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Integrative Negotiations

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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Exercise: Rules

  • Exercise: Texoil
    • Two-person negotiation over the sale of a service station.
      • A buyer: Texoil representative.
      • A seller: service station owner.

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  • Rules:
    • You will be randomly assigned a role.
    • You will have 30 minutes to read the instructions.
    • You will be matched with somebody else in the other role.
    • You will have 30 minutes to reach a deal.
    • All signed contracts must be submitted before the deadline.

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Exercise: Role Assignment

  • Roles:
    • Texoil representative = odd number (1, 3, 5, …)
    • Service station owner = even number (2, 4, 6, …)

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Matching

1-2

15-16

29-30

43-44

57-58

3-4

17-18

31-32

45-46

59-60

5-6

19-20

33-34

47-48

61-62

7-8

21-22

35-36

49-50

63-64

9-10

23-24

37-38

51-52

65-66

11-12

25-26

39-40

53-54

67-68

13-14

27-28

41-42

55-56

69-70

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Integrative Negotiation

  • Integrative Negotiation is a negotiation in which there is a potential for the parties’ interests to be integrated in ways that create value or enlarge the pie.

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  • Also known as:
    • Non-zero sum negotiation.
    • Win-win negotiation.
    • Interest-based negotiation.

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  • Win-win negotiation:
    • Focus is on the underlying (shared) interests across multiple issues.
    • It is not a “compromise” or “even split”.
    • Win-win means that all creative opportunities are exploited and no resources are left on the table (integrative negotiation).

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What is Win-Win Negotiation

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Soft

Tough

Soft

Tough

5 , 5

7 , 3

3 , 7

5 , 5

Firm 1

Firm 2

Split

Grow

Split

Grow

10, 10

5 , 5

5 , 5

5 , 5

Firm 1

Firm 2

Win-Lose Game:

Win-Win Game:

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Signs of Win-Win Potential

  • Does the negotiation contain multiple issues?
    • By definition single-issue negotiations are not win-win.

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  • Can new issues be brought in?
    • The more moving parts, the better the potential deal.

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  • Do parties have different preferences across negotiation issues?
    • Think of a dispute over a fruit basket with apples and oranges, where one person likes apples and the other likes oranges.

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  • Can side deals be made?
    • Bring other players into the game (if it is beneficial).

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Exercise: Debriefing

  • Texoil representative, a buyer:
    • Introduce your role.
    • Why do you want to buy a service station?

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  • Service station owner, a seller:
    • Introduce your role.
    • Why do you want to sell the service station?

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Exercise: Texoil

  • What is Texoil’s target?
    • Target: $350k-$450k.

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  • What are Texoil’s BATNA and reservation price?
    • It will cost $100k to build a mini-mart.
    • Also, new tanks are needed.
    • Purchasing land and building a service station for a total of $675k.
    • Reservation price: $500k (given by a company’s manager).

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Exercise: Service Station

  • What is service station’s target?
    • Texoil’s BATNA is to build a comparable station for $650k.
    • Target: $650k.

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  • What are service station’s BATNA and reservation price?
    • British Petroleum offer of $400k.
    • Maybe selling to another buyer.
    • Expenses: boat $230k, repair $68k, maintenance $40k, living $75k, taxes on capital gain $65 (a total of $553k).
    • Reservation price: $553k.

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Exercise: Bargaining Zone

  • What is the bargaining zone?
    • Texoil’s reservation price is $500k.
    • Service station’s reservation price is $553k.
    • Negative bargaining zone of -$53k ($500k - $553k).

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  • Can new issues be brought in?
    • Texoil needs a good manager (and the representative is the VP of Operations).
    • Service station owner needs a job after he comes back from the trip.

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  • What outcome would benefit both sides?
    • Buying the service station (470k-500k) and offering a job (60k-100k).
    • There is an integrative component and distributive component.

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Exercise: Closing the Deal

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A Pyramid Model of Integrative Agreements

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  • Less than 25% of executives in negotiation simulations reach level 3 agreements, and of those, 50% reach them by chance.

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Level 3: Pareto-optimal

Level 2: Settlement demonstrably superior to other feasible settlements

Level 1: Mutual settlement (positive bargaining zone)

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Negotiation Biases

  • Cognitive biases are mental errors caused by our simplified information processing strategies:
    • Overconfidence.
    • Agreement bias.
    • Anchoring bias.
    • Incompatibility bias.
    • Fixed-pie bias.
    • Confirmation bias.
    • Self-serving bias.
    • Availability heuristic.
    • In-group bias.
    • Exaggeration of conflict bias.

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Incompatibility Bias

  • Incompatibility bias (“false conflict perception”):
    • The tendency to believe that the other party’s interest is directly opposite to one’s own interest (while in reality they may be compatible).
    • Example: CEO doesn’t want to give me a bigger bonus. Reality: CEO wants to give bigger bonuses to top performers to stimulate better performance and to show others that high performance is rewarded.

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  • Potential solutions.
    • Build trust.
    • Share information.
    • Ask questions.

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Fixed-Pie Bias

  • Fixed-pie bias:
    • The tendency to assume that the other party places the same importance on the negotiated issues when the potential for mutually beneficial trades exists.
    • Example: One person has apples but likes oranges more, while the other person has oranges but likes apples more. But when they get into a negotiation, they treat it as a win-lose situation.

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  • Potential solutions:
    • Build trust.
    • Share information.
    • Ask questions.

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Wrong Strategies

  • Compromise.
    • Compromise pertains to “slicing the pie”, not “expanding the pie”.

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  • Focusing on a long-term relationship.
    • Establishing a long-term relationship does not imply win-win.

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  • Adopting a cooperative orientation.
    • Often keeps parties from focusing on the right information.

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  • Taking extra time to negotiate.
    • The quality of negotiation does not improve with additional time.

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Pie-Expanding Strategies

  • Strategy 1: Perspective-taking.
    • Negotiators who can see the world through the counterparty’s eyes are more successful in identifying and reaching integrative outcomes.

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  • Strategy 2: Ask questions about interests.
    • You want to know what issues are most important for the other party .
      • “Will you need a job after you return from your trip?”

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  • Strategy 3: Provide information about your interests.
    • Generally, there is no advantage of revealing your BATNA, but it is very important to share information about your interests and priorities.
      • “I am more concerned about the down payment than the actual price of the house”.

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Getting the Right Information

  • Professor Jeanne Brett

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Sharing Information in Negotiation

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Type of Information

Definition (example)

Claiming Value

Creating Value

BATNA

The alternatives a negotiator has outside of the current negotiation (e.g., “If I don’t buy your car, I can buy my uncle’s car for $2,000”)

Revealing this information severely hurts ability to maximize negotiator surplus

Revealing or obtaining this information does not affect ability to reach level 2 or 3 integrative agreements; might help negotiators reach level 1 integrative agreements

Position

Usually, a negotiator’s opening offer; the behavioral manifestation of his/her target point

(e.g., “I will give you $1,500 for your car”)

Opening with an aggressive target point significantly increases the negotiator’s surplus (share of the bargaining zone)

Does not affect integrative agreements

Underlying interests

The underlying needs and reasons a negotiator has for a particular issue (e.g., “I need a car because I need transportation to my job site, which is 15 miles away in a rural zone”)

Revealing this information generally increases likelihood of obtaining a favorable slice of the pie because negotiators who provide a rationale for their demands are more adept at realizing their targets

Very important for reaching win-win deals; by (truthfully) revealing underlying interests, negotiators can discover win-win agreements (e.g., one sister tells the other that she wants the orange because she needs to make juice and has no need for rinds)

Priorities

A judgment about the relative importance of the issues to a negotiator (e.g., “I am more concerned about the down payment than I am about the financing for the car”)

Increases a negotiator’s surplus indirectly, because if more value is created via sharing priorities, then the probability that a negotiator will get a larger slice of the pie increases

Vitally important for maximizing the pie (e.g., the sister who said she cared more about the rinds relative to the juice created potential for integrative agreement)

Key facts

Pertains to information that bears on the quality and the value of the to-be-negotiated issues (e.g., “The car has a rebuilt engine and has been involved in a major collision;” “The oranges are genetically modified”)

This information can affect the slice of the pie the negotiator obtains in that facts either increase or decrease the value of the to-be-negotiated issues

Affects the quality of win-win agreements in that failure to reveal key information may lead a negotiator to over- or undervalue a particular resource (e.g., someone who sells “fresh organic orange juice” does not want to have genetically-modified oranges as an ingredient)

Substan-tiation

Argument either made to support one’s own position or to attack the other party’s position

(e.g., “You will get lots of dates if you buy my car because women like it”)

Most dominant type of distributive tactic (24% to 27% of all statements);** can increase a negotiator’s slice of the pie because providing a rationale (even an absurd one) can often be effective in obtaining a demand

A distributive tactic; does not increase win-win negotiation and may, in fact, reduce likelihood of win-win*

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Pie-Expanding Strategies

  • Strategy 4: Unbundle single-issue into multiple-issues.
    • Often negotiators fail to reach an integrative solution because they are stuck on one issue (for example, price).

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  • Strategy 5: Make package deals, not single-issue offers.
    • Don’t negotiate each issue one by one, but rather as a package (this will allow you to make tradeoffs).

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  • Strategy 6: Capitalize on differences.
    • Negotiators value negotiated issues differently; they have different expectations, risk attitudes, time preferences.
      • “I like apples, you like oranges”.

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Pie-Expanding Strategies

  • Strategy 7: Make multiple offers (packages) of equivalent value simultaneously.
    • (1) Determine what are the issues.
    • (2) Devise multiple-issue offers that are all of equal value to you.
    • (3) Make the equal value offers all at the same time.

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  • Strategy 8: Do not forget about claiming value.
    • Focus on creating value, but do not forget about claiming value.

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“Win-Win-Win”

  • The Office

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Thank you!

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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References

  • Thompson, L. (2004). The Mind and Heart of the Negotiator. New Jersey: Prentice Hall. (Chapter 4)

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