Learning MBA Master Degree

In Module III of this course we mentioned that the three basic competing approaches to good negotiation practice are

* Streetwise Tactical Ploys (STP)
* Principled Negotiation
* Negotiation as a phased process

In Modules II and III we described the Streetwise Tactical Ploys (STP) and Principled Negotiation. We will now continue with the next approach.

Negotiation as a phased process

This third approach can actually be applied to the other two.

The first published work on a phased approach was Anne Douglas’ book "Industrial Peacemaking". As the title indicates, the book concentrated on labor negotiations.

Ms. Douglas proposed a three-phased approach:

1. Establishing the negotiation range
2. Getting intelligence (knowledge) about the range
3. Precipitating the decision-reaching crisis

STUDENT: Phase 1 is not too difficult to understand. If I intend to negotiate with my employer, I must decide if I am going to negotiate one or more of the following items: salary and or wages, health insurance, vacations, overtime, etc. What about phase 2?

TEACHER: It means you should find out as much as possible about the range your have decided upon. For example, if you intend to negotiate on salary, you should find out about salary levels for comparable positions in your industry and within your own company.

And before you ask me about phase 3, let me emphasize that Ms. Douglas’ work was centered on labor negotiations. We may interpret the decision-reaching crisis to be a strike or the threat of a strike or a lock-out. In your hypothetical negotiation with your employer you might indicate that you have been receiving calls from headhunters lately, or something like that. Of course, this may be a risky tactic, since a strike or a lock-out may cause serious damage to both parties. And your boss may react by telling you to go ahead and quit. Your decision whether to advance to phase 3 or not must be based upon your research in phase 2. If you are a specialist in a high-demand technical area you may go ahead and try it. If you are an easily replaced clerk you should think twice.
Gavin Kennedy observed what negotiators did and concluded that they followed 8 steps. The hypothesis is that all negotiations have a common structure, independent of the subject, the environment, the culture, or any other particular characteristic (G.Kennedy, J.Benson and J.McMillan "Managing Negotiations")

The 8 steps are:

1. Prepare
2. Argue
3. Signal
4. Propose
5. Package
6. Bargain
7. Close
8. Agree

STUDENT: This is very neat as a clinical description. But what is the practical use of having discovered that these steps are followed almost universally by negotiators?

TEACHER: Good observation. The answer is that the steps or phases actually do not describe what negotiators should or should not do. But once these steps have been identified, negotiators can concentrate in improving their skills in each individual step. Naturally the better they become in their behavior in each of steps of the process, the more effective they will be as negotiators.

It is also helpful for negotiators to be aware of which of the steps they are working on. The steps must not necessarily be followed in the order given, and frequently the process may jump back and forth from one to another; say, between proposing and bargaining. But a negotiator must know at each moment what he and his counterpart are doing, without confusing one step with another.

But let me give you a short description of each of the points Kennedy defined.

1. Preparation. For any negotiation good preparation is crucial, and the more important the negotiation, the more important the preparation. Basically it is necessary to:

* Identify the negotiable issues
* Issues have different priorities and these priorities must be defined
* Define the entry point of the negotiation: how are you going to start?
* Define the exit point: the situation at which you will be prepared to abandon the negotiation

2. Arguing

This word has two meanings. One of them involves conflict and destructive behavior; in this sense it usually includes the word "with". As in "he argued with his boss". The other meaning is about constructive exchange of ideas, as "he and his boss argued about the best way to solve their problem". It is the latter meaning that is used in our list of steps. Arguing, in the former sense, is usually bad for both parties and not advisable. But in any negotiation parties "argue" in the sense of debating, explaining their reasons for certain positions, discussing issues, and exploring alternatives.

Debate is a constant in any negotiation. But sometimes participants get stuck in debate and do not progress. Trained negotiators are skilled in ways to "escape" deadlocks in debate, most based on telling the other party something like: "OK, we can’t agree on this right now, lets move on and come back to this issue later on". Many times the deadlock is not on the basic issue under debate but on an ancillary issue. In this case a skilled negotiator diplomatically suggests that the discussion return to the main point of debate.

If a debate is going to progress towards agreement, it is necessary for the parties to "move", that is to change their positions. This is natural because for every issue there are two initial solutions, since each party will have their own. So the problem you have as a negotiator is how to move without giving in. It is necessary to discover a third solution different from the initial ones.

STUDENT: Let me see. Assume I start by offering a 5% discount and the other party wants 10%. We are in a deadlock, and therefore I move and say: "OK, I’ll give you 7%". Is that a good strategy?

TEACHER: I don’t think so. If you move unilaterally in the hope that the other party will move too, you will probably be disappointed. The other negotiators will interpret that you are just delaying your final surrender, which in your example means giving them the 10% discount. So they will probably insist on their demand, and your unilateral movement will not have solved the deadlock.

STUDENT: I see, but not moving at all is no solution either. The deadlock will become more serious as time passes.

TEACHER: Yes. You should make a proposal of a certain kind. We will talk about that in a moment. But let’s move to Step 3.

3. Signaling

If you ever negotiated with an experienced professional, such as a real estate or car salesperson, maybe you were aware as how attentively this person observed you and whoever accompanied you at the moment. This is because professional negotiators are very alert to signaling. A signal can be verbal or not. If you are inspecting a house as a prospective buyer and tell your spouse: "We could use this room as a home office", say goodbye to any reduction in the asking price. You have signaled that you are accepting the realtor’s price. If you look at your spouse and get a smile and a nod as mute response, you are done too.

Verbal signals can be rather subtle.

Assume you are the realtor now and your prospective customers’ first reaction was saying: "it is impossible that we spend that much money on a house". You "debate" by stressing the value of the nice garden, the view, and the proximity of good schools. Now your prospective customer repeats: "it is difficult for us to spend that much money on a house". If you are alert for signals, you must have noticed one. Which was it?

STUDENT: The prospect changed the wording, from "impossible" to "difficult".

TEACHER: Very good. There are of course many variations. But you have grasped the concept. Negotiators who are not alert for signals should better learn this lesson or change their profession.

The next step is...

4. Proposing

The effective way to make a proposal without indicating your readiness to surrender is the "if-then" format. The best way to word the proposal is the interrogative form. Let’s return to your example of the 5% vs. 10% deadlock. Instead of moving unilaterally and saying "OK, I’ll give you 7%" you might say: "If I did something for you like giving you a 7% discount, would you then do something for me, like shortening credit terms from 30 days to 7 days? Or what else would you propose?

You can make many questions of this kind without committing yourself and as your counterparts answer the questions you will learn more about their positions and attitudes. And you could advance to the next step...

5. Packaging

You can put together a proposal which, by taking into consideration the answers given to the "if-then" questions, will have a good prospect of leading to a deal.

6. Bargaining

The sixth step consists in repeating the proposing and packaging steps until both parties can agree and advance to the last two steps,

7. Closing, and

8. Agreeing

Once bargaining has reached a point were both parties are ready to close the negotiation process by reaching a deal, a written agreement is necessary. This must not be necessarily a full contract, but at least a clear outline of the agreement must be put in black and white and signed by the negotiators. Otherwise, as it frequently happens, people may think they have an agreement only to discover later that they had none. "Misunderstandings" about the terms of an agreement must be avoided at all cost, they are much harder to surmount than an interruption of a negotiation.

Very well, let us have our Q&A session.

Question 1
"Issues have different priorities and these priorities must by defined". To which of Kennedy’s 8 steps do you think this applies?

Step 1, Preparation

Question 2
A negotiation is going on about the sale of a used sports car between the owner and a couple, the prospective buyers. One member of the couple tells the other: "This car is the exact size that fits into our small garage" .

1. To which of Kennedy’s 8 steps do you think this applies?
2. Is it a good negotiating practice for the prospective buyers?

1. Step 3, Signaling
2. No, because it signals to the seller that the buyers are ready to "surrender" and accept the seller’s terms.

Question 3
You and your counterpart are in a deadlock position in a debate. They want to inspect your processing plant twelve times a year without notice, you want 4 inspections a year with one week notice. You decide to move out of the deadlock and say "Well, I’ll settle for 6 times a year and 3 days notice".

1. Is this an effective movement for you? If not, why?
2. What would be an advisable action to break the deadlock?

1. No, because a unilateral movement of this kind tells the other party that they can get more out of you without giving anything in exchange, and they will probably press for more.
2. It is advisable to make a proposal in the "if-then" format. Like "Let’s think of something you could do for me if I accepted a few more inspections a year, which as you know have a cost".

Question 4
It is widely accepted that "arguing" is not a positive behavior. Pedro is negotiating with a US company about supplying canned beans made in his Mexican factory. He tells the American negotiators that his plant has state-of-the-art equipment and very good manufacturing practices, and they answer that they do not agree. Pedro has good reasons to support his claim, like an article published in a German trade magazine about his Mexican plant. But Pedro wants to avoid "arguing", so he refrains from debating this point. What do you, being a first class negotiator, think of Pedro’s attitude?

In the situation described , Pedro did not correctly interpret the advice "do not argue". Arguing in the sense of debating, explaining your reasons for certain positions and discussing issues is not only acceptable but recommendable. Pedro should politely mention the article on the trade magazine as support of his claim and offer to send someone for a copy immediately.

Question 5
You and your counterparts in a negotiation have reached a verbal deal. What should be done before leaving the negotiation table?

All parties should sign a written agreement, in order to avoid possible misunderstandings.