PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e
Negotiation and Conflict Resolution Chapter 13
© 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
SOUTH-WESTERN CENGAGE LEARNING
Chapter Overview What is negotiation? The negotiation framework in supply management Negotiation planning Power in negotiation Concessions
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Chapter Overview Negotiation tactics: trying to reach agreement Win-win negotiation International negotiation Selected countries Impact of electronic media on negotiations © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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What Is Negotiation? A process of formal communication, either face-to-face or via electronic means, where two or more people, groups, or organizations come together to seek mutual agreement about issue or issues Involves management of time, information, and power between individuals and organizations who are interdependent © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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What Is Negotiation? Relationships between people, not just organizations Role of persuasion Negotiation skills can be learned and enhanced Supports implementation of supply management strategies and plans © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Common Terms Used in Negotiation BATNA Position Interest Need Want Fact
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Issue Strategy Power Concession Tactic
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BATNA That point where it is advantageous to walk away from the negotiation Best Alternative to a Negotiated Agreement Bottom line or reservation point
Should never be revealed to other party All settlements must be judged in light of all other viable alternatives existing at the time of the agreement © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Position Negotiator’s opening offer Represents the optimistic (or ideal) target value of issues being negotiated
Stated demand at negotiation table
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Interest Unspoken motivation or reason that underlies any given position Unlikely to be expressly stated or acknowledged If done, usually results in loss of power
May not be directly germane to stated position Often personal in nature © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Key Points on Interests Learn to play detective Try to discern other party’s interests through series of open-ended, probing questions Then listen carefully
Always focus on the other party’s underlying interests, not its stated positions © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Need vs. Want Need Negotiated outcome that negotiator must achieve
Want Negotiated outcome that a negotiator would like to have May often be exchanged as a concession
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Triangle Talk Step 3: “Propose Action in a Way that They Can Accept”
Step 1: “Know Exactly What You Want” © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
The Negotiation Process
Step 2: “Know Exactly What They Want”
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Know Exactly What You Want Determine and formalize specific goals and objectives Helps retain clear focus and minimize distraction When written, can be referred to readily during negotiation The more clearly defined, the more likely that priorities can be achieved © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Know Exactly What They Want Attempt to discern other party’s likely needs and wants Estimate underlying interests to other party’s stated positions
Beware of expecting other party to think in same way as you do Ask probing, open-ended questions to confirm or counter assumptions © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Propose Action in a Way that They Can Accept Frame your own needs in terms of other party’s needs Make it easy for other party to say “Yes” Remain fair, flexible, and reasonable Address their needs first
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The Negotiation Framework
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Identify or Anticipate the Sourcing Requirement Purchase requisitions Inventory counts Reorder point systems New product development New facilities
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Determine If Negotiation or Competitive Bidding Is Required Is bid process inadequate? Are many non-price issues involved? Is contract large? Are technical requirements complex? Does contract involve plant and equipment?
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Determine If Negotiation or Competitive Bidding Is Required Does contract involve a partnership? Will supplier perform value-added activities? Will there be high risk and uncertainty?
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When to Negotiate Identification of allowable costs Delivery schedules and lead times Expected product and service quality levels Performance metrics and how information is gathered © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Technological support and assistance Contract volumes and release timing Special packaging, handling, and shipping Liability for loss and damage
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When to Negotiate Transportation mode selection Carrier selection Filing freight claims Payment terms and currency exchange Progress payment schedules Warranties and replacements © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Capacity commitments Penalty clauses Performance incentives Contract length and renewal mechanism Protection of proprietary information Purchasing & Supply Chain Management, 6e
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When to Negotiate Ownership and use of intellectual property Resources related to developing closer relationships Improvement requirements Quality, delivery, lead time, cost, responsiveness © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Contract dispute resolution mechanisms Spare parts After-sales service Operator or maintenance training Access to technology
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Reasons for Negotiation Total contract value or volume is large Complex technical requirements Product and process requirements and specifications may still be evolving
Purchase involves utilization of capitalintensive plant and equipment
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Reasons for Negotiation Agreement involves special or collaborative relationship Supplier will perform important valueadded activities, requiring … Appropriate compensation Performance standards Performance metrics
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Planning for the Negotiation Better planning better outcomes Electronic communication tools vs. face-to-face negotiations Reduce expensive and time consuming travel
Use of online RFP and RFQ templates Quick turnaround on changes Simultaneous negotiations with multiple suppliers © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Points to Focus On Defining issues, needs, and wants Assembling issues, needs, and wants Defining bargaining mix Defining interests Defining own objectives and opening offers © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Assessing role of constituents and social context Analyzing other party Planning issue presentations and defenses Defining process protocols Purchasing & Supply Chain Management, 6e
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Phases of the Negotiation Phase I Fact finding and information sharing Clarify or confirm information
Phase II Recess to assess new information and findings Assess relative strengths and weaknesses Review and revise objectives and positions, if necessary Organize agenda © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Phases of the Negotiation Phase III Meet face-to-face or electronically Narrow differences on issues Offer proposals and counterproposals Exchange concessions
Phase IV Seek agreement Conclude negotiation Agree to follow-on activities © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Being an Effective Negotiator Willing to compromise or revise goals When faced with new information
View issues independently Establish upper and lower ranges for each major issue Explore more viable options Build and focus on common ground rather than differences © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Being an Effective Negotiator Avoid making irritating comments Avoid argumentation Too many reasons can dilute an argument
Make fewer counterproposals Too many concessions Compromising too much May indicate lack of adequate planning and show invulnerability © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Execute and Follow Up on the Agreement Actual performance or management of contract Load into organization’s contract management system for visibility Provide performance feedback Build on success of negotiation Monitor contract provisions Reaffirm commitment of parties © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Negotiation Planning Develop plan and overall strategy Specific strategies Research Actions Tactics
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Reasons for Failed Negotiations Neglect other party’s problems Focus too much on price Focus on positions instead of interests Focus too much on common ground Neglect BATNAs Overadjust perceptions during actual negotiation © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Develop Specific Objectives Objective Aspiration or vision to work toward in future
Typical objectives Acceptable unit price Contract quantities Required delivery lead time Improved supplier quality © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Develop Specific Objectives Not all objectives are equally important Need to prioritize Must have (needs) Would like to have (wants)
Serves as basis for concession strategy
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Analyze Each Party’s Strengths and Weaknesses Understand through research and experience Personality Negotiation style History of the other party
Assess relative strengths and weaknesses, i.e., “due diligence” Each negotiation experience is unique © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Gather Relevant Information Previous experience with other party What happened between parties? Was negotiator satisfied with previous outcome? Are we negotiating with same people or with different negotiators? What were important issues to supplier? To buyer? © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Gather Relevant Information Previous experience with other party What were areas of disagreement? Is there anything about previous conduct or protocols that should be changed? What is relative power between parties? Who has most to lose? To gain?
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Sources of Information Other buyers or organizations with experience with supplier Published sources of information Trade journals, other business publications, and Internet websites Trade association and government data Annual reports Financial evaluations and databases Direct inquiry with supplier © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Recognize Your Counterpart’s Needs Must consider longer-term success Issues critical to supplier may not be issues critical to buyer, and vice versa Give-and-take must be considered Each party should not expect to prevail in all issues Setting priorities for concessions and issue tradeoffs © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Identify Facts and Issues Fact Reality or truth that parties can state and successfully verify
Issue Items or topics to be resolved
Triangle Talk is a helpful tool
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Establish a Position on Each Issue Need for agility and flexibility Range of positions Minimum acceptable position (BATNA) Maximum, or ideal, position Most likely outcome
Overlapping positions create bargaining or settlement zone “Heart” of the negotiation process © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Bargaining Zone Example Buyer
BATNA
$11.15
Example shown is typical buyerseller negotiation on price © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Zone of Likely Agreement
Aspiration Point
Note:
$11.45
BATNA
Aspiration Point
$11.00
$11.50
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Factors in Modifying Positions Desirability of the contract Revelation of irrefutable information that challenges accuracy and credibility of original position Major concession that promotes reciprocation on another issue
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Develop the Negotiation Strategy and Accompanying Tactics Strategy Overall approach used to reach mutually beneficial agreement
Tactic Art or skill of employing available means to accomplish an end, objective, or strategy Includes supporting action plan and activities © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Brief Other Stakeholders Stakeholder One who has an interest in or will be affected by negotiation outcome(s)
Need to be aware of, and in agreement with, desired objectives Includes major issues and initial positions for those issues Prevent unwanted surprises Develops stakeholder buy-in and support © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Practice the Negotiation Applies to complex and formal negotiations that are … Large dollar amount Long span of time Crucial to success of organization
Mock or simulated negotiation Helps raise awareness of unanticipated questions and issues Role play other party to develop empathy © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Power in Negotiation Power Ability to influence another person or organization to do something
Power by itself is neither good nor bad It is actual application or use of power that makes it good or bad
Sources of negotiating power
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Sources of Negotiating Power Informational power Reward power Coercive power Legitimate power Expert power Referent power
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Informational Power Ready access to relevant and useful information Presentation of facts, data, and persuasive arguments Need for selective disclosure Can be manipulated by withholding information or by providing false information © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Reward Power One party is able to offer something of perceived value to other Direct attempt to exert active control Individuals respond and behave accordingly when valued rewards are available
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Coercive Power Taking away or withholding something of value to other party Ability to punish Financially, physically, or mentally
Can have damaging effects on longterm relationships Promotes retaliation or getting even © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Legitimate Power Power based on official position held The higher the job position or title, the greater the power inferred
May be separate from reward power or coercive power Buyer has legitimate power due to his/her ability to award contract
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Expert Power Special form of informational power Development and retention of body of knowledge
Often represented by verifiable credentials and stature Reduces likelihood of refuting position Other party must value expertise in order to be effective © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Referent Power Comes from attraction based on socially acceptable personal qualities and attributes Personality or attractiveness characteristics such as … Honesty Charisma Friendliness Empathy Sensitivity © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Application of Power Used to support one’s advantage Need to be careful not to abuse power Damaged relationships Invited retaliation Diminished value of that power
Some types of power interact synergistically with others Example – expert and referent power © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Concessions Movement away from position that has perceived value to other party to gain something else of value Give-and-take process is normal in most negotiations
Need to avoid giving away concessions without receiving something of equal or greater value in return Always keep BATNA in mind © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Concessions Without effective concessions strategy, negotiation may result in impasse Concessions should be made in decreasing increments, not increasing ones Increasing concession values encourage other party to wait you out for even greater concessions
Based on length and cost of negotiation © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Guidelines for Making Concessions Give yourself enough room to make concessions Try to get other party to reveal his/her needs and objectives first Be first to concede on a minor issue but not first on a major one Make unimportant concessions and portray them as valuable © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Guidelines for Making Concessions Make other party work hard for every concession made Use tradeoffs to obtain something for every concession you make Generally, concede slowly and give a little with each concession Do not reveal your deadline to other party – ever © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Guidelines for Making Concessions Occasionally, say “No” to other party Be careful trying to take back concessions, even tentative ones Keep a record of concessions made and try to identify a pattern Do not concede too soon, too often, or too much © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Negotiation Tactics: Trying to Reach Agreement Short-term plans and actions employed to ... Execute strategy Cause a conscious change in other party’s position Influence others to achieve one’s own objectives
Can be either ethical or unethical Tricks or ploys © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Common Negotiation Tactics Low ball Honesty and openness Questions Caucus Trial balloon Price increase © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
High ball Best and final offer Silence Planned concessions Venue
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Cialdini’s Power of Influence Reciprocation Consistency Social proof Liking Authority Scarcity
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Reciprocation Obligation to give something back of equal or greater value to someone after having received something from them Creates powerful obligation response Can be used effectively when giving concessions Patterns of concession Quid pro quo © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Consistency People tend to want to be perceived as being consistent in their beliefs and actions Otherwise considered to be irrational
It is difficult to back away from something already agreed to Beware of the consistency trap Small commitments often lead to much larger ones © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Social Proof Looking to behavior of others to determine what is desirable, appropriate, and correct Power of endorsement Everyone else is doing it
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Liking People work well and are more agreeable with others that we like or who are like us Get to know other party better to build on relationship when concessions are being offered
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Authority People are more likely to accept positions, arguments, and directions from recognized authority figures Power of titles and perceived importance
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Scarcity Can also be “perception” of potential scarcity “Act now!” “For a limited time only!” “Offer expires tomorrow!”
Suppliers often use potential price increases as a scarcity technique “Twenty percent price increase effective at the first of the month!” © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Overcoming Tactics Modify tactics when they don’t work Prepare for likely tactics to be used against you Tactics are more effective if you are unprepared, stressed, under severe deadlines, inexperienced, fatigued, or disinterested Try not to react without thinking © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Win-Lose vs. Win-Win Negotiation Win-lose Competitive or distributive bargaining “Fixed sum game” perception
Win-win Integrative or collaborative bargaining Expand the value or resources available to all participants Requires time, patience, and creativity © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Win-Lose Negotiation Assume rigid negotiating positions Compete over a fixed amount of value Practice strict use of power by one party over another Pursue adversarial relationships
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Win-Win Negotiation Understand each other’s needs and wants Focus on common ground rather than personal interests Conduct joint efforts to solve problems Develop creative solutions that provide additional value Engage in open information sharing © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Win-Win Methods Expand the pie Logroll Use nonspecific compensation Cut costs for compliance Find bridge solution
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International Negotiation Added complexity and challenge with different … Languages Customs Laws Cultures
Extra time and effort required Culture shock © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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International Negotiation Barriers and obstacles Miscommunication because of language Time orientation Cultural differences Limited authority of foreign negotiators
Need for knowledgeable translators Culture and language Industry and business concepts © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Culture Shock Negotiator’s preexisting values, beliefs, rules, and decision-making schema are challenged Emotions run higher May encounter substantial Anxiety Disorientation Confusion © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Characteristics to Overcome Barriers Extreme patience Thorough knowledge of agreement Honest and polite attitude Familiarity with foreign cultures and customs Recognize that common words may have different meanings, even between similar countries or cultures © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Caveats when Negotiating Overseas Don’t think that everyone else thinks and negotiates like you do There is danger in stereotyping or oversimplifying the interpersonal characteristics of other cultures There is always substantial interpersonal variation within any culture However, there are often general tendencies © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Impact of Electronic Media on Negotiations Electronically-based negotiations tend to equalize differences between parties Normal visual and auditory clues are diminished or not readily apparent Status differences and social differences are less discernible Problem of being anonymous
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Impact of Electronic Media on Negotiations E-negotiations take more time than face-to-face negotiations Outcomes tend to be less satisfying E-negotiations are more impersonal and do not promote rapport Interchange is often more aggressive and less diplomatic Messages are often misconstrued and taken out of context © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Impact of Electronic Media on Negotiations Negotiators tend take more risks Real time vs. asynchronous Loss of information richness More difficult to provide feedback and conduct active listening E-negotiators ask fewer questions and tend to make more assumptions What does “silence” mean? © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Mitigating the Negative Effects of Electronic Negotiation Conduct an initial face-to-face meeting to build rapport At a minimum, have an extended telephone conversation
Take extra time to carefully reread and edit e-mails before sending them They are irretrievable and can be easily forwarded to others Double-check “to:” and “cc:” addresses © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Mitigating the Negative Effects of Electronic Negotiation Use generally accepted e-mail protocols Clear, concise language No all caps, excessive punctuation symbols, underlining, bolding, italics, or “off-the-cuff” comments
Don’t copy e-mail to recipient’s superiors Perceived as you not trusting the recipient © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Effective E-Negotiating Practices Use a blended negotiation Share relevant personal information initially Establish common ground Use emoticons ;<) Summarize agreements and concessions frequently © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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Effective E-Negotiating Practices Include positive language addressing the importance of the relationship Maintain a folder of the correspondence Know when and how to reply to or forward electronic correspondence Proofread the entire message before sending It will always take longer © 2016 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
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