How to Become a Better Negotiator / Edition 2

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Overview

Whether it’s at home or at work, so much of our lives involves negotiating to get what we want. From negotiating a higher salary, to lowering costs from suppliers, to hammering out a new contract with a major customer, or even deciding where to go on vacation, the only way to consistently arrive at successful conclusions is to master the art of negotiation. Updated with completely new tactics and strategies, How to Become a Better Negotiator lets readers in on the same high-level skills that experienced negotiators use.

Packed with fill-in-the-blank sections, tips, quizzes, and chapter reviews, the book covers important topics such as listening, assertiveness, and how to deal with hostile opponents. In addition, the book now features new chapters on:

preparation, including identifying issues and interests, and determining alternatives to a deal and reserve price • the five basic steps of negotiation and “doing the deal” • and typical negotiating pitfalls and how to avoid them.

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Product Details

  • ISBN-13: 9780814400470
  • Publisher: AMACOM
  • Publication date: 3/12/2008
  • Edition description: Second Edition
  • Edition number: 2
  • Pages: 112
  • Product dimensions: 6.03 (w) x 8.94 (h) x 0.29 (d)

Meet the Author

Richard A. Luecke (Salem, MA) is a freelance business writer and publishing executive whose articles have been published by Oxford University Press, John Wiley & Sons, and Harvard Business School Press. He has negotiated over one hundred contracts with individuals, businesses, and non-business institutions. He is the author of The Manager’s Toolkit and The Entrepreneur’s Toolkit.

James G. Patterson (Tuscon, AZ) is a training consultant who has taught leadership and communication skills for the U.S. Army Military Intelligence School.

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Read an Excerpt

CHAPTER 1

WIN-LOSE OR WIN-WIN

Generally, negotiations fall into one of two types: win-lose or win-win. It's important to understand the difference between these because each requires a different attitude and set of tactics.

WIN-LOSE

In a win-lose negotiation, the matter at stake involves a fixed value, and each party aims to get as much of that value as possible. Anything gained by one party is achieved at the expense of the other, which is why a win-lose situation is also known as a "zero-sum game." People often use the example of a pie in explaining a win-lose situation. Whatever you manage to carve out of that pie for yourself reduces the amount of pie that the other person will get—and vice versa. So your job in this game is to get as big a slice as you possibly can (Figure 1–1).

Win-lose situations are common in these circumstances:

• Price is all that matters.

• There is no expectation of a continuing relationship with the other side.

• One side has greater bargaining power than the other.

For example, think about that new car you bought last year. Having done your homework, you knew exactly which model you wanted, your color preferences, and the options that appealed to you. A little research told you what price the different dealers were asking for that model and, thanks to some online research, you knew what those dealers paid for that model (dealer invoice price) and the different options. Another online search gave you a good idea what you might expect for a trade-in of your old car.

Chances are that every dealer visit you made included some haggling about price. When the objective of the negotiation is a commodity-like product, such as a particular car model, price is generally the main issue. If Dealers A, B, C, and D each had the car you wanted, there wasn't much besides price to negotiate about.

Your relationship with the car salesperson and the dealer didn't matter either. It was clear to you that the salesperson and his boss were trying to get as much out of the deal as possible—charging as much as they could for the car, trying to "upsell" you on expensive options you didn't want or need ("For only $700, we can protect your investment by installing the patented Gotcha! theft-deterrent system"), and lowballing the value of your trade-in ("Our mechanic has found lots of problems with your car"). So you weren't planning to do business with these people again. You were after the car.

In win-lose deals, relationships don't matter.

Simply put, your job was to come away with the greatest possible value—a win-lose proposition—and the salesperson was trying to do the same.

Participants in win-lose negotiations perceive a fixed amount of value. As they carve up the value "pie" each tries to carve out as big a piece as possible for himself. And every gain by one party represents a one-to-one loss to the other.

WIN-WIN

Very few negotiations involve a fixed value or a commodity product. There's generally at least one or more ways that the parties can alter the value of the deal or product or service at the heart of their negotiations—in effect, enlarging the pie. In these situations, price is only one of several issues that matter. The quality of the product or service, the reliability of the other party, or the importance of one's relationship with the other party may be just as important as price.

In win-win deals, relationships often matter.

Consider a negotiation between MakeCo—a manufacturer—and one of its long-term suppliers, WidgetWorks. MakeCo is trying to negotiate a purchase agreement for 10,000 widgets built to its specifications for $5 apiece, to be delivered in lots of 1,000 units as needed. WidgetWorks wants to keep MakeCo's business but needs a higher price—say $5.50—to earn an acceptable profit for itself and its shareholders. Getting this higher price will be difficult since several other competitors are asking for less.

On the surface, this might be just another win-lose situation, with each trying to get the best price. But it's possible that MakeCo and WidgetWorks have a relationship that's worth more than price per widget. For example, MakeCo appreciates and values WidgetWorks's reliability. When WidgetWorks says, "We will have 2,000 units at your receiving dock by Friday morning," MakeCo's production planners know from experience that they can rely on those units being there when they need them. "Other vendors are quoting a lower price," says MakeCo's purchasing manager, "but their reliability hasn't been demonstrated. Who knows? They might be out of business in six months, leaving us in a real jam."

Further, the two companies—buyer and supplier—have been working together so long that their engineers are accustomed to collaborating on the design of new widgets and the materials used to make them.

For its part, WidgetWorks has every reason to want MakeCo to succeed in its business. "They've been a valued customer for over 12 years now," says WidgetWorks's CEO. "When they win, we win." And so, as they negotiate, each company is motivated to reach an agreement that will satisfy the interests of both parties.

In some cases it costs little or nothing to satisfy the interests of the other party, even as you do well for yourself. This is achieved by creating value through trades—that is, giving up something that is of little value to you, but that the other party values highly. Consider this example:

When Boston Brewing Company, maker of Samuel Adams beer, first went into business, it didn't have enough orders to financially justify a multimillion-dollar, state-of-the-art plant. Meanwhile, a brewery in Pennsylvania found that it had more production capacity than it could use; part of its costly plant was idle.

These two companies saw an opportunity to create value through trade. For the Pennsylvania brewery, every case of Samuel Adams beer it bottled using that company's unique recipe would produce revenue it could use to cover the fixed costs of its plant. As long as it charged enough to cover the added cost of labor and ingredients (variable costs), it would be money ahead. For Boston Brewing Company, contracting production to the Pennsylvania facility would eliminate the need to build a multimillion-dollar plant of its own. At the same time, it knew that it would get consistently high quality for its customers.

So the two companies struck a deal. The Boston company sent its brewmeister to Pennsylvania, where he supervised production of Samuel Adams beer. The price it paid for each case was far less than the cost of producing beer in its own facility. The brewery was equally pleased with the deal; its idle capacity was now making money.

The deal struck by these two companies produced a win-win.

WHAT ABOUT YOU?

Can you think of win-win examples from your own experience? Perhaps you've asked your boss for a raise. "I don't have the money in my budget for a raise," she says, "but I can offer you something more valuable. I can assign you to a project that will broaden your experience and skills, making you more promotable in the future." You will gain something of value in this trade at no cost to your boss. A win-win.

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Table of Contents

CONTENTS

Preface vii

Chapter 1 Win-Lose or Win-Win 1

Chapter 2 Three Indispensable Concepts 8

Chapter 3 Communication Styles 15

Chapter 4 Listening as a Primary Negotiating Skill 24

Chapter 5 Managing Conflict 34

Chapter 6 The Importance of Assertiveness 46

Chapter 7 Prepare to Negotiate 57

Chapter 8 Doing the Deal 66

Chapter 9 Common Pitfalls 81

Selected Readings 93

Index 95

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First Chapter

HOW TO BECOME A BETTER NEGOTIATOR


By Richard A. Luecke James G. Patterson

AMACOM

Copyright © 2008 American Management Association
All right reserved.

ISBN: 978-0-8144-0187-3


Chapter One

WIN-LOSE OR WIN-WIN

Generally, negotiations fall into one of two types: win-lose or win-win. It's important to understand the difference between these because each requires a different attitude and set of tactics.

WIN-LOSE

In a win-lose negotiation, the matter at stake involves a fixed value, and each party aims to get as much of that value as possible. Anything gained by one party is achieved at the expense of the other, which is why a win-lose situation is also known as a "zero-sum game." People often use the example of a pie in explaining a win-lose situation. Whatever you manage to carve out of that pie for yourself reduces the amount of pie that the other person will get—and vice versa. So your job in this game is to get as big a slice as you possibly can (Figure 1–1).

Win-lose situations are common in these circumstances:

* Price is all that matters.

* There is no expectation of a continuing relationship with the other side.

* One side has greater bargaining power than the other.

For example, think about that new car you bought last year. Having done your homework, you knew exactly which model you wanted, your color preferences, and the options that appealed to you. A little research told you what price the different dealers were asking for that model and, thanks to some online research, you knew what those dealers paid for that model (dealer invoice price) and the different options. Another online search gave you a good idea what you might expect for a trade-in of your old car.

Chances are that every dealer visit you made included some haggling about price. When the objective of the negotiation is a commodity-like product, such as a particular car model, price is generally the main issue. If Dealers A, B, C, and D each had the car you wanted, there wasn't much besides price to negotiate about.

Your relationship with the car salesperson and the dealer didn't matter either. It was clear to you that the salesperson and his boss were trying to get as much out of the deal as possible—charging as much as they could for the car, trying to "upsell" you on expensive options you didn't want or need ("For only $700, we can protect your investment by installing the patented Gotcha! theft-deterrent system"), and lowballing the value of your trade-in ("Our mechanic has found lots of problems with your car"). So you weren't planning to do business with these people again. You were after the car.

In win-lose deals, relationships don't matter.

Simply put, your job was to come away with the greatest possible value—a win-lose proposition—and the salesperson was trying to do the same.

Participants in win-lose negotiations perceive a fixed amount of value. As they carve up the value "pie" each tries to carve out as big a piece as possible for himself. And every gain by one party represents a one-to-one loss to the other.

WIN-WIN

Very few negotiations involve a fixed value or a commodity product. There's generally at least one or more ways that the parties can alter the value of the deal or product or service at the heart of their negotiations—in effect, enlarging the pie. In these situations, price is only one of several issues that matter. The quality of the product or service, the reliability of the other party, or the importance of one's relationship with the other party may be just as important as price.

In win-win deals, relationships often matter.

Consider a negotiation between MakeCo—a manufacturer—and one of its long-term suppliers, WidgetWorks. MakeCo is trying to negotiate a purchase agreement for 10,000 widgets built to its specifications for $5 apiece, to be delivered in lots of 1,000 units as needed. WidgetWorks wants to keep MakeCo's business but needs a higher price—say $5.50—to earn an acceptable profit for itself and its shareholders. Getting this higher price will be difficult since several other competitors are asking for less.

On the surface, this might be just another win-lose situation, with each trying to get the best price. But it's possible that MakeCo and WidgetWorks have a relationship that's worth more than price per widget. For example, MakeCo appreciates and values WidgetWorks's reliability. When WidgetWorks says, "We will have 2,000 units at your receiving dock by Friday morning," MakeCo's production planners know from experience that they can rely on those units being there when they need them. "Other vendors are quoting a lower price," says MakeCo's purchasing manager, "but their reliability hasn't been demonstrated. Who knows? They might be out of business in six months, leaving us in a real jam."

Further, the two companies—buyer and supplier—have been working together so long that their engineers are accustomed to collaborating on the design of new widgets and the materials used to make them.

For its part, WidgetWorks has every reason to want MakeCo to succeed in its business. "They've been a valued customer for over 12 years now," says WidgetWorks's CEO. "When they win, we win." And so, as they negotiate, each company is motivated to reach an agreement that will satisfy the interests of both parties.

In some cases it costs little or nothing to satisfy the interests of the other party, even as you do well for yourself. This is achieved by creating value through trades—that is, giving up something that is of little value to you, but that the other party values highly. Consider this example:

When Boston Brewing Company, maker of Samuel Adams beer, first went into business, it didn't have enough orders to financially justify a multimillion-dollar, state-of-the-art plant. Meanwhile, a brewery in Pennsylvania found that it had more production capacity than it could use; part of its costly plant was idle. These two companies saw an opportunity to create value through trade. For the Pennsylvania brewery, every case of Samuel Adams beer it bottled using that company's unique recipe would produce revenue it could use to cover the fixed costs of its plant. As long as it charged enough to cover the added cost of labor and ingredients (variable costs), it would be money ahead. For Boston Brewing Company, contracting production to the Pennsylvania facility would eliminate the need to build a multimillion-dollar plant of its own. At the same time, it knew that it would get consistently high quality for its customers. So the two companies struck a deal. The Boston company sent its brewmeister to Pennsylvania, where he supervised production of Samuel Adams beer. The price it paid for each case was far less than the cost of producing beer in its own facility. The brewery was equally pleased with the deal; its idle capacity was now making money.

The deal struck by these two companies produced a win-win.

WHAT ABOUT YOU? Can you think of win-win examples from your own experience? Perhaps you've asked your boss for a raise. "I don't have the money in my budget for a raise," she says, "but I can offer you something more valuable. I can assign you to a project that will broaden your experience and skills, making you more promotable in the future." You will gain something of value in this trade at no cost to your boss. A win-win.

Be Creative—Look for Interests

Not every win-lose situation can be turned into a negotiation in which both parties can come out ahead. However, it is often possible to do that if you apply a little creativity. For instance, you'd think that buying a house would be a win-lose situation. As a buyer, every dollar you manage to trim from the seller's price is a gain for you and a loss to her. But if you think creatively, you may find opportunities to create value through trade. Consider this example:

The seller of a house you want to buy is asking $450,000. This seller obviously values money (as do you), but ask yourself, Is there something I could painlessly trade off in return for a lower price? A bit of dialogue with the seller may reveal that she is also concerned with the timing of the sale. You may find, for instance, that because of a job transfer to another city she wants to purchase a new home in November. Her plans would be disrupted if she could not unload her house and buy the new one at the same time. And so your creative side tells you, If I were to buy her house in, say, September, she'd have to store all of her furniture and rent an apartment for two months—both major hassles. You can create a trade this seller will value if you say, "My schedule is flexible. I can accommodate your situation and conclude the sale in November if you are willing to come down a bit on the price." She may figure that the hassle of storing her furniture for two months—and two months of apartment rent—is worth $5,000. And so, in horse-trading fashion, she may say, "Great! If we can close the sale in November, I'll reduce the price to $445,000."

Thus, by understanding the interests of the other side—and by applying a bit of creativity—you will have created a situation in which both parties are better off. Win, win! These situations emerge from an understanding of the other side's interests. We'll return later to the importance of understanding the interests of the participating negotiators—both yours and those of others. The better you understand those interests, the more effective you'll be as a negotiator.

LOSE-LOSE

Although most negotiations can be described as win-lose or win-win, some result in a "lose" for all parties. In this game, both sides lose something in the negotiations. The best example of a lose-lose game is a compromise in which the total value of the deal is diminished. We've always been taught that compromise is a good thing. However, a series of compromises can leave both sides with far less than they needed in the first place. One example of a lose-lose game is that of a union that makes unreasonable demands and winds up forcing a company to close. In this case, both the company and union members are losers.

CHAPTER REVIEW Test what you've learned so far with this open-book review quiz.

1. Explain the characteristics of a win-lose negotiation. __________________________________________________________________ __________________________________________________________________

2. How would you describe the value of relationships in win-lose deals? __________________________________________________________________ __________________________________________________________________

3. Describe a win-win negotiation from your own experience. __________________________________________________________________ __________________________________________________________________

4. What is meant by "creating value through trade?" __________________________________________________________________ __________________________________________________________________

Chapter Two

THREE INDISPENSABLE CONCEPTS

Successful negotiating is based on a sound conceptual foundation. This chapter introduces three indispensable negotiating concepts and explains how you can use them to good effect. Those concepts are:

1. Alternatives

2. Reserve price

3. Area of potential agreement

ALTERNATIVES

The first important concept at the negotiator's disposal is one or more practical alternatives to the deal currently on the table. Alternatives make it possible for a negotiator to say, "If this negotiation fails to produce what I need, I can always do __________." Consider this simple example:

You are selling your house and already have an offer from a qualified buyer for $400,000. A second potential buyer has come into the picture, this one offering $375,000. You counter that second offer, asking for $449,000. As you negotiate with this second buyer, you know that you have someone ready to pay you $400,000 for the house.

In effect, alternatives give the negotiator a credible walk-away opportunity. In theory at least, the negotiator shouldn't accept any deal that is less attractive than his or her most attractive alternative.

Roger Fisher and William Ury introduced this concept, which they call Best Alternative to a Negotiated Agreement, or BATNA, in their popular book, Getting to Yes. Every negotiator should have a BATNA in his or her hip pocket. To appreciate its value, consider a more complex example, the case of an ambitious young manager, Helen, who is trying to negotiate an expanded role with her Chicago-based employer. She introduced this matter to her boss months ago, and they are now in serious negotiations.

Helen has proposed that the company move her from Chicago to Boston, where she will create a new sales district, with herself as manager. Once there, she will recruit a regional sales force, develop a new customer base for the company, and identify potential sales targets. As part of her proposal, the company will pay for Helen's move, name her manager of its Northeastern sales district, and provide a salary and incentives commensurate with her larger responsibilities. Helen knows that tough negotiations lie ahead. Opening a new operation in Boston will involve substantial start-up costs and business risks. But she sees the move as a great opportunity—both for the company and for her career. Before entering into discussions with her boss and the company's executive team, Helen does her homework. She develops a plan for implementing her proposition, with cost and revenue estimates. Just as important, she thinks about alternatives if the company turns her down: * Alternative 1: Helen can keep her current job, which is fine for now but not something she wants to do much longer. "I plan to move up or move out within one year," she tells herself. * Alternative 2: The manager of the Southwestern sales district is planning to retire; he has told Helen in confidence that he will support her selection as his replacement. * Alternative 3: Helen has had informal discussions with a rival company, which has been trying to recruit her for the past year. It would put her on the fast track to a higher-level job.

Always have an alternative to the deal.

In this scenario, Helen has some aces—that is, some alternatives—up her sleeve. If the company stonewalls her plan, or will only accept a weak version of it, she doesn't have to accept its offer. She can walk away knowing that she has attractive alternatives. Assuming that the company values her as an up-and-coming employee, Helen might even leak some information about Alternative 3, the overtures she's received from a rival company. The thought of losing her talents to a competitor might induce the company to give Helen what she wants.

Helen can negotiate from a position of strength and confidence because she has alternatives. She knows when she can walk away from an offer. Compare her savvy use of alternatives to the person who enters a negotiation with no alternatives. That person has no bargaining chips, no leverage, and no basis for confidence. Unless he can bluff his way to a good outcome, he is doomed to accept whatever deal the other side offers.

NEGOTIATING TIP: IMPROVE YOUR BEST ALTERNATIVE BEFORE GETTING INTO SERIOUS NEGOTIATIONS. A local business person has called to say, "I'd like to buy your company for $1 million." Your current best alternative is to keep running your company as it is. You might improve that alternative by asking a business broker to solicit bids from other buyers. Those other bids may produce a more valuable alternative—say, a purchase offer of $1.25 million.

RESERVE PRICE

Have you ever bought or sold anything on eBay, the online auction site? If you have, you've encountered the term reserve price, which is the lowest price the seller will accept for an item—it is the dollar amount below which the seller will walk away from any deal (or the amount above which the bidder will not pay). Naturally, that price is not disclosed to bidders. Every negotiator should determine his or her reserve price in advance of any negotiation. Consider this example:

Oscar and Janis are listing their business for sale with a business broker. As part of their discussions with the broker, they say, "Based on your assessment of the market and the appraised value of our business, we'd like you to list it at $795,000. However, just between you and you and us, we'll entertain offers down to $725,000. That's our reserve price; we are unwilling to sell below that amount."

(Continues...)



Excerpted from HOW TO BECOME A BETTER NEGOTIATOR by Richard A. Luecke James G. Patterson Copyright © 2008 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.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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