Discover more from Course Notes: Continuous Business Learning
What’s Your Negotiation Strategy?
Harvard Business Review, July-August 2020
Most negotiations are not planned deep enough. The best what people have heard about is BATNA [best alternative to no agreement] for both parties.
The approach is fatalistic (reactive): one side doesn’t know what the other will do.
In high-value negotiations it’s important to avoid mistakes of reacting to counterparts or making pre-emptive moves based on the fears about the other side’s intentions.
In low-value negotiations it’s possible to switch between strategies and still capture value.
It’s not black and white, seller and buyer. Think of a wider ecosystem: competitors, suppliers and customers – ours and theirs.
o What business outcomes do we seek through this negotiation?
o Who cares about those outcomes?
o Who can do something to bring about those outcomes?
o How can we engage, directly or indirectly, with parties that share some of our interest in achieving those outcomes?
Analyze Counterparts’ Constituents
It’s important to analyse your value to the other party (incl. % of sales), but this may hide a larger story.
Your profitability / convenience to another party may be better.
Need to understand the needs of a decision maker who may not sit at the top of the corporate chain.
Rethink the Deal’s Scope
It may be counterproductive comparing the BATNA to the preferred outcome.
Firms try analysing the other side’s BATNA and stop at that.
Many times there’s a chance to broaden the scope and get a better deal.
And sometimes it makes more sense to increase the other company’s leverage (offer to buy other products from them and becoming more hooked). This creates more opportunities.
Sometimes reducing the scope is the right way, especially when there is no BATNA. (Ex: instead of easy work with one large distributor – learn to work with many smaller ones and make it a strategy)
Rethink the Nature of Leverage
Many negotiations are about being to inflict damage to another party. Pressure tactics.
This also leads to a weaker party to make miscalculations and unwarranted concessions. Fear and resentment.
The solution is thinking beyond walkaway alternatives. Look for positive leverage making the other party want to do the deal.
Look for Links Across Negotiations
Maximizing the value of the current deal may severely undermine the future negotiations.
Current negotiations create anchors for and shape dynamics in future negotiations.
Most transactions (other than sale/purchase of assets) are repeat transactions.
If the interactions are complex and involve multiple teams for multiple stages of the business or different products – makes sense to talk with everyone at once. Also builds credibility of promises.
Consider the Impact of Timing and Sequencing
Some companies are using pressure tactics of speeding up / slowing down negotiations to extract concessions. Often backfires.
Delays may lead to another party to seek alternative counterparts with the same or improved offering.
Resolving some issues may reset the stakes or reframe the negotiations.
Five questions to strategically manage timing and sequencing
What changes in the external marketplace might increase/decrease the value or importance of the deal to each party?
To what extent can we use additional time to strengthen our walkaway alternatives?
To what extent can the other party to the same?
How might deals negotiated with other parties affect the scope of the negotiation or create precedents that influence the way we resolve key issues?
What events or changes in the external marketplace might adversely affect the strength of our (and the other party’s) walkaway alternatives or create mutually beneficial alternatives?
Be Creative About the Process and Framing
Make an offer first or wait for an offer? Project strength or offer the win-win outcome? But it shouldn’t be black and white.
Cool example: an invitation to discuss the goods and bads of the part relationship without offering a deal. Get people talking.
Turn negotiation into problem-solving. May lead to changes in terms or even in the business model.
Anxiety leads to por tactical choices (either way).