Learning MBA Master Degree

In Module II 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 Module II we described the Streetwise Tactical Ploys (STP). We will now continue with the next approach.

Principled Negotiation

In 1982 Roger Fisher and Bill Ury of Harvard University published "Getting to Yes without Giving in", a bestseller about negotiation. The proposals made in this book can be called "Principled Negotiations". The view on negotiations proposed in the book is almost the opposite of the Streetwise Tactical Ploys method. At least it is radically different, from its basic assumptions to the practical tactics it suggests.

The theoretical basis of Principled Negotiations is that "issues and controversies are decided on their merits rather than through a haggling (dickering) process. Under Principled Negotiations you are supposed to look for mutual gains wherever possible, and where your interests conflict, you should insist that the result be based on some fair standards independently of the will of either side. The method of principled negotiation is hard on the merits and soft on the people. It employs no tricks and no posturing. Principled negotiation shows you how to obtain what you are entitled to and still be decent. It enables you to be fair while protecting you against those who would take advantage of your fairness".

STUDENT: Very nice and clean sounding. It suggests that in negotiations you can get what you deserve. While the motto of most the Streetwise Tactical Ploys Seminars is "get what you negotiate, not what you deserve". I guess they actually mean that by negotiating effectively you can get more and not less of what you deserve!

But I see a couple of problems here. How is it possible to define what each party "deserves"? And how does this approach deal with real life realities like the relative power of the parties?

TEACHER: Your points are very valid and we will discuss them later on. But to confirm your reservations, at least in relation to political negotiations, let me tell you a real story. When Mexico, after 70 years of a One Party government system evolved towards a multi-party political environment, the newly democratically elected President appointed a famous writer as Foreign Minister, obviously as a gesture to the country’s cultural world. A reporter interviewed the writer and asked him what was the basic difference between the academic world and the world of politics. The writer answered: "I was used to an environment where issues are debated and decided on the basis of who is right. In politics issues are decided according to power, alliances and pacts, not on who is right."

But we shall go on describing the Principled Negotiations approach and then discuss its merits with you. It may not be perfect, but it certainly has its merits.

Haggling has no basis in principled negotiations. They should be avoided because they tend to create antagonism between the parties.

STUDENT: I notice a strong cultural bias here. This may be true in a certain business environment or for specific people. But remember my experience (Module II) when the seller of the stereo set asked for $300 and I counter-offered $30. He could not understand why I said I was ashamed of making such a low offer. He said "Why, is $30 not money". He was not offended nor antagonized.

TEACHER: Yes, but you decided not to visit that store again; you actually made a judgment and defined the other party as disreputable. And this is another of the reasons why the proponents of principled negotiations do not like haggling: because it is disreputable. Anyway, I concede your point. Haggling, in certain circles, is the normal way to negotiate. It is not only accepted but expected. Let’s go on.
The four components of Principled negotiations are:

* People: separate the people from the problem
* Interests: focus on interests, not positions
* Options: generate a variety of possibilities before deciding what to do
* Criteria: insist that the result be based on some objective standard.

As you can see, in many aspects the contrary of the streetwise method.

People: separate the people from the problem

It is important to separate the issues themselves from the people who hold opinions on those issues. Obviously people are an important part of a negotiation. They can be a part of a negotiation problem. Or they can be the single problem.

STUDENT: Easier said than done. How do you go about this "separation"? Does it mean you accept the issues and opinions of the other person but not the person itself? And is it implied that the solution is to get that person replaced by some other more acceptable individual?

TEACHER: Obviously you rarely have the power to do the latter. What the principle of "separating the people from the problem" means is that you should separate them in you own mind.

Your counterpart in the negotiation may hold a view you disagree with.

He or she may insist that your company must deliver separately to 20 of his company’s points of sale. You are prepared to deliver to a single distribution center. This is a problem.

Now let’s assume the other person is a bigot, supports a political party you despise, and in general expresses opinions which you consider biased and wrong. But this fact is not part of the negotiation nor of the specific problem of the delivery process you and your counterpart disagree on.

You have to separate the person from the problem in your mind. The (in your personal opinion!) negative qualities of the other person should not be part of the problem. You should not let your dislike of your counterpart and of his or her views be reflected in your movements in the negotiation. Quietly but firmly you should insist on your reasons for wanting to deliver to a single central warehouse. Do not show your irritation at the other person’s views on politics, economics or any other subject. This also applies to any other characteristic of the other person, no matter how irritating they can be to you. Concentrate on the problem, not the person.

STUDENT: I do not disagree with the advice. But sometimes it is hard to apply. Once I was negotiating an important sale with a man I really did not like for several reasons, but I kept trying to separate him from the problem which was the delivery schedule. At the time there was one of those little wars somewhere, and this person said the war was good and would bring great benefits. I asked him what he thought about the victims of the conflict. And he answered: "Come on, we are talking about only two to three thousand dead, about the same number of people a large theater can contain". At this point I could not stop myself from saying; "Would you feel the same way if it was your own son or daughter instead of other people’s sons and daughters that were among those ‘few’ dead?" He took offense and quickly found an excuse to reject my whole proposal, in spite of having agreed to it previously.

TEACHER: As much as I can understand how you felt, and while I agree with your opinion, I must tell you that you did not act as a good negotiator should. You did not separate the views of your counterpart on matters not related with the problem, from the problem itself. You could have worked out your disagreement on the delivery schedule if you had separated it from the other person’s valuation of human life versus economic advantage, an issue not related to the problem under discussion.

But let’s advance to the following principle.

Focus on interests, not positions

The most effective way of solving a problem in negotiation is to avoid putting too much stress on positions as compared with interests. Fisher and Ury call people who do that "positional bargainers"; these people attach great importance to their positions in a negotiation. For them positions are all-important and they defend them vigorously. This is usually done by attacking the other party’s positions. The result is usually a stand-off. Neither side will move and both expect the other to yield.

STUDENT: Reminds me of two car drivers meeting on a very narrow road. Unless one moves to the shoulder of the road and lets the other pass, they will be locked in place, each one expecting the other to yield.

TEACHER: Exactly. In fact one assumes that the interest of both drivers is to proceed to their respective destinations. But if their position is "I won’t move, you have to let me pass", then both are "positional bargainers". They give their position so much importance that they will act against their own interests. Kennedy says that "neither side will move but both sides expect the other to move first. Not moving at all is a strange form of bargaining, so it is more correct to describe this as positional posturing rather than bargaining".

STUDENT: Let me see if I grasped the differences between interest, position and issues. My interest in my negotiations with a customer is to close one or more profitable deals. An issue under discussion might be payment terms. And positions would be if I insisted on payment within 7 days, and/or my counterpart demanded 60 days.

TEACHER: Good example. According to Fisher and Ury, interests and not positions should become the focus of negotiation. This is good advice because as in your example of the two drivers, negotiators often neglect interests and come to a stand-off because they maintain their positions with total inflexibility.

But eventually issues and positions must be negotiated; the idea is that they should be considered without forgetting the all-important interests. This will allow actual bargaining to take place; movement and flexibility on issues and positions while focusing on interests. In your example your basic interest is to close a profitable deal, and we assume that your counterpart’s interest is also to close a deal advantageous for him or her. If both parties focus on their interest, the issue of payment terms and the positions on the credit terms would be solved. At least movement and bargaining would be possible.

Options: generate a variety of possibilities before deciding what to do

The third component suggests that the negotiator should encourage his or her counterpart to work together to invent or discover options and possibilities for mutual gain.

To be able to do this it is necessary that both parties recognize that in most negotiations there is not a "zero sum" situation in every issue. "Zero sum" means that whatever one party gains the other party loses. In other words, the pie has a fixed size, and if one party takes a larger piece, the other party gets a smaller piece.

If both parties recognize that "the pie can be made larger" by inventing options for mutual gain, there is a good chance that these options can be found.

One technique often used is "brainstorming". We can describe this method in a few words: "Everyone offers ideas while everyone postpones criticism and judgment".

Basically the brainstorming procedure is based on the following sequence:

* Participants express their thoughts trying not to suppress any idea that comes into their minds.
* All ideas are written down without anyone commenting on them.
* Only when the brainstorming session is completed (usually a time limit is fixed at the start) are the options reviewed, discussed and judged.

Normally most of the ideas are rejected but many times interesting options for mutual gain can be discovered. Naturally the brainstorming process can also be performed separately by the parties within their own organizations and promising options can be later brought to the negotiating table.

Within the framework of the third component of Principled Negotiations we should also mention the good practice of helping your counterpart to find solutions to his or her problems. A creative negotiator can imagine being in the position of the other person and cooperate in finding solutions to the other person’s difficulties.

STUDENT: You are so good at telling real life stories; can you mention a case where a brainstorming session was successful?

TEACHER: No problem. Some time ago I was negotiating with a customer and we could not agree on the price. He was very firm on it; he behaved as a "positional bargainer" on this. I went back to my office and called a meeting of medium-level managers from all departments. We did a brainstorming session. Among the many suggestions a good one appeared. The option was: "Offer them to share logistics". The suggestion made sense because both firms produced goods of the same kind but not competitive, and their factories and distribution centers were not far from each other. We knew that the trucks we rented many times were not loaded to capacity when moving goods from factory to distribution center. Possibly our customer had the same problem. It was worthwhile to explore this option.
I met with my customer again and suggested that if they accepted our price, we would be ready to share transportation facilities. A quick study showed that by doing this both companies could save a lot of money in transportation costs. The customer realized that my proposal would make him more money than reducing my price. The deal was completed and led to a long term relationship of mutual benefit.

STUDENT: Was it really that easy?

TEACHER: Well, not exactly. Of course our proposal was the subject of a "sub-negotiation" on how the savings in transportation would be shared. But this is another story! Let’s move to the next component.

Insist that the results be based on objective standards

The key here is: what is actually a really objective standard? Of course, the idea is wonderful. But its practical application is very difficult. Parties have very different views on how to define "objective".

STUDENT: Well, laws and regulations are objective standards. They do not depend on the wish of the parties.

TEACHER: Sure, but there is a lot of room for disagreement on many matters not subject to laws or regulations. And in these cases the parties will have to agree first on what are the objective criteria. And even after they agree on the criteria, they must agree on a way to settle disputes on facts.

Kennedy says that the "universal application (of this component) is doubtful". But still the advice is very useful in assuring that an agreement is implementable. The fact that an agreement contains specific objective criteria and a specific arbitration system is very important. This is especially true in respect of the technical or chemical specifications of products.

STUDENT: I see a story coming!

TEACHER: If you insist. One large multinational food company I worked for made a deal with the former Soviet Union to export a large quantity of dehydrated chicken broth manufactured in South America. The agreement did not contain specific objective data like maximum acceptable bacteria count. The agreement referred to samples which would be used as basis of comparison for the inspection of shipments. Apparently this was an objective criteria. But dehydrated chicken broth contains a lot of salt. And bacteria do not like a salty environment, and so the bacteria count on the samples diminished substantially as time passed. When the bacteria content of the samples was compared with recently produced dehydrated chicken broth, the soviet inspector argued –rightly- that the bacteria content was much higher than the sample, and did not allow the product to be shipped. There was a long delay in implementing the agreement and the matter was only resolved after a lot of haggling and confrontation.

Best Alternative to a Negotiated Agreement: BATNA

According to Kennedy, " besides the four components, principled negotiation’s main contribution to negotiating practice has been that of a negotiator’s BATNA".

BATNA means that a negotiator must have a clear idea of the best that could happen if he fails to reach a deal. The best, not the worst.

Let’s go back to the dehydrated chicken broth case. After the soviets rejected the product before shipment, the producers came up with their BATNA, which was to sell the product in their home market. Since they would have to repack the cubes (in general South Americans can not read food labels written in Russian), this had a certain cost. They compared this cost with the penalty the soviets demanded for accepting the "below standard" produce. As long as their BATNA was better than the deal offered by the Soviets, they continued the negotiations, insisting that the penalty was excessive. Finally the Soviets made an offer topping the seller’s BATNA.

STUDENT: And the sellers quickly agreed, of course. Right?

TEACHER: Wrong. When you have an offer on the table better than your BATNA, this is not the end of the negotiations. To the contrary, it signals that from that point on you can keep negotiating for a better deal. As long as your counterparts' offers are below your BATNA, you do not actually "negotiate" because you can not "move"; all you can do is insisting that the position of your counterpart is unacceptable. And if eventually you do not get a better offer you will have to abandon negotiations, because your BATNA is better than the best you can get from a deal at this moment.

Take the Questions and Answers Session whenever you are ready

Question 1
Which is the missing word in this statement: "the theoretical basis of Principled Negotiations is that "issues and controversies as decided on their .......... rather than through a haggling process".

Merits

Question 2
Consider the statement that you should "get what you negotiate, not what you deserve". Does it reflect the Streetwise Tactical Ploys or the Principled Negotiations approach?

The Streetwise Tactical Ploys

Question 3
You are in the middle of an important negotiation. You and your counterpart disagree on the way your product should be packaged. And your counterpart also keeps annoying you by making negative comments on the racial group or faith you belong to. Which of the components of the principled negotiations approach should you apply in this case?

Separate the People from the Problem

Question 4
You are dealing with a prospective customer and you have already agreed on price and delivery schedule. But your counterpart is demanding a 5% discount on cash payment and tells you that unless you accept this demand, there is no deal. You know that the deal would be advantageous to your counterpart even if you did not grant the 5% discount. What is the other party doing wrong according to the Principle Negotiations approach?

The other party is focusing on a position (the "non-negotiable" 5% discount) instead of focusing on interests (your mutual interest in closing the deal). Your counterpart is acting as a "positional bargainer".

Question 5
We said that "in most negotiations there is not a ‘zero sum’ situation in every issue". What does ‘zero sum’ mean?

"Zero sum" means that whatever one party gains the other party loses.

Question 6
The writer tells us a story of a negotiator who offered his counterpart the sharing of transportation facilities.

1. Which of the components of the Principled Negotiation approach was applied in this case?
2. And which method was used to discover this proposal?

1. The generation of options and possibilities of mutual benefit.
2. Brainstorming

Question 7
You are about to enter into a negotiation. You have decided the best thing you could do if you can’t reach an agreement. What do we call this "best thing you could do" if your negotiation fails?

Best Alternative to a Negotiated Agreement: BATNA