BUS403 Study Guide

Unit 1: What Is Negotiation?

1a. Define the theory, processes, and practices of negotiation

  • What is the importance of the four areas of negotiation: goals, strategy, issues, and planning?
  • How can negotiation lead to a more effective outcome than a dispute or disagreement?

When two or more parties disagree, each side must decide whether the issue of disagreement is worth fighting for. If neither side feels the dispute is important or relevant, they may agree to disagree. Suppose at least one party feels strongly enough about the importance of the outcome or their relationship. In that case, they may try to convince the other party to participate in a more productive conversation that addresses each other's points of view (negotiation). If they pursue the issue, they should formulate a clear outcome (goal), decide on an approach (strategy) to convince the other party to agree with the terms, define obstacles (issues) that may preclude mutual agreement, and specify steps to take to obtain their desired outcome (planning).

One or more parties may decide they want to win at any cost, even at the other party's expense. On the other hand, they may decide that all parties can obtain a desirable outcome by working together for mutually agreed-upon goals (see the figure in the 1f section below). Whatever strategy the participants decide on, various issues must be resolved before implementation planning can begin.

To review, see Negotiations and What is Negotiation?.


1b. Describe the five phases of negotiation

  • What are the five phases of negotiation, and how would you describe each phase?
  • What is the definition of concession?
  • Why is it important to gather information before beginning a negotiation?
  • What should you do if the other party rejects your best offer?

The five traditional negotiation phases include:

  1. investigation
  2. determining your best alternative to a negotiated agreement (BATNA)
  3. presentation
  4. bargaining
  5. closure

Thorough preparation is key to any successful negotiation and will help you avoid choosing an inferior or suboptimal alternative. During the bargaining phase of your negotiation, you may decide to make concessions to obtain a more desired goal.

During the first negotiation phase (investigation), each party should determine what they want to achieve from the negotiation (their goals) and what they are willing to concede or not concede during the bargaining phase to reach an agreement. Armed with this knowledge, they can make informed choices during the negotiation. A negotiator ignores this information-gathering phase at their peril.

During the second negotiation stage, consider your best alternatives to a negotiated agreement (BATNA) to help decide whether to accept an offer. You should brainstorm alternatives if the negotiation does not lead to a favorable outcome for you. During the presentation stage, you assemble all the information supporting your position in the negotiation. During the bargaining phase, each party discusses its goals and seeks an agreement. There is a back-and-forth process in which trade-offs or concessions are made to reach a mutually satisfying outcome.

During the fifth and final negotiation phase (closure), you may gain valuable insight if the other party rejects your best and final offer. Ask them what it would take to reach an agreement if you were to negotiate further. Your willingness to learn from your opponent may prompt them to re-open the door to negotiations you may have assumed were closed.

You interviewed for a job and anticipated receiving an offer, but they chose another candidate. The job seemed to be a dream job. What steps might be productive for your job search?

To review, see Negotiations.


1c. Describe how to incorporate problem-solving strategies in negotiations

  • What are the distributive, integrative, and mixed-motive negotiation strategies?
  • What are some strategies that can be used to avoid these obstacles?

During a distributive negotiation, each party determines the issue is more important than preserving or establishing a good relationship. Using the fixed-pie analogy, each party tries to get more of a divided pie. Ultimately, at least one party will not get everything they want – a win-lose or lose-lose outcome. Buying a car from a salesperson is an example of this type of negotiation. The buyer aims to get the most value for the least cost. The salesperson's goal is to make the most profit. Neither party is interested in becoming friends – they want to get the best deal.

During an integrative negotiation, the two parties care about the issue and want to preserve a long-standing relationship. They want a successful negotiation and the other party to believe they have met their goals. There may be areas for concessions and trade-offs, or they may incorporate creative ideas so each party achieves what they want. This is the only negotiation approach that can be a win-win for both parties.

Mixed motive negotiation uses aspects of distributive and integrative approaches. While the issues and relationships are important to consider the other party's interests, these issues may not be mutually compatible. Their objective is to add value to "expand the pie" so each party gets some of what they want, but they understand one or both parties may not get everything they want.

People negotiate to add benefits, claim something they value, or create an acceptable solution to a problem. Unfortunately, many people fail to express their underlying concerns, issues, or goals when they state their position and supporting arguments. Their failure to identify and communicate goals and objectives creates obstacles to successful outcomes. Businesses may need to employ a third party when the original participants cannot achieve an agreeable solution.

To review, see Problem-Solving and Decision-Making in Groups and Decision-Making in Groups.


1d. Interpret the dynamics of the group decision-making process

  • What is groupthink, and how does it contribute to suboptimal decision-making?
  • What are consensus and majority rule? What is the difference between them?
  • Why do many people say that two heads are always better than one when making decisions?

Decision-making and problem-solving tools and models can help businesses solve problems systematically and rationally. While this course does not focus on decision-making tools, we benefit from diverse opinions and ideas when deciding our best alternative or course of action. We negotiate from a position of strength when we see all of our available options (including those of the other party) and understand where the other person is coming from, so we can make a decision that benefits everyone.

It is important to generate multiple solutions for each part of a multi-faceted problem during the decision-making process. Stopping the solution-generation process prematurely because an idea may seem popular among the group members who do not want to risk their acceptance as a member can lead to groupthink and suboptimal decision-making.

Eight negative characteristics of groupthink can prevent groups from choosing the best alternative:

  1. The illusion of invulnerability
  2. Collective rationalizations
  3. An unquestioned belief in the group's inherent morality
  4. Stereotyped views of outgroups
  5. Direct pressure
  6. Self-censorship
  7. Illusions of unanimity
  8. The emergence of self-appointed mind guards

During the problem-solving process, groups can decide among proposed solutions in many ways. The majority rule indicates a vote will be taken, and the group accepts the solution with the most votes. Consensus calls for group members to discuss possible solutions and weigh the pros and cons until they reach a general agreement.

Have you ever participated in group decision-making when you felt your voice was not being heard or louder members were "steamrolling" a decision before you and others could present your ideas? What type of decision-making would have helped you present your solutions?

To understand why "two heads may be better than one" in decision-making, note some pros and cons of individual versus group decision-making in this figure.

Advantages and Disadvantages of Different Levels of Decision Making

Advantages and Disadvantages of Different Levels of Decision Making

To review, see Problem-Solving and Decision-Making in Groups and Decision-Making in Groups.


1e. Explain the advantages of using SMART goals in negotiations

  • What are the characteristics of SMART goals?
  • What are the advantages of goal setting?

The advantage of goal setting is that group participants with a common goal know what is expected from them and can measure their progress. Effective goals are specific, measurable, achievable, realistic, and time-oriented (SMART):

  1. Specific: Establishing the appropriate scope of goals is difficult; it is important to be as specific as possible to ensure successful implementation.
  2. Measurable: The ability to measure and assess progress quantitatively is useful in goal setting because it provides motivational checkpoints and ensures progress stays on track.
  3. Achievable: Ensuring goals are achievable is important to attaining goals. People tend to challenge themselves, but it is important to stay within the confines of ability.
  4. Realistic: Realistic goal setting requires a grounded approach to identifying tangible, results-oriented objectives.
  5. Time-oriented: Establishing deadlines is essential for goals, particularly from a motivational perspective. Knowing the completion time frame ensures the end product is useful and relevant to the business.

Structuring a project based on a series of smaller goals with closer deadlines (rather than one distant end goal) can be more motivating because they seem manageable and achievable. Managers should divide projects into immediate, specific, and realistic sub-goals to maximize motivation and output.

Effective goal setting relies on the group's ability to complete the goals on time. Have you ever procrastinated on an important assignment because the deadline was two months away? Would it have helped to set small daily or weekly goals so you could measure your progress toward your goal of completing a 30-page research paper?

To review, see Setting the Right Goals.


1f. Describe the steps of creating a negotiation strategy

  • What is prenegotiation, and what four activities should negotiators accomplish during this stage?
  • What questions should negotiators ask during the investigation phase of negotiation?
  • What is an example of a competitive negotiation strategy?
  • What is an example of a cooperative negotiation strategy?
  • What are positional bargaining and interest-based bargaining?
  • Can you explain the difference between positions and interests in the context of negotiation?
  • What is the difference between a strategy and a tactic?
  • What are some tactics parties use to support distributive, integrative, and mixed-motive negotiation strategies?

Steps

Activities

1. Prenegotiation

  • Get in the right frame of mind; be confident about the value of your product.

  • Do your homework; know who sits on the other side of the table and what is important to them.

  • Set prenegotiation goals; identify the minimum you will accept for the deal and be ready to walk away if you cannot get it.

  • Identify an offer higher than your prenegotiation goals to allow some room for negotiating.

2. Negotiation

  • Make your initial offer and hold firm.

  • Identify "currencies" to negotiate to reach common ground.

  • Be specific. Identify and detail every element of the deal to avoid surprises.

  • If you encounter a deadlock, put the issue aside and return to it later during the negotiation.

  • Avoid getting emotionally involved; be ready to walk away if you cannot achieve a mutually beneficial deal.

3. Postnegotiation

  • Celebrate with the appropriate people, such as dinner, cocktails, or a get-together.

  • Use the negotiation to build your relationship.

  • Record what you have learned.

  • Get ready for the next negotiation.

Planning your negotiation strategy involves considering the outcomes you wish to achieve. Do you want to maintain a long-term relationship with the other party? Your answer will help you decide whether to consider the other party's needs as you calculate which proposals are in your best interest.

Prior planning and preparation will help you achieve a satisfactory agreement in your best interest. During negotiations, we are often asked to provide information we are not ready to give because we need time to review our options to make an informed decision about our best alternative. You should determine your BATNA (best alternative to a negotiated agreement) before you arrive at the bargaining table with a clear definition of your goals and be able to name concessions you are willing to make or trade. Once you have identified and evaluated your best options, you can measure the proposals you are asked to accept against your optimal standard or best-case scenario.

Your negotiation strategy refers to the plan you use to achieve your goals. During a collaborative negotiation strategy, an approach that uses competition, accommodation, avoidance, or compromise strategies can be more or less effective.

Tactics are the tools of strategy. For example, tactics describe the techniques or methods you use to build a stronger relationship with the other party to ensure an outcome that supports your strategic goals. For example, negotiation tactics may include pretending to walk away from a negotiation, bluffing, or responding to a proposal with silence.

Some tactics, like sharing information, are more effective when your goal is to achieve a mutually desirable outcome – to create joint value. On the other hand, each party may employ competitive tactics in a distributive or mixed-motive negotiation to emphasize the need to obtain a satisfactory outcome – to claim value. Remember that tactics can be ethical and unethical. If the parties aim to build honesty and trust, using deceptive tactics, such as withholding relevant information, will negatively impact future relationships.

Examine the importance of the relationship and outcome to the parties when comparing the strengths and weaknesses of different negotiation approaches. For example, business owners must often decide whether it is better to lose the trust of an important customer (relationship) to obtain a short-term gain (outcome).

For example, a salesperson may agree to accept a loss during an initial sale to build a relationship with the buyer for future sales. The buyer may have other suppliers and is only interested in getting the lowest price. The salesperson wants to create a cooperative negotiating environment, but the buyer plans to use distributive bargaining tactics. The outcome of this negotiation will probably be win-lose unless one party changes how they view the importance of the sale and the relationship.

The buyer will get a lower price or walk away from the negotiation. The salesperson will gain a future business relationship (losing some profit on his initial sale) or refuse to go lower and walk away. Strategies can change as negotiations proceed. However, it is difficult to go from a competitive to a cooperative approach if one side loses trust in the other or believes the negotiation was unnecessarily adversarial.

Conflict-Handling Styles

Conflict-Handling Styles

Positional bargaining focuses on what the negotiators want. During this negotiation, parties have a fixed idea or position and are unconcerned with underlying interests. The parties focus on the outcome – divide a fixed pie to claim value – and discussions often become adversarial.

Interest-based bargaining focuses on the negotiators' needs, concerns, and desires. The parties are trying to collaborate and expand the pie to create value. Negotiators focus on achieving mutually agreeable terms and preserving their personal or business relationships. We call interest-based bargaining: problem-solving, integrative negotiation, and win-win.

For example, should a manufacturer state the terms of a transaction to a valued but reluctant supplier (position) and possibly lose future transactions, or would it be better to try to find creative ways to satisfy the needs of both parties (interests) to preserve a good working relationship?

What type of negotiation do you expect to enter when buying a car online? Is your relationship with the seller important? Do you want to buy this exact car, or are you considering other factors, such as the price and amenities? Does the buyer care who they sell the car to, or are they primarily concerned with how much money they can get?

To review, see:


1g. Describe how to apply the concepts of game theory to negotiation

  • What is a zero-sum game?
  • How do a negotiator's expectations affect their attitude toward negotiating in a zero-sum game and whether to adopt a competitive or collaborative negotiation strategy?
  • What are the psychological perspectives of the prisoner's dilemma?
  • How does the Prisoner's Dilemma illustrate game theory?

A zero-sum game occurs during a competitive negotiation where the parties' goals are interconnected: when one person achieves their goal, the second person does not. One person's success negatively impacts the other. For example, in a distributive situation, both parties compete for a limited or fixed resource – six slices of a fixed pie. When one party takes one slice, the second only gets five. One party wins, and the second loses.

According to the Prisoner's Dilemma, two prisoners would be better off if they cooperated and remained silent during an interrogation. However, each side is incentivized to defect and maximize their gains by accusing their partner of the crime. They may reduce their jail time if their partner remains silent, but they are not sure the other will cooperate. If they both accuse the other, they will both go to jail. Ultimately, both sides suffer because they fail to work together as they try to maximize their gain.

This game shows most rational people are selfish and will do what they think is best for themselves. This causes suboptimal decision-making.

One common example of zero-sum is when you attend a card game with five friends. Each person brings $20, so the "pot" available is $100. Although the distribution of money may be different at the end of the evening, whether each player wins or loses, the total paid out will not exceed the initial "pot" of $100. In this case, one person's loss is another person's gain.

To review, see:


1h. Compare distributive and integrative negotiation

  • What is the definition of distributive and integrative negotiation?
  • Would a competitive or collaborative strategy be more appropriate in a distributive negotiation? Why?
  • Why is a competitive or collaborative strategy more appropriate for an integrative negotiation?
  • What are the variable factors in a distributive negotiation: asking price, target price, reservation point, walk-away point, and alternative solution?
  • How do these factors affect the zone of possible agreement (ZOPA)?
  • What are some typical subjects for concession in bargaining?

During a distributive negotiation, your objective is to obtain the best terms from your negotiation, regardless of whether you and the seller become friends. You probably do not want to make any concessions because you are not interested in forming a relationship or becoming a future customer.

Consider these variables when buying a car. Let's assume price is a major factor in your decision-making. You have researched the alternative models. What do you want to pay, and what is the highest price you will pay? Would you pay a higher price if the car has low mileage, an extended warranty, or additional features? Consider the seller. What is the published selling price? What is the lowest price they will accept? At what point will you or the seller walk away from the negotiation?

When buying a car, the outcome is important to each party – the buyer wants to pay the least; the seller wants to receive the most. Neither side is interested in building or preserving a relationship. The buyer may have to pay more than they wanted, and the seller may fail to get their target price. Each can walk away from the transaction. Their approach will probably depend on whether other car dealers and customers are readily available.

Consider an employee who asks their employer for a raise. Employees who like their job may accept less pay or other compensation, such as more vacation, a better health insurance policy, a parking space, or other benefits. Unlike car purchases, this situation calls for a collaborative or problem-solving approach. Both parties want a satisfactory outcome for themselves and each other to maintain a good relationship. We call this approach an integrative negotiation.

During a distributive (win-lose) negotiation, one party gets what they want, but the other party relinquishes something they value. Examples of variable factors in negotiation include the asking price, target price, reservation points, walk-away points, and alternative solutions.

During a negotiation, the items negotiators consider subject to trade-off or concession may positively or negatively affect the variables above. Typical concessions include money, time, resources, responsibilities, and autonomy.

Unions bargain over contractual issues their members feel strongly about, such as pay raises, work hours, and benefits. To obtain these demands, they may offer concessions that appeal to management. What is an example of a trade-off or concession to get better healthcare coverage?

To review, see:


1i. Explain the advantages emotional intelligence brings to a negotiation

  • What is emotional intelligence?
  • How can emotions help or hinder successful negotiations?
  • What are some advantages of critical thinking?

Robert Coope and Ayman Sawaf define emotional intelligence as the "ability to sense, understand, and effectively apply the power and acumens of emotions as a source of human energy, information, connection, and influence". Emotions can help or hinder our ability to think critically. "Emotions that allow you to deny reality generally produce undesirable results; emotions that encourage you to explore alternatives based on principles of fairness and justice can produce very desirable results".

Emotional intelligence is a key attribute of a successful negotiator. For example, negotiators who lack self-awareness and self-control, two aspects of emotional intelligence, cannot respond appropriately to difficult, challenging, or stressful events. They may need to examine previous situations, personal histories, and general assumptions about an issue to avoid making bad decisions.

To review, see: 


Unit 1 Vocabulary

  • achievable
  • bargaining
  • BATNA
  • closure
  • concession
  • consensus
  • distributive negotiation
  • emotional intelligence
  • groupthink
  • integrative negotiation
  • interest-based bargaining
  • investigation
  • majority rule
  • measurable
  • mixed-motive negotiation
  • negotiation
  • negotiation strategy
  • positional bargaining
  • postnegotiation
  • prenegotiation
  • presentation
  • prisoner's dilemma
  • realistic
  • specific
  • SMART goals
  • strategy
  • tactic
  • time-oriented
  • win-lose
  • win-win
  • zero-sum game