Study Material: Ch:1 by Prof. Rama Rao

Business Negotiations


Summary Notes



Ch.1-The Nature of Negotiation



I. Characteristics of a negotiation situation



A. Characteristics common to all negotiation situations



1. There are two or more parties, individuals, groups or organizations.

2. There is a conflict of needs and desires between two or more parties, and the parties must search for a way to resolve the conflict.

3. Parties negotiate because they think they can get a better deal by negotiating than by simply accepting what the other side will voluntarily give them or let them have.



4. When negotiating, a give and take is expected. To reach an agreement, both sides will modify their opening statement to find a middle ground; they compromise.



5. The parties prefer to negotiate and search for agreement rather than to fight openly, have one side dominate and the other capitulate, permanently break off contact, or take their dispute to a higher authority to resolve it.



6. Successful negotiation involves the management of tangibles and also the resolution of intangibles.

a. Tangible factors: the price or the terms of agreement

b. Intangible factors: The underlying psychological motivations that may directly or indirectly influence the parties during a negotiation. They have an enormous influence on negotiation processes and outcomes, so it is crucial for negotiators to understand how they affect decision making and tangible outcomes. Examples of intangible factors include:

(1) The need to “win” or avoid losing

(2) The need to look “good” to those you’re representing

(3) The need to defend an important principle or precedent in a negotiation; and

(4) The need to appear “fair” or “honorable” or to protect one’s reputation.



II. Interdependence



A. Working interdependently allows parties to achieve a possible outcome that is better than they could achieve by working on their own.



B. Most relationships between parties may be characterized in one of three ways: independent, dependent, or interdependent.



1. When the parties depend on each other to achieve their own preferred outcome they are interdependent; they are characterized by interlocking goals.

2. Independent parties are able to meet their own needs without the help and assistance of others.

3. Dependent parties must rely on others for what they need; the dependent party must accept and accommodate to that provider’s whims and idiosyncrasies.



C. Types of Interdependence Affect Outcomes



1. The interdependence of people’s goals, and the structure of the situation in which they are going to negotiate, strongly shapes negotiation processes and outcomes.

a. Zero-sum distributive: Competitive situation where there is only one winner.

b. Zero-sum integrative: Goals are linked to achieve a mutual gain.



D. Alternatives Shape Interdependence



1. BATNA: Best Alternative to a Negotiated Agreement

a. Whether you should or should not agree on something in a negotiation depends upon the attractiveness of your best available alternatives.

b. Negotiators need to understand their BATNA, as well as the other parties’.



III. Mutual Adjustment



A. Interdependent parties have an influence on the others’ outcomes and decisions. As parties act to influence each other in a negotiation, they engage in a mutual adjustment.



1. It is important to recognize that negotiation is a process that transforms over time, and mutual adjustment is one of the key causes of the changes that occur during a negotiation



2. An example would be to look at Sue Carter’s job situation. She would like to leave her present employer and take an available job at a large multinational bank. The job description announced the salary as “competitive.” Her prospective manager, Max, perceives her as a desirable candidate and is ready to offer her the job. She did not state her minimally acceptable salary. She has decided the bank will pay no more than necessary and that her minimum would be accepted quickly.



a. A closer look reveals that she is making her decision on how she anticipates Max will react to her actions.

b. Sue is assessing the indirect impact of behavior on herself.

c. Sue is choosing among behavioral options with a thought: not only how they will affect Max, but also how they will then lead Max to act toward Sue.

d. Sue knows that Max believes she will act in this way and makes her decision on the basis of this belief.



3. The effective negotiator needs to understand how people will adjust and readjust, and how the negotiations might twist and turn, based on one’s own moves and the others’ responses.



4. The best strategy for successful mutual adjustment to the other is grounded in the assumption that the more information one has about the other person, the better.



5. Mutual adjustment and concession making



a. When one party alters his/her position based on the other party’s suggestion to do so, a concession has been made.

b. Concessions constrain the bargaining range



6. Two dilemmas that all negotiators face in mutual adjustment:



a. Dilemma of honesty – how much of the truth to tell the other party?

b. Dilemma of trust – how much should negotiators believe what the other party tells them?



7. Two efforts that help a negotiation create trust and beliefs:

a. Outcome perception

b. Process perception



8. The pattern of give-and-take is also essential to joint problem solving in most interdependent relationships. Satisfaction with negotiation is as much determined by the process through which an agreement is reached as with the actual outcome obtained.



IV. Value Claiming and Value Creation



A. Distributive bargaining



1. The purpose this type of negotiation is to claim value—to do whatever is necessary to claim the reward or gain the largest piece possible.



B. Integrative bargaining



1. The purpose of this approach to negotiation is to create value, or find a way for all parties to meet their goals and share the reward.



C. Most negotiations are a combination of claiming and creating value. There are significant implications to this:



1. Negotiators must be able to recognize situations that require one approach or the other

2. Negotiators must be versatile in their comfort and use of both strategic approaches.

3. Negotiator perceptions of situations tend to be biased toward seeing problems as more distributive / competitive than they really are.



D. Successful coordination of interdependence has the potential to lead to synergy, which is the notion that “the whole is greater than the sum of its parts.”



E. Lax and Sebenius in their book “The Manager as Negotiator,” describe key differences among negotiators:



1. Differences in interests,

2. Differences in opinions,

3. Differences in risk aversion, and

4. Differences time preference.



F. Conflict may be defined as a "sharp disagreement or opposition" and includes "the perceived divergence of interest, or a belief that the parties' current aspirations cannot be achieved simultaneously".



 Intrapersonal or intrapsychic conflict occurs within an individual

 Interpersonal conflict is between individuals

 Intra group conflict

 Intergroup conflict



G. Functions and Dysfunctions of Conflict



H. Dual Concerns Model: Contending, Inaction, Yielding, Compromising,& Problem solving



I. Negotiators need to be aware of the potential differences between them can serve as barriers to reaching an agreement. Exploring common and different interests to create value can set the foundation for a lasting agreement.