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Negotiation as a Core Management Competency
Negotiation is an interpersonal decision making
process by which two are more people agree how to allocate scarce resources. Effective negotiation skills are very important for
managers, executives and leaders in the business world. There are five key
reasons for this: 1.
Dynamic Nature of Business 2.
Interdependence 3.
Competition 4.
Information Age 5.
Diversity Dynamic Nature of Business Dynamic nature of business means that people must
negotiate and renegotiate their existence in organizations throughout the
duration of their career. The advent of decentralized business structures and
the absence of hierarchical decision making provide opportunities for
managers, but they also pose some daunting challenges. New opportunities mean
that people must continually create possibilities, integrate their interests
with others, and recognize that there will be competition both within
companies and between companies. Managers must be in a near constant mode of
negotiating opportunities. Ideally negotiation should be second nature of a
manager. “Negotiation comes into play when people
participate in important meetings, get new assignments, head a team,
participate in business process and set priorities for their work” Interdependence The increasing interdependence of people within
organizations both literally and hierarchically, implies that people need to
know how to integrate their
interests and work together across business units and functional areas. The
increasing degree of
specialization and expertise in business world implies that people are more
and more dependent on others. It is naive to assume that other have similar
incentives to work together, so managers need to know how to promote their won
interests while simultaneously
creating joint value for their organizations. This requires negotiation. Competition Business is increasingly competitive. In today’s economy, a few large firms have emerged as dominant players in the biggest markets. The losers are often left with little in the way of a market. Managers have to function as advocates of their products/services and must also recognize that the competition is inevitable between companies and in some cases between units within a given company. Understanding how to navigate this competitive environment is essential for successful negotiation. Information Age The information age also provides special opportunities
and challenges for the manager as a negotiator. With the ever improving
communication technology making it possible to communicate with people
anywhere in the world, managers need to be able to negotiate at a moments
notice. The ability to determine relevant information from irrelevant
information is critical for successful negotiation in the information
(overload) age Diversity Increasing workplace diversity means that managers need
to develop negotiation skills that can be applied across cultures. The
challenge is to develop a negotiation skill set which is general enough to be
used across different contexts, groups and continents, but specialized enough
to provide meaningful behavioral strategies in any given situation. Major sins of Negotiation 1.
Leaving money on the table
Occurs when negotiators fail to recognize and exploit win-win
potential. 2.
Stettling for too little
Occurs when negotiators make too-large concessions resulting in a too
small share of the bargaining pie. 3.
Walking away from the table
Occurs when negotiators reject terms offered by the other party that
are demonstrably better than any other option available to them. 4.
Settling for terms that are worse than your alternative
Occurs when negotiators feel obligated to reach agreement even when the
settlement terms are not as good as their other alternatives.
Why
are people ineffective Negotiators? Many a times a lose-lose outcomes, Win-Lose outcomes or
walking away from the table, raises the question of why people are not more
effective at the bargaining table if negotiation is indeed critical for
business success. The reason is not due to a lack of motivation or lack of
intelligence on the part of negotiators. Many managers fail because they fall
victim to the major sins of negotiation: Absence of feedback, Satisficing and
Self-reinforcement. Absence of Relevant Feedback & Diagnostic
Feedback Most people have little opportunity to learn how to
negotiate effectively. The problem is due to lack of timely and accurate
feedback. Even those people who have daily experience in negotiation receive
very little feedback on their negotiating effectiveness. The absence of
feedback results in two problems:
Confirmation Bias & Egocentrism. Confirmation Bias i.e. the tendency to see what
they want to see when apprising their own performance. Confirmation bias leads
people to selectively seek information that confirms what they believe is
true. This results in a myopic view of reality and hinders learning. Egocentrism i.e. the tendency for people to view
their experiences in a way that is flattering or fulfilling for themselves.
This may increase their self-esteem; However in the long run, it prevents them
from learning from their experiences. Satisficing Satisficing is the opposite of optimizing. Its is when
people settle for something less than they could otherwise have. Over the long
run, satisficing can do a disservice because a lot of possible gains has been
given away. Self-Reinforcement Self-reinforcement is the reluctance to try out
something new or change certain behavior because of the risks associated with
experimentation. In short fear of losing prevents them from negotiating
effectively. Myths of Negotiations Myth -1 : Good Negotiators are Born Most excellent negotiators are self-made. The myth of
naturally gifted negotiators is based on selective memory. ie people remember
their success and forget their mistakes. In reality effective negotiations
requires practice and feedback. Myth -2 : Experience is a Great Teacher Its only partially true that experience can improve
negotiation skills. In fact naive experience is largely ineffective in
improving negotiating skills. To understand why, remember that in absence of
feedback, its is nearly impossible to improve performance. So without
feedback, one fails to learn from
experience. Also people have selective memories of their experiences. People
tend to remember their success and not their mistakes or shortcomings.
Selective memory may help boost self-confidence but it does little to improve
performance. Lastly, Experience does not improve the accuracy of negotiations.
People with more experience grow more and more confident but the accuracy of
their judgment and effectiveness of their behavior does not increase in a
commensurate fashion. Myth -3 : Good Negotiators Takes Risks Tough negotiations like “This is my final offer”
“Take it or Leave it” or using threats and bluffs are seen as taking
risks. This tough negotiations are rarely effective. More often than not, such
hard ball tactics will leave the opposite party enraged and might toughen
their stand making it impossible to negotiate. Myth - 4 : Good Negotiators rely on Intuition Many seasoned negotiators believe that their negotiation style involves a lot of “Gut feeling” or Intuitive responses. Such feeling are primarily due to their own short comings or a reactive response rather than a deliberate plan. Effective negotiation involves deliberate thought and systematic preparation.
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