Major Prerequisites to Strategy Formulation

1. Situation Analysis2. Assumptions 3. Missing or faulty data 4. How missing data comes to be missing

a. Missing information b. Excessive cost of information c. Not knowing how to obtain the informationd. Not understanding what information was requirede. Simply failing to do the work

5. How faulty data arisesa. misperception b. deception c. inadequate consideration d. inappropriate presumption

6. How can you assure good data?

Negotiators Abilities

A negotiators abilities to exert influence depends upon combined total of verities of factors. Knowledge about People Interest involved A good working relationship Having good alternative to a negotiated settlement.

Good Input for Good Strategy

Good Input - the Foundation of Good Strategy

Value of Perfect Data

Value of perfect data - optimizing cost/time vs. perfection

• Identify all missing data and either obtain it (if possible) or attempt to make reasonable presumptions. • Identify all presumptions and determine appropriateness of making presumptions at these specific places. • Give each presumption a confidence rating and review quarterly. • Eliminate those that are inappropriate or have low confidence ratings. • Identify perceptions and challenge them. • Identify areas where deception is possible. Seek independent confirmation if possible. • Give each assumption a confidence rating and review them quarterly.

Strategic Steps

Strategic Steps that could help your functions Evaluate your function Make Choices Establish Priorities Develop Action Plan Implement Action Plan

Tactics Vs Strategy

We need to understand the current environmental situation from a tactical standpoint. But from a strategic standpoint what we need to understand is the future environmental situation.”

Ignorance Vs Knowledge

Ignorance is dangerous, but it is far better to be knowingly ignorant than to have false knowledge. The truly wise person is always willing to say “I don’t know.”

Great people, not Great Strategies are what made it all work

Jack Welch

GE

Evaluate the ZOPA

Min Willingness to Accept Max Willingness to PaySeller’s Res. Price Buyer’s Res. Price

ZOPA

Zone of Possible Agreement (ZOPA):

The space between the seller’s reservation value and the buyer’s reservation value.

Capturing Value in Negotiation

Assess the ZOPA

Change the ZOPA

Take the ZOPA

Capturing Value in Negotiation

Should you make the first offer?

Capturing Value in Negotiation

Anatomy of aggressive first offers:

High Aspirations Aggressive Opening Offers Better Final Outcomes

Capturing Value in Negotiation

What should your opening offer be? Factors to Consider

The ZOPA The Justification The Relationship The Context

Capturing Value in Negotiation

What should you do if the other side opens (aggressively)?

Separate Information from Influence Ignore their anchor Re-frame and re-anchor

The person who defines the negotiation, often wins the negotiation

Capturing Value in Negotiation

What if the other side makes the first offer… and you love it!

Any time you are surprised in a negotiation, you should begin to investigate!

Manage your outcomes and their satisfaction… it is possible to get a good deal and a good

relationship OR a bad deal and a bad relationship

Capturing Value in Negotiation

Should you make the first offer? What should your opening offer be? What should you do if the other

side opens (aggressively)? What if the other side makes an

offer… and you love it! Manage your outcomes and their

satisfaction

The Virtue of Efficiency

One of your goals in every negotiation should be to reach an efficient agreement.

An agreement is efficient if no party can be made better off without making another party worse off.

This is not the same as “win-win”… The virtue of efficient agreements is that you

don’t leave money on the table… how you split the money is up to you and your counterpart.

The Benefits of Contingency Contracts

Contingency contracts allow negotiator to diagnose the honesty of the other side (are they lying to you?) and to solve problems of trust.

Contingency contracts allow negotiators to leverage their differences. Don’t argue over the future. Bet on it.

Trading on Differences to Create Value

Differences in valuations and priorities Trade issues you value less than the other party for issues the

other values less than you. E.g., quality vs. price, authority/control vs. compensation

Differences in assessments of the probability of future events Use contingency contracts. E.g., stock options, bonuses, sales commission, etc.

Differences in time preferences Trade time for money or other resources. E.g., up-front payment vs. higher monthly payment

Differences in risk preferences Give the risk to the party with a higher tolerance, at reduced cost. E.g., fixed fee vs. percentage of profits

Value Creation!A great idea… but how do we get there in practice?

The Key to Creating Value

1. Add issues to the negotiation and negotiate multiple issues simultaneously.

2. Look for differences in priorities and valuations.

3. Trade on Issues: “logrolling”Information exchange is critical…

But information exchange is not always easy!

Creating Value in Negotiation

Remember: You Win ≠ They Lose Focus on what you don’t know… exchange information Explore all the ways in which they can create value for

you Find out all the ways in which you can create value for

them Add issues Negotiate multiple issues simultaneously Exchange information regarding priorities Trade based on differences of all kinds to create value Search for Post-Settlement Settlements Negotiate Interests, not Positions

3 Ways to Resolve Disputes

Rights Based Approach: Who is right, and who is wrong? Who has the legal right in this dispute? Who is likely to win in court? Who has the moral high ground? What is a third-party likely to decide?

Power Based Approach: Who has a stronger BATNA? Who is in a position of authority? Who can afford a protracted legal battle? Who can make the other’s life miserable?

Interest Based Approach: What are each side’s underlying interests? What are each side’s concerns? Are there mutually profitable alternatives to litigation? Is there a way to satisfy each party’s interests?

Interests, Rights, and Power

Most disputes require a combination of approaches. Power and Rights determine & strengthen your

BATNA. Understanding underlying Interests helps to create

value and to achieve agreements that are better than your BATNA.

However, the Interest Based Approach is often ignored.

Why?

Interest-Based Negotiation

Pre-Negotiation Recognize that everyone has different info. & a different perspective: conflict is

natural Understand the consequences of impasse – What is your BATNA? What is theirs? Help them understand the consequences of impasse Use power (as needed) to bring people to the table, and to signal your strength. Consider bringing in a 3rd party to facilitate the process

Negotiation Separate the people from the issues Get past positions, and seek to understand underlying interests Emotions have informational content… seek to understand why Emotions also meet expressive needs… Give Voice, Give Legitimacy, & then

Redirect. It is critical that both parties (including you) have the opportunity to save face

Post-Negotiation Create norms & processes that tackle the source of the conflict Be proactive in resolving disputes – often, the most costly negotiations are those that

never took place