Let's Make a (Better) Deal
by Barbara Buell
June, 1996
Whether you're negotiating for your firm or for your position in it, you'll do better if you avoid some common pitfalls.
Once upon a time, in the age of corporate paternalism, employees trusted their employers to provide steady work, regular bonuses, pensions, and insurance. But in the 1990s, that picture is little more than a corporate fairy tale. Global competition, downsizing, and shrinking benefits have turned the company man or woman into a "careerist" who must guard individual interests against the corporation.
It also means that managers must be more efficient at gathering scarce resources inside the company to get their jobs done. "You need to be much more entrepreneurial," says Margaret Neale, professor of organizational behavior.
"And negotiation is part of being an effective organizational player in this time of lean, mean competition. People are constantly negotiating in their jobs -- whether they're trying to gain access to a pool of resources, form a joint venture, or involve themselves in mergers and acquisitions."
Those realities are driving a resurgence of interest in the art of negotiation, among both students and seasoned executives. And no one is closer to the change than Neale, who is director of the Negotiation and Influence Strategies Executive Program initiated last October.
One of the distinguishing features of management in the nineties is diversity. The workplace is not only more diverse in terms of women, minorities, and the global market, but divisions within the same company may work differently and have separate needs. For example, a small, fast-moving subsidiary starting up a personal computer business may have trouble getting what it needs from the cumbersome bureaucracy of the parent organization. Because conflicting values, styles, and priorities are unavoidable, what is absolutely critical in business today is learning to manage the differences.
Sound like a recipe for negotiation hell? It's not as bad as you might think, says Neale. Negotiating with those who are different from you can be much better than negotiating with people or organizations that are too similar. If you negotiate with someone who has the same values, the odds are you like the same things equally. That means you are likely to run into what Neale calls a "distributive negotiation," where there is a fixed pool of resources and you have to allocate who gets what. The process is typically adversarial.
However, when you find you have different preferences and priorities, there is an increasing probability that you can create value. For example, an MBA student is negotiating an employment contract with a recruiter. Issues on the table are the signing bonus and vacation days. The recruiting executive is not too concerned about the corporate signing bonus since it is a one-time charge and does not come out of his division's operating budget. Vacation days, on the other hand, are an ongoing cost that affects the division budget. The student, who might want three or four weeks of vacation, is coming out of school with tremendous debt. What she really needs is a fat bonus to get started in a new city. She might relent on a longer vacation while pressing instead for a comfortable bonus. Rather than splitting the assets down the middle, with the candidate getting a small bonus and unneeded extra vacation time, the two parties can create value.
Successful bargaining tactics mean looking for positives. "If I can trade off issues I care about more and you care about less, then we've been able to create value in the transaction," says Neale. "That's the silver lining." Sometimes negotiators fall into traps and leave resources on the table because they can't see that silver lining. Some common pitfalls are:
Poor planning.
Successful negotiators make detailed plans. They know their priorities -- and
alternatives, should they fail to reach an agreement. You must know your bottom line, your
walkaway point. In addition, you need to understand time constraints and know whether this
is the only time you will see your opponents in negotiation.
After preparing your own agenda, outline the same for your opponents: What are their preferences, alternatives, and bottom line? Once at the bargaining table, test your hypotheses to determine what the opposition's priorities really are. Prepare a written goal and analysis sheet for yourself.
Thinking the pie is fixed.
It's usually not. You may make this common mistake when there is a "congruent
issue," when both parties want the same thing. For example: In the context of an
overall negotiation involving salary, bonus, and vacation, the boss wants to transfer a
junior manager to San Francisco. The manager is eager for the San Francisco assignment.
But frequently, the em-ployee will look at the situation and believe that, since the boss
gave him a desired promotion, he must have to compromise on the transfer location. The
employee might actually suggest a transfer to Atlanta. His psychology is: "I can't
expect to get everything I want, so I'll take the middle." The boss is ambivalent
about the transfer and figures she can get someone else to go to San Francisco. You think
it is unlikely an employee in a career negotiation would miss such an obvious opportunity?
Neale repeatedly has performed this exercise in her classes and finds that 20 to 35
percent of the students assume it's a fixed pie and miss an opportunity to get what both
parties want.
Failing to pay attention to your opponent.
Negotiators need to analyze the biases their opponents bring to the table. How will they
evaluate your offers?
One way to get inside your opponent's head and influence his attitude is to shape the issues for him, a technique called "framing." If you get your opponent to accept your view of the situation, then you can influence the amount of risk he is willing to take.
For example, you are a purchasing manager renegotiating an hourly wage contract with a subcontractor. The subcontractor currently makes $10 an hour. You are willing to elevate the subcontracting firm to $11 an hour. Another organization recently boosted its rate with your subcontractor to $12 an hour. You know that when the negotiators for your subcontractor hear your $11 offer, they may think they are going to have to give up a dollar an hour.
You must get them to focus on the point you are starting from -- $10, not $12. You frame the issue positively by talking about all the ways your contract is different from the other's. Your contract has some advantages outside of the hourly pay. The other side will be more willing to risk lower wages for the purported other benefits.
A common mistake is negotiating from a negative frame: "The other firm's deal offers more, but we can afford only $11."
Assuming that cross-cultural negotiations are just like "local"
negotiations.
You need to remember that differences do exist, that they are not necessarily negative,
and that these differences can create huge potential benefits -- as well as big problems
if ignored. Services and negotiations need to be tailored to enhance your position with
the other side.
Next year, Neale will be using a case study that centers on the construction of a large American theme park in Europe. In order to convince local government officials that an American park would be a great opportunity, the American developers brought the European officials to a theme park in the United States .
Unknown to the American executives, the Europeans were dismayed and shocked with what
they observed: highly commercialized American culture blasting from every fast-food bar,
bandstand, and gift shop. This was not
what they had envisaged for their quaint countryside.
Trying to dream up more enticements during the negotiation, the clueless American executives offered more free trips to the U.S. park for an expanded group of local European officials and their families. It was a disaster.
Had the Americans had a sensitive negotiator on the ground in Europe, they could have capitalized on the differences in the two cultures and offered a detailed presentation of an amusement park tailored to local tastes, skipping the junkets to the U.S. park.
Paying too much attention to anchors.
Anchors are part of a bargaining dynamic known as "anchoring and adjustment."
This involves clearly setting the parameters for negotiation. For example, a couple was
selling their house for $500,000. The first offer came in at $375,000, which was too low
to consider. If the couple had acknowledged the offer with a counter, they would have
started bargaining somewhere between $500,000 and $375,000. Instead, they responded that
it was not a reasonable offer and told the buyers to come back when they had a decent
offer. The buyers came back at $425,000. The seller then countered at $495,000. The buyers
then came up to $430,000, but the sellers still didn't accept the offer.
The buyers argued that they had come up $55,000 from $375,000. But the sellers were careful to remind them that $375,000 was not their starting point; rather, it was $425,000, the first reasonable offer. Using that anchor, the sellers argued that they had come down $5,000 from $500,000 -- and the buyer had come up $5,000 from $425,000. Both had moved the same amount in negotiations. One more round of bidding had the house sold -- for a price well above the buyer's initial bid. "The point is: You've got to watch the anchors and where they are set," says Neale.
Caving in too quickly.
Accepting a well-priced deal too quickly can cause anger on the other side, too. If you
list a used car for $5,000, you might really be thinking of accepting $4,500. But when
your first buyer has it checked by a mechanic and then immediately writes you a check for
$5,000 without trying to bargain, how do you feel? Disappointed. You'll think you sold it
for too little. The lesson is: No matter what the price, even if it's fair, always offer
less -- if only to make your opponent feel good about the deal. You may come up to full
price in the end, but at least your opponent will feel as if he made you work for it.
"Never give anyone their first offer; it makes them crazy," says Neale.
Finally, when you've cut a sweet deal, never do the dance of joy in public by turning to your opponents and telling them you would have done it for less. Gloating will only drive your opponent to extract the difference from you sometime in the future. Today, flagging corporate allegiances and rampant job hopping make it essential to keep on professional terms with your negotiating opponents. You may find yourself on the same side of the bargaining table one day.
Margarent A. Neale is coauthor with Max H. Bazerman of Negotiating Rationally (Free Press, 1992).
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