Conducting a Successful Negotiation

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1 THE POWER OF PERFORMANCE 51 TH ANNUAL CONFERENCE MAY 22-25, 2018 ORLANDO, FLORIDA Conducting a Successful Negotiation Keri Kozlowski J.D., M.P.H.

2 ABOUT ME Attorney Chief Performance Officer UCF College of Business Faculty Executive Coach, Leadership Development Speaker, & Mediator

3 NEGOTIATION A discussion between two or more parties (each with its own aims, needs, and viewpoints) seeking to discover common ground and reach an agreement on a matter of mutual concern or to resolve a conflict.

4 NEGOTIATION We begin negotiating when we are very young People negotiate every day Every time you ask for something you are actually negotiating

5 WHY DO PEOPLE NEGOTIATE? To resolve a problem / dispute between parties To agree on how to share / divide a limited resource To create something new that neither party could attain on his or her own When we believe we can achieve more cooperating with others then without

6 NEGOTIATION MYTHS AND FACTS Myths 1. Good negotiators are born Facts 1. They are self-made 2. Good negotiators take risks 2. They carefully consider risks & potential benefits 3. Good negotiators rely on intuition 3. They rely on preparation

7 NEGOTIATION MYTHS AND FACTS 4. Negotiations are always win-lose 4. A vast majority can be win-win 5. The only negotiations are formal or explicit negotiations 5. Far more negotiations take place informally every day

8 NEGOTIATOR SHORTAGE Many Master Contract Negotiators in both the public and private sectors have retired or became retirement eligible in 2012 During the past 10 years, there has been an increase in the complexity of contracts, making it harder to negotiate a good deal at a fair price U.S. Government Procurement Policies are placing more financial risk on government prime contracts and subcontractors In the next 3-5 years, Negotiation Skills will grow as a key personnel performance indicator

9 SUCCESSFUL CONTRACT NEGOTIATORS: Master the art and science, or soft and hard skills, required to become a master negotiator Are able to and adapt strategies, tactics, and counter tactics in a dynamic environment Communicate ideas clearly and effectively Understand their own negotiation style (and others) Know their products and services, desired terms and conditions, and pricing strategy Can successfully lead a diverse multi-functional team Calmly and deal with high stress situations

11 PLANNING FAILURES 46% of contract managers enter negotiations not knowing what they really want. No clear objectives set Don t understand strengths and weaknesses of own and other position (can t develop persuasive arguments) Don t explore opportunities for value creation Depend on being quick and clever

12 THE ESSENCE OF PREPARATION The foundation for negotiating Adequate preparation leads to beneficial outcomes Preparation & the rule: 80% of your efforts should be devoted to preparation 20% should be devoted to the actual negotiation

13 THE PREPARATION PROCESS What do you want or need? How do you intend to get it? What are your alternatives if no acceptable agreement is reached? What does the other party want or need? What alternatives do the other side(s) have if no acceptable agreement is reached?

14 THE PREPARATION PROCESS Bargaining Mix BATNA Reservation Prices Bargaining Power Analyzing the Other Party

15 THE BARGAINING MIX The bargaining mix is the package of issues up for negotiation. Each item in the bargaining mix, can have its own starting, target and resistance point. Prioritize Issues!!

16 DEFINING THE SITUATION What will you be negotiating? All of the issues that must be addressed to produce the desired outcome Your goals/objectives

17 DEFINING THE SITUATION Kickoff meetings help make sure all players have complete information

18 ESTABLISHING GOALS What do you want? What the other party wants? Goals can be: Substantive Price, terms, contract language, Relationship Short vs. long term!!

19 RELATIONSHIP

20 TARGET POINTS What you realistically hope to achieve for each issue Determining target points What is required to satisfy your interests and set that as your target Setting targets should be based on research Justify and quantify

21 BEST ALTERNATIVE TO A NEGOTIATED AGREEMENT (BATNA) The basic test of any proposed agreement Whether it offers greater value than your best course of action without the other party When preparing to negotiate Identify and analyze your best no-agreement alternatives What would be my best course of action if I can t reach an agreement?

22 WHY BATNA IS IMPORTANT? The goal of a negotiation is NOT to make any deal The goal of a negotiation is to make a good deal: One that is better than each party s respective BATNA

23 BATNA Assessment requires three steps: Identify all the plausible alternative options you might pursue if you are unable to reach an agreement with the other party Estimate the value associated with each alternative Select the BEST alternative this is your BATNA

24 CALCULATE RESERVATION PRICE (RP) Your reservation price is your walk-away point; the point at which you pursue other options (i.e. your breakeven point) Define your reservation price before negotiating Learn your opponents reservation price, if possible

25 ZONE OF POSSIBLE AGREEMENT Seller s Resistance Price Seller s Target Price Seller Settlement Range ZOPA Buyer Settlement Range Buyer s Target Price Buyer s Resistance Price ZOPA is Positive Positive Bargaining Zone Exists

26 ZONE OF POSSIBLE AGREEMENT Seller s Resistance Price Seller s Target Price Seller Settlement Range ZOPA Buyer Settlement Range Buyer s Target Price Buyer s Resistance Price ZOPA is Negative No Possible Agreement

27 LEARN ABOUT OPPONENTS RP Estimate the other party s: Definition of the situation Goals, issues, interests BATNA, reservation prices

28 LEARN ABOUT OPPONENTS RP Exhaust pre-negotiation sources of information Consulting company reports (e.g. Hoovers) News Article, Press Releases, Job Boards Contact your sources within that industry Determine their strategic goals See what you can learn from any member of the negotiating team though informal discussions or slips of the tongue at the table Examine your assumptions Ask direct questions; watch for non-responses

29 LEARN ABOUT OPPONENTS RP Often people have a singular goal of convincing other side to accept a certain kind of deal or demand Prepare by: Determining what I want and identifying a host of reasons why the other side should agree to give it to me. What we learn is limited by what we allow ourselves to learn. We often erect barriers to learning simply by the way we negotiate.

30 RAPPORT BUILDING Negotiators who chat for 5-10 min, even about unrelated issues: Share more information Make fewer threats Develop more trust and respect than pairs who do not Efforts to analyze the other party involve making estimates, assumptions, educated guesses or even hunches

31 ANALYZING THE OTHER PARTY The dilemma of trust The other party may take advantage if you believe too much of what he or she tells you But you may not be able to reach an agreement if you believe too little The dilemma of honesty The other party may take advantage if you share too much information But you may not be able to reach an agreement if you share too little

32 WHAT IF THEY ASK TOUGH QUESTIONS? You need to prepare in advance for tough questions. Helps you avoid lying Helps you avoid giving up too much information Helps you reclaim control of the conversation (and framing)

33 RUG EXERCISE

35 VALUE CLAIMING AND VALUE CREATION Value differences that exist between negotiators include: Differences in interest Differences in judgments about the future Differences in risk tolerance Differences in time preferences

36 NEGOTIATION STRATEGIES Characteristics Distributive Integrative Available resources Fixed amount of resources to be divided Variable amount of resources to be divided Primary MINDSET I win, you lose I win, you win Primary interests Opposed to each other Convergent with each other View of relationships Short term Long term

38 DISTRIBUTIVE BARGAINING Positions (not issues) are the primary focus Reservation prices / resistance points set limits Target points are what you realistically hope to achieve Offers & counteroffers define the process Alternatives (BATNAs) define your resistance points and your power

39 TACTICS OF DISTRIBUTIVE BARGAINING Tactic 1: Tactic 2: Tactic 3: Tactic 4: Tactic 5: Tactic 6: Tactic 7: Tactic 8: Tactic 9: Tactic 10: Planning: Assess your BATNA and improve it Planning: Determine your resistance point, DO NOT reveal it Estimate the other party s BATNA and their resistance point Set your targets high Make the first offer (if you are prepared) Immediately re-anchor if the other party opens first Plan your concessions & counter offers Provide objective support and explanations for your offers Appeal to norms of fairness Do not fall for the even split ploy / Dirty Tactics

40 TACTIC 1: ASSESS YOUR BATNA AND IMPROVE IT Define your BATNA If you BATNA is week Improve it

41 IMPROVE YOUR BATNA If the parties believe your BATNA is inferior to the other party s BATNA: Keep your BATNA concealed, increase its perceived strength Weaken the other party s BATNA thus balance the seesaw Team up with other parties to increase your BATNA Seek a third party opinion

42 TACTIC 2: DETERMINE YOUR RESERVATION PRICES Reservation prices or resistance points set limits & define ZOPA Seller s Resistance Price = S ZOPA Buyer s Resistance Price = B ZOPA = B - S > 0 Positive Bargaining Zone Exists Should you reveal your reservation prices?

43 Tactic 3: Estimate Other Party s RPs Push for settlement near other s resistance point Convince other party to change their resistance point Create a positive settlement range (ZOPA>0) Convince the other side it is the best deal

44 ESTIMATE OTHER PARTY S RP Factors affecting the other party s resistance points: Other party s resistance point + +/- +/- Other s party s lower value of a particular issue Other s vs. your cost to delay/stop negotiations Other s party s perception of how much you value an issue

45 TACTIC 4: SET HIGH ASPIRATIONS / TARGETS Be realistic but optimistic (not outrageous) Negotiators who set high aspirations end up with more of the pie than those who set lower aspirations

46 PLAN YOUR SIDE & GUESS OTHER PARTY S SIDE Target Prices / Aspiration Points Reservation Prices / Resistance Points BATNA Opening Offer Your side Other Party s Side

47 TACTIC 5: FIRST OFFERS & ANCHORS The most critical step in negotiations

48 WHO SHOULD MAKE THE FIRST OFFER? If your understanding is Inferior Will have trouble anchoring effectively If your understanding is Superior You have a better understanding of ZOPA Take advantage and make an optimistic offer If both parties understand the ZOPA well Making the first offer is of little consequence Parties are concerned about fairness If neither parties understand the ZOPA Can run the risk of being too concessionary or too demanding

49 ANCHORING Anchoring = the first offer on the table may anchor the entire negotiation

50 HIGH OPENING OFFERS Advantages Gives you room to maneuver as more information becomes available Sends a strong message that: There is a long way to go to a settlement More concessions than the opponent had planned may be necessary Risks You may alienate the opponent to the point they say "Get lost!" It may damage future negotiations between the parties If you choose to open high, be certain to have a contingency plan to deal with rejection

51 RESPONSES TO AN EXTREME OPENING OFFER How do you respond to an Extreme Opening Offer? Ignore Ask them to justify but be careful! Make an anchored counter, then propose moderation. Give the other side an opportunity to moderate without losing face.

52 TACTIC 7: CONCESSIONS Avoid making unilateral concessions Label your concessions Be explicit about expectations of reciprocity Make contingent concessions Diminishing pattern in concessions Be comfortable with silence Don t lose track of the number of size concessions made by both parties

53 Size of Concessions (in dollars) EXAMPLE: PATTERN OF CONCESSIONS = Chris s concessions =Texas Couple concessions Concession Number

54 BRACKETING The logical process of moving toward a middle point between the opening offers

55 BRACKETING X $500 $1,000 $10,000 $10,000 $1,000 $500 $20K $21K $31K $41K $51K $52K $19,500 Buyer s Opening Offer X = Negotiated price S = seller s reservation price (min. price) B = buyer s reservation price (max. price) $52,500 Seller s Opening Offer

56 TACTIC 8: PROVIDE OBJECTIVE SUPPORT AND EXPLANATIONS Skilled negotiators utilize information / objective criteria to support their offers or diffuse other offers

57 TACTIC 9: APPEAL TO NORMS OF FAIRNESS Norm Negotiator Utilizing the Norm Equality Outcomes are distributed without regard to inputs, and everyone benefits (or suffers) equally Evenly splits the difference between offers; Equity Splits the difference between offers based on proportional inputs of the parties Need Splits the difference between offers based on proportional needs of the parties

58 THE EVEN SPLIT Earlier concessions may have been different in terms of magnitude or pattern, making the bases to split potentially unfair Often the person who suggests the even split is in an advantageous position Ok when dealing with smaller amounts

59 OTHER TACTICS Use Silence Use time to your advantage Flinch

60 HARDBALL TACTICS AND DIRTY TRICKS Hardball Tactic Brief Description How to Counter Bogey Pretend unimportant issue is important Good preparation Good Guy/Bad guy Use two negotiators Openly describe tactic Intimidation and Other Aggressive Behavior Fear, anger, guilt, appearing legitimate Ignore, halt the negotiation to discuss process Lowball/Highball Extreme opening offers Good preparation Nibble Snow Job Selective, Deceiving, or Distorted Info. Include a small issue late in negotiation Overwhelm other with info Relentlessly push for concessions What else do you what? Ask questions, listen carefully, use tech. experts Document

61 FINAL OFFER At some point in your negotiations, you will reach a point beyond which you are unwilling or unable to go When you get there, make your final offer

62 HIPAA COMPLIANCE EXAMPLE Tactic 1: Tactic 2: Tactic 3: Tactic 4: Tactic 5: Tactic 6: Tactic 7: Tactic 8: Tactic 9: Tactic 10: Planning: Assess your BATNA and improve it Planning: Determine your resistance point, DO NOT reveal it Estimate the other party s BATNA and their resistance point Set your targets high Make the first offer (if you are prepared) Immediately re-anchor if the other party opens first Plan your concessions & counter offers Provide objective support and explanations for your offers Appeal to norms of fairness Do not fall for the even split ploy / Dirty Tactics

63 PRACTICE Landlord Tenant

65 INTEGRATIVE NEGOTIATION Focus on commonalities not differences Address needs and interests, not positions Commit to meeting the needs of all parties Exchange information and ideas Invent options for mutual gain Use objective criteria to set standards

66 CREATING VALUE Expanding the resources from which the parties are drawing Goal is to have both parties do well Its is not compromising Positions may be incompatible, but interests may be compatible

67 CREATING VALUE EXPAND THE PIE Changing the number of considerations & the amount of each (adding resources)

68 EXPANDING THE PIE: JOB OFFER NEGOTIATION The employee requests a $75,000 salary Employer offers $52,500 Employer s OO $52,500 Employer s TS $57,500 Employer s RS $62,500 $60,000 $65,000 Employee s RS Employee s TS $75,000 Employee s OO

69 EXPANDING THE PIE: JOB OFFER NEGOTIATION A sign-on bonus Performance bonuses Relocation expenses Stock options Increased vacation time Working conditions or location Working at home or flexible hours Title Timed salary increases A car lease or purchase Parking Space Additional unpaid leave Health insurance: dental, medical, optical Long-Term Care / Disability Insurance Retirement Funds Tuition reimbursement

70 INTEGRATIVE BARGAINING TACTICS Identify and Define the Problem (Issues) Separate the Person from the Problem Focus on Interests Not Positions Invent Options for Mutual Gain Use Objective Criteria to Evaluate Options

71 I. IDENTIFY AND DEFINE THE PROBLEM Identify all issues Classify issues

72 III. SEPARATE THE PERSON FROM THE PROBLEM Being soft on people but hard on the problem Challenges: Managing emotions Managing perceptions Effective communications

73 THE ROLE OF EMOTION Conflict is expressed through our emotions: Anger Fear Disappointment Frustration Hostility Depression

74 THE ROLE OF EMOTION Negative emotions cause negotiators to: Pay less attention to the other party s interests Diminish the accuracy of judgments about interests Use of less cooperative strategies Less interested in having future interactions Can bring a negotiation to an impasse or an end

75 WHENEVER YOU'RE IN CONFLICT WITH SOMEONE, THERE IS ONE FACTOR THAT CAN MAKE THE DIFFERENCE BETWEEN DAMAGING YOUR RELATIONSHIP AND DEEPENING IT. THAT FACTOR IS ATTITUDE. WILLIAM JAMES

76 STRATEGIES FOR TREATING PERCEPTION 1. See the situation from your opponent's perspective 2. Avoid blaming your opponent for the problem 3. Discuss each other's perceptions 4. Try to disappoint your opponent's worst beliefs and expectations about you (be kind!) 5. Give your opponent a stake in the outcome by making sure they participate in the negotiation process 6. Make your proposals consistent with the principles and selfimage of your opponent

77 FREE FLOWING INFORMATION Ask open-ended and probing questions Engage in active listening Reframing

78 WARM BUT LEADING QUESTIONS Hey, I know what you best looks like and I don t think this is it, is the best that you can do?

79 ACTIVE LISTENING Focus on what the other person is saying, understanding both the content and emotion

80 IV. FOCUS ON INTERESTS NOT POSITIONS Interests: Why do you want what you want? Why do you have the goal you have? Positions: What you want No reasons, no justification, just a demand Positions are what you want, interests are why you want it.

81 POSITIONS VERSUS INTERESTS Position 1 I want the orange Why? Position 2 I want the orange

82 FIND OUT THE OTHER PARTY S INTERESTS Do research Ask questions???

83 IDENTIFYING INTERESTS Why do I want the position I demanded? How will it help me? What purposes will it serve for me? What will happen if the other party says no to my demand? What will happen if the other party says yes to my demand?

84 V. INVENT OPTIONS FOR MUTUAL GAIN To invent creative options: Think up possible decisions first ; Decide later Broaden the options on the table rather than look for a single answer Search for mutual gains Look through the eyes of different experts How would each expert diagnose the situation & what kinds of approaches they may suggest

85 INVENT OPTIONS FOR MUTUAL GAIN Broaden your Options Trap: The tendency to search for the single best answer Mythical fixed pie

86 VI. USE OBJECTIVE CRITERIA TO EVALUATE OPTIONS Search for a standard such as market value, expert opinion, law This way, neither party is giving in to the other and a fair agreement is possible Explanations are helpful in persuading the other side to agree We are asking for $50,000 in fees How did you arrive at that figure? Is it supported by market data?

87 EXPANDING THE PIE Build trust and share information Ask questions regarding interests & priorities Provide information Unbundle issues to create potential for tradeoffs Negotiate multiple issues simultaneously Make offers in packages Make multiple offers at the same time

88 PRACTICE Seller Buyer

89 DIFFICULT NEGOTIATOR TIPS Pre-decide what you will and will not give up for the sake of the relationship Prepare emotionally, tell yourself this is temporary Ask factual questions How did you get to those numbers? You said that was illegal, have you spoken to an attorney? Do you need time to speak to an attorney? If you disagree, start out with I might be wrong but then name the parts you disagree with. Or What you say could be correct, but my boss will raise the following concerns Stand your ground. Please let me finish or Of course you would expect me to take these numbers back to my people for verification.

90 RECOMMENDED READING Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher & William Ury Crucial Conversations Tools for Talking When Stakes Are High, 2 nd Edition by Kerry Patterson, Joseph Grenny, Ron McMillan & Al Switzler Contract Negotiations by Gregory A. Garrett The Five Dysfunctions of a Team: A Leadership Fable by Patrick Lencioni

91 KERI KOZLOWSKI J.D., M.P.H.

Chapter 2 Strategy and Tactics of Distributive Bargaining

Chapter 2 Strategy and Tactics of Distributive Bargaining Overview The basic elements of a distributive bargaining situation, also referred to as competitive or winlose bargaining, will be discussed. In