Negotiation.docx

Negotiation process

Characteristics of Negotiation There are certain characteristics of the negotiation process. These are: (i) There are a minimum of two parties present in any negotiation. (ii) Both the parties have pre-determined goals which they wish to achieve. (iii) There is a clash of pre-determined goals, that is, some of the pre-determined goals are not shared by both the parties. (iv) There is an expectation of outcome by both the parties in any negotiation. (v) Both the parties believe the outcome of the negotiation to be satisfactory. (vi) Both parties are willing to compromise, that is, modify their position. (vii) The incompatibility of goals may make the modification of positions difficult. (viii) The parties understand the purpose of negotiation There is no magic or mystery to negotiations or to what makes a master negotiator. There are 5 steps and practices that consistently work. The model presented here identifies the five stages of any negotiation in a simplified framework that helps you to analyze, absorb and apply the Best Negotiating Practices.

This model was built from diverse client experiences at organizations around the globe since 1993. It is circular because it depicts the fluid movement of all negotiations. Collaborative negotiations are an ongoing process, which build confidence, trust and strong relationships. The 22 Best Negotiating Practices (BNPs) principally fall into a negotiating stage – although some apply throughout the negotiating cycle and others cross over from one stage to the next.

Five Stages of a Negotiation Stage 1: Prepare

Stage 2: Information Exchange and Validation

Stage 3: Bargain

Stage 4: Conclude

Stage 5: Execute

Identify potential value Begin to understand interests Develop fact-base Discovering and creating value Assess interests Build rapport and trust Create and distribute value Address interests Make and manage concessions Capture value Confirm interests have been met Thank them Expand value Addressing changing interests Strengthen relationships

Stage 1 – Prepare There is no good short cut to Preparation. It is the first stage of any negotiation, though people often don't give it the time it warrants. They often charge into the Information Exchange Stage, or even directly to Bargaining. Preparation starts with determining if this is a potential collaborative situation so that you can select the better strategy. Next you spend time researching information, analyzing data and leverage, and identifying interests and positions. Finally, you have to consider the relationship you want to build. Five Key Elements of Negotiation Preparation 1. Initial points to consider Should I be negotiating? What I need to know Organize information

2. Research covers Players and stakeholders The fact base Standards and benchmarks 3. Analysis includes Re-organizing data Anticipating what will happen Assessing strengths and risks 4. Identification of your and their Interests Positions: Goals, Most Desired Outcomes, and Least Acceptable Agreements Best Alternatives to a Negotiated Agreement Concessions 5. Know the relationship you want to build Plan to build trust Prepare for emotional reactions Develop Probes to discover "Don't knows" and test Assumptions

Stage 2 – Information Exchange The Information Exchange Stage occurs when you begin to engage the other side, share information and explore options that address interests – what you each need, as opposed to positions – what you each ask for later in the Bargaining Stage. We will discuss the difference between interests and positions and how critical they are to successful negotiations in depth later, but here is a brief example: Employee’s position: she has asked to be assigned to Project Beta. Employee’s interest: to get promoted, she needs to succeed on a project of high visibility. It is critical here to focus on building rapport and trust, without which neither party will feel comfortable sharing interests. One way to build the relationship is to do your "social homework" in this stage by finding out and showing interest in the other party's business culture, personality, outside interests and values. Four Critical Assessments are made in the Exchange Stage: 1. Trustworthiness – Are they honest and dependable? 2. Competency – Are they credible and able? 3. Likeability – Can you work well together? 4. Alignment of Interests – Are your interests aligned with theirs?

The master's tool in the Exchange stage is the Probe.

One definition of Probe: ... a technique employed to encourage the respondent to give a more detailed answer to a question and elaborate on his previous response. Example: "Anything more?" “Why do you think that is fair?” “How did you come up with that solution?” A Go/No-Go Decision Time in Exchange If your assessment in this stage of the negotiation process is negative, you make adjustments or implement your Best Alternative to a Negotiated Agreement (BATNA). If your assessment in this stage of the negotiation process is positive, you move forward. With trust developed, you explore for creative solutions that address interests and see the potential to create real value. Dive into Bargaining Now? You will be eager at this point to dive into the Bargaining Stage. Pause to create one critical tool that will guide and protect you for the stages that follow. That is the development of a joint agenda.

Stage 3 – Bargain Bargaining is where the "give-and-take" happens. If you think success means all take and no give, you won't capture real value. You make and manage your concessions in bargaining. When you give and take that which satisfies both parties' interests, you will build a lasting relationship and a fruitful outcome. During the Bargaining Stage, you continue to create value, and with trades, finally capture value.

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To be trusted, you must be genuine!

There are two tools you will need from your negotiator's toolbox in the Bargaining Stage, the Probe and Creativity. Bargaining is your "face-time" with the other person, even when you are not face-to-face.

Like all interpersonal relations, emotions can help or hinder progress. Specific negotiator's tools and behavioral skills matter greatly here. Finely tuned communication skills are critical at this juncture as you explore options to create value and execute trades to capture value. You will be most successful when solutions satisfy everyone's needs. Stage 4 – Conclude Stage 4 is the point in the process when you reach agreement. It is important to find out if the other side has the capacity to follow through with the things they said they would do. This is the time to put down in writing the common interests and produce a comprehensive summary of the agreement. Sometimes you have to consider strategies here to lock-in a commitment. Be sure to agree on next steps as well. And never forget to thank the other party for their willingness to negotiate – even when no agreement is reached.

Stage 5 – Execute Stage 5 is implementation of the agreement. This stage may also be viewed as preparation for the next negotiation opportunity. You must ensure that you follow through on promises made in order to strengthen the relationship and to build trust. You will learn more in this stage about the other side. This will lead to easier negotiations next time around. And remember that during execution you are likely to apply the total negotiation process and BNPs to unexpected events, failures in performance and the inevitable changes.

Types of Bargaining Strategies in Negotiation and Conflict Bargaining is a process of reaching a mutually acceptable solution among all parties to the conflict at the end of the negotiation process. Bargaining strategies help to resolve the conflict through proper communication and understanding of the situation. 2 types of bargaining strategies are; 1. Distributive Bargaining, 2. Integrative Bargaining.

Distributive Bargaining Strategy Distributive bargaining is defined as negotiations that seek to divide up a fixed amount of resources, a win-lose situation. Its most identifying feature is that it operates under zero-sum conditions, i.e., each party bargains aggressively and treats the other as an opponent who must be defeated. The core of distributive bargaining is that each party has a target point and a resistance point. The target point is what the parties would like to achieve most. Each parties target point is most of the time are entirely or extremely opposite. Resistance point is the minimum result which would be accepted by the parties. The difference between these two points is the each one’s aspiration range. As long as there is some overlap between the aspiration ranges, there exists a settlement range in which each one’s aspiration can be met. When engaged in distributive bargaining one’s tactics are a focus on trying to get one’s opponent to agree to one’s specific target point or to get as close to it as possible. Examples of such tactics are persuading to his/her target point and the advisability of accepting a settlement near yours arguing that your target is fair, which your opponents is not and attempting to get your opponent to feel emotionally generous toward you and thus accept an outcome close to your target point.

Integrative Bargaining Strategy The negotiation that seeks one or more settlements than create a win-win situation is called Integrative Bargaining Strategy. Regarding intra-organizational behavior, all things being equal integrative bargaining is preferable to distributive bargaining. Integrative bargaining builds long-term relationships and facilitates working together in the future.

It bonds negotiators and allows each to leave the bargaining table feeling that he/she has achieved a victory. Distributive bargaining, however, leaves one party a loser. It tends to build animosities and deeper divisions when people have to work together on an ongoing process.

Need for Proper Negotiation and Bargaining Strategies Negotiation defined as a process that occurs when two or more parties decide how to allocate scarce resources. Even though we commonly think of the outcomes of negotiation in one-shot economic terms, like negotiating over the price of a car, every negotiation in organizations also affects the relationship between the negotiators and the way the negotiators feel about themselves. Depending on how much the parties are going to interact with one another, sometimes maintaining the social relationship and behaving ethically will be just as important as achieving an immediate outcome of bargaining. The terms ‘negotiation’ and ‘bargaining’ are interchangeable and used in the same wave. Negotiation permeates the interactions of almost everyone in groups and organizations. In today’s loosely structured organizations, where members work with colleagues over whom they have no direct authority and with whom they may not even share a common boss, negotiation skills become critical.

15 Tactics For Successful Business Negotiations

1. Listen and understand the other party’s issues and point of view. Some of the worst negotiators I have seen are the ones who do all the talking, seeming to want to control the conversation and expound endlessly on the merits of their position. The best negotiators tend to be the ones who truly listen to the other side, understand their key issues and hot buttons, and then formulate an appropriate response. Try to gain an understanding about what is important to the other side, what limitations they may have, and where they may have flexibility. Refrain from talking too much. 2. Be prepared. Being prepared entails a whole host of things you may need to do, such as: 

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Review and understand thoroughly the business of the other party by reviewing their website, their press releases, articles written about their company, and so forth. A thorough Google and LinkedIn search is advisable here. Review the background of the person you are negotiating with by reviewing any bio on the company’s site, the person’s LinkedIn profile, and by doing a Web search Review what similar deals have been completed by the other side, and the terms thereof. For public companies, some of their prior agreements may be filed with the SEC. Understand the offerings and pricings from competitors of the party you are negotiating with.

3. Keep the negotiations professional and courteous. This is also known as the “don’t be an asshole rule.” Nobody really wants to do business with a difficult or abusive personality. After all, even after the negotiations are concluded, you may want to do business with this person again, or the transaction may require ongoing involvement with the representative of the other side. Establishing a good long-term relationship should be one of the goals in the negotiation. A collaborative, positive tone in negotiations is more likely to result in progress to a closing. 4. Understand the deal dynamics. Understanding the deal dynamics is crucial in any negotiation. So be prepared to determine the following:    

Who has the leverage in the negotiation? Who wants the deal more? What timing constraints is the other side under? What alternatives does the other side have? Is the other side going to be getting a significant payment from you? If so, the leverage will tend to be on your side.

5. Always draft the first version of the agreement. An absolutely fundamental principle of almost any negotiation is that you (or your lawyers) should prepare the first draft of the proposed contract. This lets you frame how the deal should be structured, implement key points that you want that haven’t been discussed, and gets momentum on your side. The other party will be reluctant to make extensive changes to your document (unless it is absurdly one sided), and therefore you will have already won part of the battle by starting off with your preferred terms. Having said that, you want to avoid starting the negotiations with an agreement that the other side will never agree to. Balance is key here. 6. Be prepared to “play poker” and be ready to walk away. You must be able to play poker with the other side, and be able to walk away if the terms of the deal aren’t up to your liking. This is easier said than done, but is sometimes critical to get to an end game. Know before you start what your target price or walkaway price is. Be prepared with market data to back up why your price is reasonable, and if you are confronted with an ultimatum that you absolutely can’t live with, be prepared to walk away. 7. Avoid the bad strategy of “negotiating by continually conceding.” Ten years ago, a company I was involved with was desperate to sell itself. The CEO was convinced that a certain prospective buyer was the ideal acquirer and he wanted to do the deal with them. But the buyer kept coming up with new unreasonable demands, and the CEO kept giving into those demands in the hopes of getting to a closing. So what did the buyer do? It learned that it could just keep asking for more unreasonable things, and that the CEO would always eventually cave. Nine months and $1 million in legal fees later, the company still didn’t have a deal. I then took over the negotiations and told the buyer that we were no longer interested in the terms they had been proposing, and we were walking away unless the price and deal terms got much better for us. By that time, the buyer itself had expended a great deal of legal fees and management time to get to a deal, and they panicked at the prospect of losing the deal. So they conceded to virtually every point I wanted, including an increased purchase price, and we closed the deal in 45 days. So the lesson was that continually conceding points (while not getting anything in return) can lead to the exact opposite of what you are hoping for. If you are conceding a point, make sure to try and get something in return. 8. Keep in mind that time is the enemy of many deals. You have to understand that the longer a deal takes to get completed, the more likely that something will occur to derail it. So be prompt at responding, get your lawyer to turn documents around quickly, and keep the deal momentum moving. However, that doesn’t mean you should rush through negotiations and make concessions that you don’t need to make. Understand when time is on your side and when time could be your real enemy. 9. Don’t fixate on the deal in front of you and ignore alternatives. In many situations you want to have competitive alternatives. This can enhance your negotiating position and allow you to make the best decision as to how to proceed. For example, if you are engaging in a process to sell your company, the best thing you can do is to have several potential bidders at the table. You want to avoid being locked up into exclusive negotiations with one bidder until you have reached a meeting of the minds as to the best price and terms available. Similarly, if you are looking to

buy a product, lease office space, or acquire a loan for your business, you will often be better off if you have alternatives—and the other party knows it has viable competitors. By negotiating simultaneously with two or more parties, you can often obtain better pricing or better contractual terms. 10. Don’t get hung up on one issue. You want to avoid getting stuck on a seemingly intractable issue. Sometimes it’s best to suggest that an issue be set aside for the moment and both parties move on to make progress on other issues. A creative solution may come to you later outside the heat of the negotiation. 11. Identify who the real decision-maker is. You want to understand what kind of authority the other person that you are negotiating with has. Is he or she the ultimate decision-maker? I recently went through a long and fruitless set of negotiations with a person who kept telling me that he didn’t have the authority to agree to a number of points we were negotiating. He could tell me “no” to my requests but didn’t have the ability to tell me “yes.” My solution (because I had leverage) was that I ended the conversation and said that for us to make any progress, I needed to negotiate with the person who was authorized to make decisions and concessions. 12. Never accept the first offer. It’s often a mistake to accept the first offer from the other side. For example, if you are selling your home and you receive an offer, consider countering at a higher price or better terms (even if there are no other offers). If you don’t counter, the other party will be concerned that they offered too much and may end up with buyer’s remorse and attempt to get out of the deal. And buyers expect that there will be a counter as they expect that their first offer will likely be rejected. Most buyers will leave room in their first offer to go up by at least 5%-15% in price, depending on the situation. Counter-offers and some back-and-forth negotiation will most likely lead to the two parties being satisfied that they struck the best deal they could, and thus be more committed to closing the deal. 13. Ask the right questions. Don’t be afraid to ask the other party many questions. The answers can be informative for the negotiations. Depending on the type of deal, you could ask:       

Is this the best pricing or offer you can give me? What assurances do I get that your product or solution will actually work for me? Who are your competitors? How do their products compare? What else can you throw in to the deal without cost to us? (A particularly useful question to ask car dealers.) What is your desired timing for the deal? How does our deal benefit you? We want to avoid unreasonable forms of contracts or unreasonable lawyers on your end. How do we ensure that?

14. Prepare a Letter of Intent or Term Sheet to reflect your deal. It is often helpful, at the appropriate time, to prepare a Letter of Intent or Term Sheet to reflect your view of the key terms of a deal. This can help expedite getting to an agreement, save on legal costs, and continue the momentum for a deal. It is more informal than a definitive agreement and easier to reach agreement on. For example, Letters of Intent are often prepared and agreed to in connection with mergers and acquisitions (see Negotiating an Acquisition Letter of Intent). And here are some good sample forms to review that can help you draft such a document:      

A letter of intent for a joint venture A term sheet for leasing office space A venture capital term sheet A term sheet for investment by a strategic investor A term sheet for selling the company, favorable to the seller An acquisition letter of intent, favorable to the buyer

15. Get the help of the best advisors and lawyers. If it’s a big or complicated deal, you want real expertise on your side helping you in the negotiations and drafting the contract. For example, if you are selling your company, it is usually worth the money to hire an investment banker who knows your industry and has relationships with prospective buyers. If you are doing a real estate deal, you want an experienced real estate attorney who has done many deals like the one you are working on (and not a general practitioner lawyer). If you are doing an M&A transaction, you want a lawyer that has done 50 or 100 M&A deals (and not a general business lawyer). These advisors don’t come cheap, but are worth it if you get the right one.

7 “must ask” questions in any negotiation

1. Would you explain the reasons for your position? If you can’t clearly understand the other party’s reasoning through simple discussions, the best way to discern the other parties position and motivations on deal points is to directly ask them their rationale for what they are offering or seeking. Once you know the other party’s thought process and justifications, rather than just the outcome they desire, you can better adjust your strategy and response to coincide with their position. For instance, in a scenario where the other party is requiring some advance payment that doesn’t sit well with you, you might find out that they need the funds at this initial juncture to fund required material or other costs in order to put the arrangement in motion. Once you understand the logic behind requests and demands relating to a deal structure, you are better able to control discussions and create agreeable terms.

2. Is there any reason you can’t? This is a great question to ask when you know the other party is avoiding or rejecting your offer for no legitimate reason or not having thought it through well enough. Sometimes people make shallow excuses for why they can’t do something or shoot down an idea with short-sighted objections. Most often when the question is asked this way, the other party has a hard time coming up with truly legitimate reasons that effectually negate your argument or offer. In instances where the other party does happen to come up with a viable objection, you now have the opportunity to directly address, and hopefully overcome, that objection with sound reasoning of your own.

3. Why do you think this is a fair and reasonable term or condition? A fair and reasonable term or condition, such as a price, proposal or provision, can be defined as what’s prudent under competitive market conditions, given a reasonable knowledge of the marketplace. Fair implies a proper balance of conflicting or divided interests. Reasonable means not extreme or excessive. So a fair and reasonable term or condition is one that is balanced between all parties and somewhat moderate. If you are concerned about the reasonableness of an offer, do some due diligence to research comparables. Then ask the opposing party this question to encourage them to define and defend the reasonableness of their requirement. This will help assure you are securing the best deal possible.

4. Why is that point or provision important? Understanding the significance of a specific point or provision is imperative, and can even result in an adjustment of your own position. The answer the other side provides will allow you to fine tune your strategy based on this key learning about their critical priorities and values. Understanding, acknowledging and validating the significance of the opposing party’s requests can not only help you recalibrate your approach, but also create more of a team atmosphere or affinity that builds a level of trust at a faster pace.

5. What part of my proposal gives you the most concern? This can apply to a large contract negotiation, a job offer or handling an issue with a family member. Breaking an offer down into individual elements or points makes it easier to take things in small bite-size pieces versus one large chunk that, on the whole, is causing kickback. Discussing a proposal point-by-point, particularly specific areas of utmost concern, allows the parties to come to small fractional agreements that may not otherwise have been reached if you discussed the arrangement as a whole. Dealing directly with the most difficult deal points in triage mode—from the most to least problematic for the other side—shows you care. This can get you past those sticking points and greatly expedite the entire process.

6. What documentation or proof do you have to validate your position? You may have heard the adage “Trust but Verify.” It’s important to know that what is being presented is 100% factual. The best way to determine authenticity is by verifying the facts through documentation that validates what is being presented. A trusting nature will not serve you well in a negotiation where decisions are being made based on certain claims. It’s imperative to secure documentation to back up applicable assertions. And, while cliché, it’s often true: if it sounds too good to be true, it probably is. There is an important place for skepticism in a negotiation in that it’ll fuel your need for verification prior to officiating an agreement or signing on the dotted line. Once that ink is dry, undoing a deal, however disingenuous, is far more difficult and quite unpleasant.

7. What else do you think I should know? After you’ve asked all of the questions you intended and can’t think of any other, but you still want to ensure you have thoroughly vetted the arrangement, asking this question may induce some other points that you haven’t uncovered or considered through prior discussions and the negotiation process. There could be something you don’t know that, once revealed, might actually change your way of thinking, what you are seeking, or the strategy you originally started with. In any negotiation, however large or small, direct communication with open ended questions is vital. People often don’t ask such questions because they fear rejection or how they will be perceived. Even asking just these 7 powerful questions above will help ensure that the agreement you reach is not only in your best interest, but also fair and reasonable for all involved.

Q&A 1. What are the steps of the negotiation process?

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Stage 1 – Prepare

 Stage 2 – Information Exchange  Stage 3 – Bargain 

Stage 4 – Conclude

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Stage 5 – Execute 2. Which are the Types of Bargaining Strategies?  

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Distributive Bargaining, Integrative Bargaining.

3. Which are the five key elements of the negotiation preparation? Initial points to consider Should I be negotiating? What I need to know Organize information Research covers Players and stakeholders The fact base Standards and benchmarks Analysis includes Re-organizing data Anticipating what will happen Assessing strengths and risks Identification of your and their Interests Positions: Goals, Most Desired Outcomes, and Least Acceptable Agreements Best Alternatives to a Negotiated Agreement Concessions Know the relationship you want to build Plan to build trust Prepare for emotional reactions Develop Probes to discover "Don't knows" and test Assumptions

4.Which are the Four Critical Assessments made in the Exchange Stage?    

Trustworthiness – Are they honest and dependable? Competency – Are they credible and able? Likeability – Can you work well together? Alignment of Interests – Are your interests aligned with theirs? 5.Which are the characteristics of the negotiation process?

(i) There are a minimum of two parties present in any negotiation. (ii) Both the parties have pre-determined goals which they wish to achieve. (iii) There is a clash of pre-determined goals, that is, some of the pre-determined goals are not shared by both the parties. (iv) There is an expectation of outcome by both the parties in any negotiation. (v) Both the parties believe the outcome of the negotiation to be satisfactory. (vi) Both parties are willing to compromise, that is, modify their position. (vii) The incompatibility of goals may make the modification of positions difficult. (viii) The parties understand the purpose of negotiation