What’s Negotiation Skill all about?

The word of "negotiation" originated from the Latin expression, "negotiatus", which means "to carry on business". Negotiation is an information flow between at least two persons or parties aimed to grasp an understanding, settle point of difference, or achieve benefit in result of dialogue to bargain for individual or collective advantage, to create an agreement on courses of action, to craft consequences to gratify different interests of two persons or parties involved in negotiation process. Each party involved in negotiation attempts to attain benefits for themselves by the end of the negotiation process. Negotiation takes place in business, government branches, non-profit organizations, personal situations, legal proceedings, and among nations. Result and relationship are two components that are considered in every negotiation.

Table1 demonstrates the significant six characteristics of a negotiation which are as follows:

Table 1- Six characteristics of a negotiation

Two or more parties

Conflict of Needs and Desires between parties

Parties negotiate by Choice…think we can get a better deal

We expect a “Give and take” process (reciprocity)

Parties Search for agreement

Management of Tangibles (price, widgets) and resolution of intangibles (reputation, honor, feelings, pride…psychological motivators)

The concept of negotiation can be compared with mediation, and also arbitration. Mediation commonly is composed of a negotiation process that employs a mutually agreed upon third party to settle a dispute between negotiating parties to find a compatible agreement to resolve disputes. Arbitration means a process to resolve a dispute between negotiating parties who have reached a deadlock in their negotiation. The parties in dispute are referred to a third party, which is one that is either agreed upon by the parties in dispute, or as provided by legislated law. The arbitrator renders a judgment that is binding on the parties in dispute. Arbitration is often used in international negotiations and in collective bargaining.

There are two types of negotiation which known as distributive negotiation, and integrative negotiation. Each of them is useful in specific contexts, and the same negotiator may exploit either strategy depending upon their goal. Distributive negotiations occur every day such as purchasing a car or house. Integrative negotiations happen on an ongoing basis, such as agreeing to let children go to bed an hour later in exchange for mowing the lawn.

Distributive negotiation (positional or hard-bargaining negotiation) tends to approach negotiation on the model of haggling in a market. In a distributive negotiation, each side often adopts an extreme position, knowing that it will not be accepted, and then employs a combination of cunning, bluffing, and brinksmanship in order to cede as little as possible before reaching a deal. Distributive bargainers conceive of negotiation as a process of distributing a fixed amount of value.

The term distributive implies that there is a finite amount of the thing being distributed or divided among the people involved. Sometimes this type of negotiation is referred to as the distribution of a “fixed pie.” There is only so much to go around, but the proportion to be distributed is variable. Distributive negotiation is also sometimes called win-lose because of the assumption that one person’s gain results in another person’s loss. A distributive negotiation often involves people who have never had a previous interactive relationship, nor are they likely to do so again in the near future. In distributive bargaining, it is the best to keep your information while trying to get information out of the other party; let them make the first offer, since this lets you know what they are willing to give up; do tell them about alternatives you have, such as competing offers for what you are selling, or interest in a product that competes with the one they are selling if you are the buyer; but be willing to make concessions in order to reach a realistic outcome.

Integrative negotiation (interest-based, principled negotiation or win-win negotiation) is a set of techniques that attempts to improve the quality and likelihood of negotiated agreement by providing an alternative to traditional distributive negotiation techniques. While distributive negotiation assumes there is a fixed amount of value (a fixed pie) to be divided between the parties, integrative negotiation often attempts to create value in the course of the negotiation (expand the pie). It focuses on the underlying interests of the parties rather than their arbitrary starting positions, approaches negotiation as a shared problem rather than a personalized battle, and insists upon adherence to objective, principled criteria as the basis for agreement. The word integrative implies some cooperation. Integrative negotiation often involves a higher degree of trust and the forming of a relationship. It can also involve creative problem-solving that aims to achieve mutual gains.

In general, integrative bargaining tends to be more cooperative, and distributive bargaining more competitive. Bargaining (win-lose) negotiations use when:

  • You have more power
  • The relationship is not important
  • When you do not trust the other party
  • When they are relying on bargaining
  • To resolve simple issues

Problem solving (win-win) negotiations often use when:

  • Power is equal
  • You are weaker
  • When you trust the other party
  • You want a continuing relationship
  • The opposition is using problem solving
  • The negotiation is complex

Integrative negotiations tend to occur in following situations:

  • Structuring of complex long-term Strategic Relationships or other collaborations.
  • When the deal involves many financial and non-financial terms.

In an integrative negotiation, there are many items and issues to be negotiated, and the goal of each side is to “create” as much value as possible for itself and the other side.

Table2 takes a glance to these types of negotiations and characteristics of them.

Negotiations are a method for reaching agreement with both cooperative and competitive elements. In order to make a negotiation between parties, there must be a conflict of interest, some ambiguity about the right solution, and an opportunity to compromise and to reach a deal that satisfies both sides.

Table2- Distributive versus Integrative Negotiations

Characteristic

Distributive

Integrative

Outcome

Win-lose

Win-win

Motivation

Individual gain

Joint and individual gain

Interests

Opposed

Different but not always Opposite

Relationship

Short-term

Longer or Short-term

Issues involved

Single

Multiple

Ability to make trade-offs

Not Flexible

Flexible

 Solution

Not creative

Creative

The following Illustration tries to identify the key elements on the negotiation process.

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There are many different ways to categorize the essential elements of negotiation. One view of negotiation involves three basic elements: process, behavior and substance. The process refers to how the parties negotiate: the context of the negotiations, the parties to the negotiations, the tactics used by the parties, and the sequence and stages in which all of these play out. Behavior refers to the relationships among these parties, the communication between them and the styles they adopt. The substance refers to what the parties negotiate over: the agenda, the issues , the options, and the agreement(s) reached at the end.

Another view of negotiation comprises four elements: strategy, process, tools, and tactics. Strategy comprises the top level goals – typically including relationship and the final outcome. Processes and tools include the steps that will be followed and the roles taken in both preparing for and negotiating with the other parties. Tactics include more detailed statements and actions and responses to others’ statements and actions. Some add to this persuasion and influence, asserting that these have become integral to modern day negotiation success, and so should not be omitted.

R.G. Shell identified five styles (responses) to negotiation. Individuals can often have strong dispositions towards numerous styles; the style used during a negotiation depends on the context and the interests of the other party, among other factors. In addition, styles can change over time.

  • Accommodating: Individuals who enjoy solving the other party’s problems and preserving personal relationships. Accommodators are sensitive to the emotional states, body language, and verbal signals of the other parties. They can, however, feel taken advantage of in situations when the other party places little emphasis on the relationship.
  • Avoiding: Individuals who do not like to negotiate and don’t do it unless warranted. When negotiating, avoiders tend to defer and dodge the confrontational aspects of negotiating; however, they may be perceived as tactful and diplomatic.
  • Collaborating: Individuals who enjoy negotiations that involve solving tough problems in creative ways. Collaborators are good at using negotiations to understand the concerns and interests of the other parties. They can, however, create problems by transforming simple situations into more complex ones.
  • Competing: Individuals who enjoy negotiations because they present an opportunity to win something. Competitive negotiators have strong instincts for all aspects of negotiating and are often strategic. Because their style can dominate the bargaining process, competitive negotiators often neglect the importance of relationships.
  • Compromising: Individuals who are eager to close the deal by doing what is fair and equal for all parties involved in the negotiation. Compromisers can be useful when there is limited time to complete the deal; however, compromisers often unnecessarily rush the negotiation process and make concessions too quickly.

Emotions play an important part in the negotiation process, and have the potential to play either a positive or negative role in negotiation. During negotiations, the decision as to whether or not to settle rests in part on emotional factors. Negative emotions can cause intense and even irrational behavior, and can cause conflicts to escalate and negotiations to break down, but may be instrumental in attaining concessions. On the other hand, positive emotions often facilitate reaching an agreement and help to maximize joint gains, but can also be instrumental in attaining concessions. Positive and negative discrete emotions can be strategically displayed to influence task and relational outcomes and may play out differently across cultural boundaries.

Thompson’s Pyramid Model

Integrative negotiation, according to negotiation researcher Leigh Thompson of Northwestern University, can be described as both a process and an outcome of negotiation. The parties involved seek to integrate their interests and therefore produce negotiated outcomes that exceed those normally achieved through distributive bargaining. Thompson further suggests a pyramid model of integrative agreements, as illustrated in the figure below. In this model, Level 1 agreements are those in which both parties achieve an outcome that is better than their reservation point, and thus is within the ZOPA. Level 2 agreements produce an outcome that is even better for both parties than Level 1 agreements, possibly by introducing a new issue for which both parties have a similar objective. Finally, Level 3 agreements are those for which it is impossible to improve the outcome from the perspective of both parties, one in which any change that would benefit one party would harm the other party. Parties ideally seek to reach Level 3 agreements, and therefore “leave nothing on the table.” Integrative negotiators do not stop at Level 1; they seek to gain the benefits of higher, mutually beneficial levels 2 and 3.

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In reality it is more likely that negotiators can achieve Level 1 agreements in which both parties exceed their reservation points and BATNAs or, through the development of new options, that they can negotiate Level 2 agreements that create additional value for both parties above the minimums achieved in Level 1. Level 3 agreements can be described as pareto optimal because they represent improvements above Level 2 for both parties and achieve an agreement that cannot be improved for one party without harming the other party. Thus, the outcome of any level of an integrative negotiation is superior to that of a distributive negotiation.

Effective negotiation will happen when the outcome is wining for all including separating the people from the problems, focusing on mutual interest, inventing options for mutual gain, and use objective criteria. In order to have much more comprehensive perception toward that, some important terms should be defined as follows:

·        ZOPA [including aspiration, reserve point, surplus]

An acronym which means a negotiation Zone of Possible Agreement. It is the range or area in which an agreement is satisfactory to both parties involved in the negotiation process. Often also referred to as the "Contracting Zone". Negotiation ZOPA or the Contracting Zone is the range between each parties Walk Away or Real Base or Bottom Lines, and is the overlap area that each party is willing to pay or find acceptable in a negotiation. The following Illustration shows ZOPA [including aspiration, reserve point, surplus].

36

·        Trade-off

Also sometimes referred to as a ‘Concession’ where one or more parties to a negotiation engage in conceding, yielding, or compromising on issues under negotiation and do so either willingly or unwillingly. The following Illustration demonstrates the requirement of trade-offs in negotiation.

56

· Time Pressure

Time is comparable to money. Both are invested, spent, saved, and wasted. Do invest the time to go through every step of the negotiation, do use time pressure to gain the advantage, and don’t yield to the temptation to rush to a conclusion. Power Negotiators know that time is money.

Time pressure is the perception that time is scarce. According to Beevis (1999) people experience time pressure when the time required to execute tasks is more than 70% of the total time available for the tasks. Beevis (1999) suggested that people experience high time pressure when 85% of the available time is required to execute the tasks. In this case performance is often impaired in that some tasks are not (well) executed. Other researchers such as van der Kleij and De Dreu indicated the following consequences of time pressure. At the individual level, time pressure leads to (1) faster performance rates, because people stop considering multiple alternatives, (2) lower performance quality, due to the engagement in superficial rather than thorough and systematic processing of information, and (3) more heuristic information processing, as a result of refraining from critical probing of a given seemingly adequate solution or judgment. At group level, increasing levels of time pressure narrows team members’ focus on a limited range of task-salient cues in both team interaction patterns and team task performance. This narrow focus of attention that often manifests as a restricted information exchange is due to a filtering process (Kelly and Loving, 2004). Groups working under time pressure attend to all of the information available but then selectively discuss only information that seems especially relevant (Kelly and Loving, 2004). They also found that under high time pressure group members see task completion as their main interaction objective, and the group attempts to reach consensus and complete the task as quickly as possible, but at the sacrifice of quality. Groups under mild or no time pressure can, in contrast, consider a wider set of task features, devote their resources to performing on the task as well as possible, and tend to employ more effortful systematic information processing that gives serious considerations to all possible alternative solutions for a task (Kelly and Loving, 2004).

As a result, time pressure might influence the tendency to stick to the ongoing task and influence the occurrence of cognitive lockup. However, in situations where time pressure was high Grootjen et al. (2006) found a high cognitive workload, but they found no relation to cognitive lockup. Therefore, we expect that the effect of time pressure alone is not strong enough to capture people in their current task.

· Fairness Concept

Work on negotiation, in particular, uses the terms interchangeably, sometimes as synonyms and sometimes with different meanings which remain unclear. Thus it may be useful to point to some distinctions here.

"Justice" can be thought of as a macro-concept which refers to general principles for the distribution of resources and obligations (costs, risks) in society as a whole. The focus is typically on the outcome (the details of the final distribution) rather than the process or procedures whereby it is produced–hence the term "distributive justice." A key characteristic distinguishing justice norms from fairness concepts is that justice norms have been established prior to and independently of any specific phenomenon to be judged–although the specific interpretation or application of these general norms at the micro-level is often far from obvious.

Concepts of "fairness," by contrast, are more contextual and specific. These are individual (psychological) notions relating to a specific situation–a particular conflict, a particular negotiation, and/or a particular outcome. Fairness notions include views of how to apply any broader principle of justice regarded as pertinent in a particular context. In conflict and negotiation, views of the legitimacy and importance of one’s own vs. the other side’s claims to the disputed resources become another important element of fairness notions. Naturally, negotiators tend to view and refer to their own concepts of fairness as "justice"–that is, as criteria reflecting some higher ethics which go beyond partisan perceptions and interests, and situational factors.

Fairness issues, of course, raise the fundamental question, "Fair to whom?": fair to a particular party, fair to all parties, fair in the eyes of the world community, fair to future generations, or to whom? In most cases, not at least to make agreement practically possible, the primary challenge is to get a process under way and produce an outcome as fair as possible for the group of parties involved as a whole and at the same time for the individual party–and to strike a "fair balance" between the two objectives when they are conflicting.

· Escalation of commitment

Escalation of commitment refers to the psychological condition whereby people continue to support or believe in something that is repetitively failing. In managerial decision making escalation of commitment can refer to either continuing with a failed or dud project. It may also refer to overestimating one’s own managerial capacity or ability. This is an extension of problem solving where people do not accept they do not have a solution or they have to let go. With escalation of commitment there is a compulsion to not let go. This can be where you have an emotional, psychological or financial investment that may be failing and has led to an irrational compulsion to stick with it or even escalate your commitment.

Escalation of commitment managerial decision makings is where managers increase their investment or project despite failure or losses. The evidence shows the project should be halted but they are tied to it subconsciously and consciously and continue almost trance like. The expression "throwing good money after bad" describes escalation of commitment, in a decision. You may see escalation of commitment in a stock investment where you average down on a falling stock price.

You may see it in gambling as you chase losing bets. You may see it in the military with the escalation of losing wars. Here the cost is human lives. You see it in business and government with escalation of commitment despite changed circumstances. This would explain so many ‘white elephants’. Other examples are in auctions for art and houses where an emotional attachment combines with ego. Managerial decision making in these circumstances can be disastrous.

Recognizing Escalation of Commitment Managerial Decision Making

When make an investment decision and it has been vindicated it may well be that an escalation of commitment would be the correct decision. That is increase the investment, horizontal or vertical integration for example to escalate the success. Managerial decision making involves recognizing when a decision is working, when it isn’t and how much time should be given to a decision that hasn’t. How long do you continue to sink costs into a failing project, a superseded invention or a bad stock position?

The decision becomes a lot easier when recognizes past present and future with emotional detachment. We must recognize this in relation to costs that have been spent, are being spent and will be spent. With this a proper understanding of sunk costs is possible. If it is a cost that has already been incurred or there is a contractual obligation to incur it than it is a sunk cost. Like a sunken ship the money is spent, it is sunk. Unlike the Titanic there isn’t a Rupert Murdoch to back the movie for a billion dollar profit. In other words going forward recognizing escalation of commitment means recognizing the cost is sunk and won’t be coming back.

Thus any decision in investing, a project or invention is to be based on costs that are reasonably expected in the future.

Again I reiterate monies spent are gone and are irrelevant to costs that you will spend in the future. This is important to recognize and will take out the emotion of cutting losses. Thus future gains can be matched against future expenses. This will enable a decision made on viability not of hope. Recognizing escalation of commitment can live you to fight another day with money in the kitty.

· Winner’s curse

Occurs when an under aspiring negotiator sets their target or aspirations (goals or objectives) too low at the outset of a negotiation and is granted an immediate agreement by their negotiating counterpart.

· Social Dilemma

Social dilemmas are formally defined by two outcome-relevant properties: (1) each person has an individual rational strategy which yields the best outcome (or pay-off) in all circumstances (the non-cooperative choice, also known as the dominating strategy); (2) if all individuals pursue this strategy it results in a deficient collective outcome–everyone would be better off by cooperating (the deficient equilibrium). Researchers frequently use the experimental games method to study social dilemmas in the laboratory. An experimental game is a situation in which participants choose between cooperative and non-cooperative alternatives, yielding consequences for themselves and others. These games are generally depicted with an outcome matrix representing valuable outcomes for participants like money or lottery tickets.

Types of Social Dilemma

The literature on social dilemmas has historically revolved three metaphorical stories, the Prisoner’s Dilemma, the Public Goods Dilemma and the Tragedy of the Commons (see Commons Dilemma) and each of these stories has been modeled as an experimental game.

The Prisoner’s Dilemma Game was developed by scientists in the 1950s. The cover story for the game involved two prisoners who are separately given the choice between testifying against the other (non-cooperation with one’s partner) or keeping silent (cooperation with one’s partner). The outcomes are such that each of them is better off testifying against the other but if they both pursue this strategy they are both worse off than by remaining silent.

The Public Goods Game has the same properties as the Prisoner’s Dilemma Game but captures a public good, or a resource from which all may benefit regardless of whether or not they contributed to the good. For instance, people can enjoy the city parks regardless of whether they contributed to their upkeep through local taxes. Most public goods are collectively shared, and are non-excludable. That is, once these goods are provided nobody can be excluded from using them. As a result, there is a temptation to enjoy the good without making a contribution. Those who do so are called free-riders (like taking a free-ride on public transportation), and while it is rational to free-ride, if all do so the public good is not provided and all are worse off.  Although public goods are often defined in terms of non-excludability, it is true that in real life some people can be excluded from using some public goods – for example, recognized hooligans are sometimes penalized by a ban on entering the football stadium of their favourite club.  Researchers mostly study two public good dilemma games in the laboratory. Participants get a monetary endowment to play these games and decide how much to invest in a private fund versus group fund. Outcomes are such that it is individually rational to invest in the private fund, yet all would be better off investing in the group fund because this yields a bonus. In the continuous game the more people invest in the group fund the larger their share of the bonus. In the step-level get people get a share of the bonus if the total group investments exceed a critical (step) level.

The Commons Dilemma Game is inspired by the metaphor of the Tragedy of the Commons. This story is about a group of herdsmen having open access to a common parcel of land on which their cattle grazes. It is in each herdman’s interest to keep as many cattle as possible on the commons, even if the commons is damaged as a result. The herdsman receives all the benefits from the additional cows and the damage to the commons is shared by the entire group. Yet if all herdsmen make this individually rational decision, the commons is destroyed and all will suffer.

Compare this with the use of non-renewable resources like water or fish: When water is used at a higher rate than the reservoirs are replenished or fish consumption exceeds its reproductive capacity then we face a tragedy of the commons. The experimental commons game involves a common resource pool (filled with money or points) from which individuals harvest without depleting it. It is individually rational to harvest as much as possible, but the resource collapses if people harvest more than the replenishment rate of the pool.

There are numerous types of social dilemmas, and how they can be presented to people.  For example, a take-some dilemma is one where cooperative actions involve exercising restraint on taking from shared resources; the give-some dilemma is one where cooperative actions involve contributing to a shared resources or good.  Such situations can also be presented in terms of “leave-some” dilemmas and “keep-some” dilemmas.  Also, the outcomes for others and self can be presented in various ways, and people may themselves interpret the same social dilemma in different ways – for example, as doing business or interpersonal exchange. Typically, the ways in which a social dilemma are presented to people makes a big difference in terms of what people expect others to do, and what they do themselves.

· Mythical Fixed Pie mind-set

In the business world, why is competition so often the norm, while cooperation seems like an impossible goal? One of the most destructive assumptions we bring to negotiations is the assumption that the pie of resources is fixed. The mythical-fixed-pie mind-set leads us to interpret most competitive situations as purely win-lose.

For those who recognize opportunities to grow the pie of value through mutually beneficial trade-offs among issues, the complexity of such negotiations is an asset. Trade-offs allow you and your negotiating partner to achieve more than you would if you merely compromised on each issue.

Once negotiators have broken the assumption of a mythical fixed pie, the search for value can begin. To create value, you need to learn about the other party’s interests and preferences. Here are three proven strategies that will increase your likelihood of uncovering value in the negotiation process:

1. Build trust and share information. The most direct way for parties to create value is to share information in an open, truthful manner. The value created by sharing information with your most trusted customers will often outweigh the risk of having that information misused. “On-time delivery is critical to us,” you might tell a representative of a technology consulting firm in a negotiation over new business. “Our old contractor did good work, but couldn’t meet deadlines. Now tell me some of your key concerns.”

2. Ask questions. Your goal is to understand the other party’s interests as well as possible, yet both parties may be unwilling to fully disclose confidential information. What should you do next? Ask lots of questions! Many executives, especially those trained in sales persuasion tactics, view negotiating primarily as an opportunity to influence the other party. As a result, we do more talking than listening. And when the other side is talking, we tend to concentrate more on what we’ll say next than on the information being conveyed—a tendency that only assists the other party in collecting information from you. Listening and asking questions are the keys to collecting important new information. “What mechanisms does your firm have in place to make sure you meet our deadlines?” you might ask the consulting rep.

3. Give away a bit more information. What do you do when trust between parties is low? Give away some information that focuses on the trades you are willing to make. Doing so can enable you and the other party to expand the pie of outcomes. Plus, behaviors in negotiation are often reciprocated. When you share useful information, he may return some of his own. The key is to give away information that will inspire wise trade-offs, rather than simply slice up the pie. In your negotiation over the technology consulting contract, this might mean saying, “Let’s talk about how referral incentives might benefit us both.”

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5 thoughts on “What’s Negotiation Skill all about?

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