PREPARATION, PREPARATION, PREPARATION — Fundamentals of Negotiation
By: Rohan Morbia
Tags: Strategy, Business Development, Negotiation, Agreement, Deal

PREPARATION, PREPARATION, PREPARATION — Fundamentals of Negotiation

Negotiation is more like a math problem than a tug of war. Negotiation should be done using principled arguments than simply asking for the share which is unreasonable to the other. Thinking of negotiation as a math problem allows you to be dispassionate and to better understand what really is at stake. It is very important to have a fair idea of what is your reservation value or if the agreed price is better than your BATNA (Best Alternative To a Negotiated Agreement).

Negotiation could take place anywhere and everywhere it could be your salary negotiation, your bonus negotiation, company mergers, or acquisitions. The best time to negotiate is when you have a good BATNA, you have the best outside options, that gives you the most power to negotiate. Either way, you don’t want to be in a position where the other person feels exploited and never wants to do business with you again or worse, to work alongside and unable to trust you.

Negotiation should be about the fair division of a pie

PIE = Net benefit of working together — (A’s net benefit on its own + B’s net benefit on its own) where the net benefit is the benefit leftover after deducting costs

What is PIE?

The pie is what individuals think they can achieve working together versus what they can achieve on their own if they fail to reach an agreement. A pie is a collaborative effort of benefits brought together by both parties by reaching an agreement.

Even one’s weaknesses contribute equally to the share of the pie, hence it's unfair to split the benefits according to the proportion. For example, Company A lacks the expertise of technology know-how and Company B possesses technical expertise, but the technical expertise of Company B would be adding no value if Company A was not in need of it. Hence, whatever benefits achieved collectively should be fairly divided to reach a broader objective of the merger between the two.

Never expect more than your added value, for that reason know what is your added value. Added value is the total benefits you bring to the table when working together minus the benefits the other side holds when you are not involved. Reading this you might feel, isn’t this obvious, I already know I should not ask more than my added value and more often we think we don’t, but in the anticipation of future negotiation and in order to reach the desired payout a far-ranging asking price results in losing the power in negotiation.

Before entering the negotiation an individual should be aware of his/her reservation value. What is the Reservation Value? A reservation value is a price at which you do not care if your bid/offer is accepted or taken away. Reservation value lies between your Upper bound value and the Lower bound value, it is the value just high enough that you are skeptical about going ahead and have no problem walking away from. The most important starting point for any negotiation is to know your walkaway price. As a seller, what is the least amount you’d be willing to accept before walking away? As a buyer, what’s the most you’d be willing to pay before walking away? The whole idea of a negotiation is to get an outcome better than your reservation value. Who gets the pie depends on how much each side beats its reservation value. When the other side is at their reservation value, you are getting all the pie. When you are at your reservation value, then the other side is getting all the pie. If you go beyond your reservation value, then the other side is getting more than all the pie, and that makes no sense. It is very important to have an understanding of the other side’s reservation value, only then you can get an understanding of how far you can push haggling before the person you are negotiating with walks away.

Key Takeaways:- Ask Questions, Allocentric approach, Diffuse situation with humor, Contingent agreements, Anchoring theory

Resist playing The Ultimatum Game and Never say NO! — Ultimatums are often used while negotiating and it gives the opposing person a choice to either Accept or Reject your ultimatum, but it takes away the choice to counter your proposal. Lopsided ultimatums often result in rejection and if it is your real ultimatum you can’t go back to have an open conversation and explain your rationale. It’s best to always counter a counter offer rather than denying and saying a hard no. Instead, let the other side say a no to you. Always make an offer the other side might reject, but that you’d be happy to take. On the other hand, when challenged by lopsided ultimatum shake the negotiator out of his complacency — take him/her by surprise that changes the tone of the negotiation and you again establish the environment of flexibility and discussions.

In conclusion, all of the tips and tricks are unsubstantiated unless you know what is it you really want. In the course, it is mentioned as a STEP ZERO of any negotiation to figure what’s important to you. Monetary gains are definitely a key aspect to all negotiations but it is very important to know beforehand what are the non-monetary aspects can benefit you/your company. It could be responsibilities, a title, values, etc. It is hard to be successful in negotiation and get the other side to give what you want if you yourself don’t know what it is to ask for.

Everything is negotiable. If something is a product of a negotiation, it’s negotiable - Herb Cohen

Reference: Barry Nalebuff, Introduction to Negotiation: A Strategic Playbook for Becoming a Principled and Persuasive Negotiator, Coursera.org https://www.coursera.org/learn/negotiation

Published By

Rohan Morbia| MBA candidate at The University of Hong Kong