Role Play : Mouse

The French government has called for a meeting between one of its representatives, the mayors of the four communes and mouse.

As mayor of Magny I am the representative of its citizens. Together with my fellow mayors of the neighboring villages we are working out a strategy before the meeting. We note that we have the following problems:

• As the property values go up with the arrival of EuroMouse the tax burden for the owners get higher. For most of our citizens this is not bearable and and went to avoid that young French people are pushed out the city because they suddenly can’t afford it any more.
• Traffic and construction work
• What is bothering us a lot is the fact that we have not been included in any of the negotiations between the government and Mouse so fare, even tough it has great implications on us. The government has made a great profit with reselling the land to mouse however we are the ones to bear the cost.
• Further we are afraid of the social impact of the new EuroMouse, afraid of losing our cultural and tradition heritage and that the small town life will completely change. We have seen the twins around MouseWorld in Florida, and we do not want to become service stations like them. 
• Finally, it’s an administrative nightmare. Mouse is asking so many permissions and authorizations and with our little staff we do not manage to treat the requests quickly.

So what we want:

• Financial compensation rather than being part of the payroll tax, as we prefer certainty. Amongst us mayors we agreed that we all would get an equal part of the compensation.
• If Mouse insistes on the payroll tax and it turns out to be the only way, we will want at least 1% but are starting with 2%
• If they ask for a positive press release we want to have a voice in return, that is participating in the meetings and have our word to say. Further to assure a smoother change of our environnement we ask the government for a community player. 
• We will address the government to put en effort in lowering the taxes, after all they made a large benefit on our expenses
• In order to create some extra value we ask to include the local farmers, so that they provide the food for the restaurants of mouse

BATNA: our BATNA would be that everything stays as it is and the farmers will block the streets

What we can offer

• Positive press release
• Avoid that the farmers block the street
• Collaboration

THE NEGOTIATIONS

The representatives of the government were leading the negotiation. Joy, representing the Mouse management, asked us what our feelings were towards their project. I found this a very clever way to start the negotiation and I felt immediately that they were open for negotiation. This has proven to be true, as the tone of the whole negotiation was really constructive and consensus oriented. Joy let us know right at the beginning what their most important interest was: to accelerate the treatment of permissions and authorizations as they are already behind on schedule.

We stared by stating the problems we Mayors had encountered. When expressing our irritation and disappointment of not having been involved in any prior negotiation and that the government sold our fertile land to Mouse with a huge benefit, Marina, representative of the government, explained that the money is used to build new and faster access roads passing outside of our town. We started to tackle topic by topic, leaving the financial aspect for the end.

The government turned out to be very comprehensive and cooperative. They agreed to support us with additional staff for the increased administrative burden and to arrange a meeting to discuss lowering taxes with the ministry of economics. What they want in return is that the farmers and citizens of our villages will not block the streets.

In oder to calm the farmers and thus for them not to block the streets we need some security to show them that the government and the management is caring about them and that they will not seen their way of life changed 180 degrees from one day to another. Mouse was open to our suggestion of including the framers by letting them be the exclusive provider for food for the restaurants of EuroMouse.

The next topic addressed was the social impact of the new park on our villages. The Mouse management emphasized that they want to protect the French tradition and that they are well aware of the cultural differences between the US and France. The government agreed on providing a community planner for us in order to assure for a smooth adaption of the villages to the new project.

The management of Mouse demonstrates how their project will create valuable jobs, what we highly appreciate as our unemployment rate particularly amongst the young is quite high.

After having addressed the different little issues we start talking about money. We made the first offer by asking for 3 Mio financial compensations. The Mouse Management was a bit surprised by this huge amount and took a time out. They came back explaining that they honestly could not pay such figure and that we need to distinguish between the government’s duties and the Mouse’s one. In fact, mouse did not know that our farmers were expropriated of their land by the government. Given their constructive attitude and honest interest in finding a fair deal, just as the fact as they had agreed on most of our demands before, we had to realize that 3 Mio was way too much. And to be honest, this never was a realistic goal we aimed, but we thought starting high will allow us to get a high price. We should have taken a time out and rediscussed given how things went during the negotiations.

The Mouse Management proposed 950,000 as a counter offer. This was too low for us. Time was very tight and we had to get to an end. So after considering the option of getting an annual financial compensation of 750,000 and 0.5% of the payroll tax, which would have assured a yearly payment of at least 1.25 Mio, we preferred to agree on 1 Mio financial compensations. Security was for all four Mayors a key element with which we knew we could reassure our voters. Finally we agreed on a positive press release.

We were happy about the negotiation’s outcome as even if the financial compensation negotiated may seem little, we obtained a lot of concessions from the government but especially from the management of mouse. The latter turned out to be very agreeable and comprehensive for our situation. We did not accept that beforehand.

Summary: The hidden chalenges of cross-border negotiations

It is important to understand that national cultures also shape the governance and decision-making process and the way they come to an agreement. Therefore, mapping the players and the process is crucial.

Who are the players?
While you know that in the US extra players beyond those representing the companies influence the deal, abroad it is often less obvious. In China for example, even with „private“ companies there there certainly will be a local party official involved. All these constituencies bring their own interests to the table as well as varying abilities to block or foster negotiations.

Who decides what?
Knowing who is playing is not enough, it is important to know what role they play and who owns the decisions. Failing to do that it can turn out very costly.

What are the informal influences that can make or break a deal?
It is vital to understand which people must sign the contract to finalize the deal. More than that, often there are webs of influence operating that turn out to be more influential than the actual parties making the deal. We must not underestimate the power of informal influences by assuming that foreign legals systems will enforce formal contracts just as they are expected to do at home. Dispute resolution can look very different in different countries.

Therefore, it is crucial to discard home-market presumptions and to develop a clear map of the players who are likely to influence the formal and informal decision process.

Then one has to adapt the approach accordingly. An organizational process can look very different in different cultures and thus ask for different negotiation strategies.

Top Down
The decision will be taken unilaterally. The most effective way is to talk to the boss directly or, if not possible, to connect with people outside the process who have close ties to or influence over the boss.

Consensus
This organizational process is especially common in Asia. Often the consensus cultures focus on relationships rather than deal and the parties involved will often want to take substantial amount of time. It is important to adjust your won expectations (and your organization’s) of how long the deal will take. This negotiation process is however likely to have more staying power.

Coalition building
Sometimes negotiations don’t need the agreement of every player but rather a „winning coalition“. The opposite is a „blocking coalition“. Navigating such coalitions requires an understanding of the likely interests and opinions of the players who will be needed as allies in a winning coalition.

To sum up, assessing the person across the negotiation table is crucial but not enough. It is important to figure ou the intricacies of the larger organization behind her. In order to do that you need to map the governance and decision making process. Then you must design your strategy and tactics so that you’re reaching the right people, with the right arguments, in a way that allows you maximum impact on the process to yield a sustainable deal.

Role play: CPA INC.

In today’s role play the starting point was that within the company CPA INC. payroll checks have been stolen and cashed with false endorsements. Two long term employees, Roo and Dana, are convinced that Sandy, the new employee, is the thief. Even if the forensic service has not yet analyzed the handwritings and thus no final proof is available, Roo and Dana told everyone that Sandy is guilty. JT, the head of payroll heard of all that and asks for a meeting.

I was playing Sandy and against everyone’s beliefs, I am not guilty. The mentioned accusations put my job at risk. I went to see my lawyer and he told me that there are grounds to sue Roo and Dana. I like working at CPA and I work very hard. I need the money as me and my husband just bought a house. My honor has been defamed, so I have to defend myself.

At the negotiation table were the manager JT, Roo and 2x Dana and me - Sandy. The negotiation started immediately, we did even forget to introduce ourselves. The other employees did not let me talk, they started with harsh accusations that it was me the thief and that they found it strange that I couldn’t afford the house at my age if it was not for theft. The three of them threw their accusations at me and it was quite tough to defend myself. I argued that they had no proof and that I would never put my job at risk. Further they found it suspicious that I was always working late and the last one to leave the office. Moreover I was not a sociable person they said, I was always on my own. This might be, it is my character but no reason to blame me for theft without proofs. The back and forth went on and it was very tiring to defend myself against three agressive opponents. I kept repeating that I had nothing to hide, that too much was at stake for me and that most of all, there was no proof that it was me. The results of the investigations of the forensic service were not out yet. Unfortunately the manager did not intervene very often at the beginning. I think she should have lead the negotiations more, it would definitely have been supportive for me. Towards the end she started to lead the negotiations by reaping and proposing to wait for the results of the handwritings. While one of the employees continued to attack me, two of them got a bit more cooperative as they saw how I was struggling and feeling bad. They proposed me that I should go eating with them more often and tried to integrate then they would wait for the the forensic results. But if I was said I was guilty I had to be fired immediately. I agreed on that point however, I could not agree on the fact having lunch with them before evidence was there that proves me innocent, which is what I was!

When debriefing afterwards we discussed the following points:
- no personal attack should be tolerated
- Set deadlines
- Try to break up the group as a group has a dynamic that is more violent than when one is alone.
- Not „you“ing too much
- Make the parties feel part of the solution
- Ask how they could feel safe without firing Sandy

Summary: Mental Errors

There are numerous mental errors that a party can commit during negotiations. Hereafter they are presented together with remedies.

ESCALATION

Irrational escalation is continuing a previously selected course of action beyond what rational analysis would recommend. This happens to otherwise level-headed businesspeople when they get into difficult and competitive negotiations. Even a good strategy will produce a bad result if it is escalated beyond a point where it no longer makes sense.

Possible reasons for such behavior:

• Their egos cannot abide losing. If they shoot over the top, that is what would be reasonable, they point to future synergies or other nebulous values as justification for their behavior.
• Auctions and other bidding contests that pit individuals against each other encourage irrational behaviors. 
• A principal/agent problem is at work. In general the business-people who spend to win beyond the point of rationality do so with OPM (other people’s money). They would not spend it differently if it was their own. 

 Remedies:

• Get a firm to handle your alternatives to the deal before you negotiate. Money that you don’t throw away for an over-priced deal you’ll have it at your disposal for other investments.
• Be very objective and empirical in setting a price beyond which good sense dictates walking away. Agreement by many people regarding the price will reduce the temptation to escalate. 
• Set clear breakpoints where to stop.
• If during the negotiation ne information suggests raising the walk-away price apply objectivity in recalculation that walk-away price. 
• Concerning the principal/agent problem the best solution is to align the negotiator’s rewards with the economic interest of shareholders.

PARTISAN PERCEPTION

This is a psychological phenomenon that causes people to perceive the world with a bias in their own favor or toward their won point of view. Effective negotiation know how to stand outside a situation and see it objectively thus avoiding partisan perceptions.

Try to put yourself in the other side’s position, pose the issue to colleagues and solicit their opinions or try to pose the problem as it appears to you and ask how the other party view it. Another technique for reducing partisans perceptions is for the opposing sides to reverse their roles.

If any of these suggestions fail, bring in a neutral third party or expert to provide unbiased guidance.

IRRATIONAL EXPECTATIONS

Agreement is hard to find if one or more parties have expectations that cannot be fulfilled. This eliminates any zone of possible agreement. Such a situation can be remedied in two ways:

1. Education dialogue: the other side explains and shows why the expectations are irrational.
2. New information: provide information that convinces the other side that these expectations are well founded.

It is important to bring expectations in line with fact-based reality.

OVER CONFIDENCE

While confidence is a good thing during negotiations, overconfidence encourages us to overestimate our own strengths and underestimate those of our rivals. We observe such overconfidence in business and interpersonal disputes where one or both parties reject settlement in favor of litigation („we are very confident that the court will find in our favor. The lawyers say that we have a very strong case.“)

Overconfidence can blindside you to dangers and opportunities. It is reinforced by a related mental error know as groupthink. This is the result of convergence of thinking around a norm and driven by social psychological pressures instead of objectivity.

Some symptoms of groupthink: illusion of invulnerability exists, leaders are insulated from contradictory evidence, members accept confining data only, those with divergent views are censure and alternatives are not considered.

A solution to groupthink is to empower a team of bright and respected people to find an objectively represented the relevant data.

UNCHECKED EMOTIONS

Business partnership dissolutions involve tremendous anger and personal vitriol. Huge damage is caused when negotiators allow their emotions to get out of control.

Solutions might be to agree to a cooling-off period or to enlist an objective moderator.

Anger and irrational behavior are often triggered by an offense to one party’s sense of fairness.

Summary: When an angry public wants to be heard

When negotiators become upset finding joint gain might become difficult. When confronted with negative publicity, executives become so focused on controlling public relations and managing the crisis that they lose sight of the fact that they are even in a negotiation or often skip the value-creation step. They are too concerned defending themselves.

Communication specialists have traditionally advised companies in such situations to focus on message control. But what this advise ignores is the fact that what an angry public wants most is to be heard.

Six facts that can help any organization facing an angry public:

1. Knowledge the concerns of the other side. That way they can avoid to make large concessions. A better strategy than denying personal responsibility for past events might be to express empathy for example. It often is possible to acknowledge the public’s concerns without accepting responsibility and generating exposure to liability.
2. Entourage joint fact finding. This might be done by jointly choosing a set of respected experts, develop the scientific questions to be addressed, allow the experts to articulate areas of consensus as well as disagreement etc. This does not turn decisions over to scientists but it does ensure that the valuable information they have is factored into the negotiation. 
3. Offer contingent commitments. The next step after joint facts have been found is to develop contingent commitments that will satisfy both sides. These are promises that come into effect only if particular deadlines are missed for example. Contingent commitments allow negotiations to move forward in the face of conflicting predictions of the future. 
4. Accept responsibility, admit mistakes and share power. Often that’s the only method to clear the way for new agreements and what the angry public craves most of all. 
5. Act in a trustworthy manner at all times. There are two fundamental rules for building trust: say what you mean an mean what you say. Trust is hard to repair and in some cases may never be repaired at all.
6. Focus on building long-term relationships. Most negotiations require parties to maintain decent working relationships. A current negotiation may very well affect your reputations within the industry or that of your company. Therefore it makes sense to always negotiate as if the relationship matters.

Reaching an agreement, even when the parties are seriously at odds, requires an effort to create value.

Negotiation Simulation Chestnut Village

Negotiation between the Bunyon Construction Company and the residents of the Chestnut Drive, seving as access road to the construction site.


I was part of the representatives of Bunyon's Construction Company:

• Valentin: Senior VP
• Christiane: General Counsel
• Me: VP Construction Management
• Camille: VP Marketing & Development

BEFORE NEGOTIATON

Before entering the negotiations with the residents of chestnut drive, we had to agree on a strategy and an agenda. Speaking as one when in front of the residents would be crucial. Each of us had different core interests.

My core interests as VP for Construction Management were the following:

• not slowing down construction to suit the residents
• imperative to held the project within the budget and schedule (not to agree to anything that makes construction more expensive or slow it down)
• rather come over budget than use substandard building materials (even if it costs your job)
• you don’t want anyone to tell the contractors and subcontractors how to do their job (they know - their job and they do it well)
• making the construction site safe, thus putting up fences

We discussed our main interests and agreed on the following points:

• safety: we agree that safety has to be increased, also in our interest to avoid any further vandalism. So we’ll put up fences around the site and propose speed bumps if the residents wish so
• stick to schedule: completing the building in time is crucial after the disaster with the shopping center
• sticking to the budget: not propose any measures to the residents that will have a considerable cost as the granit leak already uses a great part of the calculated reserves
• dust: we’ll cover the trucks in order to reduce the dust produced by the trucks
• NO alternative road will be built, way too expensive and would take too much time
• allow the residents to use the tennis court every Saturday for a lower fee
• invite them to the inauguration party

Our BATNA is actually quite simply to do nothing, However we need to avoid any damage of our reputation! So our strategy is first to listen to their complaints. Then start negotiating on the different points. Making sure not only to make concessions but also to get something in return, like cooperation and good press. Underline the positive sides for them: more families will move here, the faster we can work the faster the noise will have an end and their homes gain value.


DURING NEGOTIATION

We entered the negotiations and we were surprised by the relaxed atmosphere. Marina, the shopkeeper, was leading the negotiation during the whole time. She did a very good job. I think however, we should have leaded the negotiation a bit more. We discussed on different points:

• Security: The residents told that their kids fell into wholes and one child was almost run over by a passing truck. We agreed to put up the fences as soon as possible and to install speed bumps. This is a measure which is bearable for us as far as costs are concerned. We wanted to avoid the topic of the potential creation of a new access road so we agreed on speed bumps. However, we deny to install night lights as first, kids should not be playing on the street at night and second, the fences will not allow for anyone to enter the construction site. I also agree to talk to the site supervisor to let him know about the incident with the kid so that he could talk with his truck drivers to pay attention given that in this residential area there are kids around going to school.  The child needs therapy after the shock and we agree to look into a possible coverage of the fees with our insurance.

• Recreational facilites: The residents demand to have access to the recreational facilities that will are constructed with the new residence. Our Marketing & Development Manager just very hesitantly agreed for access every Saturday for a lower fee arguing that the facilites are actually exclusive for the inhabitants of the new residence. We felt the residents of Chestnut Drive had asked quite a lot so what we asked in return was some good press and cooperation by emphasizing the fact that delays would only result in a longer construction phase.

• Dirty street: The residents were complaining about the dirty (dust, dirt and litter) streets. And asked about a cleaning service in order to keep the street tidy. We argued that dirt comes along with every construction site. We agreed to protect the trucks in order to reduce dust. As we cannot guarantee for a regular cleaning service we agree to let the streets being cleaned once. They further complained about the workers peeing on the street. I do actually not want to intervene in the leading of the workers. This however is an unacceptable behavior and I will talk to the site supervisor about it.

• They had another complaint about workers, apparently they had whistled at one of the resident’s girl, aged 14. That is not acceptable either, and I assure them to bring the topic up when visiting the construction site the next time.

• Noise: Moreover the construction works as well as the trucks coming and going is noisy. We insisted on the fact that a construction site always comes along with noise. Apparently windows have broken because of the vibration of the works. We agree to send someone over to check and then to look into it with our insurance.

The residents tried to make us sign a contract with a penalty clause in case we do not fulfill the above mentioned points. We however refused to do so, as all of the above measures and gestures are done out of goodwill and our interest in keeping good relations with the residents.

Further topics we discussed:

• there would be a monthly meeting between representatives of Bunyon’s and the residents to address issues right away
• there will be better communication channels
• they will be invited to the inauguration party and may present their services (for example carpenter) there to the new residents.

RECAP

Both parties left the negotiation table being content about the outcome. The negotiations were not at all hostile and both parties seemed willing to cooperate and to accept compromises. It’s true that we have made many concessions. When writing the blog now I actually only realize how many they were. On the other hand I think it was wise to do so. Even if the residents of Chestnut Drive could not have stopped the construction of the new Residence they could easily delay the construction or make it more expensive. Both of which we want to absolutely avoid, after the shopping center disaster.

What was good:

• we acted as one, we sticked to what we agreed on beforehand
• we did not say yes to all their demands
• the topic of a new access road did not even come up

Critics:

• we did not really distribute rules for the negotiation process
• I maybe should have sticked more to my rule as Construction Manager, that is not to care so much about the well being of the residents but rather about the budget and schedule being kept within the planning
• we were not the leading party during the negotiations. We maybe behaved a bit too much as the accused with the feeling of having to defend ourselves.

All in all I found this kind of negotiation exercise very interesting and helpful as it allows you really to assume a role and to discuss the issue in your group - which makes it easier and more difficult at the same time.

Summary of Frequently Asked Tactical Questions

FAQs about the price

• Don’t reveal your reservation price even if asked for it, rather work in terms of your bottom line („the best I can do“). The only reason to reveal your reservation price would be towards the end of a negotiation in order to discourage the other side push you beyond it.
• Only reveal your bottom line when you’ve reached it. And if you do so do it with appropriate emphasis or firmness.
• What to do if the other side opens with an incredibly unreasonable number?
1. Make a joke to indicate that you don’t consider the other side’s number a serious offer.
2. Clearly state that the other side’s number is entirely out of range. Go back talking about interests and explain your perspective of the deal. Let pass some time and discussion and than propose a number. Do NOT refer to their initial offer, ignore it. 
3. Indicate that the offer is entirely out of range and express your concern that a deal my not be possible: „Why don’t you confer with your people and get back to me with something more realistic?“.

FAQs about process

• Try not to bid against yourself, don't make two moves in a row. If however the other party pushes you to do so, announce your awareness of what you are doing. Explain your reasoning. To bridge the gap consider broadening the discussion of the partie’s interests.
• Is it okay to bluff of to puff during a negotiation? Sure. You need not reveal all the circumstances that make you willing to conclude a deal. However, lying about a material fact is almost certainly grounds for legal action.
• It is generally better to reach agreement at the end, not issue by issue as you would risk to lose opportunities to create value through trades. 
• Dealing with easier issues first will build momentum and allows the parties to become familiar with one another. On the other hand, starting with the difficult issue will not cause you any waste of time on the smaller issues in case you cannot reach an agreement on the difficult issue.
• If unexpected developments appear try to analyze how it affects the decision to go forward, determine if the deal still makes sense. Contact the other party immediately, aknowledge the unexpected nature of what has happened, affirm your commitment to working on the problem and jointly discuss the underlying principles etc.

FAQs about people problems

• A positional hard bargainer aims to win at the other side’s expense. An effective collaborative negotiator should be able to deal with this type of negotiator and should seek reciprocity of refrain from providing additional information. The question is whether the collaborative negotiator will be able to „convert“ the hard bargainer at least sufficiently to create some value in the deal.
• The winner’s curse is that they will always feel that they could have gotten more. If the other side tries to change one item, express surprise or disappointment. If they are willing to renegotiate other issues in return then they are serious, if not they just wanted to test you. 
• If the other side has a temper tantrum don’t respond in the same way but try to help him regain control. Either sit quietly and say nothing or say something like „This is getting us nowhere. I’m inclined to leave and let you cool off. Is this what you want?“. Keep in mind that you have some control over who you will deal with.
• If you don’t believe what the other side is saying ask for back-up documentation and insist on enforcement mechanisms such as penalties for non-compliance. 
• The best way to negotiate is the negotiation face to face. People are less likely to lie in person. Negotiating by email contains the danger that messages are misunderstood in their tone. On the other hand email is devoted of emotions and there is a smaller risk of unwarranted disclosure. Using the telephone allows to interpret the tone of voice, however, it is not easy to propose creative ideas and people are more likely to bluff over the phone. 
• If the other party is challenging your authority shift the discussion to general ground rules. And if this calling was posed to make you feel defensive, you will have to demonstrate that such strategies will not be successful.

Win as much as you can

This is the first game that we play in a group. It was Valentin, Frederik, Anthony and Adriana and me playing as one person. We could all either play X or Y and depending on the comination of the four outcomes we would win or lose points.

When there were bonus rounds playing together would made us each win points. However if one was to derive from the mutual strategy he could gain more and make us lose. In the first bonus round (*3) we playied together and everyone won. For the second bonus round however Anthony and Frederik did play in their own interest ad made many points while Valentin and Adriana and me lost. We blamed them and so in the last bonus round (*10) we did not trust them any more which made us all lose many points.

We ended up with a group result of -39 points as where ideally when playing together each of the rounds we could have gotten an overall result of 100 points.

While the game promises long term gains that are much higher when cooperating than when playing on your own, the fact that in the short run the gain of one person can be quite high on the expense of the others is very tempting. That is actually the prisonner's dilemma of game theory. 

The person playing on his/her own will not be able to do that repeatedly, since trust will be lost. This game shows how important trust is when negotiation as a group. And also how easily trust can be lost and diffically built up again.

How do we build trust?

I think we build trust by doing what we announce to do. By doing so the other person knows what to expect and that he/she can rely on what is said. A measure to build trust in this game would have been to take away all the X cards so that every one could be sure that the others would really play Y.

How to repair trust?

Repairing trust is much more difficult. I think the person who abused the trust before needs to make a great effort and repeatedly demonstrate that he/she can be trusted again. However when negotiation the lack of trust can be very costly.

The Cinnamon Game

The today’s role play was about the purchase of quality cinnamon used for the production of baby food by a well known enterprise. I was the owner of the enterprise producing the baby food and was negotiation with Frederic, the owner of Mahek Masala selling 1000 kg of quality cinnamon.

Facts known to me in advance:

• Our company’s image was damaged after the government had discovered some quality issue with one of our drug formulations
• The government announces a price subsidy of 10% for manufacturers of baby foods using high quality cinnamon
• Mahek Masala has 1000 kg of high quality cinnamon on sale and we estimate a price of 380 Rs per kg. The seller has no idea of my estimation
• An alternative supplier is offering cinnamon of lower quality than Masala’s for a price of 310 Rs per kg
• Using 70% of the high quality cinnamon and 30% of the alternative cinnamon would still meet the government’s standards in order to get the subsidy.
• Our company agrees on a deal with the government: we provide baby food to government-run children’s homes free of cost in return for an additional 17% of subsidy (so a total subsidy of 27% on production)
• Given that this a great opportunity for our company and that this way we can go ahead with the planning of increasing the the manufacturing capacity our reservation price is 600 Rs per kg. That way we would still make of profit 230 Rs par kg.

my reservation price: 600 Rs/kg
my BATNA: buy only 70% of the high quality cinnamon from Mahek Masala
my perceived ZOPA between 380 and 600 Rs / kg

With this information and the aim of negotiating the lowest possible purchase price I entered the negotiation. However I had no idea about Frederik’s price nor if there were other buyers in the game.

3-4 rounds of negotiation 

Frederik made the first offer proposing 550 Rs arguing that this his cinnamon was of very good quality and that it would fit well with my company which has a good reputation too. Also he told me that he knew about the trouble we had with the government because of recent quality issues. I did not feel good about him knowing that, it actually was weakening my position. I told him that precisely to address this issue we were seeking to work with him, however that the price he proposed was too high. He also revealed that he had another possible buyer offering 390 Rs.

Before making him a counter offer I told him about the deal we’ve just made with the government that is supplying baby food to the government-run children’s homes and that this would give him a great publicity and reputation at the government too if he was supplying the cinnamon for our baby food. I did not mention the fact that I delivered them free of charge in order to be able to get the subsidy. Based on these arguments I told him that I would offer him the same as the other possible buyer. At that moment tough I was not sure if such a buyer actually existed and if this was the price he would really get. But for me 390 Rs would still be a good deal.

Frederik refused my proposal of 390 Rs. He knew about the 10% government subsidy and made an offer of 450 Rs claiming that with the subsidy my actual costs were around the price that I had proposed before, the 390 Rs. He was undoubtedly right about this, even more given that my actual subsidy was 27% and not 10% but he did not know that and I had no intention to let him know. Further he informed me about the fact that the price of the 2nd best cinnamon was around 320 Rs. He was saying that the price gap between the best and the second best cinnamon needs to be higher in order to stimulate the market. Honestly, I don’t remember what the point was of this argument of his.

Anyway, 450 Rs would have already been not too bad of a deal for me but I wanted to know if I could lower it a bit more. So I offered 430 Rs and told him that as he might know we had a good reputation for being very prompt in our payments and that I would pay him by the end of the month. Since I thought he would maybe propose 440 Rs I added that we were interested in a long term partnership as we are keen to keep quality standards high and because we plan to increase our manufacturing capacity in the future. He then agreed on 430 Rs.

I felt very satisfied about the outcome. And I think Fredrik was happy too. However, I would have liked to ask more questions. Instead, I was mostly arguing and trying to have the better arguments in order to convince him to accept a lower price. At some point I thought of introducing the argument that I would only buy 70% of his stock but then again the price was not too bad for me so I decided to go for the whole amount of 1000 kg. Only when debriefing I found out that the other possible buyer would only have bought 70% of the cinnamon. So my negoiation power could actually have been stronger, given that his BATNA was worse than I tought.

This negotiation went much better then the one last week. We were negotiation during more rounds and I had the impression that the arguments were more well-grounded.

Summary of Negotiation Analysis: An Introduction

For sucessful negotiation it is important to be well prepared and to develop a coherent strategic framework analyzing a very different sets of issues. There are seven basic questions that anyone should ask before entering a negotiation:

1. BATNAs: What will the respective parties do if they don’t come to agreement?

The BATNA is your Best Alternative To a Negotiated Agreement, it is what one will do if agreement is not reached. The concept sounds simple but its application can be difficult. Your BATNA is your preferred course of action which does not only depend on what you could get from a competing bidder but also it depends on other factors such as ease of consummating the deal, time pressure, relationships etc. Walkaways should thus take into account all of your various interests.

A rigid bottom line can be dangerous. Firstly because it could lead you to a result close to your minimum and secondly it can blind you to creative solutions (for example favorable interest rates). The power of creative alternatives and weighing their relative value should not be underestimated. Common failure when evaluating BATNAs include over-optimism, particularly in in lawsuits when both parties feel they are in the right.

Only by considering the perceived BATNAs of both the potential buyer and seller one can see if agreement is really possible. The bargaining range is then called the zone of possible agreement, short ZOPA. Any price within the ZOPA leaves both parties better off than to walkaway. However, there is no correct figure or equilibrium. Single-issue negotiations (such as those over price) are often called „distributive“ because the gain of one party is a corresponding loss for the other.

In practice it is hard to know the other party’s BATNA. Such information is almost always incomplete and subject to interpretation. The familiar dance of offers and counteroffers is a way of simultaneously testing the true dimensions of the ZOPA.

Determining BATNAs and walkaways is a cornerstone of negotiation analysis.

2. PARTIES: Who are the real parties in the negotiation?

This might seem evident, however, there may be influential players who are not immediately visible at the bargaining table. A familiar example is the case of buying a new car. Consumer negotiate with the salesman who will have to have the deal approved by the manager. The manager is distant and intimidating which leads to an asymmetry in favor of the dealer.

Identifying the real parties is very important as it can redefine the whole endeavour. It might rise other important questions and can expose potential pitfalls and opportunities. For example: Are we talking to the right person? Would getting the support of party A increase or decrease the subsequent chances of getting party B on board? Instead of passively reacting to whatever deals happen to arise, negotiators can instead shape the environment in order to foster opportunities that best serve their needs.

3. INTERESTS: What are their fundamental needs and priorities?

Even if the only interest was financial, getting the highest nominal price might not net the most money. Careful deal structuring might for example legitimately reduce tax obligations. Moreover, balancing near-term needs for liquidity for example against long-term capital appreciation might be wise. Another important point for the buyer for instance might be timing.

Identify underlying interests therefore is crucial. If negotiators lose sight of their interests or misstate them, they have little chance of maximizing the potential value of their deals. On needs to keep in mind to focus on interest, not position.

Assessing interests is important before and during negotiation and even at the end when agreements are being redefined and implemented. Interests can evolve and strategy should therefore adapt to changing goals and circumstances.

4. VALUE: How can value be created - and who il likely to get it?

The potential for value-creation ultimately depends on how the other paries’ interests compare with your own. While the difference in valuation sometimes foreclose one particular deal, it can open the opportunity for another. Differences are the core for value creation in negotiation and often there are more issues at stake than simply price. That means more dimensions on which the parties can differ, and hence, enhance value. Value is generated in negotiations by capitalizing on differences, not necessarily by finding common ground.

Some key negotiation lessons from the two-dimensional ZOPA:

• It is possible to reach agreements that create gain for both parties
• The creation of mutual gains does not necessarily mean that they will be evenly divided. Most or all of the gain may go to one party
• Expanding the pie and dividing it are part of the same process

Managers must „manage the tension between creating and claiming value“. If they are too stubborn, they may forfeit potential gain and even jeopardize the entire agreement. Creating value usually requires revelation of information and brainstorming, however such disclosure can sometimes be exploited. Therefore it is important to establish the right problem-solving atmosphere and that both parties have a good intuition about each other’s priority.

Only then parties can identify a range of items and issues that can be crafted into a package that maximises benefit. This process should be continued until a point is reached where one party’s well-being cannot be further improved without hurting the other’s. Such a point is called „Pareto optimal“.

5. BARRIERS: What obstacles might prevent agreement (or the maximization of joint value) and how can they be overcome?

The existence of ZOPA and the opportunities for joint gain do not guarantee agreement. There are several barriers standing in the way:

• Strategic behaviour: too hard bargaining which in the end make both parties lose a potentially desirable deal. The same can occur for value-creating opportunities. Drawing a firm line on what is acceptable may increase your chances of getting a fair share of value, but involves the risk that your demand will exceed what the other party is willing to accept.
• Psychological or interpersonal barriers: Parties can lack trust or have trouble communicating. Also, emotions can run high in negotiations and issues of perceived power and status may come into play. Feelings can easily escalate to a point where people lose sight of their substantive objectives. These obstacles can largely addressed through skillful management of the negotiation process itself. 
• Institutional obstacles: such as need for policy back at corporate headquarters or legal constraints. Overcoming these barriers may require crafting new policies which turn out to be the catalyst for broader innovations in deal making and dispute resolution.
 

6. POWER: How can the various parties influence the negotiation process and its outcome?

The bargaining power is not simply the strength or weakness of your BATNA. Power sometimes turns upside down in negotiation  and people in a position where they have little to lose can be hard to negotiate with.

It is useful to identify ways in which you can favorably change the basic architecture of a negotiation. That could involve redefining the set of parties or setting deadlines. Another way could be to attack the other party’s BATNA and trying to worsen the consequences of refusing your offer. Caution however, because such attacks invite retaliation, especially if the other party would lose face by backing down publicly.

Bargaining power is a manifestation of complex situational factors, but it also is a matter of perception. Moreover it is a reflection of both knowledge and skill. Skillful negotiations make the very best of whatever hand they are dealt.

7. ETHICS: What is the right thing to do?

Negotiation involves other people and organizations and thus principles to guide how to behave towards them. There are five categories that negotiations should address in order to act responsibly.

1. Candor: What do negotiators owe the other parties in the way of candor? When for example asked what your walkaway price is, there are morally valid reasons to evade answering such a question directly. There may be a valid distinction between overt misstatements and mere silence.
2. Fairness: A set of moral questions relate to the equity of agreements that are reached, about distributional fairness. There exist different points of view from „buyer beware“ over „everyone looks after his or her own wellbeing“ to „no one should get rich ont other people’s expense“.
3. Force: Another set of moral issues include the potential use of force in negotiation. While it is commonly accepted that the use of physical force is wrong, what about economic pressure? Popular opinion is very inconsistent on such issues. It is helpful to consider whether the parties have plausible alternatives. Another factor my be what responsibility a person bears for putting himself or herself in a apposition of need. 
4. Impact on bystanders: This argument is close to the fairness issue, but with the difference that not all of the impacted parties are at the table. 
5. Principal-agents conflict: Difficult moral issues might arise when one is negotiation on behalf of others. Must individuals abandon their own personal values and standards when they accept corporate jobs?

Given that these moral issues are not easy it is important not to improvise one’s moral standards at the bargaining tables. Negotiation strategy and tactics must be based on carefully considered principles.

RECAP

• Effective negotiation requires a coherent framework linking means and ends
• Identify BATNAs and fundamental interests as the source of potential value-creating trades
• Recognizing possible barriers and rearrange them in advance if possible
• Develop a conceptual framework
• Strategy must be implemented with skill and insight
• The ability to listen and persuade as well as patience are highly valuable
• Success also contingent on your counterparts’ attitudes and creativity ability.
• Your own negotiation strategy should encourage constructive behavior from other people with whom you will deal

Role Play Salt Harbour

The issue: There were two parties negotiating about a piece of land in the picturesque sea side village of Salt Harbor. Party one is Brims, a coffee shop chain who wants to open a store in Salt Harbor and party two is Easterly. I was representing Easterly, a successful bed-and-breakfast inn located just next to the piece of land in question. If there were something built on it, this would block the view for our guests and in consequence the inn would significantly lose value. The other option to negotiation is going to court. However, according to our lawyers our chances to win the case and to stop the building of a house is only a bit higher than 50% and moreover legal costs would at least be $25.000.

Info known to me:

• Brims paid $100.000 for the piece of land in question.
• After my estimations, Brims could get a comparable site in the village of Salt Harbor for $200.000
• The value of the inn diminishes by $350.000 (plus minus 10%) when something is built on the piece of land in question
• Legal costs would be at least $25.000 with a chance of winning of only about 50%

My facts when entering the negotiation:

• My first offer will be: $100.000 (the price for which they bought the land)
• The very best price I realistically hope for: $150.000-$200.000
• My walk-away price is $350.000 (the possible loss of value of the inn)
• My BATNA: going to court (bad BATNA, since outcome of a lawsuit are very unknown)
• Target: buying the land

Three rounds of negotiation followed at the end of which we agreed on the following deal: £200.000 (plus agreement that Brims would become the coffee supplier of our inn).

1. I made the first offer of $100.000, which  Marina, the other party, denied.
2. We discussed that a more central location in the village would be more beneficial for Brims and that the view is important for my inn. Marina revealed to me that she had to pay more than $100.000 for the piece of land she bought and taken into consideration that paying for the land plus the difference between the two possible pieces of land for her coffee shop would result in an amount of $200.000 approximately, I decided to offer her $200.000.
3. We finally agreed on the $200.000 plus the agreement that Brims would become the coffee supplier of our inn (even if this was not hors-sujet of the instructions of this game).

On round two I have to admit that I too quickly proposed too much. I should have let her make an offer before proposing a new amount, in order to get an idea of her position and her possible range of negotiation. But knowing that my reservation price was $350.000, the $200.000 seemed a very good deal to me and I wanted to close the deal as soon as possible.

The fact that I made the first offer was maybe not very beneficial for me since that way the other party got an idea on my negotiation possibilities immediately, while I didn’t. On the other hand my first offer was much lower of what I was expecting and willing to pay.

Recap: Recapping the negotiation after de deal was closed, I learned that Brims’ reservation price was getting at least $110.000 out of the deal and my walk-away price was paying $350.000 at most. So we hat a large zone of possible agreement (ZOPA). The middle would have been $220.000, we were not far from it. However we had too few discussion and rounds of negotiation in order to find out the other party’s reservation price and to understand where I’m at.

Lessons learnt from this role play

• Being surprised by the amount proposed and to react surprised is not good. You should always remain cold during negotiations. If the amount put forward surprises you it’s probably because your calculations are wrong.
• Ask questions in order to try to find out the reservation price of the other party. 
• The good price is around the middle of the ZOPA
• You represent a company that wants to make profit, so you are not going to sell for less if you can have more.

Summary of the Key Concepts of Negotiations

People negotiate only when they believe it is to their advantage to do so. A successful negotiation must have a fundamental framework based on knowing the following four concepts:

Know your BATNA

• BATNA = best alternative to a negotiated agreement, thus the preferred course of action in the absence of a deal.
• Always know your BATNA before entering into any negotiation, otherwise you don’t know whether a deal makes sense or when to walk away.
• Your BATNA determines the point at which you can say no to an unfavorable proposal.

Strong BATNA: then you can negotiate for more favorable terms, knowing that you have something better to fall back on.
Weak BATNA:  then you’re in a weak bargaining position and it is difficult to reject any proposal. If moreover the other party knows you have a weak BATNA, you have very little power to negotiate.

Improving your position:

• Improve your BATNA: Anything that can be done to improve your BATNA will strengthen your negotiation position, try to improve your alternative to the max. Let the other side discreetly know that you’re negotiating from a strong position.
• Identify the other side’s BATNA: that way you know how far you can go. It its alternative to a deal strong or weak relative to yours? How can you know the other party’s BATNA? By asking questions during the negotiation, contacting sources within the industry, checking potentially relevant business publications, reviewing annal reports, asking questions informally of the negotiator or others in the company, imagining what your interests, needs and preferences would be if you were in their position. Get as much information about them as you can!
• Weaken the other party’s BATNA: Anything that weakens the other side’s alternative to a deal will improve your relative position. 

When you have no alternatives: In this case the other party can dictate the terms, you then are the deal taker and the other the deal maker. You must create alternatives. Think about which type of alternative would most strengthen your hand.

Applying your BATNA it is not that simple: most negotiations involve many variables, some of which cannot be quantified or compared. To make it easier you can sign a monetary value to the various features. However price is not always the focal point of negotiated deals, qualitative issues also matter.

Know your Reservation Price

The reservation price, also called walk-away, is the least favorable point at which one will accept the deal. It should be derived from your BATNA. However, there might be a difference between the BATNA and your reservation price if the two options do not have the same features.

Know your ZOPA

The zone of possible agreement is the range in which a deal that satisfies both parties can take place. It’s the set of agreements that potentially satisfy both parties. The reservation prices of the two parties define the two ends of the zone. It might be that there is no ZOPA at all, then no deal will be concluded. In such a case, thanks to information sharing there might be the possibility that other elements will be considered, which will create value in integrative negotiations (see next point).

Value Creation Through Trades

Parties can improve their positions by trading the values at their disposal, that occurs in the context of integrated negotiations. Each party gets something it wants in return for something it values much less. It’s about creating value, not only about claiming it. By trading these values the parties lose little but gain greatly.

Examples: for supplier: extended delivery period; for a customer: three months of free repair services if needed; for another department in your company: two high-powered workstations that your people rarely if ever use; for an employee: the opportunity to work from a home office.

Two Dollar Game - Round 2

In the second round of the two dollar game there was no amount given that we were supposed to get. Instead each person had a role. Mine was a person who has a reputation to loose. I had to act fair, with decency and graciousness. When negotiating I had to bear in mind that my partner could make public everything I'd say. While negotiating I came up with the fact that I had a charity organization supporting the victimes of Mexico’s recent earthquake and that they needed the money more than us. Anasthassia however was in need of the money too, as she is living under the poverty line and has a child with allergies. She claimed she needed the money to buy food for her and her child. I repeated that the Mexicans were more in need of the money than we do. However this argument was getting weak when facing a person so deeply in need here (bearing in mind that I had a reputation to loose). I came up with the story, that I knew her parents and that I knew they would help her out any time. In the end we agreed on $1.30 for Mexico, $0.70 for Anasthassia plus dinner for her and her child at my house that evening.

Lessons learnt from round 2

• Enlarging the parameters: trying to make everyone happy by including other parameters. That’s the „if… then…“ technique.
• Instructions about trust and cooperation: if ever you meet someone super competitive you’ll become very competitive yourself. Unless you are a super big company you cannot be only competitive, you should also be cooperative to get somewhere.  
• In every negotiation there are objective criteria and emotions involved: It’s never only about getting or supplying the product. It’s about people. Sometimes you face very competitive people and sometimes too cooperative people.
• Preparation is crucial.

Two Dollar Game - Round 1

In the first round of the two dollar game I was supposed to get $1.60 out of the negotiation, my partner Camille $1.30. We ended up with a deal of 1$ each. I tried to argue for the fact that she owed me money but it was not that easy and she countered every of my arguments immediately. We both tried to come up with arguments why we needed the money more urgently. She proposed to split, I rejected the idea whereon she blackmailed me saying that she would denounce me at the police. With that threat I ended up giving in and we each took 1$. Analysing this first round, I think one of my mistakes was that I came up with too many different arguments as I desperately tried to get as close to the $1.60 as possible.

Lessons learnt from round 1

• Always try to find a compromise: No compromise is worse than a negotiation that is not satisfying. A common mistake is to leave the money on the table. 
• Only if you both leave the negotiation satisfied then it’s a good deal: If you or your partner feel bad after a negotiation then it was a bad negotiation for you. Because if ever you will negotiate again, the partner will be much tougher and more competitive and the partner will not believe what you say. 
• The targets evolve during the negotiation: You might see that the figure you had in mind will not be feasible. An anchor needs to be defined before negotiation. It’s not about playing it nice but about playing it wise.