martin gerstel - the art of negotiation

The Art of Negotiating

The MIT Enterprise Forumof Israel

Tel Aviv University

December 29, 2010

© (2010) Martin Gerstel

NEGOTIATION

“The use of information and power to affect behavior within a web of tension.”*within a web of tension.”*

* Herb Cohen, “You can Negotiate Anything.” Four months on

the New York Times Best Seller List

NEGOTIATION

“The use of information and power to affect behavior within a web of tension.”*

The process of two or more The process of two or more parties attempting to reach agreement regarding an issue when faced with an apparent conflict or disagreement.

* Herb Cohen, “You can Negotiate Anything.” Four months on

the New York Times Best Seller List

THE ART OF NEGOTIATING

� When to Negotiate

WHEN TO NEGOTIATE

� When is it required?

– Almost never

� When can you not?

– Almost never– Almost never

When you choose to

But…Always a priceIs it worth it?

A Common Mistake

“Set objective (what you want)

and then accomplish it”

Objective (What?)

Means to AccomplishNegotiate (How?)

Objective (What?)•Buy car at lowest cost to resell

•Sell car at highest price and then buy car

Key to Remember!

Why? – Why? – Why?

Why?•Needs car for summer at

less than $9000 cost•Has car unneeded for summer, needs $2000, summer, needs $2000,


•Sell car at highest price and then buy car at end of summer

“Why’s” lead to “How’s” “What’s” often lead to trouble

Why?•Need car for summer

•Need $2000 for trip: have car that is not needed for summer

Means to Accomplish (How?)• Rent Car for summer

NO


•Sell car at highest price and then

buy another car at end of summer

When to Negotiate?

“Negotiation”: The process of two or more parties attempting to reach agreement regarding an issue when faced with an apparent conflict or disagreement.apparent conflict or disagreement.

1. Are you sure there is a conflict?

2. Is it “worth it” to resolve?



� “Why” is key, not “What”

Assumption or Fact?

� If someone puts an ad in the newspaper to sell a car, they want to sell the car.

� If someone responds to an � If someone responds to an ad in the newspaper about a car for sale, they want to buy a car.




� Question Your Assumptions

When ALZA first began working with

client companies, overhead rates were

negotiated individually with each

potential client. This negotiation was

often the most difficult part of entering

into a new arrangement. The client

From my History

into a new arrangement. The client

company had their accountants go over

every individual line item and argue

with us point by point, trying to reduce

our rates.

Why was the potential client

doing this?

An Objective (“What”)

“We want to have the right to

market the product in Europe.”

“Why’s” lead to “How’s” –

“What’s” often lead to trouble

Assumptions/Facts(Why?)

Objectives(What?)

Means to Accomplish(How?)

NO


“We want to have the right to

market the product in Europe.”

� The “Why” Could Be:

– We want to become start marketing products in general

– The other company is not very strong in Europe

– We want to Build Marketing Capability for this product line or geographic area in the future

– We want to be closely Identified with This Product


A Friend: “Let’s go to Alice’s

Restaurant for dinner”

The “Why” Could Be:

– Alice’s has great steaks


A Friend: “Let’s go to Alice’s

Restaurant for dinner”

– Alice’s has great steaks

– Want a particular dish that is made only by this restaurant

– It’s at the Tel Aviv Port near the water

– Want a very quiet restaurant

– Don’t want to drive too far

– ???





� Separate “needs” from “wants”

Separate “Needs” from

“Wants”

� “Needs”

– Reason you are interested

– If not “walk-away”

� “Wants”

– Nice to have

– May effect Pricing

– Not a “deal-breaker”






� Focus on “Next Best Alternative”

Focus on

“Next Best Alternative”

Problem: How to determine an

objective “value” for your first

choice? How much is it really

worth to you?worth to you?

Focus on


Problem: How to place an

objective “value” on your first

choice? How much is it really

worth to you?

The Value to you of your

“first choice” equals:

The cost to you of your


PLUS

the value/cost of the difference







� Recognize/Neutralize “The Big Four”� Recognize/Neutralize “The Big Four”

VARIABLES THAT WILL

INFLUENCE OUTCOME OF

NEGOTIATION

The “Big Four”

� Information

Information

� Usually most important determinant of outcome

– About the substance of the negotiation

– About the other negotiator/company

Key to Remember

� You don’t know what the other party really needs/wants (They might not even be aware or willing to admit)

� Usually, there is a better solution for both parties than the initial positions taken by either

VARIABLES THAT WILL


NEGOTIATION

The “Big Four”

� Information

� Power� Power

Power

� Power in a negotiation can be obtained by:

– Alternatives

– Organization/legitimacy

– Precedent

– Persuasive ability

– Expertise

– Morality– Morality

– Blackmail

– Persistency

– Risk-taking/escalation

– Anger

� Important to recognize sources of power for both you and the other party

– Can sometimes be “neutralized” if you’re prepared

VARIABLES THAT WILL


NEGOTIATION

The “Big Four”

� Information

� Power� Power

� Time Constraints

Time Constraints

� Use of deadlines

– Most deadlines are not

deadlines

� Recognize when passage � Recognize when passage of time eliminates alternatives

What Would You Do?

You are a knowledgeable buyer of

antiques and you find an extremely

rare lamp for sale which you know

(without any doubt) is worth at least

$100,000, yet the price marked is $100,000, yet the price marked is

$500. The Seller is a very

successful company that purchases

estates and sells items on individual

basis, and just made a very big

mistake in appraising the lamp.

What do you do?

What Would You Do?


antiques and you find an extremely rare

lamp for sale which you know (without

any doubt) is worth at least $100,000, yet

the price marked is $500.

What do you do?What do you do?

Suppose the Seller is a widow selling all of her possessions to get money for a medical operation for her only child?

What Would You Do?







Suppose you are very wealthy?

What Would You Do?







Suppose you are out of work and having problems feeding your family?

VARIABLES THAT WILL


NEGOTIATION

The “Big Four”

� Information

� Power� Power

� Time Constraints

� Values/Needs/Wants/EGO

Each of the above can be used by either party at any time to change the tone of the negotiations.

- Can be “truth” or a “ploy”








� No “True” Values









– concept of “negotiables”

– key to “win-win” negotiating









� Share Information

WHAT INFORMATION

TO SHARE

Very Difficult Judgment Call

� Should try to share information

that will:

– Help in finding a mutual solution– Help in finding a mutual solution

– Help other party to understand your needs

WORKSHOP EXAMPLE:

Buying/Selling Car

What Information to Share?

� BUYER– Needs car only for three months– Needs car only for three months

– Intends to sell after three months

� SELLER– Selling car reluctantly

– will need to buy car after three months return from trip

WHAT INFORMATION

TO SHARE

Very Difficult Judgment Call

� Should try to share information

that will:

– Help in finding a mutual solution

– Help other party to understand – Help other party to understand

your needs

� But, need to consider whether other party can then use information to your disadvantage

WORKSHOP EXAMPLE:

Buying/Selling Car

What Information NOT to Share?

� BUYER

– No Other Alternatives

– Time pressure – Time pressure

� SELLER

– No Other Alternatives

– Time Pressure

HOW DO YOU RESPOND?You’ve been in a very difficult

negotiation for three days. The process

doesn’t seem to be getting anywhere.

There doesn’t seem to be an outcome

acceptable to all. On the first day of the

negotiations, you had presented a proposal

that was flatly rejected out of hand by the

other party as totally unacceptable, and

they weren’t even willing to discuss it.they weren’t even willing to discuss it.

It is now three days later and they

come back to you with a proposal which is

essentially the same as the one that you

offered three days earlier. It is presented

by them as a new and different way to

possibly proceed to get around the

problems that your unwillingness to be

reasonable has created.










� You Negotiate With People











– Listen and Respond

Listen and RespondWhat “Level” Is the Subject Now

Being Discussed?


Objectives(What?)

Means to Accomplish(How/A Proposal?)

LISTEN and RESPOND,

Accurate?

�Is the other person’s statement, or what it is suggesting:

Reasonable?

Acceptable to You?NOT the same as “Reasonable”

GIVING YOUR RESPONSE

WHAT’S THE DIFFERENCE ?

Presenting Your Case

� In a Court of Law

� In a Negotiation











– Listen and Respond

– Show Support for the Other Party

– Forget your “Ego needs”

Forget Your

“Ego” Needs

Most people, particularly if they are

representing an organization and

have their associates with them,

need to “look good.” If you are in a

negotiation and you don’t have that

need, it can be a tremendous

advantage.

Examples:

• Giving credit to others for ideas

• Lose a lot of battles

Painting

Win Wars--Lose

Battles

� Need to know what the war is

– Know Your Objectives– Know Your Objectives

� Need to look for battles to lose

– You negotiate with people











� Don’t Argue About the Future

Orange











� Don’t Argue About the Future

� Compromise is Failure!

– “Remember the Orange”

A “Make Believe”

Raffle

The Rules:

� Highest Bidder Gets $100.00$100.00

� Second Highest Bidder has to pay me what he/she bid

IMPORTANT NEGOTIATIONS

USUALLY CONSIST OF MANY

INDIVIDUAL ELEMENTS

� Poor Negotiators will respond

individually to each element

without an overall plan

– Try to “maximize” each element

regardless of importance to regardless of importance to

objectives

� Good Negotiators will understand how these elements interrelate and effect their objectives

– See as an “overall package”

– Think through before responding











� Compromise is Failure!

� Keep the “Big Picture” in Mind

Some Additional Hints

� Always know/understand your alternatives

– There always are alternatives

� Deal with substance, not words– “Ownership” vs. “Right-to-Use”

Patents– “Why” not “What”

� Never negotiate by phone� Never negotiate by phone

� Specifically state the ground rules– Agreements or proposals

� Disagree with IDEAS, not PEOPLE

� Quantify/analyze

� Think about the future

� Never negotiate alone

� If in doubt, ask a question

� Beware of game-players

Games Negotiators Play

� I don’t have the authority

� This is too complicated, can’t we

make it simpler

� Anger, “winning” by intimidation

� Inappropriate use of � Inappropriate use of

power/escalation

� Good Guy/Bad Guy

� I’m really thinking only of your

interests

� Stubborn, confuse and outlast

� Taking outrageous positions

A LITTLE NEGOTIATING PRACTICE

� STATUS: You have been negotiating an agreement under which a product will be developed and marketed by your partner at their expense based on a license their expense based on a license from your company. If successful they will pay your company a royalty. Somehow, during the negotiating process, no one discussed royalty rates, and this is now the only open issue. Everything else has been agreed .


� YOU: “We will require a five percent royalty on sales of the product.”

� THEY: “The most we are prepared to pay is two percent royalty THEY: “The most we are prepared to pay is two percent royalty on sales.”

How to you respond?

“Why’s” lead to “How’s” –

“What’s” often lead to trouble


Objectives(What?)

Means to Accomplish(How?)

NO


� YOU: “We will require a five percent royalty on sales of the product.”

� THEY: “The most we are prepared to pay is two percent royalty THEY: “The most we are prepared to pay is two percent royalty on sales.”

� YOU: “Could you please explain why the maximum you will pay is two percent?”


� YOU: “Could you please explain

why the maximum you will pay is two

percent?”

� THEY: “This is going to be a � THEY: “This is going to be a relatively small niche product and therefore, looking at the development costs involved, we really can’t justify a royalty higher than two percent.”

� YOU: ????????

LISTEN & RESPOND

(Now you “know” the “why”)

� Is the statement you are responding to:

– An Assumption

– An Objective, or

– A proposal

� Is the statement you are responding to:

1. Factual

2. Reasonable

3. Acceptable to you




percent?”

� THEY: “In view of the fact that we are taking all of the that we are taking all of the development and commercial risk, and you are taking no risks, we don’t see how a royalty of higher than two percent is justified or reasonable.”

� YOU: ????????




percent?”

THEY: “Our corporate � THEY: “Our corporate policy is never to pay more than two percent for licensed-in product candidates at such an early stage.”

� YOU: ????????




percent?”

� THEY: “The product candidate just isn’t worth it. candidate just isn’t worth it. Although it appears to have some unique qualities, your patent coverage is not going to stop “me-too’s”.

� YOU: ????????


� YOU: “Could you please explain why

the maximum you will pay is two

percent?”

� THEY: “Product sales will be very limited since this will be a product limited since this will be a product only for the United States market. We don’t see any possibility of international sales.”

� YOU: ????????




percent?”

� THEY: “By the time this product gets to the market, there will be many other companies with similar products for the same target and products for the same target and based on the same mechanism. We agree this will be a big product, but only because of our marketing expertise and position in this field, not the characteristics of the product candidate that you are licensing to us.

� YOU: ????????


THE ENDTHE END

martin gerstel - the art of negotiation

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