Being Prepared

Your success in a negotiation depends largely on the quality of your preparation. Start by thinking through your position and your objectives. Having clear goals will protect you from making too many concessions and motivate you to perform better. Objectives should be specific, quantifiable, and measurable. Only then can they be used as benchmarks to measure your progress during the negotiation process.

Setting the limits

You should always go to the negotiating table with clear answers to the following questions: why do you want to negotiate the deal? How will this deal create value for you? What are your “deal breakers”? What must you have from the deal, what would you like, and what are you willing to give away? There may be alternative outcomes that you can accept—what are they?

Knowing your objectives

Set your objectives high but not outrageously so. It is tempting to censor your aspirations, setting them too low to protect yourself from the prospect of failure, but in doing so, you will almost certainly achieve less than was possible. If you fail to set clear objectives, there is also a danger that you could get trapped in an “escalation of commitment”—an irrational urge to “win” the negotiation at any cost.

Escalation of commitment is a real hazard in negotiation, and happens when you refuse to give up your pursuit of a negative course of action when the wiser choice would be to cut your losses and move on. Always set a limit for how far you are prepared to go and prepare an exit strategy (a means of walking away from the deal).

Avoiding escalation of commitment

It can be easy to fall into the trap of competing with the other party at all costs, to ensure that you get that “win.” For example, in the late 1980s, Robert Campeau, a Canadian businessman, made a hostile bid to acquire Federated Department Stores (FDS). Macy’s, a competitor of FDS, was also interested and a bidding war began between Campeau and Macy’s. Determined to win, Campeau kept increasing his already high bids to a point where he offered to pay an additional $500 million. Campeau won the competition, but two years later he declared bankruptcy. This is a classic case of escalation of commitment, and a lesson for all negotiators in keeping a sense of perspective in their negotiations.

Looking across the table

A negotiator was once asked if he could formulate a proposal that took into consideration both his and his counterpart’s interests. He was puzzled. “Why should I care about the other party’s interests?”, he asked, “His interests are his problem.” Such an attitude of blinkered self-interest characterizes the unprepared negotiator. In order to succeed, you not only need to understand yourself and your interests, but also the other negotiating party, and the situation as a whole. Ask yourself the following questions when preparing for a negotiation:

• Who will come to the table? Research their personality, and their history of negotiation. Have they been previously successful or unsuccessful and what approaches did they use?

• What can you find out about their negotiating style, life history, hobbies, and interests?

• If you have more than one counterpart, do they share the same backgrounds and functional area, and are they likely to be united in their desired outcome?

• Are they authorized to make binding decisions? If not, who are the “players” behind the scenes who will make the final decision?

Understanding your counterpart

It is important to understand the issues and interests of the other party before you start the negotiations. Negotiators come to the table because they each need something from one another, so you must identify your counterpart’s key issues and interests. How important is each one? Which are the deal breakers and which may they be willing to concede?

Try to assess whether it is you or your counterpart who holds the power. What are your counterpart’s strengths and weaknesses? What is their level of information and expertise? How badly do they want to make a deal with you? Do they have other attractive options? Can they walk away from the table and exercise a BATNA^[]? Are they pressed for time? If you know that the other side has a tight deadline that you are able to meet, you may be able to negotiate a better price. Similarly, if you know that your counterpart has recently expanded production capacity, you may be able to gain better terms for larger volumes of orders.

BATNA — acronym of Best Alternative To a Negotiated Agreement. This term is used by negotiators to describe the course of action that you (or your counterpart) will take if negotiations break down.

Advantages of knowing your counterpart

• Better understanding of what can be accomplished.

• Proposals are more likely to be accepted.

• Ability to adjust your strategy as the situation changes.

• Successful negotiations and superior outcomes.

• Better trade-offs between issues.

Thinking strategically

Much of what occurs in the negotiating room is, in fact, determined by what happens outside the negotiating room. This requires you to think strategically about your situation in relation to the situation of your negotiating counterpart. For example, in some negotiations, you and the other party may be representing others. Make sure you are very clear about the identity of your constituency, and that of your counterpart. What are their expectations and can you influence them?

If there are several negotiating parties, analyze all of them and begin to think in terms of coalitions. With whom and how can you build a winning coalition and how can you block a threatening coalition?

Tailoring your strategy

Make sure that your negotiating strategy and behavior reflects the other party’s situation and approach. For example, in many negotiations, the other party is free to leave or join the negotiating table as they wish. In some cases, however, the parties are bonded together over the long term and cannot simply walk away, and your strategy should reflect this.

Some negotiators prefer to negotiate away from the public eye, while others insist on keeping all stakeholders and the public informed. Consider which mode is more advantageous to you, taking into account the sensitivity of the issues, the history between the parties, and the legal and governance systems of each party.

Some negotiation counterparts observe formal protocols in negotiations, while others are freer in what can and cannot be said. Take particular care to do your research when negotiating internationally to learn the formalities expected of you.