MOOC Applications of Everyday Leadership – Negotiation

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Via the Coursera platform, the University of Illinois at Urbana-Champaign has recently delivered the MOOCApplications of Everyday Leadership‘. Through 4 blog posts, you will find notes I took when attending to this 4 weeks online course.

Here is a summary for week 1: ‘Negotiation‘.

Concepts of Negotiation

Negotiation – General Introduction

Definition

The process of deciding what two or more parties each will give and take in an exchange:

  • give and take, because no one gets everything they want in a negotiation
  • instead, it’s about making trade-offs

Negotiate when there is interdependence:
– neither side can decide alone – they must agree or no one gets anything

Negotiate when there is conflict about that interdependence:
– conflict means a difference – difference in value, preference, priority

The ABC’s of effective negotiating: three key skills required to be an effective negotiator:

1) Acquiring information

The “golden rule” of negotiation is that the person with the most information wins.

2) Building (creating) value

Because the more value you build / create / discover, the more value there is to go around.

The more there is to share, the easier it is to satisfy both sides = the more likely both sides will agree.

3) Claiming value

Getting your share of the value that is created.


I) Building Value

How to build / create / discover value? How do you turn 20$ for two people into 15$ for each person?

Two critical insights:

  • the difference
  • the distinction

A) The difference

People value the same resources (like tickets to the Masters golf tournament) differently. Just as differences in experience, expertise, perspective can become an informational resource, differences in value can become a motivational resource.

Differences in value create the opportunity to make a trade that helps both sides:

  • if you value the tickets more than someone else does, you can give them something you value less than the tickets, that they value more than the tickets
  • if you value the tickets less than someone else does, they can give you something you value more than the tickets, that they value less than the tickets

Creating value is about give-and-take: giving resources you value less to someone who values those resources more in exchange for something you value more that they value less.

Example for creating value

B) The distinction

The distinction between:

  • a position is what people want
  • an interest is why they want it

Interests are what drive positions:

  • we adopt positions in order to achieve/obtain our interests
  • our positions look to us like good vehicles to achieve/obtain our interests

Positions are often incompatible even when the interests underlying them are not: there are often many different positions (vehicles) that could achieve/obtain the same interests.

Shifting the dialogue from positions to interests provides the flexibility to identify new positions that do more to satisfy both sides’ underlying interests.

The distinction: An example part 1

The distinction: An example part 2

 

C) The distinction: why it works

Shifting the dialogue from what people want (their positions) to why they want it (the underlying interests driving their positions) helps identify resources the two sides value differently: Jane values location, Dick values draft beer selection.

When the two sides value resources differently, that offers the opportunity to identify new positions that maximize the most important resources for both sides: a trade that helps both sides. In this case, a bar that is both on Jane’s way home and has a great selection of draft beer.

To sum up:

1) We build / create / find value by finding more value to go around:

  • by trading resources we value less for resources we value more
  • allowing negotiators to do better on issues they value more in exchange for doing worse on issues they value less (nor not at all!)

2) We find more by recognizing that people value the same resources differently

3) We find those differences in value by switching the dialogue from what people want (positions) to why they want it (interests)

Value cannot be created by compromising – by meeting the other side halfway. Rather, value can be created by recognizing differences in value and using those differences to make trades that help both sides. 
Value creation is difficult when parties are adversarial – it takes a problem-solving orientation to find and use information to create value.
Once value is created, then negotiators can claim value.


2) Acquiring Information

A) Acquiring information

The “golden rule” of negotiation is that the person with the most information wins.

Creating value is critical to effective negotiating because it “flips the scriptfrom win/lose to win/win.

But creating value means understanding how interests fit together to create new positions that do more to satisfy both sides’ interests.

But that requires information!
– information about each other’s interests
– information about positions that satisfy those interests

So acquiring information is key to effective negotiating because acquiring information is critical to creating value.

B) How to acquire information

How to acquire information

 

  • Acquiring information is key to creating value because you have to know where there are differences in value in order to make trades that help both sides.
  • Acquiring information is also key to claiming value in order to know how to make realistic but aggressive offers.
  • Acquiring information starts by doing your homework to understand both your and the other side’s interests, and by managing the tone of the interaction with the other side so that they will be more likely to answer questions that will help you understand their interests and positions that might satisfy them.

3) Claiming value

This is about getting your share of the value that is created.

How to claim value?

Always start by creating value: the more you can give the other side what they want, the easier it will be for them to say yes to what you want.

Don’t be afraid to make a first offer. First offers anchor the discussion, and thereby determine the neighborhood of the final outcome (Northcraft & Neale, 1986). Because we negotiate when we are uncertain, and when we are uncertain we are susceptible to influence from others.

But only make a first offer after you have collected enough information:
– to insure that offer is aggressive (high enough to make you happy if they say yes)
– to insure that offer seems realistic (low enough to convince the other side to take it seriously)

Finally, explaining why the offer is right / fair strengthens the anchoring effect of the offer.


4) Exploding Offers

Exploding offers

  • occur in a negotiation when someone gives you an offer with a “short fuse” – a close deadline
  • exploding offers are meant to play on your uncertainty, because they force you to decide before you might know all your options

Decision dilemma

  • exploding offers work because all negotiations represent a decision dilemma
  • a decision dilemma occurs when you must choose between a sure thing and a risk
  • in negotiation:
    • what the other side has offered is a sure thing
    • continuing to negotiate is a risk: you may do better, but you may do worse, or not even make a deal at all!

Here is an example of an exploding offer:

  • you list your house for $400K, hoping to sell for $350K
  • the first day your house is listed, someone offers ou $350K, but says they need to know tomorrow or it’s no deal
  • the very short deadline on their offer makes it an “exploding” offer
  • so now you can take the sure thing: $350K
  • or you can risk continuing to negotiate: maybe you do better (find a $400K buyer), but maybe you end up with no deal at all!
  • the dilemma occurs because the offer is intermediate: better than your worst case (not selling) but worse than your best case (the $400K you were hoping to get)

Why does this work?

  • When faced with a decision dilemma
    • decision makers are risk averse to protect gains
    • … but risk seeking to avoid losses
  • An intermediate outcome can be framed as a gain if significantly better than the
    worse case (or BATNA, “Best alternative to a negotiated agreement”), making many negotiators reluctant to risk losing the gain.

Negotiation as a decision tree

What can you do?

  • one strategy is to turn the tables on the decision dilemma
  • don’t say no to their offer – tell them what it would take to get you to say yes! (guaranteed!)
  • now the other side must choose between the sure thing you have offered them, and the risk of continuing to negotiate!

Negotiation turn the tables

Why does it work?

  • Turning the tables works because sometimes the most valuable resource is being done – having a deal – and that’s the sure thing you are offering them
  • And particularly so if you can frame your offer to them as a gain (e.g., less than you initially asked of) that they should want to protect.
    • Especially if they have very poor options (a bad BATNA) compared to what you offer

When else can you use this?

To close a deal

  • Imagine you are real close to closing a deal, but there is still a difference between what they want and what you are offering
  • Offer to make the deal (guaranteed!) if they move a bit more in your direction
  • This presents them with a decision dilemma – they can take the “sure thing” of closing the deal for conceding just a little bit more
  • No one likes to make concessions if they don’t get something in return, but the deal (being done) may be the best thing to get in return

Why does it work?

  • Sometimes the certainty of making the deal – being done – is more important than the little bit left they need to give you to be finished
  • Particularly if their options are not good – if they are afraid that by not giving in continuing to negotiate might mean losing the deal eventually
  • And particularly if your offer is significantly better than no deal (a gain to be
    protected!) – even if it’s significantly worse than what they’d hoped for!

5) Conclusions

Exploding offers work because they create a decision dilemma, and negotiators often take the sure thing (if significantly better than their worst option or BATNA) to protect gains.

By telling the other side what it would take for you to say yes, you turn the tables – you give them back the decision dilemma, by offering them the certainty of making the deal – being done – in exchange for a small additional concession.

This can be used to deal with exploding offers, or to close the gap when you are close to a deal.

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