The Other Perspective Chapter 15: Negotiated Decisions

1. The Other Perspective Chapter 15: Negotiated Decisions • Relevance of other perspective • Negotiations – Mutual acceptance of decision with negotiating partner: • Key: Understand other perspective’s concerns • Ethical – Decision may impact others • Key: Perceive impact • Game Theory –reaction by competitor • Key: Anticipate actions and factor into initial actions

2. Activity—Your experience with negotiationsSuccessfulor Unsuccessful, One time or part of long-term relationship? • Personal • Purchase • Parent and child • Home contractor or landlord • Business • Customer problem • Contract • Contract dispute • Other: volunteer organization

3. Issues to be Negotiated • Tangible • Price • Duration • Coverage • Intangible – underlying psychological motivation • Fairness • Precedent setting • Reputation

4. Types of Negotiations • Single issue such as price – very limiting • Distributive “fixed” pie – your increased share comes from my decreased share • Multi-issue – preferred  bigger pie • Issues important to my side are not “as” important to your side • Job security • Number of jobs • Market opportunities for supplier or reputation • Profits • Deal making involves upfront negotiations • Conflict resolution  emotional

5. Interests instead of bargaining positions • Position = one party’s solution to negotiations • Argue relative merits of each position • Attack merits of other position and often ignore concerns • Confrontational win-lose: may just split the difference • 2011 National debt negotiations and budget deficits • Interests = underlying needs • Why is this important to you? • Egypt and Israel in Sinai • Israel security and Egyptian sovereignty • Salary request motivation • Individual: Financial need or financial security or ego, • Company: precedents, total cost, flexibility

6. Frame Issues • Define the issue: What is the issue? Why is it important to us? • What is the current situation? • Who is affected and how are they affected? • What has contributed to making this an issue? • What will happen if nothing is done? • Identify stakeholder interests involved: What is at stake for you and other key stakeholders on this issue? • Different generations or classes of people!! • Ongoing 2012 US (and European) budget debates • NBA stars vs masses • Retirees, existing workers, and new workers

7. Activity – Health care benefits • Position of Employer: Employees must pay more of the cost of health insurance. • Interest of Employer: _______________________________ • Position of Union: The employees will not pay more. • Interest of Union and Employees: _______________________________

8. KEY: Understanding other sides interests • Problem: Biased partisan perceptions • I am reasonable and you are not • Creating value vs claiming share of value • Requires sharing information about preferences and concerns • Openness and trust • Negotiations are a dynamic process with biases • Escalation of commitment, confirmation bias, sunk cost, endowment affect of having something, anchoring, overconfidence of winning • NBA 2011 strike – negotiate salaries as share of wealth

9. Negotiation Process Steps • Preparation  Assessment of • Self – Goals to achieve and BATNA • Other party – Goals to achieve and BATNA • Situation: importance of relationship, time pressures, and differences in power (unions)  Raise cap on national debt • Value Creation • Strategies: Solve the other’s problems, beneficial trades and contingent contracts • Tactics: Ask questions, build trust, share information • Value Claiming • Closure of negotiations

10. Table 15.2: Negotiating the purchase of a used car: Information

11. Figure 15.1: Zone of Possible Agreement (ZOPA) Target Price ($3,750) Reservation Price ($3,350) Seller ZOPA Buyer Target Price ($3,100) Reservation Price ($3,450) BATNA= Best Alternative To No Agreement ZOPA = Zone Of Possible Agreement: Overlap Region

12. Job Offer & Assessing other needs • Initial offer an anchor? • Company • Salary scale or signing bonus? • Immediate need to fill position • Location (jobs in Detroit) • Financial situation: short term vs long-term • Uncertainty of performance • Worker • Has current job? Or out of work 6 months? • Financial stress and debt (student loans) • Willingness to relocate • Need for security • Spouse status • External • Job market for skills

13. Solve other sides problem • Face saving gestures • Job security for workers • Health care coverage for seniors • Day care for younger people • Provide stable and predictable costs for company

14. Contingent contracts: If-Then • Differences in forecast and understanding • Royalties on sales • Performance of athlete • Growth in cost of living or cost of health care • Profitability or revenues • Sports team and union contracts share of revenues • Car market and plant closings • Length of productive performance • Differences in attitude towards risk and time value • How much for sure and how much contingent on uncertain developments in economy or performance • Money now or later

15. Table 15.4 Planning Document for each issue

16. Long-term relationship & negotiations risks • Use of Power to impose solution • Threat of overseas outsourcing (American Axle) • Threat of bankruptcy • Threat of no new business to supplier • Post settlement negotiations – changes only if both benefit from better solution • US budget – imposed automatic deficit reduction if no alternative reached

17. Sports: negotiation a deal • A major league catcher, nearing the end of his career, is hoping to negotiate a contract with a major league team in his hometown. Looking for a career after playing career ends • The same team finds itself in need of an experienced catcher. because of injury • How should the parties prepare for these negotiations? What issues are likely to arise?

18. Sports Player – Interests & Goals

19. Sports Player – Interests & BATNA

20. Team & Catcher Perspectives: Creative Solutions • Uncertainties, Interests and concerns • Fitness of catcher and performance • Return of injured player  one-year contract • Team performance and revenue • Career after baseball playing • Broadcasting career in his hometown, • Contract eases him into doing color commentary on television. • Working with the catcher to sponsor baseball camps • Set up speaking engagements in the community • Contingent contracts • Uncertainty of fitness –games played, team success • Salary: base plus partial linked to performance • Salary fairness • Separate salary for his work as a broadcaster • self-image: salary be appropriate to his status

21. Baseball and Free Agency • More and more players are seeking long-term contracts in their mid-20s as they are in the early prime years and a couple of years from free agency. • Want to stay in one city • Willing to give up free agency which would maximize salary but carries risk • Number of years of salary guaranteed

22. Hospital and IT Contractor Dispute • Hospital dispute with IT supplier over the implementation of electronic record system. • Failure to resolve this dispute will cost the hospital several million dollars • Hospital is on the verge of bankruptcy. • Without resolution, IT company will • Damage its credibility in a rapidly growing market and • Lose much of the money it has invested in the project. • Lawsuits and counter suits • How should the parties proceed?

23. Ethical Issues • Deception vs integrity • Claim that impossible to… • I have no choice but to… • Puffing – bragging about capabilities • NO fraudulent claims – misrepresentation of material fact the other party relies upon • Three frameworks • Poker school – game with rules but everything else is OK • Idealist – element of social life: candid but still do not reveal everything, do not volunteer information • Pragmatist – concern about questionable behavior that affects reputation • Research your bargaining partner’s reputation

24. Hospital and IT Contractor Interests Hospital • Working system • Increased net revenue • System in place quickly • Reputation • Staff acceptance and use of system Computer Co. • Profitability • Future sales to health systems • Tested generic data entry software • Reputation • Staff acceptance and use of system