Chapter 2

The Negotiation
Process:
Four Stages

A Key Concept for All 22

Negotiations
Negotiator and mediator Theodore
Kheel summarized a critical concept:2

Negotiations are about changing

the status quo. Unless both parties
can receive something more than
what the status quo provides, there
is nothing for them to negotiate.
Why? If not, they will choose the
status quo and walk away.
2 Theodore W. Kheel, The Keys to Conflict Resolution (New York, NY: Focus Walls Eight Windows,
1999).

23

Five Negotiation Skills

Skill 2.1: Preparation before entering a

negotiation includes deciding a BATNA
Skill 2.2: Consider appropriate ground
rules
Skill 2.3: Develop an initial offer
Skill 2.4: Anticipate posturing
Skill 2.5: Decide if the negotiation is a
single issue or multiple issues and if it
includes two or more parties and the
appropriate strategy. Also decide if an

24

The Four Stages:

Stage 1:
Preparation
Stage 2: Opening

Preparation
Opening Statements

Statements
Stage 3: Bargaining
Stage 4:
Settlement

Settlement

Bargaining

25

Historical Development of
the Negotiation Process

1930s-50s: Hard bargaining,

threats, bluffs, little flexibility
1980s: Getting to Yes introduced
win-win strategy
1980s: Game Theory, Howard
Raiffas The Art and Science of
Negotiation
1990s: Interest-based bargaining
(IBB) problem-solving focus
Today: All these views have merged
to produce a new understanding of
the negotiation process

26

Chapter Case: The Budget

Presentation

Francis, a newly appointed dept. head,

asked the head of another department to
describe the budget process. She told him
its a vicious, competitive processwe all
know that we are fighting for a share of a
fixed pool of funds
After the meeting you sit down with the
CEO and try to get the most you can for
your department, keeping in mind the
presentation by the other dept. heads
How does Francis prepare? Negotiate with

27

Stage 1: Preparation

Decide your BATNA - always start with a

clearly defined BATNA and stick to it
List all key issues either party will want
decided. Include tangibles, intangibles,
throwawaysthe more the better!
Set priorities for the key issues by either: 1.
Ranking; 2. Weights (%); 3. Assign each issue
to one of four priority levelsEssential,
Important, Desirable, Throwaway
Develop support arguments based on
information, facts, logic

What Is BATNA?

BATNA = the Best Alternative

To a Negotiated Agreement
Always decide your BATNA
before entering any
negotiation!
BATNA = the value or point at
which you will choose no
agreement over a settlement
BATNA is similar to the walkaway value or point

28

29

How to Determine Your

BATNA!
(Answer the following questions)

If the other party withdrew from negotiations

today, what are your alternatives?
Can you list and place an estimated value on
all the economic variables such as price,
timing, warranty, options, etc.?
How important is your long-term relationship
with the other party? Can you assign a dollar
value to it? Does it override other factors?
Can you improve your BATNA by seeking new
alternatives to no agreement?

Preparation Includes
Developing Support
Arguments

210

Facts
Information
Logic
Persuasion
Why? You attempt to level the
playing field or perception of
power/leverage

The Basic Stages of

Negotiation

Stage 2: Opening
Session

212

Ground Rules: Consider the 5 Ws

Initial offers on each issue of
importance to either side are
presented
Posturing to state ones case, blow
off steam, etc., may include presenting
conflicting views, concealing
objectives, caucusing, inflexibility,
unwillingness to compromise

Items Identified for Negotiations by a

Husband and Wife Building a New Home
with a Limited Upgrades Budget

214

Ground Rules: Consider The 5

Ws

WHO speaks for each party, is authorized to

make/reject offers, and how many people
will be on each team?
WHERE will negotiation take place, and
what will be the seating arrangement?
WHEN will negotiations begin, and how long
will sessions last?
HOW will offers be made, issues included in
the discussion?
WHAT form of final agreement is
acceptable (handshake, verbal, written,
notarized)?

2-15

Bargaining Styles: Howard

Raiffas FOTE & POTE

FOTE = Full, Open, Truthful Exchange, which

includes a completely open, honest, and
truthful exchange of interests. FOTE is
primarily only used by family, friends, longtime business associates, students
POTE = Partial, Open, Truthful Exchange
which includes the concealment of real
interests, posturing, bluffing, etc., and causes
the parties to practice the negotiation
dance. POTE is used by most negotiators
Why is POTE used more? The parties lack the
trust required to engage in FOTE

Saving Face

216

Both parties need to save face or avoid

embarrassment during and at the end of
negotiation
Both parties need some gains to tout, if
not why would they settle?
Neither party presents the final deal as a
win-lose and could potentially cause
hardship for the other party
Why? Payback can be a powerful
motivator! Keep in mind future encounters

217

Stage 3: Bargaining

Two critical variables shape the negotiation:

number of parties, number of issues
Two-party and single issue = zero-sum
(assuming no long-term relationship)
Two party and multiple issues = trades to
achieve an efficient settlement
Three parties and one issue = auction
process
Three parties and multiple issues =
consensus by all on some or all issues

218

Common Bargaining Tactics

to Prepare For

Extreme (high or low) opening offers

Claiming limited authority
Emotional outbursts
Offering few concessions
Resisting deadlines

Possible Negotiation 2-19

Situations
Number of Parties Involved
Number of Issues Two

Three or More

One

Zero-sum
Outcome

Auction Process

Multiple

Efficient
Outcomes

Consensus by all
parties on all
issues, or only some
issues resolved by
some parties
following their
BATNAs

220

Stage 4: Settlement

Negotiations result in either a settlement or

an impasse (stalemate)
Impasse = both parties still seek an
agreement but negotiations have stalled
Why do parties declare an impasse even
though they both still seek a settlement?
Common reasons: (1) noncommunication of
interests; (2) excessive emotional
involvement; (3) failure of one or both to
realize the interests of the other party and
thus offer a settlement which exceeds their
BATNA

221

Beyond Impasse: ThirdParty Interventions

Facilitation --- known friend or family

member is trusted to provide assistance
by meeting separately with both parties
and suggesting a settlement
Mediation --- third party assists the
parties in the development of a mutually
acceptable settlement
Arbitration --- third party is empowered
to make a final and binding decision on
all unresolved issues

The Closing

223

With a verbal agreement (if between

family members or friends); a
handshake; or a written, signed, and
dated document the negotiation ends
Both sides realize gains beyond their
walk-away point (BATNA)