Good simple stuff.
Monday, May 11, 2015
Negotiation in a nutshell
I find the vast majority of articles found on the web on the topic of negotiation to be shallow at best, and misguided and lacking in real world experience at worst. Here is a great one though.
Keep Time and Emotion from Killing a Negotiation
Anthony K. Tjan
JULY 21, 2014
https://hbr.org/2014/07/keep-time-and-emotion-from-killing-a-negotiation/
Time and emotion — these are the two things most often wasted during a negotiation. We simply spend too much time on items that don’t really matter, because we let our emotions override any semblance of logic. It is a natural human response to act negatively, reactively, and emotionally to any negotiation points that are counter to one’s pre-disposed positions. It is also poor negotiation practice.
The mere fact of having a position lies at the root of why we get caught up in the drama of a negotiation, rather than focusing on the plotline or ending (i.e. goal) toward which we are striving. In business school, students are sometimes taught the difference between position-based versus interest-based negotiation. When you focus on the differences between your positions rather than the commonality of your interests, little progress can be made. There is nothing necessarily wrong with having a going-in negotiating position, and we can’t really avoid having pre-existing assumptions and desires. But when we don’t get what we want and frustration ensues, what can we do? The key is to understand five areas that can both help move a negotiation forward and in doing so usually advance us to where we want to be:
Understand the common goal and common interest. Make sure you fully digest and articulate any areas of common interest. Is it simply to maximize value for the company or are there instances, for example, where the greater common goal may be to get a deal done to sell a business rather than optimize its value by waiting? One of the best ways of making this happen is to simply to have both sides articulate their goals and interests in writing and share them to ensure clarity and alignment.
Understand the underlying and ancillary motivations of the other side. Oftentimes there are conflating or conflicting interests at hand. As much as possible, you need to understand the total “motivational picture” of your counterparty. For example, at our firm we have been in negotiations where we ultimately learned that what appeared to be irrational negotiating by the other side was driven by how they were compensated for the deal. Where possible, uncover if those negotiating for other side have any personal remuneration at stake, and how that changes with different outcomes – it will drive behavior.
Be transparent and explain the why of your points. It can be surprising how seldom people explain the why of a position for which they are fighting. Take even the previous example on personal deal compensation. If something is going to impact you personally, it may be better for you to disclose it — at least the other party will understand. So often it is taken for granted that the other side fully appreciates why you are asking for a term or condition when they actually have little clue. Before you can do this, you also need to make sure you fully understand your own why for each of your points!
Calculate the materiality of each point. Much of the time sink of negotiations is unfortunately spent on elements that don’t really matter — things that will not materialize, or if they do won’t have a major impact. Legal and tax counsel is always critical and highly valuable, but can sometimes also be the tail that wags the dog. Once I was leading an important negotiation where we debated at length with legal and tax experts over “edge scenarios” that might negatively impact us. This went on for two days until I took a step back to actually calculate what our largest dollar exposure could be. It turned out to be less than the cost of of preparing a structure to avoid it and likely less than the professional and legal fees we had already accumulated thinking about it! Do the math and calculate how material a point is — then determine if it is really worth fighting for in the bigger picture.
Look for points that have an asymmetry in value. Once you understand the math of a negotiation, look where there may be asymmetry. There are always points where there is a fundamental difference in how each side perceives the value. To be effective in negotiation you need to comprehend the balance of trade on every key point. Basically, look where your currency is worth more. Consider, for example, the purchase of a house. If the eventual price is the most important currency for you, then see where there may be a different lever (a different “currency”) to trade for your desired lower price. Sometimes a seller may care more about the timing or certainty of a closing than the price. Taking out a financial contingency, or letting the close happen on whatever time frame the seller wants, may gain you disproportionate benefit in the price. Remember the bigger context and have the empathy and rationality to think about it from the other side.
Following the five rules above will eliminate a large amount of futile negotiation on things that don’t matter, or things that matter much more for one side than the other. The goal of any negotiation is to reach agreement, but unfortunately the journey there is usually painful. We find ourselves “stuck” on terms or conditions we feel are must-haves, and lose perspective as to why we want the things we think we want. It does not need to be like that. Focus on the two or three scenarios that really matter for each side and have reasonable probability of being realized, as opposed to every edge scenario. In the end it probably won’t be a contract that saves you. It will be the quality of your relationship, your rationality, and, yes, your ability to do effective subsequent negotiation (definitive documents are rarely definitive). The reality is that you are more likely to get a fair deal — and even get the opportunity, from time to time, to have your cake and eat it too — if you stay disciplined on the underlying architecture and rationality of each negotiation point. Good luck, and happy negotiating.
Keep Time and Emotion from Killing a Negotiation
Anthony K. Tjan
JULY 21, 2014
https://hbr.org/2014/07/keep-time-and-emotion-from-killing-a-negotiation/
Time and emotion — these are the two things most often wasted during a negotiation. We simply spend too much time on items that don’t really matter, because we let our emotions override any semblance of logic. It is a natural human response to act negatively, reactively, and emotionally to any negotiation points that are counter to one’s pre-disposed positions. It is also poor negotiation practice.
The mere fact of having a position lies at the root of why we get caught up in the drama of a negotiation, rather than focusing on the plotline or ending (i.e. goal) toward which we are striving. In business school, students are sometimes taught the difference between position-based versus interest-based negotiation. When you focus on the differences between your positions rather than the commonality of your interests, little progress can be made. There is nothing necessarily wrong with having a going-in negotiating position, and we can’t really avoid having pre-existing assumptions and desires. But when we don’t get what we want and frustration ensues, what can we do? The key is to understand five areas that can both help move a negotiation forward and in doing so usually advance us to where we want to be:
Understand the common goal and common interest. Make sure you fully digest and articulate any areas of common interest. Is it simply to maximize value for the company or are there instances, for example, where the greater common goal may be to get a deal done to sell a business rather than optimize its value by waiting? One of the best ways of making this happen is to simply to have both sides articulate their goals and interests in writing and share them to ensure clarity and alignment.
Understand the underlying and ancillary motivations of the other side. Oftentimes there are conflating or conflicting interests at hand. As much as possible, you need to understand the total “motivational picture” of your counterparty. For example, at our firm we have been in negotiations where we ultimately learned that what appeared to be irrational negotiating by the other side was driven by how they were compensated for the deal. Where possible, uncover if those negotiating for other side have any personal remuneration at stake, and how that changes with different outcomes – it will drive behavior.
Be transparent and explain the why of your points. It can be surprising how seldom people explain the why of a position for which they are fighting. Take even the previous example on personal deal compensation. If something is going to impact you personally, it may be better for you to disclose it — at least the other party will understand. So often it is taken for granted that the other side fully appreciates why you are asking for a term or condition when they actually have little clue. Before you can do this, you also need to make sure you fully understand your own why for each of your points!
Calculate the materiality of each point. Much of the time sink of negotiations is unfortunately spent on elements that don’t really matter — things that will not materialize, or if they do won’t have a major impact. Legal and tax counsel is always critical and highly valuable, but can sometimes also be the tail that wags the dog. Once I was leading an important negotiation where we debated at length with legal and tax experts over “edge scenarios” that might negatively impact us. This went on for two days until I took a step back to actually calculate what our largest dollar exposure could be. It turned out to be less than the cost of of preparing a structure to avoid it and likely less than the professional and legal fees we had already accumulated thinking about it! Do the math and calculate how material a point is — then determine if it is really worth fighting for in the bigger picture.
Look for points that have an asymmetry in value. Once you understand the math of a negotiation, look where there may be asymmetry. There are always points where there is a fundamental difference in how each side perceives the value. To be effective in negotiation you need to comprehend the balance of trade on every key point. Basically, look where your currency is worth more. Consider, for example, the purchase of a house. If the eventual price is the most important currency for you, then see where there may be a different lever (a different “currency”) to trade for your desired lower price. Sometimes a seller may care more about the timing or certainty of a closing than the price. Taking out a financial contingency, or letting the close happen on whatever time frame the seller wants, may gain you disproportionate benefit in the price. Remember the bigger context and have the empathy and rationality to think about it from the other side.
Following the five rules above will eliminate a large amount of futile negotiation on things that don’t matter, or things that matter much more for one side than the other. The goal of any negotiation is to reach agreement, but unfortunately the journey there is usually painful. We find ourselves “stuck” on terms or conditions we feel are must-haves, and lose perspective as to why we want the things we think we want. It does not need to be like that. Focus on the two or three scenarios that really matter for each side and have reasonable probability of being realized, as opposed to every edge scenario. In the end it probably won’t be a contract that saves you. It will be the quality of your relationship, your rationality, and, yes, your ability to do effective subsequent negotiation (definitive documents are rarely definitive). The reality is that you are more likely to get a fair deal — and even get the opportunity, from time to time, to have your cake and eat it too — if you stay disciplined on the underlying architecture and rationality of each negotiation point. Good luck, and happy negotiating.
Sunday, May 10, 2015
Negotiation - give a range, not a fixed number
Source: http://qz.com/356612/you-are-almost-certainly-starting-salary-negotiations-wrong/
First, a range shapes expectations about an acceptable counteroffer. When there’s a number explicitly framed as a floor, people assume you’re unlikely to take something below it. They don’t necessarily make the same assumption with a single number.
Second, there’s the politeness effect. People are much less likely to go way below the bottom number of a range because they feel like it would be insulting. Similar qualms aren’t nearly as strong with single-point offers. And offering a range is generally seen as a sign of flexibility, even when the actual numbers are relatively high.
The researchers conducted a series of five experiments. In each case, a bolstering range led to better counteroffers, higher estimates of the lowest price someone would take, and a resolution—whereas starting with a single extremely high number had the negative effect of simply shutting down more negotiations or having them end in an impasse.
They also found that a bracketing range, where you put a floor below the number you really want and a ceiling above, doesn’t work nearly as well.
An experiment pitting two people negotiating over the sale of a used car found that a bolstering range led to an average counteroffer nearly $200 dollars higher than a single-point offer, and a higher-end settlement ($6,985 versus $6,776). Bolstering ranges also outperformed bracket ranges and extremely high, single-point offers.
But the bigger payday isn’t the only benefit of offering a bolstering range. People sometimes forget that it’s not all about money, that the relationship with a superior afterwards matters as well.
Across the experiments, people offering the higher range weren’t seen as any more aggressive or obnoxious than those who offered a single point, even though the high end of their range was a much larger amount. They were also seen as more flexible and confident.
So if you’re not making the first offer in a negotiation, consider doing so (the research on how that anchors negotiations is well established), and once you do, make it a bolstering range.
Psych study abstract re. 1st offers:
J Pers Soc Psychol. 2001 Oct;81(4):657-69.
First offers as anchors: the role of perspective-taking and negotiator focus.
Galinsky AD1, Mussweiler T.
Abstract
Three experiments explored the role of first offers, perspective-taking, and negotiator self-focus in determining distributive outcomes in a negotiation. Across 3 experiments, whichever party, the buyer or seller, made the 1st offer obtained a better outcome. In addition, 1st offers were a strong predictor of final settlement prices. However, when the negotiator who did not make a 1st offer focused on information that was inconsistent with the implications of the opponent's 1st offer, the advantageous effect of making the 1st offer was eliminated: Thinking about one's opponent's alternatives to the negotiation (Experiment 1), one's opponent's reservation price (Experiment 2), or one's own target (Experiment 3) all negated the effect of 1st offers on outcomes. These effects occurred for both face-to-face negotiations and E-mail negotiations. Implications for negotiations and perspective-taking are discussed.
First, a range shapes expectations about an acceptable counteroffer. When there’s a number explicitly framed as a floor, people assume you’re unlikely to take something below it. They don’t necessarily make the same assumption with a single number.
Second, there’s the politeness effect. People are much less likely to go way below the bottom number of a range because they feel like it would be insulting. Similar qualms aren’t nearly as strong with single-point offers. And offering a range is generally seen as a sign of flexibility, even when the actual numbers are relatively high.
The researchers conducted a series of five experiments. In each case, a bolstering range led to better counteroffers, higher estimates of the lowest price someone would take, and a resolution—whereas starting with a single extremely high number had the negative effect of simply shutting down more negotiations or having them end in an impasse.
They also found that a bracketing range, where you put a floor below the number you really want and a ceiling above, doesn’t work nearly as well.
An experiment pitting two people negotiating over the sale of a used car found that a bolstering range led to an average counteroffer nearly $200 dollars higher than a single-point offer, and a higher-end settlement ($6,985 versus $6,776). Bolstering ranges also outperformed bracket ranges and extremely high, single-point offers.
But the bigger payday isn’t the only benefit of offering a bolstering range. People sometimes forget that it’s not all about money, that the relationship with a superior afterwards matters as well.
Across the experiments, people offering the higher range weren’t seen as any more aggressive or obnoxious than those who offered a single point, even though the high end of their range was a much larger amount. They were also seen as more flexible and confident.
So if you’re not making the first offer in a negotiation, consider doing so (the research on how that anchors negotiations is well established), and once you do, make it a bolstering range.
Psych study abstract re. 1st offers:
J Pers Soc Psychol. 2001 Oct;81(4):657-69.
First offers as anchors: the role of perspective-taking and negotiator focus.
Galinsky AD1, Mussweiler T.
Abstract
Three experiments explored the role of first offers, perspective-taking, and negotiator self-focus in determining distributive outcomes in a negotiation. Across 3 experiments, whichever party, the buyer or seller, made the 1st offer obtained a better outcome. In addition, 1st offers were a strong predictor of final settlement prices. However, when the negotiator who did not make a 1st offer focused on information that was inconsistent with the implications of the opponent's 1st offer, the advantageous effect of making the 1st offer was eliminated: Thinking about one's opponent's alternatives to the negotiation (Experiment 1), one's opponent's reservation price (Experiment 2), or one's own target (Experiment 3) all negated the effect of 1st offers on outcomes. These effects occurred for both face-to-face negotiations and E-mail negotiations. Implications for negotiations and perspective-taking are discussed.
A simple truth to leadership
Simply put, compassion makes the difference between understanding and caring. It’s the kind of love that a parent has for a child. Cultivating it more broadly means extending that to the other people in our lives and to people we encounter.
I think that in the workplace, that attitude has a hugely positive effect, whether it’s in how we relate to our peers or how we are as a leader, or how we relate to clients and customers. A positive disposition toward another person creates the kind of resonance that builds trust and loyalty and makes interactions harmonious. And the opposite of that — when you do nothing to show that you care — creates distrust, disharmony, and causes huge dysfunction at home and in business.
Source: https://hbr.org/2015/05/what-the-dalai-lama-taught-daniel-goleman-about-emotional-intelligence
I think that in the workplace, that attitude has a hugely positive effect, whether it’s in how we relate to our peers or how we are as a leader, or how we relate to clients and customers. A positive disposition toward another person creates the kind of resonance that builds trust and loyalty and makes interactions harmonious. And the opposite of that — when you do nothing to show that you care — creates distrust, disharmony, and causes huge dysfunction at home and in business.
Source: https://hbr.org/2015/05/what-the-dalai-lama-taught-daniel-goleman-about-emotional-intelligence
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