10.3 Negotiations
Learning Objectives
- Outline the five phases of negotiation.
- Discuss negotiation strategies.
- Describe common mistakes in negotiations.
- Explain third-party negotiations.
A common way that parties deal with conflict is via negotiation.
The Five Phases of Negotiation
Phase 1: Investigation
The first step in negotiation is the investigation, or information gathering stage. This is a key stage that is often ignored. Surprisingly, the first place to begin is with yourself: What are your goals for the negotiation? What do you want to achieve? What would you concede? What would you absolutely not concede? Leigh Steinberg, the most powerful agent in sports (he was the role model for Tom Cruise’s character in Jerry Maguire), puts it this way: “You need the clearest possible view of your goals. And you need to be brutally honest with yourself about your priorities” (Webber, 1998).
During the negotiation, you’ll inevitably be faced with making choices. It’s best to know what you want, so that in the heat of the moment, you’re able to make the best decision. For example, if you’ll be negotiating for a new job, ask yourself, “What do I value most? Is it the salary level? Working with coworkers whom I like? Working at a prestigious company? Working in a certain geographic area? Do I want a company that will groom me for future positions, or do I want to change jobs often in pursuit of new challenges?”
Phase 2: Determine Your BATNA
If you don’t know where you’re going, you will probably end up somewhere else. – Lawrence J. Peter
One important part of the investigation and planning phase is to determine your BATNA, which is an acronym that stands for the “best alternative to a negotiated agreement.” Roger Fisher and William Ury coined this phrase in their book Getting to Yes: Negotiating without Giving In.
Thinking through your BATNA is important to helping you decide whether to accept an offer you receive during the negotiation. You need to know what your alternatives are. If you have various alternatives, you can look at the proposed deal more critically. Could you get a better outcome than the proposed deal? Your BATNA will help you reject an unfavourable deal. On the other hand, if the deal is better than another outcome you could get (that is, better than your BATNA), then you should accept it.
Think about it in common-sense terms: When you know your opponent is desperate for a deal, you can demand much more. If it looks like they have a lot of other options outside the negotiation, you’ll be more likely to make concessions.
As Fisher and Ury said, “The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are those results? What is that alternative? What is your BATNA—your Best Alternative To a Negotiated Agreement? That is the standard against which any proposed agreement should be measured” (Fisher & Ury, 1981).
The party with the best BATNA has the best negotiating position, so try to improve your BATNA whenever possible by exploring possible alternatives (Pinkley, 1995).
Going back to the example of your new job negotiation, consider your options regarding the offer you receive. If your pay is lower than what you want, what alternatives do you have? A job with another company? Looking for another job? Going back to school? While you’re thinking about your BATNA, take some time to think about the other party’s BATNA. Do they have an employee who could readily replace you?
Once you’ve gotten a clear understanding of your own goals, investigate the person you’ll be negotiating with. What does that person (or company) want? Put yourself in the other party’s shoes. What alternatives could they have? For example, in the job negotiations, the other side wants a good employee at a fair price. That may lead you to do research on salary levels: What is the pay rate for the position you’re seeking? What is the culture of the company?
OB Toolbox: BATNA Best Practices
- Brainstorm a list of alternatives that you might conceivably take if the negotiation doesn’t lead to a favourable outcome for you.
- Improve on some of the more promising ideas and convert them into actionable alternatives.
- Identify the most beneficial alternative to be kept in reserve as a fall-back during the negotiation.
- Remember that your BATNA may evolve over time, so keep revising it to make sure it is still accurate.
- Don’t reveal your BATNA to the other party. If your BATNA turns out to be worse than what the other party expected, their offer may go down.
Phase 3: Presentation
The third phase of negotiation is presentation. In this phase, you assemble the information you’ve gathered in a way that supports your position. In a job hiring or salary negotiation situation, for instance, you can present facts that show what you’ve contributed to the organization in the past (or in a previous position), which in turn demonstrates your value. Perhaps you created a blog that brought attention to your company or got donations or funding for a charity. Perhaps you’re a team player who brings out the best in a group.
Phase 4: Bargaining
During the bargaining phase, each party discusses their goals and seeks to reach an agreement. A natural part of this process is making concessions, namely, giving up one thing to get something else in return. Making a concession is not a sign of weakness—parties expect to give up some of their goals. Rather, concessions demonstrate cooperativeness and help move the negotiation toward its conclusion. Making concessions is particularly important in tense union-management disputes, which can get bogged down by old issues. Making a concession shows forward movement and process, and it allays concerns about rigidity or closed-mindedness. What would a typical concession be? Concessions are often in the areas of money, time, resources, responsibilities, or autonomy. When negotiating for the purchase of products, for example, you might agree to pay a higher price in exchange for getting the products sooner. Alternatively, you could ask to pay a lower price in exchange for giving the manufacturer more time or flexibility in when they deliver the product..
Phase 5: Closure
Closure is an important part of negotiations. At the close of a negotiation, you and the other party have either come to an agreement on the terms or one party has decided that the final offer is unacceptable and therefore must be walked away from. Most negotiators assume that if their best offer has been rejected, there’s nothing left to do. You made your best offer, and that’s the best you can do. The savviest of negotiators, however, see the rejection as an opportunity to learn. “What would it have taken for us to reach an agreement?”
Sometimes, at the end of negotiations, it’s clear why a deal was not reached. But if you’re confused about why a deal did not happen, consider making a follow-up call. Even though you may not win the deal back in the end, you might learn something that’s useful for future negotiations. What’s more, the other party may be more willing to disclose the information if they don’t think you’re in a “selling” mode.
Should You Negotiate for a Higher Salary?
Yes! “Salary negotiation has become a growing opportunity in the job acquisition process,” says Bill Hawkins, president and CEO of The Hawkins Company, a full-service executive search firm with offices in Los Angeles and Atlanta. “Candidates who fail to make a counteroffer could forfeit significant income” (Reed-Woodard, 2007).
In the golf and club industry, it is imperative to review annual compensation reports that are published by the National Golf Course Owners Association (NGCOA) and the Club Managers Association of Canada (CMAC) to ensure you have an understanding of the pay range for various positions. This will help during compensation reviews.
Negotiation Strategies
Distributive Approach
The distributive view of negotiation is the traditional fixed-pie approach. That is, negotiators see the situation as a pie that they have to divide between them. Each tries to get more of the pie and “win.” For example, managers may compete over shares of a budget. If the turf department gets a 10% increase in its budget, another department such as Golf Services will need to decrease its budget by 10% to offset the turf increase. Focusing on a fixed pie is a common mistake in negotiation, because this view limits the creative solutions possible.
Integrative Approach
A newer, more creative approach to negotiation is called the integrative approach. In this approach, both parties look for ways to integrate their goals under a larger umbrella. That is, they look for ways to expand the pie so that each party gets more. This is also called a win–win approach. The first step of the integrative approach is to enter the negotiation from a cooperative rather than an adversarial stance. The second step is all about listening. Listening develops trust as each party learns what the other wants, and everyone involved arrives at a mutual understanding. Then, all parties can explore ways to achieve the individual goals. The general idea is, “If we put our heads together, we can find a solution that addresses everybody’s needs.” Unfortunately, integrative outcomes are not the norm. A summary of 32 experiments on negotiations found that although they could have resulted in integrated outcomes, only 20% did so (Thompson & Hrebec, 1996). One key factor related to finding integrated solutions is the experience of the negotiators who were able to reach them (Thompson, 1990).
OB Toolbox: Seven Steps to Negotiating a Higher Salary
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Step 1: Overcome your fear.
- The first step is to overcome your fears. Many people don’t even begin a salary negotiation. We may be afraid of angering the boss or think that because we are doing a good job, we’ll automatically be rewarded. But just because you’re doing a good job doesn’t mean you’ll automatically get a raise. Why? If you don’t ask for one, the boss may believe you’re satisfied with what you’re getting. So why should he pay you more? Imagine going into a car dealership and being absolutely delighted with a car choice. The sticker price is $19,000. Would you pay the dealer $23,000 just because you really like the car? Of course not. You probably wouldn’t even offer $19,000. If the car was up for auction, however, and another bidder offered $20,000, you’d likely increase your offer, too.
- That’s what salary negotiation is like. Your boss may be thrilled with you, but at the same time, is running a business. There’s no reason to pay an employee more if you seem satisfied with your current salary.
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Step 2: Get the facts.
- Before you enter into the negotiation, do some background research. What are other golf courses paying people in your position? Check sites such as Indeed.ca, salary.com, and salaryexpert.com to get a feel for the market. Look at surveys conducted by your professional organization, such as NGCOA and CMAC
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Step 3: Build your case.
- How important are you to the organization? How have you contributed? Perhaps you contributed by increasing sales, winning over angry customers, getting feuding team members to cooperate, and so on. Make a list of your contributions. Be sure to focus on the contributions that your boss values most. Is it getting recognition for the department? Easing workload? If another employer has shown interest in you, mention that as a fact. However, don’t use this as a threat unless you’re prepared to take the other offer. Mentioning interest from another employer gets the boss to think, “If I don’t give this raise, I may lose the employee.” (By the way, if you don’t feel you have a strong case for your raise, perhaps this isn’t the time to ask for one.)
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Step 4: Know what you want.
- Set your target salary goal based on your research and the norms of what your organization will pay. Now ask yourself, if you don’t get this figure, would you quit? If not, are there other alternatives besides a salary increase that you’d consider? For example, would you accept a higher title? More vacation time? Paid training to learn a new skill? Flexible hours?
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Step 5: Begin assertively.
- Start the discussion on a strong but friendly tone. “I think I’m worth more than I’m being paid.” List the ways you’ve contributed to the company.
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Step 6: Don’t make the first offer.
- Let your boss name the figure. You can do this by asking, “How much of a raise could you approve?” However, if the boss insists that you name a figure, ask for the most that you can reasonably expect to get. You want to be reasonable, but you need to allow room to make a concession. Your boss will assume your opening number was high and will offer you less, so asking for the actual figure you want may leave you feeling disappointed.
- If the boss opens with, “The salary range for this position is $66,000 to 78,000,” ask for the high end. If your goal was higher than that range, challenge the range by explaining how you are an exception and why you deserve more.
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Step 7: Listen more than talk.
- You’ll learn more by listening rather than talking. The more you listen, the better the boss will feel about you—people tend to like and trust people who listen to them.
- If you can’t get a raise now, get your boss to agree to one in a few months if you meet agreed-upon objectives.
(Brodow, 2006; Nemko, 2007).
Avoiding Common Mistakes in Negotiations
Failing to Negotiate/Accepting the First Offer
Some people are taught to feel that negotiation is a conflict situation, and these individuals may tend to avoid negotiations to avoid conflict. Research shows that this negotiation avoidance is especially prevalent among women. For example, one study looked at students from Carnegie-Mellon who were getting their first job after earning a master’s degree. The study found that only 7% of the women negotiated their offer, while men negotiated 57% of the time (CNN, 2003). The result had profound consequences. Researchers calculate that people who routinely negotiate salary increases will earn over $1 million more by retirement than people who accept an initial offer every time without asking for more (Babcock & Lascheve, 2003). The good news is that it appears that it is possible to increase negotiation efforts and confidence by training people to use effective negotiation skills (Stevens, Bavetta, & Gist, 1993).
Letting Your Ego Get in the Way
Thinking only about yourself is a common mistake. Instead, think about why the other person would want to accept the deal. People aren’t likely to accept a deal that doesn’t offer any benefit to them. Help them meet their own goals while you achieve yours. Integrative outcomes depend on having good listening skills, and if you are thinking only about your own needs, you may miss out on important opportunities. Remember that a good business relationship can only be created and maintained if both parties get a fair deal.
Having Unrealistic Expectations
Susan Podziba, a professor of mediation at Harvard and MIT, plays broker for some of the toughest negotiations around, from public policy to marital disputes. She takes an integrative approach in the negotiations, identifying goals that are large enough to encompass both sides. As she puts it, “We are never going to be able to sit at a table with the goal of creating peace and harmony between fishermen and conservationists. But we can establish goals big enough to include the key interests of each party and resolve the specific impasse we are currently facing. Setting reasonable goals at the outset that address each party’s concerns will decrease the tension in the room, and will improve the chances of reaching an agreement” (Rothenberger, 2000). Those who set unreasonable expectations are more likely to fail.
Getting Overly Emotional
Negotiations, by their very nature, are emotional. The findings regarding the outcomes of expressing anger during negotiations are mixed. Some researchers have found that those who express anger negotiate worse deals than those who do not (Kopelman, Rosette, & Thompson, 2006) and that during online negotiations, those parties who encountered anger were more likely to compete than those who did not (Friedman et al., 2004). In a study of online negotiations, words such as despise, disgusted, furious, and hate were related to a reduced chance of reaching an agreement (Brett et al., 2007). However, this finding may depend on individual personalities. Research has also shown that those with more power may be more effective when displaying anger. The weaker party may perceive the anger as potentially signalling that the deal is falling apart and may concede items to help move things along (Van Kleef & Cote, 2007). This holds for online negotiations as well. In a study of 355 eBay disputes in which mediation was requested by one or both of the parties, similar results were found. Overall, anger hurts the mediation process unless one of the parties is perceived as much more powerful than the other party, in which case anger hastens a deal (Friedman et al., 2004). Another aspect of getting overly emotional is forgetting that facial expressions are universal across cultures, and when your words and facial expressions don’t match, you are less likely to be trusted (Hill, 2007; Holloway, 2007).
Letting Past Negative Outcomes Affect the Present Ones
Research shows that negotiators who had previously experienced ineffective negotiations were more likely to have failed negotiations in the future. Those who were unable to negotiate some type of deal in previous negotiation situations tended to have lower outcomes than those who had successfully negotiated deals in the past (O’Connor, Arnold, & Burris, 2005). The key to remember is that there is a tendency to let the past repeat itself. Being aware of this tendency allows you to overcome it. Be vigilant to examine the issues at hand and not to be overly swayed by past experiences, especially while you are starting out as a negotiator and have limited experience.
Tips for Negotiation Success
- Focus on agreement first. If you reach an impasse during negotiations, sometimes the best recourse is to agree that you disagree on those topics and then focus only on the ones on which you can reach an agreement. Summarize what you’ve agreed on, so that everyone feels like they’re agreeing, and leave out the points you don’t agree on. Then take up those issues again in a different context, such as over dinner or coffee. Dealing with those issues separately may help the negotiation process.
- Be patient. If you don’t have a deadline by which an agreement needs to be reached, use that flexibility to your advantage. The other party may be forced by circumstances to agree to your terms, so if you can be patient, you may be able to get the best deal.
- Whose reality? During negotiations, each side is presenting their case—their version of reality. Whose version of reality will prevail?
- Deadlines. Research shows that negotiators are more likely to strike a deal by making more concessions and thinking more creatively as deadlines loom than at any other time in the negotiation process.
- Be comfortable with silence. After you have made an offer, allow the other party to respond. Many people become uncomfortable with silence and feel they need to say something. Wait and listen instead.
(Stuhlmacher, Gillespie & Champagne, 1998; Webber, 1998).
When All Else Fails: Third-Party Negotiations
Alternative Dispute Resolution
Alternative Dispute Resolution (ADR) includes mediation, arbitration, and other ways of resolving conflicts with the help of a specially trained, neutral third party without the need for a formal trial or hearing (New York State Unified Court System, 2008). Many companies find this effective in dealing with challenging problems.
Mediation
In mediation, an outside third party (the mediator) enters the situation with the goal of assisting the parties in reaching an agreement. The mediator can facilitate, suggest, and recommend. The mediator works with both parties to reach a solution but does not represent either side. Rather, the mediator’s role is to help the parties share feelings, air and verify facts, exchange perceptions, and work toward agreements. One of the advantages of mediation is that the mediator helps the parties design their own solutions, including resolving issues that are important to both parties, not just the ones under specific dispute.
You Know It’s Time for a Mediator When…
- The parties are unable to find a solution themselves.
- Personal differences are standing in the way of a successful solution.
- The parties have stopped talking with one another.
- Obtaining a quick resolution is important.
Arbitration
In contrast to mediation, in which parties work with the mediator to arrive at a solution, in arbitration, the parties submit the dispute to a third-party arbitrator. It is the arbitrator who makes the final decision. The arbitrator is a neutral third party, but the decision made by the arbitrator is final (the decision is called the “award”). Arbitration is often used in union-management grievance conflicts.
Arbitration-Mediation
It is common to see mediation followed by arbitration. An alternative technique is to follow the arbitration with mediation. The format of this conflict resolution approach is to have both sides formally make their cases before an arbitrator. The arbitrator then makes a decision and places it in a sealed envelope. Following this, the two parties work through mediation. If they are unable to reach an agreement on their own, the arbitration decisions become binding. Researchers using this technique found that it led to voluntary agreements between the two parties 71% of the time versus 50% for mediation followed by arbitration (Conlon, Moon, & Ng, 2002).
Exercises
- What are the negotiation phases, and what goes on during each of them?
- When negotiating, is establishing a BATNA important? Why or why not?
- What are the third-party conflict resolution options available?
“10.5: Negotiations” from Organizational Behavior by LibreTexts is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 International License, except where otherwise noted.
