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In 1998, the National Basketball Association (NBA) owners
initiated a 202-day lockout of players, resulting in a loss
of about $1 billion for owners and about half a billion
dollars in foregone salaries for basketball players. Fans were
frustrated and disenchanted, and supporters and advertisers
lost millions.
In 1999, the members of the World Trade Organization met in
Seattle, Washington to lower trade barriers. The members of
the organization could not even agree on an agenda and the
meeting was an utter failure.
During 1999, Belinda Clark handled about 200 job offers for
nursing assistants, research scientists, and a number of
other employees. All but about 10 of these candidates took
the initial offer without attempting to negotiate for something extra
or more. Clark was delighted, but puzzled. The job applicants
apparently did not realize that the offers Clark made were
just starting points. She says, laughing, "I don’t say
anything if they don’t." (Clark 1999, 88)
These examples suggest that negotiating is not easy. This is a
problem, considering that people negotiate in their personal and
business relationships, within organizations, between companies,
across industries, and among nations. Furthermore, negotiations
occur between two people and, in other cases—such as the World
Trade Organization—hundreds of people. The variety of negotiation
contexts presents special challenges for managers, who are required
to demonstrate competencies in all of these contexts. This book is
designed to improve managers’ and executives’ negotiation skills
across a wide variety of situations.
The working definition of negotiation used in this book is
"an interpersonal decision-making process by which two or more
people agree how to allocate scarce resources." By this
definition, it is difficult to imagine how people can get through a
single day without negotiating.
NEGOTIATION AS A CORE MANAGEMENT COMPETENCY
Effective negotiation skills are increasingly important for
executives, leaders, and managers in the business world. There are
five key reasons for this.
DYNAMIC NATURE OF BUSINESS
Mobility and flexibility are the dictates of the new world of
work. The dynamic, changing nature of business means that people
must negotiate and renegotiate their existence in organizations
throughout the duration of their careers. The advent of
decentralized business structures and the absence of hierarchical
decision making provide opportunities for managers, but they also
pose some daunting challenges. For example, most people do not stay
in the same job that they take upon graduating from college or
receiving their MBA degree; furthermore, most people will not have
the same job as their predecessor. These realities mean that people
must continually create possibilities, integrate their interests
with others, and recognize that there will be competition both
within companies and between companies (see Sidebar 1–1). Managers
must be in a near-constant mode of negotiating opportunities.
| SIDEBAR 1–1. NEW BUSINESSES AND CAREERS
According to Business Week (Alderman, 1999), it is
the "era of the employee," with the tightest labor
market in 29 years. This means that employees are in a one-up
position, and employers need to keep them happy. For example,
Doug Ross, the owner of Evolution Film & Tape Inc., a
television production company in North Hollywood, California,
lets his employees create their own hours, dress as they
please, and bring their children to work—all in order to
stay competitive. Employees and companies are in positions to
negotiate all kinds of things, such as opportunities for
training, flex time, family leave, health insurance, and other
benefits. Another example: The California-based Cheesecake
Factory, Inc., pays salaries 20 percent above market rates. It
also gives stock options to all its general managers, as well
as new BMW 323s. This sounds expensive, but Cheesecake Factory
says it has actually saved money, losing only two general
managers in the last two years in an industry where a 38
percent turnover is the average (Conlin, Coy, Palmer, and
Saveri 1999).
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According to Linda Greene, associate vice-chancellor for academic
affairs at the University of Wisconsin—Madison, "Many
important events essential to professional success and professional
satisfaction happen every day in the workplace and they are not
always announced in advance" (Kalk 2000, 1E). In truth,
negotiation comes into play when people participate in important
meetings, get new assignments, head a team, participate in a
reorganization process, and set priorities for their work unit (Kalk
2000). Ideally, negotiation should be second nature, but often, it
is not.
INTERDEPENDENCE
The increasing interdependence of people within organizations,
both laterally and hierarchically, implies that people need to know
how to integrate their interests and work together across business
units and functional areas. This not only occurs within companies,
as people from different departments and units integrate their
knowledge to create a product or service, but it also occurs between
people from different companies, as is the case with strategic
alliances. The increasing degree of specialization and expertise in
the business world implies that people are more and more dependent
on others to supply the components for a complete service or
product. It is unwise to assume that others have similar incentive
structures, so managers need to know how to promote their own
interests while simultaneously creating joint value for their
organizations. This requires negotiation.
COMPETITION
Business is increasingly competitive. In today’s economy, a few
large firms are emerging as dominant players in the biggest markets.
These industry leaders often enjoy vast economies of scale and earn
tremendous profits. The losers are often left with little in the way
of a market, let alone a marketable product (Frank and Cook 1995).
This means that companies must be experts in the vast fields of
competition. Managers not only need to function as advocates for
their products and services, but they must also recognize the
competition that is inevitable between companies and, in some cases,
between units within a given company. Understanding how to navigate
this competitive environment is essential for successful
negotiation.
INFORMATION AGE
The information age also provides special opportunities and
challenges for the manager as negotiator. Computer technology, for
example, extends a company’s obligations and capacity to add value
to its customers. This must be accomplished in a way that also
benefits the company. Further, with ever-improving technology making
it possible to communicate with people anywhere in the world,
managers need to be able to negotiate at a moment’s notice. Thus,
the ability to determine relevant information from irrelevant
information is critical for successful negotiation in the
information-overload age.
DIVERSITY
Increasing diversity means that managers need to develop
negotiation skills that can be successfully employed with people of
different nationalities, backgrounds, and styles of communication.
Thus, negotiators who have developed a bargaining style that works
only within a narrow subset of the business world will suffer unless
they can broaden their negotiation skills to effectively work with
different people across functional units, industries, and cultures (Bazerman
and Neale 1992). It is a challenge to develop a negotiation skill
set generalizable enough to be used across different contexts,
groups, and continents, but specialized enough to provide meaningful
behavioral strategies in any given situation. This book provides the
manager with such skills.
MOST PEOPLE ARE INEFFECTIVE NEGOTIATORS
Because negotiation is so important for personal and business
success, it is rather surprising that most people do not negotiate
very well—judging from their performance in realistic business
negotiation simulations (for reviews, see Neale and Bazerman 1991;
Thompson and Hrebec 1996; Thompson 1990a). For example, in a recent
investigation of senior-level executives from major companies across
the world, 95 percent reached suboptimal outcomes in a realistic
business simulation; in practical terms, they "left money on
the table." They are not alone. A voluminous body of evidence
indicates that people consistently leave money on the table, walk
away from profitable deals, and in some cases, settle for something
worse than they could otherwise obtain by pursuing a different
course of action.
THE MAJOR SINS OF NEGOTIATION
There are four major shortcomings in negotiation we have observed
and documented in our research. They are:
- Leaving money on the table
(also known as
"lose-lose" negotiation) occurs when negotiators fail to
recognize and exploit win-win potential.
Settling for too little (also known as "the winner’s
curse") occurs when negotiators make too-large concessions,
resulting in a too-small share of the bargaining pie.
Walking away from the table occurs when negotiators reject
terms offered by the other party that are demonstrably better than
any other option available to them. (Sometimes this is traceable to
hubris or overweening pride; other times, it results from gross
miscalculation.)
Settling for terms that are worse than your alternative (also
known as the "agreement bias") occurs when negotiators
feel obligated to reach agreement even when the settlement terms are
not as good as their other alternatives.
This book teaches you how to avoid these errors, create value in
negotiation, get your share of the bargaining pie, reach agreement
when it is profitable to do so, and quickly recognize when agreement
is not a viable option in a negotiation.
WHY ARE PEOPLE INEFFECTIVE NEGOTIATORS?
The dramatic instances of lose-lose outcomes, the winner’s
curse, walking away from the table, and the agreement bias raise the
question of why people are not more effective at the bargaining
table if negotiation is indeed critical for business success. The
reason is not due to a lack of motivation or lack of intelligence on
the part of negotiators. Many of the managers who fall victim to the
major sins of negotiation do so for three primary causes: absence of
feedback, satisficing, and self-reinforcement.
ABSENCE OF RELEVANT AND DIAGNOSTIC FEEDBACK
Most people have little opportunity to learn how to negotiate
effectively. The problem is not lack of experience but a shortage of
timely and accurate feedback. Even those people who have daily
experiences in negotiation receive very little feedback on their
negotiating effectiveness. The absence of feedback results in two
human biases that further prevent negotiators from optimally
benefiting from experience. The first problem is the confirmation
bias, or the tendency for people to see what they want to see
when appraising their own performance. The confirmation bias leads
people to selectively seek information that confirms what they
believe is true. Whereas the confirmation bias may seem perfectly
harmless, it results in a myopic view of reality and can hinder
learning. A second problem associated with the absence of relevant
and diagnostic feedback is egocentrism, which is the tendency
for people to view their experiences in a way that is flattering or
fulfilling for themselves. This may increase a manager’s
self-esteem; however, in the long run, it does a disservice to
managers by preventing them from learning effectively. For example,
it was egocentrism and the corresponding inability to recognize her
own shortcomings that lead to the removal of Jill Barad as
chairperson/CEO of toy maker Mattel Inc. (Byrne and Grover 2000).
According to analysts, Barad never assumed responsibility for
earnings surprises or adverse announcements. Instead, she blamed her
subordinates and sacked them.
SATISFICING
The second reason why people often fall short in negotiation is
due to the human tendency to satisfice (Simon 1955). Satisficing is
the opposite of optimizing: In a negotiation situation, as we
will argue later in this book, it is important to optimize one’s
strategies by setting high aspirations and attempting to achieve as
much as possible; in contrast, when people satisfice, they settle
for something less than they could otherwise have. Over the long
run, satisficing (or the acceptance of mediocrity) can do one’s
self and one’s company a disservice because there is a variety of
effective negotiation strategies and skills that can be cheaply
employed to result in dramatic increases in profit (we will discuss
these strategies in detail in the next three chapters).
SELF-REINFORCEMENT
The final reason why people perform poorly in negotiation is due
to a principle known as self-reinforcement, which is the
reluctance to try something new or change certain behaviors. It
works like this: People are reluctant to change their behavior and
experiment with new courses of action because of the risks
associated with experimentation. In short, the fear of losing keeps
people from experimenting with change. Negotiators instead
rationalize their behavior in a self-perpetuating fashion. The fear
of making mistakes may result in a manager’s inability to improve
his or her negotiation skills. In this book, we remove the risk of
experimentation by providing several exercises and clear
demonstrations of how changing one’s behavior can lead to better
results in negotiation.
DEBUNKING NEGOTIATION MYTHS
Before we start on our journey toward developing a more effective
negotiation strategy, we need to dispel several faulty assumptions
and myths about negotiation. These myths hamper people’s ability
to learn effective negotiation skills and, in some cases, reinforce
poor negotiation skills. In the following section, we expose the
four most prevalent myths about negotiation behavior.
MYTH 1: GOOD NEGOTIATORS ARE BORN
A pervasive belief is that good negotiation skills are something
that people are born with, not something that can be readily
learned. This is false because most excellent negotiators are
self-made. In fact, there are very few naturally gifted negotiators.
We tend to hear their stories, but we must remember that their
stories are selective, meaning that it is always possible for
someone to have a lucky day or a fortunate experience. This myth is
often perpetuated by the tendency of people to judge negotiation
skills by their car-dealership experiences. Whereas purchasing a car
is certainly an important and common type of negotiation, it is not
the best context by which to judge your negotiation skills. The most
important negotiations are those that we engage in every day with
our colleagues, supervisors, co-workers, and business associates.
These relationships provide a much better index of one’s
effectiveness in negotiation. In short, effective negotiation
requires practice and feedback. The problem is that most of us do
not get an opportunity to develop effective negotiation skills in a
disciplined fashion; rather, most of us learn by doing. As the
second myth reveals, experience is helpful, but not sufficient.
MYTH 2: EXPERIENCE IS A GREAT TEACHER
We have all met that person at the cocktail party or on the
airplane who boasts about his or her great negotiation feats and how
he or she learned on the job (Bazerman and Neale 1992). It is only
partly true that experience can improve negotiation skills; in fact,
naïve experience is largely ineffective in improving negotiation
skills (Thompson and DeHarpport 1994). There are three strikes
against natural experience as an effective teacher. First, in the
absence of feedback, it is nearly impossible to improve performance.
For example, can you imagine trying to learn mathematics without
ever doing homework or taking tests? Without diagnostic feedback, it
is very difficult to learn from experience.
The second problem is that our memories tend to be selective,
meaning that people tend to remember their successes and forget
their failures or shortcomings. This is, of course, comforting to
our ego, but it does not improve our ability to negotiate. Finally,
experience improves our confidence, but not necessarily our
accuracy. People with more experience grow more and more confident,
but the accuracy of their judgment and the effectiveness of their
behavior does not increase in a commensurate fashion. Overconfidence
can be dangerous because it may lead people to take unwise risks.
MYTH 3: GOOD NEGOTIATORS TAKE RISKS
A pervasive myth is that effective negotiation necessitates
taking risks and gambles. In negotiation, this may mean saying
things like "This is my final offer" or "Take it or
leave it" or using threats and bluffs. This is what we call a
"tough" style of negotiation. Tough negotiators are rarely
effective; however, we tend to be impressed by the tough negotiator.
In this book, we teach negotiators how to evaluate risk, how to
determine the appropriate time to make a final offer and, more
importantly, how to make excellent decisions in the face of the
uncertainty of negotiation.
MYTH 4: GOOD NEGOTIATORS RELY ON INTUITION
An interesting exercise is to ask managers, and anyone else who
negotiates, to describe their approach to negotiating. Many seasoned
negotiators believe that their negotiation style involves a lot of
"gut feeling," intuition, and "in-the-moment"
responses. We believe that this type of intuition does not serve
people well. Effective negotiation involves deliberate thought and
preparation and is quite systematic. The goal of this book is to
help managers effectively prepare for negotiation, become more
self-aware of their own strengths and shortcomings, and develop
strategies that are proactive (i.e., those that anticipate
the reactions of their opponent) rather than reactive (i.e.,
those that are dependent upon the actions and reactions of their
opponent). Thus, excellent negotiators do not rely on intuition;
rather, they are deliberate planners.
LEARNING OBJECTIVES
This book promises three things: First (and most important),
reading this book will improve your ability to successfully
negotiate. You and your company will be richer, and you will
experience fewer sleepless nights, because you will have a solid
framework and excellent toolbox for successful negotiation. However,
in making this promise, we must also issue a warning: Successful
negotiation skills do not come through passive learning. Rather, you
will need to actively challenge yourself. We can think of no better
way of doing this than to supplement this book with classroom
experiences in negotiation, where managers can test their
negotiation skills, receive timely feedback, and refine their
negotiation strategies on a repeated basis.
Second, we provide you with a general strategy for successful
negotiation. This book explicitly does not support a contextual
model of negotiation, which prescribes using different negotiation
strategies with different types of people, situations, and
industries. Rather, we believe that negotiation skills are
transferable across situations. In saying this, we do not mean to
imply that all negotiation situations are identical. This is
patently false because negotiation situations differ dramatically
across cultures and activities. However, there are key negotiation
principles that are essential in all of these different contexts.
The skills in this book are effective across a wide range of
situations, ranging from complex, multiparty, multicultural deals to
one-on-one personal exchanges.
Finally, this book offers an enlightened model of negotiation.
Being a successful negotiator does not depend on your opponent’s
lack of familiarity with a book like this or a lack of training in
negotiation. In fact, it would be ideal for you if your key clients
and customers knew about these strategies. This approach follows
what we call a fraternal twin model, which assumes
that the other person you are negotiating with is every bit as
motivated, intelligent, and prepared as you are. Thus, the
negotiating strategies and techniques outlined in this book do not
rely on "outsmarting" or tricking the other party; rather,
they teach you to focus on simultaneously expanding the pie of
resources and ensuring the resources are allocated in a manner that
is favorable to you.
THE MIND AND HEART
Across all of the sections of this book, we focus on the mind of
the negotiator as it involves the development of deliberate,
rational, thoughtful strategies for negotiation. We also focus on
the heart of the negotiator because it involves emotions,
psychology, and the intuitive aspects of negotiation. This book
strikes a balance between these two approaches to negotiation
situations.
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