Sunday, 6 November 2011

"When Relationships Matter" and "Negotiating for Others"

1) Why relationships matter
      Future transactions of real value are anticipated
      Reciprocity of the other side is expected
      A good relationship engenders trust.
Personally speaking, being a Process Engineer for a metallurgical design and management consultancy, relationships are vital! The Process Engineer industry is small, and many of the big projects requires many people to from different EPCM companies to engage in contract negotiations. Hence establishing sound relationships is vital, as very frequently we'll meet other EPCM companies around the negotiating table and frequently when plant design specifications are not fully met, further negotiations need to be done, all of which is very capital intensive and can become a bitter war, and hence negotiating with other consultants once there is a sound relationship is a lot easier and maintaining these sound relationships is just as crucial. It is also vital to always abide to agreements, trust is a very big factor in this industry, and because it is small, once trust is broken it can be detrimental to achieving future contracts.
2) How Perceptions of Relationship Value Affect Negotiations
      Relationship value moderates extreme ‘value-claiming’ behaviour.  Parties thus understand that claiming too much value today will risk opportunities for claiming future value
      Parties who perceive no relationship value will aggressively claim value

3) Tips on doing this better
      Create trust
      Never sweep mistakes under the rug
      Ask for feedback

The Relationship1. 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.
1.      The Harvard School Publishing Guide to Smart Negotiations

"Barriers to Agreement" and "Mental Errors"

'You may be deceived if you trust too much, but you will live in torment if you don't trust enough' Frank Crane

There are many reasons why negotiations may not be carried out successfully. Here, we shall examine several of the more common reasons and offer solutions, to either repudiate or overcome them.
1. Die-Hard Bargainers
The person who views every negotiation as their own personal war where there can be only one winner. Some of their more charming traits include:
Unreasonable offers
Will take concessions, but don't give them, or do so but only with great fanfare and difficulty.
Will take information and wield it as a weapon against us, while hoarding their own  information like a miser guarding their gold.
Bull-headed and unyielding.
Probe your negotiating counterparty first to find out what kind of negotiator you're facing.
Anticipate unreasonable offers and remember your reservation price, aspiration base, and  your BATNA (best alternative) 
Don't give out information that can be used against you.
Give a little, mostly harmless information to your counterparty and see whether they reciprocate.
Offer different negotiation solutions and ask which one they prefer.
Be willing to walk away.
2. Lack of Trust
It happens. Both of you find yourselves sitting at the negotiation table, eyeball to eyeball, wondering just how much you can really trust the person staring back at you . You've heard unsettling rumours that the negotiator on the other side has a nefarious reputation, making you unsure how to proceed with this individual. The best advice is to proceed by slowly building a bridge, as the situation may yet be salvageable. We simply need to be a little more cautious.
You can begin by being polite and sincere.
Emphasize that any negotiated agreement hammered out at the table, will be based on the reliability of the information provided by the other side, and will be nullified otherwise.
Ask them to provide documentation to support the data they present.
Design the agreement to stipulate fulfilment of the agreed upon terms.
Use Compliance Transparency to verify the terms of the agreement are being fulfilled. This term refers to using some vehicle to monitor the terms of your agreement. For example, you might want to insist on your right to verify their books to guarantee accuracy, by using an accountant to confirm the figures they provide.
Use enforcement mechanisms, like financial penalties or a security deposit for incidents where they fail to comply with the contractual terms.
3. Don't Know Anything About Them - The Negotiator's Dilemma
We cannot find it easy to relate to our counterparts when we don't know anything about them, or their goals and objectives. The reverse is equally true. We might need each other without knowing just how much, and that's the dilemma. However, if both parties are hesitant to show their cards and reveal their business purpose, than how can we possibly hope to negotiate a favourable deal in the process?
This often transpires when each party fears they will put their side at risk, by opening up first.
Nobody can move forward if someone doesn't take the first step. So, don't be afraid to take the first crucial step, but be wise and make it a small one by only revealing something harmless about your goals. Generally, the other side will reciprocate and the beginning of a constructive dialogue can now be initiated. By starting slowly, you will also begin to build up the trust levels as your bridge expands slowly across the chasm, from either side towards the centre.
4. Spoilers
This often occurs in multi-party negotiations. Occasionally, there's at least one party-pooper who's out to sabotage the negotiations. Their motives may vary, such as wanting to maintain the status quo, or they feel threatened, see themselves as being marginalized and suffer as a result. They may oppose the deal passively by refusing to make a commitment, or actively oppose the deal simply by presenting direct opposition, or using some other form of subterfuge to sabotage the talks.
Be prepared for these spoilers, by considering their real fears and anticipating what kind of impact an agreement would have on their objectives. In other words, identify who might have something to lose if a deal were negotiated, or if an agreement was not successful.
Counter their resistance and explain 'why' this change will benefit them. Illuminate their gains and explain that they may actually profit from the proposed venture.
Offer them roles so that they will be able to retain control over their business and be more proactive in the negotiation process. Assure them that they will be active and productive members in a partnership.
If all else fails, it might best to form a coalition with the other parties, to overwhelm and counter the spoilers.
5. Culture and Gender Barriers
Sometimes, companies, people, and cultures simply operate differently from what we usually experience. One company might be conservative and staid in its approach, while another might be more entrepreneurial and dynamic. We might encounter obstacles in negotiating with a person of the opposite gender, or stumble upon culture barriers because of our different perspectives. As a result, we might blame our difficulties solely on these differences as the basis for the obstacles, that block our path to a successful agreement.
It is vital we do not make assumptions in these situations. The solution may lay in stopping ourselves from jumping to a conclusion, and by analyzing the problem thoroughly. We must step outside of any preconceptions or biases that blur our vision. We must view the problem logically to understand what issues are acting as hindrances, or whether there is a pattern that can illuminate our lack of understanding. Go back to the basics. Examine the issues and their positions by learning the motivating reasons that lay behind objections, either theirs or yours. Then, find ways to solve these concerns and revamp the solutions. This process will at least initiate a more positive and productive dialogue.

6. Structural Impediments

7. Difficulties in Communication

Barriers Experienced in the EPCM environment:

Being a project company there are multiple challenges. There is no doubt that in my industry (Metallurgical Process Plant Design and Management), the biggest barrier is culture and languages. As a result of MDM Engineering, the company for which I am currently working for, having business throughout the world, however predominantly in Africa (West and Central), there are multiple cultural and language barriers that we come up against. Besides the obvious language barrier (French/Arabic/English) which is more critical during execution phases of projects, there are other cultural misalignment in terms of how we go about working. One of the more hilarious, but still significant cultural difference noted was while i was in Ghana. In Ghana, at 2 o'clock in the evening workers normally go sleep, however here in SA, when we commission metallurgical plant we work 7 days a week with two 10 hour shifts until the plant is producing gold/uranium/platinum or any other metal commodity. This posed a problem, and we were then required to bring in construction and commissioning managers from Zimbabwe who could drive the work force through there normal routines.

Common Mental Errors to be avoided during negotiations:

1. Escalation
2.Partisan perception
3. Irrational Expectations
4. Overconfidence
5. Unchecked Emotions

Table Tactics

It is always good to open and close negotiations in a good manner, especially if future negotiations are going to be done with the same party/s.
Getting off to a good start in a negotiation would be done be ensuring respect for all parties concerned, this includes emphasizing opened to the other parties interests and concerns as well as ensuring that the negotiation is a positive joint endeavour. Closing the negotiation must also be done in a good flexible fashion.

The Top 10 factors for successful negotiating are:
  1. Know what you REALLY want.
    Many people enter negotiation only to find they did not have a clear desired outcome defined in their own mind. Write down your desired outcome as concisely as possible and use this outcome as the centre point of your preparation.
  2. Know your opposition.
    Learn as much as possible about who you are negotiating with, what they want, their strengths and weaknesses, and their likes and dislikes.
  3. Consider the impact of timing and method of negotiation.
    Whenever possible, negotiate face to face. It is easier to say NO over the telephone and in writing. Initiate the negotiation process so that you have the advantage of preparation and timing.
  4. Prepare your presentation... point by point.
    Outline your presentation carefully. Place emphasis on benefits to the other party.
  5. Anticipate reactions, objections and responses.
    If possible, brainstorm with others who have had similar negotiations to get a jump on what to expect. For each objection or reaction, list positive responses, alternatives and examples that counteract the negatives.
  6. Structure your presentation to ensure agreement on one or two points at the beginning of the negotiation.
    For example, "I think we can agree right away that we have a problem and that we both/all want to resolve it." Initial agreement on minor issues or points early on in the negotiation process sets a positive atmosphere for agreement in later, more significant stages.
  7. Determine paybacks and consequences for each party in the negotiation.
    A clear understanding of paybacks and consequences makes it easier to determine when and how to make concessions and when and how to stick to your requirements and requests.
  8. Prepare options rather than ultimatums.
    An ultimatum should be used only as a last resort when you are sure you can back it up and the other party knows you can back it up. Even then, in virtually every negotiation there are options and alternatives that reduce defensiveness and lead to positive resolution for all parties.
  9. Get comfortable with silence.
    Many negotiators feel compelled to jump in with arguments and comments each time there is a pause in the interaction. Practice holding back on comments and responses. Silence can be a very powerful negotiation tool.
  10. Close all negotiations by clearly outlining agreement.
    When agreement or conclusions have been reached and you are ready to end your negotiation, review the agreement that has been reached. Then, end your negotiation on a positive note... commending those involved and emphasizing the progress made.

"Four Key Negotiation Concepts" and "The 9 Steps to a Deal"

1.       Best Alternative To a Negotiated Agreement  (BATNA)
2.       Reservation Price
3.       ZOPA
4.       Value Creation Through Trades

1.        (BATNA) - When the Other Party Is More Powerful
No negotiation method can completely overcome substantial differences in power. However, there are ways to protect the weaker party against a poor agreement, and to help the weaker party make the most of their assets.
Often negotiators will establish a "bottom line" in an attempt to protect themselves against a poor agreement. The bottom line is what the party anticipates as the worst acceptable outcome. Negotiators decide in advance of actual negotiations to reject any proposal below that line. Because the bottom line figure is decided upon in advance of discussions, the figure may be arbitrary or unrealistic. Having already committed oneself to a rigid bottom line also inhibits inventiveness in generating options.
Instead the weaker party should concentrate on assessing their Best Alternative To a Negotiated Agreement (BATNA). The authors note that "the reason you negotiate is to produce something better than the results you can obtain without negotiating." The weaker party should reject agreements that would leave them worse off than their BATNA. Without a clear idea of their BATNA a party is simply negotiating blindly. The BATNA is also key to making the most of existing assets. Power in a negotiation comes from the ability to walk away from negotiations.
Thus the party with the best BATNA is the more powerful party in the negotiation. Generally, the weaker party can take unilateral steps to improve their alternatives to negotiation. They must identify potential opportunities and take steps to further develop those opportunities. The weaker party will have a better understanding of the negotiation context if they also try to estimate the other side's BATNA; "developing your BATNA thus not only enables you to determine what a minimally acceptable agreement is, it will probably raise that minimum.”
2.       Reservation Price
This may be defined as the least favourable position, at which point one would accept a deal.
3.       ZOPA
It is the range or area in which an agreement is satisfactory to both parties involved in the negotiation process. Often referred to as the "Contracting Zone". ZOPA or the Contracting Zone is essentially the range between each parties real base or bottom lines, and is the overlap area in the low and high range that each party is willing to pay or find acceptable in a negotiation.

9 Steps to a deal:
1.       Know what would be good outcomes
2.       Identify value creation opportunities
3.       Identify BATNA and RP’s
4.       Shore up your BATNA
5.       Anticipate the authority issue
6.       Learn all you can about the other side
7.       Prepare for flexibility
8.       Gather external standards and criteria for fairness
9.       Alter the process in your favour

Being in the process project environment, all contracts are drawn up on an EPCM basis. This means there is hardly no negotiating in terms of project value. However, on smaller projects with values of  <R50 million, these projects are done on a Turn-Key basis, in this case it is vital to know a reservation price at which MDM has to critically evaluate.
1.       “Getting to Yes”, by Roger Fischer and William Ury and Bruce Patton. ISBN: 9781844131464

"Negotiation Styles" and "Effective Negotiations"

Firstly; the definition of negotiation: Negotiation is an interactive communication process that may take place whenever we want something from someone else or another person wants something from us.

Hence, it can be deduced that very often we are all in some form of negotiation, whether it be negotiating with a sales agent on the purchase price of that new Beach house or negotiating with business partners on how to go about executing the new market penetration program.

There are 5 basic bargaining styles, of which every person will predominantly have 1 or 2 of. These 5 styles are:
-          Avoider,
-          Compromiser,
-          Accommodator,
-          Competitor, and
-          Problem-solver

There are 2 basic types of negotiation:1
1.       Distributive negotiation, and
2.       Integrative negotiation

1.       Distributive Negotiations - the Fixed Pie
The term distributive means; there is a giving out; or the scattering of things. By its mere nature, there is a limit or finite amount in the thing being distributed or divided amongst the people involved. Hence, this type of negotiation is often referred to as 'The Fixed Pie'.
In the real world of negotiations, two parties face off with the goal of getting as much as possible. The seller wants to go after the best price they can obtain, while the buyer wants to pay the lowest price to achieve the best bargain.
A distributive negotiation usually involves people who have never had a previous interactive relationship, nor are they likely to do so again in the near future.
Secondly, when we are dealing with someone unknown to us, and it's a onetime only occurrence, we really have no particular interest in forming a relationship with them, except for the purpose of the deal itself. We are generally less concerned with how they perceive us, or how they might regard our reputation. Ours and their interests are usually self-serving.

2.       Integrative Negotiations - Everybody Wins Something (usually)
The word integrative means to join several parts into a whole. Conceptually, this implies some cooperation, or a joining of forces to achieve something together. Usually involves a higher degree of trust and a forming of a relationship. Both parties want to walk away feeling they've achieved something which has value by getting what each wants. Ideally, it is a twofold process.
The process generally involves some form or combination of making value for value concessions, in conjunction with creative problem solving. Generally, this form of negotiation is looking down the road, to them forming a long term relationship to create mutual gain. It is often described as the win-win scenario.
Multiple Issues - Integrative negotiations usually entails a multitude of issues to be negotiated, unlike distributive negotiations which generally revolve around the price, or a single issue. In integrative negotiations, each side wants to get something of value while trading something which has a lesser value.

Effective negotiations2:
Negotiations often take the form of positional bargaining. In positional bargaining each party opens with their position on an issue. The parties then bargain from their separate opening  positions to agree on one position. Haggling over a price is a typical example of positional bargaining. Positional bargaining does not tend to produce good agreements. It is an inefficient means of reaching agreements, and the agreements tend to neglect the parties' interests. It encourages stubbornness and so tends to harm the parties' relationship.
The four principles of effective negotiation:
1.       Separate the people from the problem,
2.       Focus on the interests rather than the positions,
3.       Generate a variety of option before settling on an agreement, and
4.       Insist that the agreement be based on objective criteria.

1.       Separate people and issues:
People tend to become personally involved with issues and with their own side's positions. They often take responses to those issues and positions as personal attacks. Separating the people from the issues allows the parties to address the issues without damaging their relationship. It also helps them to get a clearer view of the substantive problem.
There are three basic sorts of people problems:
-          Difference in perception among the parties,
-          Emotions are a second source of people problems, and
-          Communication is the third main source of people problems.

2.       Focus on the interests rather than the position
Good agreements focus on the parties' interests, rather than their positions. "Your position is something you have decided upon. Your interests are what caused you to so decide." Defining a problem in terms of positions means that at least one party will "lose" the dispute. When a problem is defined in terms of the parties' underlying interests it is often possible to find a solution which satisfies both parties' interests.

3.       Generate options
There are four obstacles to generating creative options for solving a problem:
- Parties may decide prematurely on an option and so fail to consider alternatives.
- The parties may be intent on narrowing their options to find the single answer.
- The parties may define the problem in win-lose terms, assuming that the only options are for one side to win and the other to lose.
- Or a party may decide that it is up to the other side to come up with a solution to the problem.
4. Use objective criteria
There are three points to keep in mind when using objective criteria.
-          First each issue should be approached as a shared search for objective criteria. Ask for the reasoning behind the other party's suggestions. Using the other parties' reasoning to support your own position can be a powerful way to negotiate.
-          Second, each party must keep an open mind. They must be reasonable, and be willing to reconsider their positions when there is reason to.
-          Third, negotiators must never give in to pressure, threats, or bribes. When the other party stubbornly refuses to be reasonable, the first party may shift the discussion from a search for substantive criteria to a search for procedural criteria.

1.       Negotiation Experts – Creating Value, Negotiation Types,, accessed: 23/10/2011
2.       “Getting to Yes”, by Roger Fischer and William Ury and Bruce Patton. ISBN: 9781844131464