Transcript Post Mortem - INSEAD MBA Programme

Negotiations Workshop
INSEAD Women in Business
Professor William Maddux
©William Maddux 2008, All Rights Reserved
First you have to ask…
©William Maddux 2008, All Rights Reserved
To negotiate or not to negotiate?
$281,386
Did not
negotiate
Did negotiate
$312,339
$100,000 $111,000
From
Women Don’t Ask
--Linda Babcock
Salaries at 30
Salaries at 65
Lost income is $1,600,000
©William Maddux 2008, All Rights Reserved
Gender differences
in negotiations
• Women Don't Like to Negotiate
– 2.5 times more women than men said they feel "a great
deal of apprehension" about negotiating.
– Men initiate negotiations about 4 times as often as women.
– When asked to pick metaphors for the process of
negotiating, men picked "winning a ballgame" and a
"wrestling match," women picked "going to the dentist."
– Women are more pessimistic about the how much is
available when they do negotiate and so they typically ask
for and get less when they do negotiate—on average, 30
percent less than men.
– 20 percent of adult women (22 million people) say they
never negotiate at all, even though they often recognize
negotiation as appropriate and even necessary.
©William Maddux 2008, All Rights Reserved
Gender differences
in negotiations
• Women Suffer When They Don't Negotiate
– In one study, eight times as many men as women graduating with
master's degrees negotiated their salaries. The men who
negotiated were able to increase their starting salaries by an
average of 7.4 percent, or about $4,000. In the same study, men's
starting salaries were about $4,000 higher than the women's on
average, suggesting that the gender gap between men and
women might have been closed if more of the women had
negotiated their starting salaries.
– Another study calculated that women who consistently negotiate
their salary increases earn at least $1 million more during their
careers than women who don't.
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Should women be
more like men?
• No! Unfortunately, the double standard persists
– People don't accept the same behavior from women as from men.
But this doesn't mean women that should just give up and stop
asking for anything.
• Women should ask for what they want in ways
that feel comfortable to them and that society will
accept.
– By not seeming overly aggressive, women can actually remain
tough on the issues they're negotiating—they just need to be
gentle with the people involved.
– Women have to worry much more than men about how they will
be perceived when they ask for what they want and this puts an
unfair burden on women. Unfortunately, however, that's currently
the situation in our society.
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What is a Negotiation?
• Negotiation is a decisionmaking process by which two
or more people with different
motives and preferences try to
agree on how to allocate
resources.
• Debate
– Convince another party of the
validity of your position or interest
• Arbitration/adjudication
– 3rd party imposes settlement
– May not be mutually acceptable
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Characteristics of negotiation
• Parties typically believe that
conflicting interests exist
• Communication between
parties is possible
• Intermediate solutions &
compromises are possible
• Outcome not reached until
accepted by both parties
• Parties have incomplete
knowledge about each
other’s interests
• Often pressure to get a deal
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Why are negotiation
skills so important?
• Negotiations at work
– Your own contracts,
raises, benefits, offers
from other employers
or to your employees
– Clients, vendors,
partners, competitors
– Entrepreneurial
ventures
• Negotiations outside of
work
– Cars, houses,
family/relationship
issues
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Lessons in Negotiations:
Camp David Accords
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Negotiation Ground Rules
• Take 30-45 minutes to
negotiate a deal
• Point of the exercise: To
get the best outcome for
yourself as possible
©William Maddux 2008, All Rights Reserved
Negotiations Workshop
INSEAD Women in Business
Professor William Maddux
©William Maddux 2008, All Rights Reserved
Interests of the Other Party
• Negotiators who discover interests
of other parties get better deals
whether the negotiation and/or
issue is win-lose (distributive) or
win-win (integrative)
• The more you know about what’s
motivating the other party, the
more likely will find a mutually
acceptable deal
• Find out as much as you can, ask
questions, gather information
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Different Types of Issues
• “Distributive Issues”
– Parties desire exactly opposite outcomes
• Zero sum, competitive
• When one party gains, the other necessarily loses
• “Compatible Issues”
– Parties desire exactly same outcomes
• Cooperative
• But can be used strategically
• “Integrative Issues”
– Issues are of differing importance/value to different
parties
– Can be traded
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Issues in Outside Offer
• Distributive
– Parties’ interests are opposed
(location)
• Compatible
– Parties want the same thing
(benefits package)
• Integrative
– Parties have differing preferences
• vacation (M), promotion (M), salary
(VP), bonus (VP)
©William Maddux 2008, All Rights Reserved
Distributive Issue
ISSUE
Location
Alternatives
Hong Kong
Tokyo
Singapore
Sydney
London
Manager
6000
4500
3000
1500
0
VP
0
1500
3000
4500
6000
Parties desire exactly opposite outcomes
Zero sum, competitive
When one party gains, the other necessarily loses
©William Maddux 2008, All Rights Reserved
Compatible Issue
ISSUE
Benefits Package
Alternatives
Plan A
Plan B
Plan C
Plan D
Plan E
Manager
2400
1600
800
400
0
VP
2400
1600
800
400
0
Parties desire exactly same outcomes
Cooperative
But can be used strategically
©William Maddux 2008, All Rights Reserved
Integrative Issues
ISSUE
Vacation Time
Salary Raise
Alternatives
6 weeks
5 weeks
4 weeks
3 weeks
2 weeks
25%
20%
15%
10%
5%
Manager
4000
3000
2000
1000
0
1600
1200
800
400
0
VP
0
400
800
1200
1600
0
1000
2000
3000
4000
Issues are of differing importance/value to different parties, Can be traded
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Integrative Issues
ISSUE
Performance Bonus
Promotion
Alternatives
50%
40%
30%
20%
10%
Now
6 months
1 year
18 months
2 years
Manager
1200
900
600
300
0
3200
2400
1600
800
0
VP
0
800
1600
2400
3200
0
300
600
900
1200
Issues are of differing importance/value to different parties, Can be traded
©William Maddux 2008, All Rights Reserved
How to get to the optimal deal?
• Agree on compatible issues
– Or use strategically
• “Logroll” tradable issues
– Give away issues that are of
lesser importance in exchange for
issues of greater importance
• Take as much of the
distributive pie for yourself as
possible
©William Maddux 2008, All Rights Reserved
A compromise solution
Salary Raise
Benefits
Vacation
Promotion
Bonus
Location
Total
Manager
800
800
2000
1600
600
3000
8,800
VP
2000
800
800
600
1600
3000
Joint
8,800 17,600
©William Maddux 2008, All Rights Reserved
An optimal solution
Salary Raise
Benefits
Vacation
Promotion
Bonus
Location
Total
Manager
0
VP
4000
2400
2400
4000
3200
0
0
0
3200
3000
3000
12,600
Joint
12,600 25,200
©William Maddux 2008, All Rights Reserved
Leaving Money on the Table
• By just compromising on all
issues, you leave 7,600 points on
the table (3,800 for each person)
• This is value that could have been
created via effective negotiation,
but was not
• “Logrolling” integrative issues
allows you to create more value
that can then be claimed
©William Maddux 2008, All Rights Reserved
3 Key Negotiation Principles:
• Aspiration/Target
– Ideally, what would you like to get?
• Best alternative to negotiated
agreement (BATNA)
– What’s your alternative if don’t get a
deal?
• Reservation price
– What’s the worst deal you’re willing
to go before walking away?
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Aspiration/Target Price
• Set an aggressive but
realistic target price!
• 3 important reasons
– If you don’t ask for it, you
can’t get it
– Allows you room to make
concessions & reciprocate
– 1st offers have a large
impact on final outcome
©William Maddux 2008, All Rights Reserved
Anchoring and Adjustment Heuristic
We do not adjust estimates sufficiently from an initial anchor.
Example
• Wheel of Fortune and car mechanics
• Real estate agents anchor on list price
• First offers in negotiations
Managerial Problems
• Anchors set reference points (framing effects)
• 1st Impressions create “lock in” effects: “High
potentials” and “halo effects”
• Changing decision may be difficult in general
– Most problematic in rapidly changing environments
– We often escalate our commitments
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Impact of the First Offer
• So, make the first offer and anchor in
your favor
–Favorable anchors yield better outcomes,
even when other party knowledgeable
–Anchor should be aggressive, not outrageous
–Know the available range, ask for the
most favorable number; be prepared to
justify!
–Focusing on your target throughout the
negotiation leads to better outcomes for you
©William Maddux 2008, All Rights Reserved
Effective consent rates, organ donation:
Explicit consent (opt-in, gold)
& presumed consent (opt-out, blue).
©William Maddux 2008, All Rights Reserved
When should you not
make the 1st offer?
1) If you have little/no information
about bargaining zone
– 1st consulting job…
2) If it would be inappropriate to
do so
– typical job negotiation
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When should you not
make the 1st offer?
3) Bidding/auction situation
4) If negotiation is very
unstructured
5) If you are in a very low power
position
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What if the other side
makes the first offer?
• Focusing on the following can
eliminate the first offer effect
– Information inconsistent with the
opponent’s first offer
– Opponent’s alternatives
– Opponent’s reservation price
• (Galinsky & Mussweiler, 2001, JPSP)
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Reciprocity
• Psychologically, we have a need to meet
others halfway
• Successful negotiation requires reciprocity
– High anchors give you room to reciprocate
– ‘Playing the game the right way’ encourages
other party to give you what you want
– People expect reciprocity in negotiations
©William Maddux 2008, All Rights Reserved
BATNA
(Best Alternative To a Negotiated Agreement)
• Your BATNA is your greatest
source of power
– Means you don’t necessarily need an
agreement on the current deal
• Gives you the power to ‘walk’
– Rule of 3
• Counterparts’ perceptions of your
BATNA important
• Do everything you can to improve
BATNA before you negotiate.
©William Maddux 2008, All Rights Reserved
Reservation Price
• Reservation Price is your
“bottom line.” The worst
deal you are willing to
accept
• Reservation Price is BATNA
+/- preferences for
different choices
– If you prefer this deal, reservation
price may be lower than BATNA
– If prefer another deal, reservation
price may be higher than BATNA
©William Maddux 2008, All Rights Reserved
Creating Integrative Agreements:
Increasing “Joint Gain”
• Ask questions
• Build trust and share information
• Give away some information
– Reciprocate
•
•
•
•
Build trust & rapport
Take the perspective of the other side
*Add additional issues
Logroll issues
©William Maddux 2008, All Rights Reserved
Negotiations Toolbox
• Interests of parties are the key to getting a deal
• Anchor negotiation in your favor
• Know your BATNA, improve as much as possible before
negotiating
• Know your reservation price, but do not reveal it
• Look to create more valuable agreements if there is
integrative potential
– Ask questions, share information, use reciprocation, build trust,
add issues to the table
– Logroll integrative issues
– Look for compatible issues, be ready to fight over distributive
issues
• Always Negotiate!
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©William Maddux 2008, All Rights Reserved
Negotiating a Job: Preparation
• Know about the company
– What are their interests
• Use the Web, the library, ask around
• Know the labor market situation
– How many are they planning to hire?
– How tight is the managerial labor market
in their industry?
– What are other grads in your area being
offered?
– What is the typical deal for people in your
position in the industry?
– What are the regional impacts on a deal
(e.g., costs of living)?
– What is their reservation price?
©William Maddux 2008, All Rights Reserved
Employment Package
• Prepare a planning document and
develop a scoring system
– Carefully think about your priorities
(Financial, stability, location,
independence, mental stimulation,
personal growth, low stress)
– Identify the least acceptable deal to
cover your interests!
– Identify missing issues
– Identify issues that are compatible
– Identify trade-off possibilities
– Review your sources of power to build
confidence.
– Remind yourself of the reasons you
deserve your target offer!
©William Maddux 2008, All Rights Reserved
Employment Package
• Be creative in considering all the forms of
compensation that you could get (remember
that some of these forms may be of high value
to you but low cost to them!)
•
•
•
•
•
•
•
•
•
Base Salary
Signing Bonus
Annual bonus (individual and group)
Relocation expenses
Stock Options, Retirement Options
Tuition reimbursement, Housing assistance
Paid Leave: vacation, sick days,
training/conferences, holidays
Insurance: health, disability, life
Care Plans: child, elderly, parental leave
©William Maddux 2008, All Rights Reserved
Job Negotiation Strategies
• Always negotiate!
– Even if offer ‘non-negotiable’
– Even if BATNA is unattractive
– There are ways around this
©William Maddux 2008, All Rights Reserved
Job Negotiation Strategies
• Do not negotiate until you are prepared to
say yes if they meet your target price
– “I’ll except the offer today if the contract
includes….”
• You are most powerful before you say
“yes”
• Emphasize how elements of counter-offer
display commitment to firm
• Use interests strategically
– “I’m very flattered and interested, but I have
some questions and want to be sure I have all
the information so that I can make a long-term
commitment that will be mutually beneficial.”
©William Maddux 2008, All Rights Reserved
Tough Questions
• Probing for a low anchor –
Questions about current/former salary
– If it is an extremely high anchor, okay
to reveal
– If it is below your target price, politely
explain that old salary is irrelevant
because have a new skill set and
better credentials
• Ask them to make you their offer
• You can avoid letting their offer anchor the
negotiation through preparation and focusing
on your target price!
©William Maddux 2008, All Rights Reserved
Tough Questions
• Probing for a BATNA/RP? Recruiter
asks about your other offers
– Use objective standards instead of BATNA
• What other graduates of your school are
being offered
• What other companies in the industry
are offering
• What other companies in the region are
offering
• First Offers – Recruiter wants you to
make the first offer
– Take advantage of the anchoring effect –
be optimistic, but realistic
©William Maddux 2008, All Rights Reserved
Tough Questions
• Recruiter says giving you the salary,
bonus you are asking for will disrupt
the internal wage structure
– Focus on your unique qualities, especially the value
of your education
– Point out that hiring from outside instead of
promoting from within produces higher salaries
because of transaction costs
• Recruiter says cannot justify wage
package now
– Negotiate a review in 6 months instead of a year
– Negotiate a bonus contingent on your performance
– Propose to trade for another issue (tuition
reimbursement, mortgage loans)
©William Maddux 2008, All Rights Reserved
Tough Questions
• Recruiter says something is not
negotiable
– Do not ask “Is this issue negotiable?” Instead,
say, “I have some questions about the moving
allowance, can we talk about this?”
– If they insist something non-negotiable, find
out why
– Ask if something can be traded for the nonnegotiable item
• Recruiter wants to negotiate one issue
at a time
– Suggest that there are a number of elements
to your decision and you would like to know
what they are offering on all
– Counter offer with a package deal
©William Maddux 2008, All Rights Reserved
Final Thoughts
• Ask for what you want! (If you
don’t ask, you can’t get it)
• Negotiate for yourself as if you were
negotiating for someone else
• Add issues to the table
• Get things in writing
• Know when to stop negotiating and
accept the offer
• Keep the long-term relationship in mind
• Be comfortable with your negotiation
style.
©William Maddux 2008, All Rights Reserved