8408 | Core Reading: NEGOTIATION 5 more and potentially offending our counterpart. Or we may worry that the other party will come out ahead and we’ll be the “loser.” The good news is that virtually anyone can improve their negotiation skills, and this reading will lay the groundwork to help you do so. The Essential Reading begins by providing basic information you need to prepare to negotiate effectively, including the critical calculations you must make, a description of the different types of negotiations, and a discussion of common traps to anticipate. We then address how to manage interpersonal issues during a two-party negotiation, and conclude with an exploration of the added complexity of multiparty negotiations. Finally, we present two Supplemental Readings; the first provides advice on cross-cultural negotiations, while the second deals with gender issues in negotiation. 2 ESSENTIAL READING 2.1 Negotiation Fundamentals Most people launch into their negotiations underprepared and under-informed. When we take the time to analyze a situation and apply best practices from negotiation research, we achieve much better outcomes. In this section, we present tools you can apply to improve your results in any significant negotiation and introduce you to the two key tasks of negotiation: claiming and creating value. 2.1.1 Critical Calculations Contrary to popular belief, your best source of power in a negotiation typically isn’t money, a high position on the organizational hierarchy, or intimidation techniques. Rather, it is a strong Best Alternative to a Negotiated Agreement, or BATNA—that is, an appealing Plan B in the event that the current deal doesn’t pan out. When revealed to your current negotiating partner, a strong BATNA could motivate her to improve her offer; if not, it will give you the confidence you need to walk away. Consider an MBA job seeker who has received a pretty good salary offer from a top consulting firm. If she has been offered a higher salary by another firm, she can use that strong BATNA as leverage to ask for more in her current negotiation—and still be satisfied if she doesn’t get it. Roger Fisher, William Ury, and Bruce Patton introduced the BATNA concept in their popular negotiating guide Getting to Yes: Negotiating Agreement Without Giving In. Do Not Copy or Post 1 This document is authorized for educator review use only by Remson Mark Macawile, HE OTHER until Mar 2025. Copying or posting is an infringement of copyright.
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8408 | Core Reading: NEGOTIATION 6 Determining your BATNA is an essential pre-negotiation step. Your BATNA helps establish your reservation value—the point at which you would be indifferent between a negotiated agreement and impasse.2 When you know what your BATNA is, you are prepared to refuse any deal that is inferior to your reservation value and accept any deal that exceeds it. Knowledge of your BATNA helps you avoid being overly influenced by your emotions or the other party’s persuasion tactics. In addition, it is also crucial to try to determine your counterpart’s BATNA. This knowledge will help you get a sense of her reservation value and thus how much you can ask for during the negotiation without risking impasse. You can attempt to uncover your counterpart’s BATNA by thinking about and researching their likely alternatives, both before and during the negotiation. 2.1.2 Claiming Value in Negotiation To be an effective negotiator, you will need to learn to claim value for yourself effectively. Claiming value, the competitive side of negotiation, involves trying to capture as much of the available resources for yourself as you can. For a purchasing agent, that could mean getting the lowest price possible on a new product. For a manager, it might mean negotiating for a larger annual budget than other departments are getting. Value claiming is often referred to as distributive negotiation because it involves dividing and distributing a finite amount of resources among the parties. Whether two or more parties will be able to reach an agreement depends on whether a positive bargaining zone exists—that is, whether there is a set of outcomes that both parties would prefer over an impasse.3 Suppose that an architectural firm has bid $300,000 on a renovation project for a university, which has made a counteroffer of $200,000. The architectural firm has privately determined that it cannot afford to take the project for less than $260,000—its reservation value. The university, meanwhile, has arrived at a reservation value of $280,000 based on its research and negotiations with several other firms. Notably, there is a range of prices that are acceptable to both because the buyer’s willingness to pay is higher than the seller’s willingness to accept, as shown in Exhibit 1. That is, there is a set of outcomes that both sides would prefer over impasse: all values between $260,000 and $280,000. Because of this positive bargaining zone, they would both be wise to reach agreement. A positive bargaining zone is also sometimes referred to as the “zone of possible agreement,” or ZOPA. Do Not Copy or Post This document is authorized for educator review use only by Remson Mark Macawile, HE OTHER until Mar 2025. Copying or posting is an infringement of copyright.
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8408 | Core Reading: NEGOTIATION 7 EXHIBIT 1 A Positive Bargaining Zone If the parties’ reservation values did not overlap, a negative bargaining zone would exist. In this case, there would be no outcome that both parties would find acceptable, and impasse would be the only logical outcome. For example, if the university had a reservation value of $260,000 (the most it is willing to pay) and the architectural firm had a reservation value of $280,000 (the least it is willing to accept), as shown in Exhibit 2, and if they could find no other key issues to add to their discussion (see section 2.1.3), they would not be able to reach agreement. EXHIBIT 2 A Negative Bargaining Zone Armed with this knowledge, you can aim to capture the lion’s share of the value. At the same time, your understanding of the ZOPA should help you avoid the common mistake of making such extreme demands that the other party believes no agreement is possible. Negotiators often wonder whether they should make the first offer or instead let their counterpart do so. When you lack information about the ZOPA and your counterpart knows more, let them make the first offer, lest you aim too low. By contrast, if you have superior knowledge about the ZOPA, you should feel confident making an ambitious first offer. If you have equivalent knowledge to your counterpart, you gain an advantage by Do Not Copy or Post making an ambitious first offer due to the anchoring effect. The anchoring effect This document is authorized for educator review use only by Remson Mark Macawile, HE OTHER until Mar 2025. Copying or posting is an infringement of copyright.
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8408 | Core Reading: NEGOTIATION 8 refers to the fact that the first estimate or offer made in a negotiation tends to have a powerful influence on the haggling that follows. The first offer serves as an anchor that pulls the other party’s judgments about what is feasible in its direction. However, the anchoring effect is irrational: that is, the power of anchoring is not driven by the fact that the first offer on the table is more justifiable for any reason; rather, it simply orients attention to the narrow range set around the anchor, which is difficult to counter and reset once the anchor has been dropped. The anchoring effect is so powerful that even extreme anchors have a strong effect on our judgments—and even experts are not immune to them. In a 1987 study, Gregory Northcraft and Margaret Neale asked both professional real-estate brokers and undergraduate students to assess the value of a house based on a detailed information packet in which only the house’s list price varied.4 Unlike the students, who admitted to being influenced by the list price, the brokers insisted the list price did not affect their estimates. Yet both the students and the brokers were significantly anchored by the list price. How can you avoid being overly influenced by a counterpart’s aggressive anchor? Try to keep your attention focused on your goals, your BATNA, and your research regarding the type of deal you can reasonably expect. How high should you aim in negotiation? One viable strategy is that your first offer should fall outside the ZOPA—that is, it should be an offer that you are confident the other party won’t accept. This opening move will require the other party to negotiate his way into the ZOPA and should maximize the value you can claim. To avoid offending your counterpart with an overly ambitious first offer, ask yourself, “What is the most aggressive offer I can justify?” If you can’t come up with a reasonable justification for an offer based on data for comparables, one or both side’s BATNA, or some other compelling reason, it is probably too ambitious. In addition, you may need to temper your ambitious goal if you suspect the relationship would be harmed by an offensively demanding offer.5 2.1.3 Creating Value in Negotiation Many people consider claiming value to be the sole task in negotiation. This is sometimes the case when only one issue, such as price, is on the table. Far more commonly, however, negotiations involve multiple issues. Rather than being a liability, the complexity of multi-issue talks is actually an asset because it allows negotiators to make tradeoffs across issues and potentially create new sources of value. Value creation is often referred to as integrative negotiation because it allows parties to integrate their interests and preferences. It also adds an element of Do Not Copy or Post collaboration to the competitive task of dividing the pie. Video 1 emphasizes the This document is authorized for educator review use only by Remson Mark Macawile, HE OTHER until Mar 2025. Copying or posting is an infringement of copyright.
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