What Every CEO Needs to Know about Negotiation

WP: Why do most business people perceive negotiation as negative?

EK: Most people perceive negotiation as negative because they see it as a competitive endeavor with numerous obstacles and the risk of losing money, power or control. They don’t see negotiation in terms of mutual or joint interests in “the deal”. They only see it from their own limited self-interest.

WP: Can you summarize some of the most common negotiation methods?

EK: There are two primary schools of negotiation theory: distributive and problem solving.

Distributive negotiation, also known as hard positional negotiation, looks at distribution of limited resources, such as power, money, or control between the parties. In this theory of negotiation the exchange is a series of offers and counteroffers geared towards reaching a number and terms that are acceptable to all parties. Professional sports contract negotiations are a good example of this school of negotiation.

Problem solving negotiation, also known as interest-based negotiation, is a collaborative approach to negotiation and aims to expand, rather than divide the resources pie.

WP: When preparing for negotiation using these methods, how should things begin?

EK: In distributive negotiation the first thing you need to do is determine your target and resistance points through indirect and direct assessment. The target point is your optimal price or goal. The resistance point is the bottom line price, below which the deal is off. Indirect assessment involves gathering intelligence and looking at the marketplace for comparable products or services. Direct assessment takes place through bargaining and the exchange of information.

The problem solving negotiation process, on the other hand, has several distinct steps.

First, the negotiators must distinguish positions from interests. Positions are demands, such as the items you want, or tasks you will or won’t do. Interests are your needs, concerns, fears and aspirations. Interests drive positions; they are the motivators. Identifying interests is critical because there are usually multiple and overlapping interests. You can bargain over interests, but not positions.

he second step is to separate the people from the problem. The problem is the substantive underlying issue, i.e., terms, conditions, price or deadline. The people issues are such items as perception, trust, communication and emotion which are often entangled in the underlying problem.

The third step is to develop options for resolution by brainstorming. Instead of evaluating and judging options, first try to generate and brainstorm possible ideas. Suspend judgment while developing options. Successful negotiators need to tackle the problem jointly.

The fourth step is to identify independent criteria for the evaluation of options. Examples of independent criteria are found in law, regulations and industry practice. For example, the most widely known example of independent criteria for evaluating used cars is the Kelly Bluebook.

The fifth and last step is to look at alternatives, also known as BATNA, or Best Alternative to a Negotiated Agreement. Examine the best alternative that satisfies your interests in the event of no agreement. In this way, you are prepared if the negotiation falls apart.

WP: What are some of the things that people commonly confuse when negotiating?

EK: Many people confuse negotiation and persuasion, and see negotiation as an exercise of persuasion. Let’s look at the distinctions between these two processes. Negotiation is the mutual discussion and arrangement of the terms of a transaction or agreement. Persuasion, on the other hand, is the state of influencing someone about a particular belief or idea.

With persuasion, you are putting energy into convincing someone to accept your point of view. In negotiation, you are putting energy into understanding someone else’s point of view. If one looks at negotiating a business deal as an act of persuasion, then it is likely that your negotiations may not have a good track record. This also explains why many people perceive negotiation as negative.

WP: What are the top two or three mistakes that people most commonly make when engaging in a business negotiation?

EK: Failure to prepare for a negotiation is the number one mistake people make. They don’t take the task seriously, and consequently they enter the process without adequate information and analysis. Another mistake people make is the failure to analyze the other side’s position and interests.

n order to strike a mutually successful deal, you need to put yourself in the other party's shoes and try to assess the deal from their perspective. Finally, most parties don’t assess their (or the other party's) BATNA. How will you know if a proposed deal is a good bargain, unless you know what you prospective alternatives are?

WP: What are some business situations in which formal negotiation skills are particularly valuable?

Formal negotiation skills are helpful in any substantial business deal. Executives who are involved with large contract negotiations - such as for a government contract or a collective bargaining agreement - have honed their negotiation skills, usually through formal training and practice. And speaking of practice, this is a good way to get ready for an important business negotiation. Gather your team and rehearse your negotiation.

WP: Can you summarize key tips that every business person should have in mind before entering into a negotiation?

EK: Sure, here are five important priorities for all negotiators:

1.  Always prepare: Never go into a negotiation without preparing your case and anticipating your negotiating partner’s situation. Do your research, assess the BATNA, determine resistance and target points and bargaining range, then think about underlying interests. Rehearse with colleagues if high stakes are involved.
2. Be creative: Consider novel ideas for solving this problem. Ask an outsider who is not so close to the problem for suggestions or ideas.
3. Get feedback: After the negotiation, analyze what worked well and what didn’t. How can your negotiation improve next time?
4. Consider relationships: Examine and evaluate their importance, and their impact on the negotiation. Is there a key long term relationship at stake? What is that worth?
5. Develop a strategy: Create it and then tailor it to the specific case you are negotiating. What worked in a big merger or acquisition might not be successful in the sale of a family owned business.

Image Credit: changeorder (Flickr @ Creative Commons)