Basics of Negotiation

BCN 4712 Leading & Managing Construction Operations

Overview
Importance of negotiating skills Types of negotiation Four Key Concepts Preparation Negotiation Tactics Barriers to Agreement Mental Errors Building Organizational Skills

Importance of Negotiating Skills

Personal
Homes, cars, everything you buy Your job, salary, working conditions Your spouse and kids! Clients Design teams Subcontractors Suppliers Employees

Professional

References on Negotiation
Negotiation, Harvard Business School Press, 2003. Getting to Yes: Negotiating Agreement Without Giving In, Roger Fisher and William Ury & Bruce Getting Past No: Negotiating with Difficult People,
William Ury, Bantam Books, 1991

Patton, 2nd Edition, Houghton Mifflin, 1991

Basic Types of Negotiation Distributive negotiations

Involve winlose, fixed-amount situations wherein one partys gain is another partys loss

Integrative negotiations
Involve joint problem solving to achieve results benefiting both parties

Distributive Negotiation
Win-lose, zero sum, constant sum A dollar more to one side is a dollar less to the other Carpet sale where buyer and seller have no relationship Wage negotiations between business owners and union employees Cards are played close to your vest

Integrative Negotiation
Both sides work to increase the value of the solution Goals are to:
Create as much value for yourself and the other side Claim value for yourself

Open about information and circumstances

Positional Negotiating

When negotiators bargain over positions they tend to lock themselves into those positions.

Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Positional Negotiating

The more you clarify your position and defend it against attack, the more committed you become to it.

Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Positional Negotiating

The more you try to convince the other side of the impossibility of changing your opening position, the more difficult it is to do so.
Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Positional Negotiating

The result is frequently an agreement that is far less satisfactory to each side than what it could have been.

Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Positional Negotiation
Pros
Easy to understand Simple communication Can be quick and efficient Very operational Requires little preparation Universally understood Often expected
12/1/2005

Cons
Rewards stubbornness and deception Discourages exploration of interests and options Promotes arbitrary outcomes Takes longer in complex situations

Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Principled Negotiation: The Method

Separate the people From the problem Focus on interests, Not positions Invent options For mutual gain Use objective criteria
Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Separate the people from the problem

Relationship Issues: Emotion/reason Understanding Communication Reliability Coercion/persuasion Acceptance/respect Substantive Issues: Money Terms Conditions Concessions Promises Dates/numbers

Focus on Interests not Positions

Interests = desires and concerns that underlie positions Prepare for negotiation:
Clarify interests Understand the interests of the other side

Focus the negotiation discussion on:

Interests not positions
Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Invent Options for Mutual Gain

To invent creative options: Separate inventing from judging. Broaden the options on the table, rather than look for a single answer. Search for mutual gains. Invent ways to make their decision easy.
Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Insist on using Objective Criteria

Frame each issue as a joint search for objective criteria. Reason and be open to reason as to which standards are most appropriate and how they should be applied. Never yield to pressure, only to principle.
Modified from material obtained from the Harvard Negotiation Project. Copyright 2000 by the Presidents and Fellows of Harvard College. All rights reserved.

Starting Point
A successful negotiation must have a basic framework
The alternative to negotiation The minimum threshold for a negotiated deal How flexible a party is willing to be, and what tradeoffs it is willing to make

Four Key Concepts

BATNA Reservation Price ZOPA Value Creation through Trades

Know your BATNA!

Best Alternative to a Negotiated Agreement (BATNA) Typical example: negotiate or go to court Example of Louis XI in 1475 (p. 16) Improving your situation
Improve your BATNA Identify the other sides BATNA Weaken the other partys BATNA

Reservation Price
The least favorable point at which one will accept a deal The walk-away Example: you are looking for larger office space. You set your BATNA at $20/SF and your Reservation Price at $30/SF

ZOPA
Zone of Possible Agreement (ZOPA) The difference between the Sellers Reservation Price and the Buyers Reservation Price What happens if positions below are reversed?
$250k $275k ZOPA Buyers Reservation Price Sellers Reservation Price

Value Creation through Trades

Trade things you value less to the other party Examples:
For a supplier the greater value may be not price but an extended delivery time For a customer, extended warranty versus price For an employee, working at home versus salary

Preparing for a Negotiation

BATNA: yours and theirs, know them Identify value creation opportunities Determine negotiation authority levels Understand the people and their culture Prepare for flexibility Show fairness in your position Alter the process in your favor

Nine Steps to a Deal

1. 2. 3. 4. 5. 6. 7. 8. 9.

Know what would be good outcomes Identify value creation opportunities Identify BATNA and RPs Shore up your BATNA Anticipate the authority issue Learn all you can about the other side Prepare for flexibility Gather external standards and criteria for fairness Alter the process in your favor

Getting Off to a Good Start

Express respect for the other side Frame the task positively, as a joint endeavor Emphasize openness to the other sides interests and concerns Start by breaking bread

For Win-Lose Negotiations

Anchoring: an attempt to establish a reference point around which negotiations will make adjustments

The first offer is often important Studies show that outcomes correlate to the first offer

Counteranchoring: what you do if the other side sets the anchor Be prepared for Concessionary Moves: avoid the impulse to make them, may indicate weakness or additional flexibility

Closing the deal

Signal the end before you get there Allow flexibility if you anticipate going beyond the final round Discourage the other side from seeking further concessions Write down the terms