ASPECTS OF NEGOTIATION

NEGOTIATION BODY OF KNOWLEDGE

© 2015 SMstudy.com. All rights reserved

1
 Introduction
• Aspects of Negotiation are facets that help you understand negotiation in principle
and facilitate the relating and comparing of different forms of negotiation.

• The Aspects of Negotiation discussed in the NBOK can be applied to any type of
negotiation and help you gain a strong understanding of the processes described
as part of negotiation.

• The Aspects of Negotiation discussed in this chapter include:

2.1 Justification
2.2 Distributive vs. Integrative
2.3 Customization
2.4 Non-linear Process with Uncertain Outcomes
2.5 Human relations Issues
2.6 Organization
2.7 Ethics

© 2015 SMstudy.com. All rights reserved 2

 Justification
• Justification provides the primary reasons for negotiation, answering
the questions “Why should one negotiate?” and “What value is gained
by negotiating, rather than taking the offer made by the other party?”

© 2015 SMstudy.com. All rights reserved 3

 Why Negotiate?
2.1.1 Why Negotiate?

• Negotiation involves creating value and eventually enables the

involved parties to reach a mutually acceptable agreement.

• Value is anything that stakeholders find useful or desirable. It can be

defined in financial or non-financial terms.

2.1.1.1 Negotiating to Arrive at a Deal or a Mutually Understood

Outcome

• Negotiation can occur between two or more people or groups aiming to

agree on a deal or a mutually agreeable outcome.

• Negotiation in this instance enables the parties involved to realize the

benefits or goals that would not have been achievable by either party
on their own.

© 2015 SMstudy.com. All rights reserved 4

 Why Negotiate? - 2
2.1.1.2 Negotiating to Resolve a Conflict

• Conflict can be defined as a disagreement or opposition in ideas and

interests among the parties involved in negotiation.

• Conflict can occur for numerous reasons, such as the divergent needs
of the parties concerned; misunderstanding among the parties
involved; or differences in opinions, interests, or preferences among
the parties.

• Types of conflict — Four types of conflict are commonly identified:

 Intrapersonal Conflict
 Interpersonal Conflict
 Intragroup Conflict
 Intergroup Conflict

© 2015 SMstudy.com. All rights reserved 5

 Benefits of Negotiation
2.1.2 Benefits of Negotiation

• For every negotiation, parties can determine the benefits that each
would gain from a successful negotiation, and compare it with the cost
of negotiation.

• The benefits of negotiation should outweigh the costs associated with

negotiation.

• Costs of negotiation can be due to any of the following:

 Use of resources
 Loss of trust or relationship

© 2015 SMstudy.com. All rights reserved 6

 Benefits of Negotiation - 2
• Benefits of negotiation can be classified as financial or non-financial:

 Financial benefits: These benefits may be in the form of a better

price, reduced cost, or any form of benefit that results in a better
financial position. The tools used to calculate financial benefits
include Cost Benefit Analysis (CBA), Return on Investment (ROI),
Net Present Value (NPV) and Internal Rate of Return (IRR):

 Non-financial benefits: Non-financial benefits are not easily

quantified but are also important for the negotiation. Some of the
major non-financial benefits include the following:
o Reducing risk
o Building trust
o Building a better relationship
o Establishing better communication
o Expanding the scope of future business

© 2015 SMstudy.com. All rights reserved 7

 Distributive vs. Integrative
• Negotiation is typically classified as distributive or integrative based on
the approach taken toward the negotiation.

© 2015 SMstudy.com. All rights reserved 8

 Distributive Negotiation
(Win-Lose)
2.2.1 Distributive Negotiation (Win-Lose)

• Distributive, or win-lose negotiation, is a strategy directed toward the

distribution of a fixed resource between two or more parties. In other
words, distributive negotiation takes place when two or more parties try
to claim the maximum amount of value for themselves from a given
resource.

© 2015 SMstudy.com. All rights reserved 9

 Integrative Negotiation
(Win-Win)
2.2.2 Integrative Negotiation (Win-Win)

• Integrative, or win-win negotiation, is a strategy directed toward

developing mutually beneficial agreements by discussing and
addressing various concerns—such as needs, desires,
and expectations—of the negotiating parties.

• Most integrative negotiations have two elements: creating value and

claiming value.

© 2015 SMstudy.com. All rights reserved 10

 Difference between Distributive and
Integrative Negotiation
2.2.3 Difference between Distributive and Integrative Negotiation

• The primary differences between distributive and integrative negotiation

can be based on the following factors:

 Value
 Issues
 Relationship
 Information Exchange

© 2015 SMstudy.com. All rights reserved 11

 Difference between Distributive and
Integrative Negotiation - 2
• Table 2-1 lists the major differences between Distributive and
Integrative Negotiation.

Type
Distributive Negotiation Integrative Negotiation
Criteria

Value Fixed value divided among parties Create value and divide among parties

Issues Usually single issue Usually multiple issues are involved

Relationship Short-term relationship is sought Long-term relationship is sought

Less information exchanged, no Significant information may be
Information
need for parties to know each other exchanged; parties need to know each
Exchange
well other well

Table 2-1: Differences between Distributive and Integrative Negotiation

© 2015 SMstudy.com. All rights reserved 12

 Customization
• The concepts of negotiation as explained in the NBOK allow the user to
understand and use it irrespective of the nature and type of negotiation
he or she is involved in.

• The basic concepts of negotiation as defined in the NBOK are valid for
any negotiation and can be customized to any business or personal
negotiation by any individual or organization, in any country.

© 2015 SMstudy.com. All rights reserved 13

 Multi-phase Negotiation
2.3.1 Multi-phase Negotiation

• A multi-phase negotiation occurs in many stages or phases. Different

phases may be used to discuss and agree on different issues, and any
agreement reached can be implemented after each phase.

• Parties can also monitor the implementation of previous agreements.

© 2015 SMstudy.com. All rights reserved 14

 Multi-party Negotiation
2.3.2 Multi-party Negotiation

• A multi-party negotiation involves more than two sides. It is more

complex than a two-party negotiation.

• The parties must gather information about the goals, interests,

negotiation style, and positions of more than one other party.

• It is difficult to assess the possible negotiation scenarios and outcomes

when only two parties are involved; it becomes more difficult when the
number of participants increases.

© 2015 SMstudy.com. All rights reserved 15

 Non-linear Process with Uncertain
Outcomes
• A negotiation is often thought of as a linear process following a
predictable path. While this may be true for simple interactions, it is
hardly the case for most negotiations.

• Most negotiations are complex and follow a non-linear and unpredictable

path.

• Factors that can alter the path of a negotiation include the following:
 New alternatives or opportunities
 Change in negotiator
 Change in negotiation process
 Change in nature of relationship

© 2015 SMstudy.com. All rights reserved 16

 Non-linear Process with Uncertain
Outcomes - 2
• Risks in Negotiation

 Risks in negotiations are defined as an uncertain event or set of

events that can affect the objectives of a negotiation process.
 Risks may contribute to the success or failure of a negotiation.
 Risks that are likely to have a positive impact on the negotiation
process are referred to as opportunities, whereas risks that can
affect the negotiation in a negative manner are considered threats.

© 2015 SMstudy.com. All rights reserved 17

 Human relations Issues in Negotiation
• Negotiations, simple or complex, are ultimately conducted by people.

• Thus, it is important to understand various factors associated with

human relations such as negotiation styles, perception and cognition,
and communication.

• Seasoned negotiators understand the advantage of knowing about the

other party and try to learn as much as they can that will help them in
the negotiation process.

• Some questions to ask include the following:

 Who are the people on the other side?
 Are they experienced negotiators or novices?
 Are they aggressive competitors or compromisers?

© 2015 SMstudy.com. All rights reserved 18

 Negotiation Styles
2.5.1 Negotiation Styles

• Kenneth W. Thomas identified five styles or approaches to negotiation .

It is important for negotiators to understand their personal negotiation
style and also the negotiation style used by the other party in the
negotiation.

• Individuals are not limited to using just one of Thomas’ five styles.

• The five negotiation styles are as follows:

 Accommodating
 Avoiding
 Collaborating
 Competing
 Compromising

© 2015 SMstudy.com. All rights reserved 19

 Perception and Cognition
2.5.2 Perception and Cognition

• Perception and cognition are integral factors that influence how

negotiators construct and interpret a message received during
negotiation.

• These factors are key to the negotiation process since negotiation is

essentially an interpersonal activity.

• A good understanding of how people communicate and perceive helps

negotiators understand reasons for any particular kind of behavior during
the negotiation process.

• Individuals are not limited to using just one of Thomas’ five styles.

• Perception is the process of assigning meaning to the messages

received by the listener.

• The complexity of the environment makes it difficult to perceive all the

available information thus making perception a selective process.

© 2015 SMstudy.com. All rights reserved 20

 Perception and Cognition - 2
• The major errors in perception are classified as follows:

 Stereotyping
 Halo effect
 Selective perception
 Projection
 Irrational escalation of commitment
 Winner’s curse
 Overconfidence
 Information availability bias
 Self-serving bias
 Over-valuation

© 2015 SMstudy.com. All rights reserved 21

 Communication in Negotiation
2.5.3 Communication in Negotiation

• Because negotiation is an interpersonal process, communication plays a

crucial role.

• Various models are used to explain the process of communication. One

of the earliest and most commonly used models of communication was
put forward by Shannon and Weaver (1948).

• This model is based on the following elements:

 Sender and receiver

 Transmitter and receptor
 Message
 Encoding
 Channels
 Decoding
 Meanings
 Feedback
 Noise

© 2015 SMstudy.com. All rights reserved 22

Communication in Negotiation - 2

Figure 2-1: Communication Model

© 2015 SMstudy.com. All rights reserved 23

 Organization for Negotiation
• Some important factors that need to be considered when selecting
teams for negotiation are as follows:

 Will negotiation be carried out by an internal team, an external

team, or by a team with both internal and external members?
 How much authority will be granted to the negotiating personnel?

© 2015 SMstudy.com. All rights reserved 24

 Negotiating for self or for others
2.6.1 Negotiating for self or for others

• A primary decision when entering into a negotiation is whether it is best

to negotiate on your own or hire another individual or company to
negotiate on your behalf (e.g. lawyers negotiate on behalf of their
clients; brokers negotiate real estate deals; merchant bankers negotiate
finance deals; and merger and acquisition deals involve multiple persons
in various levels of authority).

© 2015 SMstudy.com. All rights reserved 25

 Authority of person negotiating
2.6.2 Authority of person negotiating

• When deciding the authority of the negotiators, one should consider the
following factors:

 Do the people you are negotiating with have relevant authority?

 How do you deal with the situation when the negotiators of the
other party do not have the required authority?
 Should you insist that the negotiator of the other party have similar
authority?

© 2015 SMstudy.com. All rights reserved 26

 Ethics
• Ethics are social standards that define what is right or wrong in a
particular situation.

• The potentially subjective nature of these standards can lead to ethical

questions and dilemmas during the course of negotiation.

• William D. Hitt (1990) proposed four ethical frameworks that can be

used to guide decision-making during negotiation:

 End-result ethics
 Rule ethics
 Social contract ethics
 Personalistic ethics

© 2015 SMstudy.com. All rights reserved 27