Texas Southern University Key Mistakes in Negotiation Analysis Paper Read the attached article and write a 1 page (double spaced) summary of the key points

Texas Southern University Key Mistakes in Negotiation Analysis Paper Read the attached article and write a 1 page (double spaced) summary of the key points.There is no special format or font. Read the article and write a short 1 page, times new roman font, double spaced summary of the keys points in the article. You will have 2 days only. Do not plagiarize www.hbrreprints.org
Like many executives, you
know a lot about negotiating.
But still you fall prey to a set
of common errors. The best
defense is staying focused on
the right problem to solve.
Six Habits of Merely
Effective Negotiators
by James K. Sebenius
Included with this full-text Harvard Business Review article:
1 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
2 Six Habits of Merely Effective Negotiators
11 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0104E
This document is authorized for use only in Negotiations by Cynthia Stevens from November 2010 to February 2011.
Six Habits of Merely Effective Negotiators
The Idea in Brief
The Idea in Practice
High stakes. Intense pressure. Careless mistakes. These can turn your key negotiations
into disasters. Even seasoned negotiators
bungle deals, leaving money on the table
and damaging working relationships.
NEGOTIATION MISTAKES
Why? During negotiations, six common
mistakes can distract you from your real
purpose: getting the other guy to choose
what you want—for his own reasons.
Avoid negotiation pitfalls by mastering the
art of letting the other guy have your
way—everyone will win.
Neglecting the other side’s problem
If you don’t understand the deal from the
other side’s perspective, you can’t solve his
problem or yours.
Example:
A technology company that created a
cheap, accurate way of detecting gas-tank
leaks couldn’t sell its product. Why? EPA
regulations permitted leaks of up to 1,500
gallons, while this new technology detected 8-ounce leaks. Fearing the device
would spawn regulatory trouble, potential
customers said, “No deal!”
Letting price bulldoze other interests
Most deals involve interests besides price:
• a positive working relationship, crucial in
longer-term deals
• the social contract, or “spirit of the deal,” including goodwill and shared expectations
COPYRIGHT © 2003 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
• the deal-making process—personal, respectful, and fair to both sides
Price-centric tactics leave these potential joint
gains unrealized.
Letting positions drive out interests
Incompatible positions may mask compatible
interests. Your gain isn’t necessarily your “opponent’s” loss.
Example:
Environmentalists and farmers opposed a
power company’s proposed dam. Yet compatible interests underlay these seemingly
irreconcilable positions: Farmers wanted
water flow; environmentalists, wildlife protection; the power company, a greener image. By agreeing to a smaller dam, waterflow guarantees, and habitat conservation,
everyone won.
Searching too hard for common ground
While common ground helps negotiations,
different interests can give each party what it
values most, at minimum cost to the other.
Example:
An acquirer and entrepreneur disagree on
the entrepreneurial company’s likely future.
To satisfy their differing interests, the buyer
agrees to pay a fixed amount now and contingent amount later, based on future performance. Both find the deal more attractive than walking away.
Neglecting BATNA
BATNAs (“best alternative to a negotiated
agreement”) represent your actions if the proposed deal weren’t possible; e.g., walk away,
approach another buyer. Assessing your own
and your partner’s BATNA reveals surprising
possibilities.
Example:
A company hoping to sell a struggling division for somewhat more than its $7 million
value had two fiercely competitive bidders.
Speculating each might pay an inflated
price to trump the other, the seller ensured
each knew its rival was looking. The division’s selling price? $45 million.
Failing to correct for skewed vision
Two forms of bias can prompt errors:
• Role bias—overcommitting to your own
point of view and interpreting information
in self-serving ways. A plaintiff believes he
has a 70% chance of winning his case, while
the defense puts the odds at 50%. Result?
Unlikelihood of out-of-court settlement.
• Partisan perceptions—painting your side
with positive qualities, while vilifying your
“opponent.” Self-fulfilling prophecies may
result.
Counteract these biases with role-plays of the
opposition’s interests.
page 1
This document is authorized for use only in Negotiations by Cynthia Stevens from November 2010 to February 2011.
Like many executives, you know a lot about negotiating. But still you
fall prey to a set of common errors. The best defense is staying focused
on the right problem to solve.
Six Habits of Merely
Effective Negotiators
COPYRIGHT © 2001 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by James K. Sebenius
Global deal makers did a staggering $3.3 trillion worth of M&A transactions in 1999—and
that’s only a fraction of the capital that passed
through negotiators’ hands that year. Behind
the deal-driven headlines, executives endlessly negotiate with customers and suppliers,
with large shareholders and creditors, with
prospective joint venture and alliance partners, with people inside their companies and
across national borders. Indeed, wherever parties with different interests and perceptions
depend on each other for results, negotiation
matters. Little wonder that Bob Davis, vice
chairman of Terra Lycos, has said that companies “have to make deal making a core competency.”
Luckily, whether from schoolbooks or the
school of hard knocks, most executives know the
basics of negotiation; some are spectacularly
adept. Yet high stakes and intense pressure can
result in costly mistakes. Bad habits creep in,
and experience can further ingrain those habits.
Indeed, when I reflect on the thousands of negotiations I have participated in and studied over
the years, I’m struck by how frequently even experienced negotiators leave money on the table,
deadlock, damage relationships, or allow conflict to spiral. (For more on the rich theoretical
understanding of negotiations developed by researchers over the past fifty years, see the sidebar “Academics Take a Seat at the Negotiating
Table.”)
There are as many specific reasons for bad
outcomes in negotiations as there are individuals and deals. Yet broad classes of errors recur. In
this article, I’ll explore those mistakes, comparing good negotiating practice with bad. But first,
let’s take a closer look at the right negotiation
problem that your approach must solve.
Solving the Right Negotiation
Problem
In any negotiation, each side ultimately must
choose between two options: accepting a deal
or taking its best no-deal option—that is, the
course of action it would take if the deal were
not possible. As a negotiator, you seek to advance the full set of your interests by persuading the other side to say yes—and mean it—to
a proposal that meets your interests better
than your best no-deal option does. And why
should the other side say yes? Because the
harvard business review • april 2001
This document is authorized for use only in Negotiations by Cynthia Stevens from November 2010 to February 2011.
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Six Habits of Merely Effective Negotiators
deal meets its own interests better than its
best no-deal option. So, while protecting your
own choice, your negotiation problem is to
understand and shape your counterpart’s perceived decision—deal versus no deal—so that
the other side chooses in its own interest what
you want. As Italian diplomat Daniele Vare
said long ago about diplomacy, negotiation is
“the art of letting them have your way.”
This approach may seem on the surface like a
recipe for manipulation. But in fact, understanding your counterpart’s interests and shaping the
decision so the other side agrees for its own reasons is the key to jointly creating and claiming
sustainable value from a negotiation. Yet even
experienced negotiators make six common mistakes that keep them from solving the right
problem.
Mistake 1
Neglecting the Other Side’s
Problem
James K. Sebenius is the Gordon
Donaldson Professor of Business Administration at Harvard Business School
in Boston, where he led the creation of
the negotiation unit. He helped found
and worked at the Blackstone Group, a
New York investment banking and private equity firm. He is coauthor with
David Lax of the forthcoming book 3-D
Negotiation: Creating and Claiming
Value for the Long Term.
You can’t negotiate effectively unless you understand your own interests and your own nodeal options. So far, so good—but there’s
much more to it than that. Since the other
side will say yes for its reasons, not yours,
agreement requires understanding and addressing your counterpart’s problem as a
means to solving your own.
At a minimum, you need to understand the
problem from the other side’s perspective. Consider a technology company, whose board of directors pressed hard to develop a hot new product shortly after it went public. The company
had developed a technology for detecting leaks
in underground gas tanks that was both cheaper
and about 100 times more accurate than existing
technologies—at a time when the Environmental Protection Agency was persuading Congress
to mandate that these tanks be continuously
tested. Not surprisingly, the directors thought
their timing was perfect and pushed employees
to commercialize and market the technology in
time to meet the demand. To their dismay, the
company’s first sale turned out to be its only
one. Quite a mystery, since the technology
worked, the product was less expensive, and the
regulations did come through. Imagine the sales
engineers confidently negotiating with a customer for a new order: “This technology costs
less and is more accurate than the competition’s.” Think for a moment, though, about how
intended buyers might mull over their interests,
especially given that EPA regulations permitted
leaks of up to 1,500 gallons while the new technology could pick up an 8-ounce leak. Potential
buyer: “What a technological tour de force! This
handy new device will almost certainly get me
into needless, expensive regulatory trouble. And
create P.R. problems too. I think I’ll pass, but my
competition should definitely have it.” From the
technology company’s perspective, “faster, better, cheaper” added up to a sure deal; to the
other side, it looked like a headache. No deal.
Social psychologists have documented the
difficulty most people have understanding the
other side’s perspective. From the trenches, successful negotiators concur that overcoming this
self-centered tendency is critical. As Millennium
Pharmaceuticals’ Steve Holtzman put it after a
string of deals vaulted his company from a startup in 1993 to a major player with a $10.6 billion
market cap today, “We spend a lot of time thinking about how the poor guy or woman on the
other side of the table is going to have to go sell
this deal to his or her boss. We spend a lot of
time trying to understand how they are modeling it.” And Wayne Huizenga, veteran of more
than a thousand deals building Waste Management, AutoNation, and Blockbuster, distilled his
extensive experience into basic advice that is
often heard but even more often forgotten. “In
all my years of doing deals, a few rules and lessons have emerged. Most important, always try
to put yourself in the other person’s shoes. It’s
vital to try to understand in depth what the
other side really wants out of the deal.”
Tough negotiators sometimes see the other
side’s concerns but dismiss them: “That’s their
problem and their issue. Let them handle it.
We’ll look after our own problems.” This attitude can undercut your ability to profitably influence how your counterpart sees its problem.
Early in his deal-making career at Cisco Systems,
Mike Volpi, now chief strategy officer, had trouble completing proposed deals, his “outward
confidence” often mistaken for arrogance.
Many acquisitions later, a colleague observed
that “the most important part of [Volpi’s] development is that he learned power doesn’t come
from telling people you are powerful. He went
from being a guy driving the deal from his side
of the table to the guy who understood the deal
from the other side.”
An associate of Rupert Murdoch remarked
that, as a buyer, Murdoch “understands the
seller—and, whatever the guy’s trying to do, he
harvard business review • april 2001
This document is authorized for use only in Negotiations by Cynthia Stevens from November 2010 to February 2011.
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Six Habits of Merely Effective Negotiators
crafts his offer that way.” If you want to change
someone’s mind, you should first learn where
that person’s mind is. Then, together, you can
try to build what my colleague Bill Ury calls a
“golden bridge,” spanning the gulf between
where your counterpart is now and your desired
end point. This is much more effective than trying to shove the other side from its position to
yours. As an eighteenth-century pope once
noted about Cardinal de Polignac’s remarkable
diplomatic skills, “This young man always seems
to be of my opinion [at the start of a negotiation], and at the end of the conversation I find
that I am of his.” In short, the first mistake is to
focus on your own problem, exclusively. Solve
the other side’s as the means to solving your
own.
Mistake 2
Letting Price Bulldoze Other
Interests
Negotiators who pay attention exclusively to
price turn potentially cooperative deals into
adversarial ones. These “reverse Midas” negotiators, as I like to call them, use hard-bargaining tactics that often leave potential joint
gains unrealized. That’s because, while price is
an important factor in most deals, it’s rarely
the only one. As Felix Rohatyn, former managing partner of the investment bank, Lazard
Frères, observed, “Most deals are 50% emotion and 50% economics.”
There’s a large body of research to support
Rohatyn’s view. Consider, for example, a simplified negotiation, extensively studied in academic
labs, involving real money. One party is given,
say, $100 to divide with another party as she
likes; the second party can agree or disagree to
the arrangement. If he agrees, the $100 is divided in line with the first side’s proposal; if not,
neither party gets anything. A pure price logic
would suggest proposing something like $99 for
me, $1 for you. Although this is an extreme allocation, it still represents a position in which your
counterpart gets something rather than nothing.
Pure price negotiators confidently predict the
other side will agree to the split; after all, they’ve
been offered free money—it’s like finding a dollar on the street and putting it in your pocket.
Who wouldn’t pick it up?
In reality, however, most players turn down
proposals that don’t let them share in at least
35% to 40% of the bounty—even when much
larger stakes are involved and the amount they
forfeit is significant. While these rejections are
“irrational” on a pure price basis and virtually incomprehensible to reverse Midas types, studies
show that when a split feels too unequal to people, they reject the spoils as unfair, are offended
by the process, and perhaps try to teach the
“greedy” person a lesson.
An important real-world message is embedded in these lab results: people care about much
more than the absolute level of their own economic outcome; competing interests include rel-
Academics Take a Seat at the Negotiating Table
Paralleling the growth in real-world negotiation, several generations of researchers
have deepened our understanding of the
process. In the 1950s and 1960s, elements of
hard (win-lose) bargaining were isolated
and refined: how to set aggressive targets,
start high, concede slowly, and employ
threats, bluffs, and commitments to positions without triggering an impasse or escalation. By the early 1980s, with the win-win
revolution popularized by the book Getting
to Yes (by Roger Fisher, William Ury, and
Bruce Patton), the focus shifted from battling over the division of the pie to the
means of expanding it by uncovering and
reconciling underlying interests. More sophisticated analysis in Howard Raiffa’s Art
and Science of Negotiation soon transcended
this simplistic “win-win versus win-lose” debate; the pie obviously had to be both expanded and divided. In The Manager as Negotiator (by David Lax and James Sebenius),
new guidance emerged on productively
managing the tension between the cooperative moves necessary to create value and the
competitive moves involved in claiming it.
As the 1990s progressed with work such as
Negotiating Rationally (by Max Bazerman
and Margaret Neale), the behavioral study
of negotiation—describing how people actually negotiate—began to merge with the
game theoretic approach, which prescribed
how fully rational people should negotiate.
This new synthesis—developing the best
possible advice without assuming strictly rational behavior—is producing rich insights
in negotiations ranging from simple twoparty, one-shot, single-issue situations
through complex coalitional dealings over
multiple issues over time, where internal
negotiations must be synchronized with external ones. Negotiation courses that explore these ideas have always been popular
options at business schools, but reflecting
the growing recognition of their importance, these courses are beginning to be required as part of MBA core programs at
schools such as Harvard. Rather than a special skill for making major deals or resolving
disputes, negotiation has become a way of
life for effective executives.
harvard business review • april 2001
This document is authorized for use only in Negotiations by Cynthia Stevens from November 2010 to February 2011.
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Six Habits of Merely Effective Negotiators
People care about much
more than the absolute
level of their own
economic outcome;
competing interests
include relative results,
perceived fairness, selfimage, reputation, and
so on.
ative results, perceived fairness, self-image,
reputation, and so on. Successful negotiators, acknowledging that economics aren’t everything,
focus on four important nonprice factors.
The Relationship. Less experienced negotiators often undervalue the importance of developing working relationships with the other
parties, putting the relationships at risk by
overly tough tactics or simple neglect. This is
especially true in cross-border deals. In much
of Latin America, southern Europe, and
Southeast Asia, for example, relationships—
rather than transactions—can be the predominant negotiating interest when working out
longer term deals. Results-oriented North
Americans, Northern Europeans, and Australians often come to grief by underestimating
the strength of this interest and insisting prematurely that the negotiators “get down to
business.”
The Social Contract. Similarly, negotiators
tend to focus on the economic contract—equity splits, cost sharing, governance, and so
on—at the expense of the social contract, or
the “spirit of a deal.” Going well beyond a
good working relationship, the social contract
governs people’s expectations about the nature, extent, and duration of the venture,
about process, and about the way unforeseen
events will be handled. Especially in new ventures and strategic alliances, where goodwill
and strong shared expectations are extremely
important, negotiating a positive social contract is an important way to reinforce economic contracts. Scurrying to check founding
documents when conflicts occur, which they
inevitably do, can signal a badly negotiated social contract.
The Process. Negotiators often forget that
the deal-making process can be as important
as its content. The story is told of the young
Tip O’Neill, who later became Speaker of the
House, meeting an elderly constituent …
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