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The Mind and Heart of the Negotiator

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S i x t h E d i t i o n

Leigh L. Thompson Kellogg School of Management

Northwestern University

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Library of Congress Cataloging-in-Publication Data

Thompson, Leigh L. The mind and heart of the negotiator/Leigh L. Thompson, Kellogg School of Management, Northwestern University.—Sixth edition. pages cm ISBN-13: 978-0-13-357177-6 (alk. paper) ISBN-10: 0-13-357177-7 (alk. paper) 1. Negotiation in business. 2. Negotiation. I. Title. HD58.6.T478 2014 658.4'052—dc23 2014004868

ISBN 10: 0-13-357177-7 ISBN 13: 978-0-13-357177-6

10 9 8 7 6 5 4 3 2 1

To the loves of my life:

Bob, Sam, Ray, and Anna

BRIEF CoNTENTS

Part I Essentials of Negotiation 1 Chapter 1 Negotiation: The Mind and The Heart 1

Chapter 2 Preparation: What to Do Before Negotiation 12

Chapter 3 Distributive Negotiation: Slicing the Pie 38

Chapter 4 Win-Win Negotiation: Expanding the Pie 69

Part II advanced Negotiation Skills 91 Chapter 5 Developing a Negotiating Style 91

Chapter 6 Establishing Trust and Building a Relationship 122

Chapter 7 Power, Gender, and Ethics 149

Chapter 8 Creativity and Problem Solving in Negotiations 173

Part III applications and Special Scenarios 208 Chapter 9 Multiple Parties, Coalitions, and Teams 208

Chapter 10 Cross-Cultural Negotiation 245

Chapter 11 Social Dilemmas 278

Chapter 12 Negotiating Via Information Technology 308

aPPENdIcES Appendix 1 Are You a Rational Person? Check Yourself 328

Appendix 2 Nonverbal Communication and Lie Detection 349

Appendix 3 Third-Party Intervention 360

Appendix 4 Negotiating a Job Offer 369

iv

CoNTENTS

Preface xix

About the Author xxii

Part I Essentials of Negotiation 1

chapter 1 NEgotIatIoN: thE MINd aNd thE hEart 1 Negotiation: Definition and Scope 2

Negotiation as a Core Management Competency 3

Dynamic Nature of Business 3

Interdependence 3

Economic Forces 4

Information Technology 4

Globalization 4

Most People are Ineffective Negotiators 5

Negotiation Traps 5

Why People are Ineffective Negotiators 6

Egocentrism 6

Confirmation Bias 6

Satisficing 7

Self-Reinforcing Incompetence 7

Debunking Negotiation Myths 8

Myth 1: Negotiations are Fixed-Sum 8

Myth 2: You Need to be either Tough or Soft 8

Myth 3: Good Negotiators are Born 8

Myth 4: Life Experience is a Great Teacher 9

Myth 5: Good Negotiators Take Risks 9

Myth 6: Good Negotiators Rely on Intuition 9

Learning Objectives 10

The Mind and Heart 11

chapter 2 PrEParatIoN: What to do BEforE NEgotIatIoN 12 Self-Assessment 13

What Do I Want? 13

What Is My Alternative to Reaching Agreement in This Situation? 15

v

vi Contents

Determine Your Reservation Point 16

Be Aware of Focal Points 16

Beware of Sunk Costs 16

Do Not Confuse Your Target Point with Your Reservation Point 19

Identify the Issues in the Negotiation 19

Identify the Alternatives for Each Issue 19

Identify Equivalent Multi-Issue Proposals 19

Assess Your Risk Propensity 20

Endowment Effects 23

Am I Going to Regret This? 24

Violations of the Sure Thing Principle 24

Do I Have an Appropriate Level of Confidence? 25

Other Assessment 26

Who Are the Other Parties? 26

Are the Parties Monolithic? 26

Counterparties’ Interests and Position 26

Counterparties’ BATNAs 27

Situation Assessment 27

Is the Negotiation One Shot, Long Term, or Repetitive? 27

Do the Negotiations Involve Scarce Resources, Ideologies, or Both? 27

Is the Negotiation One of Necessity or Opportunity? 28

Is the Negotiation a Transaction or Dispute? 29

Are Linkage Effects Present? 29

Is Agreement Required? 30

Is it Legal to Negotiate? 30

Is Ratification Required? 31

Are Time Constraints or Other Time-Related Costs Involved? 31

Are Contracts Official or Unofficial? 33

Where Do the Negotiations Take Place? 34

Are Negotiations Public or Private? 34

Is Third-Party Intervention a Possibility? 35

What Conventions Guide the Process of Negotiation (Such as Who Makes the First Offer)? 35

Do Negotiations Involve More Than One Offer? 35

Contents vii

Do Negotiators Communicate Explicitly or Tacitly? 36

Is There a Power Differential Between Parties? 36

Is Precedent Important? 36

Conclusion 36

chapter 3 dIStrIButIvE NEgotIatIoN: SlIcINg thE PIE 38 The Bargaining Zone 39

Bargaining Surplus 40

Negotiator’s Surplus 41

Pie-Slicing Strategies 41

Strategy 1: Assess Your BATNA and Improve It 43

Strategy 2: Determine Your Reservation Point, but do not reveal It 43

Strategy 3: Research the Other Party’s BATNA and Estimate Their Reservation Point 44

Strategy 4: Set High Aspirations (Be Realistic but Optimistic) 44

Strategy 5: Make the First Offer (If You Are Prepared) 46

Strategy 6: Immediately Reanchor if the Other Party Opens First 47

Strategy 7: Plan Your Concessions 48

Strategy 8: Support Your Offer with Facts 49

Strategy 9: Appeal to Norms of Fairness 49

Strategy 10: Do Not Fall for the “Even Split” Ploy 50

The Most Commonly Asked Questions 50

Should I Reveal My Reservation Point? 50

Should I Lie About My Reservation Point? 50

Should I Try to Manipulate the Counterparty’s Reservation Point? 52

Should I Make a “Final Offer” or Commit to a Position? 52

Saving Face 53

The Power of Fairness 54

Multiple Methods of Fair Division 54

Situation-Specific Rules of Fairness 54

Social Comparison 56

The Equity Principle 58

Restoring Equity 59

Procedural Justice 60

viii Contents

Fairness in Relationships 62

Egocentrism 62

Wise Pie Slicing 66

Consistency 66

Simplicity 67

Effectiveness 67

Justifiability 67

Consensus 67

Generalizability 67

Satisfaction 67

Conclusion 68

chapter 4 WIN-WIN NEgotIatIoN: ExPaNdINg thE PIE 69 What Is Win-Win Negotiation? 70

Telltale Signs of Win-Win Potential 70

Does the Negotiation Contain More Than One Issue? 70

Can Other Issues Be Brought In? 71

Can Side Deals Be Made? 71

Do Parties Have Different Preferences Across Negotiation Issues? 71

Most Common Pie-Expanding Errors 72

False Conflict 72

Fixed-Pie Perception 73

Most Commonly Used Win-Win Strategies 74

Commitment to Reaching a Win-Win Deal 74

Compromise 74

Focusing on a Long-Term Relationship 74

Adopting a Cooperative Orientation 74

Taking Extra Time to Negotiate 75

Effective Pie-Expanding Strategies 75

Perspective Taking 75

Ask Questions About Interests and Priorities 76

Reveal Information About Your Interests and Priorities 78

Unbundle the Issues 79

Logrolling and Value-Added Trade-Offs 81

Make Package Deals, Not Single-Issue Offers 81

Make Multiple Offers of Equivalent Value Simultaneously 82

Contents ix

Structure Contingency Contracts by Capitalizing on Differences 85

Presettlement Settlements (PreSS) 87

Search for Postsettlement Settlements 88

A Strategic Framework for Reaching Integrative Agreements 88

Resource Assessment 88

Assessment of Differences 89

Offers and Trade-Offs 89

Acceptance/Rejection Decision 90

Prolonging Negotiation and Renegotiation 90

Conclusion 90

Part II advanced Negotiation Skills 91

chapter 5 dEvEloPINg a NEgotIatINg StylE 91 Motivational Orientation 93

Assessing Your Motivational Style 93

Strategic Issues Concerning Motivational Style 96

Interests, Rights, and Power Model of Disputing 100

Assessing Your Approach 102

Strategic Issues Concerning Approaches 105

Emotions and Emotional Knowledge 112

Genuine Versus Strategic Emotion 112

Negative Emotion 113

Positive Emotion 117

Emotional Intelligence and Negotiated Outcomes 118

Strategic Advice for Dealing with Emotions at the Table 119

Conclusion 121

chapter 6 EStaBlIShINg truSt aNd BuIldINg a rElatIoNShIP 122 The People Side of Win-Win 122

Trust as the Bedrock of Relationships 124

Three Types of Trust in Relationships 125

Building Trust: Rational and Deliberate Mechanisms 127

Building Trust: Psychological Strategies 130

What Leads to Mistrust? 134

Repairing Broken Trust 135

x Contents

Reputation 139

Relationships in Negotiation 140

Negotiating with Friends 141

Negotiating with Businesspeople 144

When in Business with Friends and Family 146

Conclusion 148

chapter 7 PoWEr, gENdEr, aNd EthIcS 149 Power 150

The Power of Alternatives 150

Power Triggers in Negotiation 152

Symmetric and Asymmetric Power Relationships 152

The Effect of Using Power on Powerful People 152

The Effects of Power on Those with Less Power 153

Status 154

Gender 155

Gender and Negotiation Outcomes 155

Initiating Negotiations 156

Leveling the Playing Field 157

Evaluations of Negotiators 159

Gender and Race Discrimination in Negotiation 159

Gender and Third-Party Dispute Resolution 160

Ethics 160

Ethics and Lying 161

Other Questionable Negotiation Strategies 163

Sins of Omission and Commission 166

Costs of Lying 166

Under What Conditions Do People Engage in Deception? 168

Responding to Unethical Behavior 171

Conclusion 172

chapter 8 crEatIvIty aNd ProBlEM SolvINg IN NEgotIatIoNS 173 Creativity in Negotiation 173

Test Your Own Creativity 174

What Is Your Mental Model of Negotiation? 174

Haggling 174

Cost-Benefit Analysis 179

Game Playing 179

Contents xi

Partnership 179

Problem Solving 180

Creative Negotiation Agreements 180

Fractionating Single-Issue Negotiations into Multiple Issues 180

Finding Differences: Looking for Patterns in Offers 180

Expanding the Pie 181

Bridging 181

Cost Cutting 182

Nonspecific Compensation 182

Structuring Contingencies 183

Threats to Effective Problem Solving and Creativity 185

The Inert Knowledge Problem 186

Availability Heuristic 189

Representativeness 189

Anchoring and Adjustment 190

Unwarranted Causation 191

Belief Perseverance 191

Illusory Correlation 191

Just World 192

Hindsight Bias 192

Functional Fixedness 193

Set Effect 193

Selective Attention 193

Overconfidence 194

The Limits of Short-Term Memory 195

Techniques for Enhancing Creative Negotiation Agreements 195

Negotiating Skills Training 195

Bilateral or Unilateral Training 196

Feedback 196

Learning Versus Performance Goals 197

Analogical Training 198

Counterfactual Reflection 199

Incubation 199

Rational Problem-Solving Model 200

Brainstorming 201

Deductive Reasoning 201

Inductive Reasoning 203

Conclusion 203

xii Contents

Part III applications and Special Scenarios 208

chapter 9 MultIPlE PartIES, coalItIoNS, aNd tEaMS 208 Analyzing Multiparty Negotiations 209

Multiparty Negotiations 211

Key Challenges of Multiparty Negotiations 211

Strategies for Successful Multiparty Negotiations 215

Coalitions 217

Key Challenges of Coalitions 217

Strategies for Maximizing Coalitional Effectiveness 222

Principal-Agent Negotiations 223

Disadvantages of Agents 224

Strategies for Working Effectively with Agents 226

Constituent Relationships 228

Challenges for Constituent Relationships 228

Strategies for Improving Constituent Relationships 231

Team Negotiation 231

Challenges That Face Negotiating Teams 233

Strategies for Improving Team Negotiations 234

Intergroup Negotiation 236

Challenges of Intergroup Negotiations 236

Strategies for Optimizing Intergroup Negotiations 238

Conclusion 242

chapter 10 croSS-cultural NEgotIatIoN 245 Learning About Cultures 246

Culture as an Iceberg 246

Cultural Values and Negotiation Norms 247

Individualism versus Collectivism 247

Egalitarianism versus Hierarchy 258

Direct versus Indirect Communications 261

Key Challenges of Intercultural Negotiation 264

Expanding the Pie 264

Dividing the Pie 265

Sacred Values and Taboo Trade-Offs 265

Biased Punctuation of Conflict 267

Ethnocentrism 268

Contents xiii

Affiliation Bias 269

Faulty Perceptions of Conciliation and Coercion 270

Naïve Realism 270

Predictors of Success in Intercultural Interactions 271

Advice for Cross-Cultural Negotiations 272

Anticipate Differences in Strategy and Tactics That May Cause Misunderstandings 272

Cultural Perspective Taking 272

Recognize That the Other Party May Not Share Your View of What Constitutes Power 273

Avoid Attribution Errors 273

Find Out How to Show Respect in the Other Culture 274

Find Out How Time is Perceived in the Other Culture 275

Know Your Options for Change 275

Conclusion 277

chapter 11 SocIal dIlEMMaS 278 Social Dilemmas in Business 280

The Prisoner’s Dilemma 280

Cooperation and Defection as Unilateral Choices 281

Rational Analysis 282

Psychological Analysis of Why Tit-for-Tat Is Effective 284

Ultimatum Dilemma 289

Dictator Game 290

Trust Game 291

Binding versus Nonbinding Contracts 291

Social Networks and Reputations 292

Relationship Threat 292

Self-Blame and Regret 292

Restoring Broken Trust 293

Volunteer Dilemma 293

Multiparty Dilemmas 294

The Tragedy of the Commons 294

Types of Social Dilemmas 295

How to Build Cooperation in Social Dilemmas 297

How to Encourage Cooperation in Social Dilemmas When Parties Should Not Collude 303

xiv Contents

Escalation of Commitment 303

Avoiding the Escalation of Commitment in Negotiations 306

Conclusion 307

chapter 12 NEgotIatINg vIa INforMatIoN tEchNology 308 Place-Time Model of Social Interaction 309

Face-to-Face Communication 309

Same Time, Different Place 312

Different Time, Same Place 313

Different Place, Different Time 314

Information Technology and Its Effects on Social Behavior 318

Trust 318

Deception 318

Status and Power: The “Weak Get Strong” Effect 318

Social Networks 320

Risk Taking 321

Rapport and Social Norms 321

Paranoia 322

Intergenerational Negotiation 322

Strategies for Enhancing Technology-Mediated Negotiations 325

Initial Face-to-Face Experience 325

One-Day Videoconference/Teleconference 326

Schmoozing 326

Humor 327

Conclusion 327

appendix 1 arE you a ratIoNal PErSoN? chEck yourSElf 328 Why Is It Important to Be Rational? 328

Individual Decision Making 328

Riskless Choice 329

Decision Making Under Uncertainty 331

Risky Choice 331

Summing Up: Individual Decision Making 343

Game Theoretic Rationality 343

Nash Bargaining Theory 344

Contents xv

appendix 2 NoNvErBal coMMuNIcatIoN aNd lIE dEtEctIoN 349 What Are We Looking for in Nonverbal Communication? 349

Are Women More “Nonverbally Gifted” Than Men? 350

Dominance 351

Personal Charisma 352

Detecting Deception 353

Direct Methods 355

Indirect Methods 355

How Motivation and Temptation Affect Lying and Deception 357

Deception Success 358

appendix 3 thIrd-Party INtErvENtIoN 360 Common Third-Party Roles 360

Mediation 360

Arbitration 361

Mediation-Arbitration 362

Arbitration-Mediation 362

Key Choice Points in Third-Party Intervention 362

Outcome versus Process Control 363

Formal versus Informal 363

Invited versus Uninvited 363

Interpersonal versus Intergroup 363

Content versus Process Orientation 363

Facilitation, Formulation, or Manipulation 363

Disputant Preferences 364

Mediators and Gender 364

Challenges Facing Third Parties 364

Meeting Disputants’ Expectations 365

Increasing the Likelihood That Parties Reach an Agreement if a Positive Bargaining Zone Exists 365

Promoting a Pareto-Efficient Outcome 365

Promoting Outcomes That Are Perceived as Fair in the Eyes of Disputants 365

Improving the Relationship Between Parties 366

Empowering Parties in the Negotiation Process 366

xvi Contents

Debiasing Negotiators 366

Maintaining Neutrality 367

Enhancing the Effectiveness of Third-Party Intervention 368

Accept Your Share of Responsibility 368

Test Your Own Position 368

Role-Play a Third Party in Your Own Dispute 368

Training in Win-Win Negotiation 368

appendix 4 NEgotIatINg a JoB offEr 369 Preparation 369

Step 1: Determine What You Really Want 369

Step 2: Do Your Homework 369

Step 3: Determine Your BATNA and Your Aspiration Point 371

Step 4: Research the Employer’s BATNA 371

Step 5: Determine the Issue Mix 371

Step 6: Prepare Several Scenarios 371

Step 7: Consider Getting a “Coach” 371

In Vivo: During the Negotiation Itself 372

Think About the Best Way to Position and Present Your Opening Offer 372

Assume the Offer Is Negotiable 372

Put the Focus On How You Can Solve Problems, Not Make Demands 373

Don’t Reveal Your BATNA or Your Reservation Point 374

Rehearse and Practice 375

Imagine You Are Negotiating on Behalf of Someone Else (Not Just Yourself) 375

Comparables and Benchmarks 375

Post-Offer: You Have the Offer, Now What? 376

Think Before Posting Anything on Social Media 376

Do Not Immediately Agree to the Offer 376

Get the Offer in Writing 376

Be Enthusiastic and Gracious 376

Assess the Interviewer’s Power to Negotiate with You 376

State Exactly What Needs to Be Done for You to Agree 376

Contents xvii

Do Not Negotiate If You Are Not or Could Not Be Interested 377

Exploding Offers 377

Do Not Try to Create a Bidding War 377

Know When to Stop Pushing 377

Use a Rational Strategy for Choosing Among Job Offers 378

Name Index 379

Subject Index 396

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PREFACE

This book is dedicated to negotiators who want to improve their ability to negotiate—whether in multimillion-dollar business deals or personal interactions. It is possible for most people to dra- matically improve their ability to negotiate. You can improve your economic outcomes and feel better about yourself and the people with whom you deal. The book integrates theory, scientific research, and practical examples. New to this edition are special sections on gender, ethics, emo- tions, intergenerational negotiations, and job negotiations. The book contains hundreds of real examples from business, politics, and personal life spanning the globe to illustrate effective, as well as ineffective, negotiation skills.

Here is what you can expect when you read this book:

• Illustrative case studies. Each chapter opens with a case study of an actual negotiation, drawn from business, government, world affairs, community, and personal life. New to this edition are more than 100 updated examples from the business world, many involving international issues.

• Skills-based approach. Each chapter provides practical takeaway points for the man- ager and the executive. A good example is Chapter 4 on integrative negotiation. A series of hands-on principles that have been proven to increase the value of negotiated deals is provided.

• Self-insight. Most chapters contain several self-assessments, quizzes, and examples that readers can use to examine their negotiation attitudes and behaviors. For example, Chapter 5 gives negotiators an opportunity to assess their “instinctive” bargaining style and provides suggestions for how to further develop their bargaining repertoire. In Chapter 7, negotiators can examine their ethical principles in negotiation. Moreover, Chapter 10 pro- vides a deep look at cultural differences in negotiation so that the negotiator can better understand his or her own cultural style and that of others.

• Advanced bargaining skills. The second and third sections of the book deal with com- plex yet commonly occurring negotiating situations, such as negotiating with people of different generations, different genders, agents, mediation and arbitration, negotiating via e-mail and conference calls, negotiating with competitor companies, and of course, nego- tiating cross-culturally. These sections have been revised in this edition.

• Scientific Research. New to this edition are the groundbreaking results of more than 120 new scientific articles on negotiation.

I benefit greatly from the advice, comments, and critiques given to me by my students and colleagues, and I hope their advice keeps coming so that I am able to improve upon the book even further. The research and ideas in this book come from an invaluable set of scholars in the fields of social psychology, organizational behavior, sociology, negotiation, and cognitive psychology. My research, thinking, and writing have been inspired in important ways by the following people: Wendi Adair, Cameron Anderson, Evan Apfelbaum, Linda Babcock, Chris

xix

Note: Every effort has been made to provide accurate and current Internet information in this book. However, the Internet and information posted on it are constantly changing, so it is inevitable that some of the Internet addresses listed in this textbook will change.

xx Preface

Bauman, Max Bazerman, Kristin Behfar, Terry Boles, Jeanne Brett, Susan Brodt, Karen Cates, Hoon-Seok Choi, Taya Cohen, Susan Crotty, Jeanne Egmon, Hal Ersner-Hershfield, Gary Fine, Craig Fox, Adam Galinsky, Wendi Gardner, Dedre Gentner, Robert Gibbons, Kevin Gibson, James Gillespie, Rich Gonzalez, Deborah Gruenfeld, Erika Hall, Reid Hastie, Andy Hoffman, Elizabeth Howard, Peter Kim, Shirli Kopelman, Rod Kramer, Laura Kray, Terri Kurtzburg, Geoffrey Leonardelli, John Levine, Allan Lind, George Loewenstein, Jeff Loewenstein, Brian Lucas, Deepak Malhotra, Beta Mannix, Kathleen McGinn, Vicki Medvec, Tanya Menon, Dave Messick, Terry Mitchell, Don Moore, Michael Morris, Keith Murnighan, Janice Nadler, Maggie Neale, Kathy Phillips, Robin Pinkley, Ashleigh Rosette, Nancy Rothbard, Catherine Shea, Ned Smith, Marwan Sinaceur, Harris Sondak, Roderick Swaab, Tom Tyler, Leaf Van Boven, Kimberly Wade-Benzoni, Laurie Weingart, Judith White, and Elizabeth Ruth Wilson. Throughout the text of The Mind and Heart of the Negotiator, I use the pronoun “we” because so much of my thinking has been influenced and shaped by this set of eminent scholars.

The revision of this book would not have been possible without the dedication, organiza- tion, and editorial skills of Larissa Tripp, Ellen Hampton, Joel Erickson, and Lee Sol Jee, who created the layout, organized hundreds of drafts, mastered the figures, and researched many case studies for this book.

In this book, I talk about the “power of the situation” and how strongly the environ- ment shapes our behavior. The Kellogg School of Management is one of the most supportive, dynamic environments I have ever had the pleasure to be a part of. In particular, Dean Sally Blount strongly supports research and intellectual leadership as well as pedagogical leadership. I am particularly indebted to my wonderful visionary colleague, Jeanne Brett, who created the Dispute Resolution Research Center (DRRC) at Kellogg in 1986, and to the Hewlett Foundation for their generous support of the DRRC.

This book is very much a team effort of the people I have mentioned here, whose talents are diverse, broad, and extraordinarily impressive. I am deeply indebted to my colleagues and my students, and I feel grateful that they have touched my life and this book.

Overview

This book is divided into three major sections. The first section deals with the essentials of negotiation—the key principles and groundwork for effective negotiation. Chapter 2 leads the manager through effective preparation strategies for negotiation. Chapter 3 discusses distribu- tive negotiation skills, or how to optimally allocate resources in ways that are favorable to one’s self—a process called “slicing the pie.” Chapter 4 is the integral chapter of the book; it focuses on “win-win” negotiation or, more formally, integrative negotiation. This creative part of nego- tiation involves expanding the pie of resources in ways that provide more gains to go around.

The second section of the book deals with advanced and expert negotiation skills. Chapter 5 focuses on assessing and developing your negotiation style. This chapter invites readers to hon- estly appraise their own negotiation style in terms of three dimensions: motivational orientation, disputing style, and emotional expression. The negotiator can accurately assess his or her own style and its limitations and learn to assess the styles adopted by other negotiators. Chapter 6 focuses on establishing trust and building relationships. This chapter examines business and per- sonal relationships and how trust is developed, broken, and repaired. Chapter 7 discusses power, gender, and ethics in negotiation. This chapter looks at the topic of persuasion and influence as it occurs across the bargaining table and also deals with the important issues of gender and ethics in negotiation. In Chapter 8, the focus is on problem solving and creativity. This chapter

Preface xxi

provides strategies for learning how to think out of the box and provides techniques for using creativity and imagination in negotiation.

The third section deals with special scenarios in negotiation. Chapter 9 examines the com- plexities of negotiating with multiple parties, such as conflicting incentives, coalitions, voting rules, and how to leverage one’s own bargaining position when negotiating with multiple parties. Chapter 10 focuses on cross-cultural negotiation, which addresses the key cultural values and negotiation norms across a variety of nationalities, along with some advice for cross-cultural negotiations. Chapter 11 deals with dilemmas, or situations in which negotiators make choices in a mixed-motive context, where cooperation involves building trust with the other party and competition involves an attempt to increase one’s own share of resources. This chapter examines the nature of social dilemmas and how to negotiate successfully within various types of dilem- mas. Chapter 12 focuses on information technology and its impact on negotiation and uses a place-time model of social interaction to examine the challenges and opportunities of negotiation as it occurs in this technological age. It includes a section on intergenerational negotiation and e-negotiations.

Four appendices provide a variety of additional material: Appendix 1 invites readers to examine the rationality of their negotiation beliefs and preferences; Appendix 2 provides a short course on lie detection and nonverbal communication; Appendix 3 reviews the essen- tials of third-party intervention; and Appendix 4 provides tips and a checklist for negotiating a job offer.

Faculty resOurces

instructor resource center At http://www.pearsonhighered.com/educator, instructors can access a variety of resources available with this text in downloadable, digital format.

Once you register, you will not have additional forms to fill out, or multiple usernames and passwords to remember to access new titles and/or editions. As a registered faculty member, you can log in directly to download resource files, and receive immediate access and instructions for installing Course Management content to your campus server.

Our dedicated Technical Support team is ready to assist instructors with questions about the media supplements that accompany this text. Visit http://247pearsoned.custhelp.com for answers to frequently asked questions and toll-free user support phone numbers.

To download the supplements available with this text, including an Instructor’s Manual, Power Point presentation, and Test Item File, please visit: http://www.pearsonhighered.com/ educator.

reviewers The author would like to thank the following colleagues for providing valuable comments and suggestions on how to improve the book.

Lehman Benson: University of Arizona Jason Harris-Boundy San Francisco State Dale F. Kehr: University of Memphis Barry Goldman: University of Arizona Stanley Braverman: La Salle University

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ABouT THE AuTHoR

Leigh L. Thompson joined the Kellogg School of Management in 1995. She is the J. Jay Gerber Distinguished Professor of Dispute Resolution and Organizations. She directs the Leading High Impact Teams executive program and the Kellogg Team and Group Research Center and codirects the Negotiation Strategies for Managers program. An active scholar and researcher, she has published over 100 research articles and chapters and has authored 10 books, including Creative Conspiracy: The New Rules of Breakthrough Collaboration, Making the Team, Creativity in Organizations, Shared Knowledge in Organizations, Nego- tiation: Theory and Research, The Social Psychology of Organizational Behavior: Essential Reading, Organizational Behavior Today, The Truth about Negotiation, and Conflict in Orga- nizational Teams. Thompson has worked with private and public organizations in the United States, Latin America, Canada, Europe, and the Middle East. Her teaching style combines experiential learning with theory-driven best practices. For more information about Leigh Thompson’s teaching and research, please visit leighthompson.com.

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1

A $7.2 billion merger between Microsoft and Nokia began with a phone call and three simple words, “Can we talk?” When Microsoft CEO Steve Ballmer called Nokia Chairman Risto Siilasmaa on a cold January day with that question, it set in motion eight months of complex negotia- tions. Whereas the companies were longtime working partners in the development of Microsoft’s Windows Phone, Ballmer was frustrated with the slow pace of growth for the device. Microsoft and Nokia were each duplicating their efforts—investing marketing money to build separate brands and lure app developers, but they were both solidly way behind—the Windows Phone was considered to be a second-tier product behind Google’s Android and Apple’s iOS. Nokia’s stock price and revenue had declined alarmingly. After the phone call, executives from both companies met for an hour in Barcelona to discuss their ideas; a month later in New York at the offices of Nokia’s outside law firm, the deal nearly fell apart due to Siilasmaa’s frustration over the low perceived value of Nokia by Microsoft executives. Siilasmaa broke the silence the next day, send- ing a text message to Ballmer to reopen talks. When the company executives met in London the following month, a scream was heard during a break. Deep in thought, CEO Ballmer had failed to see a clear glass coffee table in front of him, tripped, and hit his head. As the security team patched up Ballmer’s forehead, he began to talk to the Nokia executives. Meetings followed in Nokia’s home base of Finland, and then back in New York where the CEOs shook hands on key issues, which subsequently led to legal pacts covering patents, trademarks, the selling of Nokia’s handset business, and platform mapping. That fall, Ballmer flew to Finland to finalize one of the largest mergers of all time.1

NegotiatioN: the MiNd aNd the heart

1

W hereas most of us are not involved in billion-dollar mergers, one thing that business scholars and businesspeople are in complete agreement on is that everyone negotiates nearly every day. Getting to Yes begins by stating, “Like it or not, you are a negotiator…. Everyone negotiates something every day.”2 Similarly, Lax and Sebenius, in The Manager as Negotiator, state that “Negotiating is a way of life for managers. . . when managers deal with their superiors, boards of directors, even

2 Fisher, R., & Ury, W. (1981). Getting to yes (p. xviii). Boston: Houghton Mifflin.

Part I: Essentials of Negotiation

1 Stoll, J. D. (2013, September 13). Nokia’s last great deal: Zero to $7.2 billion. Wall Street Journal. wsj.com; Mossberg, W. (2013, September 4). From “Can we talk?” to a coffee-table mishap: The inside story of Microsoft’s Nokia deal. All Things Digital. allthingsd.com.

2 Part I • Essentials of Negotiation

legislators.”3 G. Richard Shell, who wrote Bargaining for Advantage, asserts, “All of us negoti- ate many times a day.”4 Herb Cohen, author of You Can Negotiate Anything, dramatically sug- gests that “your world is a giant negotiation table.” One business article on negotiation warns, “However much you think negotiation is part of your life, you’re underestimating.”5

Negotiation is your key communication and influence tool inside and outside the company. Anytime you cannot achieve your objectives (whether an acquisition or a dinner date) without the cooperation of others, you are negotiating. We provide dramatic (and disturbing) evidence in this chapter that most people do not live up to their negotiating potential. The good news is that you can do something about it.

The sole purpose of this book is to improve your ability to negotiate. We do this through an integration of scientific studies of negotiation and real business cases. And in case you are wondering, it is not all common sense. Science drives the best practices covered in this book. We focus on business negotiations, and understanding business negotiations helps people to be more effective negotiators in their personal lives.6

In this book, we focus on three major negotiation skills: creating value, claiming value, and building trust. By the end of this book, you will have a mindset or mental model that will allow you to know what to do and say in virtually every negotiation situation. You can prepare effectively for negotiations and enjoy the peace of mind that comes from having a game plan. Things may not always go according to plan but your mental model will allow you to perform effectively and, most important, to learn from your experiences. Indeed, people who view nego- tiation as a challenge are more successful in reaching high-quality deals than people who view negotiation as threatening.7 Moreover, people who believe that negotiation ability is changeable with experience and practice are more likely to discover win-win agreements than people who believe that negotiation skills are not teachable.8

NegotiatioN: DefiNitioN aND Scope

Negotiation is an interpersonal decision-making process necessary whenever we cannot achieve our objectives single-handedly. Negotiations include not only one-on-one business meetings but also multiparty, multicompany, and multinational relationships. Some negotiations involve bargaining over a few dollars; other negotiations involve billions of dollars, such as Kellogg’s acquisition of the Pringles brand from Proctor and Gamble for $2.7 billion. Some negotiations are conducted in less than a few minutes; others linger on for years, such as Hertz’s five-year courtship with rival Dollar Thrifty for an ultimate price of $2.5 billion.9 People negotiate in their

3 Lax, D. A., & Sebenius, J. K. (1986). The manager as negotiator (p. 6). New York: Free Press. 4 Shell, G. R. (1999). Bargaining for advantage: Negotiation strategies for reasonable people (p. 76). New York: Viking. 5 Walker, R. (2003, August). Take it or leave it: The only guide to negotiating you will ever need. Inc., 25(8) 75–82. 6 Gentner, D., Loewenstein, J., & Thompson, L. (2003). Learning and transfer: A general role for analogical encoding. Journal of Educational Psychology, 95(2), 393–408. 7 O’Connor, K. M., Arnold, J. A., & Maurizio, A. M. (2010). The prospect of negotiating: Stress, cognitive appraisal and performance. Journal of Experimental Social Psychology, 46(5), 729–735. 8 Wong, E. M., Haselhaun, M. P., & Kray, L. J. (2012). Improving the future by considering the past: The impact of upward counterfactual reflection and implicit beliefs on negotiation performance. Journal of Experimental Social Psychology, 48(1), 403–406. 9 Applegate, E., & Mider, Z. (2013, December). The year in M&A deals. Businessweek, pp. 64–65.

Chapter 1 • Negotiation: The Mind and the Heart 3

personal life with people whom they love and enjoy a long-term relationship (e.g., spouses, chil- dren, neighbors, and family), as well as in their business life, and with people with whom they might not have an established relationship.

NegotiatioN aS a core MaNageMeNt coMpeteNcy

Negotiation skills are increasingly important for managers. Key reasons for the importance of negotiation skills include the dynamic nature of business, interdependence, economic forces, information technology, and globalization.

Dynamic Nature of Business

Most people do not stay in the same job that they take upon graduating from college or receiving their MBA degree. The average person stays at a job for 4.4 years, and 91% of millennials expect to stay at their jobs less than three years, averaging 15–20 jobs over the course of their profes- sional lives.10 The dynamic, changing nature of business means that people must renegotiate their existence in organizations throughout their careers. The advent of decentralized business structures and the absence of hierarchical decision making provide opportunities for managers, but they also pose some daunting challenges. People must continually create possibilities, inte- grate their interests with others, and recognize the inevitability of competition both within and between companies. Managers must be in a near-constant mode of negotiating opportunities. Negotiation comes into play when people participate in important meetings, get new assign- ments, lead a team, participate in a reorganization process, and set priorities for their work unit. Negotiation should be second nature to the business manager, but often it is not.

interdependence

The increasing interdependence of people within organizations, both laterally and hierarchically, implies that people need to know how to integrate their interests and work across business units and functional areas. For example, when Lafayette Park, a historical park in San Francisco, was scheduled for a renovation, many negotiations erupted between the numerous interest groups. The residents were concerned with the aesthetics of the park, the noise level during construction, as well as lack of use during the three-year revamp. The Recreation and Parks Commission wanted to provide new and interesting elements to the play- ground as well as keep the project on budget and on time, and the historical society wanted to preserve the park’s natural history. All the interest groups convened for facilitated meetings with breakout sessions to address and negotiate the different needs of each group. Some of the needs expressed were related to keeping the playground in a naturalistic theme, while also providing benches along the hilltop clearing to enjoy the view of the bay, and not trimming or removing too many trees.11

The increasing degree of specialization and expertise held by businesspeople indicates that people are more and more dependent on others. However, other people do not always have

10 Meister, J. (2012, August 4). Job hopping is the new normal for millennials: Three ways to prevent a human resource nightmare. Forbes. forbes.com. 11 King, J. (2013, June 5). Lafayette park revamp spurs heap of ideas. San Francisco Chronicle. sfchronicle.com.

4 Part I • Essentials of Negotiation

similar incentive structures, so managers must know how to promote their own interests while simultaneously creating joint value for their organizations. This balance of cooperation and com- petition requires negotiation.

economic forces

In March 2014, approximately 10.5 million people in the United States were unemployed.12 That was down from 15.3 million unemployed in November of 2009, the highest number of unem- ployed Americans since the Bureau of Labor Statistics began tracking the nation’s unemploy- ment in 1948.13 Economic pressures and forces such as these mean that negotiators need to know how to operate in uncertain and ambiguous environments. Focusing on minimizing losses may loom larger than focusing on profits.

information technology

Information technology also provides special opportunities and challenges for negotiators. Information technology has created a culture of 24/7 availability. With technology that makes it possible to communicate with people anywhere in the world, managers are expected to nego- tiate at a moment’s notice. Computer technology, for example, extends a company’s obliga- tions and capacity to add value to its customers. Because customers expect companies to be accessible to them 24/7, businesses have rethought how to respond quickly. For instance, when Scott Stratten, President of UnMarketing.com, tweeted about his disappointing experience with a Delta flight attendant, the company responded with a polite apology within 16 minutes. Stratten was so impressed by Delta’s customer service responsiveness through Twitter that he immediately booked another flight with Delta the following week. Delta uses the 24/7 avail- ability to their advantage and employs 12 people to manage the company’s Twitter account.14 Conversely, people who are not online feel the pressure to perform when they finally do log back on. For example, Arianna Huffington, founder of The Huffington Post, promised her daughter that during her college tour she would not check her smartphone. Huffington kept her promise, not turning on her smartphone during the tour, but while her daughter slept in the hotel room that night, she admitted staying up all night answering e-mails and making sure she didn’t miss anything from the few hours she took off.15

globalization

Most managers must effectively cross cultural boundaries to do their jobs. Setting aside obvi- ous language and currency issues, globalization presents challenges in terms of different norms of communication. Chip Starnes, cofounder of Specialty Medical Supplies, learned a harrowing lesson in cultural fit when he showed up at his factory near Beijing, China to deliver severance payments for 30 workers laid off when Starnes moved a company division to Mumbai, India. The remaining 100 employees, convinced the entire factory would be closed, demanded severance

12 United States Department of Labor, Bureau of Labor Statistics. (2014, April). The Employment Situation. bls.gov/news. 13 United States Department of Labor, Bureau of Labor Statistics. (2011). Employment status of the civilian population by sex and age. bls.gov. 14 Trejos, N. (April 14, 2012). Delta Airlines tweets the most. USA Today. usatoday.com; Stratten, S. (2012, July 9). How Delta’s tweet saved the brand day. UnMarketing. unmarketing.com 15 Huffington, A. (2013, March 14). Arianna Huffington on burning out at work. Businessweek. businessweek.com

Chapter 1 • Negotiation: The Mind and the Heart 5

and barricaded Starnes inside the plant for six days. Cases of managers being held captive by dis- satisfied workers, while police look the other way, is not a rare circumstance in China, a cultural fact that Starnes certainly learned. After accepting the workers’ demands—giving 97 workers two months’ salary and compensation and rehiring the previously laid-off workers on new con- tracts—Starnes was released and declared that he had no plans to ever come back though the fac- tory would remain open.16 Managers need to develop negotiation skills that can be successfully employed with people of different nationalities, backgrounds, and personalities. Consequently, negotiators who have developed a bargaining style that works only within a narrow subset of the business world will suffer unless they broaden their negotiation skills to effectively work with different people across functional units, industries, and cultures.17 It is a challenge to develop negotiation skills general enough to be used across different contexts, groups, and continents but specialized enough to provide meaningful behavioral strategies in a given situation.

MoSt people are iNeffective NegotiatorS

On the question of whether people are effective negotiators, managers and scholars often dis- agree. Many people regard themselves to be effective negotiators. However, these same people believe most of their colleagues are distinctly ineffective at the negotiation table. Most people often fall extremely short of their potential at the negotiation table, judging from their perfor- mance in realistic business negotiation simulations.18 Numerous business executives describe their negotiations as win-win only to discover that they left hundreds of thousands of dollars on the table. Fewer than 4% of managers reach win-win outcomes when put to the test,19 and the incidence of outright lose-lose outcomes is 20%.20 Even on issues on which negotiators are in perfect agreement, they fail to realize it 50% of the time.21 Moreover, we make the point several times throughout this book that effective negotiation is not just about money—it is equally about relationships and trust.

NegotiatioN trapS

In our research, we have observed and documented four major shortcomings in negotiation:

1. Leaving money on the table (also known as “lose-lose” negotiation) occurs when negotia- tors fail to recognize and capitalize on their win-win potential.

2. Settling for too little (also known as “the winner’s curse”) occurs when negotiators make too-large concessions, resulting in a too-small share of the bargaining pie.

16 MacLeod, C. (2013, June 27). U.S. exec Chip Starnes freed from China factory. USA Today. usatoday.com; American boss hostage arrives back to US. (2013, June 28). Associated Press. ap.org. 17 Bazerman, M. H., & Neale, M. A. (1992). Negotiating rationally. New York: Free Press. 18 Neale, M. A., & Bazerman, M. H. (1991). Cognition and rationality in negotiation. New York: Free Press; Thompson, L., & Hrebec, D. (1996). Lose-lose agreements in interdependent decision making. Psychological Bulletin, 120(3), 396– 409; Loewenstein, J., Thompson, L., & Gentner, D. (2003). Analogical learning in negotiation teams: Comparing cases promotes learning and transfer. Academy of Management Learning and Education, 2(2), 119–127. 19 Nadler, J., Thompson, L., & van Boven, L. (2003). Learning negotiation skills: Four models of knowledge creation and transfer. Management Science, 49(4), 529–540. 20 Thompson & Hrebec, “Lose-lose agreements in interdependent decision making.” 21 Thompson & Hrebec, “Lose-lose agreements in interdependent decision making.”