Contrary to popular belief, 9 out of 10 times you will benefit greatly by making the first offer.
Negotiation Blog - Most Desired Outcome
Importance of good moods during bargaining phase of negotiations
By Thomas Wood
I recently led a webinar where I shared a number of tips to gain a psychological edge in negotiations. One thing I really enjoy about webinars is the interaction. You can ask the group a question and everyone can write in their answers at the same time. You can hear from everyone quickly.
For example, I was speaking about the importance of putting your counterpart in a good mood before you start to negotiate. This is an overlooked, yet essential part of the initial exchange at the bargaining table. People in a bad mood say "no;" they don’t say "yes." People in a bad mood are inflexible, and would rather get their teeth pulled at the dentist than make concessions. Yet, while someone would never walk into a negotiation without knowing what their MDO (most desirable outcome) is, they would start to negotiate with a counterpart who is in a bad mood, even though it is almost as important to get your counterpart in a good mood as it is to know your MDO.
In my experience, many people walk into a negotiation and they are so nervous themselves, that they don’t even notice the mood of their counterpart. Sometimes both parties are nervous and neither person is doing anything to help calm down and relax their counterpart, as they can’t even relax themselves.
What was refreshing and interesting in this webinar was to hear how people get their counterparts in a good mood. They used food, talking about their families, telling jokes and laughing about something light. When you hear these responses, it sounds so easy. You will get better trades when your negotiating counterpart is in a good mood. So why don’t we do this more often?
Will I insult people if I start high (or start low) in negotiations?
By Thomas Wood
This is one of the most commonly asked questions I get when I teach people in Watershed workshops that they need to open the negotiation by asking for their MDO (most desirable outcome). At Watershed, we refer to the MDO as the highest position within the realm of reasonability. Sure, it is not likely you will get your MDO, but it is defensible, and under the right circumstances you would get your MDO, and that is why it is not objectively insulting.
Take a simple example: You ask for bids from 3 graphics art firms for a project. The firm you would like to use is top notch and by far the best of the three, and its bid reflects this at 22% higher than the next highest bid. Are you insulted because the graphics art firm started at its MDO? You’re not insulted because you could conceive of paying for this high quality, even though you want a cheaper price.
Insults go both ways of course. Some people might be afraid to negotiate with the high-bid firm out of fear of insulting the bidder. But there are so many moving parts to the agreement -- deadline, payment terms, scope of work, follow-up support, approval process, etc. -- that you can easily negotiate without being insulting. It is completely legitimate to say,
“I really like your work and would like to use you, but your prices are much higher than the other bids we received. Would you be able to move on your price by 20% if we had someone from our team do some of the grunt work and we pay you 50% up front?”
You started “high” (low in this case) at your MDO. There is nothing insulting about your counter-offer.
On rare occasion your MDO will insult people. Let’s face it; people become insulted even though what we did is not objectively insulting. Last week I saw relatives become insulted by where they were seated at a celebration, even though their seating was given much consideration. It is just how they choose to see the situation.
If someone tells me they are insulted by my offer, I simply apologize, tell them that it was not my intention to insult them, that I want to do business with them in part because I respect them, and then I explain why I think my offer is legitimate. Insulted people typically calm down when given attention and information, and we are able to come to a mutually satisfying agreement.
Don’t let the fear of insulting someone keep you from asking for your MDO. Because it can get in the way of getting what belongs to you.
Negotiator's Keys to a Powerful BATNA
By Marianne Eby
Never enter a serious negotiation without knowing your Best Alternative To A Negotiated Agreement, or BATNA: a plan that you are willing to execute if there is no agreement.
The value of your BATNA is not just that you'll know what to do if a negotiation falls through (your Plan B) -- it's that your BATNA gives you power while you are negotiating.
On one hand, a BATNA is just another piece of important information you prepare. It is one element of your "negotiating envelope" that you must define before engaging with the other party -- along with your Goal, your Most Desirable Outcome (MDO), and your Least Acceptable Agreement (LAA). Although negotiation is a fluid process and you will continually revise your parameters in response to the other party's, this negotiation envelope guides your concessions in Bargaining.
The BATNA differs from the other defining decisions because its execution stands outside the negotiating process—by definition, it’s what you do when negotiation is not working. So while other parameters help you steer the negotiations, it is your BATNA that makes you a stronger negotiator -- because you don't need the other party’s permission or involvement to execute it.
Recently the Chicago Teachers' Union (CTU) demonstrated the power of every union's BATNA: the ability to strike. Although recent decades have seen a decline in union bargaining power, teachers unions are increasingly vulnerable, and the union leader in Chicago lacked influence with the Mayor, Chicago's teachers were able to force 300,000 students out of the classroom, shut down the third largest school system in the country, and win some key compromises from the Mayor.
Under US law, a union's potential BATNA is always to strike. Yet, many a union’s strike BATNA doesn't always have the power that the CTU's did, because some organizations will counter with their own BATNA: the use of "scabs," or non-union workers who can take the place of the striking workers. The NFL, for example, prepared for its recent referee strike by preparing substitute officials to run its games.
Of course, the implementation of a BATNA isn't always preferable (Chicago students lost instructional time) and if it's not well-planned, it can backfire as a means to more power in your negotiation. The NFL's use of replacement referees certainly backfired, causing several weeks of outrage, greater esteem for the regular referees, and ultimately some damage to the NFL "brand."
The ideal way to use a BATNA is to let the other side know you have one. Though an executed BATNA can mark the end (at least temporarily) of the negotiating process, that doesn’t mean that a contemplated BATNA shouldn’t be an integral part of that process. Letting your counterparts know—in an advisory rather than threatening way—that you have other options is an important part of your negotiating stance.
Despite the word "Best" in BATNA, you can have more than one—in fact, you should have more than one, because the more you have, the greater your flexibility and power. BATNAs can vary from a move as simple as finding a new supplier of goods or services, to one as radical as dropping a project altogether. The better conceived and more numerous your BATNAs, the less likely you’ll need them. The other side will know you have viable alternatives, which will make them more willing to deal.
Here are the main things to remember as you develop your BATNA:
- The more BATNAs you have and the more willing and ready you are to execute one, the less likely you will need a BATNA.
- Consider short-term and long-term BATNAs. Sometimes you don’t have a BATNA and must reach agreement. Be sure to continue working on a long-term BATNA for future use.
- Find a graceful way to ensure the other side knows you have BATNAs and you are willing to execute them. Reveal this information during the Exchange stage. In the Bargaining stage, you will decide if and when to reveal your BATNAs.
- BATNAs can be used as an advisory or a threat. Threats damage relationships; advisories strengthen them.
- If you are not willing and able to execute your BATNA, it's not a BATNA -- it's a bluff.
- You don't need your negotiating counterpart's agreement to develop or execute your BATNAs; these decisions are yours and your organizations.
- Any BATNA should be a solid, viable alternative to an agreement, and one the other party will recognize as such. The NFL learned from experience that a poorly conceived BATNA will backfire, often costing more than the originally requested concessions.
Like the Energizer Bunny, Washington’s debt ceiling negotiations keep on giving
By Thomas Wood
We tried to restrain ourselves from commenting in our negotiation workshops these last two months on the drama going on near our Washington, DC offices as the US President and Congress negotiated the US debt ceiling, with the President’s signature healthcare legislation – Obamacare – as the bargaining chip. Careful to stay neutral, but always alert to the strategy angles, we now have a few things to say, and they are all seeped in the fundamentals of negotiating. This Energizer Bunny just keeps on giving!
Negotiations to reopen the shuttered federal government and raise the nation’s debt ceiling were notable for one side’s insistence that it wasn’t negotiating at all. But despite the claims of President Obama and other Democratic leaders that they wouldn’t bargain over what they described as the basic functions of government, in the end they worked out a deal with their Republican adversaries. Most of us just don’t mean it when we say we won’t negotiate.
What other negotiating lessons can we learn from Washington’s latest fiscal crisis? At least five fundamentals.
1. The first is that preparation takes time. Although the partial shutdown of the federal government caught many Americans by surprise, defunding the government as a strategy for derailing health care reform was a plan in the making by an important faction of the Republican Party. President Obama, for his part, apparently decided in 2011—in the midst of another debt-ceiling confrontation—that he would never again negotiate over whether Washington should have enough borrowing authority to pay its bills. As it generally does, this early planning affected the outcome of the negotiations.
2. Another prominent feature is the power of deadlines. Deadlines often figure in negotiation—sometimes proposed to spur action in a cooperative way, sometimes wielded as a weapon by one side to intimidate the other.
Government funding was due to expire October 1 and the Treasury’s borrowing limit (the “debt ceiling”) would be reached on October 17. There was a difference between the two, however: the first was acknowledged by both parties to be justified and absolute, since it was the statutory end of the government’s fiscal year. The second was a less concrete estimate by the Treasury. Some Republicans probed this second deadline, suspecting it was arbitrary and changeable. Though the GOP was criticized for questioning the precision of the debt ceiling deadline because the consequences of default were so severe—regardless of exactly when it was triggered—in less drastic situations such probing of deadlines is entirely appropriate.
3. Third, our approaches can evolve as the negotiations evolve. Like most political confrontations, the strategy when this negotiation began was competitive. Each side felt it had right on its side and demanded the other yield. The Republicans, however, almost immediately shifted to what they presented as a compromise strategy, inviting the President and other Democrats to talk out their differences. But Democrats felt secure enough in their position—and viewed the GOP proposals as so unreasonable—that they didn’t feel pressured to go along. This is not usually a practical strategy for ongoing relationships such as the President and Congress must maintain, but such is the degree of political polarization in Washington today. Eventually, to break the weeks long deadlock, Democrats joined in the compromise strategy, which seeks to give something to each side.
4. Fourth, positions are merely one way to satisfy interests. That’s why positions move in negotiations. The general wisdom is that the Republicans got much less than the President out of this compromise settlement, but some commentators think that viewpoint is confusing positions with interests. In fact, Republican positions changed over the course of the negotiation: beginning with a demand to defund or delay the implementation of the Affordable Care Act (Obamacare), then moving to other tax and spending issues, and eventually to policies disconnected from the budget.
But Republican interests remained the same throughout: a smaller, less intrusive federal government funded by lower taxes. Viewed that way, even though health care reform was only slightly modified, a central GPO intereses was served by maintaining existing spending restraints in the temporary budget adopted as part of the deal.
5. And last, without a strong Plan B or BATNA, there is little likelihood of a big win. One reason President Obama could at least in the beginning maintain that he was not negotiating, and in the end get more of what he wanted, is that the other side began the process without apparently developing a strategic Negotiation Envelope. This is a planning tool that maps out wants (Most Desired Outcome), reasonable expectations (Goals), fallbacks (Least Acceptable Agreements) and “Plan B” (Best Alternative To a Negotiated Agreement—BATNA). The most aggressive GOP leaders of the confrontation seemed to have identified a lot of Most Desired Outcomes, but not one Least Acceptable Agreement. And there was no viable BATNA, since the public would not put up indefinitely with a closed government or with the economic chaos caused by a national default.
Perhaps that’s the principle negotiating lesson of the federal fiscal crisis of 2013: set a reasonable goal and chart a path to get there. Whatever the merits of the Republicans’ politics and policies, their negotiating strategy may need a recalculation.