The Art of Negotiation - A Primer

Knowingly or unknowingly, we are negotiating on a daily basis. This makes negotiating, a crucial skill to possess. Recently, I completed this online course - Successful Negotiation: Essential Strategies and Skills by George Siedel. In this article, I have tried to summarize the course by highlighting key learnings and takeaways. I highly recommend the course for anyone interested in understanding the science behind negotiating.

There are four stages in a negotiation process -

1. Prepare: Plan your negotiation ahead
2. Negotiate: Ensure you use the key tactics and psychological tools to effect
3. Close: Make sure you create a contract that is legally enforceable
4. Perform and Evaluate: Finish the end game!

The Preparation Before A Negotiation

Should I Negotiate? This is crucial because you need to feel comfortable when negotiating. Understand whether the negotiation result outweighs the costs such as your time and effort. Try doing a risk-benefit analysis.

Is it a position-based or interest-based negotiation? Position-based negotiation involves holding on to a fixed idea and negotiating for it, regardless of any underlying interests. Interest-based negotiation focusses on developing mutually beneficial agreements based on the interests of the parties involved. Even if it is position-based, one should always try to look for underlying interests that can create a better opportunity.

Is it a deal-making or dispute-resolving negotiation? While deal-making negotiation is futuristic and aimed at value creation, dispute-resolution negotiation looks at the past with a focus on position and claiming value in an adversarial manner. However, even a dispute-resolution can be converted to a deal-making negotiation by looking for underlying interests and through Alternate Dispute Resolution (ADR) techniques.

How should I analyze the negotiation? Negotiation analysis is very important while preparing for a negotiation. Find answers for the following questions -

1. What is the overall goal that you are trying to achieve?
2. What is so important about this goal and why should you achieve it?
3. What is the best alternative to your goal? ( This is called BATNA - Best Alternative To a Negotiated Agreement. Identify your BATNA through decision tree technique.)
4. What is your reservation price? ( The minimum you are willing to settle for)
5. What is the most likely price? ( The realistic goal you can actually achieve?)
6. What is your stretch goal?

Successful negotiators often look at deals from the perspective of the other side. Through this negotiation analysis, try to identify the Zone Of Potential Agreement (ZOPA) - the region where the reservation price of both the parties involved in the negotiation overlaps.

Is it a cross-cultural negotiation? In cross-cultural negotiation, it is challenging to analyze the opposite side’s interest because of two hurdles – The question of negotiation style and underlying values and beliefs. Proper research should be done in understanding the opposite side's culture. Gap analysis can help in identifying how your negotiation style differs from your counterpart's style.

How to handle ethical issues? There are two clusters of ethical standards - Law based ethical standards and General ethical standards. When faced with ethical dilemmas during negotiations, use the three law-based ethical standards for guidance: Fraud (False representation of a material fact that is relied on by the other side), Fiduciary Duty (A high duty of trust and loyalty), and Unconscionability (Violates principles of good conscience). Before entering into negotiations, select at least one of the general ethical standards for use when the negotiation raises concerns that extend beyond the law. 

Should I use an agent? There are some factors in deciding whether to use an agent or not for negotiation. Is the agent a better negotiator? Does the agent have more experience in negotiating the issue? Does the negotiation involve a technical matter? How much time do I have to negotiate? When the opposite party is using an agent, do try to factor in whether the agent has authority otherwise it will be difficult to complete the negotiation.

Key Strategies And Tactics During Negotiation

Get to know the other side. Use your conversational intelligence. Build a relationship by getting to know the other side on a personal level. Ask a lot of questions and don't forget to listen!

Use Power in Negotiation. Information is your main source of power. The most crucial piece of information in a negotiation is the counterpart's BATNA.

Use Psychological Tools and Avoid Psychological Traps

1. Mythical Fixed Pie Assumption - We assume that our interests are in direct conflict with the interests of the other side. A challenge in overcoming this assumption is – reactive devaluation. During a negotiation, because we think of the other side as a competitor, we tend to react to their proposals by devaluing them. It is important not to assume that negotiation is being done over a fixed pie. Look for underlying interests!
2. Anchoring - We anchor to an initial value when we try to estimate the value of uncertain objects. Use this when developing a first-offer strategy.
3. Overconfidence - Avoid it! Use disconfirming evidence to evaluate your judgment/decision.
4. Framing - Frame choices to your advantage. The way the options are framed cause us to be risk-averse (positive frame) or risk-seeking (negative frame). 
5. Availability - Look beyond easily available information.
6. Escalation - Avoid this trap where your counterpart irrationally escalates commitment.
7. Competitive Arousal - Avoid this trap caused due to intense rivalry, time pressure, and being in the spotlight.
8. Reciprocity - We as humans feel the need to repay what someone has given us. Encourage reciprocity.
9. Contrast Principle - Things look better when presented in sequence than when presented individually - the final offer looks better in contrast to the initial one!
10. Big Picture Perspective - Don't get lost in the details, look at the bigger picture.

Close Your Negotiation With A Binding Contract

A contract is an agreement enforceable by law. Use contract laws to complete your negotiation. From where does the law come from to form the basis for the contract depends on two key variables. The first depends on the type of legal system you are in - Common Law or Civil Law. The second is what type of contract you are dealing with - product goods, real estate, services, etc. At the beginning of any negotiation determine whether the contract is governed by a system of law that is different from the one with which you are familiar.

Creating Contracts - There are four key legal elements necessary to create a contract.

1. The Agreement - The parties involved need to reach an agreement. If you accept an offer from the other side but you add additional conditions, you have killed the original agreement. Converting discussions to a contract is a challenge. Many people use what is commonly called a framework agreement – a skeleton agreement where you gradually fill the missing pieces. When using framework agreements as a negotiating tool, ensure that it is not a binding contract.
2. Consideration - For a deal to be binding, both parties should give up something. 
3. Legalities - Check whether the agreement is legally enforceable.
4. Writing - Does the agreement require writing? If the agreement is not in writing, is it necessary to have it written? Not necessarily, some agreements can be oral and they can still be valid. In general, an agreement in writing is always preferable. Ensure that you factor in the Parole Evidence Rule – Once the agreement is reduced to writing, the agreement and the obligations are restricted to whatever is on the writing and nothing prior to the written agreement is going to account.

Make sure you understand the Business vs Legal objectives in contracting. While the legal objective is creating a legally perfect contract, the core objective should always be achieving your business goals and value creation in the process.

Contract Performance And Evaluation

When entering into a contract, businesses always ensure that they adhere to the norms agreed upon in the contract. Ideally, you negotiate, you enter into a contract, you perform the contract and that's the end of it. However, what if there is some problem in performing the contract? You need some clear processes for dispute resolution such as the ADR techniques. Before even a dispute arises, make sure you make efforts to actually prevent a dispute from arising!

Litigation (Settling a dispute in a court of law) need not always be beneficial while settling a dispute. Two main reasons being that litigation can still be a costly affair and can also affect business relationships. Hence, ADR should always be preferred over litigation while solving disputes unless absolutely necessary.

The two most important ADR techniques are

• Mediation - Bringing in a third party to assist the negotiation. The third party however cannot settle the dispute.
• Arbitration - Similar to mediation but here, the third party can decide the dispute 

Review and Evaluation

While contracts are created by negotiators, the contract is performed by the implementation team. Hence, there are a lot of chances for disputes to arise. Even when there aren't separate teams, we may have a position-based or interest-based thought process behind a negotiation. Understanding the mindset and the focus in a negotiation is essential while reviewing.

There are a number of management tools for systematic review and improvement of the negotiation process. One such tool is the six sigma process -

• Define - What is the process map of the negotiation?
• Measure - How long will it take to complete the negotiation
• Analyze - How can you optimize the negotiation?
• Improve - How can you improve at each stage of the negotiation process?

It is strongly recommended to do a personal performance review whenever you're involved in any major negotiation. Ask yourself what you did well and how you can improve. Introspect each and every aspect of your negotiation that you can improve.

Finally, don't forget to put your learnings and negotiation skills to practice!

This might have been a long read as I have tried to condense a 7-week long course in a single Linkedin article. Do check out the course in Coursera - it is filled with examples, case studies, and toolkits for negotiation. I hope you found this article useful. Let me know your views, learnings, and reviews about this wonderful course in the comment section!

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