Negotiation
Nov 01, 2014
Negotiation
When two or more parties are doing businessand would like to arrive at a solution withrespect to price , service or quality
When business risks involved cannot beaccurately pre-determined
When a long period of time is required toproduce the items purchased
When to Negotiate ?
BATNA (Best Alternative To a Negotiated Agreement)
Reservation Price ZOPA (Zone Of Possible Agreement) Value Creation Through Trade
Key Concepts of Negotiations
The concept has been developed by Roger Fisher and William Ury
It is ones preferred course of action the absence of a deal
Knowing your BATNA means knowing whatyou will do if you fail to reach an agreement inthe negotiation
Know your BATNA before the Negotiation.
Know your BATNA
Improve your BATNA to improve your negotiating position
Identify the other sides BATNA Weaken the other party's BATNA
Improving your position in the negotiation table
Also Known as the walk away price Reservation price should be derived from your
BATNA Don't enter a negotiation without a clear
reservation price
Reservation Prices
ZOPA is the area or range in which a deal that satisfies both parties can take place
It is the set of agreement that potentially satisfy both parties
Each Party's reservation price determines one end of the ZOPA
Zone of Possible Agreement (ZOPA)
ZOPA in Distributive Negotiations
The negotiating parties can improve their position by trading the values at their disposal. Getting what one wants in return for something it values much less
Both parties often emerge as winners
Value Creation Through Trades
Identify people having decision making authority
Identify the real parties in sophisticated business
transactions.
Identify all the influential parties to the
negotiation as they can redefine the whole
endeavor.
Identify the current and potential parties in
negotiation.
Who are the real parties in the negotiation?
Negotiators must ask following questions to themselves: - what due diligence needs to be done before, during
and at the end of the deal ?
what gives more value: short term benefits or long
term results ?
what is the best time to strike the deal ?
Is there a need to refine the interests due to
changed circumstances
What are the interests and priorities of the key parties?
Value Creation: Not on common ground but by capitalization on differences
More dimensions of differentiation add more value
Differences may be in Valuation, Expectation, or Attitude towards risk
Agreements can fetch gains for all parties involved
Mutual gains not necessarily equal gains
Motive should be to reach “Pareto Optimal”
How can value be created—and who will get it?
Three main kind of barriers are :
Strategic Behavior Parties shouldn’t exaggerate
One must weigh the benefits and risks of specific bargaining
value
Psychological or interpersonal Emotions should be kept aside on the negotiation table
Negotiations should be free of power and status play
Should be resolved using skillful management of negotiation
Institutional Legal/Policy related barriers.
What obstacles might prevent agreement (or the maximization of value) and how can they be overcome?
Recognize that the other party may not share your view of what constitutes power
Hard to negotiate with someone who has lost it all ! e.g. A company filing for Bankruptcy
Change the basic architecture of negotiation. e.g. Talk to Manager instead of a Salesman
Using time to increase bargaining power e.g..: Using deadlines to reach the agreement
“Exert Power”: attack BATNA of other party e.g. don’t sweeten your offer rather worsen result of refusing
your offer
How can the various parties influence the negotiation process and its outcomes?
Questions that negotiators must ask themselves
What do one party owe to the other party?
How are the equity of the agreements reached? One should be concerned whether the other party gets due share
Is it morally correct to force in negotiation?
How will it affect the parties not at the bargaining
table?
What are the moral issues in negotiating on behalf of
others?
What is the right thing to do?