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Best Practice Workplace Negotiations
By Richard Luecke
AMACOMCopyright © 2010 American Management Association
All right reserved.
Chapter OneNegotiations in the Contemporary Workplace
By the end of this chapter, you should be able to:
Explain the purposes and benefits of negotiation.
Indicate why negotiating skills are so important for modern organizations and for individual careers.
Describe the basic steps of the negotiating process.
Negotiation is a means of resolving differences and conflicts between individuals, organizations, and other entities when imposed settlements are either not possible or not desirable. It is a way to get one's fair share, whether it is selling a proposal to management, settling a labor dispute, buying real estate, or obtaining a new car.
Consider these examples:
Not possible. Two senior managers were having a dispute about the allocation of floor space within a new addition being made to their office building. Each wanted more than half of the space under construction. Because neither had the power to impose a decision on the other, they met to negotiate.
Not desirable. During the final years of the Vietnam Conflict, U.S. and North Vietnamese diplomats met in Paris to discuss how they might end the long war. The U.S. had the power to impose a settlement. With thousands of nuclear weapons in its arsenal, it could have wiped North Vietnam off the map in a single day. However, it did not see this approach as a desirable way to end the war. It chose, instead, to negotiate. The result was the Paris Peace Accords (1973).
We negotiate with people all the time, often without realizing it. Do you recall your last family vacation? How was its destination decided? Did one family member say, "We're going hiking in the Rocky Mountains in mid-July. Are there any questions?" Probably not. More likely, several family members mentioned places they'd like to go to and things they wanted to do. In the course of subsequent discussions, some family members may have made a case for their preferences, hoping to persuade the others. After some bargaining and compromising, a decision was made. Ideally, everyone in the family saw some benefit in the final decision.
Whether you recognized it at the time, you and your family members were negotiating the what, when, and where of your vacation. Negotiation was necessary because an imposed decision was either not possible or not desirable.
Negotiations are also common in the workplace: between companies, between departments, within departments, and even within work teams of a few members. Some of these negotiations are formal. Consider the following two examples.
Example 1: A private equity firm meets with representatives of a manufacturing company to purchase one of its operating divisions; its goal is to run the division as a stand-alone business. Together, the two sides must settle on a purchase price, which liabilities of the division (e.g., pension obligations to current employees) will be transferred with the sale, when the transaction will take place, and dozens of other issues. This type of negotiation involves teams of lawyers, executives, financial analysts, and consultants, and may go on for well over a year.
Example 2: A software company and a manufacturer of Internet and intranet servers meet to reach a collaborative agreement. The manufacturer would like to use the other company's operating and data storage software on an upcoming line of servers. Their agreement must address payment levels (how much) and payment terms (a flat amount or royalty paid on each machine sold). They must also determine how the software company's engineers and the server designers will work together. Additionally, these two companies must determine what the software company's responsibility will be for fixing "bugs" and security weaknesses discovered in the years following release of the servers. Again, teams of lawyers, executives, and technical specialists will be involved in this negotiation over many months.
Most workplace negotiations, however, are informal, less complicated, and less protracted in duration. Consider these examples:
Example 3: The production manager of a publishing company is meeting with a supplier's sales representative. The publishing company outsources printing and binding work for over 80 books each year, and this sales representative is eager to capture some of that business. Since these jobs are routine, the two individuals talk for no more than 30 minutes. They discuss schedules, paper and binding materials, print quantities, and how particular details will be handled. At the end of the meeting, they have the basis for an agreement. The production manager is not happy about price, but the vendor's willingness to deliver the goods in less than one month has offset that objection. The sales representative says that she will return to her office and confirm her per unit price estimate, based on a first printing of 5,000 copies. "Okay," says the production manager. "If your estimate holds up—and if you can guarantee delivery in four weeks or less—I'll send you a purchase order for the work."
Example 4: Four members of a loan processing team are taking a break to discuss their work schedules during December. "I know that everyone would like to take time off between December 24 and January 2, but we have a backlog of loan applications to process, and that means that at least two of us must be here every business day. We may even have to put in some overtime." Who will come to work over the holidays and who will be allowed to take time off ? Because this team leader is not authorized to impose a solution, he asks people to work it out among themselves. Over the course of their short break, the four team members express their preferences and share information about travel plans and how many vacation days they have coming. One person says, "I have four vacation days that I must use up before the end of the calendar year—otherwise I'll lose them." The team leader offers to extend the vacation days to January 31 to meet the department's objectives. After some compromising and horse-trading, the four work out a plan that satisfies the needs of the business and most of their personal needs.
The Importance of Negotiating Skills
The use of negotiations to settle differences within individual operating units, as in Example 4, has become more commonplace over the past decades as organizations have moved from centralized, command-and-control management to an atmosphere of greater employee empowerment. Employee empowerment refers to a management style that gives subordinates substantial discretion as to how they accomplish their objectives. Thirty years ago, many more decisions and directives, large and small, were made at the top of the organizational pyramid and dictated to employees below. Today, command-and-control is increasingly viewed as a counterproductive approach to handling people. Today's managers are more apt to tell their subordinates what needs to be done, explain why it is important, and leave it up to them to find the best way to do it.
Empowered employees find that they have greater authority within their individual jobs. However, since most jobs today require collaboration with others, people discover that they must be skillful in negotiating mutually beneficial arrangements in order to successfully complete their work. Thus, individuals who in an earlier time would have been told how to work together and share resources must now negotiate those collaborations. Since these individuals seldom have power over the people with whom they work, they cannot force agreements or command behavior. Instead they must persuade, bargain, and show how collaboration serves the interests of participants.
The frequency with which negotiations are employed in the workplace—both formally and informally—makes it a career-enhancing skill at every level, especially as people move up the career ladder to managerial positions. Individuals who know how to settle disputes, enlist people in collaborative efforts, and bargain effectively with outside entities such as customers, suppliers, and regulators are of greater value to their companies than are employees who are either uncomfortable with negotiations or lacking in negotiating skills.
Do you have the right attitude to become an effective negotiator? No idea? Not sure? Then take the self-assessment in Exhibit 1-1. It asks you to rate yourself on a number of attitudes, personal preferences, and behaviors that contribute to negotiating effectiveness. The ratings range from 1 to 5, with 1 being not at all like you and 5 being very much like you. Example: If you think that "I always prepare for important work" doesn't describe you at all, you should put a 1 in the "Never describes me" column.
The Negotiating Process
Many of the routine things we do at work every day can be described as work processes. A work process is a set of interrelated tasks that aim to produce a defined output. The loan department in a bank, for example, follows a process for handling loan applications, from gathering all the relevant information, checking the applicant's credit rating, deciding whether to approve the loan, notifying the applicant of the bank's decision, and (assuming that the loan is approved), meeting with the customer to get all appropriate signatures and to provide required disclosures. Other enterprises, both services and manufacturing, have analogous processes for getting work done.
The business of negotiating is likewise a process of sorts, and it is useful to have a mental overview of the process as one learns and masters its details. Exhibit 1-2 is graphic view of the negotiating process, seen as a linear series of phases:
Preparation. In this phase the negotiator gathers as many relevant facts as possible, including information about participants in the negotiations, their strengths and weaknesses, their interests, their sense of urgency, their ability to deliver on their promises, and so forth. He or she should also look inward, asking, in effect, "What is our interest and what do we want from this deal?"
Preliminary tasks. This phase could involve any number of tasks, such as coaxing a reluctant negotiating partner to the table, creating a physical setting conducive to a fruitful discussion, and determining if negotiations should begin with the small, easy-to-solve issues, or with an immediate attack on the knottiest problems.
Engagement with negotiating participants. This is the phase that most people visualize when they hear the term negotiation. Here each side applies tactics meant to produce the outcome it seeks. These might involve compromise, concessions, strong-arming, bluffing, making offers and counter-offers, and so forth.
Resolution. Negotiations formally end here, with some form of resolution. Resolution might take the form of one party walking away. Depending on the formality of the negotiation, a written agreement may be signed, complete with enforcement mechanisms.
Learning from the experience. Even though formal negotiations end with the resolution stage, smart negotiators and their teams make a point of reflecting back on their experience. They try to understand what went well, what went badly, and what can be learned that will improve their future negotiations (reflected in Exhibit 1-2 by the feedback loop from Learning back to Preparation).
That's the "Big Picture" of negotiation. Getting that picture into your head will help you make sense of the many topics covered in subsequent chapters of this course and help you see how they all fall into place. Being an intensely human activity, of course, negotiation is never entirely linear. It does not proceed quite so neatly, phase by phase. Learning, for example, takes place in every phase, though perhaps less formally than in the final one. Nor does the process mapped in Exhibit 1-2 recognize all the skills and human activities that go into a typical negotiation—persuasive communications, the exercise of specific tactics, dealing with difficult people, and so forth. Thus, we have not attempted to arrange our treatment of the subject in parallel with the process map shown in the exhibit.
A Case Example
To help you appreciate the process nature of negotiation, and what effective practitioners do to achieve their objectives, read and reflect on the following case, which is based on a true story disguised somewhat to preserve confidentiality. It involves a consumer products company (ProdCo) and its effort to build a new, state-of-the-art e-commerce website. The main cast of participants (Exhibit 1-3) includes the following:
A four-person ProdCo executive group; this group controlled the project's budget and had authority for strategic decisions.
Bill Miles, the head of the Product Group, whose goods would be sold on the new site.
Millennium Software, an outside vendor hired by the company to build the site at an agreed cost of $5 million.
Terri Quinlan, a ProdCo employee assigned by the executive team to act as manager for the website development project. Her job was to coordinate the effort and assure that the site was built to specifications on time and on budget. She had no formal authority over any of the project's participants.
Work on the new website, dubbed Polaris, was already into the fifth month of its twelve-month development schedule. Project manager Terri Quinlan was in daily communication with the team assigned by the vendor, Millennium Software, and reported its progress each week to the executive group charged with project oversight.
Everything was going according to plan. Then Bill Miles, head of the product group, called Terri with an urgent request. "I've been talking with my people," he began, "and we'd like to add a new feature to the site."
"Tell me about it," Terri responded.
"Well, in our initial plans, we didn't incorporate the mechanism that Amazon and other e-commerce sites use to suggest additional purchases by visitors. You know, the feature that says, 'Customers who purchased that item also bought X, Y, and Z.' But our group absolutely needs to increase sales this year, and we think this feature will help."
"Oh," said Terri, "that's called a product recommendation feature. Do you want to add it to the site?"
"Yes, that's it. We think a recommendation feature would increase sales revenues from the site by 15 percent."
"I'm not surprised," Terri replied, "but that feature is outside the scope of the Polaris plan approved by the executive group late last year. Adding it now would surely delay project completion and add to the total cost—the current budget couldn't handle it."
"I know," said Bill. "I wish we had included this in the initial plan, but we hadn't realized how powerful that feature can be in generating sales. Now that we understand it, we know that we need it."
Terri didn't doubt the merits of Bill's request, but as project manager she knew that implementing it would cost time and money. The executive group would have to approve the change, and the vendor, Millennium Software, might not be able to accommodate it in a timely way at an affordable price.
As head of the product group, Bill Miles was an important figure in the organization, and his request could not be discounted out of hand. Yet the executive group was on record as opposing any increase in Polaris's budget or delay in its schedule. Dealing with this situation would require substantial negotiating skill on the project manager's part.
Terri's first step toward resolving the problem was to learn exactly what new capability the product group wanted in the site, what that might mean in terms of future sales revenues, and what the change request would cost in time and money. She gathered that information through discussions with Bill and his staff, and with the vendor's consulting team, which furnished a price/time estimate. "Another $400,000 and two more months in the schedule?" she asked the Millennium team leader with mild astonishment.
"That's what it will take," he confirmed.
Knowing that the executive goup would balk at a change of that magnitude, Terri arranged a meeting with Bill Miles. "Bill," she began, "It may be possible that we can accommodate your request, but I'll need some help from you to get this through the execs."
"Good," he said. "How can we work this out?"
"Well," she began, "the exec group is adamantly opposed to adding time and cost to this project, so we need to talk about your priorities. The current site plan includes lots of bells and whistles designed to sell products. Which of these would you be willing to give up in order to add your new feature?"
Bill adopted a shocked expression. "I don't want to give up any," he said forcefully. "There's support in the product group for every one of those features."
Terri paused and smiled knowingly at Bill, as if to say, "Of course, you want to have everything no matter what it costs." Then she resumed: "I know that there is support for all the features you've proposed, Bill. But I also know that your group supports some features more than others. So let me rephrase my question. When the exec group says 'no' to your request, how will you respond?"
Bill knew he was off base. He could act tough toward Terri, but he couldn't do that to members of the executive group. He understood the group's reluctance to change the scope of the project at this late date, so he backed off a bit. "Well, we might be able to cut corners somewhere in order get this feature. What would you suggest, Terri?"
Having done her homework, Terri had a ready answer: "I'd recommend dropping the preferred customer feature, which reserves some products for selected customers only. That feature will be costly to implement, and by your team's own estimate it will have little impact on sales revenue. It's a 'nice to have,' not a 'must have' item. We can always add it to the site in Version 2, which is only a year or so down the line. So it's not that you're losing that feature, Bill; you're simply getting it a year later, if you still think you need it then."
Bill reluctantly nodded his approval.
With Bill's agreement in her pocket, Terri next approached the Millennium Software team to obtain an estimate of the time and money the project would save if Bill's preferred customer feature were dropped in site Version 1. A few days later she had her answer: The project cost would drop by $180,000 and one month would be cut from the new schedule. Netting this out, Terri could see that dropping the preferred customer feature and adding Bill's product recommendation feature would still put the project behind by $220,000 and one month. She needed to reduce each of those in order to get the executive group's approval for the change.
Her next stop was the IT department, where she met with its manager, Hollings Griffin, to explain the situation. "Hollings," she asked, "we need to get a better deal from Millennium to make this plan work. Do we have any leverage over Millennium?"
Excerpted from Best Practice Workplace Negotiations by Richard Luecke Copyright © 2010 by American Management Association. Excerpted by permission of AMACOM. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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