chelst & canbolat value added decision making 04/08/12 1 chapter 15 author: hal stack the other...

Chelst & Canbolat Value Added Decision

Making

04/08/12 1Chapter 15Author: Hal Stack

The Other Perspective Chapter 15: Negotiated Decisions

Relevance of other perspectiveNegotiations – Mutual acceptance of decision

with negotiating partner: Key: Understand other perspective’s concerns

Ethical – Decision may impact othersKey: Perceive impact

Game Theory –reaction by competitorKey: Anticipate actions and factor into initial actions


Making


Activity—Your experience with negotiationsSuccessful or Unsuccessful, One time or part of long-term relationship?

Personal PurchaseParent and childHome contractor or landlord

Business Customer problemContractContract dispute

Other: volunteer organization


Making


Issues to be Negotiated

TangiblePriceDurationCoverage

Intangible – underlying psychological motivationFairnessPrecedent settingReputation


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Types of Negotiations

Single issue such as price – very limiting Distributive “fixed” pie – your increased share

comes from my decreased shareMulti-issue – preferred bigger pie

Issues important to my side are not “as” important to your sideJob securityNumber of jobsMarket opportunities for supplier or reputationProfits

Deal making involves upfront negotiationsConflict resolution emotional


Making


Interests instead of bargaining positions

Position = one party’s solution to negotiationsArgue relative merits of each position Attack merits of other position and often ignore

concernsConfrontational win-lose: may just split the

difference2011 National debt negotiations and budget deficits

Interests = underlying needsWhy is this important to you?Egypt and Israel in Sinai

Israel security and Egyptian sovereignty

Salary request motivationIndividual: Financial need or financial security or ego,Company: precedents, total cost, flexibility


Making


Frame Issues

Define the issue: What is the issue? Why is it important to us?What is the current situation?Who is affected and how are they affected?What has contributed to making this an issue?What will happen if nothing is done?

Identify stakeholder interests involved: What is at stake for you and other key stakeholders on this issue?Different generations or classes of people!!

Ongoing 2012 US (and European) budget debatesNBA stars vs massesRetirees, existing workers, and new workers


Making


Activity – Health care benefits

Position of Employer: Employees must pay more of the cost of health insurance.Interest of Employer:

_______________________________Position of Union: The employees will

not pay more.Interest of Union and Employees:

_______________________________


Making


KEY: Understanding other sides interests

Problem: Biased partisan perceptionsI am reasonable and you are not

Creating value vs claiming share of valueRequires sharing information about

preferences and concernsOpenness and trust

Negotiations are a dynamic process with biasesEscalation of commitment, confirmation bias, sunk

cost, endowment affect of having something, anchoring, overconfidence of winning

NBA 2011 strike – negotiate salaries as share of wealth


Making


Negotiation Process Steps

Preparation Assessment ofSelf – Goals to achieve and BATNA

Other party – Goals to achieve and BATNA

Situation: importance of relationship, time pressures, and differences in power (unions) Raise cap on national debt

Value CreationStrategies: Solve the other’s problems, beneficial

trades and contingent contracts

Tactics: Ask questions, build trust, share information

Value Claiming Closure of negotiations


Making


Table 15.2: Negotiating the purchase of a used car: Information

Seller’s Information Buyer’s InformationThe seller needs a larger vehicle that will enable him to expand his business, in which he delivers and sets up computers for a local computer store.

The buyer, a commuter student at the local college, has $3,450 to spend. Borrowing funds from family and friends is not possible.

The Blue Book retail value of the car is $4,000 and a dealer has offered $3,350 as a trade-in on a new car.

The buyer wants a small, fuel efficient car for getting to school and to his part-time job.

A local mechanic has certified that the car is in good condition except for the wear on the tires.

The buyer hopes to purchase the vehicle for $3,100 and have sufficient money remaining for insurance. The seller has advertised the car for $3,750.

Possible area of tradeoff – Payment schedule: less money upfront but more in total


Making


Figure 15.1: Zone of Possible Agreement (ZOPA)

Buyer

Seller

Target Price($3,100)

Target Price($3,750)

Reservation Price($3,450)

Reservation Price($3,350)

ZOPA

BATNA = Best Alternative To No AgreementZOPA = Zone Of Possible Agreement: Overlap Region


Making


Job Offer & Assessing other needs Initial offer an anchor? Company

Salary scale or signing bonus? Immediate need to fill positionLocation (jobs in Detroit)Financial situation: short term vs long-termUncertainty of performance

WorkerHas current job? Or out of work 6 months?Financial stress and debt (student loans)Willingness to relocateNeed for securitySpouse status

External Job market for skills


Making


Solve other sides problem

Face saving gesturesJob security for workersHealth care coverage for seniorsDay care for younger peopleProvide stable and predictable costs

for company


Making


Contingent contracts: If-Then

Differences in forecast and understandingRoyalties on salesPerformance of athleteGrowth in cost of living or cost of health care Profitability or revenues

Sports team and union contracts share of revenues

Car market and plant closingsLength of productive performance

Differences in attitude towards risk and time valueHow much for sure and how much contingent on

uncertain developments in economy or performanceMoney now or later


Making


Table 15.4 Planning Document for each issue


Making


Long-term relationship & negotiations risksUse of Power to impose solution

Threat of overseas outsourcing (American Axle)

Threat of bankruptcyThreat of no new business to supplier

Post settlement negotiations – changes only if both benefit from better solutionUS budget – imposed automatic deficit

reduction if no alternative reached


Making


Sports: negotiation a deal

A major league catcher, nearing the end of his career, is hoping to negotiate a contract with a major league team in his hometown. Looking for a career after playing career ends

The same team finds itself in need of an experienced catcher. because of injury

How should the parties prepare for these negotiations? What issues are likely to arise?


Making


Sports Player – Interests & Goals


Making


Sports Player – Interests & BATNA


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Team & Catcher Perspectives: Creative Solutions

Uncertainties, Interests and concernsFitness of catcher and performanceReturn of injured player one-year contractTeam performance and revenueCareer after baseball playing

Broadcasting career in his hometown,Contract eases him into doing color commentary on

television. Working with the catcher to sponsor baseball campsSet up speaking engagements in the community

Contingent contracts Uncertainty of fitness –games played, team successSalary: base plus partial linked to performance

Salary fairnessSeparate salary for his work as a broadcasterself-image: salary be appropriate to his status


Making


Baseball and Free Agency

More and more players are seeking long-term contracts in their mid-20s as they are in the early prime years and a couple of years from free agency.Want to stay in one cityWilling to give up free agency which would

maximize salary but carries riskNumber of years of salary guaranteed


Making


Hospital and IT Contractor Dispute

Hospital dispute with IT supplier over the implementation of electronic record system. Failure to resolve this dispute will cost the hospital

several million dollarsHospital is on the verge of bankruptcy.

Without resolution, IT company will Damage its credibility in a rapidly growing market

and Lose much of the money it has invested in the

project.

Lawsuits and counter suitsHow should the parties proceed?


Making


Ethical IssuesDeception vs integrity

Claim that impossible to… I have no choice but to…Puffing – bragging about capabilitiesNO fraudulent claims – misrepresentation of material

fact the other party relies upon

Three frameworksPoker school – game with rules but everything else is OK Idealist – element of social life: candid but still do not

reveal everything, do not volunteer informationPragmatist – concern about questionable behavior that

affects reputation

Research your bargaining partner’s reputation


Making


Hospital and IT Contractor InterestsHospital Working system Increased net

revenue System in place

quickly Reputation Staff acceptance

and use of system

Computer Co. Profitability Future sales to

health systems Tested generic data

entry software Reputation Staff acceptance

and use of system


Making


chelst & canbolat value added decision making 04/08/12 1 chapter 15 author: hal stack the other...

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chelst canbolat value

hal stack key

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perspective chapter

ethical decision

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