Value Based Negotiation

“Negotiation is increasingly a way of life for effective managers,” sayHarvard Business School Professor James Sebenius.

Negotiation is an important skill, a subset of communication. Many managers and engineers do not realize how negotiation can affect their work. Negotiation is the process of communication used by people who seek to change the nature of a relationship. Negotiation can take place in business activities such as with employers, unions, governments, pressure groups, major suppliers and even in the area of international relations. It involves a great deal of complexity, applying many communication talents in order for a negotiation to go well.

According to a leading U.S. negotiator Gerard I. Nierenberg in his book The Art of Negotiating page 109, he says:

“Needs and their satisfaction are the common denominator in negotiation. If people had no unsatisfied needs, they would never negotiate. Negotiation presupposes that both the negotiator and his opposer want something… It requires two parties, motivated by needs, to start a negotiation.”

This shows that in negotiation, there is always a need to be fulfilled or an unsatisfied scenario has occurred in the transaction. In negotiating, there would be at least one other person which you would be negotiating with. It could also be a group of people. In such cases we have to identify the needs of the individual and as a group.

A skillful negotiator can balance between a number of negotiation options:

- Collaboration

- Compromise

- Competition

- Accommodation

- Withdrawal or avoidance

These options are used based on a given scenario. However, are there better ways in which a manager can practice in negotiation?

Value Based Negotiation

In negotiation we always favor the win-win situation. But what is a winning situation? Is it when both parties have something to gain or when everyone’s desires are fulfill? A winning situation is when both parties are satisfied at the end of the process.

Let’s take an example:

Two sisters are fighting for an orange. The younger one is very hungry and wants to eat the orange. The elder sister needs the orange for a dessert recipe. Both of them are not willing to give up the orange and want the whole orange. They argued about which is being more important.

The best way commonly thought is to split the orange in half. In such, both get to enjoy the orange. But is this the best way?

During negotiation, the negotiator should focus on the value/ interest of the parties involved and not just settle for something less. When a negotiation focuses on value/interest, both parties can actually benefit fully from the deal. Let’s take a look at the above example again. If the sisters find out what exactly they are after, the problem can be easily resolved. When asked on what is the actual interest, the elder sister needs the whole orange because she needs the peel of the fruit to be used in the desert. The younger sister is hungry and would like to eat the fruit. The solution is simple! The elder sister can take the peel while the younger sister still gets to eat the whole fruit. In such a case, both parties can a 100% of the deal. No one looses out.

Many times we think that in negotiation, the best alternative is to have an equal share which is not true. The negotiator should always find out what the intrinsic value seek by the other party. As engineers, we will face negotiation problems when we are discussing about our job description in a project, dealing with a supplier or customer and even when discussing with our superiors. A worker would not be happy if they could not achieve what they want in their career even if the salary is high; which will affect their performance and a client not satisfied could cause the company to loose an important deal. When we put the interest of the parties involved a priority, we will be able to see a clearer picture and work out a solution. Never target the person involved, only the issue.

Let’s take another example:

Egypt and Israel face a problem with their security and military issues at their border in the late 70s. Israel wanted a troop of their army to be placed within the border and make it under their supervision to avoid any security issues that may arise form the neighboring country’s troops.
Egypt insisted that their army should be the only one patrolling the zone and would not want foreigners to be in their country. This incident causes the two countries to be on a tension cord and many negotiations has been done and failed. Both countries do not want to remove their troops and the situation went into a deadlock. Then when the negotiators took a turn to target on their interest/ value-base, they found out the actual situation. Israel is worried about the attacks and invasion from the neighboring country while Egypt’s main concern is its sovereign as a nation. The Egyptians do not want foreigners to be in their land. Then quickly a solution is reached. Both party agreed to pull out their troops from the border and make it into a military-free zone. By doing this, Israel will not need to worry about invasion issues from the border and do not need to place their troops there.

Egypt on the other hand gets to maintain its sovereignty as the Israelites are no longer in their border. Again this is the demonstration on how value-based negotiation takes place. In cross cultural negotiation, the same principal applies. As an engineer, we are prone to deal with international clients. Different people have different cultural backgrounds and this will lead to different dynamics during a negotiation.

One other example:

Recently our Malaysian company did a sales collaboration with a Singaporean Chinese company. We are providing services and products to another client and the Singaporean company receives a cut of the profit due to initial business ventures. In the proposal we stated out the profit sharing percentage. The person in charge demands for an increase of percentage but we are reluctant to budge from the proposed percentage because of the job description and work to profit ratio. We have calculated our profit to be an X amount in order to cover our costs and investors’ interest. Initially, we offered to increase the payout through other means as long as the percentage remains but they do not like the idea. In this situation, we can force our way through as they do not need to contribute anything more and should accept whatever we offer. As long as they accept they would make a profit.

On a normal view point this is a win – win situation as both parties would still receive something. Even if the opposer has only 1% share they will still make profit. But the scenario states otherwise. They would rather loose the profit if the percentage does not increase. This comes to a question, why do they not accept if they can still make profit rather than loosing the chance to make any profit at all?

After the negotiation takes place, we realize that they want an increase in percentage because it signifies how important they are in the collaboration and not about the profit. Therefore, as a result we increase the percentage but reduce the overall profit they receive by channeling the extra profits to our company by other means. In this case, they get their percentage increase while we remain our profit margin!

What one sees as a benefit, the other might not. This is true as seen in the above context. Even though we are both of the same race, but due to different working environment and cultural differences of both countries, we both see different value as beneficial. One may focus on profit while the other on the relationship importance. Managers should understand this concept well as when dealing with clients. Different races, gender, culture or even countries will hold a different set of values. To deal appropriately in such scenario is to recognize the value/ interest of the parties involved. Looking for a common ground may not be the best solution in most cases.

Honing good negotiation skills help in the sustainability of the business. Of course there is more to negotiation than discussed here but these are some pointers that will help in negotiation. This applies not just with clients or business interest but with the team that the manager manages. Some people may request for an increase in salary or more responsibility. How the manager applies his negotiation skills in the given scenario will help reduce conflict and create a better working environment which in turn increases the company’s productivity.