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Mastering Negotiation in an Economic Downturn
Professors Karen S. Walch and Paul C. Kinsinger
Thunderbird School of Global Management
Strategic negotiation skills and adaptation competences are tested more than ever when there is a decline in global economic activity. Currently, many global MBA candidates attend courses and multinational companies consult with Thunderbird about how to strengthen negotiation skills for all levels of management in an uncertain and flagging world economy. When it comes to transforming challenges into opportunities, there are two critical areas of expertise required:
- Knowledge concerning strategic leverage
- Social engagement practices in a cross-cultural context
Strategic leverage in an uncertain climate requires a robust understanding of global business intelligence (BI), often a less visible component of a successful negotiation strategy. Many experienced negotiators would recognize this as the “preparatory” phase of a negotiation when they undertake their “due diligence” to uncover the fundamental needs and goals of their counterparts (a process that often provides useful insight into one’s own goals as well).
Of course, very few negotiators would ever pursue negotiation without knowing something about the background and interests of the other players. However, in a rapidly changing and declining economic market, the impulse to bypass rigorous BI preparation is seductive. Although it is tempting, the pursuit of a negotiation planned on the ‘back of an envelope’ without a systematic challenge of key assumptions or ‘lore’ about what has worked in the past should be avoided. Quality information increases negotiation leverage.
Social engagement skills or emotional and social intelligence (ESI) are required in addition to strategic planning if negotiators ever wish to elevate their prospects of success in an increasingly diverse economic environment. A good plan is only as good as the ability to style switch, influence, and collaborate with others in a multicultural negotiation. Today’s complex markets have created progressively more demand for rigorous insight and cross-cultural social skills in order to creatively problem solve and create sustainable agreements. A successful organizational or individual negotiation plan can only be achieved when there is an integrated approach of analytical, psychological, and social insights and skills.
Most accredited negotiation programs focus either on strategic planning or on behavioral skills in one-to-three day sessions. However, Thunderbird’s negotiation program combines preeminent frameworks from the research fields of business, cultural, social and emotional intelligence--including the latest developments in neuroscience. The frameworks have been tested through practical application by working consultatively with hundreds of executives and companies. We strive to consult with companies to develop plans and processes which provide their negotiators with clarity on their strategic planning and cross-cultural practices that are pertinent in today’s global context.
Strategic BI Leverage: Learning from Other Cultures…
So, why is strategic leverage so important to a successful negotiation outcome? Well, consider this. In the 1970s and ‘80s, many western executives got lots of water cooler mileage out of how their Japanese negotiation counterparts would know amazing details about their personal lives, ranging from where they grew up and attended college, to how many children they had and what their favorite foods were. What they did not realize was that these activities were integral parts of an extremely dedicated business intelligence effort that was, in turn, at the very heart of “Japan, Inc.’s” hugely successful strategy for catching up to the US and for gaining long-term competitive advantage. In post mortem after post mortem of deals US companies had made with the Japanese, it turned out that the Japanese had “won” the negotiation game at the expense of their less-prepared American counterparts. The cost would be measured in the flow of technology, the unequal structure of deals to enter the Japanese market, and the pricing of components, among other factors.
Tackling the Tangibles and the Intangibles
Rigorous BI techniques provide the leverage-enhancing practices of information gathering and analysis of a counterpart’s compatible needs. Leverage is enhanced through exploration of each side’s need level and alternatives to a negotiation. If the counterpart’s need level is not as critical as one’s own and has a range of alternatives, this highlights a negotiation vulnerability which must be enhanced. BI can be used to improve leverage by uncovering and enhancing negotiation alternatives. In addition, as shown in the Mexican case below, BI can assist with regard to critical information and insight about the authority structure and profiles of counterpart negotiators.
BI Leverage at Work
In an example of utilizing BI to support a successful negotiation, a Mexican retail clothing company looking to enter the US market a few years ago spotted a California-based retail store company that looked like a good vehicle to do so. Preliminary financial due diligence, along with some basic market-mapping that showed the company’s outlets broadly serving the Hispanic market, seemed to confirm that the target should be approached with an offer to purchase it.
Before initiating contact, however, the Mexican company employed a BI/CI consultancy to do the full due diligence. The results showed that the owner of the California company was strongly committed to going it alone even though his company was struggling, and that he had no interest in negotiating its sale. An approach to him would be met with little chance of success. The consultants concluded, however, that his business strategy would probably fail within about two years, and that the Mexican company should bide its time. The consultants also offered a detailed personality intelligence profile that included substantial background information on, and insight into, the California company’s owner and his likely negotiating style. (On the basis of the report, the Mexican company decided to hold off at the time and devote its time and resources to other business opportunities.)
BI leverage begins with a focus on the “tangibles” surrounding the negotiation, such as industry dynamics, competitor goals and perspectives, any regulatory drivers, as well as, of course, the goals and resources of the other negotiating party(ies). But, successful negotiation preparation also involves an understanding of the “intangibles,” like the underlying psychological and emotional motivations that may directly or indirectly influence the parties during a negotiation. For example, does the counterpart negotiator: (A) need to “look good” to the parties they represent; (B) have a desire to book more business than others within his organization; or (C) have a fear or desire to set a precedent or reputation for future negotiations. Intangibles can also include core beliefs and values, such as the fact that the California company owner mentioned above was a first-generation exile from a communist country and he was determined to make his stores succeed and thus was not motivated to sell. Needless to say, such factors have enormous impact on negotiation processes and outcomes.
Social Engagement: Understand Emotional and Social Intelligence (ESI)
The execution of a successful negotiation strategy also requires an understanding of social engagement rules and preferences. How to negotiate becomes just as critical as what to negotiate. Successful social engagement requires negotiators to have a strong sense of self and an understanding of their own value preferences about how to build trust and get agreement. A skilled negotiator is aware of one’s own cultural profile, psychological and behavioral biases about fairness, how to build trust, and how to win. A confident and successful negotiator has the ability to accomplish one’s own goals, along with assisting others to achieve the same by fostering social resonance among negotiators. Awareness of one’s own and others’ emotions, and how to manage social relationships and interaction are critical for the execution of a negotiation strategy. If a problem-solving negotiation strategy is required, a negotiator must have the strategic knowledge, cultural sensitivity, optimism, resiliency, and ability to connect and generate positive energy among diverse negotiators.
Negotiators with both the strategic knowledge of the negotiation, and the required social and psychological competencies can achieve significant results despite any economic downturn. These qualities of a global mindset serve as foundation for collaboration and adaptation required even more than ever in an uncertain market. A negotiator with a global mindset has the social and psychological awareness and ability to approach a negotiation not solely from his/her own perspective, but also has the willingness and curiosity about others’ goals, interests, and beliefs about negotiation and trust building. Preparation, reflection, and practice about emotional and social competencies such as listening, patience, empathy, and optimism also enhance the strategic leverage for a negotiator.
Global Mindset – Strategic, Psychological and Social
No doubt, rigorous strategic planning can bolster a negotiator’s chances of success. However, leadership in negotiation also requires an understanding of, and an ability to practice critical emotional and behavioral skills. Such capabilities may sound “soft," but there is a strong relationship between negotiators who are aware of their own emotions and behaviors with whether they can successfully influence others in a negotiation. The emotional skill of empathy, for example, is a significant source of leverage because a negotiator has the ability to understand the emotional and behavioral make-up of other negotiators. This competency and skill to treat people according to their emotional reactions and motivations allows negotiators to build rapport and trust—two factors that, not surprisingly, are also important in developing and retaining clients, customers and employees through a service and consulting orientation. With a global mindset (GMS) negotiators are able to influence others who have a diverse world views. The power of GMS, along with BI and ESI, makes for a unique set of capabilities that many negotiators do not have.
Insight and skills around potential cultural preferences and differences are important frameworks for the appropriate behavioral demands in global negotiation. Assessment tools such as the Cultural Orientations Indicator (COI) generate insight about targeted behavioral changes which can impact negotiations. This tool creates an efficient learning and skill building around the key differences in cultural preferences and practices across national, organizational and or individual boundaries. This assessment tool is fundamental to the confidence and optimism needed in the most difficult and competitive negotiation situations. As the economic downturn demands more of negotiation skill, the search for increased leverage and cross-cultural social skills will become an essential quest.