MBA-LOGISTICS AND SUPPLY

CHIAN MANAGEMENT
SEMESTER-I

BUSINESS AND PROFESSIONAL

SKILLS
MBALSCM101
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 CONTENT

UNIT - 3: Negotiation Skills……………………………………………………………..4

UNIT - 3: NEGOTIATION SKILLS

STRUCTURE

3.1 Learning Objectives

3.2 Introduction

3.3 Negotiation

3.3.1 Functions of Negotiation

3.3.2 Conditions to enter Negotiation

3.3.3 Scope of Negotiation

3.4 Approaches to Negotiation

3.4.1 Distributive Negotiation

3.4.2 Integrative Negotiation

3.5 The Negotiation System

3.5.1 Relational dynamics

3.5.2 Negotiation Processes

3.5.3 Negotiation Outcomes

3.5.4 The Geometry of Distributive Bargaining

3.6 Utility and Efficiency

3.6.1 Game Theory and Negotiation

3.6.2 The prisoner’s dilemma

3.6.3 Bargaining and Nash equilibrium Theory

3.7 Negotiation Tactics

3.8 Oral vs Written Agreement

3.9 Summary

3.10 Self-Assessment Questions

3.11 Suggested Readings

3.1 LEARNING OBJECTIVES

After studying this unit, you will be able to:

● Explain negotiation, its scope, and conditions.

● Evaluate the approaches of negotiation and the negotiation system.

● Differentiate between oral and written agreement.

● State the utility and efficiency of negotiation.

3.2 INTRODUCTION

Negotiation is vital for any business, but what do we mean by negotiation? In simple words,
negotiation is a process through which differences are settled between two parties,
individuals or an individual and a party. It is the dialogue process in which an agreement or
consensus is reached without any kind of dispute.

One may have to make some tough decisions while negotiating with another party, such as
situations where the other party in the negotiation or the translator does not wish to discuss
further or refuse to take the negotiation. In case the translator successfully brought in a
powerful ally or AAT, and the translator seems to have their full support, it can turn into a
non-favourable situation.

Once the basic structure for the negotiation is set, it does not mean that the system cannot
change till the end. One needs to stay highly flexible, accepting, and critical while
negotiating.

Negotiations can quickly go from competitive to collaborative, and vice-a-versa. Often, the
parties may develop trust between or break trust; this changes the dynamics a lot. More time
may become available due to other restrictions getting lifted. Collaborative negotiations may
even move to competitive if the time constraints get set. It is useful and necessary to shift
strategies in between to get the best results.

It is a prevalent method among small business owners, individuals, and startup owners. It
would cost a nominal fee and takes no time at all. The concern about losing a court case and
paying additional costs is also reduced. A negotiator is required to be able to take important
decisions at crucial times. This can help save the situation well on time.
3.3 NEGOTIATION

Negotiation is essential for every business. Negotiation can help to settle the differences
between two parties or a single party or individuals. Negotiation allows the parties to
conclude systematically.

Whenever two sides disagree on an issue, they look for the best possible solution for their
side in the given situation at hand. The best possible outcome could be an outcome of an
individual’s perspective or someone who represents a firm.

Such cases are seldom brought to notice where one side gets all that they aspired for. Often,
there is a compromise on certain grounds. Each side continues to have a dialogue until both
of them are satisfied with the final agreement to be drawn. Common ground is reached where
both sides feel that they can secure pretty much close to their initial wishes. The agreements
are so drawn that both sides are satisfied, and the relationship between the two does not get
affected negatively.

Source: pmtips.net/article/the-art-of-negotiation-in-project-management

Figure 3.1: Negotiation is solving a problem and creating a win-win situation

Under the distributive perspective, the negotiators on both sides try to dominate the other
party to benefit their side since they are in direct conflict. Limited resources are one reason
behind such conflicts. In such a situation, both sides believe that there will be a clear winner
and not multiple winners at any cost.
Under the integrative perspective, the negotiators on both sides believe that all the
participating parties can win. This can be made possible through mutually beneficial
solutions. Under the integrative perspective, the negotiators undertake a problem-solving
approach, focusing on exchanging information to identify underlying issues and interests and
generate outcomes that benefit all parties. The integrative negotiators reach a common
agreement by employing creative problem-solving approaches to develop solutions. These
solution-finding methods increase the benefits available to everyone. When a certain number
of limited resources are to be secured for one side, the negotiator may resort to distributive
thinking.

Often, integrative thinking is found to be useful in complex problem situations where many
issues are interconnected. Whenever the negotiators look forward to solving the problems
and creating maximised value benefits, they shift towards integrative thinking.

There is one more way to look at the negotiation process. Claiming and Creating Value is a
fundamental division.

Source: https://www.researchgate.net/publication/277871411_Practical_Business_Negotiation_2nd_Edition

Figure 3.2: What is at stake in a Negotiation

• When the value of the resources is claimed, the left side of Figure 3.17 is aimed at a
distributive negotiator. Claiming the value in the negotiation means extracting maximum
possible limited resources.

• Value creation is an integrative thought. Several issues are brought together and planned for
negotiation. This forms the basis of new value creation.
3.3.1 Functions of Negotiation

We interact with people daily and talk regularly. The conversations might give rise to small
conflicts and disagreements as we all have different points of view and opinions. Such
disagreements can be easily resolved with negotiations. The two parties can easily set up
dialogue and sort the differences between them. Often, such negotiations are not very
significant but are required to settle the cost, services, etc.

Negotiation on savings schemes, retirement plans, holiday plans often takes place among
couples. As people get married, it becomes a bond, a constant interaction that requires the
couple to negotiate on such issues. If these two individuals hadn't married, they could have
chosen their retirement plans on their own, contributing as much as they wished to.

If a human being lives on a planet alone, he wouldn’t have many requirements for
negotiations. It is due to a lack of interactions. The choice will be made only by him, and no
one will counter it. The individual can do whatever he likes without any negotiation. But that
is not the case.

In the real world, we have people around us, and our actions affect the people around us,
making negotiations part and parcel of our life.

Everyone around us has different ideologies, experiences, agendas, viewpoints, and opinions.
Thus, we can only work together when we negotiate and understand each other well.

While choosing the right strategy to negotiate, we can consider the following five broad
strategies:

• Accommodate

• Collaborate

• Compromise

• Avoid

• Compete

The following graphic explains the five strategies well:

Source: https://www.researchgate.net/publication/277871411_Practical_Business_Negotiation_2nd_Edition

Figure 3.3: The relationship of the factors under consideration in a negotiation

The two parties in a negotiation may use the figure to reach the best possible negotiation
approach in a particular situation. The illustration deals with:

● The substantive outcome, which could be any tangible or intangible gains that form
the core of the negotiation
● The relationship between the two parties

These two considerations help to decide the basic structure of the negotiation. Such
considerations provide a constructive start to the negotiation process. Other factors should be
considered for negotiation rather than these two. Such factors help to shape the negotiation.
Some other factors which should find their due mention while setting up a negotiation.

These factors include:

• Psychological

• Social

• Technical

• Contextual

These factors are added to the two main factors under consideration. These factors allow
shaping the negotiation process.
Sources: https://www.researchgate.net/publication/277871411_Practical_Business_Negotiation_2nd_Edition

Figure 3.4: Resources at stake

A few factors must be selected out of this list to help you to guide through the negotiations.
As these factors are not absolute, they are relative, so they must be compared and assessed as
per the intensity of the factor to be considered. A scale of 5 or 10 could be used to evaluate
the level of consideration for the negotiation. Variables of negotiation, such as resources,
time, power, relationship, trust, complexity, and skills, would provide you with the exact
overview of the situation.

In the following figure, the different factors to be considered for different negotiations are
described:
Source: https://www.researchgate.net/publication/277871411_Practical_Business_Negotiation_2nd_Edition

Figure 3.5: Available Resources plot

The figure explains the available resources plot such as developed trust, power equality,
complexity, time, negotiation skills, essential for every organisation.

3.3.2 Conditions to enter Negotiation

The conditions to enter negotiations are as follows:

1. Have a strategy

It is essential to have a strategy for negotiation before entering into it. It is also
essential to think and know about the person you will negotiate with. Research is
a key factor for a good negotiation. When you are coming up with a strategy, talk
to your team members, coaches, spouse, and people who can help you with it. It
plays a vital role to understand the different perspectives of people.

2. Know the walk-away point

It is essential to know every detail about your deal. The positives and negatives of
the agreement are crucial, and the extreme points can help you identify the
situations like what if there's no deal on the other side and what if I don't like the
agreement made by the other side and so on. Think about the perception of your
opposition and what they want in the deal. It would allow you to present your
points. Not all deals are meant to get done. It’s smart to know your walk-away
point, and if that point is reached, it’s OK to walk away.

3. Negotiate process before substance

It is essential to know where you want to go with the negotiation. The process of
negotiation is as necessary as a result. Creating a specific approach towards the
deal is essential.

4. Be an active listener.

Active listening is an important skill to possess. It is when someone pays

complete attention to the speaker. Attention combined with listening and
understanding the speaker’s messages is significant to maintain a proper
negotiation.

5. Have a ‘Plan B’
 A Plan-B is always important. It can help you if your original plan doesn’t work.
The future is uncertain, and no one can anticipate the result. There is a 50-50
chance that your plan doesn’t pan out the way you want it to. SO, having a Plan B
is always a wise choice.

6. Give the narrative

You have to provide numbers, budgets, and constraints to explain the situation
well. A narrative helps to conclude the negotiation. The description should be
adversarial and inflexible.

7. Be flexible

Staying flexible is a vital component of the negotiation. It is important to have

critical thinking while negotiating. It helps to create a trust relationship between
the parties.

8. Find leverage by reframing negotiations.

If you find leverage, there are so many ways to use it for your advantage in the
negotiation. One of the best ways is to be attentive, listen to everything, and ask
the right mindful questions. It can help you drive the negotiation process in your
favour.

9. Avoid backlash

Backlash occurs when people over-negotiate and try to take over advantage of the
situation. To avoid the backlash, one must be calm and considerate. Backlash
leads to a chaotic environment and unnecessary agreements. It is essential to
control emotions and thoughts.

3.3.3 Scope of Negotiation

Strong negotiation skills can help in a lot of ways. Negotiation skills form a strong base for
business life. They help in creating win-win situations and allowing the best solutions for
challenging conditions at hand. The following six negotiation skills are something you
should live by:

1. Preparation

The first and foremost step before any big event is to prepare well for it. The same
goes for the negotiation process. One must prepare well in advance while getting
ready to negotiate. By preparation, we mean complete knowledge of the plan and a
 clear vision to lead how to deliver, know what the end goal is, and what is at stake.
What can you give up, and what won’t be compromised?

Knowing about the counter-negotiator is also part of preparation. Knowing the

company, organisation, person you are negotiating with is essential. You must be
aware of their goals and what the other party will be ready to give up. Their ‘bottom
line’ is a crucial aspect. You must draw up a list of matching end goals for the two
parties. It will help you manoeuvre the negotiation well.

2. Clear Communication

Clear and concise communication is an essential part of every negotiation. It helps

with a clear flow of information. It avoids chaos and misunderstanding. It also adds
up to the efficiency of the organisation.

In case someone is unable to communicate their thoughts to the receiver, how can the
receiver be expected to provide the same? Situations, where surprises crop up in
between cannot be classified as those with clear communication. Often, vendors
claim that they were not communicated correctly, or leading to the mix-up of items.
Such situations can be handled well with clear communication from the start.

3. Active Listening

Active listening is an essential component of the negotiation process. Active listening

is a state when an individual pays full attention or concentration towards the speaker.
It helps to understand the conditions, restrictions, and major details of the deal. It is
an important skill to possess for every individual in the negotiation process. Active
listening must be put to use during negotiations.

4. Teamwork and Collaboration

Negotiations are a process for achieving common ground and a win-win situation for
both parties. The two sides of the negotiation need to work together with a sense of
collaboration and teamwork to reach a consensus that benefits both parties.

If one party is thinking only about itself, without thinking about what the other side
might want or is looking for, the negotiation might end up indecisive. This also
increases the time of solving the problem at hand. Ending up without a solution will
be a waste of time and effort. If one party does not care enough, the other party may
get frustrated and leave the negotiations altogether.
 When the problems are tackled by collaborating and working together, it takes less
time to find the solutions and achieve the end goals. Negotiating with some teamwork
also helps build trust in the two parties. This helps promote positivity and success
with the cause at hand.

5. Problem Solving

It is one of the key skills to possess if you are willing to negotiate some cause. New
challenges may crop up at every step while negotiating with another person to reach a
win-win situation for both parties.

Often, vendors or traders are unwilling to provide perks or offers without being paid
for the same. Such times require negotiations and some high-quality problem-solving
techniques. Promises and perks could be offered in return for the perks from the
trader.

Most of the challenges and problems have solutions to them. It takes problem-solving
skills to work through the problems to reach an effective solution.

6. Decision-Making Ability

It is potent decision-making ability aids in sealing the final deal. Decision-making

ability is required at every stage of negotiation. At the discussion point, when one
feels that they are getting what they seek, the decision to move to the next point or
stick to it to discuss further is to be made.

When all the boxes are checked on the agenda list, the negotiator may decide to
finally shake hands and sign the deal to officiate it finally. This ability to make
decisions in tough situations aids the smooth finish.

3.4 APPROACHES TO NEGOTIATION

A business owner will have to engage in the types of negotiations; it is inevitable. Whether it
is for employees, vendors, a customer, or a potential investor, negotiations happen all the
time. The challenge is if you don't go into a negotiation with a strategy, you are more likely
to settle for less than more, which is a losing situation for the business owner and winning for
the other side. That is why it is essential to know the difference between distributive
bargaining and integrative bargaining negotiations. It helps decide the strategies one should
pursue based on the person’s stance or other individuals involved in the negotiations.
3.4.1 Distributive Negotiation

Under the distributive perspective, the negotiators on both sides try to dominate the other
party to extract the benefit for their side as they directly conflict with each other. Limited
resources are one reason behind such conflicts. In such a situation, both sides believe that
there will be a clear winner and not multiple winners at any cost.

When a certain number of limited resources are to be secured for one side, the negotiator
may resort to distributive thinking. Such thinking may hamper growth and sharing and create
maximum mutual value benefits in most real-world business situations.

Components of Distributive Negotiations

● Play your cards - It is essential to have a strategy for negotiation before entering into
it. It is also essential to think and know about the person you will negotiate with.
Research is a key factor for a good negotiation. When you are coming up with a
strategy, talk to your team members, coaches, spouse, and people who can help you
with it.

● Opposite leverage -Leverage plays an essential role in distributive negotiations.

Leverage gives you an upper hand in the deal. It helps you set the standards and
maintain the flow of the deal.

● Be realistic and flexible – One of the major components of distributive negotiations

is being realistic and flexible. Unrealistic conversations and ideas lead to unpractical
conclusions. Being practical and flexible allows you to focus on essential points of
the deal.

● Make the first offer – The first offer is essential for both parties, and it acts as a
negotiation anchor as it becomes the point on which the rest of the conversation or
negotiation will take place. It is highly essential to make the first offer to ensure that
the discussions set off in your favour.

3.4.2 Integrative Negotiation

Under the integrative perspective, the negotiators on both sides believe that all the participant
parties can win. This can be made possible through mutually beneficial solutions. Under the
integrative perspective, the negotiators undertake a problem-solving approach, focusing on
exchanging information to identify underlying issues and interests and generate outcomes
that benefit all parties. The integrative negotiators reach a common agreement by employing
creative problem-solving approaches to develop solutions. These solution-finding methods
increase the benefits available to everyone.

Often, integrative thinking is found to be helpful in complex problem situations where many
issues are interconnected. Whenever the negotiators look forward to solving the problems
and creating maximised value benefits, they shift towards integrative thinking.

Components of Integrative Negotiations

● Multiple issues – This type of negotiation involves many issues that take place in a
deal or offer. Each side tries to get the best possible outcome of the negotiation. In
contrast, distributive negotiations revolve around the price or single issue, but
integrative negotiations have many issues all at once.

● Problem-solving - It is one of the key skills to possess if you are willing to negotiate
some cause. New challenges may crop up at every step while negotiating with another
person to reach a win-win situation for both parties. Often, vendors or traders are
unwilling to provide perks or offers without being paid for the same. Such times
require negotiations and some high-quality problem-solving techniques. Promises and
perks could be offered in return for the perks from the trader.

● Decision-making ability - It is the potent decision-making ability aids in sealing the

final deal. Decision-making ability is required at every stage of negotiation. At the
discussion point, when one feels that they are getting what they seek, the decision to
move to the next point or stick to it to discuss further is to be made. When all the
boxes are checked on the agenda list, the negotiator may decide to finally shake hands
and sign the deal to officiate it finally. This ability to make decisions in challenging
situations aids the smooth finish.

● Sharing – The next important component is sharing. It is essential to understand both

sides and value the decisions and interests to understand the situation more deeply.
You can’t solve a problem without knowing the different parameters of both parties.

3.5 THE NEGOTIATION SYSTEM

A negotiation system is essential for every organisation to maintain a systematic workflow,

efficiency, and effectiveness. Negotiation is a conversation between two individuals trying to
conclude. Most of the time, conclusions work for both parties. However, sometimes the
conclusion favours one side of the party. The negotiation is aimed at resolving the
differences and problems from either side, if any. It helps in building trust between the
parties, which is a significant factor in a negotiation process.

3.5.1 Relational dynamics

Relational dynamics is an approach to lead a life with self-care and self-reflection. It is a

fundamental approach for negotiation. It can come from active listening. Active listening can
help simplify the problems and maintain a good flow of communication. It helps with the
clear and concise flow of information in the entire organisation.

Relational dynamics is an essential component in the negotiation process. While negotiating

with another person, new challenges may crop up at every step. It is a part of the process.
Sometimes sellers or vendors don't provide the benefits without getting paid first. Benefits
are reciprocated from both sides. Only then an exchange occurs. Good negotiation requires a
problem-solving mindset as it leads to an effective solution.

The concern about losing a court case and paying additional costs is also reduced. A
negotiator is required to be able to take important decisions at crucial times. This can help
save the situation well on time. The two parties in a negotiation may use the figure to reach
the best possible negotiation approach in a particular situation. It deals with only two
dynamics, i.e., the importance of the substantive outcome, any tangible or intangible gains
that form the core of the negotiation, and the preference given to the relationship between the
two parties. These two considerations help to decide the basic structure of the negotiation.
Such considerations provide a constructive start to the negotiation process. Other factors
should be considered for negotiation rather than these two.

3.5.2 Negotiation Process

Negotiation plays an essential role in an organisation. The steps of a negotiation process

include preparation, discussion, proposition, and bargain.
Figure 3.6: The Negotiation Process

The four steps of the negotiation process are as follows:

1. Prepare

The first step in the negotiation process is preparation. Before the negotiation, a
decision is taken, like when and where the meeting will occur or present in the
meeting? To prevent disagreements, setting up a limited time-scale is essential. The
preparation stage allows clearing the misunderstanding and clearing the level of
positions for each individual. The preparation also includes rules and regulations of
the organisation. The policies of the organisation can also help with the layout of the
plan.

2. Discussion

After planning the strategies, the next step is to discuss the ground rules and
procedure of the negotiation with the other party. For examples:

● Where will it take place?

● What time constraints, if any, will apply?

● To what issues will negotiations be limited?

● Will there be a specific procedure to follow if an impasse is reached?

These are some of the main discussion points to negotiate and discuss the negotiation’s
ground rules with another party’s side.

3. Proposal

The next step is to propose the idea with the other party. It is an opportunity to
educate and inform each other about the issues and why they are essential, and how
they can be achieved. The proposal’s point is to determine the intentions of what one
party might want to provide the other party with any documentation that can help
with the existing position of the proposal.

4. Bargain

The next step is to bargain the process of negotiation. It can be done with two types,
distributive bargain and integrative bargain. Under the distributive perspective, the
negotiators on both sides try to dominate the other party to extract the benefit for their
side as they directly conflict with each other. Limited resources are one reason behind
such conflicts. In such a situation, both sides believe that there will be a clear winner
and not multiple winners at any cost.

Under the integrative perspective, the negotiators on both sides believe that all the
participant parties can win. This can be made possible through mutually beneficial
solutions. Under the integrative perspective, the negotiators undertake a problem-
solving approach, focusing on exchanging information to identify underlying issues
and interests and generate outcomes that benefit all parties. The integrative
negotiators reach a common agreement by employing creative problem-solving
approaches to develop solutions. These solution-finding methods increase the benefits
available to everyone.

3.5.3 Negotiation Outcomes

There might be certain conditions when negotiations should not take place. Conditions where
the stakes and interest are low, but cost or time taken will be high and must not be negotiated.

There are three possible outcomes of negotiation, and they are explained as follows:

1. Win-lose

In a Win-Lose scenario, both sides have attempted to win without putting a thought of the
outcome. But somehow, one side managed to win. Both the markets may have come into the
negotiation with the desired goal to win the deal. But one side exceeds their target limit, and
the other falls behind their target range.
Win-Lose situations occur when the losing side can be pushed below their 'walk away' point.
This usually happens when the losing side didn't prepare and didn't have any strategies and
leverage to play with the other side. Many other factors like coercion and asymmetric
information can also lead to win-lose outcomes.

2. Win-Win

A win-win outcome is a situation when both parties get what they had hoped for. This could
simply happen by reaching a fair middle ground that both parties agreed and benefited from.
It means finding a simple new solution that improves the position of both parties. It could
happen when both parties come to the table with a mutual goal to be compatible, the chances
of a win-win situation improves, and both parties win.

3. Lose-Lose

In lose-lose situations, both parties conceded the bargaining positions and tried to reach their
possible target range, but none of the parties was ready to get the better off of them and failed
to reach any conclusion. When they fail to reach an agreement, both parties may end up in
worse situations and fail to achieve their target. It is known as a lose-lose situation. If the
parties decide to conclude and are forced to make a deal, they both will be forced to make a
deal with poor consequences.

3.5.4 The Geometry of Distributive Bargaining

Distributive negotiation is also known as positional or hard-bargaining negotiation. It

operated within zero-sum conditions. It means that one side of the party will gain from the
negotiation deal. It is also called a win-lose situation. Examples of distributive bargaining
include negotiation of the price of a car, home, or asset. One side of the party will choose an
extreme position, knowing the situation will not be accepted by the opposite party. Both
sides fight for what is best for them, irrespective of the effect on the other party.

When a certain number of limited resources are to be secured for one side, the negotiator
may resort to distributive thinking. Such thinking may hamper growth and sharing and create
maximum mutual value benefits in most real-world business situations.

In the negotiating world, power is often considered to be an important factor. There are three
kinds of power in the business world. These are:

1. BATNA Power: It refers to the power a party possesses to move away from the
negotiations if the deal is not attractive enough for the party.
 2. Coercive Power: It is not generally experienced in the corporate world. Countries
with sound legal systems may experience such power prevalent in their corporations.
Such power is the power vested in influential organisations and individuals who can
demand bribes without any repercussions. It comes to those who can easily
manipulate the systems to meet their ends. Monopoly in a business can be a factor
providing coercive power. This gives the power of infinite BATNA to the firm or
organisation.

3. Perceived Power: It is the power that is born from the perception or beliefs of the
people. Such ideas provide the company automatic dominant position. The prevailing
party may promote their dominance. This kind of power only works when the non-
dominant party chooses to believe in the other’s dominance. Often, companies whose
integrity, honesty are beyond question possess perceived power.

3.6 UTILITY AND EFFICIENCY

Two people bargaining can generate major issues, disagreements, and inefficiencies in the
negotiation process. There are various games used to procure better negotiations like game
theory, prisoner’s dilemma, etc. And it requires a complete detailed process and elements,
which will be discussed below.

3.6.1 Game Theory and Negotiation

Game Theory is a mathematical model of interactions used in competitive situations to settle

conflicts or initiate negotiations between two rational decision-makers. Game Theory is
widely used in economics, politics, psychology, computer science, and even biology. Game
Theory was developed as a solution to zero-sum games where only one would benefit from
the two participants. Business organisations use Game Theory to address issues like mergers,
negotiations, product launches, price wars, and more.

Game Theory works under the assumption that the players are rational decision-makers who
acknowledge the information set and work towards equilibrium through cooperation. Thus,
Game Theory helps both the parties to reinforce confidence in one another and reach
equilibrium by revealing their respective offers to settle at a common ground.

Importance of Game Theory:

1. Streamline negotiations
 The theory helps to streamline the negotiations and give structure to the deals to bring
both parties on the same page. It adds additional clarity and efficiency to the entire
process and ensures that both parties get what they are hoping for while maintaining
their respective interests in the deal.

2. Increased Savings

Game Theory takes the interests of both the parties into account, and thus both
suppliers and buyers taking part in a negotiation will find its application helpful. The
theory helps buyers retain their suppliers without paying high amounts, and suppliers
retain their buyers without losing much of their margins.

3. Retain relationships

Negotiations are a process for achieving common ground and a win-win situation for
both parties. The two sides of the negotiation need to work together with a sense of
collaboration and teamwork to reach a consensus that benefits both parties. When the
problems are tackled by collaborating and working together, it takes less time to find
the solutions and achieve the end goals. Negotiating with some teamwork also helps
build trust in the two parties. This helps promote positivity and success with the cause
at hand.

4. Deeper understanding and clear communication

Communication is essential in an organisation. If the communication is not clear, it

could lead to a chaotic environment and loss. Clear and concise communication is
necessary for the growth of an organisation. Communication also includes active
listening and a purpose. It is essential to know what exactly you want to communicate
and the purpose behind it. Determining the purpose of a conversation will help others
to understand you easily.

3.6.2 The Prisoner’s Dilemma

Prisoner's dilemma is a paradox when two people act with self-interest and don't come
around to any particular outcome. Both parties choose to protect their interests at the expense
of each other. Both the parties conceded the bargaining positions and tried to reach their
possible target range, but none of the parties was ready to get the better off of them and failed
to reach any conclusion. When they fail to reach an agreement, both parties may end up in
worse situations and fail to achieve their target. If the parties decide to conclude and are
forced to make a deal, they both will be forced to make a deal with poor consequences.
Let us take an example, imagine that police arrested two suspects for a crime. Both the
people are held in different cells and have no means to communicate with each other. The
police offer both the suspects an opportunity, either remain silent or blame another. If they
remain silent, they will go to jail for one year, and if they blame each other, they will go to
jail for three years. If one of the suspects remains silent or another puts the blame on another,
the silent suspect will serve five years in prison, and the suspect who was blamed will be free
to go and vice versa. The situation is explained below:

Image source - https://corporatefinanceinstitute.com/resources/knowledge/other/prisoners-dilemma/

Figure 3.7 - The Prisoner's Dilemma

This is known as Prisoner's dilemma. The decision to remain silent is more optimal for both
the suspects as they would serve only one year in jail. But this is also not a rational decision,
as both parties will think in their self-interest at the expense of someone else.

3.6.3 Bargaining and Nash equilibrium Theory

Nash equilibrium is a concept of game theory. In this theory, no player has an incentive to
deviate from the chosen strategy after considering the other person’s offers and choice. Nash
equilibrium works under the assumption that the players are rational decision-makers who
acknowledge the information set and work towards equilibrium through cooperation. Thus,
the theory helps both the parties to reinforce confidence in one another and reach equilibrium
by revealing their respective offers to settle at a common ground.

The Nash Theory was named after the inventor John Nash, an American mathematician. It is
a fundamental game theory, which attempts to identify the logic of the game’s actions to
secure the best possible outcome.

According to the definition, Nash equilibrium is an equilibrium position where no player can
gain by changing their strategy provided that the other opponent remains fixed with his/her
position.

Let us take an example, a new version of the stone, paper, and scissors games, where both
players are showing the same signs (both papers, both stones, etc.). one more chance is
allotted to each player to change and improvise the character. And the result was again the
same, and both showed paper.

A rational player won’t move first and change to scissors because he knows that the other
player will change into stones and win.

Though they can change their moves, no player will choose to move from the current
scenario. This drawing game is a Nash Equilibrium.

Let us take another example,

Image two companies A and B. they want to determine the advertising campaign for the
business. They are deciding whether they should launch it or not. If both the companies will
advertise, they will extract 100 customers each. If one company decides to promote, the
company will get 200 customers, and the other company will get zero. If both companies do
not advertise, no one will be able to extract customers. The payoff table is below:
Figure 3.8: Nash Equilibrium

Company A should advertise as it is an optimal situation for the company rather than not
advertising. It will attract 200 customers for the company. The same situation applies to
Company B. the scenario when both companies will advertise their products is Nash
Equilibrium because they will be self-analyzing their position rather than focusing on the
other company's results.

3.7 NEGOTIATION TACTICS

Tactics play an essential role in the process of negotiation. However, they are challenging to
identify. The tactics are used in distributive negotiation and used to negotiate for as high
value as possible. Some of the tactics are as follows:

● Auction – Auction is a bidding process. It creates competition. The process of the

auction includes multiple parties wanting the same thing. Auction tactics create an
advantage for competitive individuals. Competitive people tend to pay more price just
for the sake of victory. They want to win regardless of anything.

● Brinkmanship – Brinkmanship is an ability when one party aggressively pushes

another party to a point where they can either accept the terms or walk-away. It is an
approach when a party moves another over to the edge (brink) with only two options.
 Most of the time, the opposing side accepts the offer. When a party agrees with the
proposals, it is known as successful brinkmanship.

● Chicken – Chickens are also the extreme measures proposed by the negotiators.
However, they are often bluffing. Bluffs help to persuade the opposing party into
believing something that is not true in reality. The negotiation in this context wins at
the end. This negotiation tactic is dangerous when the party won’t back down from
the offers, and it can backfire for the negotiator.

● Deadlines – Deadlines are the most common negotiation tactic for luring the
opposing party into accepting the offer. Deadlines put pressure on the party. It does
not allow them to reason because there might not be enough time. The opposing party
often accepts the decision presented by the negotiator. The effect of deadlines is
comparatively higher than others negotiation tactics.

Source: https://www.researchgate.net/publication/277871411_Practical_Business_Negotiation_2nd_Edition
Figure 3.9: Factors and Possible sources of change

One must focus on solving the problem first in the overall process of negotiation. No matter
how the structure or strategies have been set, solving a situation must come first in the
sequencing for a negotiation. Without an accurate idea about the solutions to the problem, the
negotiators may get confused between negotiating.

Source: https://www.thenation.com/article/archive/want-cheaper-flights-regulate-airlines-like-public-utilities/

Figure 3.10: Why is Monopoly in Business terrible?

A company trying to fight a dominant firm must understand that quality products and
services can help overthrow the dominance. Improving your own BATNA is one of the most
effective ways as it helps to create alternatives. Strong BATNA is the most effective in
dealing with power brought by the other party.

3.8 ORAL VS WRITTEN AGREEMENT

There always has been discussion about whether the agreements should be oral or written.
However, many people believe that a legally binding agreement must be in written form. But
this is a myth. An agreement can be both oral and written. It can be made on spoken words or
can be made by writing an agreement. Both the agreements are considered in consideration,
acceptance, and offers. The only condition is that both parties must be competent and must
consent to the type of the contract.

A valid agreement generally has the following points:

● Proposal
 ● Acceptance

● Awful Object

● Lawful Consideration

● Capacity to Contract

The major difference between oral and written agreements is the probability of the existence
of the contract. The oral agreements cannot be proved easily or if one party decides to back
out. Because oral agreements were not written down on a piece of paper, terms of existence
are based on both parties’ memory. This process is susceptible to error and mischief and can
lead to a chaotic disagreement. On the other side, written agreements are not dependent on
memory. A written agreement provides certainty, clarity, and proof of the existence of a
matter. So, it is good if a contract is put down in words. It is good to let all the parties know
the agreements’ existence, what was agreed, and the agreement’s expectations.

Written agreements are any form of agreements, which are reduced to writing in a particular
format. It is the set of promises and terms of an agreement, reduced on paper, in the simple
composition of text, and is expressed. Valid written agreements have a greater evidentiary
value in the court of law since it is easier to peruse and understand. It also has easier and
greater enforceability in the court of law or a dispute.

On the other hand, oral agreements consist of words, gestures, and symbols by which one
party conveys a promise or a set of promises to another, which, on acceptance by the other
party, becomes a valid oral agreement. They may be expressed or implied in nature. Valid
oral agreements are legally enforceable in the court of law. However, it is not of significant
evidentiary value as the deal is understood through word of mouth and obtained via second-
hand knowledge. In case of a dispute or a suit, it is a difficult task for the court to ascertain
the true nature of facts and terms of the agreement without the invasion of bias.

3.9 SUMMARY

Strong negotiation skills can help in a lot of ways. Negotiation skills form a strong base for
business life. They help in creating win-win situations and allowing the best solutions for
difficult situations at hand. The skills can help you build great bonds in the pursuit of your
career.

We negotiate in all walks of life, and it is essential to learn how to negotiate effectively.
Negotiation skills aid our personal life, business, and also relationship with us there are six
effective negotiation skills to lead a fulfilling life. The six negotiation skills are- preparation,
clear communication, active listening, teamwork, problem-solving, and decision-making
ability. Negotiation is vital for any business, but what do we mean by negotiation? In simple
words, it can be stated that negotiation is a process through which differences are settled
between two parties or individuals or an individual and a party. It is the dialogue process in
which an agreement or consensus is reached without any kind of dispute. One may have to
make some tough decisions while negotiating with another party, such as situations where
the other party in the negotiation or the translator do not wish to talk further or refuse to take
the negotiation further; in a case where the translator successfully brought in a powerful ally
or AAT; if the translator seems to have their full support, it can turn into a non-favourable
situation. This is a popular option but can turn into problematic times. It is fairly easy to
gather evidence against the translator. Judges are law specialists, not linguists. Hiring an
expert witness would add cost.

Travelling to the court will expend both money and time. The fees to be paid to the lawyer
are another burden. Multiple court visits might be required before the case gets settled. With
AAT and experts involved, one can never be sure of a victory, plus this method can be
monetarily draining.

Written agreements are any form of agreements, which are reduced to writing in a particular
format. It is the set of promises and terms of an agreement, reduced on paper, in the simple
composition of text, and is expressed. On the other hand, oral agreements consist of words,
gestures, and symbols by which one party conveys a promise or a set of promises to another,
which, on acceptance by the other party, becomes a valid oral agreement. They may be
expressed or implied in nature. Valid oral contracts are legally enforceable in the court of
law. Game Theory is a mathematical model of interactions used in competitive situations to
settle conflicts or initiate negotiations between two rational decision-makers. Game Theory is
widely used in economics, politics, psychology, computer science, and even biology.

Game Theory was developed as a solution to zero-sum games where out of the two
participants, only one would benefit from the two participants. Business organisations use
Game Theory to address issues like mergers, negotiations, produce.

Nash equilibrium is a concept of game theory. In this theory, no player has an incentive to
deviate from the chosen strategy after considering the other person’s offers and choice. Nash
equilibrium works under the assumption that the players are rational decision-makers who
acknowledge the information set and work towards equilibrium through cooperation.
Prisoner's dilemma is a paradox when two people act with self-interest and don't come
around to any particular outcome. Both parties choose to protect their interests at the expense
of each other. Both the parties conceded the bargaining positions and tried to reach their
possible target range, but none of the parties was ready to get the better off of them and failed
to reach any conclusion. When they fail to reach an agreement, both parties may end up in
worse situations and fail to achieve their target.

3.10 SELF-ASSESSMENT QUESTIONS

A. Descriptive Type Questions

1. Where do we use Negotiation Skills?

2. Discuss some Negotiation skills.

3. When Should we not Negotiate?

4. Write the difference between Distributive and Integrative Negotiation.

5. Explain the Negotiation Process

B. Practical / Scenario Based Questions

1. Do you consider yourself a good negotiator? What qualities of a good negotiator do you
possess?

2. A company was dealing with an overseas dealer; he raised his prices without intimation.
Mention the primary draft for the negotiation and make a priority table for the company.

3. A housewife got some houses to help with work. Write a dialogue of negotiation between
the house help and the housewife, negotiating the house’s salary for a month. The house
helper wants a raise. The housewife's budget is 700 Rupees per month. The house help is
demanding 800 Rs.

4. Avinash goes to the market. A sunglasses seller gets glued to Avinash to sell his product.
How can Avinash make the trader give up his negotiation?

5. Devise an excellent Salary negotiation at the end of the interview. The salary is ready to
pay 5lpa. The candidate is looking for 5.5lpa.

C. Multiple Choice Questions

1. One will not need negotiations if_____________________________

a. One lives alone on a planet

b. One is the owner of a business

c. One lives with his family

d. One is poor

2. Which of the following is a way to resolve conflict?

a. Fighting

b. Bribing

c. Negotiation

d. Stealing

3. Courtesy helps to build ______________

a. Trust

b. Games

c. Winning strategy

d. None

4. Going to court involves high ___________

a. Trust

b. Fights

c. Cost

d. People

5. Monopoly in a sector can lead to ____________ power

a. Coercive

b. Perceived

c. BATNA

d. None
6. Which of the following theories is not essential for negotiation?

a. Game Theory

b. Prisoner’s Dilemma

c. Nash Equilibrium

d. Monopoly Theory

7. Which of the following can be a possible outcome in Negotiation?

a. Win-win outcome

b. Lose-lose outcome

c. Win-lose outcome

d. All of the above

8. Which of the following is the last step in the Negotiation Process?

a. Bargain

b. Discuss

c. Prepare and Plan

d. Propose

9. How can you create the right mindset or negotiation?

a. By sticking to our options

b. By applying tricks

c. Concentrating on issues

d. By applying manipulation

10. What is not a distinctive feature of negotiation?

a. Two or more parties involved

b. Establishes set of rules

C. The conflict between the parties

d. Voluntary process

Answers

1-a, 2-c, 3-a, 4-c, 5-a, 6-d, 7- d, 8-a, 9-c, 10-b.

3.11 SUGGESTED READINGS

References Books

● Jones, P.M. (2017). Exactly What to Say: The Magic Words for Influence and Impact.
Audiobook.

● Malhotra, D. et al. (2007). Negotiation Genius: How to Overcome Obstacles and

Achieve Brilliant Results at the Bargaining Table and Beyond. Bantam.

● Voss, C. (2016). Never Split the Difference: Negotiating As If Your Life Depended On
It. Harper Business.

● Ury, W. (1993). Getting Past No: Negotiating in Difficult Situations. Bantam.

● Fisher, R. et al. (2011). Getting to Yes: Negotiating Agreement Without Giving In.
Simon and Schuster.

Textbook References

● Stuart, D. (2010). Getting More: How to Negotiate to Achieve Your Goals in the Real
World. Crown Business.

● Williams, J.M. (1995). Style – Toward Clarity & Grace (Chicago Guides to Writing,
Editing, and Publishing). University of Chicago Press.

● Patterson, K. et al. (2017). Crucial Conversations Tools for Talking When Stakes Are
High, Second Edition. Mc-Hill Education.

● Carnegie, D. (2017). How to Win Friends and Influence People Kindle Edition.
Manjul Publishing.

● Malhotra, D. et al. (2007). Negotiation Genius: How to Overcome Obstacles and

Achieve Brilliant Results at the Bargaining Table and Beyond. Bantam.
Website

● https://www.researchgate.net/publication/277871411_Practical_Business_Negotiatio
n_2nd_Edition

● https://www.projectmanager.com/blog/how-to-negotiate-in-the-workplace

● https://www.beefmagazine.com/animal-health/build-your-negotiation-skills-part-ii

● https://pmtips.net/article/the-art-of-negotiation-in-project-management

● https://www.thoughtco.com/what-is-communication-168987