From the Annual event "The Art of Negotiation" 29/12/10

1. The Art of
Negotiating
The MIT Enterprise Forum
of Israel
Tel Aviv University
December 29, 2010
© (2010) Martin Gerstel

2. NEGOTIATION
“The use of information and
power to affect behavior
within a web of tension.”*
* Herb Cohen, “You can Negotiate Anything.” Four months on
the New York Times Best Seller List

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

4. THE ART OF NEGOTIATING
When to Negotiate

5. WHEN TO NEGOTIATE
When is it required?
– Almost never
When can you not?
– Almost never
When you choose to
But…
Always a price
Is it worth it?

6. A Common Mistake
“Set objective (what you want)
and then accomplish it”
Objective (What?)
•Buy car at lowest cost to resell
•Sell car at highest price and
then buy car
Means to Accomplish
Negotiate (How?)

7. Key to Remember!
Why? – Why? – Why?
Why?
•Needs car for summer at
less than $9000 cost
•Has car unneeded for
summer, needs $2000,
Objective (What?)
•Buy car at lowest cost to resell
•Sell car at highest price and
then buy car at end of summer

8. “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
Objective (What?)
•Buy car at lowest cost to resell
•Sell car at highest price and then
buy another car at end of summer
NO
Means to Accomplish (How?)
• Rent Car for summer

9. 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.
1. Are you sure there is a
conflict?
2. Is it “worth it” to resolve?

10. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”

11. 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
ad in the newspaper about a
car for sale, they want to buy
a car.

12. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions

13. From my History
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
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?

14. An Objective (“What”)
“We want to have the right to
market the product in Europe.”

15. “Why’s” lead to “How’s” –
“What’s” often lead to trouble
Assumptions/Facts
(Why?)
Objectives
(What?)
NO
Means to Accomplish
(How?)

16. An Objective (“What”)
“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

17. An Objective (“What”)
A Friend: “Let’s go to Alice’s
Restaurant for dinner”

18. An Objective (“What”)
A Friend: “Let’s go to Alice’s
Restaurant for dinner”
The “Why” Could Be:
– 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
– ???

19. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”

20. Separate “Needs” from
“Wants”
“Needs”
– Reason you are interested
– If not “walk-away”
“Wants”
– Nice to have
– May effect Pricing
– Not a “deal-breaker”

21. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”

22. Focus on
“Next Best Alternative”
Problem: How to determine an
objective “value” for your first
choice? How much is it really
worth to you?

23. Focus on
“Next Best Alternative”
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
“Next Best Alternative”
PLUS
the value/cost of the difference

24. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”

25. VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
Information

26. 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

27. VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
Information
Power

28. Power
Power in a negotiation can be obtained by:
– Alternatives
– Organization/legitimacy
– Precedent
– Persuasive ability
– Expertise
– 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

29. VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
Information
Power
Time Constraints

30. Time Constraints
Use of deadlines
– Most deadlines are not
deadlines
Recognize when passage
of time eliminates
alternatives

31. 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
$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?

32. 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 $500.
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?

33. 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 $500.
What do you do?
Suppose you are very
wealthy?

34. 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 $500.
What do you do?
Suppose you are out of work
and having problems feeding
your family?

35. VARIABLES THAT WILL
INFLUENCE OUTCOME OF
NEGOTIATION
The “Big Four”
Information
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”

36. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values

37. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
– concept of “negotiables”
– key to “win-win” negotiating

38. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information

39. 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
your needs

40. WORKSHOP EXAMPLE:
Buying/Selling Car
What Information to Share?
BUYER
– 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

41. 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
your needs
But, need to consider
whether other party can then
use information to your
disadvantage

42. WORKSHOP EXAMPLE:
Buying/Selling Car
What Information NOT to Share?
BUYER
– No Other Alternatives
– Time pressure
SELLER
– No Other Alternatives
– Time Pressure

43. 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.
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.

44. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People

45. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People
– Listen and Respond

46. Listen and Respond
What “Level” Is the Subject Now
Being Discussed?
Assumptions/Facts
(Why?)
Objectives
(What?)
Means to Accomplish
(How/A Proposal?)

47. LISTEN and RESPOND,
Is the other person’s
statement, or what it is
suggesting:
Accurate?
Reasonable?
Acceptable to You?
NOT the same as “Reasonable”

48. GIVING YOUR RESPONSE
WHAT’S THE DIFFERENCE ?
Presenting Your Case
In a Court of Law
In a Negotiation

49. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People
– Listen and Respond
– Show Support for the Other Party
– Forget your “Ego needs”

50. 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

51. Win Wars--Lose
Battles
Need to know what the war
is
– Know Your Objectives
Need to look for battles to
lose
– You negotiate with people

52. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People
Don’t Argue About the Future
Orange

53. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People
Don’t Argue About the Future
Compromise is Failure!
– “Remember the Orange”

54. A “Make Believe”
Raffle
The Rules:
Highest Bidder Gets
$100.00
Second Highest Bidder has
to pay me what he/she bid

55. 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
objectives
Good Negotiators will
understand how these
elements interrelate and effect
their objectives
– See as an “overall package”
– Think through before responding

56. THE ART OF NEGOTIATING
When to Negotiate
“Why” is key, not “What”
Question Your Assumptions
Separate “needs” from “wants”
Focus on “Next Best Alternative”
Recognize/Neutralize “The Big Four”
No “True” Values
Share Information
You Negotiate With People
Compromise is Failure!
Keep the “Big Picture” in Mind

57. 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
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

58. 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
power/escalation
Good Guy/Bad Guy
I’m really thinking only of your
interests
Stubborn, confuse and outlast
Taking outrageous positions

59. 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
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 .

60. A LITTLE NEGOTIATING
PRACTICE
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
on sales.”
How to you respond?

61. “Why’s” lead to “How’s” –
“What’s” often lead to trouble
Assumptions/Facts
(Why?)
Objectives
(What?)
NO
Means to Accomplish
(How?)

62. A LITTLE NEGOTIATING
PRACTICE
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
on sales.”
YOU: “Could you please explain
why the maximum you will pay is
two percent?”

63. A LITTLE NEGOTIATING
PRACTICE
YOU: “Could you please explain
why the maximum you will pay is two
percent?”
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: ????????

64. 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

65. A LITTLE NEGOTIATING
PRACTICE
YOU: “Could you please explain
why the maximum you will pay is two
percent?”
THEY: “In view of the fact
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: ????????

66. A LITTLE NEGOTIATING
PRACTICE
YOU: “Could you please explain
why the maximum you will pay is two
percent?”
THEY: “Our corporate
policy is never to pay more
than two percent for licensed-
in product candidates at such
an early stage.”
YOU: ????????

67. A LITTLE NEGOTIATING
PRACTICE
YOU: “Could you please explain
why the maximum you will pay is two
percent?”
THEY: “The product
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: ????????

68. A LITTLE NEGOTIATING
PRACTICE
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
only for the United States market. We
don’t see any possibility of
international sales.”
YOU: ????????

69. A LITTLE NEGOTIATING
PRACTICE
YOU: “Could you please explain
why the maximum you will pay is two
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
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: ????????

70. A LITTLE NEGOTIATING
PRACTICE
THE END