Negotiation for Fun and Negotiation for Fun and Profit: Profit: A Practical Guide A Practical Guide Michael Erdle Managing Partner © 2008, Michael Erdle
Negotiation for Fun and Profit: A Practical Guide
Oct 17, 2014
Part of the CIBC Presents Entrpreneurship 101 lecture series. For more information including a session webcast, visit: http://www.marsdd.com/Events/Event-Calendar/Ent101/2008/negotiations-11052008.html
The art of effective negotiation; how to build lasting agreements without becoming either a bully or a wimp. The art of negotiation touches every aspect of our lives -- we routinely negotiate with our spouses, our children, our landlord, our employer, and so on. It is equally important in business -- we negotiate with our customers, our suppliers and our investors. This lecture, \"Negotiation for Fun and Profit,\" is given by Michael Erdle, managing partner of Deeth Williams Wall. Michael is a specialist in mediation and arbitration and gives a thorough grounding in the basics of negotiating skills.
Case studies focus on issues situations most entrepreneurs will face: research projects, starting a business venture, obtaining investors and licensing a product or invention.
The art of effective negotiation; how to build lasting agreements without becoming either a bully or a wimp. The art of negotiation touches every aspect of our lives -- we routinely negotiate with our spouses, our children, our landlord, our employer, and so on. It is equally important in business -- we negotiate with our customers, our suppliers and our investors. This lecture, \"Negotiation for Fun and Profit,\" is given by Michael Erdle, managing partner of Deeth Williams Wall. Michael is a specialist in mediation and arbitration and gives a thorough grounding in the basics of negotiating skills.
Case studies focus on issues situations most entrepreneurs will face: research projects, starting a business venture, obtaining investors and licensing a product or invention.
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Negotiation for Fun and Profit:Negotiation for Fun and Profit:A Practical Guide A Practical Guide
Michael Erdle
Managing Partner
© 2008, Michael Erdle
IntroductionIntroduction
Negotiation Problems Negotiation SkillsDispute Resolution
In theory there is no difference between theory and practice. In practice, there is. -- Jan van de Snepscheut
Why Do We Negotiate?Why Do We Negotiate?
To get things we need or want.To resolve or reduce conflict.To create value.To enhance prestige or reputation.
What is Negotiation?What is Negotiation?
Everything can be negotiated. Business Relationships
• “I want to buy your product/service.”
• “Let’s be partners.”
Personal Relationships• “What movie to you want to see?”
• “Can I borrow the car?”
What is Negotiation?What is Negotiation?
Negotiation is expressly about specific products, services or actions.
Negotiation is also implicitly about controlling personal feelings and behaviour.
The negotiator must recognize both the visible and hidden elements of negotiation.
How Not to NegotiateHow Not to Negotiate
Assume things are non-negotiable.Don’t prepare.Make it a “zero-sum” game.Be inflexible. Insist on certainty and control.Fail to understand, evaluate alternatives.Show impatience.Reveal too much, too soon.
Negotiation GoalsNegotiation Goals
Identify Issues What does each side want and need?
Consider Interests Mutual Complementary Conflicting
Create Value Opportunistic vs. Problem-solving
Distributive BargainingDistributive Bargaining
“Win-lose” approachIn a zero sum game, the person who makes
the first offer is at a disadvantage sets the outer limits of price, other terms
Improve zero-sum negotiation skills by: Understanding your objectives Understanding the other side’s objectives
Negotiation TrapsNegotiation Traps
10 Classic “Hard Bargaining” Ploys Extreme claims, small concessions Early commitment – “my hands are tied” “Take or leave it.” Unreciprocated offers Increasing demands Personal insults Bluffing and lying Threats and warnings Attacking the alternatives Good cop, bad cop
““Interest-Based” NegotiationInterest-Based” Negotiation
“Win-win” approach – make the pie bigger.Different people value the same thing
differently.Multiple interests and trade-offs.Recognize interdependence.Value the relationship more than the
outcome of a single negotiation.
Effective NegotiationEffective Negotiation
Successful relationships are built on communication and trust.
Negotiation can help to create trust – or decide whether trust is justified.
Example: “The Prisoner’s Dilemma” – classic game theory problem
The Prisoner’s DilemmaThe Prisoner’s Dilemma
Bob and Alice are arrested near the scene of a burglary and questioned separately by the police.
Each has to choose whether to confess and implicate the other. If neither one confesses, both will serve one year in
jail (carrying burglar tools). If each confesses and implicates the other, both will go
to prison for 5 years. But, if one confesses and implicates the other, and the
other does not confess, the collaborator will go free, and the other will go to prison for 10 years.
The Prisoner’s DilemmaThe Prisoner’s Dilemma
Options: confess don't confess.
Payoffs (penalties) = prison sentences. Shown in a "payoff table" -- standard in
game theory.
The Prisoner’s DilemmaThe Prisoner’s Dilemma
Payoff table for the Prisoners' Dilemma:
Alice
confess silent
Bobconfess 5 5 0 10
silent 10 0 1 1
The Prisoner’s DilemmaThe Prisoner’s Dilemma
Lack of trust is the key – neither prisoner can trust the other to remain silent.
So the rational action is to confess.That produces the best result no matter
what the other person does.But what happens if there’s a series of
negotiations?
Repeated NegotiationRepeated Negotiation
SeriesPayoff Matrix
Player 2 cooperates
Player 2 retaliates
Player 1 cooperates 3, 3 0, 5
Player 1 retaliates 5, 0 -1, -1
Repeated NegotiationRepeated Negotiation
“Tit-for-Tat” strategy is most successful. Four key attributes:
Cooperation Retaliation Forgiveness Generosity
““Tit-for-tat” NegotiationTit-for-tat” Negotiation
1. The player always cooperates, unless provoked.
2. The player retaliates, if provoked.
3. The player is quick to forgive.
4. The game must continue long enough for the ‘retaliation and forgiveness’ pattern to affect opponent’s behaviour.
BATNABATNA
“Best Alternative To Negotiated Agreement”Understanding BATNA – yours and the other
guy’s – is the most important step in improving your negotiating position.
Improve your BATNA and control the negotiations.
Negotiation SkillsNegotiation Skills
Communication is the key to effective negotiation.
What you say is often less important than how you say it. Tone Body language
Negotiation SkillsNegotiation Skills
Understanding and recognition do not mean compromise and concession.
Your own emotions and subconscious brain can hinder your ability to negotiate effectively.
Stroop TestStroop Test
Stroop TestStroop Test
The automatic processing of words interferes with the task of naming the colors.
Selecting an appropriate response involves conflict between the right and left half of the brain.
This conflict is involved in many thought processes and emotional responses.
Source: PBS Onlinehttp://www.pbs.org/wgbh/nova/everest/exposure/stroopdesc.html
Negotiation StylesNegotiation Styles
Three common negotiation styles Competitor Accommodator Avoider
Assertive vs. Empathetic Most effective negotiator is both assertive
and empathetic.
Negotiation SkillsNegotiation Skills
Listening Develop “active listening”.
Understanding Acknowledge the other person’s perspective.
Flexibility Be open to other options.
Pragmatism Be ready to accept the best available option.
Effective NegotiationEffective Negotiation
Interests vs. Positions
“Needs” vs. “wants”
“Separate the People from the Problem.”
Soft on the person
Hard on the problem
Consider other Options
Effective NegotiationEffective Negotiation
Use objective alternatives.
Look for a “win-win” solution.
Find ways to improve BATNA.
Dispute ResolutionDispute Resolution
Arbitration / Litigation
Mediation
Negotiation
MediationMediation
Interest-based Mediation Mediator is a facilitator Focus on interests, not legal rights or
obligations Options for creative solutions
Evaluative Mediation Neutral evaluation Based on legal rights & obligations
MediationMediation
Qualities of a successful mediator: Subject area knowledge Negotiation & mediation process skills Lets parties make key decisions Creative, problem-solving approach. Patience
ResourcesResources
Cohen: You Can Negotiate Anything, Bantam, 1980
Fischer, Ury and Patton: Getting to Yes, Penguin, 1991
Ury: Getting Past No, Bantam, 1993Mnookin, Peppet and Tulumello: Beyond
Winning, Harvard University Press, 2000
Questions?Questions?
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