Negotiation Final Exam – Flashcards

Conducted in good faith, taking into consideration tell-tale systematic signs of complex negotiation techniques. The goal is not only to reach agreement but to maximize mutual value. A tell-tale sign is where all creative opportunities are levered and no resources are left on the table. It is key to master the ability to communicate openly, identify each other's real needs and prioritize. Once reached, you can further modify the agreement so that at least one person is better off without making the other person worst off - the "pareto improvement effect".

Best alternative to negotiated agreement—the course of action you will pursue if and when the current negotiation ends in an impasse. Without a clear understanding of your BATNA, it is impossible to know when to accept a final offer and when to walk away in order to pursue other options. Your BATNA assessment requires the following three steps: 1. Identify all of the plausible alternative options you might pursue if you are unable to reach an agreement with the other party. 2. Estimate the value associated with each alternative. 3. Select the best alternative; this is your BATNA.

An analysis of your BATNA is critical because it allows you to calculate your reservation value (RV), or your walk-away point in the current negotiation.

The target point is the point at which a negotiator would like to conclude negotiations. It is his optimistic goal for a specific issue. The bargaining mix is the package of issues up for negotiation. Each item in the bargaining mix, can have its own starting, target and resistance point.

An acronym which means a negotiation Zone of Possible Agreement. It is the range or area in which an agreement is satisfactory to both parties involved in the negotiation process. Often also referred to as the "Contracting Zone".

In making the first offer you can control the dialogue and negotiate on your terms. It establishes an "anchor" which focuses on negotiation expectations. By anchoring the negotiation you can strongly influence the outcome. Example, in real estate, the listing price is considered the "first offer".

1. Keep the entire ZOPA in play - offer something outside the ZOPA 2. Provide a justification for your offer - what is most aggressive offer I can justify? 3. Set high, but realistic aspirations - those with aggressive targets tend to have more favorable outcomes as they motivate behavior and minimize susceptibility to influence tactics. 4. Consider the context and the relationship - need to understand the needs and sensitivities of the other side. The goal should be to get the best deal that strengthens the relationship and your reputation. (Could not find details on fundamentals, interests, rights and power)

1. Highlight their potential losses rather than their potential gains - State your proposal in terms of what potential gains the other side stand to forgo if your idea or proposal is rejected. For example: Point out that "the offer from our competitor does not give you X, Y, Z". 2. Disaggregate their gains and aggregate their losses - If you have good news to share, benefits or rewards to offer separate them into installments. If you are willing to offer a total of $100 for something parcel it out in increments. If you are demanding that the other side make concessions make one comprehensive demand. If you have bad news to share, share it all at once. If you have costs to impose combine them into one. 3. Employ the door in the face technique - Ask for more than you want, even an outrages request and then make concessions. The reference is to a salesman making some outrages offer and when the customer slams the door in his face, concessions are made. 4. Employ the foot in the door technique - Aim for compliance for a simple request and once it is accepted make a more onerous request. 5. Leverage the power of justification - People are less willing to resist demands if they feel that at least you think the demands are justified. For example, a Real Estate Agent might maximize bids by citing high prices of recent sales, above average condition or the optimistic projections of analysts regarding prices in the region. 6. Leverage the power of social proof - Examples: seller of a house limits the open house viewing of house to one hour, a consultant offers very few available open days for work even if they are desperate for work. A sales representative makes his pitch by listing his firms many clients. 7. Make token unilateral concessions - Examples: You agree to a time that is more convenient for the other side. Buy doughnuts before the negotiation to share with your counterpart, begin substantive negotiations by agreeing one of the smaller requests the other side has made. 8. Use reference points to make your offers and demands seem more reasonable - People evaluate costs in comparison to salient reference points. For example, car salesmen sell add-ons because $200 floor mats don't seem so bad when you are paying $30,000 for a car.

Normally entails a single issue to be negotiated. This single issue often involves price and frequently relates to the bargaining process. Also referred to as 'Win - Lose' or 'Fixed Pie" negotiation because one party generally gains at the expense of the other.

Referred to as a 'Win-Win" negotiation and typically entails two or more issues to be negotiated. It often involves an agreement process that better integrates the aims and goals of all involved negotiating parties through creative and collaborative problem solving.

Negotiation situations often involve more than two parties, and involve a myriad of relationships and issues. A multiparty negotiation is a group of three or more individuals, each representing his or her own interests, attempting to resolve perceived differences of interest. There are several challenges of multiparty negotiations: Dividing resources, Coalitions, Formulating, trade-offs and Voting and majority rule. If not used wisely, voting rules and the use of majority rule can thwart effective negotiations. Majority rule fails to recognize the strength of individual preferences. Consequently, majority rule does not promote integrative tradeoffs among issues. Groups negotiating under unanimous rule reach more efficient outcomes than groups operating under majority rule. Given that multiparty negotiations present special challenges, the following are strategies negotiators can use to enhance their ability to expand and slice the pie in a multiparty context. 1. Know who will be at the table. 2. Manage the information and systematize proposal making. 3. Brainstorm options. 4. Develop and assign process roles. 5. Stay at the table.

The act of trading across issues in a negotiation. Logrolling requires that a negotiator knows his or her own priorities, but also the priorities of the other side. If one side values something more than the other, they should be given it in exchange for reciprocity on issues that are a higher priority to their opponent. For logrolling to occur, parties must understand who values an issue more. Similarly, to reconcile each party's interests, both parties must be willing to share private information. Unfortunately, negotiators often do not share such information. Typically, they keep their cards close to the vest for fear that if the other side knows what they value highly—or why they want or need something—they will be exploited.

Agreements that leave certain elements of the deal unresolved until the certainty is resolved in the future. Ideal - the contingency is specifically identified and is measureable. Example, Dennis Rodman's contract that he would be incentivized if he played and if they succeeded in the post-season.

Scoring Systems offer a way to organize your interests and priorities so you can answer negotiable questions efficiently. List each item, weight it, and create a matrix then strategically evaluate winner. Example, create a decision grid for choosing which MBA program to attend.

PSS - example, "pareto improvements". After an agreement is signed, you continue to gain more information. 1. Confirms ability to work together (value-creating deals) 2. Party benefits no more than another. After an agreement they are willing to share more information 3. New agreement is a BATNA where both parties benefit. They are a severely underutilized negotiative tool.

Asking why someone is anchored in a negotiation that is failing to conclude. Learn as much as you can about the situation and the people involved. 1. Ask why 2. Seek to reconcile interests not demands 3. Create common ground with uncommon allies - zero sum gain between competitors. Leveraging underlying interests. "Coopetition". Example: Republicans donating to Kerry to stop Nader 4. Interpret demands as opportunities 5. Don't discuss anything as "their problem" 6. Don't let negotiations end with a rejection of your offer. 7. Understand difference between selling and negotiating. Selling - telling people about the virtues of the offering. Negotiating - focusing on the other sides interest not outcomes or expectations

How people decide between alternatives that involve risk and uncertainty. People are typically loss-adverse. Example, investing (expected utility v. reference point - current wealth) High Probability/Risk Adverse: 95% chance of win $10K investment High probability/Risk Seeking: 95% chance of losing $10K, hope to avoid loss. Low probability/Risk Seeking: 5% chance to win $10K, hope of larger gain. Low probability/High Risk: 5% chance to lose $10k, fear of large lass. Example: gambling

Based on work by Paul Slovic, people assess risk on their supposition about whether something is known or unknown and whether it is potentially catastrophic. People do think about this irrationally, a good example is driving versus flying, there is a much greater chance of an accident driving than a plane crash. The Rice Krispy exercise in class illustrated this example where we got tickets and could exchange them for a treat.

A bias which can cause people to focus on or overweight prestigious attributes of an offer. This can cause the underweighting of less prominent attributes which may result in less risk or important long-term benefits. i.e. Accepting a large salary Fortune 500 job offer, although the job is in an expensive city and far away from friends and family.

The development of the understanding of interdependent parts of a larger system. Gaining the knowledge of the individual pieces helps individuals better understand the system. Understanding the system to a higher degree can lead to desired outcomes

1. Highlight Their Potential Losses Rather Than Their Potential Gains - people are more motivated to avoid losses than accrue gains. 2. Disaggregate Their Gains and Aggregate Their Losses - people prefer finding money in installments but losing money in one lump sum. 3. Employ the 'Door In The Face' Technique - aim for rejection then moderate demand and accommodate buyer. 4. Employ the "Foot In The Door" Technique - aim for compliance with a simple request and then increase your demand. 5. Leverage The Power Of Justification - human are 'hardwired' to accommodate seemingly legitimate demands. 6. Leverage The Power Of Social Proof - humans look at the behavior of others for guidance. Make Token Unilateral Concession, provide a gift prior to request to induce reciprocity, compliance, or agreement. Use 7. Reference Points To Make Your Offers And Demands Seem Reasonable - people do not objectively evaluate the cost of an item or an issue; rather, they evaluate costs in comparison with reference points

1. Prepare systemically - analyze BATNA/evaluate ZOPA/Investigation of all issues. 2. Create a Scoring System - allows you to objectively evaluate the total value of the stated offer relative to competing offers. 3. Explicitly Separate Information From Influence - every negotiation is part influence and part information, the information must be separated. 4. Rephrase Their Offer In Other Terms - respond by countering with rephrasing their terms. 5. Appoint a Devi's Advocate - assign someone on your team to play devil's advocate. 6. If Possible, Do Not Negotiate under Time Pressure - provide or ask for adequate time to plan and research the negotiation.

When the winner in a negotiation purchases an item in excess of the intrinsic value. This may occur due to incomplete information, emotions, or other factors

Escalating bid example. It is easier to stay out of bidding altogether than it is to get out safely (overbidding). Once you have entered. Partnership of 3 people, 1 which has a different reservation value - maximum price they will require to sell. 1. Decision rules 2. Other side's information 3. Strength 4. Future 5. Parties push away from the table.

1. Look prepared 2. Signal ability to obtain information 3. Ask less threatening indirect questions 4. Don't lie

People making incorrect, self-serving statements engaging in unethical behavior. Bounded ethicality - when a negotiation acts in a manner that harms others and clashes their own conscious beliefs between right and wrong.

Potential conflicts of interests become problematic when agents are involved. The divergence of agents acting in their own conscious or subconscious own self-interests. While disclosure is helpful to solve the conflict of interest in some cases, otherwise: seek counsel of disinterested parties, collect additional information from outside sources, ask for expert to justify analysis. The best way to avoid potentially unethical behavior with conflict of interest is to realize everyone is fallible.

Describes what occurs when negotiators create value by taking value away from parties who are not at the bargaining table. We think that the word "parasitic" is appropriate because the benefits that the negotiators achieve come at the expense of others. An example of this is the "prisoner's dilemma where there is a pattern of individually being better off playing a cooperative strategy (setting a low price) but collectively better off with setting a high price. Given this, it is troubling that this occurs without any consideration of where the extra profit comes from the consumer. Example - drug companies with price fixing or paying another company to delay competitive interest where price is held falsely and the cost is to the detriment of the consumer.

People personally claim more credit than they contributed. The sum of all personally assessed credit contributions are often greater than 100%. Over claiming credit can hinder the implementation and progress of a variety relationships.

Results in negotiation when the other side's BATNA is relatively strong and your BATNA is relatively weak. Recognize your weaknesses and try to mitigate them. Then focus on your strengths, prepare systematically, and negotiate with an eye toward improving your negotiating position.

i. Don't reveal that you are weak: Don't advertise that you have a weak BATNA. ii. Overcome your weakness by leveraging theirs: If both sides have a weak BATNA, it means the ZOPA is large. One makes the other sides weakness more salient throughout the negotiation, downplays their weakness. iii. Identify and leverage your distinct value proposition (DVP): You legitimately claim that you bring value to the table. You may overcome price in a negotiation by bringing value with a higher quality service, better product, a good reputation, etc. 1. Four strategies to make DVP a factor in negotiation a. Submit multiple proposals: Make two or more bids simultaneously. b. Lower bid just enough to get to the second round: Submit a bid just low enough to clear the hurdle to the second round and then create value with multiple proposals c. Take the agent out of the game: Sometimes you can bypass agents like purchasing agent who only want to talk about price. You might deal directly with the customer. d. Educate your customers between deals: Reach out to customers between auctions or bids to highlight your DVP to make it a factor in the next auction or bid. iv. If your position is very weak, consider relinquishing what little power you have: You may simply ask the other side to help you. May it clear that you have no intention of negotiating aggressively the other side may soften their stance. v. Strategize based on your entire negotiation portfolio: If you have multiple negotiations with multiple customers, you may be willing to lose money some money with one customer to win more money in another negotiation. vi. Three strategies to upset the balance of power when negotiating from a position of weakness: 1. Increase your strength by building coalitions with other weak parties: Lee Iacocca built a coalition to end rebate programs in the mid-80's with other car companies to better position Chrysler with the customer. It shifted power away from buyers to sellers. 2. Leverage the power of your extreme weakness: Create value for others to gain at least claim some value for yourself. So, you can tell the other party that "if you push me too hard, you'll destroy me and lose a valuable partner". 3. Understand and attack the source of their power: Understand the other side's strengths and weaknesses Identify and destroy the primary source of power.

Be very careful before labeling a negotiating part as irrational. In most cases, the behavior that appears to be irrational has a rational, albeit hidden cause. There are three common mistakes that negotiators make when they erroneously judge others as irrational: (1) they are not irrational; they are uninformed, (2) they are nor irrational; they have hidden constraints, (3) they are not irrational; they have hidden interests. However, if the party is truly irrational, you can: (1) try to "go around them" by negotiating with someone else with authority who seems more willing to listen to reason, (2) pursue our own BATNA because their irrationality has eliminated all hope of creating value, or (3) leverage various strategies for confronting your counterpart's biases.

In order to produce a "win-win" negotiations, both parties have to talk about their interests. Interests are comprised of needs, desires, concerns and fears. The following questions must be asked and answered in a negotiating situation: (1) Does the negotiation contain more than one issue? (2) Can other issues e brought in? (3) Can side deals be made? (4) Do the parties have different preferences across negotiating issues?

Collaborative Problem (1) requires both parties to engage on the same terms, (2) requires trust, openness, ; cooperation, (3) assumes common needs and goals and (4) Is marked by the fact that communication is open and accurate. Collaborative problem solving is known as integrative strategy.

From the Federated Science Fund Negotiation exercise where there were three companies x-stockman, y = turbo, z = united. The distributions of funds were established with quota values for a multi-party negotiation which were calculated on an individual basis and a weighted average basis. In all cases - stockman received the largest distribution in the exercise.

The example of a seller of a home offering below market and the response of potential purchasers 1. Accept low price, 2. Counter with a lower offer to arrive at low price anchor of seller 3. Offer market price which is higher than ask. The ethical considerations use four ethics fitness questions. 1. Reciprocity standard: would I want others to treat me or someone close to me this way? 2. Publicity standard: would I be comfortable if my actions were fully and fairly described in the newspaper 3. Trusted-friend standard: would I be comfortable telling my best friend, spouse or children what I am doing. 4. Universality: would I advise anyone else in my situation to act this way 5. Legacy: does this action reflect how I want to be known and remembered. Other terms - substantive fairness: a reasonable range of fairness exists without sometimes being able to measure it. If the negotiation is too one sided, there is a question of fairness. Example, having a spirited negotiation at the dealership on the price of a new car beating up the dealer who knows better and the selling years later to a neighbor at breakeven or below value. Candor perhaps is most relevant, where the seller tells the buyer the whole truth. People rely on information provided by another as fact. The challenge is that the truth can be bent to a seller's advantage. When faced, the resolve is the universality standard where you advise others as you intend t0 - do unto others. Last legacy, where the question is asked how you want to be known and remembered in a transaction. This example is used in a "devils bidding: scenario where you are asked by a client or boss to change a negotiated issue and are re-trading it.

The effects of performance measures used in incentive plans

1. The "what happened" conversation - a disagreement between parties about who is to blame and what happened? 2. The feelings conversation - are my feelings regarding a difficult conversation validated 3. The identity conversation - an internal conversation about right and wrong, self-image and self-esteem

There are two sides to every story or argumentative position (negotiation). This technique employs a strategy of a third person perspective or "third story". The third story is one told from the perspective of an on-looker who has no stake in the problem. Describe the problem in a way that rings true for both sides simultaneously. Describe the problem as differences rather than judgments,

In negotiations the adoption of this rule is crucial. Reciprocity is at the core of the reject-then-retreat and door-in-the-face techniques, and strongly depends on the pressure to reciprocate concessions. The reasoning is that by beginning with an extreme request that will probably be rejected, the negotiator can then back track to a lesser demand that is preferable. The lesser demand is then more likely to be accepted, as it appears to be a concession. Not only does this method enhance the possibility of a person replying in the affirmative to a request, but it also profoundly raises the possibility that the person will follow through with the agreement, and to later accept such requests once again.

Good negotiators concentrate intently on what they are being locked into, when the tie takes hold of them, and how tightly it binds. This is what negotiation theorists refer to as the element of commitment. How tightly do you wish to be bound? The answer to such an abstract question, of course, is "it depends." In some things you want to be bound up as tightly as possible - for example, the snugness of your seatbelt on a curvy road. In others, such as which televisions shows you will watch next month, you probably want to be as loosely obligated as possible. While not an iron clad rule, it is generally true that negotiators seek to bind their partners as tightly as possible while leaving themselves as much wiggle room as the situation will allow. Permitting yourself future discretion preserves a later flexibility that might prove valuable in changing circumstances. At the very least, it couldn't hurt to preserve some choice.

When people change their behavior based on the evaluation of the actions of others. The modification or establishment of behavior may be influenced by a situation expert, celebrity, crowd or specific friends.

When people tend to feel betters towards those of which they have developed a determined fondness. People's actions tend to reflect favorably towards those who they develop likeness.

The power to influence others, sometimes in a commanding manner. Often resulting from confidence developed from personal expertise. Authority is often necessary when communicating a complex situation/position and gaining the support of others.

A higher value is placed on those with skills considered scarce. Social proofing can drive skills and items to be scarce, when demand is created by evaluating the actions of others. Additionally, if someone has committed themselves to something, and then find out it is not available, they want the item even more.

The Subarctic Survival Situation™ requires participants to solve a specific problem in a limited period of time—first individually and then as a team. As participants work together in this team-building activity, they will draw upon their experiences and knowledge in search of the best answers. They are challenged to successfully integrate the expertise of all group members. By comparing individual and team solutions to the recommended solution, participants can see whether, as a group, they were able to achieve team synergy by taking advantage of what each member had to offer. Strengthen Synergistic Problem-Solving Skills. As members work to complete the Subarctic Survival Situation, they begin to see their own role in shaping the quality of the team's performance. This understanding deepens as the simulation is scored and the impact of group processes on performance is discussed. Equipped with these insights, members can decide what they can do to enhance the team's functioning—and get the results the team needs to succeed and make effective decisions.

A $20 bill is auctioned off to the highest bidder. Bidding begins at $1. All subsequent bids must be in single dollar increments. The "twist" to this auction is that while the highest bidder wins the twenty dollar bill, the second highest bidder must pay to the auctioneer what he or she bid as well. In this auction, there will usually be not only be one loser, one who pays money for nothing, and but two. Read on! By the time the auction reaches $19, most bidders drop out. The person who had bid $18 will invariably bid $20 to break even. Presumably, that would bring the auction to a close, right? Wrong! One professor who utilized the Dollar Auction as a teaching tool for more than 20 years said that the bidding will usually continue well past the $20 mark. Consider this case in point, a day the professor will never forget. He used the dollar auction while teaching a course for executives in organizational behavior. At the end, the "winner" paid $54 for the twenty dollar bill. The loser paid $53. The rest of the class watched the futile bidding war with bewilderment and glee. (Proceeds would be donated to charity). And two guys bid thousands: "My ego took over and my competitive juices began to flow." "I was more concerned with 'winning' and 'not giving up.'" Clearly, there came a point in the auction when the money was no longer the issue. The focus became the other person. The new concern was a very strong desire not to be beaten by one's adversary and lose face in front of others. When that occurred, irrationality set in and the auction spun out of control.

The key to the exercise is a relatively generous positive bargaining zone that often leaves both sides initially feeling successful, but later realizing they might have gotten a better distributive outcome (and thereby making them more receptive to course material). In a very short space of time, issues are raised related to aspirations, reservation prices, alternatives, bargaining zones, and tactics for effective value claiming.

A two-party transactional negotiation where a restaurant owner is negotiating a sale so they can go on a one-year sailing trip. Options for seller - shorter trip, $190K reservation price, buy land and build new for potential buyers, Buyer BATNA $200K. Result - there is very little room in ZOPA and buyer is not going to consider a new build. Take-away is trying to establish BATNA for buyer and seller depending on your role.

Internal vs. External negotiations. How much information is shared in a negotiation that can be both internal to your company or team meaning your company, a contractor and other third parties. What is your interest with the external negotiation, to build a relationship with the other side or your own best interest. Sharing information could lead to the best deal for both sides and preserve future partnerships. Whose side are you on, are you on the side of the company or your incentive, and do you align yourself with the goals of the company or your own best interest. What is the source of the information and can you trust it. Do you believe the information from the other side and are they sharing it freely? You have to ask, is your information better or worse than the other individuals or teams you are negotiating with. Have confidence in yourself and know what you're doing before you go in to the negotiation or first meeting, do your prep and have a strategy. Determine if you have the right abilities or if you are too confident or not confident enough. If you start the negotiation and your wrong, take the time to regroup and readjust your strategy. Understand the requirements for manning before entering the negotiation, list to the other members of your team and the team your negotiating against. What do Incentives do to the negotiations, where are they in the process such as incentivizing a price or amount of staff. Incentives can be high desirable to help get the deal, they have become acceptable in negotiation. Performance measures used in incentive plans degrade in quality just because they are compensated. Goals: Direct: directing attention and effort toward goal relevant activities. Energize: high goals lead to greater effort. Affect persistence: people spend more time on harder tasks, ceteris paribus. The Issues for an external and internal negotiation is the outcome, who had to give up the most to get the deal completed. Are both sides mutually satisfied and do they consider it fair? How did the negotiation and the quality of the communication effect the relationship of the internal team and with the external negotiation team? Good communication and trust can build a relationship but a lack of trust or communication can ruin it just as easily.

The key to the exercise is to take an essentially zero value item and trade up in value using multiple transactions. Generally, the trader will complete multiple transactions and incrementally increase the item value each time. The goal is to effectively trade the low value item up to a relatively large valued item.

The negotiation involved three firms: Stockman, Turbo and United. The firms produce equipment and do research for medical communities. Stockman is the largest and does basic research, Turbo is the oldest and does cancer research and United is the smallest and the most innovative finding on the leading edge of aids research. The three firms applied for funds from the Federated Science Fund. The funds will only be distributed in a consortium of two or three firms. Stockman and Turbo could partner and get $440K. Stockman and United could partner and get $380K. United and Turbo could partner and get $380. All three could partner and get $480. Key Takeaways: All firms BATNA is zero if they do not partner with someone. The most rational decision would be to get at least $1.00 rather than zero. Stockman has the most power based on size. Negotiations can be needs based or power based. Turbo and United needed the deal more. Other contributions considered are the common good and social need. Preparation for this negotiation could have included Quotas. Quotas based on the proportion of money each firm brought to the table could have been calculated to start the negotiation (People typically believe numbers more than just asking for money for the greater good)

American Dream displayed the advantages and disadvantages of knowing and understanding the BATNA of an opponent within a negotiation. Hormel clearly understood the advantage they had over the Union.

In the jelly bean exercise, we were instructed to pass around a jar of Jelly Bellys and guess how many it contained. Afterwards, we were to write your guess on an index card, without distracting the rest of your class or accessing the internet to inform our guess. The closest to the actual number of jelly beans received an unopened Jelly Belly Jewel Collection jar. The exercise demonstrated the "wisdom of crowds" which asserts that "The Many Are Smarter than the Few." Collective Wisdom Shapes Business, Economies, Societies and Nations.

In the exercise, we were instructed to take the envelope with your name on it and place your contribution in the envelope and seal it. You may put as much or as little in the envelope. Afterwards, we were instructed to provide a guess as to how much the class, as a whole, will contribute and write it down on the envelope in the space provided. If the class total reached more than $184, each person would be provided $5, for a potential return of 25%. We were not allowed to collude or collaborate with any of our peers. The ability to collaborate aids us in making informed rational decisions and reduces the potential for freeloaders.