Chapter 4: Step One:Estimating the Blueprint


PART ONE: THE CONSEQUENCES OF NO AGREEMENT ESTIMATION

Now that you’ve established your negotiation goal—to create joint value and divide it given concerns for fairness in the ongoing relationship—you have to begin the process of making that goal a reality. As already noted, the Strategic Negotiation Process is essentially composed of four steps:

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In the first step of the process you begin to blueprint the business deal. Understanding this blueprint is essential because it governs everything that happens in a negotiation, including the tactical behaviors used during the face-to-face aspect of the negotiation. This first step consists of two parts—the Consequences of No Agreement (CNA) Estimation and the Wish List Estimation. These two estimations essentially enable you to answer the two questions: “What are the consequences if we do not reach agreement?” and “What items are likely to be included if we do reach agreement?” In this chapter I focus on using the CNA Estimation to answer the first question.

The purpose of this estimation, as its name implies, is to enable you to determine what effects—positive and negative—not reaching an agreement will have on both you and your customer. “But,” you say, “I already know what happens if I don’t make the deal. I lose the business.” And that may be true. When you’re on the selling side, losing the business is the usual Consequence of No Agreement. But every negotiation situation is unique, and what “lose the business” means in this negotiation at this time may be different from what it means in another negotiation at another time. And the only way to know exactly what it means in any given situation is to do this kind of estimation.

Similarly, you may say, “But I know what happens to my customer if he or she doesn’t buy from me—the customer goes to one of my competitors.” And that may also be true. And then again, maybe not. The fact is that it’s even more difficult—and more important—to estimate the other side’s Consequences of No Agreement than it is your own. This is because when you get to the point of making an offer, your customer will see that offer as a gain or loss based on how it perceives what happens to it if it doesn’t reach agreement with you, that is, the customer’s own Consequences of No Agreement.

The chances are, though, that the customer won’t have collected realistic facts about its alternative to reaching agreement with you. It’ll believe some spiel given to it by your competitors or have convinced itself that it can get whatever it is it needs better, faster, and cheaper elsewhere, even though that may not be true. As the character George Costanza from TV’s Seinfeld said, “It’s not a lie if you believe it.” So even though you may be putting a very good offer on the table, the other side may still think it can do better somewhere else. But if you’ve analyzed its Consequences of No Agreement as well as your own, and you know what will happen to the customer if you don’t make the deal, you’ll be in a position to diplomatically educate the customer about it and show the customer how accepting your offer is in its best interests.

But simply stating the Consequences of No Agreement for both sides is just the beginning of the process of blueprinting a negotiation. As you’re about to see, once you’ve determined those consequences, you have to determine their effects, how those consequences will have an impact—both positively and negatively—on both sides, and the extent to which they will make any potential deal attractive or not attractive to both sides.

Estimating both your own and your customer’s Consequences of No Agreement will, in turn, enable you to determine who has the true power in a negotiation and the place where both sides prefer agreement to impasse. Determining who has the power is important because it affects how both sides think of the negotiation and, in turn, how they behave. Those who believe they have more power tend to overestimate the value of their offer and, accordingly, behave in a manner that makes impasse more likely and value-creating trades less likely. On the other hand, those who believe they have less power tend to underestimate the value of their offer and “roll over” too quickly, giving up value to the other side. Misdiagnosing who has the power, then, can be detrimental to both you and your customer.

The other key benefit of understanding the Consequences of No Agreement for both sides is that it allows you to determine the place at which both sides prefer agreement to impasse, or what I call the Agreement Zone. This zone is established by figuring out the parameters of the agreement, that is, the least that will be acceptable to both you and your customer. Later in this chapter I show you exactly how to determine the location of the Agreement Zone, and later in the book how to use it as a starting point for building value in your negotiation.

Once you’ve used the Consequences of No Agreement Estimation to determine who has the power in this negotiation and the location of the Agreement Zone, you’ll go on, in the next chapter, to the second part of this step—the Wish List Estimation. This analysis allows you to determine the items that you and your customer would ideally like to have included in the deal if you come to an agreement, including what is most and least important to both of you. These are, again, the items that both of you will trade, or should be willing to trade, to achieve your goal to “create joint value and divide it given concerns for fairness in the ongoing relationship.” This is an essential part of the process because you and your customer place different values on these items, and trading—giving up something in order to gain something else of greater value—is what enables you to create more value to subsequently divide. By “enlarging the pie,” the process of blueprinting the negotiation enables both of you to achieve much more than just a “win-win” situation.

Before you begin the Consequences of No Agreement Estimation, however, I’d like you to do one thing. Think about the negotiation example you’ve selected and ask yourself who has the power in that situation. Is it you or the other side? You’ll probably say it’s the other side, but you could very well be wrong. One of the things my colleagues and I have learned in our consulting practice with almost 10,000 buyers and sellers over the years is that both almost invariably believe it’s the other side that has more power in the negotiation. Of course, sometimes that’s true. Even so, virtually all salespeople typically have more power than they think they do, and virtually all buyers typically have less, so both tend to misdiagnose the situation. After you’ve conducted the Consequences of No Agreement Estimation for your situation, we will revisit this question to decide exactly who does have the power.




Strategic Negotiation. A Breakthrough Four-Step Process for Effective Business Negotiation
Strategic Negotiation: A Breakthrough Four-Step Process for Effective Business Negotiation
ISBN: 0793183049
EAN: 2147483647
Year: 2003
Pages: 74

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