionally) a weakness by one of the parties, and increase the resolve of the other party to secure its own preferred solution.

Lastly, the insistence on objective criteria to choose between the options sounds better in principle than in application. It reflects the legal training of the authors of Principled Negotiation (Roger Fisher and Bill Ury). Legal definitions of criteria are carefully crafted by legislators and scrutinised by the courts but remain controversial – the prosecution and the defence argue intensely about whether criteria for guilt has been proved, i.e., whether the objective criteria of law has been met.

In negotiation, there are no carefully determined procedures for deciding on criteria, no rules of procedure, no judge sitting as a referee on the admissibility of evidence or relevant facts, no independent jury deciding on the facts of the case, etc. The parties to the definition of criteria and to its applicability in this or that situation are highly partisan to their own preferences (we negotiate because we have different preferences). Negotiators can see the implications of a proposed set of criteria to decide the case for or against their own preferred solutions and will react accordingly. In fact, much of the justification of a position involves setting out the criteria by which their solution follows. Competing criteria leading to difference solutions are commonplace in negotiation.

Principle Negotiation as a method to improve negotiation reveals useful insights into improving the processes by which negotiated decisions are made. It does not remove all of the problems nor does it work in every, or possibly, the majority, of cases.

Essay 3

Why do 51 per cent of people play red in the opening round of the red–blue game?

(20 marks)

Just over half of the players play red in round 1. They do so for two main reasons: 1 – to protect themselves against the expected red play of the other player or 2 – to take advantage of expected blue play by the other player. This arises from the nature of the interaction: you are not only dependent on what you do but also on what your partner does.

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Most players appear to believe that their partners will play red – in which case it is rational to play red to minimise your losses – or that your partner will play blue and that, therefore, it is rational to play red to exploit your partner's play and gain maximum points. Most people appear to act rationally by playing red in order to minimise losses and maximise gains.

This is only rational, however, for a one round game. Most people playing red appear to forget the consequences for red play over more that one round of the game – their partner will notice when they lose points and will likely retaliate in subsequent rounds. Blue players in round 1 who lose points from their partner's red play will generally switch to red play thereafter, meaning that both players lose points.

Players cannot be sure what their partner will play. If it is rational for them to play red, so it will be rational for their partners, and it if is interpreted this way, it remains rational to play red oneself. But if players feel obliged to play red to protect themselves, how can they move from red–red play to blue–blue play? The opportunities to communicate after rounds 4 and 8 can help here. Each can pledge to the other to play blue in the following rounds. But how can you be sure that your partner will carry out his/her pledge? You can't, which is why some players continue to defect and play red. They feel they cannot risk being exploited, so they play red again, contrary to his/her pledge and this induces mutual defection, lowering both total scores below what they would have been if only each had kept to his/her pledges.

Red players are said to defect ‘not because they want to, but because they must’. Hence, few players achieve blue–blue maximum scores (about 8 per cent in practice).

In the original prisoners' dilemma game, the optimal choice for both prisoners is not to confess, but the dilemma arises because neither can be sure that his partner will not defect and confess. Hence, both confess, making it worse for both of them than if they had both not confessed.

Parties feel they have good reason not to trust their partners – both are tempted to defect and both succumb to the temptation if only because they believe their partner will succumb and they cannot risk that they won't.

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