9/23/2012

ARTICLE SUMMARY

COLLECTIVE BARGAINING AND NEGOTIATION

SIX HABITS OF MERELY EFFECTIVE NEGOTIATOR

GROUP 10 ANUJ THAKUR (2011PGP559) GOVIND RAJ KAUSHIK M (2011PGP640) PERALA PRATHEEK(2011PGP773) PUPPALA MOUNIKA (2011PGP802) SHAKUN GUPTA (2011PGP868) UNHALE NARESHKUMAR RAMC (2011PGP921)

Effective Negotiation is both science as well as art. Though negotiation is done through a process involving various stakeholders of buyer and seller companies, it is also an art to effectively close a deal through negotiations and make sure both sides end up in a win-win situation. Most executives know the basics of negotiation. While some are highly skilled in this area, yet due to high stakes, intense pressure and careless and mistakes, they turn key negotiations into disasters. Even experienced negotiators damage deals, leaving money on the table, getting stuck in deadlock situations and damage working relationships. In any negotiation, each side must ultimately choose between two options whether to accept the deal or look for its best no-deal option i.e. BATNA. While it is important to protect our own choice, we need to understand and shape our counterparts perceived decision and make sure they choose in their own interest what we want. In this way we can jointly create and claim sustainable value from a negotiation. There are many specific reasons for bad outcomes in negotiations, yet experienced negotiators make six common mistakes that can distract from their real purpose: getting the other side to choose what you want for their own reasons.

Mistake 1: Neglecting the Other Sides Problem

We cant negotiate effectively unless we dont understand our own interests and other no-deal alternatives. However if we dont understand the deal from the other sides perspective, we cant solve their problem or ours. So we need to understand and address counterparts problem as a means to solve our own. Most importantly we always need to try to put ourselves in the other persons shoes and understand in depth what value the other side is actually looking out from the deal. Some tough negotiators sometimes see the other sides concerns but neglect them claiming that they bother about their problem. This attitude can undercut the ability to profitably influence how the counterpart sees its problem. Many executives succeeded by understanding the deal from the other side of the table and reduced the gap of the golden bridge, spanning the gulf between where the counterpart is now and our desired point.

Mistake 2: Letting Price Bulldoze Other Interests

Most deals are 50% emotional and 50% economics. While price is an important factor in most deals, it is rarely the only factor to be considered while negotiating. Negotiators who pay attention exclusively to price turn potentially cooperative deals into adversarial ones. This is called reverse Midas negotiation where hard-bargaining tactics (win-lose bargaining) are used that ultimately lose potential gains that could have been achieved otherwise. Several studies have revealed that people in reality care about much more than the absolute level of their own economic outcome. Other interests such as relative results, perceived fairness, self-image, reputation etc. are also important. Successful negotiators who accepted that price isnt everything identified four important non-price factors.

The Relationship Less experienced negotiators often undervalue the importance of developing working relationships with the other parties by majorly concentrating on price and neglecting the relationship factor. This is mostly true in cross-border deals. Results-oriented North Americans, Northern Europeans and Australians often insist prematurely on get down to business way. Whereas countries like in Latin America, southern Europe, and Southeast Asia stress more on relationships rather than transactions working for long term deals. The Social Contract Similarly negotiators tend to focus more on the economic contract at the expense of social contract, or the spirit of a deal. Employing a social contract develops peoples expectations about the nature, extent and duration of the venture and about the way unforeseen events will be handled. The Process A deal making process is as important as its content. Negotiators often forget about this and take things for granted and does not achieve the expected outcome. More sustainable results are reached when all parties perceive the process as personal, respectful, straightforward and fair. The Interest of the Full Set of Players While overall economics are generally necessary they are often not sufficient. So we need to keep all potentially influential internal players communicated and involved in the deal making process. We should ensure not lose sight of their interests or capacity to affect the deal. What is rational for the whole may not be so for the individuals. So, wise negotiators need to work with the subjective as well as objective, with the process and the relationship, with the social contract, and with the interests of the parts as well as the whole.

Mistake 3: Letting Positions Drive out Interests

Many negotiators often out-pass interests and give importance to their positions and lose a potential gain which could have been achieved by jointly solving problems. Both the parties will have their own set of interests so by jointly discussing the interests and coming to common consensus would create new value to both the parties. Reverse Midas negotiators mostly fixate on price based on their positions. This positional approach in turn will drive towards a value-claiming process. Great negotiators understand that the dance of bargaining positions is only the surface game but the real art lies when they have probed behind positions for the full set of interests at stake. People have built-in bias towards focusing on their positions though they can see clear advantages of reconciling deeper interests. This assumption that the interests are incompatible implies a zerosum pie in which it is ones gain is anothers loss. If we recognize and productively manage the cooperative actions needed to create value and competitive ones needed to claim it, we can actually both expand and divide the pie.

Mistake 4: Searching Too Hard for Common Ground

Though we need to find a win-win agreement by searching for common ground, many of the most frequently overlooked sources of value in negotiation arise from differences among the parties. Differences of interest and priority can help unbundling different elements and giving each party what it values the most. Even when an issue seems purely economic, finding differences can break open deadlocked deals. Differences in forecast of a company can also help in joint gains like contingent payments or earnouts. A savvy negotiator could use these differences to bridge the value gap by proposing a deal in which the buyer pays a fixed amount now and a contingent amount later on the basis of the companys performance. A less risk-averse party can insure a more risk-averse one. An impatient party can get most of the early money, while his more patient counterpart can get considerably more over a longer period of time. While common ground helps, differences drive deals.

Mistake 5: Neglecting BATNAs

Negotiators often become preoccupied with tactics, trying to improve the potential deal while neglecting their own BATNA and that of the other side.A BATNA may involve walking away, prolonging a stalemate, approaching another potential buyer, making something in-house rather than settling, forming a different alliance, or going on strike. BATNAs set the threshold in terms of the full set of interests that any acceptable agreements must exceed. Not only we should asses our own BATNA, we should but also think carefully about other sides. The better our BATNA appears to both the parties, the more credible our threat to walk away becomes, and the more it can serve as leverage to improve the deal.

Mistake 6: Failing to Correct for Skewed Vision

Different perceptions of negotiators can lead to major errors in deal making. Self-Serving Role Bias: People tend unconsciously to interpret information pertaining to their own side in a strongly self-serving way. Getting too committed to our own point of view i.e. believing in our own line is an extremely common mistake. Even comparatively modest role biases can also blow up potential deals. Partisan Perceptions: We generally make mistakes by processing information critical to our own side and assessing the other side. Research studies have proven that we have an unconscious mechanism of portraying one side as talented, honest, and morally upright while simultaneously vilifying the opposition.Partisan perceptions can easily become self-fulfilling prophecies. By seeking the views of outsiders can help in getting a neutral assessment of the problem and this helps us in a better deal making negotiations. Finally by avoiding the above mistakes by following necessary remedial steps, negotiations help us in maximizing the chances for better results with better focus on full interests of all parties rather than fixating on price, by looking beyond common ground to unearth value-creating differences.

Critical Review
It is important to note that the article Six Habits of Merely Effective Negotiators focuses on the six common mistakes that are made even by the experienced negotiators and is not an exhaustive list of the mistakes that are observed during negotiations. In the introduction, the authors tone suggests a hint of irony; even though most executives know the basics of negotiation, the bad habits that creep in makes them lose the negotiations, sometimes losing money or straining the relationships. The author, James K. Sebenius rightly points out that the ultimate goal of every negotiation should be to either accept a deal or take the best no deal option available. This does not seem to be the goal of many negotiators. Regarding the first mistake, it is true that overcoming self-centredbehaviour is critical. However, the example cited about a technology company is not strong enough to support this point. The example merely shows lack of thorough preparation by the company and has less to do with understanding the opposite party. An example about someone trying to understand the expectations and motives would have been a more suitable example. Sometimes people go to any length to win a petty argument but only at a risk of losing the relationship. This is particularly true in case of negotiation where price is given such a high priority that the contracts and relationships are overlooked. The author also gives very strong examples from research which validates this point. The article then focuses on issues, positions and interests which are underlying elements in a negotiation. The author expresses his surprise as to how negotiators fail in recognizing the importance of converging on the underlying interests and value creation rather fixating on the position or the stand which one has taken. A very good example of a dam construction has been cited where the solution has been reached because of focusing on the underlying interest of the parties involved rather than assuming it to be a zero sum game. A beautiful example has been cited for the 4th common mistake where people get caught up in trying to find out a common ground which further leads to assumptions. This mistake is in a way contradictory to what was mentioned in the earlier however, the differences are actually used to break the deadlocks. James then speaks about the other common mistakes which are neglecting the BATNAs and negotiators failing to correct for a skewed vision. His tone appears to be disappointed as he feels that even extremely seasoned negotiators tend to interpret information related to their own side and calls it as the self-serving role bias. He concludes by summarizing the common mistakes and provides a list of additional mistakes which people commit. He suggests that to be an effective negotiator one has to take a broader approach to solving the right problem. The most important takeaway from the article is for the negotiators to focus on value creation. One should not consider a negotiation to be a zero sum game; rather focus on value creation and try to converge on the interest of all the parties rather than sticking to the position that one has taken.