Wednesday, 6 February 2013

Good article on negotiation

https://docs.google.com/file/d/0B0FApT99RbefZ2xJYW1OVENDeWc/edit

When someone seems to need you more than you need him, “Take it or

leave it” can seem like the simplest negotiating gambit. If a seller is desperate

to unload his business and you’re the sole bidder, why not make a rock-bottom

offer? And if you’re hiring in a competitive job market, you might as well aim to

keep labor costs as low as possible, right?

It’s true that negotiators with abundant power tend to get better deals than

their weaker counterparts. Yet whether their power springs from a title, resources,

or (most typically) a strong outside alternative to agreement, powerful negotia-

tors often make a number of predictable and costly mistakes. Most notably, the

powerful are susceptible to underestimating their opponent, overlooking the

other side’s perspective and devaluing his concerns.

If someone leaves the bargaining table feeling that you’ve disrespected or

mistreated her, you may end up the victim of a power backlash. The next time

you think you hold all the cards, prepare to ward off the following three common

reactions to perceived abuses of power.

Power Backlash No. 1: They dig in their heels. Powerful negotiators generally don’t

devote enough time to considering the other side’s point of view, Northwestern

University professor Adam D. Galinsky and New York University professor Joe

C. Magee have written in Negotiation. As a consequence, the powerful may fail to

anticipate “irrational” behavior from their counterparts. When confronted with



your demands, someone may refuse to concede on principle despite a weak bar-

gaining position.

Here’s one example, as reported by Russell Working in the Chicago Tribune.

During 2003 contract negotiations with its service employees’ union, the Congress

Plaza Hotel in Chicago insisted on a salary freeze and the right to subcontract

certain jobs. Blaming a slump in the travel industry for its tough stance, the

independently owned hotel took a gamble that Unite Here Local 1, a relatively low-

clout union, would cave. Yet with their salaries already trailing industry averages,

113 Congress employees, primarily housekeepers and restaurant staff, chose to

strike instead. The hotel brought in temporary workers to replace them.

Four years passed, neither side budged, and the strike became the longest-

running in Chicago history. The constant picket line drove guests away, and the

Congress slashed its rates. For business negotiators, the Congress offers a cau-

tionary tale. The hotel owners underestimated their employees’ tenacity and

overlooked the union’s outside interests. One striker told the Tribune that a five-

or six-year strike would be a small sacrifice for those who had worked at the

hotel for decades.

Power Backlash No. 2: They renege on the deal. The greater the power differential

in a negotiation, the more parties tend to focus on maximizing individual gain,

Notre Dame University professor Ann Tenbrunsel and Northwestern University

professor David Messick found in their research. When you are the stronger par-

ty, that competitive attitude could lead you to coerce your opponent into accept-

ing a deal she can’t fulfill. Suppose a big-box retailer tells a sporting-goods sup-

plier that it must submit a lower bid to retain a contract. Reluctantly, the supplier

delivers a revised bid with a slim-to-none profit margin. It should surprise no

one if the supplier misses delivery targets, sacrifices product quality, or defects to

one of the retailer’s competitors.

Even the biggest industry behemoth should be motivated to build trust-

ing business relationships based on more than just a short-term price. To do so,

spend time exploring the other party’s vantage point before talks begin. What are

their outside alternatives and strengths in the broader marketplace? They may be

more powerful than you think. MIT professor Lawrence Susskind advises less-


powerful negotiators to seek an “elegant solution” that will meet both sides’ in-

terests. For the sporting-goods company, that might mean proposing to sell new

products to market segments that the retailer wants to bring into its stores. Let

your fellow negotiators know that you are eager to listen to their ideas and brain-

storm value-creating opportunities.

Power Backlash No. 3: They take you to court. People tend to hold the powerful

to higher ethical and moral standards than they do the weak, Tenbrunsel and

Messick found in their research. Our legal system does as well. In particular,

says Harvard professor Guhan Subramanian, the courts may constrain the ac-

tions of the powerful by policing the terms of a deal, reading additional terms

into a contract, or imposing procedural constraints on a negotiation.

In the famous 1978 Canadian case Harry v. Kreutziger, a boat owner sold

his boat and accompanying fishing license to an individual who knew consider-

ably more than the seller about the local boating situation. The seller settled for

a nominal sum, thinking that his boat was not worth very much. He was right

about the boat—but he found out after the sale that the fishing license was ex-

tremely valuable. He took the buyer to court and successfully reversed the sale.

The judge found that the seller had been “dominated and overborne” by the

buyer, who had failed in his obligation to be “fair and reasonable” in his dealings

with the seller.

The lesson: Because power can inspire resentment, when you hold all the

cards, you must make an extra effort to meet your own fairness standards and

abide by the relevant legal rules.

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