Nov 16, 2020 in Technology

Negotiation

Introduction

Communication is an integral part of any companys activity. It is impossible to sell goods or services without communication. It is impossible to buy the raw materials, sources or services from suppliers without communication. And it is impossible to create the working culture within the organization without communication systems and technologies. All communication that goes to, out and inside of the organization is managed through certain negotiations. Most researchers and practitioners pay huge attention to the techniques of effective negotiations placing significant emphasize on the skills and personality of the negotiator. Thus, the attention is moved from the negotiation as a systematic approach to the negotiation as a situational activity. It is true that each negotiation deal is unique, calls for unique skills and mastery, and requires applying special tools from the negotiator. Thus, there are numerous theoretical and practical studies that concentrate on the situational negotiations and the skills of the negotiator. While these issues have a tremendous effect on the negotiation outcome, the value of the corporate level negotiation tools is also of great importance. The article published in the Harvard Business Review under the title Turning Negotiation into a Corporate Capability discusses the significance of the implementing the corporate negotiation capability and generalizes on the four main actions that should be taken in order to implement the negotiation capability on a corporate level.

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The Content of the Article

The first action that is proposed by the author is creating a negotiation infrastructure. This aspect is presented as of outmost importance. The author explains that companies tend to implement standardization in many areas, including manufacturing, customer service and even research and development. However, negotiation area is left unstandardized because each negotiation deal is seen as a separate event. In fact, creating the powerful negotiation infrastructure may offer a number of benefits. Instead of hindering the negotiation process, as many managers and negotiators suppose, implementation of negotiation infrastructure may bring such advancements as improving creative approach, accountability, and overall better results of the negotiation process. Moreover, creating a negotiation infrastructure does not require the significant financial investments. The main investment that is required is the strong managerial will to improve the process. This will may be realized through various techniques, innovations and methods. The author provides several examples of organizations that implemented the negotiation infrastructure. The analysis of the authors examples gives a chance to understand the nature of the infrastructure implementation and confirm that this process is very creative, unique and is not capital-intensive. In particular, the author provides the example of Mexican Grupo Financiero Serfin, one of the largest banks in Mexico that faced the major debt crisis in 1994. The negotiations that were performed with numerous debtors were not fruitful despite the fact that bank invested in additional employee hiring and their training. Therefore, the bank decided to change its negotiation strategy in a direction of standardization and codification. The bank decided to implement the case-based analysis of each debtor and the categorization scheme to rank each customer. Each debtor was analyzed by four criteria, and based on this assessment, the method of work with the client was decided. This strategy resulted in a burst of negotiators creativity. The negotiators saw their work as the way to find out the beneficial solution rather than agreeing on concessions and simply restructuring debt. Another example of setting the negotiation infrastructure is the professional-services firm that worked out the new approach to negotiations. Each manager who negotiated with a client had to fill out the small questionnaire that contained the main information regarding the negotiation, the result, the peculiarities of the negotiation and other important issues. This questionnaire was available for other managers who could build their future negotiation with this client based on the colleagues notes.

The second important feature in developing corporate negotiation capability is broadening the measures of success. The usual approach to the evaluation of negotiations is associated with specific targets and numbers. For example, the management sets the required targets in price (for customers) or costs (for suppliers), and the negotiator has to reach or beat these targets. It is logical as every company strives to maximize profits and minimize costs. However, such approach to measuring the success of the negotiation makes the negotiator concentrate on numbers. Thus, the quality may be compromised. Instead, the assessment of the negotiation may be based on the variety of factors. The author provides the example of the company that evaluates negotiation according to seven different standards, such as relationship, communication, interests, options, legitimacy, BATNA and commitment. The success of each category is evaluated, and the result of the negotiation should satisfy both the company and the client (supplier). By implementing broader measures of negotiation success, the company will motivate its employees to negotiate effectively. This motivation may be offered in the form of a prize, material, and non-material benefits.

The third step in implementing the negotiation capability is distinguishing between the deal and relationship. The general logic suggests the obvious relationship between the deal and the relationship. In particular, when the negotiators try to push the deal, they aim to maximize the price. At the same time, they are afraid to spoil the entire relationship if the terms of the current deal will not satisfy the customer. Thus, they are caught in a cage or to offer a discount, either to spoil the relationship. The correlation of the deal and relationship is evident. But, what happens in practice, the single fact of discount will be memorized and in future, the customer will ask for the additional discount. This will add tension in relationships. Thus, it is important to set the clear distinctions between the terms of relationships and the terms of the single deal. The author of the article provides the results of his observations. Once he asked the manager the question of which customers they can name as with good relationships, and which with difficult relationships, the manager answered that the customers who are offered bigger discounts and constant concessions are characterized by the more difficult relationships.This confirms the fact that constant compromising and concessions do not guarantee overall success of the relationships. Contrary to this, the company does not have to sacrifice the deals to improve the relationships. Two issues are moving in tandem, and successful deals bring the successful relationships. Thus, in order to avoid misinterpretation and inconvenience from both sides, it is important to set the clear border between the deals and relationships. The greatest example of the successful differentiation between the deal and relationship is the case of Kodak and IBM, who agreed on the list of issues that belong to the deal and to the relationship. Two companies based the cooperation on this list. Kodak wanted to transfer its data center to IBM, so it had to pay the agreed price for the services. Obviously, Kodak was interested in minimizing the price for the services (as it is the companys costs) while IBM sought to maximize its revenues. At the same time, two companies understood the high value of the relationships. Thus, the differentiation between two aspects and the development of the two lists was the excellent solution for them. The partnership is considered to be one of the strongest business partnerships in history. The best approach to building the productive deal-relationship cycle is to improve mutual understanding that will result in expanded scope of discussions, boost creativity and offer valuable options. The valuable options that satisfy the desires of both sides are beneficial for both players, improve trust, and are the basis for sharing information and interests.

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The fourth significant feature in developing corporate negotiation capability is walking away from a deal. The author explains that concentrating on a deal is a normal behavior for the negotiator. Every negotiator wants to close the deal as it is a plus to his own achievements. The deal closure means that the negotiator did a good job and that all the previous work on the deal was effective. However, when we look further on the content of the deal, we may notice that those companies that urge managers to close as many deals as possible usually end up with the less revenue from the deals, because the deal is reached through the enourmous discounts. The author provides an example of the one South American Metropolitan Newspaper that negotiated on the basis of the never-lose-a-client culture. This strategy was achieved by offering constant concessions to clients. The average discount for the $300 million advertising space reached 45%, which is almost the half of the initial price. The negotiators explained that the marginal cost of producing the additional page in their newspaper is low, so even when they offer such a huge discount, they still increase the marginal revenue. However, instead of calculating the total revenues the company makes in this strategy, it is useful to calculate the unrealized revenue (the money they could have earned of they did not offer discounts). Instead, the author offers using BATNA (Best Alternative to Negotiated Agreement) approach. The approach emphasizes on dealing with a deal as choosing among options. Thus, the negotiator is not pressured to sign the deal. His main task is to look for the best alternative to the negotiated deal and evaluate whether the deal is at least equally as good as the BATNA. The strength of the approach is that when negotiator does not decide on the deal, he does not treat this fact as a failure. He treats this as the success, as he did not agree on the deliberately losing approach. The great example that is offered by the author shows that even when the real BATNA does not exist, the negotiator may develop the own BATNA. This is confirmed by the positive example of Colbun SA, the third biggest electric power producer in Chile. The company was always in the bad position in negotiations about the transmission capacity, because there were no alternatives. When the conditions were too harsh to Colbun SA, the company decided to give up the negotiations and build the own capacity. Their decision requires substantial investments, but it was a successful approach. When the monopolist in transmission capacity production found out that Colbun SA started to build own plant, he offered lower prices. But, Colbun SA was not attracted by the temporary benefits. They followed their BATNA and built the own line. The example of Colbun SA is a bright confirmation of the fact that even when the BATNA does not exist, it could be invented and implemented.

The conclusion of the author is that implementation of the institutional rather than the situational approach to negotiation does not require radical investments. This requires carefully planned alteration in practice. Very often, these changes are small, but they call for good communication of negotiation purposes, means, and techniques. The negotiator has to know what are the expectations regarding the deal, measures of the deal success, and companys overall view on relationships and deals. When the understandable targets are set, the negotiator knows where to go and how to plan the negotiation process to reach the ultimate success.

The Issues That Were Learned out of the Article

The article provided the comprehensive alternative view on the business negotiation process. The analysis of the author gave a chance to learn the other side of the coin the negotiation as the institutional approach. First of all, almost all research papers and articles concentrate on negotiations as the situational approach. Therefore, the research findings formulate the successful strategies for negotiation process, the qualities that should possess the negotiator and his negotiation skills. Many studies look at the negotiation as at the single act of the negotiators mastery. Thus, they offer the ways to improve personal negotiation techniques and skills. Contrary to this, the article of D. Ertel looks at negotiation at the corporate level. In my view, this approach concentrates on implementing changes from the top to the downs. So, the analysis of the article allowed me to learn the following important points.

  1. The first issue I learnt from article is that all genius is simple. The companies may assess different options, calculate the financial feasibility of the deals, invest millions in personnel training and end up in relatively unsuccessful negotiations. The author of the article showed the examples of the companies that applied simple, cheap tricks and achieved enormous negotiation success. For example, the requirement to submit the small questionnaire after each negotiation with the client does not require the financial investment, time, and teaching. The process of filling in the form is an easy task, but it equips the managers and executives with the snapshot of vital information and allows pushing successful transactions. Thus, the article showed that simplicity is the key to success as simple things are more comprehensive and easier to implement.
  2. The second significant issue that was learnt from the article is that individual qualities and skills of the negotiator are less important than overall corporate approach to negotiation process. When this fact becomes evident to the business-owners and top-management, the organizations negotiation process reaches synergetic effects in results. Thus, I understood that the negotiator should be provided the environment that defines the negotiation process and sets the measures. While these measures are set at the corporate level, the personal characteristics of the negotiator are less important. At least, the personal skills are not the defining but rather the complementing factor of the deal.
  3. The third concept that I learnt from the article is the BATNA approach. I have never heard of this strategy before. I think it is a very useful method in decision-making that can be utilized in many areas. The company can use this approach when it decides on some financial projects. In this case, the analyst should calculate the financial ratios of the planned project, and compare with the same calculations for the best alternative project. If the ratios are at least as good as the best alternatives ratios, the analyst may suggest deciding on the project. If the projects assessment is not as good as BATNA, the analyst should reject the project. BATNA can be used even in the choices of career opportunities. When a person looks for placement, he/she may use the BATNA approach to select the best job offer that satisfied the applicants salary and benefits, work environment, growth, responsibilities, and other expectations. For instance, the nurse that searches for a job may use BATNA approach to deciding among several hospitals. She may use in her analysis the assessment of such factors as the location of the hospital (how far the hospital from her home, is how reliable the connection is, and what expenditures of time and money she will bear monthly for transportation), the salary and reward system (the salary that is offered, the package including the paid vacation, benefits, insurance, the rewards for overtime and quality of work, the possibilities of salary growth), the job schedule (which job schedule is more attractive for the applicant, how many day/night shifts are mandatory monthly), the size of the site (the big hospitals usually offer more possibilities for professional growth), the relationships among colleagues and the supervision policies (the nurse should evaluate each hospital according to her own scale. Some people like to work in small structures with participative environment. Others like working in big units with top-down management style, and receiving direct instructions), the possibilities for personal and career growth, etc. Once the available alternatives are evaluated, the applicant would have a chance to choose among the options. BATNA approach also may be used for personal decisions in any sphere. One may use this approach in choosing the university, making big purchasing decisions, choosing the place to live, tec. The benefit of this approach is that the person never agrees on the worst deals just because of the circumstances. The BATNA approach allows working out the best solution, implement the needed changes if needed, or look at the issue from the successful view. It is like living with the never accepting a failure principle.
  4. The fourth lesson I learned from the article is that the clear distinction between the deal and the relationships is a useful technique that helps not only to save the good terms of relationships but also to improve it. It was news for me that the relationship and deal outcome go in tandem. However, the logical explanation of the author made the correlation clear for me.

The Influence of the Article on my Understanding of the Negotiation Issue and the Analysis of the Content

The concepts presented in the article were new to me. I looked at the negotiation process from the cardinally new viewpoint the institutional one. Before, I looked at the negotiation process through the individual lens. I studied the problem of negotiation in the light of the required negotiation skills and tactics that should be used by the negotiator. For instance, I was impressed by the reasoning of the Max Bazerman in his article Essential Negotiation Skills for Effective Negotiation: Limiting Cognitive Bias in Negotiation Scenarios. The author distinguished between the System 1 thinking (based on intuition), and System 2 thinking (the logical decisions that are based on careful considerations) and explains the influence of each type of thinking on the negotiation. The author suggests that in complex situations when the process gets stuck, the negotiator usually turns to the System 1 thinking ignoring the System 2. This happens unintentionally just as a matter of fact. Therefore, the author provides four strategies for leading the rational negotiation approach. In particular, he suggests making a System 2 list that tells in which situations the negotiator should use only System 2 thinking. The second strategy is to never allow time pressure to affect the decisions. The third strategy is to divide the complex negotiation into smaller steps. This allows including alterations into the strategy, considering new aspects and points. The fourth strategy is to adopt the outsider lens rather than the insider. Adopting outsider lens means looking at the negotiation from various viewpoints and using System 2 thinking. I think that those four strategies should be utilized by negotiators. Moreover, I suppose that the implementation of those strategies on a corporate level may increase the overall organizational negotiation capability, and would be a reasonable supplement to the suggestions of the Danny Ertel on the way of turning the negotiation into the organizations capability. Besides, I would add the golden rules of Anthony K. Tjan, who has rich negotiation experience. He gives such advices as preparing for negotiation in advance (homework), never negotiating against yourself (the author reaffirms the issue of the D.Ertel that compromising on the own position never leads to a positive outcome), using different currencies when the process is stuck (offer alternative that satisfies both, do not concentrate on the last stuck point), and give up the deal if it is not beneficial for the company (just be straightforward and honest with the other side).

In my view, the analysis of the Danny Ertel provides the real-life examples in order to understand the nature of the concepts. Nevertheless, I think that this article is very descriptive and lacks the quantitative part to validate the results of the particular concept implementation. For example, the author could have provided the numbers of how the development of the new line improved the financial performance of the Colbun SA. To my mind, the quantitative confirmation of the concepts would be a good validation of the authors view.

Conclusions

This paper provides the outlook and the analysis of the article Turning Negotiation into a Corporate Capability by Daniel Ertel. The article presents four main aspects of building institutional capability for negotiations. In particular, the author suggests that company has to develop negotiation environment, broaden the measures of success, make the clear distinction between the relationship and the deal, and walk away from the deal if this deal is not attractive. The approach offered by the author emphasizes the institutional, rather than the situational view on the negotiation process. The author brings to the attention the value of corporate attitude towards negotiation process rather than the personal skills of negotiator. The concepts are illustrated with the real-life examples. However, to my mind, there is a lack of quantitative support of the descriptive research. In addition, I would complement the approach offered by the author by the strategies that could be utilized by negotiators at the individual level. Those strategies and advice are offered in the articles of the authors Tjan and Bazerman.

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