Mediation and Negotiation Strategy

August 2012 Page 1

Win- Win NEGOTIATION and MEDIATION STRATEGY

Tom OConnor
President Tom OConnor Group 13222 Point Pleasant Drive Fairfax, VA 22033
(571) 332 2349

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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Negotiations and Mediation

Over the years we have seen the advisability of negotiating on the basis of the merits. With that approach we look for mutual gains and seek to resolve conflicts on the basis of fair and reasonable standards. Our approach is based on a "Win-Win" negotiating strategy which focuses on solutions reflecting long term, enduring interests. We advocate principled negotiation to achieve broadly based long term interests, rather than intensive or prolonged struggle over limited specific positions. One of the most basic choices in negotiations is selection of strategy. One type of strategy is based on competing positions with each party adopting a position, defending its position and attacking the opponent's position. We often find a more effective strategy is based on identifying and reconciling the interests of the parties. Interests are the underlying or motivating forces that lead to adopting a particular position. An interest may be served by a number of different positions, some of which will be attractive to both parties. The Three Stages of Negotiation in Mediation We can view the process as having three basic stages; Fact gathering and analysis, Strategizing and planning what to do based on the facts gathered, and Discussions and communications with the other parties.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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A Principled, Interest-Based Approach

The Harvard Negotiation Project (HNP) is one of the more prominent applications of interest-based negotiations. We have used the approach underlying the Harvard Negotiation Project on behalf of many clients in negotiations with all major US and Canadian railroads. HNPs principled negotiations can be viewed in 4 steps: 1. Separate the people from the problem or matter at issue. 2. Focus on interests rather than positions. 3. Generate options providing benefits to both parties. 4. Develop and apply objective criteria. Negotiations in the context of mediations is particularly apt for application of these principles. As a prelude to the negotiations it is essential to define a Best Alternative To A Negotiated Agreement (BATANA) for us and to estimate a BATANA for the other party or parties involved. Selecting a BATANA is basically deciding what we would do if we cant reach an agreement. Three steps to establishing a BATANA are: I. Define, discover and create or develop alternative options, II. Improve promising alternatives, converting them to practical proposals, and III. Select the best alternative(s) as your BATANA.1 This BATANA serves as a proposal design criteria and as a benchmark against which the succession of proposals and counter proposals can be measured. The BATANA should reflect all the important characteristics of the solution and should not be uni-dimensional. For example, it should not consist solely of prices and rates. If it is to be a helpful tool in problem solving, it should reflect all the major aspects of the problem.2

1 2

See for example, Win-Win Negotiating. by Fred E. Jandt, John Wiley & Sons, 1985

See for example Negotiating Factors Analysis by Tom OConnor which examines over 100 factors, in addition to price, which are often involved in negotiations.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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Problem Solving

The foundation of an interest-based approach is problem-solving with partners rather than victory over an adversary. Flexibility and objectivity are its keynotes. Comparison with positional bargaining illustrates the elements of an interest-based approach. Chart I describes the interest-based approach and compares it to conventional positionbased bargaining. In this summary we discuss some of the advantages offered by the interest-based approach and sketch some of the ways in which it could be used in mediations. One of the key distinctions is that interest-based bargaining focuses on meeting the real needs of the parties. As Jandt pointed out in "Win-Win Negotiating", the real needs may or may not coincide with the stated needs which tend to be the focus of position bargaining.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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Comparison of Position-Based and Interest-Based Approaches Approach: Goal: Position Based

Victory over adversary Extract Concessions Discard relationship if that appears expedient Make threats, offers, counter-offers Focus only on bottom line Strive for one-sided gains Search for a single answer Insist on positions Try to win a contest of wills Apply sufficient pressure to force a win

Interest Based
Problem-solving solution Attack the problem Support the people Explore mutual interests Include all aspects that help build a solution Develop options for mutual gain Develop and Choose from multiple options Insist on objective criteria Apply mutually agreed principles Follow principles applied to facts Generally Unnecessary

Techniques:

Level of Trust: Generally Absent

Source: Adapted from work by Fisher and Ury; Harvard Negotiation Project

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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The Four Components of Interest-Based Negotiations

I. Separate the people from the problem. Separation of the people from the problem is a means of breaking down the work into its sub-components. The reason for doing so is simple. Different tactics are appropriate for each. Understanding and support are used for the people aspects of the process. Rigorous examination and demanding analysis are used for the remaining aspects. For negotiation planning purposes, a strong and objective factual foundation is advisable for any positions presented. While reconciling interests is a principal theme of interest bargaining, by contrast, positional bargaining often leads to confrontation and conflict. Confrontation often results from the underlying construct of seeking victory over the opponent. At various points in the past, rail management; for example, has articulated a more cooperative style for dealing with customers. This contrasts with the pattern of prolonged and intense litigation established in many Interstate Commerce Commission (ICC) and Surface Transportation Board (STB) rate cases. Despite the conciliatory tone of the interest-based approach, it is always advisable to negotiate from a position of strength. Movement toward out of court settlements accelerated in 1987 after the ICC released a series of rate decisions adverse to railroad interests. Several of these decisions resulted in multi-million dollar reparations judgments. These decisions dealt with rate reasonableness and with accessibility to rate regulation. We can take the separation strategy another step by distinguishing between the other partys positions and their people. In both the operations and economics or cost aspects, we can focus rigorous analysis on a given partys position, contrasting it with that partys own interests and suggesting other solutions. This can be structured to focus on the other partys position, leaving the other partys people intact and unassailed. Discussions likely to occur prior to negotiations or mediation offer an excellent opportunity to challenge the merits and basis of the other partys claims while preserving and insulating relationships with the other partys people. This technique can help shape the perceptions of the other partys negotiators. If successful, this can present an opportunity to consider other solutions more conducive to the other partys own interests. Testing the basis of a partys assertions or claims and bringing the results to the negotiation and mediation for discussion is one way of separating the people from the problem.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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II. Focus on Interests rather than Positions. Identifying the other partys interests is a basic element of the strategy. From their own standpoint it is generally preferable for both parties to ensure that the operation at issue succeeds. This is particularly true when the outcome coincides with and is supportive of long term interests. The other partys interests are the motivating forces behind the particular position they take. For example, while some may advocate eliminating or drastically reducing chlorine rail freight, the facts show that about 40 percent of the US economy is dependent on the chlorine molecule. This indicates that the position of eliminating or significantly reducing reliance on chlorine is not likely to prevail. The logical sequence leads rather to a focus on handling it safely and efficiently. Communication Techniques

In presenting the case it is important to address the negotiating party rather than an audience of constituents. Although a dialogue with constituents is vital, it is best conducted as part of the preparation for negotiations. Just as with the analysis of the other party's interests and positions, it is essential to define our interests and positions; and the factual and other basis for both. Identification of Interests

Interests are identified by answering the question, "Why?" Why have they adopted their position? When this question has been answered, a whole range of previously unseen options may come clearly into view. Some of these options may define positions preferable to both parties, when compared to the alternatives. This element of the strategy may be described in three steps: A. B. C. Help the other party step back from the current position Identify the other partys interests Identify or generate alternative positions that support those interests

Win-Win Mediation Approach

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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We Ask Why to discover the underlying driving and motivating reasons. This helps move the dialogue from Positions upward to Interests and on to Mission and Vision

Vision Mission

Based on knowledge of the underlying reasons, and the motivating values we can generate options that follow agreed principles and fit the values

Interests

Positions

Maintain a fact based approach Maintain a principled approach

Accept reasonable needs of the other party as legitimate Help meet reasonable needs rather than blocking them

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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Some of the positions that support one partys interests will also support another party's interests. The essential predicate to this step is to identify clearly our own interests and estimate accurately the other partys interests. The ability to see the situation as the other party sees it is essential. This requires reliable knowledge of the other partys values. Ultimately, a proposed solution must be consistent with the values of both parties to be accepted and implemented. Values and interests often coincide. At a broad level, the dominant interests in general could include: Increased Profitability Improved Productivity Improved Regulation Increased Volume Improved Safety.

While a partys value statements may have changed over the years, service, safety and efficiency are perennial and persistent themes. We sometimes find that a partys position is not congruent with its own self interests. This could be the case when such positions could adversely impact sectors of the regional or national economy at a point where the industry or the economy is facing financial and economic stress. The question arises as to how the underlying interests relate to the negotiating positions. Volume increases, increased profitability and improved productivity are all logical possibilities for areas where positions and underlying interests can coincide. Relating Interests and Positions

The core of the interest-based strategy is to measure the position in terms of how well it serves the interest. Assuming profit increases emerged as the dominant interest, a discussion could have two parts. The first part could focus on profit as a legitimate issue and show that profitability will gain from a proposed position. Here the economic and cost evidence will be instrumental. A recap of the record can highlight the advisability of improved productivity and profitability. The second part could show that both parties interests would be enhanced by the proposed position.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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III. Generate options providing benefits to both parties. Fisher and Ury suggest separating the process of developing options from the process of selecting among them. The procedural aspects of the process of generating options could be structured as follows: define the purpose; choose a few participants; design an informal approach; choose a facilitator to keep the meeting on track; clarify the ground rules; openly record ideas; after listing the options, choose the most promising, improve them; and evaluate the options, select the best, and develop those.
3

The process of generating options consists of identifying interests and defining or developing compatible positions. This process can be broken down into six steps: 1. Specify the interests of each party. These are the motivating forces which lead to taking a position. Interests generally coincide with meeting fundamental needs such as security, economic strength, recognition, growth and other basic and fairly universal drives impelling a corporation. 2. List the positions consistent with each specified interest. These are the means of satisfying the interest. For a given interest, the positions may be quite different from one another. For example, the interest of increased profitability could lead to taking the position of reducing costs or, alternatively, of increasing revenue. It is important to list as many positions as possible, refraining from evaluation at this point. 3. Evaluate each listed position from the other partys perspective and from our perspective. Here we assign each position a grade or index value describing its approximate worth to each party. 4. Identify positions which are simultaneously of high value to one party and low value to another party. These may be achievable negotiation objectives. They might be introduced by either party. 5. Look at the reverse perspective to identify positions which are simultaneously of high value to the first party and low value to the other. These are logical trade offerings. 6. Proceed in terms of reconciling and achieving interests rather than compromising on positions. This focuses the effort on causes rather than effects. It will often be more efficient to create a position which simultaneously satisfies two causative interests, rather than try to strike a compromise between two of the resulting
3

Getting to Yes, by Roger Fisher and William Ury, Houghton Mifflin, 1981.
Tom OConnor 2012
Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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positions. For example, the interest of increased revenue could lead to an agreement to do more work and thereby gain more revenue rather than to a compromise between two price positions. Understand the other partys perspective.

In implementing the strategy each party must be able to see and understand the other party's perspective. Asking why the other party has adopted or rejected past positions is a useful technique. This process includes seeing our own positions and interests from their perspective as well as seeing their positions from their perspective. This may identify competing interests and, concomitantly, possible internal conflicts. Reconciling internal conflicts can lead to negotiating breakthroughs. For example, a perennial conflict exists between price and quality. Combining competing goals is powerful. Sometimes, all that is required is a fresh perspective, unencumbered by a habitual or traditional perspective. Carrying out this process requires challenging some of the ways each party perceives the other. Looking forward to potential progress is preferable to backward glances at perceived past wrongs. The concept of sunk costs is helpful in maintaining proper focus. Most of what has already occurred is irretrievable and a sunk cost. Virtually all of what is coming is amenable to shaping and forming. This emerging potential is the proper place to invest the energy. During this stage of the process, the parties begin to work together as partners in attacking a mutual problem by looking for causes, applying criteria and proposing solutions. One test of a proposed solution is asking whether the other party is likely to respond with one word, "Yes".* If so, assuming careful analysis by the proposing party, the interests of both parties are likely well taken care of in the proposed solution. Develop and apply objective criteria.

Mutually agreed, objective and reliable criteria are essential for evaluating proposed solutions. The criteria must be mutually agreed or they are largely irrelevant to the solution. Objectivity is essential to any process of evaluation. Objective criteria must be independent and immune from influence or gaming by either party. Finally, the criteria should result in approximately the same determination on successive applications to the same data. As both sides search jointly for criteria, one can frame the effort as a joint search for objective criteria and be open to reason regarding what constitutes the best criteria. It is important not to yield to pressure in the selection of criteria. Balance the power
Tom OConnor 2012
Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

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Adoption of a set of principles to guide the discussion and decision is particularly important when one party is perceived as having significantly more power than the other. To the extent one party has substantial strength the other party strengthens its position by the intrinsic advantages of conflict resolution based on principles and objective criteria, as opposed to raw power. Discussing which standards to use can be quite productive. For example, if incremental economic cost were accepted as the cost measure of transportation service, the rates might go very low. However, they can not be driven so low that the transportation provider becomes indifferent as to whether the freight moves. If proposals are evaluated before the principles and criteria are clarified, one party may view the results of the analysis as dispositive while the other party sees the results as not even germane. The process of selecting the criteria can serve to bring the parties together. This process may be the first time that they have operated as partners moving toward a common objective. In analyzing and developing criteria, we can review the record. In rail rate cases, for example there is a significant record at the Surface Transportation Board (STB) and the Interstate Commerce Commission (ICC). The railroads and major shippers are familiar with this record and shippers, the rail industry and individual railroads have taken hundreds of public positions on a wide range of issues. Knowledge of this experience provide insights into the positions and the reasoning. In fact, the historical record will provide numerous instances of one party previously seeking the same types of concessions and services the other party now seeks. In such cases one of a partys positions may be countered with another of the same partys prior positions. Similarly, in some cases the logic used by a party may not coincide with the logic presented by that party in other proceedings. In short, the partys positions in this negotiation can be tested through comparison to other positions of the same party and positions on the record. The basis of the approach is to focus on facts and principles. In negotiations, it is advisable to dispose of weak and unsupported claims if we are to reach durable solutions. Combining an interest based approach with preparation of positions solidly based on facts and principles helps ensure successful negotiations and mediations.

Tom OConnor 2012

Phone 571 332 2349 Tom@TomOConnorGroup.com www.TomOConnorGroup.com

About The Tom OConnor Group

The Tom OConnor Group assists clients by providing regulatory and litigation support and by offering management consulting services. The firm's regulatory and litigation support activities involve the development, preparation and presentation of expert witness testimony before courts and regulatory agencies. Members of the firm have participated in dozens of proceedings before state commissions and Federal commissions that regulate the transportation industries in both the U.S. and Canada. The Members of the firm have provided litigation support in the form of expert witness or economic research services in antitrust, merger, divestiture, rate and other cases before Federal and state courts. In the area of management consulting, we assist both government and private clients in developing management information systems, evaluating contract performance and conducting management audits. The Tom OConnor Group specializes in the analysis of the operations, costs, revenues and services of enterprises, both public and private, involved in all modes of surface transportation. We have developed an array of transportation and logistics related negotiation planning and financial and management tools, including detailed models for negotiations, litigation, cost allocation, accounting, traffic flow, and carrier operations. These tools have been successfully employed on behalf of clients in well over 500 projects, including merger proceedings, contract negotiations, strategic planning and operational analyses. Our transportation practice extends beyond the U.S. borders throughout North America and into Eastern Europe. Contact Information: Tom OConnor President 13222 Point Pleasant Drive Fairfax, VA 22033 Tom@TomOConnorGroup.com 571.332.2349 www.TomOConnorGroup.com