Coca-Cola’s Sustainability Initiatives a ‘refreshing’ Move?

Chapter 2

Preparation: What to Do Before Negotiation

OVERVIEW

This chapter is best discussed after students have prepared for and completed their first negotiation of the course (I suggest a simple, distributive negotiation in a multiweek course). Much class/lecture time should be spent on the concepts of the BATNA and reservation price.  If the instructor is using a group or team-based approach, student groups can engage in a 15-minute discussion of the factors that were critical for preparation. The instructor can compile a master list of each group’s ideas. This list can be compared with Exhibit 2-4 at the end of the chapter. As several biases are identified in this chapter, the instructor can point to instances of these biases occurring in the actual negotiations that students completed. For a homework assignment, students can be asked to use the preparation tips in preparing for a real, out-of-class negotiation.

Lecture Outline

1. the fixed-pie perception

1. Most negotiators view negotiation as a fixed-pie (fixed-sum) enterprise, in that they believe whatever is good for one person must be bad for the counterparty.

2. People who have fixed-pie perceptions usually take one of three suboptimal approaches when preparing for negotiation:

1. Resign themselves to capitulating to the counterparty (soft bargaining)

2. Prepare for attack (hard bargaining)

3. Compromise in an attempt to reach midpoint between opposing desires (often regarded to be a win-win negotiation, but in fact, it is not)

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1. Common assumption is that concessions are necessary by one or both parties to reach agreement

1. The mixed-motive decision-making enterprise

1. Effective preparation for a negotiation encompasses three general abilities:

1. Self-assessment

2. Assessment of the counterparty

3. Assessment of the situation

1. self-assessment

1. What do I want?: Target/aspiration

1. Underaspiring negotiator (winner’s curse)

2. Overaspiring or positional negotiator

3. Grass-is-greener negotiator (reactive devaluation)

1. What is my alternative to reaching agreement in this situation?

1. Best Alternative to a Negotiated Agreement (BATNA)

2. BATNAs and reality

3. Your BATNA is time-sensitive

4. Do not let the counterparty manipulate your BATNA

1. Determine your reservation point (Exhibit 2-1)

1. Step 1: Brainstorm your alternatives

2. Step 2: Evaluate each alternative  

3. Step 3: Attempt to improve your BATNA  

4. Step 4: Determine your reservation price  

1. Be aware of focal points

2. Beware of sunk costs

3. Do not confuse your target point with your reservation point

4. Identify the issues in the negotiation

5. Identify the alternatives for each issue

6. Identify equivalent packages of offers

1. Packages should all be of equivalent value or attractiveness (also see Appendix 1)

2. Premature concessions

3. Identifying packages of offers does not make you appear to be a positional negotiator

1. Assess your risk propensity

1. Risk aversion

2. Reference points define what people consider gains or losses

3. Three sources of risk in negotiation

1. Strategic risk

2. BATNA risk

3. Contractual risk

1. Endowment effects

1. Reference points

1. Am I going to live to regret this?

1. Counterfactual thinking

1. Violations of the sure thing principle

2. Do I have an appropriate level of confidence?

1. Overconfidence effect

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1. sizing up the other party

1. Who are the other parties?

1. Hidden table

1. Are the parties monolithic?

2. Counterparties’ interests and position

3. Counterparties’ BATNAs  

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1. situation assessment

1. Is the negotiation one-shot, long-term, or repetitive? (Exhibit 2-2)

2. Do the negotiations involve scarce resources, ideologies, or both?

1. Consensus conflict

2. Scarce resource competition

1. Is the negotiation one of necessity or opportunity?

2. Is the negotiation a transaction or dispute situation?

3. Are linkage effects present?

4. Is agreement required?

5. Is it legal to negotiate?  (Exhibit 2-2)

6. Is ratification required?

7. Are there time constraints or other time-related costs?

1. Time pressure and deadlines (Exhibit 2-3)

2. Time-related costs

3. Time horizon

1. Are contracts official or unofficial?

2. Where do the negotiations take place?

3. Are negotiations public or private?

4. Is third-party intervention a possibility?

5. What conventions guide the process of negotiation (such as who makes the first offer)?

6. Do negotiations involve more than one offer?

7. Do negotiators communicate explicitly or tacitly?

8. Is a power differential a factor between parties?

9. Is precedent important?

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1. Conclusion

1. Effective preparation places the negotiator at a strategic advantage at the bargaining table

2. Three general areas of preparation—self, counterparty, context, or situation

3. Summary of preparation (Exhibit 2-4) should be used before negotiation

Key Terms

BATNA  Acronym for a negotiator’s Best Alternative To a Negotiated Agreement.

consensus conflict  Conflict that occurs when one person’s opinions, ideas, or beliefs are incompatible with those of another.

contractual risk  A situation in which settlement outcomes are determined with uncertainty at the time of settlement.

counterfactual thinking  The act of thinking about how things might have turned out differently.

fixed-pie perception  The belief that the counterparty’s interests are directly and completely opposed to one’s own.