Chapter 11

Demystifying the Secrets of Power Negotiations

Chapter 2 briefly mentioned various forms of power and how power impacts negotiations. This chapter further explores the subject of power. The chapter is divided into three sections. The first section discusses the sources of personal negotiating power. The second section focuses on estimating negotiating power. The third section is devoted to using power effectively.

Sources of Power

Negotiation power has a lot to do with perception. Although power can be real or perceived, what is important is how others see the negotiator. If the other party thinks the negotiator has power, he or she can negotiate from a position of strength. It is commonly believed that executives with personal charisma or who represent larger firms have negotiation power. This view is based on the assumption that, because of their status or because they come from bigger companies, executives have the power to achieve their goals, often at the expense of the other party. This, however, may not be true. Generally, the party that comes to the negotiation thoroughly prepared is the one likely to optimize the outcome. Successful negotiators develop their power based on superior preparation and excellent communication skills, instead of a reliance on positional or visible power.

Although skilled negotiators rely on both positional and personal power, they tend to give more attention to personal power when preparing for discussions, interacting with the other party, and reaching agreement.¹ Personal negotiating power comes from a variety of sources (discussed next). The core of power is the following:

Knowing Various Aspects of the Business

Knowing the company business and industry well and showing expertise about the issues being discussed projects an image of power. Because doing business on a global scale is becoming more complex, mastering all of the various aspects provides negotiating power. If there are areas about which an executive does not have much knowledge, he or she can call on staff members to join in the discussions or have them provide a briefing in advance about key issues. The Internet and mobile phones allow executives to reach company experts without incurring the costs of traveling. In case an executive does not have in-house expertise in a specific area, he or she can hire a consultant for the duration of the negotiations. What is important is to have this expertise readily available during the discussions. Displaying expertise at the right time enhances an executive’s reputation and gains the executive respect in the eyes of the other party while advancing his or her own goals. The more expertise you demonstrate tactfully, the more power the other party is likely to give you.² However, overdoing it can become counterproductive.

Knowing the Other Party

Knowing the other party well increases one’s negotiating power. The more an executive knows about the other party’s interests, motivation, and negotiating style and what is important to him or her, the greater the negotiating power.

Effective negotiators put themselves in the other person’s shoes when preparing their own strategies. If an executive has been dealing with the same party for some time, he or she probably has a good idea of what to expect. Even in such cases, however, it is wise to consider the changes that have been taken since the last negotiations. For example, if a new competitor has entered the market and is making headway in the market or if new safety standards are being introduced that could affect product demand, the negotiator should revise his or her strategy.

When negotiating with a new party for the first time, the task is more demanding, time consuming, and risky. In view of the difficulties of getting reliable information, a negotiator may need to make certain assumptions during the preparatory phase. However, these assumptions should be checked out during the initial discussions. The best way to test assumptions is to turn them into questions to be raised when meeting the other party. If a negotiator’s early assumptions were incorrect, he or she should ask for a recess to readjust the negotiating plan.

Knowing the other party assumes the negotiator has a clear understanding of his or her negotiating style, whether it is task or relationship oriented. On the basis of preparation, the negotiator should be able to predict to some extent the negotiating style likely to be used by the other party. For example, if the other party is relationship oriented, a negotiator can look forward to accommodating strategies and nonthreatening moves. Of course, the likelihood is that the other party relies on a combination of both approaches. If a negotiator’s style differs significantly from that of the other party, the negotiator needs to find out how best to meet his or her own objectives by adapting the strategy and developing appropriate tactics. This advance groundwork provides greater negotiation power.

Knowing the Competition

Knowing the competition is key to making preparations. Unless a negotiator has an in-depth understanding of how he or she compares to competitors, including relative strengths and weaknesses, he or she does not have much bargaining power. Having such knowledge allows a negotiator to plan a strategy that will protect his or her interests as well as contribute to optimizing his or her goals.

If a negotiator has only limited knowledge about what the competition is doing, all the other party needs to say is, “We can get a better deal from the competition” to put the negotiator on the defensive. When the negotiator is prepared, he or she can neutralize this threat by justifying his or her position with valid arguments. Otherwise, the negotiator may be forced to make concessions to meet competitive pressures, without finding out what the competition is really offering. Even worse is that the negotiator may begin making unnecessary concessions without receiving reciprocity.

As part of the preparation, a negotiator must find out whether the other party plans to negotiate with him or her only or with competitors too. If the other party plans to negotiate with several parties simultaneously, the negotiator must decide whether to get involved. If a negotiator is confident about the talks, he or she should devote all resources to preparing thoroughly. Otherwise, the negotiator should withdraw from the discussions. To avoid being compared to competitors, the negotiator must develop first-rate proposals to differentiate his or her company from them. In fact, negotiators can dominate the negotiations when they know more about competitors than the other party does—and when they know more about competitors than the competitors know about them.

Obtaining information about competition can be difficult, particularly when entering new markets. In international business, these difficulties can be a real handicap due to the lack of readily available data and its validity. Language and customs further complicate the gathering of relevant information. Experienced negotiators maintain a network of contacts and increasingly rely on the Internet to obtain up-to-date information about the competition and about latest market developments.

Knowing the competition in the market is crucial to achieving optimum results. Although being well informed is power, knowing how one compares to the competition provides “extra” bargaining power.

Developing Options and Alternatives

Going into negotiations with a set of alternatives gives a negotiator bargaining power. Having several firms interested in doing business with his or her company puts the negotiator in a strong negotiating position. Even if you have weak alternatives, it may be sufficient to give you power as long as the other party is not aware of how strong or weak your alternatives are.³

Options provide leverage and increase a negotiator’s chances of meeting the other party’s interests as well as his or her own. When developing options, the negotiator can consider a wide range of possibilities, such as design modifications, packaging alterations, payment terms, faster delivery dates, quality improvements, increase of length of warranty, and performances clauses. The more options and alternatives a negotiator develops, the greater the chances of reaching mutually beneficial outcomes.

Setting the Agenda

The party setting the agenda automatically gains power. For this reason, experienced negotiators propose to prepare it. By doing so, negotiators make sure their interests are well served. A critical review of the proposed agenda is crucial because it provides useful information: meeting time, place of the meeting, people expected to be in attendance, and the issues to be discussed. Sequence of the issues indicates the relative importance given to them by the initiating party. If a negotiator receives a proposed agenda from the other party for approval or information, he or she should request changes even if the draft is acceptable. By insisting on amendments, the negotiator becomes a real partner in the negotiation, thus gaining valuable bargaining power. Extra care is called for when reviewing the other party’s agenda because what is not mentioned is often more important than what is written.

Negotiating in One’s Own Environment

Power means the ability to influence others, and the best place to do so is in one’s own environment. That is why successful negotiators propose to have the discussions at their site. Negotiating in a familiar place offers several advantages, particularly when doing business on a global scale. The main benefits are the ability to control the logistics (such as selecting the room, making seating arrangements, and overseeing planned interruptions) and access to staff, experts, and files. In addition, a negotiator does not suffer from jet lag and other discomforts from working in unfamiliar surroundings. It also provides the opportunity to showcase the company facilities.

Unfortunately, negotiating from one’s power base is not fully used by executives from small and medium enterprises. Because they have limited travel budgets and staff, they should invite their foreign parties to visit them and offer to arrange the negotiations at their own site. Providing services such as booking hotels, facilitating visas, and arranging for cultural and social activities would place them in a dominant position to lead the discussions and control the environment.

When the negotiating parties decide to hold the discussions in a neutral location, the selected site should really be neutral. For example, if the other party has a subsidiary there, the location is not neutral.

Having Time to Negotiate and Setting Deadlines

Executives who have time to plan and interact with the other party gain valuable negotiation power. This power can be even greater if one party is under time constraints but the other is not. Negotiations do require substantial time for preparation and for the interface discussions. When a party enters a negotiation under time constraints, he or she may try to skip the early steps of discussions and rush into concessions to expedite the process. By doing so, he or she fails to identify the real needs of the other party, including priorities, and fails to build any rapport. On the other hand, the party without time constraints is patient, is comfortable with silence, listens to proposals, accepts concessions, and lets time run out. Consequently, the party with time on hand gains initial information, makes fewer concessions, and eventually takes control of the discussions.

When dealing in different cultures where the notion and value of time differs from that of the negotiator, it becomes crucial to set aside appropriate time to conclude the agreement. Likewise, a complex negotiation or an important business deal calls for the allocation of more time than a routine deal.

A golden rule among effective negotiators is that if you do not have time to negotiate, you should not enter into discussions; otherwise, you will be negotiating against yourself by giving up power to the other party. However, a negotiator can increase negotiating power by setting deadlines according to his or her own time requirements and having them approved by the other party. If, on the other hand, a negotiator does not believe the deadline suggested by the other party meets his or her timing, the negotiator should ask for an extension. If the other party refuses to do so, the negotiator should ask for clarification. If the explanations given are unsatisfactory, the negotiator should insist on rescheduling the negotiations to a date and for a duration that are acceptable to him or her. If the other party refuses to change the timing or is not providing satisfactory answers, the negotiator should reassess his or her strategy or find another party with whom to conduct business. By agreeing to work under tight deadlines to satisfy the other party’s time schedule, a negotiator, in effect, is, giving away negotiating power to the other side.

Listening

As negotiation is essentially an exchange of information between two or more parties, the party with superior communication skills gains power. Experience shows that most negotiations fail because of poor communications, particularly because of lack of active and sustainable listening. This is where negotiators can acquire considerable power.⁴ Nothing is more important in negotiation than a negotiator letting the other party know he or she is listening. Once the other party realizes that fact, he or she will begin paying attention to what the negotiator has to say. In fact, good listeners send signals to the other party that they are interested in what is being said by asking clarifying questions, paraphrasing, reframing, acknowledging, observing body language, and paying attention to the feeling behind the words. Successful negotiators avoid using negative expressions, as these are likely to lead to breakdowns in the discussions. Only by encouraging understanding and exchanging information can both parties reach the final stage of negotiation.

A good listener also knows the power of silence. At times, the less a person says, the more power he or she receives from others. When asking questions, a negotiator must allow the other party sufficient time to think through the response before replying. Too often, because of impatience, the asking party provides the answer or moves on to another question. This is bad manners and may lead to misunderstanding on the part of the other party.

By improving your listening skills, you are putting yourself in an advantageous position to explore fully how best you can reach mutually beneficial outcomes.⁵ It is worth remembering that listening brings parties together while arguing pulls them apart. That is why effective negotiators spend most of their time listening attentively to the other party and taking notes while less successful negotiators talk most of the time. When a negotiator can smile when listening and make the other person feel good, his or her communication power is that much more effective.

Knowing the Bottom Line

One negotiation power that is often underrated and frequently misunderstood is walking away. This is based on one’s resistance point or bottom line. In other words, there is a limit beyond which it is no longer worthwhile to continue the negotiations. The bottom line must be based on a thorough calculation of real cost as well as opportunity cost. Knowing his or her bottom line coupled with alternative options to fall back on gives a negotiator greater bargaining power. Unfortunately, this type of power is not fully used by executives from smaller firms because of their inability to take the time to develop their bottom line and alternatives. Not knowing his or her bottom line only places a negotiator in a weak position, which may result in accepting outcomes that prove to be unprofitable in the long run. When a negotiator does not know his or her resistance limit, he or she may end up making unacceptable concessions. Knowing the bottom line and having the ability to walk away due to better alternatives influences a negotiator’s overall approach and places him or her in a powerful position to lead the discussions.

Decision Making/Commitment Power

A type of power that is often neglected is the power to commit. This is a definite advantage when negotiating with larger organizations. With increasing global competition, greater reliance on suppliers, and just-in-time management, negotiators having the power to commit in the closing moments may well walk away with the deal. In contrast, negotiators from larger firms, besides being overconfident when dealing with smaller companies, may have limited authority, needing to seek prior approval from senior management. Not being outguessed by superiors or by committees gives negotiators from smaller firms an advantage because as more people get involved in decision making (whether directly or indirectly), the more delays can be expected. These delays not only slow down the process but also lead to reopening the negotiations with the introduction of new proposals, requests for more concessions, or involvement of new players. Moreover, dissension and disagreement among members is likely in larger teams, which can derail the negotiations over time.

Having the power to commit in the closing phase of a negotiation is critical. The party that is able to decide and commit on the spot gains power. Executives negotiating in cultures where quick decisions are associated with successful management performance are likely to find themselves in a dominant position when they have the power to commit.

Estimating Negotiating Power

The previous section explored the role of power in negotiation. Before entering into negotiations, it is useful to estimate your own power as well as the power of the other party. This can be achieved by completing Figure 11.1, using the following ratings:

When rating yourself, try to avoid the rating of 3, as it will fail to indicate a relative strength or weakness. Even when you do not have much information about the other party, try to estimate the extent of his or her power to the best of your knowledge.

If your score is 40 or better, you have negotiating power. If your score is between 35 and 39, you are in a relatively strong position with some weaknesses. If your score is below 34, your negotiating power is limited; you are likely to find yourself in a weak position, unless the other party is even weaker.

If you find that the other party has all the power and you have none, you should seriously reconsider entering into the negotiation. In such a case, it is better to postpone meeting with the other party until you can equalize your power or to find another party where you have a better chance to achieve your goals. For this reason, it is to your advantage to have more than one party interested in doing business with you.

By comparing your scores with those of the other party, you can gain a better understanding of what power you have and where you need to improve. If your overall score is less than that of the other party, examine those types of power where you have a lower score and find out how you can improve it.

Being an Effective Negotiator

Effective negotiators do well because they are able to control the discussions, can offer the other party plenty of alternatives that will satisfy their needs, and are committed to reaching mutually beneficial outcomes.⁶ A negotiator’s personal power comes in handy in this endeavor. The following list items are a wide range of personal attributes that are found in most successful negotiators. You should review these attributes to determine whether you are an effective negotiator. If you possess most of these attributes, you have what it takes to be a successful negotiator. If you wish to further improve your negotiation skills, begin developing your personal power by reviewing your past experiences.⁷

Summary

Generally, preparing well, acquiring negotiation know-how, improving communication skills, and learning from past mistakes increase negotiating power. However, effective negotiators never stop learning from their past experiences. After each negotiation, they review their performance by asking themselves the following questions:

Most types of power are within the range of any negotiator. Entering the negotiation with confidence because of preparation enables a negotiator to achieve superior outcomes. Moreover, when a negotiator is well prepared, the other party is respectful and gives the negotiator additional negotiation leverage. As successful negotiating is, largely, the result of excellent preparations, it is desirable to be overprepared rather than underprepared and overconfident.

Skilled negotiators know when and how to apply various negotiating strategies and tactics while being people-sensitive and making decisions. In other words, successful negotiators possess the following traits:

Effectively combining these three skills leads to superior and lasting outcomes. For this reason, negotiation is considered more of an art than a science.