Negotiating for Success: Essential Strategies and Skills By George Siedel, University of Michigan Copyright 2014 George Siedel Published by Van Rye Publishing, LLC at Smashwords License Notes: This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to your favorite ebook retailer and purchase your own copy. Thank you for respecting the hard work of the author. Table of Contents About the Author Acknowledgments Introduction UNIT I: PREPARE TO NEGOTIATE Chapter 1 – Decide Whether to Negotiate Chapter 2 – Determine the Type of Negotiation Chapter 3 – Conduct a Negotiation Analysis Chapter 4 – Decide How to Answer Ethical Questions UNIT II: USE KEY STRATEGIES AND TACTICS DURING NEGOTIATIONS Chapter 5 – Develop Your Relationships and Power Chapter 6 – Understand the Role of Agents in Negotiation Chapter 7 – Use Psychological Tools—and Avoid Psychological Traps UNIT III: CLOSE YOUR NEGOTIATION WITH A BINDING CONTRACT Chapter 8 – Use Contract Law to Complete Your Negotiation Chapter 9 – Move Beyond Legalities to Create Value UNIT IV: COMPLETE YOUR END GAME Chapter 10 – Perform and Evaluate Your Agreement APPENDICES: PLANNING CHECKLIST AND ASSESSMENT TOOL Appendix A – Negotiation Planning Checklist Appendix B – Example of a Completed Negotiation Planning Checklist Appendix C – Assess Your Negotiating Style About the Author George Siedel is the Williamson Family Professor of Business Administration and the Thurnau Professor of Business Law at the University of Michigan. He teaches negotiation in the MBA program at Michigan’s Ross School of Business and in seminars around the world to business leaders, entrepreneurs, attorneys, physicians, athletic directors, and judges. Professor Siedel completed his graduate studies at the University of Michigan and Cambridge University. He has served as a visiting professor at Stanford University and Harvard University and as a Visiting Scholar at University of California, Berkeley. As a Fulbright Scholar, he held a Distinguished Chair in the Humanities and Social Sciences. Professor Siedel has received several national research awards including the Maurer Award, the Ralph Bunche Award, and the Hoeber Award. He has also received numerous teaching awards, including the 2014 Executive Program Professor of the Year Award from CIMBA, a consortium of thirty-six leading universities committed to international education. Back to top Acknowledgments Although I am listed as the author, this book is the product of the shared advice, experience and wisdom of literally thousands of students, colleagues, family members, friends, and others. I am unable to mention them all, but listed below is a sampling (in alphabetical order, by last name when individuals are recognized). I also acknowledge the outstanding research that has improved negotiation theory and practice over the years. Each chapter includes citations to the work of leading negotiation researchers. In an era of powerful search engines, detailed citations (in the form of footnotes that interrupt the flow of text and separate works-cited lists that require constant flipping to the back of a book) are unnecessary. Instead, brief citations are included parenthetically, with enough information to enable readers to easily locate sources by using search engines. Business Leaders and Professionals. Thank you to the business leaders and professionals from North America, South America, Asia, Africa, Europe, and Australia with whom I have worked over the years. In addition to teaching open seminars, I have offered seminars and given presentations to specific audiences that include pharmaceutical executives, athletic directors, attorneys, physicians, and entrepreneurs. Whether teaching in Seoul, Venice, Sydney, Mumbai, or Sao Paulo, I have learned from these participants that the concepts covered in this book are valuable in all professions, in all cultures and on all continents. David E. A. Carson. Thank you to David, a successful business leader and prominent alumnus of the Ross School of Business, for establishing the Carson Scholars Program. This program has played a leadership role in providing public policy education to business school undergraduates. As the program’s Director, I have had the opportunity to work with distinguished governmental leaders in Washington who, while teaching in the program, shared their insights into behind-the-scenes political negotiations. Consortium of Universities for International Studies (CIMBA). Thank you to Al Ringleb, Executive Director, and Cristina Turchet, Associate Director, for their innovative leadership of CIMBA and for inviting me to teach an annual negotiation seminar in Italy. Family. Thank you to my children, Joe, Katie and John, for testing me with various negotiation strategies and tactics when they were young. As is widely known, negotiations with one’s children are the toughest form of negotiation. Thanks also to my sister, Karen Braaten, who helped me develop dispute resolution skills when we were youngsters. Happily we have moved beyond dispute resolution and are close friends. Fulbright International Summer Institute. Thank you to Julia Stefanova, Executive Director of the Fulbright Office in Bulgaria, and to her outstanding staff for providing the opportunity to teach an annual negotiation course there to students from Eastern Europe and beyond. Helena Haapio. Many thanks to my frequent co-author Helena Haapio, International Contract Counsel for Lexpert Ltd. in Helsinki, Finland, and a leader in the proactive law movement. Helena has been an inspiration in her ability to integrate the theoretical and practical aspects of contracting. Parts of Chapters 8 and 9 in this book are adapted from our book A Short Guide to Contract Risk (Gower 2013) and from our 2010 article “Using Proactive Law for Competitive Advantage,” American Business Law Journal. I am also grateful to Helena for introducing me to the visualization community. Contract visualization is discussed in Chapter 9. Harvard Program on Negotiation (PON). Thank you to PON, a leading center for negotiation teaching and research, for providing a warm welcome when I was a Visiting Professor at Harvard Business School and for producing high quality negotiation materials that are used worldwide. Nancy Hauptman. My thanks to Nancy for her thorough review of the manuscript, for her creative design work on the figures that appear throughout the book, and for her general support and encouragement. International Association for Contract & Commercial Management (IACCM). Thank you to IACCM and President Tim Cummins. This global association has developed a wealth of resources on best practices relating to contract negotiation and management. Junhai Liu. Thank you to Junhai, a distinguished professor at Renmin University in Beijing where, at his invitation, I lectured on “Negotiating with Americans.” This experience helped me develop the chronological organization used in this book. Alyssa Martina. Many thanks to Alyssa, a leader and outstanding educator in the field of entrepreneurial negotiation, for her close review of the manuscript and her useful suggestions. MOOC Students. Thank you to the thousands of students worldwide who have enrolled in my Massive Open Online Course on “Successful Negotiation.” This course provided the impetus for completion of this book. Negotiation Professors. My thanks to professors at leading universities like Harvard, MIT and Stanford for invitations to teach in their negotiation courses and for sharing their insights about negotiation. Parents. I want to acknowledge my late parents, George and Justine Siedel. While their negotiation skills were forged in difficult times during the Depression, fairness was their highest priority in dealings with others. Danica Purg. Thank you to Danica, President of IEDC Bled School of Management and President of the international management association CEEMAN, for inviting me to teach negotiation to executives in Slovenia. Ross School of Business at the University of Michigan. Thank you to the Ross School of Business for the chance to teach negotiation in undergraduate, MBA and executive education programs. I especially appreciated the opportunity to teach an annual negotiation seminar for many years to business executives in Hong Kong and to teach negotiation in Brazil, Korea, India and Thailand. Thank you also to the Ross leadership team for placing trust in me to negotiate the creation of executive education centers in Paris and Hong Kong when I was Associate Dean for Executive Education. These negotiations, along with my negotiations with company leaders to develop executive programs for multinational companies, provided valuable experience in international deal making. Jeswald Salacuse. Thank you to Jeswald, the Henry J. Braker Professor of Law and former Dean of The Fletcher School at Tufts University, for permission to include the negotiation style assessment tool in Appendix C. Jeswald is recognized as a leader in research and teaching relating to international negotiation. John Siedel. This book would not have been possible without John’s technical ability and editorial skills throughout the writing and publication process. His close attention to detail led to many interesting negotiations. Students. Last, but certainly not least, a special thank you to the undergraduate and MBA students who have taken my negotiation course at the Ross School of Business and beyond. One of the joys in teaching negotiation is the opportunity to continue to learn from diverse, energetic and enthusiastic students. George Siedel University of Michigan Back to top Introduction A business executive in my annual negotiation seminar in Italy recently exclaimed: “Life is negotiation!” No one ever stated it better. As a mother with young children and as a company leader, she realized that negotiations are pervasive in our personal and business lives. We all negotiate on a daily basis. We negotiate with our spouses, children, parents and friends. We negotiate when we rent an apartment, buy a car, purchase a house and apply for a job. The ability to negotiate might be the most important factor in your career advancement. Negotiation is also the key to business success. No organization can survive without profitable contracts. At a strategic level, businesses are concerned with value creation and achieving competitive advantage. But the success of high-level business strategies depends on contracts made with suppliers, customers and other stakeholders. Contracting capability—the ability to negotiate and perform successful contracts—is the important function in any organization. My goal in writing this book is to help you achieve success in your personal negotiations and in your business transactions. The book covers the key strategies and skills necessary for negotiation success. Many other books also cover these concepts. However, this book goes beyond concepts by focusing on actions necessary for success. The book is also unique in its organization by covering each step in the negotiation process chronologically from preparation through performance. This holistic approach avoids a mistaken assumption that success is determined by what happens at the bargaining table. While the “bargaining table” phase of the process is important and is covered in detail in this book, the real test of success is whether the agreement was performed successfully. By the time you complete this book, you should be able to • complete a negotiation analysis, that includes your reservation price and zone of potential agreement • use decision trees to evaluate your alternatives to your negotiation • assess your negotiating style • increase your negotiating power • decide how to resolve ethical dilemmas during negotiations • use psychological tools—and avoid psychological traps—during negotiations • evaluate your performance as a negotiator Beyond these and other specific benefits, I hope that the concepts and tools in this book will help you achieve balance and harmony in your life as you engage in daily personal and business negotiations. Because “life is negotiation!” Back to top UNIT I PREPARE TO NEGOTIATE 1. Decide Whether to Negotiate 2. Determine the Type of Negotiation 3. Conduct a Negotiation Analysis 4. Decide How to Answer Ethical Questions Chapter 1 Decide Whether to Negotiate We all enter into contracts on a daily basis without engaging in negotiation. We usually do not negotiate when we buy food, drink, apps, books, clothing, electronics, pet supplies, office products, household goods, toys and sports equipment. What would happen if we decided to negotiate when purchasing these items? This is an assignment I give to my students at the University of Michigan. I ask them to try to purchase a personal product or service at a store, hotel or restaurant for less than the listed price. There are two rules. They cannot negotiate for something that is usually bargained for, such as a car or an item at a flea market. And they cannot tell the person with whom they are negotiating that this is a course assignment. Before they complete the assignment I ask the students to estimate how many of them will be successful. A large percentage of them predict that most students will fail. The actual results are surprising. In a typical year, two-thirds of the students are successful. The discounts range from 1% to 100% and the students save thousands of dollars. In achieving these savings, students use a variety of strategies and tactics. Some of the strategies—such as a Best Alternative to a Negotiated Agreement (BATNA) strategy, use of stretch goals, and building a relationship with the seller—are based on sound negotiation principles and will be covered later in this book. For example, one student was so successful in establishing a relationship that a checkout clerk offered to lend her money so that she could complete the purchase! Other tactics fall within the realm of tricks. A student who wanted to purchase a high- priced water bottle tried to project an image of poverty by not shaving, and by wearing shoddy clothing and an old pair of tennis shoes. He also coughed occasionally to indicate that his health was not good. Other students point out defects in products, try to flirt with the other side, or use strategic timing—for instance, by showing up at a pizza store just before closing, realizing that any unsold slices of pizza would be thrown away. Sometimes students use a combination of tactics. A young father arrived at a sushi restaurant shortly before closing. He put a $20 bill in one pocket and a $10 bill in another so that he could pull out one or the other (depending on how the negotiation proceeded) and claim that this was all the money he had. He also played a sympathy card by emphasizing that his young children at home love sushi. The result was a substantial discount. We will turn to a discussion of ethics in a later chapter! Even without using tricks or more acceptable strategies, US consumers are discovering that retailers are more willing than ever to haggle. According to an article in the New York Times (“More Retailers See Haggling as a Price of Doing Business,” December 16, 2013), stores are even training their employees how to negotiate with customers. The article offers this advice to customers: “Pay no attention to the price on that tag.” Three Reasons Why We Don’t Haggle More Often If haggling produces these results, why don’t we do it more often? Three reasons come to mind that you should consider when deciding whether to negotiate. First, many people are simply uneasy about negotiating. My students use words such as “hesitant,” “embarrassed” and “uncomfortable” when describing their retail negotiating experience. But these feelings are not universal, as other students enjoyed the experience, describing it as “enjoyable,” “fun” and “thrilling.” To some students who enjoyed the negotiation, the experience is life-changing, as this student reported: “I felt so good that I went home and began looking for other things . . . to purchase. This activity may have created a monster.” Students in this category often send me emails describing their post-graduation negotiation experiences. For instance, one student reported that the negotiation skills acquired in the course enabled him to save $130 per month on an apartment, although he wasn’t able to negotiate a discount on a dessert at a restaurant. A student from Europe was successful in negotiating with the Mafia to obtain the return of her father’s car, which had been stolen. Yet another student reported some good news and bad news. The good news was that he always obtained a discount from hotels. The bad news was that his wife would no longer go with him to the front desk. (A Wall Street Journal article, “How Do You Get a Break in the Price of Practically Anything? Easy, Just Ask,” August 19, 2006, noted that most hotel desk clerks are authorized to provide discounts ranging from 10% to 25%.) In addition to discomfort with the process, a second reason why many people don’t haggle is that the benefits might not exceed the costs. World-famous negotiation professor Max Bazerman tells this story about himself in his book Smart Money Decisions (which is highly recommended). In purchasing a big-screen TV, he completed extensive research on different models and costs. He visited many dealers and obtained quotes that combined the price of the TV with other items like installation and a satellite dish. His efforts over the last twenty hours of his search resulted in savings of around $120. Was this a successful negotiation? The answer depends on how you want to spend your limited time on earth. Professor Bazerman concluded that he had made a mistake in ignoring the value of his time, which was worth more than $6 an hour. However, if you enjoy negotiating more than the other opportunities that life provides—such as relaxing or spending time your friends and family—this might be time well-spent. Before you decide to negotiate instead of enjoying life’s other pleasures, consider what Professors Jonah Berger and Aner Sela call “decision quicksand,” which is agonizing over trivial decisions such as what brand of dental floss to purchase. (For a summary of their research, see “Research Roundup,”