This is “Negotiations”, section 10.5 from the book An Introduction to Organizational Behavior (v. 1.1).
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A common way that parties deal with conflict is via negotiation. NegotiationA process whereby two or more parties work toward an agreement. is a process whereby two or more parties work toward an agreement. There are five phases of negotiation, which are described below.
Figure 10.8 The Five Phases of Negotiation
The first step in negotiation is the investigationThe first step in negotiation in which information is gathered., or information gathering stage. This is a key stage that is often ignored. Surprisingly, the first place to begin is with yourself: What are your goals for the negotiation? What do you want to achieve? What would you concede? What would you absolutely not concede? Leigh Steinberg, the most powerful agent in sports (he was the role model for Tom Cruise’s character in Jerry Maguire), puts it this way: “You need the clearest possible view of your goals. And you need to be brutally honest with yourself about your priorities.”Webber, A. (1998, October). How to get them to show you the money. Fast Company, 198. Retrieved November 14, 2008, from http://www.fastcompany.com/magazine/19/showmoney.html.
During the negotiation, you’ll inevitably be faced with making choices. It’s best to know what you want, so that in the heat of the moment you’re able to make the best decision. For example, if you’ll be negotiating for a new job, ask yourself, “What do I value most? Is it the salary level? Working with coworkers whom I like? Working at a prestigious company? Working in a certain geographic area? Do I want a company that will groom me for future positions or do I want to change jobs often in pursuit of new challenges?”
If you don’t know where you’re going, you will probably end up somewhere else.
Lawrence J. Peter
One important part of the investigation and planning phase is to determine your BATNAStands for the “best alternative to a negotiated agreement.” Determining your BATNA is one important part of the investigation and planning phase in negotiation., which is an acronym that stands for the “best alternative to a negotiated agreement.” Roger Fisher and William Ury coined this phrase in their book Getting to Yes: Negotiating without Giving In.
Thinking through your BATNA is important to helping you decide whether to accept an offer you receive during the negotiation. You need to know what your alternatives are. If you have various alternatives, you can look at the proposed deal more critically. Could you get a better outcome than the proposed deal? Your BATNA will help you reject an unfavorable deal. On the other hand, if the deal is better than another outcome you could get (that is, better than your BATNA), then you should accept it.
Think about it in common sense terms: When you know your opponent is desperate for a deal, you can demand much more. If it looks like they have a lot of other options outside the negotiation, you’ll be more likely to make concessions.
As Fisher and Ury said, “The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are those results? What is that alternative? What is your BATNA—your Best Alternative To a Negotiated Agreement? That is the standard against which any proposed agreement should be measured.”Fisher, R., & Ury, W. (1981). Getting to yes: Negotiating agreement without giving in. New York: Penguin Books.
The party with the best BATNA has the best negotiating position, so try to improve your BATNA whenever possible by exploring possible alternatives.Pinkley, R. L. (1995). Impact of knowledge regarding alternatives to settlement in dyadic negotiations: Whose knowledge counts? Journal of Applied Psychology, 80, 403–417.
Going back to the example of your new job negotiation, consider your options to the offer you receive. If your pay is lower than what you want, what alternatives do you have? A job with another company? Looking for another job? Going back to school? While you’re thinking about your BATNA, take some time to think about the other party’s BATNA. Do they have an employee who could readily replace you?
Once you’ve gotten a clear understanding of your own goals, investigate the person you’ll be negotiating with. What does that person (or company) want? Put yourself in the other party’s shoes. What alternatives could they have? For example, in the job negotiations, the other side wants a good employee at a fair price. That may lead you to do research on salary levels: What is the pay rate for the position you’re seeking? What is the culture of the company?
Greenpeace’s goals are to safeguard the environment by getting large companies and organizations to adopt more environmentally friendly practices such as using fewer plastic components. Part of the background research Greenpeace engages in involves uncovering facts. For instance, medical device makers are using harmful PVCs as a tubing material because PVCs are inexpensive. But are there alternatives to PVCs that are also cost-effective? Greenpeace’s research found that yes, there are.Layne, A. (1999, November). Conflict resolution at Greenpeace? Fast Company. Retrieved November 14, 2008, from http://www.fastcompany.com/articles/1999/12/rick_hind.html. Knowing this lets Greenpeace counter those arguments and puts Greenpeace in a stronger position to achieve its goals.
Sources: Adapted from information in Spangler, B. (2003, June). Best Alternative to a Negotiated Agreement (BATNA). Retrieved November 12, 2008, from http://www.beyondintractability.org/essay/batna/; Conflict Research Consortium, University of Colorado. (1998). Limits to agreement: Better alternatives. Retrieved November 12, 2008, from http://www.colorado.edu/conflict/peace/problem/batna.htm; Venter, D. (2003). What is a BATNA? Retrieved January 14, 2008, from http://www.negotiationeurope.com/articles/batna.html.
All phases of the negotiation process are important. The presentation is the one that normally receives the most attention, but the work done before that point is equally important.
© 2010 Jupiterimages Corporation
The third phase of negotiation is presentationThe third phase of negotiation.. In this phase, you assemble the information you’ve gathered in a way that supports your position. In a job hiring or salary negotiation situation, for instance, you can present facts that show what you’ve contributed to the organization in the past (or in a previous position), which in turn demonstrates your value. Perhaps you created a blog that brought attention to your company or got donations or funding for a charity. Perhaps you’re a team player who brings out the best in a group.
During the bargainingThe fourth phase of negotiation. phase, each party discusses their goals and seeks to get an agreement. A natural part of this process is making concessionsGiving up one thing to get something else in return., namely, giving up one thing to get something else in return. Making a concession is not a sign of weakness—parties expect to give up some of their goals. Rather, concessions demonstrate cooperativeness and help move the negotiation toward its conclusion. Making concessions is particularly important in tense union-management disputes, which can get bogged down by old issues. Making a concession shows forward movement and process, and it allays concerns about rigidity or closed-mindedness. What would a typical concession be? Concessions are often in the areas of money, time, resources, responsibilities, or autonomy. When negotiating for the purchase of products, for example, you might agree to pay a higher price in exchange for getting the products sooner. Alternatively, you could ask to pay a lower price in exchange for giving the manufacturer more time or flexibility in when they deliver the product.
One key to the bargaining phase is to ask questions. Don’t simply take a statement such as “we can’t do that” at face value. Rather, try to find out why the party has that constraint. Let’s take a look at an example. Say that you’re a retailer and you want to buy patio furniture from a manufacturer. You want to have the sets in time for spring sales. During the negotiations, your goal is to get the lowest price with the earliest delivery date. The manufacturer, of course, wants to get the highest price with the longest lead time before delivery. As negotiations stall, you evaluate your options to decide what’s more important: a slightly lower price or a slightly longer delivery date? You do a quick calculation. The manufacturer has offered to deliver the products by April 30, but you know that some of your customers make their patio furniture selection early in the spring, and missing those early sales could cost you $1 million. So, you suggest that you can accept the April 30 delivery date if the manufacturer will agree to drop the price by $1 million.
“I appreciate the offer,” the manufacturer replies, “but I can’t accommodate such a large price cut.” Instead of leaving it at that, you ask, “I’m surprised that a 2-month delivery would be so costly to you. Tell me more about your manufacturing process so that I can understand why you can’t manufacture the products in that time frame.”
“Manufacturing the products in that time frame is not the problem,” the manufacturer replies, “but getting them shipped from Asia is what’s expensive for us.”
When you hear that, a light bulb goes off. You know that your firm has favorable contracts with shipping companies because of the high volume of business the firm gives them. You make the following counteroffer: “Why don’t we agree that my company will arrange and pay for the shipper, and you agree to have the products ready to ship on March 30 for $10.5 million instead of $11 million?” The manufacturer accepts the offer—the biggest expense and constraint (the shipping) has been lifted. You, in turn, have saved money as well.Adapted from Malhotra, D., & Bazerman, M. H. (2007, September). Investigative negotiation. Harvard Business Review, 85, 72.
ClosureThe last part of negotiation in which you and the other party have either come to an agreement on the terms, or one party has decided that the final offer is unacceptable and therefore must be walked away from. is an important part of negotiations. At the close of a negotiation, you and the other party have either come to an agreement on the terms, or one party has decided that the final offer is unacceptable and therefore must be walked away from. Most negotiators assume that if their best offer has been rejected, there’s nothing left to do. You made your best offer and that’s the best you can do. The savviest of negotiators, however, see the rejection as an opportunity to learn. “What would it have taken for us to reach an agreement?”
Recently, a CEO had been in negotiations with a customer. After learning the customer decided to go with the competition, the CEO decided to inquire as to why negotiations had fallen through. With nothing left to lose, the CEO placed a call to the prospect’s vice president and asked why the offer had been rejected, explaining that the answer would help improve future offerings. Surprisingly, the VP explained the deal was given to the competitor because, despite charging more, the competitor offered after-sales service on the product. The CEO was taken by surprise, originally assuming that the VP was most interested in obtaining the lowest price possible. In order accommodate a very low price, various extras such as after-sales service had been cut from the offer. Having learned that the VP was seeking service, not the lowest cost, the CEO said, “Knowing what I know now, I’m confident that I could have beaten the competitor’s bid. Would you accept a revised offer?” The VP agreed, and a week later the CEO had a signed contract.Malhotra, D., & Bazerman, M. H. (2007, September). Investigative negotiation. Harvard Business Review, 85, 72.
Sometimes at the end of negotiations, it’s clear why a deal was not reached. But if you’re confused about why a deal did not happen, consider making a follow-up call. Even though you may not win the deal back in the end, you might learn something that’s useful for future negotiations. What’s more, the other party may be more willing to disclose the information if they don’t think you’re in a “selling” mode.
Yes! According to a survey conducted by CareerBuilder.com, 58% of hiring managers say they leave some negotiating room when extending initial job offers. The survey also found that many of the hiring managers agree to a candidate’s request for a higher salary. “Salary negotiation has become a growing opportunity in the job acquisition process,” says Bill Hawkins, president and CEO of The Hawkins Company, a full-service executive search firm with offices in Los Angeles and Atlanta. “Candidates who fail to make a counteroffer could forfeit significant income.”
Source: Adapted from information in Reed-Woodard, M. (2007, April). Taking money off the table. Black Enterprise, 37(9), 60–61.
The distributive viewThe traditional fixed-pie approach in which negotiators see the situation as a pie that they have to divide between them. of negotiation is the traditional fixed-pie approach. That is, negotiators see the situation as a pie that they have to divide between them. Each tries to get more of the pie and “win.” For example, managers may compete over shares of a budget. If marketing gets a 10% increase in its budget, another department such as R&D will need to decrease its budget by 10% to offset the marketing increase. Focusing on a fixed pie is a common mistake in negotiation, because this view limits the creative solutions possible.
A newer, more creative approach to negotiation is called the integrative approachAn approach to negotiation in which both parties look for ways to integrate their goals under a larger umbrella.. In this approach, both parties look for ways to integrate their goals under a larger umbrella. That is, they look for ways to expand the pie, so that each party gets more. This is also called a win–win approach. The first step of the integrative approach is to enter the negotiation from a cooperative rather than an adversarial stance. The second step is all about listening. Listening develops trust as each party learns what the other wants and everyone involved arrives at a mutual understanding. Then, all parties can explore ways to achieve the individual goals. The general idea is, “If we put our heads together, we can find a solution that addresses everybody’s needs.” Unfortunately, integrative outcomes are not the norm. A summary of 32 experiments on negotiations found that although they could have resulted in integrated outcomes, only 20% did so.Thompson, L., & Hrebec, D. (1996). Lose-lose agreements in interdependent decision making. Psychological Bulletin, 120, 396–409. One key factor related to finding integrated solutions is the experience of the negotiators who were able to reach them.Thompson, L. (1990). Negotiation behavior and outcomes: Empirical evidence and theoretical issues. Psychological Bulletin, 108, 515–532.
Step 1: Overcome your fear.
Step 2: Get the facts.
Step 3: Build your case.
Step 4: Know what you want.
Step 5: Begin assertively.
Step 6: Don’t make the first offer.
Step 7: Listen more than talk.
Sources: Adapted from information in Brodow, E. (2006). Negotiation boot camp. New York: Currency/Doubleday; Nemko, M. (2007, December 31). The general way to get a raise. U.S. News & World Report, 57.
You may have heard that women typically make less money than men. Researchers have established that about one-third of the gender differences observed in the salaries of men and women can be traced back to differences in starting salaries, with women making less, on average, when they start their jobs.Gerhart, B. (1990). Gender differences in current and starting salaries: The role of performance, college major, and job title. Industrial and Labor Relations Review, 43, 418–433. Some people are taught to feel that negotiation is a conflict situation, and these individuals may tend to avoid negotiations to avoid conflict. Research shows that this negotiation avoidance is especially prevalent among women. For example, one study looked at students from Carnegie-Mellon who were getting their first job after earning a master’s degree. The study found that only 7% of the women negotiated their offer, while men negotiated 57% of the time.CNN. (2003, August 21). Interview with Linda Babcock. Retrieved November 14, 2008, from http://transcripts.cnn.com/TRANSCRIPTS/0308/21/se.04.html. The result had profound consequences. Researchers calculate that people who routinely negotiate salary increases will earn over $1 million more by retirement than people who accept an initial offer every time without asking for more.Babcock, L., & Lascheve, S. (2003). Women don’t ask: Negotiation and the gender divide. Princeton, NJ: Princeton University Press. The good news is that it appears that it is possible to increase negotiation efforts and confidence by training people to use effective negotiation skills.Stevens, C. K., Bavetta, A. G., & Gist, M. E. (1993). Gender differences in the acquisition of salary negotiation skills: The role of goals, self-efficacy, and perceived control. Journal of Applied Psychology, 78, 723–735.
Thinking only about yourself is a common mistake, as we saw in the opening case. People from the United States tend to fall into a self-serving bias in which they overinflate their own worth and discount the worth of others. This can be a disadvantage during negotiations. Instead, think about why the other person would want to accept the deal. People aren’t likely to accept a deal that doesn’t offer any benefit to them. Help them meet their own goals while you achieve yours. Integrative outcomes depend on having good listening skills, and if you are thinking only about your own needs, you may miss out on important opportunities. Remember that a good business relationship can only be created and maintained if both parties get a fair deal.
Susan Podziba, a professor of mediation at Harvard and MIT, plays broker for some of the toughest negotiations around, from public policy to marital disputes. She takes an integrative approach in the negotiations, identifying goals that are large enough to encompass both sides. As she puts it, “We are never going to be able to sit at a table with the goal of creating peace and harmony between fishermen and conservationists. But we can establish goals big enough to include the key interests of each party and resolve the specific impasse we are currently facing. Setting reasonable goals at the outset that address each party’s concerns will decrease the tension in the room, and will improve the chances of reaching an agreement.”Rothenberger, C. (2008, September 11). Negotiation 201: Refine your skills. Fast Company. Retrieved January 11, 2008, from http://www.fastcompany.com/articles/team/prob_podziba.html. Those who set unreasonable expectations are more likely to fail.
Negotiations, by their very nature, are emotional. The findings regarding the outcomes of expressing anger during negotiations are mixed. Some researchers have found that those who express anger negotiate worse deals than those who do not,Kopelman, S., Rosette, A. S., & Thompson, L. (2006). The three faces of Eve: An examination of the strategic display of positive, negative, and neutral emotions in negotiations. Organizational behavior and human decision processes, 99, 81–101. and that during online negotiations, those parties who encountered anger were more likely to compete than those who did not.Friedman, R., Anderson, C., Brett, J., Olekalns, M., Goates, N., & Lisco, C. C. (2004). The positive and negative effects of anger on dispute resolution: Evidence from electronically mediated disputes. Journal of Applied Psychology, 89, 369–376. In a study of online negotiations, words such as despise, disgusted, furious, and hate were related to a reduced chance of reaching an agreement.Brett, J. M., Olekalns, M., Friedman, R., Goates, N., Anderson, C., & Lisco, C. C. (2007). Sticks and stones: Language, face, and online dispute resolution. Academy of Management Journal, 50, 85–99. However, this finding may depend on individual personalities. Research has also shown that those with more power may be more effective when displaying anger. The weaker party may perceive the anger as potentially signaling that the deal is falling apart and may concede items to help move things along.Van Kleef, G. A., & Cote, S. (2007). Expressing anger in conflict: When it helps and when it hurts. Journal of Applied Psychology, 92, 1557–1569. This holds for online negotiations as well. In a study of 355 eBay disputes in which mediation was requested by one or both of the parties, similar results were found. Overall, anger hurts the mediation process unless one of the parties was perceived as much more powerful than the other party, in which case anger hastened a deal.Friedman, R., Anderson, C., Brett, J., Olekalns, M., Goates, N., & Lisco, C. C. (2004). The positive and negative effects of anger on dispute resolution: Evidence from electronically mediated disputes. Journal of Applied Psychology, 89, 369–376. Another aspect of getting overly emotional is forgetting that facial expressions are universal across cultures, and when your words and facial expressions don’t match, you are less likely to be trusted.Hill, D. (2007). Emotionomics: Winning hearts and minds. Edina, MN: Adams Business & Professional; Holloway, L. (2007, December). Mixed signals: Are you saying one thing, while your face says otherwise? Entrepreneur, 35, 49.
Research shows that negotiators who had previously experienced ineffective negotiations were more likely to have failed negotiations in the future. Those who were unable to negotiate some type of deal in previous negotiation situations tended to have lower outcomes than those who had successfully negotiated deals in the past.O’Connor, K. M., Arnold, J. A., & Burris, E. R. (2005). Negotiators’ bargaining histories and their effects on future negotiation performance. Journal of Applied Psychology, 90, 350–362. The key to remember is that there is a tendency to let the past repeat itself. Being aware of this tendency allows you to overcome it. Be vigilant to examine the issues at hand and not to be overly swayed by past experiences, especially while you are starting out as a negotiator and have limited experiences.
Sources: Adapted from information in Stuhlmacher, A. F., Gillespie, T. L., & Champagne, M. V. (1998). The impact of time pressure in negotiation: A meta-analysis. International Journal of Conflict Management, 9, 97–116; Webber, A. (1998, October). How to get them to show you the money. Fast Company. Retrieved November 13, 2008 from http://www.fastcompany.com/magazine/19/showmoney.html.
Alternative Dispute Resolution (ADR)Includes mediation, arbitration, and other ways of resolving conflicts with the help of a specially trained, neutral third party without the need for a formal trial or hearing. includes mediation, arbitration, and other ways of resolving conflicts with the help of a specially trained, neutral third party without the need for a formal trial or hearing.New York State Unified Court System. (2008, October 28). Alternative dispute resolution. Retrieved November 14, 2008, from http://www.courts.state.ny.us/ip/adr/index.shtml. Many companies find this effective in dealing with challenging problems. For example, Eastman Kodak Company added an alternative dispute resolution panel of internal employees to help them handle cases of perceived discrimination and hopefully stop a conflict from escalating.Deutsch, C. H. (2004, August 24). Race remains a difficult issue for many workers at Kodak. New York Times.
In mediationA process in which an outside third party (the mediator) enters the situation with the goal of assisting the parties to reach an agreement., an outside third party (the mediator) enters the situation with the goal of assisting the parties in reaching an agreement. The mediator can facilitate, suggest, and recommend. The mediator works with both parties to reach a solution but does not represent either side. Rather, the mediator’s role is to help the parties share feelings, air and verify facts, exchange perceptions, and work toward agreements. Susan Podziba, a mediation expert, has helped get groups that sometimes have a hard time seeing the other side’s point of view to open up and talk to one another. Her work includes such groups as pro-choice and pro-life advocates, individuals from Israel and Palestine, as well as fishermen and environmentalists. According to the U.S. Equal Employment Opportunity Commission, “Mediation gives the parties the opportunity to discuss the issues raised in the charge, clear up misunderstandings, determine the underlying interests or concerns, find areas of agreement and, ultimately, to incorporate those areas of agreements into resolutions. A mediator does not resolve the charge or impose a decision on the parties. Instead, the mediator helps the parties to agree on a mutually acceptable resolution. The mediation process is strictly confidential.”The U.S. Equal Employment Opportunity Commission. (2007, December 4). Mediation. Retrieved November 13, 2008, from http://www.eeoc.gov/mediate/index.html. One of the advantages of mediation is that the mediator helps the parties design their own solutions, including resolving issues that are important to both parties, not just the ones under specific dispute. Interestingly, sometimes mediation solves a conflict even if no resolution is reached. Here’s a quote from Avis Ridley-Thomas, the founder and administrator of the Los Angeles City Attorney’s Dispute Resolution Program, who explains, “Even if there is no agreement reached in mediation, people are happy that they engaged in the process. It often opens up the possibility for resolution in ways that people had not anticipated.”Layne, A. (1999, November). Conflict resolution at Greenpeace? Fast Company. Retrieved November 11, 2008, from http://www.fastcompany.com/articles/1999/12/rick_hind.html. An independent survey showed 96% of all respondents and 91% of all charging parties who used mediation would use it again if offered.Layne, A. (1999, November). Conflict resolution at Greenpeace? Fast Company. Retrieved November 11, 2008, from http://www.fastcompany.com/articles/1999/12/rick_hind.html.
Sources: Adapted from information in Crawley, J. (1994). Constructive conflict management. San Diego: Pfeiffer; Mache, K. (1990). Handbook of dispute resolution: Alternative dispute resolution in action. London: Routledge.
In contrast to mediation, in which parties work with the mediator to arrive at a solution, in arbitrationA process that involves bringing in a third party, the arbitrator, who has the authority to act as a judge and make a binding decision to which both parties must adhere. the parties submit the dispute to the third-party arbitrator. It is the arbitrator who makes the final decision. The arbitrator is a neutral third party, but the decision made by the arbitrator is final (the decision is called the “award”). Awards are made in writing and are binding to the parties involved in the case.American Arbitration Association. (2007). Arbitration and mediation. Retrieved November 11, 2008, from http://www.adr.org/arb_med. Arbitration is often used in union-management grievance conflicts.
As a last resort, judges resolve conflicts.
It is common to see mediation followed by arbitration. An alternative technique is to follow the arbitration with mediation. The format of this conflict resolution approach is to have both sides formally make their cases before an arbitrator. The arbitrator then makes a decision and places it in a sealed envelope. Following this, the two parties work through mediation. If they are unable to reach an agreement on their own, the arbitration decisions become binding. Researchers using this technique found that it led to voluntary agreements between the two parties 71% of the time versus 50% for mediation followed by arbitration.Conlon, D. E., Moon, H., & Ng, K. Y. (2002). Putting the cart before the horse: The benefits of arbitrating before mediating. Journal of Applied Psychology, 87, 978–984.
Negotiation consists of five phases that include investigation, determining your BATNA, presentation, bargaining, and closure. Different negotiation strategies include the distributive approach (fixed-pie approach) and the integrative approach (expanding-the-pie approach). Research shows that some common mistakes made during negotiations include accepting the first offer made, letting egos get in the way, having unrealistic expectations, getting overly emotional, and letting past negative outcomes affect the present ones. Third-party negotiators are sometimes needed when two sides cannot agree.