Do you need a negotiating skills brush up?
18 April 2016
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Hello and welcome to another edition of Old Mutual Live Business, my name is Chris Gibbons. How often have you emerged from a meeting about a deal and thought to yourself, you know, I could have negotiated that better. I’m certain the other party got the best of that one.
I know we have and we negotiate not just about something obvious like buying or selling a company or a house or a car. But also about things like salary increases, working conditions, office space and of course we also negotiate at home. Who is going to do the washing up or cut the lawn or clean out the garage. How do you become a better negotiator?
Dr Gavin Price is Senior Lecturer at GIBS, one of South Africa’s leading business schools and he’s a specialist in this area. Gavin, welcome to Old Mutual Live Business, thank you for your time. First of all, what are the fundamentals to a successful negotiation?
Be prepared for your negotiation
Gavin Price: Morning Chris. First of all, I would suggest that proper preparation will prevent poor performance. So, before you even the start negotiation, make sure you understand your position if you fail in your negotiation. In other words, if you don’t reach resolution and you walk out of that room, what are your best options?
This is often known through the acronym of your BATANA, your Best Alternative To A Negotiated Agreement. The theory is that any agreement that is possible, that is an enhancement of that alternative position should therefore be taken.
The reason why you need to know and understand your BATANA and have a firm mind’s eye of it. Is that it will help remove any decisions that are driven by ego and emotion and allow you to be more objective in your decision making in the heat of the moment.
CG: Do all negotiations then have a common structure?
GP: No, negotiations, depending on the attitude of the different parties, the power of the different parties. They can take many forms of structure, but ideally you have to do everything within your power, I would suggest, to ensure that that structure is as collaborative as possible.
Finding the right negotiating balance
CG: It’s a cross then between economics on the one side and psychology on the other.
GP: Indeed, yes. We’d like to think of ourselves as economic man making decisions that are deeply inherent in our own interests. However, most of our decisions or many of our decisions are a little irrational. We do things and we say things that perhaps aren’t in our best interests. It goes back to my point of, if you do your homework properly, you reduce the risk of those missed steps that were made in the heat of the moment.
CG: The gaining of advanced knowledge, the doing of the homework Gavin. Is that also about doing homework on yourself as well as the counter party?
GP: Absolutely, yes. Definitely, as I made mention, on yourself and as important, perhaps even more important, your counter party. Understanding what their needs are versus what their wants are. Don’t assume that because they’re asking for X, that’s exactly what they want. It could very well be a means to an end of getting Y or Z.
CG: Do you need to map a negotiation out in advance? Map some alternative scenarios to try and find out maybe what you don’t know?
GP: I think it’s very important that you do come into the room with alternatives, with options, with an attitude of joint problem solving. There is that old adage, if you fail to plan, you plan to fail. But that no plan ever goes according to plan. The purpose of planning is part of the preparation, but don’t come unwound if your plan doesn’t go according to plan.
The importance of being authentic
CG: What role is played by emotions in a negotiation, should you break down and cry, for example?
GP: If it’s authentic, perhaps and perhaps we also have to make a distinction between negotiations with a party that you’re going to be doing continuous business, with versus once-off type of negotiations. If you try to negotiate with that used car salesman, then maybe you can be perhaps a little bit more manipulative. In the sense that you’re not going to really rely on any future relationship.
But I would suggest that any instance where there’s a future relationship, that you have to be authentic. Because any short term win that you may get in today’s negotiation is going to come around and bite you in the proverbial, later on down the road.
CG: A very wise old businessman, when I was just starting out in the world of business once said to me, always leave something on the table for the other chap.
GP: Indeed, absolutely and if you are negotiating from that position of power, you must use that power responsibly. My other key suggestion is, take the ego out of the equation. This is not an opportunity to demonstrate your awesomeness and beating down the other person. That other person needs to walk away feeling they’ve got something out of it.
CG: When you’re actually in the negotiation, who should make the first offer and why?
Who should strike first?
GP: You know, a lot of people suggest that you should never make the first offer because it then limits where you’re going. There is an advantage, of course, to making the first offer. That offer often anchors the negotiation which, if you allow the other person to make that first offer, my strong suggestion to you is to not be influenced by any anchoring strategies.
What I mean by that is, I’m sure many of us have seen, when we’re buying goods, was R10 000 now only R5 000, so that appears to be a massive bargain of 50%. But because we’re now deciding relative to that arbitrary R10 000 that was put out there and we anchor value relative to that, quite disingenuous amount.
I would suggest that if a party comes in at a level that is absurd, do not engage. Insist that they come back with a more realistic offer, a sincere authentic offer. Don’t be influenced by these anchoring strategies that people make when they put out the first offer.
CG: Does there come a point in a negotiation where you just walk away?
GP: Oh yes, as I said, anything where your BATANA is a better alternative to what’s on the table, you need to walk away. If you don’t walk away, you’re compromising your position.
CG: Then there are multi-party negotiations where it can get really complicated.
The more, not the merrier
GP: Oh, indeed, yes, very much so. This is why it’s so important to have the attitude of this agreeableness where you are perhaps the voice of reason in trying to find a mutually satisfactory agreement between all the parties. So that people will look to you and take their guidance from you, through your leadership in the process.
CG: Isn’t it simpler, maybe, just to hold an auction? Here’s what I’m selling, who is going to pay the highest price?
GP: Yes, alternatively to come in with one price and not negotiate and say: this is my price, take it or leave it. But that is if you’re going on, that is your lowest offer, that’s 1c less you’re better off. That removes the opportunity for you to extract greater value if they had perceived more value. The auction, I suppose, is a little colder, it’s more clinical.
The great beauty of negotiation is the possibility of expanding the pie. If you are truly collaborative, you can seek mutually agreeable solutions that isn’t just in your benefit and their benefit. But more than mutual benefit, it is additional benefit. Over and above than if you both look after each other from a purely self-interested perspective.
CG: It sounds Gavin, a final question for you, it sounds as though this could actually be studied?
GP: Oh yes, tremendous studies have been done. It’s a rich source of literature in both the formal and in the practical journals. Around how to conduct yourself in negotiations and one size does not fit all. But there are one, I suppose, key little pearls of wisdom. That is, never, ever accept the first offer. Whatever offer is put up there, never accept that first offer, you can always improve on that first offer.
CG: There you have it, from Dr Gavin Price, Senior Lecturer at GIBS, Gavin, thank you for joining me on Old Mutual Live Business.
GP: My pleasure Chris, thank you.