12.4 Getting to Yes Through Negotiation

When was the last time you negotiated for something? You may be thinking, “I don’t negotiate often. I last negotiated when I bought my new car.” Unless you just bought that car, you’ve probably negotiated more recently. Consider the following possibilities.

• You want to go see your favorite local band in a concert this Friday night. But you were scheduled to work. Did you talk your manager into giving you the night off or did you convince a coworker to take your shift?

• Last Saturday, you wanted to watch a chick flick. Your friend wanted to watch another Fast and Furious sequel.

• Last night, your daughter wanted to play one more video game before going to bed, but you wanted to get her to bed so you could chill.

The reality is that you often negotiate without even being aware that you are negotiating. You may be wondering, “What exactly is negotiation?” After all, these scenarios don’t sound like the contentious haggling you typically associate with negotiation. The classic definition of negotiation goes something like this: Negotiation is a discussion between people who are trying to reach an agreement!

We suggest you think about negotiation a little differently. That is, negotiation is getting what you want for the other person’s reasons. When you think about negotiation this way, negotiation becomes a powerful tool to help you achieve goals—big and small—without the conflict you hate. Now that you know what negotiation is, you might be more willing to engage in proactive negotiations. After all, the first rule of negotiation is, “If you don’t ask, the answer is no!”

Negotiation Strategy

You negotiate to achieve goals—that is, to get what you want. That means you need a strategy and a plan! Two negotiating strategies are common: Distributive and integrative. Let’s discuss these strategies by taking a closer look at the two scenarios depicted in Figure 12.4.

Scenario #1: Zero-Sum Game

Sometimes, the amount of value available is fixed—and limited. Scenario #1 depicts this world, which we often call a zero-sum game. What is a zero-sum game, you ask? Imagine the circle is a pie. The only way for you to get a larger piece of the pie is for your counterpart to get a smaller piece of the pie. Negotiation is all about determining how much of the pie you will get. We call this value claiming.

Value-claiming scenarios call for a distributive negotiation strategy. Value claiming is what you do when you negotiate the price of a new car—that is, you want to pay as little as possible. By contrast, the dealership wants you to pay as much as possible. Distributive negotiations are typically transactional and can easily become adversarial. You can probably envision two people haggling over price with rolled-up sleeves as they use bluffs and threats to get their way. Such a stereotype isn’t really reflective of what happens in most project management negotiations. However, many project-related negotiations are distributive—that is, they are arm’s length, contentious, and focused on a single issue (e.g., price, time, or resources).

When should you use a distributive negotiation strategy? Distributive negotiation can be useful when you want to maximize the value of a single deal. Because you aren’t concerned about an ongoing relationship, you seek to claim as much of the pie as possible. Remember, however, that value claiming does not give you license to lie and cheat. Even in distributive negotiations, you want to treat counterparts fairly. Unless you have a crystal ball, you don’t know the future. You may need to work with these entities again in the future—and they may be the ones with the new, proprietary technology (or other source of power).

Scenario #2: Win-Win Negotiation

Sometimes, by working creatively and collaboratively with a partner, you can make the pie larger. Scenario #2 shows this world, which we often call win-win negotiation. The goal: To grow the pie so that both you and your partner are better off. Negotiation is thus a creative process—an attempt to think and work differently to see how you can co-create value. We call this value creation.

Value-creation scenarios call for an integrative negotiation strategy. You need to answer the question, “How can you grow the pie?” The easiest, and most common, way to grow the pie is to introduce more than one issue into the negotiation. Why is this important, you ask? Simply put, when you introduce multiple issues into a negotiation, you create opportunities for both sides to get something they want. After all, you and your counterpart likely value diverse aspects of the relationship differently. By introducing multiple issues, you can explore alternatives that create value for everyone. This exploration is part of the value-creation process.

Integrative negotiation also makes sense when you are considering a long-term alliance or designing collaborative initiatives like early supplier involvement in a new product development project or a joint process improvement project. The bottom line: You want to pursue win-win negotiation when you can work creatively with a partner to co-create value. This, of course, means that you need to be able to identify and evaluate value co-creation opportunities—a skill many companies lack!

Preparation for a Successful Negotiation

How important is preparation and planning to negotiation success? Answer: For years, the experts have claimed that planning is your key to success. Planning determines 90% of a negotiated outcome! Negotiation planning is like homework. If you don’t do it, you will likely flunk the test. Simply put: in negotiations, if you fail to plan, you are planning to fail!

Your preparation goals are twofold.

Avoid Common Negotiation Mistakes

Negotiators who substitute bravado, cleverness, or luck for the hard work of planning end up ill-prepared to “win” the negotiation. The result: They end up with either no deal or a bad deal. Table 12.2 identifies 10 common mistakes, separating them into process and outcome categories.

Develop an Effective Negotiation Plan

In almost any arena, to win, you need a plan. This fact is especially true in negotiation. Your plan should answer these basic questions.

• Are you claiming or creating value?

• What are the facts? Knowing these can help you get the dialogue going.

• What are the issues? Which issues are most important to you? Which issues are critical to your supplier?

• How strong is your position? What are your strengths and weaknesses? What about your supplier’s position, strengths, and weaknesses?

• What tactics should you use? Equally important, what tactics do you expect your supplier to employ?

• What concessions are you willing to make? What concessions will you ask for?

The bottom line: If you construct a well-thought-out plan, you will be able to ask the right questions, respond to your counterparts’ tough questions, communicate your positions persuasively, and be perceptive to your counterpart’s needs. Simply put, you will be better positioned to get what you want for the other person’s reasons. The result: You will typically come up with a good agreement. Equally important, you will know when to walk away from a bad one. Figure 12.5 and Table 12.3 highlight a systematic approach to developing your negotiating plan.

Now, let’s talk about three key outcomes of your planning process.

The Zone of Possible Agreements (ZOPA)

What is your goal in every negotiation? Answer: To get to an agreement that both you and your counterpart can live with. As you can imagine, you won’t always get exactly what you want. But you do need to find what Stephen Covey called “the third alternative”: “It’s not your way or my way; it’s a better way, a higher way.” Where do you find this acceptable third alternative? Answer: Look in the Zone Of Possible Agreements (aka, the ZOPA). Figure 12.6 depicts the ZOPA. Any final arrangement that falls within the ZOPA is one that both you and your counterpart should probably agree to. Simply put, it is an acceptable deal. You should define the ZOPA for each issue. Let’s focus on price as we explore how to define your ZOPA!

Best Alternative to a Negotiated Agreement (BATNA)

Now, the key question: How do you define your ZOPA? You begin by answering some basic questions:

• How high of a price should you pay?

• How long are you willing to wait for delivery?

• What is acceptable on-time performance?

The answers to all these questions are found in your BATNA—your Best Alternative to a Negotiated Agreement. Simply put, if you cannot negotiate a deal, your BATNA is your best alternative course of action. You need to know your BATNA before you enter every negotiation. And your BATNA is not just an alternative. It is your best alternative! This means that you should carefully identify each viable alternative, assess the value each alternative offers, and choose the alternative with the highest value—the best alternative.

You can often determine your BATNA fairly easily. Defining your counterpart’s BATNA is much more difficult. More fundamentally, many negotiators don’t even try to estimate their counterpart’s BATNA! In the world of negotiation, this is negligent behavior. The failure to take your counterpart’s BATNA into account likely means you will end up with a merely adequate instead of a great deal.

Reservation Value (RV)

Why is the BATNA so important? Answer: The BATNA enables you to calculate your and your counterpart’s reservation values (RV). Your RV is essentially your walk-away point—that is, the . . .

• Most that you will pay.

• Longest that you will wait.

• Lowest functionality you will accept.

Let’s illustrate with a simple example. This afternoon, you will negotiate with Make-it-Work-Now, a consultant that specializes in ERP implementations. Turn-it-On, your second choice, has offered you a price of $350 per hour. Other consultants also responded to your RFQ, but they all quoted higher prices. Turn-it-On represents your BATNA—i.e., your best alternative if your negotiations break down this afternoon. Your reservation price is thus $350 per hour. Simply put, this is the most you will agree to pay before you walk away from this afternoon’s negotiation.

If your RV forms the upper limit or ceiling for your ZOPA, what establishes the lower limit or floor? Answer: Your consultant’s RV. The consultant’s RV is the lowest price it will accept. Based on your analysis, you estimate Make-it-Work-Now will not go below $325 per hour. This $325 is the consultant’s RV. Figure 12.7 shows how the RVs form the boundaries of the ZOPA. You and your consultant should agree to any price that falls between $325 and $350. Of course, you will both press hard to get the best price within the ZOPA.

Homework and Negotiation Myths

Remember our earlier question, “When should you negotiate?” We already shared the textbook answer. Now, let’s look at a more subtle response: You should negotiate once you’ve done enough homework to be confident you know what you’re doing. Why is homework so important? Doing your homework helps you . . .

• Identify your true BATNA and your reservation value.

• Understand your counterpart’s issue and why they want to work with you. At this point, you are ready to define your ZOPA!

• Make your case—and understand your counterpart’s positioning and tactics.

• Know when to 1) proceed, 2) “hit the pause button,” or 3) walk away.

• Learn. You aren’t done with your homework until you do an after-action report following each negotiation. Homework is the key to becoming an effective, successful negotiator.

You may be wondering, “Why emphasize homework at the end of our negotiation discussion?” You can find the answer in Table 12.4, which identifies four “great” negotiation myths. Do you see any themes that run through all four realities? Our answer: Homework is the great difference maker. Please note: Through preparation and practice you can become a great negotiator—and a more effective project manager.