Negotiation Background
In this negotiation Carissa took on the role of Pat Coleman, Manager of Household Appliances, and Justin took part in the negotiation as Sam Gant, General Manager of the Chips and Components division. General Managers are responsible to executives of the company, and are forced to perform and maximize its organizations fixed resources. To survive the various constraints of budget, resources, and intellectual property values, both of us as managers must be a skilled negotiators.
Pat’s Preparation
Prior to beginning any discussions, there were several key aspects that had to be analyzed in order to be able to present reasonable terms for negotiation. There were four issues up for negotiation, and we were each going to want different outcomes and have different definitions of what constitutes a “win”. In order to best prepare, completely filling out the worksheet provided that listed the net present value (NPV) of the project for each time frame option was crucial. Beyond just the NPV gained from the number of years Chips & Components agreed to not sell to rivals after the transfer and the support provided to ensure a smooth transition, there was also the cost of the initial investment that Household Appliances paid in order to manufacture the Shadow RAM technology to consider. Household Appliances spent 5 years and $25 million developing the technology after Chips & Components decided to not pursue the project.
First, it was required to assess what the best-case-scenario would look like for each situation and what was the best alternative to a negotiated agreement (BATNA). Taking into account all of the different factors, it was easy to decide on what items concessions could be made. The NPV of the project was a big driver for this deal, and a large portion of that was to come from the number of years that Chips & Components would agree to not sell the technology to competitors. The other main driver of the NPV for the project is the transfer price. The minimum acceptable boundary was set for each of these and if either party was unable or unwilling to meet or beat those limits, the negotiation would have ended without resolution.
The first step to ensure resolution was to prepare a proposal for how to resolve the current issues facing the project and layout a plan for how the project could still be successfully implemented. It began with the preparation worksheet and the three assessments.
Self-Assessment
The first step was to understand what was really wanted. At a high-level, we both wanted to be able to maximize the Net Present Value (NPV) of the transaction while not derailing the project by terminating the negotiation as a result of insulting the other party. The target point was to reach an NPV above the middle ground of every option on the table. From previous discussions though, this target or aspiration point was not likely to be agreed upon. We immediately began to develop my best alternative to a negotiated agreement (BATNA). We had clearly distinguished between my target point and my BATNA. We determined that my reservation point would be for Pat to grant one of the two alternatives addressed in the BATNA as we didn’t expect we would receive both.
The next step was to brainstorm alternatives that were presentable to start the discussions. The following alternatives to the target point to present to Pat:
1. Keep the protection to a year or lower (target point)
2. Increase the hours of support to 4000 or higher
3. Settle on a price of $22 Million or less.
While the target point and alternatives seem straightforward, there were issues involved with each solution. To ensure sight wasn’t lost in the issues with each alternative, they were kept in front during the negotiation. We then took the time to identify potential alternatives to the issues and identified multi-issue proposals. The next step was to assess Pat Coleman.
Assessment of the other Party
Once the self-assessments were completed, attention was given to assessing the other party. It was realized that the two key pieces of information that we needed to focus on were understanding interests and position and attempt to predict what each other’s BATNA may be. It was quickly understood that our key priorities and interests were years of competitive protection and training.
Throughout the discussion, it was understood there were a few critical pain points or ranges in the given parameters. Also, it was realized that the primary pain point was ultimately price. Understandably so, as we had two of the same concerns and had brainstormed ideas to navigate through this successfully in each of our preparation. The next thing to assess was the situational contexts around this upcoming negotiation.
Situational Assessment
Lastly, attention was turned to the situational context that surrounded the upcoming negotiation. First, acknowledging that getting additional resources from Pat was highly unlikely given the nature of the transaction. The Household Appliances division had dedicated themselves to this technology for years with intent of internal use. This was likely going to be a one-time negotiation for this sale, however the relationship would have to be maintained as there would be training and supporting sales staff in the Chips & Components division. It was also understood that it was required to come to an agreement, but there were no legalities required. There was no need for a third party intervention. Lastly, we realized that there was not a status or seniority differential between us, given that we are both managers. So, while we knew we would communicate explicitly and directly, we had to keep that lack of power differential in mind for how we would ultimately approach the negotiation. This concluded the preparation for the upcoming negotiation and we felt ready to begin this negotiation.
Negotiation and Outcome
The meeting was set up and the day had arrived to hold the negotiation. The preparation was complete and we both were confident with how we would approach the situation. Before we went into the explaining the issues and propose the multi-issue options, Sam first asked Pat questions about his interests and priorities with the project as a whole. The goal of him doing that was so that he could confirm that the pain points and issues with the other projects were validated and begin to understand his top priorities with this project. By acknowledging what Pat’s priorities were, it helped Sam to take on his perspective so Pat could see Sam was trying to implement the best product for him and his entire staff. Through this approach, Sam came to understand that his top concern was that of building employee belief in the project implementation and ensuring that all of the work completed wouldn’t slowly be forgotten and have the employees go back to how they were completing the work today.
Once top priorities were established, issues were explained individually instead of just focusing on one issue. We could have easily focused on the timeline being the concern, but instead, we focused on resource constraints, the situation context of the other strategic initiative, the issue with the other implementation within the program, and the scope creep for this project. The whole approach and message to Pat was that Sam wanted to partner together to resolve the issue that would maximize value for both of them. From there, we made sure to avoid the “fixed sum” mentality throughout the entire negotiation. We built trust from the beginning of the dialogue and that continued throughout this negotiation by focusing on the common goal of increasing NPV.
In taking the central route to persuasion, Sam controlled the agenda, discussed the issues one-by-one, and gave him alternatives (as outlined above with the two other options to the target point). Both were quite pleased with the results of this meeting and negotiation. After discussing the key issues for a half hour, both with this project and other situational concerns, we arrived at the following conclusion:
• The protection for Household Appliances would be one (1) year
• Protection for other divisions would be one (1) year
• Support offered to facilitate transfers would be limited to 2000 hours
• Transfer price would be $20,000,000.00
We both wanted to make a profit on the Shadow RAM technology, and since we are just different divisions under the same parent company, Micro-Design, what is good for both of us is good for the overarching company. During the negotiation we wanted to create a win-win situation, and were both honest with each other about what we needed in order to make the negotiation a success. We were able to come to an agreement rather easily once our priorities were laid out. While neither division achieved their ideal outcome, both sides made concessions and were pleased.
Analysis
Retrospectively reviewing and analyzing the negotiation, it was clear to me that the preparation and strategy was absolutely critical to the overall negotiated decision. It was critical to take a few hours to first assess ourselves, target points, reservation points, and BATNA. Throughout the discussion, we both knew that we would have to accept either a protection decrease or lower transfer price. In analyzing the situation outside of this project, we also got a solid understanding of other considerations that needed to be taken into account. By coming prepared to the negotiation with all of those aspects (BATNA of both parties, reservation points, key issues inside and outside of the negotiation) identified, by utilizing three key pie-expanding strategies, and using the central route to persuasion, we were able to come to an agreeable decision. We firmly believe that by taking on each other’s perspective and discussing us partnering to resolve the concerns as a team had a direct impact on the successful outcome. It was understood that we each had goals that we wanted to achieve through this negotiation, and in order to create a win-win situation we both had to keep that in mind throughout. Expecting to come to an agreement and having each of our best and worst case scenarios determined was crucial to the success, as mindset can make a difference in the tone of the discussion. Setting a positive tone from the beginning helped keep that positivity throughout the negotiation and we were easily able to come to a mutually beneficial agreement. Lastly, and most importantly, neither of us had to compromise any of our ethical viewpoints to reach this conclusion. Ultimately, as we’ve learned from the book, “negotiations boil down to people, communication, and influence” (Thompson, 2015).
Conclusion
A great deal of the concepts and ideals that we learned in class were implemented into this negotiation. We have each learned a lot about our negotiating style, skills, and shortcomings throughout the negotiation, as well as from the activities and readings throughout this entire course. We have learned a lot of powerful techniques and strategies to incorporate into our daily lives our current jobs, and careers moving forward. The most valuable lessons learned are:
• The power of the BATNA and reservation point, but as equally important is to never reveal either during the negotiation
• The fallacy of a fixed-sum outcome and the key pie-expanding strategies to employ to seek out integrative solutions
• The key to a successful negotiation all starts with the preparation and overall strategy. The 80/20 rule is a powerful component to focus on with any negotiation.
Reflecting on the negotiation, three top strengths we share are:
• Ability to build trust and cultivate relationships with the other party
• Dedication to preparation and understanding the other side to achieve a win-win outcome
• Ability to brainstorm multiple issues and various multi-issue scenarios for best scenario
We both realized that we need to improve upon:
• Setting an Anchor Point – we both went to the best and worst case scenarios
• Develop the ability to persuade someone using the peripheral route
• Avoid the pie-expanding strategies that do not really work.
References
Thompson, L.L. (2015). The mind and heart of the negotiator (Fifth edition). Kellogg School of Management, Northwestern University: Pearson Education, Inc.