The Fast Forward MBA in Negotiating and Deal Making 0471166162, 0471256986

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"Tough ideas made easy" ■

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ADY J. LEWICKI and ALEXANDER HIAM

$14.95 USA $20.95 CAN

General Business/Management

The Fast Forward MBA in Negotiating and Deal "!laking brings you the information you need when .you need it mostnow ! This practical, easy-to-use guide gives you instant access to the cutting-edge ideas and hard-won wisdom of today's leading experts on negotiation and deal making. In short, lively segments using real-world examples, it delivers the facts you need to navigate complex negotiation issues. You'll find brief descriptions of key concepts, tips on real-world applications, compact case studies, advice from respected negotiators, and warnings on how to avoid pitfalls. Here are all the tools you need to ·finesse the art of the deal. You'll learn about: • The four driving forces that you must know in any strategic negotiation • How to turn your personal qualities into negotiating power • The best ways to prepare for-and master-all negotiation situations • When to compete. when to collaborate, and when to compromise • And much more f" fir

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MBA From the creators of the bestselling Portable MB}:\ series comes The Fast Forward MBA ... • A quick way to brush up on new ideas • An easy-to-use format that fits in any briefcase • Real-world information that you can put to use now!

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ISBN 0-471-25698-b 51495

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THE FAST FORWARD MBA SERIES The Fast Forward MBA Series provides time-pressed business professionals and students with concise, onestop information to help them solve business problems and make smart, informed business decisions. All of the volumes, written by industry leaders, contain "tough ideas made easy." The published books in this series are:

The Fast Forward MBA in Business (0-4 71-14660-9) by Virginia O'Brien

The Fast Forward MBA in Finance (0-4 71-10930-4) by John Tracy

The Fast Forward MBA Pocket Reference (0-4 71-14595-5) by Paul A. Argenti

The Fast Forward MBA in Marketing (0-471-16616-2) by Dallas Murphy

The Fast Forward MBA in Hiring (0-4 71-24212-8) by Max Messmer

The Fast Forward MBA in Technology Management (0-4 71-23980-1) by Daniel P. Petrozzo

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John Wiley & Sons, Inc. New York • Chichester • Weinheim • Brisbane • Singapore • Toronto

All materials taken from Flex Style Negotiating by Alexander Hiam, copyright© 1997, are reprinted by permission of the publisher, HRD Press, Amherst, Massachusetts. This book is based on Think Before You Speak: A Complete Guide to Strategic Negotiation by Roy J. Lewicki, Alexander Hiam, and Karen Wise Olander (New York: Wiley, 1996). This book is printed on acid-free paper.9 Copyright© 1999 by Roy J. Lewicki and Alexander Hiam. All rights reserved. Published by John Wiley & Sons, Inc. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY.COM. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought.

Library of Congress Cataloging-in-Publication Data: Lewicki, Roy J. The fast forward MBA in negotiating and deal making / Roy Lewicki, Alexander Hiam. p. cm. - (The fast forward MBA series) Includes bibliographical references and index. ISBN 0-471-25698-6 (pbk. : alk. paper) 1. Negotiation in business. I. Hiam, Alexander. II. Title. III. Series. HD58.6.L488 1998 658.4'052-dc21 98-24242 CIP Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1

Roy J. Lewicki is the Dean's Distinguished Teaching

Professor and Professor of Management and Human Resources at the Max M. Fisher College of Business, The Ohio State University. He teaches and writes in the fields of negotiation, conflict management, trust, leadership, and ethics. He is the author or editor of 19 books, including Think Before You Speak: A Complete Guide to Strategic Negotiation (with Alexander Hiam and Karen Wise Olander) and Negotiation (with David Saunders and John Minton). In addition to his university responsibilities, Professor Lewicki provides a range of education and consulting services to Fortune 500 companies and university-based executive programs. Roy Lewicki can be contacted at: Fisher College of Business, The Ohio State University, Columbus, OH 43210, (614) 292-0258; e-mail: [email protected]. Alexander Hiam is the author of the Flex Style Negotiating line of training and assessment products and the coauthor of Think Before You Speak. He has written numerous other business titles including Marketing for Dummies, The Portable MBA in Marketing, Second Edition, The Vest-Pocket CEO, The Vest-Pocket Marketer. Closing the Quality Gap, The Entrepreneur's Complete Source Book, and The Manager's Pocket Guide to Creativity. He is a frequent speaker and trainer on negotiation, leadership, and creativity. Currently, Mr. Hiam runs a consulting firm based in Amherst, Massachusetts, and his clients include GM, Coca-Cola, Kellogg's, The Conference Board, and Mass Mutual. He has an MBA from U.C. Berkeley's Haas School of Business. Alex Hiam can be contacted at: 69 S. Pleasant Street, Amherst, MA 01002, (413) 253-3658; e-ma~l: , [email protected].

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ACKNOWLEDGMENTS

We would like to thank: • Karen Wise Olander for her extensive contribution to Think Before You Speak: A Complete Guide to Strategic Negotiation, the predecessor to this volume. • Robert Carkhuff of HRD Press for his support and cooperation. • The students in Roy Lewicki's Managerial Negotiation classes at the Fisher College of Business, The Ohio State University, during the Winter Quarter, 1998, for their extensive contributions to the checklists in Chapter 12. • Finally, we wish to thank our editors at Wiley for all their good work and our families for allowing us the time to complete this project.

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CONTENTS

PREFACE

xvii

CHAPTER 1-CONFLICT

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Conflicts Are Everywhere if You Know Where to Look The Hidden Influence of Conflicts at Work Who Won? You, Them-or Both? Classic Negotiating Games May Be Unhealthy Taming Your Emotions The Importance of Good Communication Assessing Your Reactions to Conflict What Did You Learn about Yourself? Roadblock #1: They Refuse to Negotiate Roadblock #2: They Only Care about Price Roadblock #3: They Play Dirty Roadblock #4: They Engage in Difficult Behavior

The Five Steps Managing Conflict with a Difficult Person Four Benefits of Successful Conflict Resolution

Negotiation Is Everywhere Negotiation Is a Game The Negotiation Game Has Stages and Phases

Stage 1: Preparation Stage 2: Opening

2 3 6 7 8 9 13 13 14 15 17 18 18 19 20

End Point CHAPTER 2THE NEGOTIATION GAME

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CONTENTS

Stage 3: Bargaining Stage 4: Closing and Implementation The Players in the Game Negotiating with Yourself Negotiating with an Opponent Negotiating through Agents Rules for Negotiating through an Agent Negotiating in Groups and Teams Managing Group Negotiations Steps in Moderating the Group Process End Point CHAPTER 3-YOUR N'EDS AND INTERESTS

Search Your Feelings Good Negotiators Don't Fly by the Seat of Their Pants Your Side of the Story The Situation Is Like a Three-Strand Rope What Are Your Goals? Prioritize Your Goals Bargaining Range Alternatives What Are Your Underlying Interests? Align Your Interests, and the Rest Is Easy What Resources Can You Bring to Bear? Have You Been Here Before? How Do You Behave? What Are Your Beliefs about Negotiation? Who Can You Trust-and Who Trusts You? Who's in Charge of What? Should Your Strategy Be Firm or Flexible? What Does Who You Are Have to Do with What You Must Do? End Point X

31 32 33 33 34 36 38 39 40 42 44

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45 45 48 48 48 51 51 53 54 56 57 58 58 59 59 60 62 62 63

CONTENTS

CHAPTER 4THE OTHER PLAYERS

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68 68

Stepping Outside Yourself What Do They Want? Make Opportunities to Study Other Players To Understand Opponents, Think and Feel as They Do Plan the Other Party's Negotiation Spy versus Spy? Do Some Research What to Research

68 69

71 73 73 74 74

Their Objectives Their Interests and Needs Their Alternatives Their Resources Their Reputation, Negotiation Style, and Behavior Their Authority to Make an Agreement Their Likely Strategy and Tactics One to Wish For: Foreknowledge of Their Concessions

75 76 77 77 78 79 80 81

Try On Their Shoes End Point

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CHAPTER 5SI.ZING UP THE FIELD

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Recognizing Power Factors in the Situation Harnessing the Power of Information Harnessing the Power of Constituencies Using Time Wisely Using the Legitimate Status of Customs and Rules Using Positional Power Consider the Alternatives Using Your Personal Power

Persuasiveness Persistence Personal Integrity Precedent Choosing the Site for Negotiation Configuring the Site Schedules and Agendas

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CONTENTS

1 Relationships Personalities Gender Differences End Point CHAPTER 6CHOOSING YOUR GAME

Good News: You've Done Your Homework Choosing Your Game Need an Instant Answer? Examining Relationship Concerns Outcome Concerns The Five Negotiating Games What Game Will They Play? Advanced Selection Criteria Situation Preferences Experience Style Perceptions and Experience Can You Choose "No Strategy,,? End Point CHAPTER 7THE COMPETITIVE GAME

Take as Much as You Can The Risks of Competition Are You Forcing Others to Compete? How to Set Your Bargaining Range Do You Have a BATNA? Suggestions for Defining Your Bargaining Range Do You Have Multiple Issues? Do You Know Your Costs? Are Their Costs Higher? Aha! Did You Remember to Do Your Homework? How Tough Is Your Opening Position? Setting a Tone at the Opening Have You Planned Your Concessions? Do You See a Pattern to Their Concessions? Is the Concession Pattern Irregular? Competitive Rules of Thumb •• XII

100 103 104 105

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107 108 109 109 114 114 116 116 118 118 119 119 119 122 122 123

124 124 126 127 130 131 132 133 133 133 134 134 135 135 136 136

CONTENTS

Sending and Reading Commitment Signals Avoid Commitment Gridlock Final Offers How to Get Out of a Commitment Using Tactics Want to Play Hardball?

The Good Guy/Bad Guy Tactic The Highball/Lowball Tactic The Bogey The Nibble Playing Chicken The Power of Coercion Tactical Uses of Time Manipulating the Other Party's Impression of Your Concerns Are You Prepared to Cope with Tough Tactics? End Point CHAPTER 8THE COLLABORATIVE GAME

Do You Want to Build the Relationship? When Collaboration Is Key A Foundation of Trust Honesty Is the Key Keys to Successful Collaboration Can I Help You Get What You Want? Become a Collaborative Problem Solver Obstacles to Collaboration Are You Serious about Collaboration? Pay Attention to the Soft Stuff Are You Ready to Make Concessions? Use Time as a Resource, Not a Weapon A Four-Step Process

Step 1: Identify the Problem Be Creative Step 2: Understand the Problem Collaborators Must Stand on Shifting Ground J Step 3: Generate Alternative Solutions Prioritize the Options and Reduce the List Step 4: Select a Solution You Can Always Change Your Mind

137 138 139 139 140 141 142 143 143 143 144 144 144 146 14 7 14 7

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150 150 151 151 152 152 153 153 154 154 155 155 155 155 156 156 157 157 161 162 164

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CONTENTS

Secrets of Successful Collaboration Don't Go Too Far How and Why to Build Trust Obstacles to Achieving Good Collaboration What If There's a Breakdown? Collaborative Negotiation with Your Boss End Point

. 164 166 166 166 167 168 170

CHAPTER 9THE COMPROMISE GAME 171 When to Compromise 172 Compromises Are Also a Compromise of Styles 172 You Get What You Pay For 173 Compromising Compare'd to Competition 17 4 Winning Compromise Tactics 17 5 Fixing a Stalled Compromise 17 8 The Reciprocity Trap 179 The Commitment Trap 179 How Social Proof Leads to Commitment 181 When Liking Colors Judgment 182 When Authority Leads to Compliance 182 When Scarcity Colors Judgment 182 Compromising with the Boss 183 Responding to a Boss's Impossible Reque~ 185 The Power of the "Yes, and" Response 185 End Point 186 CHAPTER 10THE ACCOMMODATING AND AVOIDING GAMES Accommodating: Let's Lose to Win! When to Accommodate Now for the Bad News End Point Avoiding: When a Lose-Lose Is Best End-Running the Risks of Avoidance Options Make Avoidance More Appealing Pick Your Battles Passive or Active Avoidance?

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194 194 196

CONTENTS

Ways to Benefit from Avoidance End Point

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CHAPTER 11-AVOIDING LEGAL AND ETHICAL PITFALLS

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Legal Constraints on Negotiation Is It Fraud? The Law May Assume You Know the Truth Is It Misrepresentation? Does Contract Law Apply? Employee Negotiation Traps Customer Negotiation Traps Ethics in Negotiation

200 201 202 203 204 206 207 208

The White Lie in Competitive Negotiating Three Major Vzews of Ethical Conduct Examples of Unethical Tactics

Moderate Tactics More Troublesome Tactics Extremely Troublesome Tactics How People Justify Unethical Tactics End Point CHAPTER 12DEALS IN A LIFETIME

208 210 211 211 212 213 215 216

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Deal Deal Deal Deal

1: Buying a Used Car 2: Buying a New Car 3: Planning a Wedding 4: Negotiating a New Job with a Large Company Deal 5: Negotiating a New Job with a Small Company Deal 6: Negotiating a Raise Deal 7: Buying a House through an Agent Deal 8: Negotiating a Home Repair Contract End Point

219 223 226 229 232 234 237 240 241 J

NOTES INDEX

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PREFACE

This is the second time we have been asked to collaborate on a book for John Wiley & Sons. The first, written with Karen Wise Olander, is called Think Before You Speak: A Complete Guide to Strategic Negotiation, and it is often used in courses on negotiation and conflict management. We were thrilled to be asked to update and adapt that book for Wiley's Fast Forward series, as it gave us a chance to present the theory and practice of negotiation in a more hands-on, succinct format. Here, after extensive rework, is our latest and (we trust) best effort to help you acquit yourself successfully in conflicts, deals, and negotiations-whether in private or professional life. We've included lots of tips, warnings, examples, tactics, and strategies to help you win (or, better yet, win-win) in every negotiating session. We are also pleased to be able to include activities and self-assessment tools from the Flex Style Negotiating training products Alex distributes through HRD Press, as well as lots of tips and insights gleaned from the authors' workshops and training sessions on the subject of negotiation. All in all, you should find this book to be a great source of real-world advice and methods, grounded in the careful research that makes up the academic field of negotiation. It has been our pleasure to translate from the world of theory to the world of practice, and we hope you will find as many exciting insights for your own negotiations as we did. There is always more to learn about this fascinating subject, and its importance in all our lives makes the learning especially worthwhile. ROY

J. LEWICKI

HIAM Septell)ber 1998 ALEXANDER

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Conflict

Conflict is so much a part of our daily routines that we barely notice it in the majority of cases. We have conflicts of interest with dozens, sometimes hundreds of people in a day. From when to set the alarm and who uses the bathroom first, to who will be responsible for what, when, at the office, each of us navigates through a maze of minor conflict situations every hour. It is part and parcel of living and working with other people-so much a part of our social behavior that we deal with most conflict quite unconsciously.

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Except when the stakes seem high or the problem is more puzzling or emotionally arousing than usual. Then we become aware of a conflict of interest and struggle consciously with how to handle it. At such times in your life, you are no doubt open to learning and applying conflict-management techniques from the field of negotiation. However, we want you to think about using improved conflictresolution methods in all the many conflicts of interest you encounter, not just in the few that shout for your attention.

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CONFLICTS ARE EVERYWHERE KNOW WHERE TO LOOK

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Think about the many requests and instructions you receive from those above you in the hierarchy of your workplace. The majority of such instructions are treated as routine. Although you and your employers have a fundamental conflict of interest (they want you to do 1

CONFLICT

more for less pay and you would prefer to be paid more for doing less!), you are able to come to easy terms in most cases. But sometimes a situation troubles you, a request or instruction seems unjust or ill informed. Then the conflict of interest surfaces and occupies your conscious mind. Either way, however-whether it is a routine, trivial conflict of interest or an important one-your handling of it has a big impact on your work and life. If you choose, you can turn each conflict situation into an opportunity to maximize what you get out of itwhether what you seek is a bigger piece of the pie for yourself or a collaboration that grows the pie for all. This book will show you when and how to do both.

THE HIDDEN INFLUENCE OF CONFLICTS ATWORK 1

If you ask most people whethe~ there is conflict in their workplace, they immediately say "no." Yet if you carefully observe any employee for an hour or two, you will probably unearth a variety of conflicts. Here are some of the ordinary, everyday conflicts in the life of a typical white-collar worker: • Competition for the use of office equipment, such as copiers and printers • Disagreements with coworkers about how or when to do a task • Disputes with someone about who's responsible for problems • Resentment toward bosses for criticism over problems • Debates with others in meetings about how to plan projects • Requests to bosses re working conditions or performance measures • Requests from customers for more rapid delivery than is feasible • Price increases by suppliers on materials that already seem overpriced • Complaints from customers about the quality of customer service

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All of these, and many others, are conflicts ~O~EP¥"' because there are two or more parties with differing goals or needs involved. Usually the differences in workplace conflicts are swept under the rug because it's inappropriate to engage in heated arguments at work. A superior may pull rank, or an employee may hide dissatisfaction, in order to avoid 2

CONFLICT

conflict. And sometimes negotiating techniques are used to resolve conflicts in a polite manner. The etiquette of negotiating makes it possible to turn potentially messy or unpleasant conflicts of interest into profitable games. There are a variety of games you can choose to play, each appropriate in specific situations. The key to mastering conflict situations is to learn how to play each of these negotiating games, and when to play which one. This book will teach you both of these skills.

People think, mistakenly, that etiquette means you have to suppress your differences. On the contrary, etiquette is what enables you to deal with them; it gives you a set of rules. On the floor of the Congress, you don't say, "You're a jerk and a crook"; you say, "I'm afraid the distinguished gentleman is mistaken about so and so." Those are the things that enable you to settle your differences, to bring them out in the open. Everything else just starts battles. -Miss Manners2

The reason it pays to reconsider how you handle conflicts in your work is that these conflicts present opportunities to innovate and create win-win solutions. By avoiding conflicts, you fail to take advantage of cooperative negotiation to push the limits of your business. The daily conflicts represent your business's current limits, and if you can apply genuine creativity and problem solving to these conflicts, you can find ways to boost performance and productivity. Negotiation training, especially training that focuses on trust building and cooperative conflict resolution, helps people learn to take advantage of conflict. It leads to a more innovative workforce. It turns an overlooked problem into a business opportunity. The following training activities come from the Flex Style Negotiating training materials by Alex Hiam, published by HRD Press in Amherst, Massachusetts. Use them on your own to help you think about the types of conflicts you have encountered recently, and to give some thought to how well you resolved these conflicts, from both your own and the other party's perspective. WHO WON? YOU, THEM-OR BOTH?

Let's say that you and another person both want the same thing. If you get it, they'll be dissatisfied. If they 3

CONFLICT

Activity: Personal Conflict Experiences lhrections: Take a few minutes to think back over the last two weeks. What ~1:mffid :situations did you encounter? List at least three conflict situations you cah rim!II. Describe each conflict situation using the following table. you may use the olher party's name or a generic description, such as coworker or family member. Who Was Conflict With?

What Was Conflict About?

Q,

- Ranking

b. Ranking C.

Ranking

d. Ranking

e. Ranking

Now that you have listed some conflict situations, read back over the list and rank them according to how important they were to you. Give the most important situation a number-1 ranking, and so on. (No ties please!) Next, reexamine your highest-ranked conflict situation. Decide how satisfied you were with the outcome, using the following rating scale: 1= very unhappy 2 =moderately unhappy 3 = indifferent 4 = moderately happy 5= very happy with the outcome Enter your satisfaction rating here __. Finally, consider the outcome from the other side's point of view. How satisfied do you think the other party was? If they were to use the same scale, enter the score you think they would give here __. Now have a quick look at Figure 1.1, a graph on which you can plot your satisfaction score and the other person's score. All conflict situations, and therefore all negotiations, fall somewhere on this graph. But the question is where, because much of the area of this graph is undesirable from your perspective. For instance, any outcome below the middle of your satisfaction range-in other words, to the left of center-will not be a good one for you. In fact, you'd prefer to have all outcomes land on the righthand side of the graph, and as you gain skill in negotiating, more and more of them will. SouRCE: Alex Hiam, Flex Style Negotioting Porticipont Workbook (Amherst, Mass.: HRD Press, 1997).

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CONFLICT

High 5 .------;----......--------.---~ I

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Other party's 1 1 satisfaction 3 i-----..-- ~ I with I results I I I

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2

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Your satisfaction with results

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FIGURE 1.1 All conflicts/all somewhere on this chart. (Copyright© 1998. Alexander Hiam. Reproduced by permission.)

get it, you'll be unhappy. Even if we divide it in half, and you get half of it, you won't be completely happy. That's because your gain is their loss, and vice versa.

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When your gain is their loss, you are playing a win-lose game. If your satisfaction score is high, it will be at the expense of the other party's score. Assuming satisfaction varies directly with outcome, a 5 for you means a Ofor them. If you compromise by giving in partially to them and rate your satisfaction at 4, then theirs can rise to 1. Or it could be 3 and 2. But as long as the outcome is a tradeoff, you can't get off the win-lose line in Figure 1.2. And many conflicts do result in scores that are on or near the win-lose line. That's where competitive or conflict-oriented resolutions always fall. So if you are in one of these types of conflicts of interest, you need to compete hard in order to make sure the trade-offs go in your direction, not the other way!

AAA

Many conflict situations also fall below the win-lose line. As Figure 1.2 shows, this is where lose-lose outcomes show up on the graph. When the conflict leaves neither party satisfied, then both lose. Unfortunately, that's the case far too often. By gaining mastery of negotiation methods, you will learn to avoid lose-lose outcomes. Finally, there are the win-win outcomes in which both parties end up being highly satisfied. These are

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CONFLICT

High 5 .....----.----,--------,----, I I I

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Other I 1 ~6>;,-0 Party's I satisfaction 3 1 - - - - - +- - - , , ; .s-~ 1 with I ~" I 0~ I results I ~ I 0 Lose-lose outcomes~' _ sum is less than _ ~