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Negotiation and Influence Strategies:“Softer Aspects of Negotiations & Valuations”by Anjan Aralihalli

Know Yourself We all have Individual Negotiating StylesCooperativeness(Other Side’s Interests)DominantBehaviorsAssertiveness(Your gGoal: “To find aWin – Win”Goal : “To Win”ModerateCompromisingGoal: “Find a middleground”LowAccommodatingAvoidingGoal: “To Yield”Goal : “To Delay”Based on the Thomas-Kilmann Conflict Mode Instrument (available online).This graph makes the TKI useful to show the tension between value claiming & value creating2

Negotiating StylesEach of us is a blend of styles – we’re not monolithic!Based on the Thomas-Kilmann Conflict Mode Instrument (available online).3

Negotiating Styles Our dominate Negotiating Style is an inherent personal characteristic Unlikely to change much - Can drift with experience / age / situation Need to be mindful of how our Style impacts our negotiations– With those of other Styles– With those of other Status– With those of other Cultures While we can not change our dominate Style, we can develop skills to:– Recognize the Styles of others– Be cognizant of how our Style harmonizes or conflicts withthe Style of others, and thus impacts our negotiations– Be flexible, and moderate or accentuate our Style for optimal results4

What’s your ator?Avoider?5

What’s your ator?Avoider?6

Impact of Negotiating sHighHighModerateCollaboratingGoal: “To find aWin – Win”CompetingGoal : “To Win”May damage relationship“HARD”CompromisingModerateGoal: “Find a middleground”“SOFT”LowLowMay cause too many concessionsAccommodatingAvoidingGoal: “To Yield”Goal : “To Delay”Even as we encourage our students to negotiate in principled and problemsolving ways, a willingness to claim as well as create value is a must forany effective negotiator (Mnookin, Peppet, and Tulumello 2000)7

Beyond Style Negotiation Philosophies?“Positional Negotiations” Positions offers & counter offers (bids) Arguing positions locks parties into thinking that mayresult in less than optimal agreements Arguing positions can take longer- parties may try to several counter-offers beforethey reach an agreement that is satisfactory Arguing positions may hurt the relationship Positional bargaining is even more difficult whenthere are 2 parties8

Beyond Style Negotiation Philosophies?“Principled Negotiations” Use principled negotiations- View participants as problem solvers and not as friends oradversaries- View the goal is achieving a wise outcome efficiently andamicably, not just reaching an agreement "Separate the people from the problem”- "Be soft on the people and hard on the problem" "Focus on interests not positions” "Invent options for mutual gain" Use objective criteria9

Beyond style, all negotiators should . Have the willingness to prepare Have high expectations and self confidenceThere is solid research evidence demonstrating that people who expectmore get more Have commitment to integrity and courtesy Have active questioning and listening skillsMake judicious use of questions, body language, interjections,supportive statements, and clarifying & summarizing statements toelicit information10

Video11

Negotiator’s ToolboxInfluencePersuasionNegotiationNEGOTIATION12 REFERENCE: Mario Moussa Personal Slides

Outline1. How People Think2. Irrational Decision-Making?3. Common Negotiation Biases4. Persuasion5. Non-Verbal Communication13

How People Think S1 Vs. S2 Illusions & Intuition14

S1 Vs. S2 Thinking15

S1 Vs. S2 Thinking Two systems of thinking: S1 & S2 or Intuitive Versus Deliberate S1 (Automatic)S2 (Reflective)– Uncontrolled- Controlled– Effortless- Effortful– Associative- Deductive– Fast- Slow– Unconscious- Self-aware– Skilled- Rule-following– Gut reaction- Conscious thought– Answer 2 2 - Telling someone your phone number S1 often takes over when negotiators face intense time pressure. S1 fine for simple tasks but S2 critical for complex negotiations.16REFERENCE:When Not to Trust Your Gut, Bazerman & Malhotra, July 31, 2006, HBS,Working Knowledge for Business LeadersNudge, Thaler & Sunstein, Yale U. Press, 2008 (Pages 19-20)

Mind can be easily fooled – illusions.Example17

What about trusting our Intuition?6 Illusions On How Our Intuition Deceives Us:1) Illusion of Attention2) Illusion of Memory3) Illusion of Confidence4) Illusion of Knowledge5) Illusion of Cause6) Illusion of Potential Lots of debate. Flavor of ice cream versus a mutual fund. Key to successful decision-making isknowing when to trust your intuition andwhen to be wary of it.18

Irrational Decision-Making Asch Experiments Economist Example Inattentional Blindness Are Humans Rational?19

Conformity In Groups20 REFERENCE: t.html

Conformity In Groups Solomon Asch Experiments (1950s) Showed how perfectly normal human beings can be pressuredinto unusual behavior by authority figures, or by theconsensus of opinion around them.– Done individually – easy task, all correct– When group makes error, sways your choice– Why? Info conveyed by people’s answers and desire not toface disapproval of group– Less conformity when people are asked to give anonymousanswers. Subsequent MRI studies – peer pressure can alter how peoplesee the lines (people do not consciously deliberate).21REFERENCE:Nudge, Thaler & Sunstein, Yale U. Press, 2008 (Pages 56-59)The Science of Subtle Signals, Mark Buchanan, Strategy & Business, Issue 48, Autumn 2007,Booz Allen Hamilton

Conformity In Groups The principle of independent judgments has immediateapplications for the conduct of meetings – before an issue isdiscussed, all members of the committee should be asked towrite a very brief summary of their position. This procedure makes good use of the value of the diversity ofknowledge and opinion in the group. The standard practice of open discussion gives too muchweight to the opinions of those who speak early andassertively, causing others to line up behind them.22REFERENCE:Nudge, Thaler & Sunstein, Yale U. Press, 2008 (Pages 56-59)The Science of Subtle Signals, Mark Buchanan, Strategy & Business, Issue 48, Autumn 2007,Booz Allen Hamilton

The Economist Example (Video)Framing & Contrast Principle23

Framing & Contrast (WSJ Ad)24

Inattentional Blindness (Video)25

Inattentional Blindness These videos illustrate two important facts: We can be blind to the obvious We are also blind to our blindness26 REFERENCE:

Are Humans Rational? Traditional Economist – taught that each of us thinks andchooses unfailingly well (rational).– Efficient market hypothesis questioned after stock marketbubble in 1990s/early 2000’s. Research has raised serious questions about the rationality ofmany judgments and decisions that people make. So in other words .27

Traditional Economist’s View of Humans28

Behavioral Economist’s View of Humans29

Common Negotiation Biases 30AnchoringOverconfidence Bias/Competitor NeglectRisk & Loss Aversion/Risk SeekingFairness (Ultimatum Game)

Anchoring Process of subconsciously influencing someone's thinking by dropping anumber as a reference point. 2 groups of students asked percentage ofcountries in the UN were in Africa.In each group, roulette wheel spun. 1st group, wheel landed on 10 & participantsasked if they believed percentage was higher or lower than 10%. Mostthought it was higher. 2nd group's wheel landed on 65 & same question was asked. Most thoughtlower. A discussion ensued and both groups were asked to make estimates .31 REFERENCE: Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1130.Retrieved from "http://en.wikipedia.org/wiki/Anchoring"

Anchoring . Mean estimates: 1st group (wheel landed on 10) was 24% 2nd group (wheel landed on 65) was 45%. Estimates strongly anchored by the roulette wheel's results,even though students all witnessed how completely arbitrarythese starting points were. 192 member countries in the UN 50 countries in Africa (maximum is 26%)32 REFERENCE: Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1130.Retrieved from "http://en.wikipedia.org/wiki/Anchoring"

Using the Power of AnchoringAnchoring (Playing Offense)1. Set high goals prior to negotiation; those with high & measurable goalsconsistently outperform those that set more modest goals.2. Open with the highest (lowest) number for which there is a supportingstandard or argument enabling you to make a presentable case.Anchoring (Playing Defense)1. Use Inside “de-biasing” strategy – negotiator should consider theopposite perspective before deciding whether or not to accept an offer.2. Use Outside “de-biasing strategy – effectively ignore the details of thecase at hand & conduct an analysis of a number of analogous cases.Remember to consider how much information the other party has aboutwhat is being negotiated (asymmetrical/symmetrical) & how experiencedthey are.33REFERENCE: Anchoring, Information, Expertise & Negotiation: New Insights from Meta-Analysis, Orr & Guthries, Ohio State Journal on Dispute ResolutionVolume 21, Number 3, 2006, Pages 606-608

Overconfidence Bias & Competitor NeglectIllusion of Confidence & Knowledge 63-70% of people rate themselves as above average in intelligence 90% of students rated themselves better than the average driver Investor’s Assistance Program – 70% of inventions given failure grade; 50%of inventors persisted in spite of objective advice. Only 5/411 projectsgiven failure grade were commercialized and none successful. Key factor in outcome of business initiative is competitor’s behavior butexecutives tend to focus on own company’s capabilities & plans. They often neglect the potential abilities and actions of rivals – results isan underestimation of the potential for negative events.34REFERENCE:Cooper, Woo & Dunkelberg, Entrepreneurs Perceived Chances for Success, Journal of Business Venturing 3(2), 737-770 (1988) – Courtesy Guhan Subramanian (HBS)The Invisible Gorilla, Chabris & Simons, Crown Publishers, 2010, Page 93Thinking Fast And Slow, Daniel Kahneman (Farrar, Straus & Giroux/New York, 2011)

Risk Aversion Investor is a risk-seeker when faced with the prospect oflosses, but is risk-averse when faced with the prospects ofenjoying gains. Kahneman and Tversky, 1979 offered subjects followingoptions to choose from:a) 80% of winning 4,000 with 20% of winning nothingb) 100% of receiving 3,000. Subjects chose (?).35 REFERENCE: Hersh Shefrin, Santa Clara University, Behavioral Corporate Finance White Paper

Loss Aversion/Risk Seeking Then, the following options were given:a) 80% of losing 4,000 & 20% of losing nothingb) 100% of losing 3,000. Subjects predominantly chose (?). When faced with the prospect of a loss, individuals becomerisk-seeking – take the 20% chance!36 REFERENCE: Hersh Shefrin, Santa Clara University, Behavioral Corporate Finance White Paper

The Bogeyman: Risk Aversion in the PGA Professors Schweitzer & Pope (Wharton) analyzed 1.6MM putts from 200 pros.Birdie putts were made about 3% less often that otherwise identical par putts.Tendency existed regardless of skill, round or hole number, putt length, etc.Pros certainly do not make a conscious decision to slack off on birdie putts but their intense aversionto a bogey apparently contributes to extra concentration on the task at hand.Reinforces the psychological preference to avoid a perceived penalty (losing a stroke relative to par)rather than going for a perceived gain (gaining a stroke).REFERENCE: udy.html37 Thinking Fast And Slow, Daniel Kahneman (Farrar, Straus & Giroux/New York, 2011)

Loss Aversion/Risk SeekingProspect Theory (Kahneman & Tversky) Scenario 1: Find a 20 bill Scenario 2: Find 10 bill; next day find another 10 bill Scenario 1: Lose 20 Scenario 2: Lose 10 bill; next day lose another 10 bill We seem to prefer gaining money in installments but losing money in onelump sum. Impact of a loss is 2 to 2.5 X that of a gain. Give good news in chunks and bad news all at once! Frame choices in terms of losses rather than gains.38REFERENCE: Negotiation Newsletter, PON, Harvard Law School, Volume 10 (8), Aug 2007 Malhotra & Bazerman

Risk Assessment of CEO VS BU Heads Top managers of 25 divisions of a large company were asked whichwith equal probabilities, could lose a large amount of capital theycontrolled or earn double that amount – none of the executiveswas willing to take such a dangerous gamble. When CEO was asked same question – “I would like all of them toaccept their risks.” It was natural for the CEO to adopt a broad frame thatencompassed all 25 bets. If all 25 bet 1MM ( 12.5MM lost but 25MM gained).39 REFERENCE: Thinking Fast And Slow, Daniel Kahneman (Farrar, Straus & Giroux/New York, 2011)

Fairness (Ultimatum Game) Allocator has been given 10 to share with Recipient whom hedoes not know. If R refuses A’s offer, neither player will receive anything. Rational acceptable offer would be 0.01 (Spock)– A penny is better than nothing? Experiments found mean acceptable offer varied 2 - 2.59.40 REFERENCES: Anomalies: The Ultimatum Game (Thaler, J of Economic Perspectives V 2, No 4, 1988, 195-206)

Fairness (Ultimatum Game) Experiment repeated in many countries & cultures & usinghigher amounts. Recipient will actually punish any unfair division. Conclusion: Notions of fairness can play a significant role indetermining the outcomes of negotiations.41 REFERENCES: Anomalies: The Ultimatum Game (Thaler, J of Economic Perspectives V 2, No