Business Negotiation: Strategy &

Practices
Course Focus
• We all negotiate on a daily basis. On a personal level, we negotiate
with friends, family, landlords, car sellers and employers, among
others. Negotiation is also the key to business success. No business
can survive without profitable contracts. Within a company,
negotiation skills can lead to your career advancement. Through this
course, you’ll learn the strategies and skills that can lead to
successful negotiations in your personal life and in business
transactions.
Basic Steps of Successful Negotiation
• Prepare: Plan Your Negotiation Strategy
• Negotiate: Use Key Tactics for Success
• Close: Create a Contract
• Perform and Evaluate: The End Game
Preparing for Negotiation
Can you go into Burger King or Pizza
Hut and get a bargain?

Please write down on a piece of paper

 1. Do we need to negotiate?
The answer largely depend on your personality type. And also we need
to consider the cost benefit analysis. And of course the consideration of
the associated risk to negotiation
2. Is it a position or interest based
negotiation?

• is it position-based or interest-based? 
• Traditionally, negotiations were very much positional. 
• I take one position. 
• I want a high price. 
• You take the other position, low price. 
• And then we fight over whether the price is a high price or low price
or maybe something in the middle
 The Pizza Case
Position-based, as we just discussed, versus interest-based. My personal favorite
is dividing the pie could be called claiming value, as opposed to enlarging the
pizza, which is creating value. And so somehow you have to cut through all this
verbiage and keep in mind the central issue, which is what type of negotiation
am I involved with, is it dividing the pie or enlarging the pie, and that will help
shape your strategy. If it's a negotiation that creates opportunities for building a
larger pizza, then you'll want to spend a lot more time searching for mutual
interests that enable you to do this.
3. A Dispute Resolution or Deal Making
Negotiation?
Key differences between dispute resolution
and deal making
Dispute Resolution Deal Making
Backward Looking Forward Looking
Position Based Interest Based
Adversarial Problem Solving
Alternative Dispute Resolution (ADR)
• Arbitration
• Mediation
• Negotiation

These are alternative to Litigation

• we think about the distinctions between dispute resolution and deal
making. I encourage you to search for interests, even when you're in a
dispute resolution negotiation.
• It's important to understand the six types of dispute resolution.
• And the three lenses that you can use for looking at these types.
- The ADR lens,
- the third party processes lens and
- the power/rights/interests lens
- And finally, consider using dispute resolution processes for deal making,
such as mediation and arbitration.
Analyzing the negotiation
• This question is so important that I'm breaking the discussion into
three segments. 
• First of all, what questions should I ask to complete an analysis? 
• Second, what is my BATNA in a dispute resolution negotiation? 
• And finally, how can I use an especially valuable tool called a decision
tree to complete a BATNA analysis, regardless of whether it's a
dispute resolution negotiation or a deal-making negotiation. 
6 processes of dispute resolution
1. Avoidance
2. Negotiation
3. Mediation
4. Arbitration
5. Litigation
6. Power
Case of Pooja – selling the car
And that is how can I conduct a negotiation analysis? How
should I analyze a negotiation?
BATNA
Decision Tree
Negotiation Phase
3 Main Steps
-First, the importance of getting to know the other side at the
beginning of a negotiation. 
- Second, the importance of understanding your power, and where
your power comes from. 
- And then finally, what psychological tools can you use for successful
negotiation. And, what are the psychological traps that the other side
might use, and that you want to avoid.
Things needed to know while trying to know the other side

• Try to understand the cultural differences while you are involved in

cross cultural negotiation
• Try to develop conversational intelligence
• Remember, listening is critical
Using Power in Negotiation
One very important aspect in negotiation is to understand your power

- Information represents your main source of power in negotiation

• When in fact the best negotiators are the ones who ask questions,
harvest information and then use that information to analyze your
position, and to analyze your interests.
Two very important factors behind successful
executives
1. conceptual knowledge. It comes from experience in the business,
understanding the business, building your experience. 

2. The importance of the ability to listen, the ability to hear.

Strategic using of BATNA as power in negotiation
The single most important information that provides power in
negotiation is knowing other sides BATNA

How powerful are they? (Find their BATNA)

BATNA Weaken their power (their BATNA)

= POWER
Improve your Power (Your BATNA)
Coalition as a powerful form of Negotiation
• When there are two many alternatives and there is no clear
mathematical solution, we can try coalition. e this you can round and 
• What becomes important in a coalition bargaining is developing 
trust from the other parties, treating the other parties fairly
• Even on the surface you might look less powerful, but a coalition can
make your position stronger
Psychological Tools to use in Negotiation
 Descriptive
(Behavioral)

Decision Making

Prescriptive
(Normative, decision
tree)
Descriptive or behavioral decision making
• Heuristics
We as human beings use certain rule of thumbs to simplify our decision
making process, these rule of thumbs are called heuristics.
- Though it has got a lot of benefits, it also can create serious error. In
order to avoid that there must be a checklist while going with your
heuristics
Psychological tools in negotiation
• Mythical Fixed Pie Assumptions
• Anchoring
• Overconfidence
• Framing
• Availability
• Escalation
• Reciprocation
• Contrast Principle
The Key Elements of Creating Contract
• Is there an agreement?
• Is there consideration?
• Is the agreement legal?
• Must the deal be in writing?
Is there an agreement?
• This will require to imply your common sense. If there is an offer and
its subsequent acceptance then we can term it to be of an agreement.
Example case
On Monday, a store offers to buy TVs from a manufacturer. Delivery of the TVs are to be made to the
store. On Wednesday, the manufacturer accepts the offer but tells the store you have to pick up the
TVs at our plant.
On Friday, the store says, okay, we'll pick up the TVs at the plant. But then after this series of
communications, the price of TVs drops and the store no longer wants to go through with the contract
or the agreement, if it is a contract. So that's my question to you. Actually two questions,
The first question is, is there a contract here when the manufacturer sues the store? 
And second, if there is a contract, when was the contract made? Monday, Wednesday, or Friday?
 So please write down your answer
The answer is that yes there is a contract. There was an offer by the store. There was an acceptance by
the manufacturer.
But then a little bit tougher question is, when did the acceptance occur? Wednesday or Friday? And
the answer to that question is Friday, because the Wednesday communication from the manufacturer
was not an acceptance, because they changed the terms of the offer. So legally, what the
manufacturer is calling an acceptance, is really a counter offer back to the store.
By counter offering the manufacturer has killed, the initial offer. And now it's up to the store to accept,
which the store did. The precise analysis is manufacturer makes offer on Wednesday, stores accept on
Friday.
Example Case
• where we have Pennzoil negotiating with Getty Oil to acquire Getty Oil and  they developed a
framework agreement called a Memorandum of Agreement. Now after they developed this
agreement, another oil company Texaco decided that it was interested in Getty Oil. So Texaco
enters the picture, negotiates with Getty Oil, and is successful in acquiring Getty Oil.
• Now at that point, Pennzoil says wait a minute Texaco. Our Memorandum of Agreement was
more than just a framework agreement. It was more than just a negotiating tool. It was
actually a binding contract. And you interfered with our contract, and therefore you owe us
damages. So Pennzoil sued Texaco. Ofcourse they could have sued Getty Oil too, but Getty Oil
was part of Texaco. Won the lawsuit, and Pennzoil was awarded damages of $10.5 billion.
• At that point, Texaco said, wait a minute, we don't have that much money in our checking
account, and Texaco declared bankruptcy. So, a misunderstanding. About whether this
agreement was a negotiating tool or a binding contract, resulted in this huge loss to Texaco. In
bankruptcy Texaco was able to reduce its loss to quote only $3 billion. But still, it was a huge
financial hit for Texaco
• One last question it's very important to this discussion of framework
agreements. And that is, is there a practical tool you can use to avoid
the risk, that a court will consider what you think is a negotiating tool
as a contract. And, of course, the answer to that is yes, and it's a very
simple solution. When you're using framework agreements as
negotiating tools, simple write at the top that, this is only a
negotiating tool and is not intended as a binding contract, until you
agree that it is a contract. That way you should be protected from the
risk of locking yourself, into a contract before you intend to.
Consideration
• And there are technical legal definitions of consideration. Let me just
give you a very practical definition, which means that, for a deal to be
binding, both sides have to give up something
Example Case
• A graduate at Ross Business School was considering making a large gift to the business school. And the gift was
complicated because there were tax considerations involved. And so the Dean was negotiating not only with the
donor, but also with his attorneys. And eventually, the graduate agreed to give the school $30 million, which at
that point, was the largest gift in history to any business school.
• And he structured the gift, so that, rather than writing a check for $30 million, he agreed to make payments over
20 years. He agreed to write a check for 1.5 million each year over a 20 year period. Now, there were no
complications with the gift. But let's assume that over the course of the 20 year period, the graduate passed
away. And let's assume that his children didn't think that this gift was such a great idea and so stopped payment.
• The question that would arise is, is this a legally enforceable promise by the graduate?
• Now in this case, the graduate signed a five page written agreement with all the details of his promise to make
the gift of $1.5 million a year. Let's assume that if there is a binding contract, death would not change the
contractual obligation. The only question is, is this a binding gift? When somebody promises to make payments
of $1.5 million a year over a 20 year period. Would this be a binding contract or not?
• The answer depends. And it depends on whether there is consideration or not. At least in common law
countries, it depends on whether there is consideration. Clearly the graduate gave up something. He gave up
$30 million, or $1.5 million a year. The consideration question would be, did the business school also give up
something in exchange?
• Now, when you look at the five page written agreement, the answer to that question would be yes. The business
school promised to start an institute with the name of the graduate. They promised to dedicate rooms at the
business school for the institute, to furnish the rooms, to furnish faculty for the rooms, etc. And so in this case,
the promise would be enforceable. Even if the children did not want to perform the contract, it would be a
legally binding contract, because there was consideration on both sides. 
Is the agreement legal?
• For example, let's say that I agree to sell you a truckload of cocaine.
And you don't deliver. So I sue you in court. And the question is, is this
a legal contract? Well, of course not. We've got an offer and an
acceptance. We've got an agreement. Presumably we have
consideration. I agree to give you the cocaine, you agree to pay for
it. But the court, clearly, will not enforce that agreement, because it is
not legal. And in fact, after throwing us out of court, probably the
local prosecuting attorney will grab us, and arrest us, and we'll end up
in criminal proceedings.
• Let's assume that you work for a company. And like many companies, this company asks
you to sign a non-compete agreement when you are hired by the company. In other words,
you sign an agreement that says that, for example, if you leave the company, you cannot
work for a competitor for a certain period of time. Let's say, one year.
• But let's say that you are an entrepreneur, you want to leave the company and start a
competing business, or work for a competitor within that one year period. Then the
question is, will a court enforce your non-compete agreement? And, this depends. It's a
tough decision for a court, because no court wants to put you out of work for one year in a
business where you have developed expertise. So courts look very closely at these
agreements around the world. And they ask, for example, is this agreement too broad in
terms of geographical area covered? Or is it too broad in terms of the interests
involved? These agreements must be crafted so that they are designed to protect an
employer interest. And if they go beyond that, then the court might say, well, this
agreement is not reasonable, and throw it out.
Does the contract need to be in writing?
Example Case
• You have a job offer from a company in New York City. So you negotiate an employment contract with that company in New York
City. And you discuss all the details of the contract. Let's say you have quite a bit of furniture, for example, and one of the questions
is will the company pay for shipping your furniture from Mumbai to New York City. Which is going to be fairly expensive, let's say
$10,000. And the company says to you, no problem we promise that we will pay to cover your shipping costs. So you negotiate the
deal, you then put the deal in writing. However, you forget to include the promise to pay for your shipping costs.
• So you ship your furniture to New York, you move to New York. You start your work, your job, and then you bring your bill for the
shipping costs to the company, your bill for $10,000. And the company says to you, oh, yes, we remember we absolutely made that
promise. However, things are a little tight here right now, and we're not going to cover the shipping bill.
• Now, let's assume that you eventually sued the company for the $10,000 shipping bill. The question is, is that an enforceable
contract or not?
• Now remember, the company clearly made the promise. And they'll admit they made it if you sue them in court. So the question is,
can you enforce the promise even though it was not in your written contract? Yes, you can enforce the promise and recover your
$10,000, or no.
• The answer to that question depends on something called the parol evidence rule. And here's a concise statement of the rule. The
rule seeks to preserve the integrity of written agreements, by precluding the introduction of evidence about contemporaneous
or prior declarations to alter the meaning of written agreements. what that means in plain English is once you reduce your contract
to writing, then the agreement is limited by the four corners of that writing. Courts In determining what your obligations are,
and what the other side's obligations are, are only going to look at the writing. They're not going to try to unravel the negotiations
and what was agreed to or not agreed to during the weeks or months of the negotiations. They're gonna focus on that written
agreement. Whatever you said prior to that written agreement, whatever you said at the same time as that written agreement,
aren't going to count. It's just whatever is in the written agreement.
• There are a number of contract terms that are implied by law. And so, it's very important that you have a basic
understanding of what goes beyond what you've put into writing. In other words, it's important that you not only
understand what you've expressly agreed to, but what the law automatically includes in your contract.

• Here's an example.
• Let's say we have Sam, who owns a small grocery store. And Clyde walks into the store, buys a large bag of potato
chips, which unknown to either Sam or Clyde were spoiled. Let's say Clyde becomes seriously ill after eating the chips,
and  sues Sam for breach of warranty. Is Sam liable? 
• We're going to assume here that the nationally known firm that processed and packaged the chips is not named as a
defendant. So the only question is whether the owner of the small grocery store is liable or not.
• Now let's make certain assumptions here. Let's assume number one that it's very clear that Clyde's illness resulted from
the spoiled potato chips, no other cause. Let's assume that Sam kept the potato chips in a safe area, at a proper room
temperature. And there was no sign of tampering with the chips. 
• Let's assume that the chips were sold within the expiration date
• Let's also assume Sam did not spot check the potato chips for quality. But, that's probably unreasonable to ask somebody
who runs a little grocery store to test the quality of the chips.
• So, here we have a contract. It's a contract that was not negotiated. It's just a standard sale contract. Commodity contract.
• What is your decision? Would Sam, the owner of this small grocery store be liable or not in this situation? 
• The answer to the question is yes, Sam would be liable. Because there is implied in a sales contract when somebody in
business, in this case the business of selling potato chips. Sells those chips to a customer, it is implied that there is a
warranty that the chips are of fair, average, ordinary quality. And they weren't of good quality in this case because they
were spoiled. So even though there's no written agreement where Sam expressly promised high quality chips, the law is
going to step in and imply that the goods have to be of good quality. 
• So that's an example of the implied kind of term that the law will add to written contract.