Logrolling & The BATNA: Valuable Tools For Negotiating

 

The MBA, medical school, and other course work have each been very useful.  However, three of the most valuable courses I have ever taken came via the University of Notre Dame and were all about negotiating.  Interestingly, each of these courses had us calling each other across the country to negotiate out often unusual scenarios:  one week I was negotiating out a manufacturing plant opening in Mexico with some local officials and the next I was negotiating the purchase of a blue used car (the “Blue Buggy” scenario).  In that manner, I completed an interactive, online Master’s Certificate with the University of Notre Dame with what I consider to be some of the most valuable coursework I have taken.  Let me share some of the basics of negotiation with you beneath because these skills are so useful.  These skills will add value for you across a broad spectrum of endeavors in your life.  My hope is that, if you and I achieve nothing else here, we at least pique your interest to learn more about negotiating skills.  It’s also important to me to highlight how negotiating over things like jobs or resources is NOT as simple as win/lose.

 

In fact, a win/lose view on negotiating leads to missed opportunities and suboptimal deals.  Did you know, for example, that negotiating based on rigid positions, ie “They HAVE to give me this brand new OR team because that’s the ONLY way.”, leads to suboptimal outcomes?  Yes, it has been studied:  positional negotiating with the mindset described above leads to outcomes that are not nearly as good as those obtained when each group in a negotiation focuses on how to satisfy their interests rather than taking on such rigid positions.  It’s tough to believe that it works when you’re fatigued and skeptical; yet, that said, it does.

 

As we start to dive into these and other findings, let’s first focus on vocabulary:  the Harvard Negotiation Project is one of the sources for certain findings about negotiation and we’ll draw on it heavily here. Some of the vocabulary we will use in this blog entry includes the term BATNA.  The BATNA stands for ‘Best Alternative To a Negotiated Agreement.’  The BATNA is felt to be the source of negotiating power.  How?  Well, your willingness and ability to negotiate on certain points or ideas is contingent upon your alternatives:  the better (and more readily executable) your alternatives the better and more willing you are to negotiate in different situations.

 

Now, if you have a great alternative, it is frowned up to remind your partner in the negotiation (the so-called “other side”) of your BATNA up front.  Meaning, in general you shouldn’t walk into the negotiation and say “Well this is no big deal because my other option is to take a trip around the world on my 3 million dollar yacht next week.” Why?  This is because, as I’ll describe later, the quality and type of relationship you develop up front impacts the overall quality of the deal you make.  That said, a good general rule of thumb is that, if it becomes necessary, you should use your BATNA & power to educate the other side during a negotiation rather than up front.  There are rare instances where displaying the BATNA up front may be necessary.

 

Another important vocabulary word is “anchor”.  When a negotiation starts, the first value given from one side to the other for a particular item in the negotiation is called the anchor.  The Harvard Negotiation Project demonstrated many things, and one of these is that the anchor, to a large degree, determines the eventual outcome of a scenario.  So, if salary is important to you for a job, and the other side passes along an initially very low salary offer, you are more apt to get a lower salary at the end of negotiating than you otherwise would have been if the anchor had been higher.  If the anchor is set higher by one side at the beginning, the overall outcome will be higher.  This goes to the question of who should offer first in a given scenario.  Regardless of who offers first, if you are the recipient of an offer you should seek to replace that offer with your own value with a reason behind it at soon as possible.

 

You may think, like I did initially, that “Of course if the anchor is higher then the outcome is higher because setting a higher anchor shows that the offering side values something more.  So the anchor doesn’t cause a higher outcome because the outcome would’ve been higher anyway.” Interestingly, that does not seem to be the case.  The anchor’s initial location, other factors constant, seems to correlate with eventual outcome.  In other words:  same scenario, same players, same interests but a different initial anchor position and the eventual outcome follows that anchor position.  Interesting huh?

 

Next is the ZOPA, or ‘zone of potential agreement.’ This is the zone of values for something like salaries etc. over which you and your partner in the negotiation may agree.  A related piece of vocabulary is the ‘floor’ and ‘ceiling.’  The floor is the lowest you will go on a certain point and the ceiling is the highest you would accept on a certain item.  Between your ceiling and floor is the set of values you would accept on a given item.  That interval overlaps (hopefully) with at least some of the set of values between the other side’s ceiling and floor.  That overlap is called the ZOPA.  It is that area of values over which you and your colleague in negotiation may agree.

 

Now that we have described some of the important vocabulary, let me share with you some of the important lessons learned I had from the course and these will clarify some of this vocabulary and how we can implement it.  First, one of the key descriptions in the course is, that as Americans, we tend to focus immediately on the task at hand rather than developing a relationship.  Developing a relationship has been shown in multiple series to impact the overall course of the negotiation.  Time spent discussing weather or finding a common ground with the ‘other side’ in the negotiation actually improves negotiation outcome.

 

Further, the reciprocity effect is important.  Did you know, for example, that when a salesperson gives someone a bottle of water at the car dealership he/she triggers a reciprocity effect?  It is now known that, in general, if you give someone a relatively small gift it actually triggers a disproportionate chance that they will buy something large from you like a car.  This reciprocity effect is strong and relates to social norms across cultures.  In the end, it is useful for many reasons to develop a relationship.  This, again, influences both negotiation outcome and overall quality of the deal at the end of the day.

 

Next is the useful concept of log rolling.  Advice from the Harvard Negotiation Project is, in part, represented by Ury and Fisher’s book Getting To Yes.  The book includes the fact that you should have 5 or 6 topics or headings that are important to you in a negotiation.  Salary should usually be last as salary is determined by all the important factors beforehand.  For example, if certain points are particularly wonderful or ominous in the negotiation you maybe willing to do the job for less or more salary accordingly.

 

Having 5 or 6 points also allows for log rolling.  Log rolling is a term used to describe how one interest influences the other interests you have.  For example, if vacation is important to you, you may say you would need 5 weeks of vacation for one reason or another.  If your colleague in the negotiation says that only only 2 weeks would be possible you may relate how, perhaps, you needed the 3 other weeks in order to help your mother with her home–if, of course, that’s the reason you needed the vacation.  Because you are now unable personally to help her, you will need to pay for help to come to her home.  This means you may require a larger salary.  The point here is that you are negotiating over interests rather than rigid points.  There is no perfect deal but only a workable deal for both sides in the negotiation.

 

When physicians are educated they often come up the ranks feeling like things like negotiation etc are win/lose.  Nothing could be further from the truth.  Each side, in an effective negotiation, has interests which it brings to the table and satisfying these interests does not always imply that one side wins and the other side loses.  The negotiating course took great pains to illustrate this with stories, such as the story of two young sisters and an orange.  When a father saw that 2 young daughters were fighting over the orange, the father cut the orange in half, gave them each half and declared it settled.  Both girls were upset and cried, however, because one girl wanted the orange skin to make an art project and the other girl wanted the pulp to eat.  This short story hughlights the concept of abstract fairness versus significant interests.  At the end of the day your ceiling or floor on a given issue may be influenced by the issues around them and your other interests.

 

There are many different styles of negotiation which are useful to learn. In fact, there are many different negotiating tricks or tactics which we must learn to identify so we can move beyond these to truly focus on each sides interests and how to represent these interests in an effective deal.  Learning the tricks is useful to get passed them on the path to an effective deal.  Negotiating effectively is in the interests of all sides in a negotiation because afterward all sides must live with each other and the deal.  If we take an attrition or I win / you lose style of negotiation and we eventually form a employment contract or a deal with a healthcare association we must then work with them after…and the side of the negotiation that realizes it was tricked or abused is challenging with which to work.  Also, if we establish a difficult reputation or relationship during the negotiation this is much less adaptive for the aftermath when the deal is made.

 

Clearly there is a great deal of information to be learned about negotiating including some of the classic negotiating tricks.  I will highlight some of these here.  One trick to watch out for is the second bite effect.  The second bite effect occurs when you have negotiated a deal with one person in an organization and they say “Ok this looks great now I need to take the deal to my superior so that he or she can review it and ok the deal”.  The person who you may never see, of course, says the deal won’t be possible for several reasons unless you are willing to take less salary or less benefit or something along those lines.  This is called the “second bite effect” because you have been negotiating twice and one of these was with someone who you may never see.  All of your time was spent, and now the other side has taken the opportunity to simply disregard what was agreed upon and re-negotiate at their leisure.

 

This also happens in car dealerships where the salesperson says he or she needs to go to the manager’s office to ok the deal and they sit and idly chat about something.  Then the salesman returns to you, and he or she informs you that the manager is just unable to make that price that you had negotiated out for the car and that something has changed.  So, the second bite effect is a classic effect and a great way to guard against this is to make sure that, as you negotiate, you have established upfront that the person with whom you are negotiating has the ability to actually make the deal.

 

Other classic techniques include the pawn technique.  This is one that is useful for you and others interested in principle based negotiation.  Among your 5 to 6 points for log rolling, include 1 point about which you feel less strongly.  You can then give away this point to the other side, like a pawn in chess, and utilize log rolling and the reciprocity effect for issues on which you are more focused.  This is a useful technique for negotiation.  The pawn is something you care about, yet less so than the other interests.  You intentionally place the pawn early in the list of items you want to discusss, and if it ends up being given away it helps you on other points.

 

There are other, less scrupulous negotiating tactics such as Russian style negotiating and other issues.  However, at the end of the day, negotiating is an important transactional skill that has served me well.  I didn’t realize how much there was to it until the Notre Dame coursework.  I recommend negotiating courses to anyone in business of many types and, even if you consider yourself to be in something other than the business world, I still recommend negotiating courses.  This is for the simple reason that we negotiate every day of our lives with our children, with the rest of our family, and alongside people with whom we interact each day.

 

One last point:  this work has focused on the vocabulary and transactions of negotiating so far.  However, as things wind up, consider this last point.  Perhaps the most important portion of the negotiation is the preparation you put in ahead of time.  For example, if you are trauma surgeon, have you reviewed the data on salaries across the country?  Have you found the MGMA website that posts salary data?  Do you understand how other centers structure reimbursement, benefits, and vacation?  Preparation is key because it allows you to know your interests clearly, those of the other side(s), and have data ready if and when you need to have recourse to objective data to preserve the relationship, negotiation, or your interests.  Being prepared with respect to your needs and interests allows you to move away from positional negotiation (eg “I want three months off and that’s just it.”) to principled and interest-focused negotiation (eg “I want three months off so I can visit my grandparents in Florida to help them do their estate planning, yet if three months can’t work then a salary increase could let me use an estate planner and supervise their work…”).  Incidentally, positional negotiation has been shown to give inferior outcomes and should be avoided whenever possible.

 

These are some of the most useful skills I think we can have and, again, I will share that, of all the courses I have taken in medical school, business school and beyond, the three courses in negotiating I took along with the course mandated reading of Getting to Yes were some of the most valuable academic experiences I have had.  These courses have shown me that principled negotiation is effective and possible.  Consider finding these skills and working them into your toolbox.

 

Questions or thoughts on negotiation as a business skill?  Have you seen any situations with negotiations gone wrong or ones where the information above showed up?  Please leave any comments or thoughts beneath.