Penelope Trunk at Brazen Careerist gives an excellent example of negotiation in the writer's market, complete with BATNA analysis.
http://blog.penelopetrunk.com/2007/06/18/how-to-negotiate-when-you-have-nothing-to-leverage/
Overall, I like this blog. I find myself disagreeing with the authors (she often has guest writers) pretty frequently, but in an I-can-see-their-point way.
Monday, June 18, 2007
Saturday, June 9, 2007
Negotiation Part 3 - Think Win-win
If you've read my previous negotiation posts (here and here), it's easy to get the impression that I see negotiation as an adversarial encounter. The truth is negotiation does not exist in a vacuum, but within the context of a relationship.
The four types of negotiations are
low stakes, low relationship:
This is something like two strangers deciding who will enter an elevator first. There's no relationship at stake, and nobody particularly cares about the outcome. Just decide these quickly and move on.
low stakes, high relationship:
This is where you are dealing with someone who you want to maintain a connection with (or at least not annoy), and an outcome that doesn't matter that much. An example is who would pick up the tab for lunch (unless you've got expensive tastes). Anything that seems fair to both parties is fine here.
High stakes, low relationship:
This relationship may be short-term to nonexistent, such as selling a house. In these cases, getting the best possible outcome (ethically) will be the priority. You can pull out all the stops here, almost.
High stakes, high relationship:
These are the most difficult types of negotiations. The relationship is as important as the outcome, but both will have a large impact on your future. If you are discussing your starting salary with a prospective employer, it does not make sense to poison your relationship over a few dollars. In cases like this, it is important for both parties feel like they have been treated fairly by the other.
One concept that helps in these scenarios is win-win. In other words: how can both sides get as much of what they want at the same time? The key here is to focus on what matters most to each group. The prospective employer may be willing to pay more if the candidate can start immediately. A candidate may be willing to take less pay for a more flexible schedule. These kinds of trade-offs have to incorporate something other than the pay, so they work best when there are multiple variables to talk about. It's even more important to know yourself and your opponent as much as possible, beyond the BATNA.
The four types of negotiations are
low stakes, low relationship:
This is something like two strangers deciding who will enter an elevator first. There's no relationship at stake, and nobody particularly cares about the outcome. Just decide these quickly and move on.
low stakes, high relationship:
This is where you are dealing with someone who you want to maintain a connection with (or at least not annoy), and an outcome that doesn't matter that much. An example is who would pick up the tab for lunch (unless you've got expensive tastes). Anything that seems fair to both parties is fine here.
High stakes, low relationship:
This relationship may be short-term to nonexistent, such as selling a house. In these cases, getting the best possible outcome (ethically) will be the priority. You can pull out all the stops here, almost.
High stakes, high relationship:
These are the most difficult types of negotiations. The relationship is as important as the outcome, but both will have a large impact on your future. If you are discussing your starting salary with a prospective employer, it does not make sense to poison your relationship over a few dollars. In cases like this, it is important for both parties feel like they have been treated fairly by the other.
One concept that helps in these scenarios is win-win. In other words: how can both sides get as much of what they want at the same time? The key here is to focus on what matters most to each group. The prospective employer may be willing to pay more if the candidate can start immediately. A candidate may be willing to take less pay for a more flexible schedule. These kinds of trade-offs have to incorporate something other than the pay, so they work best when there are multiple variables to talk about. It's even more important to know yourself and your opponent as much as possible, beyond the BATNA.
Friday, June 8, 2007
Negotiation Part 2 - the Environment
Once you know, as well as you can, your and your opponent's BATNA, it's time to set the stage for the negotiations. These are the subtle things that provide one side an advantage before the first words are even spoken. The key components are timing, location, and environment.
Timing can be any number of factors. No car buying advice is complete without telling the buyer to come in at the end of the month. If you come into a store close to closing time, the salesperson may sweeten the deal to get you to buy quickly. I've been in many negotiations with people from outside the United States, and have repeatedly seen delay used to take advantage of the American's impatience. This works more often than I'd like to admit.
Location will usually boil down to home team advantage, but not always. While the person negotiating from their own office is more comfortable and will have most of their resources at hand, the visitor can learn more about their host by seeing them in their natural habitat. Of course, the host generally doesn't have to worry about catching a flight.
The Environment is the additional factors beyond location that can affect the outcome. Having your team in the room with you is an advantage, especially if you make up the majority. If one of you is standing out in the cold, while the other is in a warm car, the frozen party is more likely to make concessions to get someplace warm.
Of course it's possible to put too much emphasis on these factors at the expense of due diligence, but if the options present themselves, you can put yourself in a better position to succeed.
Timing can be any number of factors. No car buying advice is complete without telling the buyer to come in at the end of the month. If you come into a store close to closing time, the salesperson may sweeten the deal to get you to buy quickly. I've been in many negotiations with people from outside the United States, and have repeatedly seen delay used to take advantage of the American's impatience. This works more often than I'd like to admit.
Location will usually boil down to home team advantage, but not always. While the person negotiating from their own office is more comfortable and will have most of their resources at hand, the visitor can learn more about their host by seeing them in their natural habitat. Of course, the host generally doesn't have to worry about catching a flight.
The Environment is the additional factors beyond location that can affect the outcome. Having your team in the room with you is an advantage, especially if you make up the majority. If one of you is standing out in the cold, while the other is in a warm car, the frozen party is more likely to make concessions to get someplace warm.
Of course it's possible to put too much emphasis on these factors at the expense of due diligence, but if the options present themselves, you can put yourself in a better position to succeed.
Thursday, June 7, 2007
Negotiation Part 1 - The BATNA
Of all the classes I've taken, the one I consider the most useful is one on Negotiations. I find myself using the principles on a near-daily basis and interpreting a lot of the actions I see in others as negotiation tactics. If anyone out there is taking business classes at DePaul, I recommend it highly.
One of the core principles in negotiation is the Best Alternative To a Negotiated Agreement, or BATNA. This term was coined by Robert Fisher and Bill Ury and used in their book Getting to Yes: Negotiating Agreement Without Giving In. The concept is straightforward, your BATNA is your best outcome if you do not come to an agreement in this negotiation, or rather, what you get if you walk away.
Knowing your BATNA and your opponent's BATNA (I use the term loosely, the person you are negotiating with shouldn't normally be considered a foe to be conquered) lets you know the best and worst acceptable outcomes.
For example, If you are selling your house and you have an offer from another buyer for $150K, that is your BATNA. If the buyer offers less than that, you should turn them down because you know you can do better. In contrast, if you know the house you want to buy has multiple offers on it, you would expect the seller's BATNA to be pretty close to their asking price, if not higher.
Of course, most BATNA calculations are not this simple. There are usually more variables involved than price, and even the price and costs aren't always as transparent as they are in a home purchase. A lot of effort and research can be spent on getting a better picture of your opponent's BATNA and even your own. Still, having this information is the most effective way to being a better negotiator.
One of the core principles in negotiation is the Best Alternative To a Negotiated Agreement, or BATNA. This term was coined by Robert Fisher and Bill Ury and used in their book Getting to Yes: Negotiating Agreement Without Giving In. The concept is straightforward, your BATNA is your best outcome if you do not come to an agreement in this negotiation, or rather, what you get if you walk away.
Knowing your BATNA and your opponent's BATNA (I use the term loosely, the person you are negotiating with shouldn't normally be considered a foe to be conquered) lets you know the best and worst acceptable outcomes.
For example, If you are selling your house and you have an offer from another buyer for $150K, that is your BATNA. If the buyer offers less than that, you should turn them down because you know you can do better. In contrast, if you know the house you want to buy has multiple offers on it, you would expect the seller's BATNA to be pretty close to their asking price, if not higher.
Of course, most BATNA calculations are not this simple. There are usually more variables involved than price, and even the price and costs aren't always as transparent as they are in a home purchase. A lot of effort and research can be spent on getting a better picture of your opponent's BATNA and even your own. Still, having this information is the most effective way to being a better negotiator.
Wednesday, June 6, 2007
Covering your Assets -or- Do you Need that Warranty?
Be Prepared
-Boy Scout Motto
Unless you've got a way to look into the future*, you have to deal with the unexpected road bumps that life throws your way. How do you keep this from throwing your life into a tailspin? It take a combination of prevention and reaction known in the business world as Risk Management.
Think in terms of a car. Cars break down all the time, so how do you cope with it? You can try to Prevent the breakdown by doing regular maintenance, you can get a warranty to cover those charges, or you can accept your fate and be ready to pay for the repairs.
Prevention sounds like the best option, and it usually is. The drawbacks are that 1) it's not always possible to anticipate everything that can go wrong, and 2) there's some point where the cost of prevention is greater than the expected loss. Foe example, how many homes have sprinkler systems in place? Most people agree that some prevention is necessary in any Risk Management plan.
Sharing the risk through insurance or warranties is another option. You pay someone else to take the risk for you. The drawback to this is that the amount you pay is usually more than the expected loss.
For those of you who are playing at home, the expected value of a loss is the probability it will happen (0 = impossible, 1 = sure thing, .5 = 50/50 chance, etc.) and the amount of the loss. So if you have a 2% chance of totalling your $10,000 car this year, your expected loss will be .02 * $10000 = $200. Anything more than this would be profit for the insurer. Of course, you have to factor in all types of accidents, their probabilities, the values of different repairs based on the accident type and the vehicle involved. If that sounds complicated, it is! The good news is that the insurer has done the work for us. They are out to make a profit, so any amount they charge you is going to be higher than the expected value.
Why would you buy it, then? The only good reason to purchase insurance, which includes warranties, is that you just can't afford to take the loss at all. Life insurance can fit into this category, if there isn't enough in savings and others rely on you income. Catastrophic health insurance, Home owner's insurance, and liability insurance are other potential examples where the risks can't just be accepted. Warranties on your MP3 player or mobile phone aren't. Automobile insurance usually has a combination of the two types of coverages. With any of these, it's important to understand what the plan covers.
The final option is to accept the risk as a part of life. I mentioned that warranties on consumer goods aren't a good idea, this is because if you loose your player, you can simply buy a new one or go without until you can. Raising the deductible on your insurance means you are accepting $X more of the risk involved. Somebody with enough money can afford to become "self-insured" from a life insurance standpoint. This is the best option (combined with prevention) in cases where the loss can be financially managed without coverage.
*How about some lottery numbers, or even the next Superbowl winner?
Tuesday, June 5, 2007
Funny Link - Office Jargon
My wife thinks it's hilarious that "bandwidth" is applied to people. LifeHacker has a funny translation guide:
The cubicle warrior's guide to office jargon
The cubicle warrior's guide to office jargon
What do you Mean, Mean?
There are three kinds of lies; lies, damned lies and statistics
-Benjamin Disraeli
When I look at most statistics, I see phrases such as "the average x" or "the median y". Even though I know better, I tend to read them both as "average". This can give a false impression of what's happening. What's the difference and what does that difference mean?
If you haven't repressed your junior high math yet, you remember that the mean, or average, of a set of numbers is the sum of the numbers divided by the count. For example if you have a group of five people aged 10, 12, 14, 15, and 52, the mean would be (10+12+14+15+52)/5 or 20.6. This is accurate, but it means that 4 out of the five people are below the mean. What's worse, you would look at the mean by itself, it gives the impression that this is a group of young adults, probably college-aged, which is completely wrong.
The median is the "middle" value when you order them from least to greatest (if there is an even number, you take the average of the two middle values). In the example above, the median would be 14, which gives the impression of a group of young teens. This gives a better picture of the group, even if it does ignore the oldest person (which a group of young pre-teens/teens would probably be doing anyway).
There is some additional information you can provide, such as standard deviation, that will improve the picture for the reader, but this causes most people's eyes to glaze over. The question is, which one do you use?
If the data can skew greatly in one direction, then median may be the right choice. Income is one example of this. One investment banker can raise the average wages of dozens of tellers, making the average earnings in the finance industry fairly meaningless by itself.
If the data is naturally restricted, then the mean may be more appropriate. There aren't any 1000 degree days in January, so the average high temperature is probably useful information.
The key here is to know the type of data that is being represented and making you decision based on that. Even more important is to know what is appropriate for other people's data and making sure they are providing an accurate picture.
Monday, June 4, 2007
Motivation
Considering that it's been more than a week since I've last blogged, I thought Motivation was a good topic to start with. I'm getting away from the Official Canon of Generally Accepted Knowledge (OCGAK), and throwing my own thoughts out there. So if it makes you wildly successful, I get partial credit. If it makes you fail spectacularly, you're on your own. If you saw these ideas somewhere else, I thought of it first and just didn't write it until now. I don't care if it was from the 16th century.
There are three thinks that get me (or anyone else, I assume) to do something or not do something:
1) Rewards. If we go through the maze, we get the cheese. If I show up for work, I get a paycheck. If I do good things while I'm there, I get raises, bonuses, promotions, etc. There's a lot of research and open discussion on what makes the best kind of reward (Money, recognition, intrinsic satisfaction). I personally believe that people have their own mix of them that best drives them forward.
2) Penalties. This is the opposite of the reward. If we go through the maze the wrong way, we not only don't get the cheese, but we get zapped by the electric floor. If I don't mow my yard, angry neighbors start chasing me with torches and pitchforks. If I take a HDTV from the store without paying for it, I get fitted for a orange jumpsuit. Civil & Criminal penalties, Societal disapproval, and even guilt are examples of this,
The two of these can be balanced against each other and there are cases where uncertainty is a factor. In the example of stealing the TV above, there is a chance I wouldn't get caught, then the Reward of the new free TV would outweigh the avoided Penalty of going to prison. Of course, my luck would make that chance pretty close to zero. Lawmakers use these tools in their attempt to nudge society in one direction or the other. That's one reason the tax code is as complex as it is.
The third and, I feel, most powerful of the motivators is 3) Habit. Habit never starts fully formed, but begins as response to Reward and Penalty that outlives the Rewards and Penalties themselves. A personal example is eating. I originally ate to get the Reward of the taste and avoid the Penalty of being hungry. Those are still considerations, but I occasionally (okay, frequently) find myself eating something I'm not all that crazy about when I'm not even hungry out of simple Habit. On the flip side, people who stay with a long-term exercise program often say that it's become a Habit for them.
So in short, If there's some change you want to make in what you do, look at Rewards and Penalties you can attach to that behavior and work to make it last long enough to allow Habit to kick in.
There are three thinks that get me (or anyone else, I assume) to do something or not do something:
1) Rewards. If we go through the maze, we get the cheese. If I show up for work, I get a paycheck. If I do good things while I'm there, I get raises, bonuses, promotions, etc. There's a lot of research and open discussion on what makes the best kind of reward (Money, recognition, intrinsic satisfaction). I personally believe that people have their own mix of them that best drives them forward.
2) Penalties. This is the opposite of the reward. If we go through the maze the wrong way, we not only don't get the cheese, but we get zapped by the electric floor. If I don't mow my yard, angry neighbors start chasing me with torches and pitchforks. If I take a HDTV from the store without paying for it, I get fitted for a orange jumpsuit. Civil & Criminal penalties, Societal disapproval, and even guilt are examples of this,
The two of these can be balanced against each other and there are cases where uncertainty is a factor. In the example of stealing the TV above, there is a chance I wouldn't get caught, then the Reward of the new free TV would outweigh the avoided Penalty of going to prison. Of course, my luck would make that chance pretty close to zero. Lawmakers use these tools in their attempt to nudge society in one direction or the other. That's one reason the tax code is as complex as it is.
The third and, I feel, most powerful of the motivators is 3) Habit. Habit never starts fully formed, but begins as response to Reward and Penalty that outlives the Rewards and Penalties themselves. A personal example is eating. I originally ate to get the Reward of the taste and avoid the Penalty of being hungry. Those are still considerations, but I occasionally (okay, frequently) find myself eating something I'm not all that crazy about when I'm not even hungry out of simple Habit. On the flip side, people who stay with a long-term exercise program often say that it's become a Habit for them.
So in short, If there's some change you want to make in what you do, look at Rewards and Penalties you can attach to that behavior and work to make it last long enough to allow Habit to kick in.
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