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Charlie Munger has recommended the book Getting to Yes when it comes to effective negotiation. When a negotiation is static in regards to what parties will accept, the one who plays hard wins over the one who plays softly. The authors propose to change the game and use a method they call “principled negotiation on the merits”; (1) separate the person from the problem, (2) focus on interest, not position, (3) invent multiple options by looking for win-win and (4) insist that the outcome should be based on an objective standard.
1. SEPARATE THE PERSON FROM THE PROBLEM. The human aspect can either help or ruin a negotiation. Allowing a negotiation to become a competition of will over positions makes the experience worse and bitter feelings can linger for a lifetime. Always ask yourself: “Am I paying enough attention to the people problem”. Be tough on the problem, but gentle on people. Even if accusations are justified, it is usually counterproductive. Always look ahead, not back.
2. FOCUS ON INTEREST, NOT POSITION. Negotiators have many interests, not just one. Ask “why”, “why not” and test your theory by “correct me if I am wrong”. Part of your job is to understand the other party as they see themselves. Talk about their feelings and about your own. Let the other side speak freely but do not react to emotional outbursts. Listen actively and confirm what is said: “Did I understand correctly that you say…?”. Basic human needs are security, financial well-being, a sense of belonging, recognition and control over one’s life. Wrongly, we focus too much on money – find out the other interests.
3. FIND WAYS TO SHARE PROFIT. Find out what you value and what the other party values. Give them a share of the outcome by inviting them into the process. Embrace negotiation ju-jitsu: avoid using your power against them directly. Use instead your skill to step aside in order to leverage their power for your purposes. Negotiations are sometimes like two children arguing over an orange; after dividing the fruit one child tossed the peel while the other tossed the fruit and used the peel to bake a cake.
4. INSIST ON USING OBJECTIVE CRITERIA. No matter how high you value a relationship, you want the rent to be lower and the landlord wants it to be higher. “Positional bargaining” is about what you are willing and not willing to accept. It is a question of who is most stubborn and who is most generous. The solution is to negotiate on the basis of an independent and objective criteria. Ask “what theory or benchmark are you basing it on?”. Use reason and be open to reasoning: “Look, you want a high price and I want a low one. Let’s figure out what a fair price would be. What objective standards might be most relevant?”.
PUT YOURSELF IN THE OTHER PERSON’S SHOES. Human problems fall into three categories: perception, emotions and communication. Conflict seldom arises from objective reality but in people’s heads. The truth is only another argument for dealing with the differences that exist in thinking. Putting oneself in the other’s shoes is the most important aspect of a negotiation. Make sure that your offer matches their values and help the other party to “save-face”. Many people think that it is a good tactic not to give the other party too much attention and not to acknowledge any legitimacy in their point of view. A good negotiator does just the opposite
NEVER GIVE IN TO PRESSURE. Pressure can take many forms: bribes, threats, manipulative appeals to trust or refusal to give in. Invite them to share their reasoning, suggest objective criteria you think are applicable, and refuse to give in except in this regard. Never give in to pressure, just for the principle. It is easier to defend a principle than a dishonest tactic. Do not be a victim. Some good phrases:
“Please correct me if I’m wrong”, “We appreciate what you have done for us”, “Our concern is fairness”, “We would like to settle this on the basis of independent standards, not of who can do what to whom”, “trust is a separate issue”, “Could I ask you a few questions to see whether my facts are right?”, “What’s the principle behind your action?”, “Let me see if I understand what you’re saying”, “Let me show you where I have trouble following some of your reasoning”, “One fair solution might be”.
DEVELOP YOUR BATNA. If the other party is more powerful than you – develop your BATNA (Best alternative to a negotiated agreement). Relative bargaining power between two parties depends mainly on how attractive each one finds it not to reach an agreement. If your BATNA is extremely attractive, it is in your best interest to let the other side know. If they think you lack good options when you actually have one, then you should almost certainly let them know this. If your best option is worse than they think, it will weaken rather than strengthen your hand.