Managerial Psychology Negotiation

Negotiation negotiation is a process by which two or more parties make decisions and do not have identical preferences Negotiation Is Work • Economic Game Theory suggests that outcomes are determined by game structure • Yet negotiators fail to find mutually-desirable agreements, settle for less, agree when no agreement should be acceptable, etc. • The work of negotiation is to identify possible agreements, estimate the desirability of outcomes to all parties, understand the other parties, communicate and persuade Negotiation Exercise • Recruiter and job candidate negotiate the offer, consisting of salary, signing bonus, vacation days, and location • Each has “interests” or things they value • If you cannot reach agreement, the deal is off • Pair off with a neighbor, read your role individually, THINK about your interests and goals, and negotiate • You may NOT show the other person your payoff schedule Negotiation Strategies • Distributive • Conflicting goals, fixed pie (“zerosum game”), task is to claim value and maximize personal gains • Integrative • Shared goals, expandable pie (“winwin”), task is to create value, maximize joint gains • Mixed-Motive • Both expanding the pie -- meeting needs of all or most parties as much as possible -- while claiming your share A Distributive Issue I want to hire for $84K or less; my limit is $85K I want $88K or more; at least $87K “I offer $82K” “I ask for $90K” /----------/--------/------------/------------/------------/ A’s Opening Offer A’s Target Point A’s Resistance Point B’s Resistance Point B’s Target Point Negative Contract Zone Gap between A [Recruiter] & B [Candidate] B’s Opening Offer I want to hire for $84K or less; my limit is $88K I want $88K or more; at least $86K “I offer $82K” “I ask for $90K” /-----------/-----------/-----------/-----------/------------/ A’s Opening Offer A’s Target Point B’s Resistance Point A’s Resistance Point B’s Target Point Positive Contract Zone A [Recruiter] & B [Candidate] Resistance Points Overlap B’s Opening Offer Resistance Points? • Resistance Points may arise from alternative offers: Best Alternative to a Negotiated Agreement (BATNA) • In this case, each negotiator was given a BATNA: was there a + contract zone? • Resistance Points arise from other comparisons • Resistance Points may shift during negotiation if negotiators lack information or confidence How to “Claim” Value (Distributive Bargaining) • Know your BATNA and improve it • Consider the other side’s BATNA (as well as their perception of their BATNA) and how it might be influenced • Use standards of legitimacy • Draw on your sources of power – But be careful not to force to hard/far! – DON’T state a BATNA you are not prepared to use if necessary Distributive Tactics • • • • • • • Develop target and resistance positions in advance Overstate opening positions (be “tough”) Commit to these positions early and publicly Channel communications through a spokesperson Give as little as possible for what you get Use coercive forms of power Mobilize support from constituents against the other party • Divide and conquer the other side; protect against the same on your side • An agreement reluctantly accepted is a sign of success Utility to Party B Integrative Bargaining Pareto Frontier: where one party cannot be better off without the other being worse off Creating Value Claiming Value Shaded Region Represents All Mutually Acceptable Agreements Utility to Party A Increasing the Pie • Salary in this exercise was a purely distributive issue, but signing bonus and vacation were different • The recruiter cared more about vacation days and the candidate about bonus • A 2% signing bonus and 30 days vacation is 3200 TOTAL points; a 10% signing bonus and 10 vacation days is 8000 points • BOTH negotiators can be better off if they identify and trade these opportunities, raising total available points from -1600 to 3200 • We set the BATNA’s at 3200. Why? Integrative Tactics • Focus on Interests, Not Positions • Build Trust & Share Information • Search for Joint Gains (inquiry, make multiple simultaneous offers, etc.) • Brainstorming multiple options, subcommittee explorations of problems, open communications • Use objective criteria to evaluate options • Look for options to “expand the pie” Reframing • We often think automatically of negotiation as zero-sum and this prevents expanding the pie • In a Prisoner’s Dilemma game, students were told either that they were playing the “Wall Street Game” or the “Community Game” • This dramatically affected the amount of cooperation and the joint gains • The effect was much stronger than dorm advisors’ nomination of students as cooperators vs. competitors/defectors Creating AND Claiming Value • How much to trust the other party? – How much do we and they value the relationship? – Is this a one-time negotiation or a long-term relationship? – Are there reputational consequences or self-enforcing contract features that increase trust? – Trust but verify? • Hold secret information to gain power or disclose information to build trust? – What to disclose and when? Lessons • • • • Lesson 1: Listening for interests is an active process of asking for more information and clarification. Lesson 2: Reframing (expand the pie, expand the issues, change the timeframe) is a valuable tool/skill/tactic—try it out! Lesson 3: Prepare, Prepare, Prepare Lesson 4: Always ask, can we do better?