From the monthly archives:

December 2011

Cover Your Butt – Prepare Your BATNA

December 30, 2011

in Business Case,Conflict Management & Negotiations

In my past post I was reflecting on the importance of knowing your BATNA (Best Alternative to Negotiated Agreement) based on the car sale negotiation. The emphasis there was on remembering your BATNA in the process of negotiation. However, there was another negotiation case in my Conflict Management and Negotiations class at GWU School of Business MBA program where one of the parties failed to develop their BATNA completely.

The negotiation case of Pacific Oil Co. is yet another great example of the importance of developing a BATNA. In my earlier experience with the Used Car Sale exercise we were given the BATNA as part of the background information for the case and my mistake was not keeping it in front of my mind while negotiating the deal.

The Pacific Oil Co. vs Reliant Chemical Company case that we analyzed in class gave another angle on the importance of BATNA. In the case, the Pacific gained some marginal benefits by renegotiating the contract price with Reliant while the market for their product was going up and the supply part of the equation was tightly controlled by the Pacific and just a few other companies. However, they found themselves in quite different position a couple of years later when the market tide for their product went in the opposite direction and supply of VCM (the Pacific’s product) was expected to increase rapidly. Under the new market conditions Reliant managed not only reverse the marginal concessions they had been forced to by the Pacific before, but significantly improve their terms of the contract at every possible level, not just price, by claiming a much bigger and better share of the pie in the negotiation.

The case gives great insights into the nature and techniques of competitive negotiation, such as manipulating the cost of negotiation, changing opponent’s subjective utilities, overemphasizing less important issues in order to win on the bigger items – and the list goes on. Most of these techniques were masterfully employed by Reliant when they managed to corner the Pacific.

The biggest glaring flaw with the Pacific though, was that they did not even bother to explore and develop any kind of BATNA for their own situation. They did not even contemplate any other possibilities, did not make any effort in exploring other options and establishing at least some sort of alternative for this negotiation. Admittedly, the market was tough for them as it was, but they mentally, and then in reality, limited themselves to only one option – keeping Reliant at any cost as their customer. And it cost them really dearly. Even though the case is not telling us what was the ultimate outcome of all those maneuvers, the final point described in the case was a very dire prospect for the Pacific when they did not have any control over the negotiation and were at complete mercy of Reliant.

The lesson, again, do your homework before the negotiation and try to stay adaptive and agile in the course of the negotiations. And BATNA, together with other pre-negotiation research, will be your best friend and defense when the opponent is throwing you another curveball.

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Negotiation Conflict and Interdependency – After Us, the Flood?

December 28, 2011

in Conflict Management & Negotiations

This saying was in the lecture slide for my Conflict Management and Negotiations class at GWSB MBA on the topic of inter-dependencies in the negotiations:  Leave a good name in case you return (Kenyan Folk Saying). When I read it I recalled a couple of other sayings which are similar, but have a bit different angle. One of them is well-known: “Don’t burn the bridges when you leave” and the other is a Russian folk saying: “Don’t spit into the well, you might as well drink from it later”. As I said, all three of the sayings are somewhat similar, but I find the latter two are closer to each other and have though subtle, still significant difference from the Kenyan saying.

In both the Bridges and the Well sayings the implication is that the person is naturally inclined and would want to do something destructive or negative if he/she thinks that they would never return back. Therefore the sayings are just trying to warn and deter the person from that destructive behavior by pointing out the potential negative consequences of such behavior, or conversely, the potential benefits of not getting engaged into the negative actions on departure.

The Kenyan saying, however, is concerned not with warning and deterring the individual from the destructive actions, but actually on prompting the person to produce something of a positive nature, specifically – make the good name for yourself. And I find it quite interesting and inspirational.

If we delve deeper into the semantic subtleties, we can see that all three sayings have this element of taking the future into account for today’s action, however unlikely it may seem that we would return back, or however tempting it is to engage in destructive behavior caused by bitterness, frustration or any other negative emotion or experience.

The comparative semantics aside, I think that the Kenyan saying gives an important lesson not just for life at large, but also applicable to approaching business negotiations, or resolving conflicts in general,  and particularly to our conduct throughout the process. Even though it could be very tempting at times to get some sort of reprisal for the wounds inflicted to us in the conflict, one should see it through the prism of how it will reflect on their name, their character. Because, referencing another saying, “Our reputation precedes us”, so it is important to keep our name intact even if we really never going to return, but will be just moving forward. After all our name, or reputation, is all we have.

Of course, there will always be some people who would have a different motto for their lives, by quoting Louis XV: “Après nous le déluge- After us, the flood.”

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Negotiation Preparation – Do the Numbers

December 26, 2011

in Conflict Management & Negotiations

Here is another extract from the self-reflection journal in the Conflict Management and Negotiations class at GWSB MBA program.

Capital Mortgage Insurance

A great case with multiple take home lessons. For me, the most important one was about the necessity of thorough preparation for negotiation. Specifically – analyzing the data with numbers.

The Capital Mortgage Insurance (CMI) has been in the process of acquiring Corporate Transfer Services (CTS) for a few months now with some significant setbacks and stalls.

The most striking difference in the positions of the negotiating parties was their level of preparedness and ability to substantiate their claims. CMI did a very thorough job by researching  the industry which was not their own core competency yet. At the same time the folks at CTS were coming with outrageous numbers and they could not even defend their claims with any solid data.

Therefore, the lesson for me is – always prepare for negotiation with some solid number-crunching and analysis. Numbers, especially if appropriately analyzed, or at least properly presented, have mesmerizing effect on all parties in the negotiation.

There are generally two types of people in their relations to hard numbers:

  • Those who can understand and therefore appreciate them.
  • Those who cannot understand them and therefore fear them.

Whichever type of the person is sitting at the negotiating table against you, you will always have a much better position by having some numbers to back your claims. Your opponent will either be scared of numbers you present and therefore will most likely get mesmerized into agreeing with your argument. Or, if the opponent has a hang on the numbers too, he/she will appreciate the numbers you are presenting in your argument.

The only thing to remember with numerical data analysis is that you’d better be as thorough as possible with those numbers. For one thing it is very easy to come to faulty conclusions if your original assumptions or data manipulation are faulty in the first place. This can be extremely costly mistakes. Even if your opponent does not have a hang on the numbers, you can shoot yourself in the foot by miscalculating and misinterpreting the data.

On the other hand, if your opponent has a good hang on the numbers, they will most likely come up with their own analysis and interpretation. In this case you would have to be able to intelligently substantiate and defend your position. Lesson: Get a hang on the numbers. You will always be better off, than the other way around.

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Used Car Sales Negotiation Exercise

December 24, 2011

in Conflict Management & Negotiations

This post is another extract from the self-reflection journal that I kept in my Conflict Management and Negotiations class at GWSB MBA program this past fall term.

Used Car Sales Negotiation Exercise

The Used Car Sales exercise was a very refreshing one and the most important lesson I took from it was: “Know Your BATNA –Best Alternative to Negotiated Agreement”.  Knowing your BATNA means actually two things:

  • Identify and develop your BATNA before going into the negotiation. In other words – do your homework before engaging into the negotiation.
  • Remember your BATNA throughout the negotiation process, don’t lose the sight of it.

These both parts of Knowing your BATNA are equally important. Although in real life identifying and developing your BATNA could be quite laborious and time-consuming process, depending on the complexity of the negotiation, for this particular exercise our BATNA was given to us in the assignment – Jeep Liberty, which cost less- a big plus given our other financial constraints in the case, but apparently had some other drawbacks – higher mileage, poorer fuel efficiency, etc.

Even though I was sort of satisfied with the outcome of the negotiation, I had a nagging feeling at the end that I missed something important. I did not realize what that missing thing was until we were debriefing the case back in class.

And the missing thing was that I virtually forgot about my BATNA during the negotiation. I did, sort of, knew I had some BATNA, but during the negotiation I did not really see that my BATNA was in fact a better solution for my personal situation and preferences.

That is why I maintain that developing your BATNA before going into the negotiation and remembering your BATNA during the negotiation are equally important parts of Knowing Your BATNA. It is especially important in Competitive negotiation tactic, such as car-buying haggling, when the emotions could go rather high and blur the originally set objectives.

In this particular simulation I was too focused on achieving the outcome from the negotiation at any cost, as I primed myself for reaching an agreement in the negotiation. For me reaching an agreement was, in a way, winning the negotiation.  As a result we basically reached an agreement by splitting the difference between  some objective price anchors given in the case. And this is not in reality what I wanted. As a result of this “winning” I paid for the car more than I had from my insurance and lost my vacation money for that year. For me personally – vacation time is more important objective value than either of the vehicles, as I am not particularly passionate about those particular brands anyways. Lesson: Remember, you (almost) always have alternatives, even if outside of the given framework. Don’t corner yourself, don’t short change.

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Conflict Management and Negotiations Styles

December 21, 2011

In my Conflict Management and Negotiation class in MBA program at GWSB this past Fall term one of the assignments (graded, too) was to keep a Self-reflection journal throughout the course. To quote the syllabus:  ” Participants should focus on how course lectures, discussions, self-assessments, exercises and assignments inform their personal and professional lives.  That [...]

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Flash Mob for Business School Marketing

December 19, 2011

Around this time two years ago I learned what the flash mob was. Even though it was not completely novel phenomenon at that time – it was such for me. In that post two years ago I made a passing remark on the great potential flash mobs held for marketing purposes. And it seems that [...]

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Business Schools on Winter Break

December 17, 2011

On Thursday I had my final exam in Macroeconomics. This officially marked closing of my Fall 2011 term of part-time MBA program at George Washington University School of  Business. I have five weeks of winter break ahead! Unlike this time last year I am not going to disappear from the blog for over three months. Pinky [...]

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Conflict Management and Negotiations Course Overview

December 11, 2011

The elective course on Conflict Management and Negotiations in my MBA program at GWU was a very interesting, and great educational experience. I greatly appreciated the case analyses from the textbook that we had in class, such as Capital Mortgage Insurance, or the Pacific Oil Co. cases among others. I had a few posts on [...]

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Rate My Professors – Validated!

December 3, 2011

In my last class on Conflict Management and Negotiations professor mentioned a recent article in the George Washington University newspaper about the research on the validity of ratings at ratemyprofessors.com co-authored by the associate professor of psychology at the University of Wisconsin at Eau Claire. Valid or not, I, and a few of the MBA [...]

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