Monthly Archives: December 2011

Negotiation Skills for Leaders

Negotiation Skills for LeadersNegotiation Skills are among the important skills not only for business but for personal life as well. For leaders, negotiation skills are especially important. 
 
There are two ways to approach negotiations:
 

   1. Focus on getting a bigger piece of a pie (capture value).

   2. Work to increase the pie first and then obtain your part (create value).

I really like the approach proposed by Deepak Malhotra and Max  Bazerman from Harward Business School in their book Negotiation Genius.

They suggest to identify the following as accurately as possible:

    1. Your zone of possible agreement

    2. The zone of possible agreement of your negotiation partner

    3. Your best possible alternative to negotiation

    4. Other’s site best possible alternative to negotiation

With this information, you should try to expand the size of the pie and then get the biggest piece possible.  

The majority of people focus on claiming value at the bargaining table. Actually, there are many ways to create value, which is a more profitable strategy.

One of the best ways to do it is to understand that almost every real-life negotiation is a multi-issue negotiation.

If, for example, there are multiple issues then the weight of each person’s value on each of these issues would be different. This is why the ability to analyze each participant’s weight on every issue is critical to create even more value.

By giving up a less important negotiation issue, you can get a more important issue (and less important for other party).

A powerful leader is very skillful in creating value leveraging different priorities and different expectations of two parties.

It’s important to learn how to find differences and then figure out how to leverage them.

You can also add more issues to the negotiation table to create additional value. Creating contingency contracts is another way to create value. 

Let me give you a specific example. You need to rent an office for your new business. You discussed several options and you really like the office in the business park near the peaceful artificial lake.

After having a discussion with John P., an owner of the property, you figure out that his zone of possible agreement is between $3,000 and $4,000 a month.

Your zone of possible agreement (calculated based on your projected profit) is $2,800 and below (obviously, the lower, the better).

At first glance, you don’t have a common zone of agreement. However, after additional research, you figure out that John P. owns several new automatic coffee machines, and he does not have a place for them.

Based on your square feet calculations, you know that you would have an available space for a coffee machine, so you make him a new offer.

You offer $2,600 for the rent under condition that he will have one of his coffee machines in your (hopefully busy) office. During your conversation, you have a feeling that he is almost ready to accept the offer. However, he mentions that this is an outstanding location and you will make at least 30% greater profit that you expected. 

In response to his comment, you offer a contingency agreement. He will agree for $2,600 per month. However, if you earn 30% or more income premium, you pay $200 extra per month. John P. agrees. 

In addition, I would like to mention that there are many more strategies and tactics to contribute to your negotiation skills.   I am going to discuss these strategies and tactics in my future articles.

 

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