Bargaining For Advantage

Bargaining For Advantage Summary Recommendation Negotiating is one of the most basic yet complex social interactions that people undertake. These sessions can be straightforward or highly strategic, and can involve the exchange of everything from sheep to global conglomerates. Since negotiations are the products of intense human relations, they produce great stories founded on basic social science and psychology principles. Author and professor G. Richard Shell has done a masterful job of presenting the art and science of negotiation. That must be why he is known as one of the most highly-rated business school professors in the U.S. This book is educational and entertaining, and contains great examples of negotiations from such varied sources as African tribes and J.P. Morgan. getAbstract highly recommends it to anyone who wants to find out more about this intricate social interaction. Learn exactly how to become better at getting what you want. Take-Aways ● Good negotiators know themselves as well as they know their goals. ● Gender and culture affect a person’s negotiating style. ● Although people have individual worldviews, they value similar norms. ● Reciprocity and trust are crucial elements of negotiation. ● Use leverage to exploit the needs and fears of your counterparty. ● However, realize that perception is as powerful as hard fact. ● Open the negotiation if you are in a strong position, so you can establish the range. ● Introduce the idea of scarcity to accelerate the final stages. ● Agreement is not the last step in negotiation; commitment is. ● People perpetrate fraud both by misrepresentation and deliberate nondisclosure. Summary Everyday Negotiations Negotiating is a part of daily life. Yet, this basic building block of communication can still cause great anxiety and drive people to seek simplistic, suboptimal solutions. To be a successful negotiator, you must confront your fears and realize that every negotiation is unique. Once you understand the psychology behind the process, you can embrace new approaches to bargaining. “First, all deals that close are win-win deals.” Negotiating is a process of resolving disagreements and attaining goals. It relies upon reciprocity. Negotiations usually follow this sequence: preparation for the meeting, exchange of views, presentation of proposals and counterproposals, agreement and finally commitment. However, before you begin any of these steps, make sure that you have the correct attitude and approach. The six “foundations” of good negotiation are: 1. Know Yourself Recognize your personal negotiating style. If you are easy-going, you will not turn into a hard-nosed negotiator just because you start to bargain. Although more competitive people thrive on bargaining, fairness and reason also hold pivotal places at the negotiating table. Based on your personality, you will respond to negotiation in one of five ways: 1. “Avoid” – You steer clear of bargaining because you deem it unnecessary or too stressful, or you are content with the status quo. 2. “Compromise” – You agree to share the rewards with the counterparties. 3. “Accommodate” – You accommodate the other party, but without a formal agreement about how you will divide the rewards. 4. “Compete” – You are a tough, competitive negotiator. You adopt a hard line and might resort to unethical acts to get your way. 5. “Collaborate” – You devise creative solutions to dilemmas that block your way. “Consider every bargaining opportunity a ‘laboratory’ to improve your skills.” Research shows that gender plays a role in negotiation. Female negotiators often use arguments based on fairness, are more willing to cooperate and display a desire to conserve the relationship. Culture also influences bargaining style. In Lebanon, for example, walking away from the bargaining table indicates you are a serious negotiator, not that you are disgusted. Other cultures allow bargaining solely between individuals at the same executive level. “There is only one truth about a successful bargaining style: To be good, you must learn to be yourself at the bargaining table.” People from Latin American, Asian, Middle Eastern and African cultures prefer to establish social relationships before they negotiate. That means Western mediators should participate in this important process before getting to work. Regardless of gender or culture, successful negotiators need good preparation, attentive listening skills, trustworthiness and self-confidence. 2. Know Your Goals Negotiating is not about price alone. Many negotiators achieve their target prices, only to see the deals collapse because the counterparty failed to deliver or egos intervened. Although ego plays a role in setting an optimistic target, temper it with logic and reason. People who enter negotiations with high expectations and clear goals emerge with better results, so write down specific objectives and, if you need it, bring a “cheat sheet” as a reminder. 3. Recognize Norms and Standards Negotiators frequently search for a common standard to help them anchor their arguments and bargaining positions. Adhering to this norm allows both parties to appear reasonable and consistent. Since people innately strive to interpret the world in a consistent way, negotiators should present a case which resonates with the other parties’ worldviews, thus securing common ground. “Contrary to popular belief, perfectly reasonable, cooperative people appear to have a strong potential to become extremely effective negotiators.” You can use this desire for consistency to your advantage. Begin by verifying simple principles with your counterparty, such as, “Your company should seek a price that is in line with what similar companies charge, don’t you think?” If you can subsequently show how their current argument is at odds with that principle, you can gain ground: “Your proposed price is 30% higher than comparable firms’ prices.” Relying on standards and norms is a powerful approach, especially when you link it to an authority figure or a strong slogan that summarizes your bargaining position. Citing an authoritative source – an expert, a historical fact or the market – is also potent, since many cultures emphasize respect for a larger belief system. 4. Build and Exploit Relationships People expect to be treated the way they treat others. This creates trust, a prevailing social force. When you make a concession, wait for the other person to make a similar allowance as a show of reciprocity. Friendship can be another powerful element in negotiations. Studies show that the styles of bargaining differ dramatically when friends – as opposed to strangers – conduct negotiations. Couples who negotiate together make simple compromises and do not fully analyze each situation, so they accept less beneficial deals. 5. Be Aware of the Other Party’s Objectives Each person perceives the world differently; this can constitute a major obstacle in negotiations. Three factors explain why it is hard to change a person’s stance on most topics: 1. Humans tend to see the world solely through their individual lenses. 2. They are naturally competitive and put their own interests first. 3. They are unable to recognize shared goals. “If you are basically a cooperative, reasonable person, you need to become more assertive, confident and prudent in negotiations to become more effective.” Top negotiators make big efforts to detect the other parties’ motivations and fears and to establish common ground. Find shared goals by identifying the main decision maker; discovering what you can provide that will help your counterparty reach his or her goal; finding out what the other side objects to; and determining which concessions you can make. 6. Gain an Advantage Leverage, “the balance of needs and fears,” provides the added clout you need to reach a deal. It is fluid and perception-based. It often involves finding a creative solution to a problem and sometimes requires playing on other peoples’ concerns. Another way to think about leverage is to calculate which party has the most to lose if negotiations fail. Employ this relevant social rule: People fear their losses more than they value their gains. “Leverage is having something the other guy wants. Or better yet needs. Or best of all, simply cannot do without.” [ – Donald Trump] Coalitions also affect the dynamics of leverage by providing what psychologists call “social proof.” People prefer to be guided in uncertain situations. In a business meeting, the first proposal, regardless of its quality, often becomes the consensus opinion. This occurs in other settings, too. Often, the first verdict a jury returns is the same decision it will unanimously reach later on. Let the Games Begin The first stage of the negotiating process is formulating a plan. Determine your approach based on the level of tension surrounding the outcome. Four main variables dictate the tone, style and strategy of any negotiation: 1. The desire or need to maintain future relationships. 2. Whether common concerns exist between the participants. 3. The type of transaction. 4. The level of mutual coordination needed. “In addition to the power of clear goals, negotiations harness one of human nature’s most basic psychological drives: our need to maintain (at least in our own eyes) an appearance of consistency and fairness in our words and deeds.” The second stage, gathering and exchanging information, allows parties to establish a basis for discussion about the issues, interests and expectations at hand. Relationship building takes precedence. The other essential actions during this stage are asking questions, ensuring that you understand the other party’s position and then summarizing the discussion. These actions can help you identify the common areas that may serve as negotiating focal points. “Shared interests are the ‘elixir of negotiation,’ the salve that can smooth over the issues which you and the other party genuinely disagree about.” If you have an ultimatum to deliver, experts say the best time to disclose it is near the start of negotiations. This disclosure will frame the discussion and temper unrealistic expectations from the other side. You can signal that you have leverage by using one of four tactics: You can bluff and make the other party think you have a better offer or stronger negotiating power; you can be open and present the alternatives for everyone to discuss; you can explain your alternatives and be flexible to show your generosity; or you can request sympathy from the stronger party and ask how they would handle the situation. Openings and Concessions Making concessions is the basic interaction that holds society together. Concession making is also the most studied part of the negotiation process. One commonly accepted idea is to let the other side make the first offer. This “never open rule” holds true if you do not know the market. However, another popular approach is to do your research and then be the first to set the price, since it anchors expectations and establishes the range. You can put a price forward either ambitiously or realistically. Optimistic openings give you more room to alter your price, which, in turn, encourages the other side to make concessions. In South America, the Middle East and Africa, optimistic or even excessive opening prices are the norm. In general, though, if you are short on leverage, face a bargaining brick wall or want to conserve the relationship, realistic opening prices constitute a better option. The End Game At the closing stages of negotiation, be aware of “overcommitment.” This psychological factor comes into play when people invest a lot of time in an activity and develop an interest in seeing it completed. It can lead them to agree to less than ideal resolutions. “Just because you have power in a given situation does not mean it is smart to use it.” To close a negotiation swiftly and efficiently, try these techniques: Suggest scarcity. Make the offer seem temporary; set a deadline; walk out of negotiations. However, if you need to preserve the relationship, or favor a fair bargaining style, offering to split the difference is a good tactic. It is quick, easy to understand and shows reciprocity. “People need to feel they have ‘earned’ concessions even when you are willing to give them away for free.” Reaching an agreement is not the last step in any negotiation. The ultimate goal is to get the other side to commit. Then, the parties must implement the commitment. When individuals receive particular responsibilities, they are more likely to fulfill their end of the overall bargain. In the business world, down payments, performance bonds and deposits all demonstrate commitment. If you fail to perform, you forfeit something. In 1997, when Dean Witter, Discover & Co. and Morgan Stanley arranged to merge, they each agreed that if one party reneged on the deal, it would pay the other $250 million. Part of the commitment ritual in Western culture is a simple handshake, perhaps followed by a public announcement. Writing down a commitment, such as filling out an order form or questionnaire, builds awareness. In more complex deals, such as car or house purchases, the parties simultaneously exchange a contract and money to secure the deal. Ethics Ethical behavior is a major concern in any negotiation, but lying is so prevalent that it frequently becomes part of the bargaining process. Numerous studies have found that a variety of professionals regard personal integrity as one of the most meaningful criteria for any professional negotiator. The extreme opposite of integrity is dishonesty or willingness to commit fraud – when a person knowingly misrepresents a crucial fact which the other party relies upon to make its decision. If you encounter this, walk away from the bargaining table. In some situations, such as those involving a fiduciary relationship, the law makes a provision for misrepresentation, which can lead to fraud by nondisclosure. A good rule of thumb for negotiators: don’t accept everything at face value. 1 SENTENCE BOOK SUMMARY Professor Shell’s book covers”Information-based Bargaining,” a negotiation method he created that is based on three key concepts: preparation, listening, and “attending to signals” that the other side sends through his or her conduct. KEY TAKEAWAYS 1. “All deals that close are win-win deals. Win-lose is often just a label we give a deal when we don’t like how the other side treated us.” 2. “To be good, you must be yourself at the bargaining table. Tricks and stratagems that don’t feel comfortable won’t work.” 3. “Your intuition will fail you in important situations. To improve, you need to shed your assumptions about the process and open yourself to new ideas.” 4. “You will become the best negotiator you can be by identifying and then building on your genuine strength and talents.” 5. “People who expect more generally get more.” 6. “The best negotiations have a relentless curiosity about what is really motivating the other side.” 7. “Leverage is your power not just to reach an agreement, but to obtain an agreement on your own terms.” 8. “Making even subtle threats is like dealing with explosives.” 9. “Don’t make assumptions about leverage based on wealth or position.” 10. “Leverage is based on the other party’s perception of the situation, not the facts.” 11. Don’t compromise. “Simple compromises can be the enemy of good problem-solving. If you split the difference before exploring all the options, you miss opportunities to meet both sides’ needs more fully.” 12. “Failing to prepare is preparing to fail.” 13. “It almost never hurts to talk less.” 14. “Your strategy should be determined by three main elements: the situation, your leverage, and style – both yours and your counterparts.” 15. “Research shows that many people will respond favorably if you make a request in a reasonable voice and company it with a ‘because of’ statement.” -even if whatever comes after “because” doesn’t make sense or is irrelevant. So How Do You Ensure You Have The Advantage When Negotiating? My Notes: ○ ○ ○ ○ Prepare thoroughly in advance Locate the decision maker Built rapport Discover the other party’s goals – ask questions, obtain information on interests, issues and perceptions. Test for understanding, summarise, probe first then disclose, signal regarding your leverage ○ If you open then you benefit from setting the anchor point. ○ Look for common ground ○ On what issues might the other side say “no”? ○ Search for low-cost options that solve the other party’s problems while advancing your goals ○ Trade issues ● Leverage ○ Flows to those with the greatest control and comfort with the present situations. ○ Threats must be credible. ○ For whom is time a factor? ○ Create momentum by giving little things. ○ Create a vision that the other side has something to lose from no deal ○ Positive leverage: Is having something the other guy wants, or better, needs, or best, cannot do without ○ Negative Leverage: Threat based, with hints rather than shouts ○ Normative Leverage: Give and take ○ Leverage changes constantly through the negotiation ○ Leverage depends on the other party’s perceptions of the situation, not the facts ● Closing Technique: Scarcity Effect ○ Competition (many others are interested) ○ Deadlines (we will withdraw the offer soon) ○ Walkouts (I will get up and leave at any time) ● Closing Technique: Overcommitment ○ eg standing in line at DisneyLand ○ Leverage loss aversion (“We’ve come so far, don’t let all this time and effort go to waste!”) ● Softer Closing Technique: Split the difference ● Beware Rogue Tactics: ○ Lies about bottom lines and alternatives ○ Low-balling ○ Phoney issues / decoy / red herring ○ Fake authority ploys ○ Overcommitment (drags out the negotiation process and raises or lowers the price or terms at the last minute) ○ Good guy / bad guy ○ Consistency traps (The goal of which is to pre-commit you to a seemingly innocent standard. They get you to agree to a statement before telling you why the statement is important) ○ Reciprocity ploys (“I made a concession, now its your turn”. Beware of reciprocity traps – “Here’s a flower, may I have a donation?”) ○ The nibble (just before closing hoping your exhausted) Review of Book: No matter what you do for a living, good negotiation skills help you reach your goals quickly. Bargaining For Advantage will help you identify your negotiating style, strengths and weaknesses, identify your bargaining goals, and teach you useful tactics for getting the most out of your negotiations. Most negotiation books focus on the extremes of bargaining relationships: heavy-handed power plays or compromise-to-keep-everyone-happy. Shell strikes a balance between getting what you want and strengthening and preserving your relationship with your negotiating partner. Bargaining is a process, and only by identifying your goals, priorities, and points of leverage will you be able to identify a solution that’s acceptable to everyone involved. Bargaining For Advantage also takes into account that more and more negotiations are being conducted remotely by phone, e-mail, or instant messaging. Negotiation in a networked world has many advantages and disadvantages that are different from face-to-face bargaining, and you’ll find the recommended tactics useful as you negotiate your way to financial success. TOP 20 INSIGHTS - - - - - - - - - If you want to be a pro negotiator, identify your bargaining style. Research shows that those who are naturally conflict-avoidant but feign aggression or those who are competitive but play too nice do not achieve the best negotiation outcome. To get what you want, don’t jump automatically to a negotiation. First, utilize influence to accomplish the same goal. Use your own or someone else’s authority or knowledge to impact the other person. If that fails, employ persuasive tactics, such as arguments or reason. The last alternative is negotiation. The most effective negotiators tend to be cooperative, not competitive people. In a study of lawyer-negotiators, 65% of all the lawyers had a cooperative style, 24% had a competitive style and 11% were uncategorized. However, of the most effective lawyer-negotiators, 75% were cooperative and 12% were competitive. Research has found that the most talented and effective negotiators use derogatory comments far less than average negotiators. In the study, 6.3% of an average negotiator's remarks were “irritators,” versus only 1.9% of the skilled negotiator’s comments. Determine your specific goals before you enter a negotiation or risk to agree to a deal that appears favorable but is not in line with your aspirations. Sony once turned down a considerable contract deal for its radios because executive Akio Morita’s goal was to make Sony a household name, not make the most money. Enhance your outcomes, set goals before a negotiation. Research shows that you "mentally concede everything beyond your goal," so it becomes the upper limit of the exchange. Also, goals incite a psychological "striving mechanism" that motivates you to reach it. Experts emphasize the need to know your “bottom line” in a negotiation. But you should focus on your negotiation targets or goals, instead. Researchers proved that when overwhelmed with information in stressful situations, humans drift toward a “single focal point.” Make your single focal point your top number, not your bottom number. If your team doesn’t aim high enough in negotiations, probe on these top three reasons people fail to set the bar high: fear of failure, lack of knowledge about the value of the items at hand or pure lack of motivation. Address these issues to achieve success. To increase your psychological commitment to your goal, consider these five research-backed practices: create a sound argument for your goal and know it thoroughly, visualize how you achieve the goal, write it down, tell other people about it and make an investment toward it. - - - - - - - - - - Gain the upper hand in the negotiation. Research the opposing party's norms and use those as reference points for your offer. These can include comparative prices, rates or timelines. The outside “standards, norms and precedents” become significant facets of any negotiation. The “consistency principle” is the psychological need that makes humans want to be consistent in their actions and agreements. Some aggressive negotiators may try to use this against you. Don’t agree to an unfamiliar rule or standard, probe further first. Lest you commit to something that might rope you into an unfavorable commitment. Try these tactics to increase your rapport with the other side in a negotiation, but tread carefully, as poor execution can make you appear too eager: highlight similarities you share, offer a small symbolic token or gift and establish a connection through a relationship network like a mutual friend. A simple way to make progress in a negotiation is to find shared goals between the two parties. In a study of 5,000 negotiators, only 50% of them successfully identified an overlap of interests. You can distinguish yourself if you make mutual interests a priority. One of the best ways to prep for negotiation is to find ways to increase your leverage. A research study showed that leverage is so powerful that with it, “even an average negotiator will do pretty well.” Traditional indicators of power like authority, wealth or influence, are not indicative of leverage in a negotiation. Identify the party with the most leverage by asking which side "appears most comfortable with the present situation.” Email has many benefits when it comes to negotiation, such as a clear trail of communication and the ability to present lots of information. However, it has risks confirmed by social science experiments. These include a higher risk of stalemates and longer total time to reach an agreement. Gain rapport and favor with the other party. Plan carefully and pay attention to their cultural customs and specifics. A powerful oil executive once won a bid to buy a Libyan oil company when he presented the proposal in traditional Arab fashion: written on sheepskin and tied with ribbons the color of the Libyan flag. Listen more than you speak to become a more effective negotiator. Studies reveal that the best negotiators receive more information than they deliver. The skilled negotiators also ask twice as many questions as the less effective negotiators. If you must deliver an ultimatum in a negotiation, do so “early, clearly and credibly.” This increases your chances of a favorable response to the negotiation and preserves the relationship due to your upfront honesty. - It often pays to make the opening bid and to do so aggressively. However, there are a few circumstances when this is not recommended: if the other side clearly has more leverage, if a back-and-forth haggle is not expected, and if the relationship matters more than the price.