Change Implementation Techniques for Laying a Foundation for New Ways

Technique 1.40 Negotiations

Framework for Negotiations

1 Appreciate the "big picture"

2 Solve the right negotiation problem

3 Understand the other side's problems, ie "put yourself in other's shoes"

4 Put price in perspective

5 Understand differences between issues, positions and interests

6 Appreciate differences as well as common ground

7 Appreciate the "best alternative to a negotiated agreement" (BATNAs)

8 Understand the psychology of perception that leads negotiators to major errors

Timing is important at all stages of the framework!!!!!!!!!!

Introduction

Negotiations occur at all levels, ie between organisations, within organisations, etc and it matters when parties have different interests and perceptions. Remember:

i) facts do not change, but people's perceptions of them do!!!

ii) every person who wants to do business with you is similar to you in that they want wins of some kind that they feel good about. Find out what those wins are and what role can you play in creating them. This is the basis of negotiations and collaborative relationships, ie

"...I don't win unless you win, and you don't win unless I win. That's why you can't even begin a discussion unless we work together, here are ways I think I can win and ways I think you can win. What do you think?..."

Martyn Newman, 2007

iii) knowing some personal details about those with whom you are negotiating helps build a relationship that enables you to understand what you have in common and how your experiences differ. This kind of personal information allows you to understand which types of win are important to them.

There is a need to make negotiation skills a core competency in an organisation

During negotiations, bad habits can creep in and, over time, experience can embed those bad habits into the framework

The concept of negotiations has evolved:

‐ initially, negotiators followed the win‐lose model which embodied aggressive targets, starting high, conceding slowly, and using threats, bluffs and commitments to arrive at a position without triggering an impasse or escalation. It was a battle over the division of a finite "pie"

‐ then the win‐win concept implied the expansion of the "pie" by un‐covering and reconciling underlying common interests

‐ the next approach involved productively managing the tension between the cooperative moves necessary to create value and the competitive moves involved in it, ie both expanding and dividing the pie

‐ recently, the behavioural approach to negotiations has been utilised. This is how people actually negotiate, ie developing the best possible dialogue without assuming strictly rational behaviour to reach an agreement

. One framework explains negotiations in 3 dimensions with the greatest gains in the last 2 dimensions:

i) tactics at the negotiation table, ie who makes the first offer, how high should the offer be, how to grind your opponent down as far as you can without losing them. Most of negotiation theory concentrates on this area

ii) the structure of the deal, ie on how both parties can get what they want out of a transaction (win‐win deal), and both come out thinking that they are winners. This involves

"...negotiators stepping away from the issue of price, and start asking what each of the parties to the transaction most wants to achieve, and identify where both can create and claim value..."

Mike Hanley, 2007b

This can be used to bridge disagreements, eg if the seller perceives that his business is worth more than a potential buyer, this can be sometimes because of emotional reasons, sometimes because they understand the business better, etc.. Based on this, a purely price‐based solution is unlikely to occur. A compromise might be that the buyer pays a fixed amount up front and an additional amount later based on the performance of the business. Thus the barriers to an agreement are overcome.

At the same time, a false dichotomy occurs in the win‐win approach when both sides can claim value.

iii) the broader environment in which the negotiations are taking place, ie the whole game (what do you want to achieve, how could you achieve it, and who can help you?). This involves

"...ensuring the right parties have been approached, in the right sequence, to deal with the right issues that engage the right set of interests, at the right table at the right time, under the right expectations, and facing the right consequences of walking away if there is no deal..."

David Lax and James Sebenius as quoted by Mike Hanley, 2007b

It has been claimed by David Lax et al (2007) that you will get around 2 percent more for great negotiation tactics at the table, but by setting up the tactics so there is the right game going on, you can get up to 50 percent better results.

All too often, negotiators assume that the game is fixed. But what happens at the table is only a small part of the negotiation. For example, you need to think about the internal negotiations that have occurred in the other party's organisation before the deal can be done, and what other parties might add value and leverage to your negotiations? Furthermore, focusing on price and reducing negotiations to mere competition on price makes negotiating very hard.

Remember:

"...the phenomenally successful deals are not completed through silver‐tongued oratory, although that doesn't hurt, but through proper strategy, setting the table right, making sure that negotiations are addressing the right issues, sets of interest, no agreement consequences, through an effective price plan..."

James Sebenius as quoted by Mike Hanley, 2007b

Expanded Framework

1 Appreciate the "big picture"

Need to understand the big picture issues that can have impact on the outcome of the aims and objectives

Big picture issues can involve the following factors: political, economic and social at global and national levels

2 Solve the right negotiation problem

There are 2 options in negotiations: accepting a deal or taking the best no‐deal option.

In negotiations, you seek to advance the full set of your interests by persuading the other side to agree to a proposal that better meets your interests than in the best no‐deal option. Furthermore, the deal needs to meet the other side's best interest than its best no‐deal option

Skilful negotiation involves the "art of letting the other side have your way" or "going in their door and out your door"

While protecting your own choice, the negotiation problem is to understand what shapes the other side's perceived decision ‐ deal vs. no deal ‐ so that the other side chooses, in its own interest, what you want

"...understanding your counterparts' interests and shaping the decision so that the other side agrees for its own reasons is the key to jointly creating and claiming sustainable value from a negotiation..."

James Sebenius, 2001

3 Understand the other side's problems

If the other side agrees, it will be for their own reasons, not yours. Therefore, in addition to understanding your own interests and your own no‐deal options, you need to understand the other side's problems as a means to selling your own.

. At the minimum, you need to understand the problem from the other side's perspective. Many people have difficulty understanding the other side's perspective, ie how the other side is going to sell the deal to their bosses, etc.

. By understanding the other side's constraints and restraints, you can help them overcome them, rather than dismiss the other side as unreasonable or the deal unworkable. View the other side's problems as your problems.

Need to be careful that confidence is not mistaken for arrogance

If you want to change somebody's mind, you need to understand where that person's mind is, ie understanding the gap between where your counterpart is now, and your desired point

It is a mistake to focus exclusively on your problems in the negotiations. Solve the other side's problems as the means to solving your own

4 Put price in perspective

Don't market or negotiate on price. The aim is to take the attention away from price dominating the negotiations, especially discounting. A way to do this is called incentive-based marketing; this include loyalty cards, lifestyle motivators like free trips/holidays, etc.

Some examples include McDonald's with their happy meals and free Disney toys that accompany the meal purchase; Kellogg with their free toys in the cereal box; Woolworth with fuel loyalty cards that offer discounted petrol prices, etc; Amazon prime with free delivery; an Australian home loan lender (Greater Building Society) offering free holidays to homeowners who use their credit facilities rather than having their interest rate discounted.

"...Price is what you pay and value is what you get..."
Hamish Tadgell as quoted by Debra Cleveland 2019

Negotiators who pay attention exclusively to pricing terms turn potentially co‐operative deals into adversarial encounters

Price is an important factor in most deals, but it is rarely the only one, ie

"... most deals are 50 percent emotion and 50 percent economics..."

Evidence suggests that if the price dominates and one party feels that the deal is unequal, most likely they will reject it as unfair, are offended by the process and could even try to teach the greedy person a lesson. Furthermore, people care more about issues surrounding relative results, perceived fairness, self‐image, reputation, etc.

. There are 4 important non‐price factors:

i) Relationship

this element involves the importance of developing working relationships with the other parties. In some negotiations, relationships ‐ rather than transactions ‐ are more important, especially when negotiating long‐term deals

ii) Social contact or spirit of the deal

. negotiators need to remember that the spirit of the deal is important. This goes well beyond good working relationships; it governs people's expectations about the nature, extent and duration of the venture, about process and about the way unforeseen events are handled. It involves good will and strong, shared expectations.

. a positive social contract is an important way to reinforce the other parts of the contract

. a sign of a badly negotiated social contract is revealed when parties scurry back to the founding documents as soon as conflict occurs

iii) Process

. process can be as important as content

. the best results are obtained when all parties perceive the process as personal, respectful, straightforward and fair

. the best process allows for both sides to develop a shared vision of the joint venture that they are creating. This involves

a) probing to understand the critical issues of each side

b) understanding potential trade‐offs among the full set of issues to meet the best interests of all

An effective process acknowledges price as a significant component but not the primary focus.

iv) Interests of the full set of players

. this is reflected in the overall outcome, ie the deal is rational on the whole. Favourable overall financials are generally necessary, but not sufficient, conditions to guarantee success

. keep in mind potentially influential stakeholders and do not lose sight of their interests or their capacity to affect the deal

Remember: if you treat a potentially cooperative negotiation process like a mere price deal, it will likely become just that. An adept negotiator needs to keep the price in perspective and not allow it to dominate. Do not allow price to straight‐jacket negotiations

One way to handle price

An important element of the negotiation process is characteristic of the negotiation objective. This objective, whether it comprises a product, a service, etc does not simply possess one attribute, such as price, but many attributes such as size, quality, delivery, specifications, etc. These areas of attributes have a different level of importance to each of the parties entering the negotiation. For example, a belief on the seller's part that the buyer is only interested in a low price, or a belief on the buyer's part that the seller is only interested in a high price, may well be incorrect.

Price should not be the dominant consideration. Price is merely one cost factor for consideration and should not be allowed to dominate the negotiations. More important is a total cost, which is an entirely different concept from that of price. Remember: if negotiating on price alone, there is always someone who will be cheaper. Rather than let price be the dominant issue, it should be regarded as a benchmark, ie a stake in the ground. More importantly, all parties should seek to reduce the total cost via negotiations so that the seller gets a more profitable outcome and the buyer achieves reduced costs. Based on this process of concession trading, the traditional concept of bottom‐line no longer applies.

Furthermore, it is better to negotiate percentages as opposed to money values. As long as the percentages gained by each party are positive, every concession gained adds additional profit. Yet, if the transaction is gained solely upon price, each concession made by the seller erodes its profit margin and the concept of bottom‐line is very real.

Generally, there are 2 reasons that price is often seized upon as the major issue in a commercial situation

i) price appears to be a good decision variable in the sense that it possesses a numerical value

ii) price gives a perception of summarising and simplifying many of the other hidden attributes of the negotiation objective.

‐ by using price as a benchmark and negotiating around costs, all parties have the chance to increase profits by reducing costs.

‐ it needs to be remembered that negotiations are made up of a range of issues. Each of these issues will have a different degree of importance to the parties involved in the negotiations. The range of issues will include hidden agendas. During negotiations there is a need to identify and sort out the hidden agendas.

What happens when price dominates, ie

if decrease price by 5% but want to maintain a gross profit of 10%, sales will have to increase by 100%

5 Understand differences between issues, positions and interests

Definitions: issues are the basis of the agreement; positions represent one side's view only; interests are the underlying concerns that would be affected by the resolution.

Positions on issues reflect underlying interests, but they need not be identical

The essence of negotiations is a dance of positions, ie the process is primarily a reconciliation of underlying interests (both sides have their own interests) and through joint problem‐solving, both sets of interests are met and the outcome thus creates new value.

Remember, people have a built‐in bias toward focusing on their own position, ie an assumption that the interests of both parties are incompatible. Negotiators need to see beyond this to realise that much common ground exists. Asking questions and listening assists participants to understand the full set of interests that are at stake

Negotiations are not successful if price and each bargaining position dominate. It is important to recognise and productively manage the tension between the co‐operative action needed to create value and the competitive action needed to claim it, ie the pie must first be expanded and then divided

6 Appreciate differences as well as common ground

Conventional wisdom suggests looking for the win‐win agreements by searching for common ground. On the other hand, the most frequently over‐looked source of value in negotiations arises from differences and priorities among the parties. By going beyond the opposing positions, vital differences of underlying interest and priority can be uncovered. Differences of interest or priority can open the door to unpacking different elements and give each party what it values the most, at least cost to the other. In some cases, finding differences can break open deadlocked deals.

It is just as important to conduct a disciplined difference inventory as it is to identify the areas of common ground. While common ground helps, differences determine the deal. Negotiators need to actively search for differences

7 Appreciate the "best alternative to a negotiated agreement" (BATNAs)

This includes the ability to walk away from the deal

You need to understand your and the other side's BATNAs

Sometimes negotiators become preoccupied with tactics and try to improve a potential deal while neglecting the BATNAs. The potential deal and the BATNAs should work together as the two blades of scissors do to cut a piece of paper

8 Understand the psychology of perception that systematically leads negotiators to major errors

Self‐serving role bias ‐ people tend unconsciously to interpret information pertaining to their own side in a strong self‐serving way, ie becoming too committed to one's own point of view (believing your own line)

Partisan perceptions ‐ while we systematically err in processing information critical to our own side, we are even worse at assessing the other side (especially in an adversarial situation). This often leads to exaggerated perceptions of the other side's position and to over‐estimates of the actual conflict

Partisan perceptions can easily become self‐filling prophecies and often shape behaviour. Activities like reverse role‐play can help to develop an appreciation and understanding of the power of these perceptions.

In summary

"... you have navigated the shoals of merely effective deal making to face what is truly the right problem. You have focused on the full set of interests of all parties, rather than fixing on price and positions. You have looked beyond common ground to un‐earth value‐creating differences. You have assessed and shaped BATNAs. You have taken steps to avoid role bias and partisan perceptions. In short, you have grasped your own problem clearly and have sought to understand and influence the other side's such that what is required to do this is what you want..."

James Sebenius, 2001

1. Timing is pivotal in negotiations
2. Body language is important ‐ research suggests that mirror hand gestures, postures and mannerisms facilitate trust and information sharing; being aware of this can improve the outcome of negotiations. In fact, the deal is five times more likely to occur when mimicking happens; subtlety is the key.

Errors

Other errors can occur and include cultural gaffes, an irritating style, inadvertant signals of disrespect or un‐trustworthiness, miscommunications, bad timing, revealing too much or too little, a poorly designed agenda, sequencing mistakes, negotiating with the wrong person on the other side, personalised issues, approaching negotiations far too narrowly, taking too many of the elements as fixed, etc