04/ Choose Our Goal
It’s easy to fall into a relative goal trap: negotiation win-lose by comparing how we do against another party as in a competition. One party’s success is seen as another party’s expense.
Inflating the price and giving a discount is probably the most common way to manipulate people into this trap. Focusing on the size of the discount instead of the price itself (i.e. the absolute goal) is falling into this trap.
In the past defeating someone was a status-enhancing event; currently, gaining value ultimately defines status. The times have truly changed.
Decision theory there’s a distinction between satisfiers (achieving an objective is good enough) and maximizers (only the best will do, must get or have more than the other party). Absolute goals are about satisficing. Focusing on value makes us happier and less stressed.
External references (often – irrelevant or outright misleading) make complex negotiations even riskier as there are more opportunities for manipulations. Having absolute goals in complex negotiations are a must.
Complexity increases the opportunity to create value but needs to be managed. The following characteristics increase complexity:
Repeated interactions – Trade-offs between short-term and long-term risks and benefits, indicating future consequences of current actions. Long-term deals create the maximum value.
Multi-party – more than two parties are involved, some of which can be absent from negotiations, but all of them are trying (actively or passively) to pull the negotiations in different directions.
Intra-organisational – internal negotiation how to negotiate with an external party creates a risk of repeating past (and not necessarily optimal or relevant) decisions.
Multi-issue – when there is more than one topic to discuss, it’s hard to keep track of all risks and rewards without information overload.
Tangible and intangible issues – mixing something that has a price with something that doesn’t makes trading them one for another very hard.
The Seven Elements of Negotiation
(Borrowed from “Getting to Yes”)
All negotiations have these seven elements.
Relationship – the intangible factors when people interact: behaviours and emotions (trust, respect, friendship, family ties, status, etc.)
Communication – the ways things are communicated during a negotiation.
Interests – all the reasons that motivate both parties to negotiate. Can be positive (wants, needs, hopes and desires) or negative (fears and concerns).
Options – all the proposals, suggestions, recommendations, and possibilities put forward within a negotiation to satisfy interests towards an agreement. Proposals not linked to any interests are a waste of time.
Legitimacy – the basis for any argument made to persuade the other party that an option is or isn’t acceptable, appropriate, right, or fair. It can be used to provide a rebuttal of another party’s legitimacy arguments.
Commitments – any agreements (oral or written, explicit or implicit, partial or final) made in the course of or at the end of the negotiation.
Alternatives (aka walk-away alternatives) – the outside opportunities that any party has independently from their counterparties. BATNA (Best Alternative To No Agreement) is the best Plan B a party has.
Negotiation Balanced Scorecard
It’s a way to measure the success of achieving several different objectives which can be competing and of different relevance.
Improve the working relationship between the parties. Not become friends but be able to work together productively and respectfully without impediments. Less suspicion and attrition mean more energy to spend on adding value to a long-term deal with an opportunity to leave the door open should the current negotiation fail to result in a deal.
Result from an effective two-way communication. One-way communication leads to reciprocal attitude leading to the parties ignoring each other. Welcome to miscommunication and missed opportunities. The solution is active listening in order to understand, not waiting for one’s turn to speak.
Satisfy interests, not positions. Positions are inflexible demands, a rigid and narrow view on what one wants. Value means different things to different people, so it’s important to understand the interests behind the positions and ideally drop the positions altogether.
Choose the best of many possible options. Exchanging statements of positions thinking they’re the only possible options is not a negotiation. Getting too invested into a single option is counterproductive. The process of generating multiple options has an advantage as it can create a balanced option building on the bits of pre-existing options that will satisfy all parties.
Be based on legitimacy so that all parties believe it to be fair. If a party sees the negotiated outcome as fair, it’s more likely to willingly implement it. Fairness, though, is in the eye of a beholder and often depends on the side of the table a party is sitting at. It’s a good idea to be able to provide a few legitimate arguments per option to be able to explain the logic to another party increasing trust and collaboration. [MK: explaining things to others makes it easier to understand one’s own position.]
Be a well-planned commitment. Sustainable agreements are clear (both parties share the same understanding on potential communication gaps and ambiguities), sufficient (covers all the important issues so no further negotiations are needed), and operational (the parties have the abilities and resources to implement them with sufficient oversight and flexibility).
Be better than our BATNA. If the potential deal is worse than the best alternative, there’s no need to accept it. Ignorance of alternatives is no excuse to close a bad deal. [MK: this should be the title of the book] Working on alternatives is an essential part of the business operation in general and of deal making in particular.