Integrative Negotiations - Everybody Wins Something (usually)

Distributive Negotiations - the Fixed Pie

By its mere nature, there is a limit or finite amount in the thing being distributed or divided amongst the people involved. Hence, this type of negotiation is often referred to as 'The Fixed Pie'. How many times has somebody shouted out, 'Who wants the last piece of pizza?' Everyone looks at each other, then the pizza slice, and two or more hands rush to grab it.

In the real world of negotiations, two parties face off with the goal of getting as much as possible. The seller wants to go after the best price they can obtain, while the buyer wants to pay the lowest price to achieve the best bargain. It's really just good old plain haggling.

A distributive negotiation usually involves people who have never had a previous interactive relationship, nor are they likely to do so again in the near future. Simple everyday examples, would be when we're buying a car or a house. Purchasing products or services are simple business examples where distributive bargaining is often employed. Remember, even friends or business acquaintances can drive a hard bargain just as well as any stranger.

Integrative Negotiations - Everybody Wins Something (usually)

The word integrative means to join several parts into a whole. Conceptually, this implies some cooperation, or a joining of forces to achieve something together. Usually involves a higher degree of trust and a forming of a relationship. Both parties want to walk away feeling they've achieved something which has value by getting what each wants.

In the real world of business, the results often tilt in favour of one party over the other because, it's unlikely that both parties will come to the table at even strength, when they begin the talks.

Nonetheless, there are many advantages to be gained by both parties, when they take a cooperative approach to mutual problem solving. Generally, this form of negotiation is looking to forming a long term relationship to create mutual gain. It is often described as the win-win scenario.

[5] Four key concepts

[6]BATNA

First, having a good alternative to negotiation contributes substantially to a negotiator's power. A negotiator with very strong alternatives does not need the negotiation in order to achieve at least a satisfactory outcome.[31] In their 1981 bestseller, Getting to Yes,[32] Roger Fisher and William Ury coined the term "BATNA" (best alternative to a negotiated agreement) to refer to this type of negotiating power. When parties have many options other than negotiation, they have more leverage in making demands. Therefore, parties should develop a strong understanding of their alternatives before participating in negotiations. Making one's BATNA as strong as possible, and then making that BATNA known to one's opponent, can strengthen one's negotiating position.

[7]Reservation Price

[8] ZOPA

If the parties believe that their ideal solution is not available and that foreseeable settlement is better than the other available alternatives, the parties have a "Zone of Possible Agreement" (ZOPA). This means that a potential agreement exists that would benefit both sides more than their alternatives do.

However, it may take some time to determine whether a ZOPA exists. The parties must first explore their various interests, options, and alternatives. If the disputants can identify their ZOPA, there is a good chance that they will come to an agreement. But if they cannot, negotiation is very unlikely to succeed.

[9] Creating value through trade

By analyzing interests, you can often discover ways to create value—to enlarge the pie—and avoid focusing only on claiming value, or getting the biggest possible slice of

a small pie.

When exploring interests, keep in mind the three basic principles for creating value in negotiations:

Seek out shared interests. Look for things that you and your counterpart both care about and can achieve better by combining your resources.

Propose mutually beneficial trades. Identify things that are more valuable (costly) to your counterpart than to you, and trade them for things that are more valuable to you than your counterpart. For example, Daniel is willing to give up some compensation if Ken will agree to locate the engineering group in Austin.

Secure insecure contracts. If you don’t fully trust each other, find ways to minimize your vulnerability and thus avoid the defensiveness that constrains value creation. By getting clear guarantees about what happens if the business is sold, for example, Daniel might feel more secure about entering into an employment agreement.

[10] Planning the negotiations

Pre-negotiation

Before you decide to negotiate, it is a good idea to prepare. What is it exactly that you want to negotiate? Set out your objectives (e.g. I want more time to pay off the loan). You have to take into account how it will benefit the other party by offering some sort of reward or incentive (explained later).

What is involved (money, sales, time, conditions, discounts, terms, etc)? Know your extremes: how much extra can you afford to give to settle an agreement? Although you are not aiming to give out the maximum, it is worth knowing so that you will not go out of your limits.

Know what your opposition is trying to achieve by their negotiation. This is useful information that could be used to your benefit and may well be used to reach a final agreement.

Consider what is valuable to your business, not the costs. You may end up losing something in the negotiation that is more valuable to your business than money. It could be a reliable client or your company reputation.

[11] Negotiating

It is important that you approach the other party directly to make an appointment to negotiate should it be in person, writing or by phone (not through a phone operator, receptionist, assistant etc) as this will allow you to set the agenda in advance, and improve the prospects of the other party preparing sufficiently enough to make a decision on the day. Try to be fairly open about your reason for contact or they may lose interest instantly and not follow up on the appointment.

it's not war, but it is business!

So, it's time to negotiate and you've prepared well. What else must you have? Two things: confidence and power. Your power will come from your ability to influence. For example, you may be the buyer (but not always a strong position), or have something that the other party wants, or you may be able to give an intention to penalize if the other party fails to meet the agreement (as is the way with construction). As briefly mentioned above, you may be able to give a reward or an incentive. For example, you may be selling kitchen knives and as part of the package you are giving a knife sharpener and a storage unit away free as an incentive.

It is always important that you keep the negotiation in your control: this can mean within your price range, your delivery time or your profit margin. If you fail to do so, you will end up on the wrong side of the agreement.

When negotiating, aim as high as you feel necessary in order to gain the best deal for yourself. The other party may bring this down but it is a good tactic, as it is always easier to play down than to gain.

Make sure that you remain flexible throughout the negotiation in case the opposition decides to change the direction of the agreement (they may want different incentives or even change their objectives). This is where your preparation comes to good use: knowing your limits and the other party's needs. If you're a quick thinker then you've got an advantage. You'll need to turn it around quickly if things start to go against you without putting your objectives at risk.

Confidence comes from knowing your business, your product, what its worth, and being able to communicate this well to the other party: these people are almost impossible to get the better of, as some of you will know only too well.

[12]Coming to an Agreement

Once you have come to a final agreement, it is important that you have it down in writing along with both parties' signature: this is not always possible or practical. Before it is signed, or formally ordered, it is wise not to say anything about the terms agreed because your next sentence could break the agreement: the best sales-people never over sell - well, not until they have to!

If it is a sale/purchase that you are making, then officially, it isn't a sale until you/they have actually ordered the product/service. Usually, this will be an Order Form. In most other negotiations, one party sending a letter and fax to the other in which the agreement is outlined (to a sufficient degree) will form a legal basis.

If the other party then amends the conditions in the agreement in writing to you, those amended terms then become part of the agreement, UNLESS you disagree in writing, and so on…

Summary

We use negotiation in everything we do but you have to be sure that it is done in the best way possible to achieve maximum benefit. The most important part is planning: preparing well will give you an advantage when negotiating.

Only use the knowledge and experience you need to achieve your objective: having the business owner negotiating the supply of pencils is over-kill, and leaves you little room to power-bargain with the same supply company when you want them to supply you with, say, colour photo-copiers.

Have confidence and be sure that you can keep control at all times. Aim highly, but don't underestimate the opposition. They too may have just read the same advice. If you're selling something, be persuasive and offer some incentive to keep the customer interested.

Don't close an agreement until you are happy. This could be difficult if you have been put in a 'corner' but this would perhaps be an effect of poor preparation.

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Date: 2015-12-11; view: 1339