Prepare, Prepare, and Also, Prepare.

Negotiation Strategies: Tips for Establishing Connection and Optimizing Results

Series: Part 2

We all know the scenario: You’ve been chasing your counterparty for weeks, trying to get either payment, a meeting, or a substantive response. On your end, you reviewed the file and calculated how much you want and, perhaps, how much you might settle for, based upon YOUR analysis of the issues. Finally, your counterparty responds, asking for a meeting next week to discuss the issues and try to settle. The schedule is a bit tight, but you finally got what you asked for and quickly confirm the meeting date and time.

What’s wrong with this scenario? Well, for one thing, you jumped at their first available date, even though (as discussed below) you probably needed more time to prepare. In other words, you’ve already made a concession in the negotiations, one that could be significant. Make no mistake: the term “negotiations” applies to the entire process, from the initial, ministerial discussions about location, agenda, attendees, and timing, to the give-and-take of the actual meeting. And, as I will outline below, one of the most common mistakes negotiators make is jumping into a sit down without adequate preparation.

This article examines common pre-meeting errors and recommends steps to ensure that you and your team are as prepared as possible. The concept of preparation goes well beyond analyzing the issues from your perspective and setting up a start and drop dead number or position. Like any other attempt to move human beings from point A to point B, there are layers of emotional, financial, psychological, and technical factors to consider (ON BOTH SIDES) to ensure you get the best result, leaving as little on the table as possible.

Step 1: Set Your Goals. Determine Your Strategy.

“Goals” and “strategy” – two relatively small words with huge consequences. Surprisingly, all too often parties come to the table without first determining the goals they wish to achieve (i.e., what do they ‘need’ at the end of negotiations, not what do they ‘want’ at the start), or the strategy they will employ to achieve them. Let’s examine these two critical elements separately.

Goals: True goal-setting requires an honest assessment of all factors impacting the negotiations, including (a) the strengths and weaknesses in the parties’ respective positions, impacting your chances of getting a deal if you settle or winning in arbitration or court if you don’t, (b) the narrow or broad, positive or negative impact of any agreement (or lack thereof) on the respective parties, and (c) the parties’ relative desire or need to get an agreement done. This “totality-of-the-circumstances” assessment allows you to fairly evaluate the risk/reward in fighting for or conceding more of the settlement pie, and to set realistic targets so you can gauge the success of your negotiations as they proceed.

Strategy: If goals define what is reasonable to achieve at the end of negotiations, a strategy informs the steps required to maximize your chances of getting there. Developing a strategy is like creating a “flight plan” to map out the trajectory of your discussions, allowing you to plot evasive maneuvers for foreseeable “stormy” issues, and to keep on course for a “soft landing” at or very close to your goals. Strategic considerations include factors like:

What type of negotiators are on the other side (aggressive, friendly, litigious, commercially oriented, etc.)? Do we understand how your counterparty’s representatives typically negotiate, obtained from either our own experience or intelligence from friends in the industry?
Where will the negotiations take place (your office or theirs) and what is the relative strength of your or their “home field advantage?”
Does the negotiation concern a “one-off” transaction or the beginning or continuation of a longer term relationship with either the counterparty and/or the claim?
Does resolution of the issue have ramifications beyond this one counterparty (e.g., a contract interpretation issue impacting other companies) or claim (more of the same claims in the pipeline with other companies)?
Which party needs this matter resolved more and why (as a separate subset of subparagraph [f])? Are there any deadlines compelling either party to settle or prosecute a case?
What is the relative strength of your and your counterparty’s (1) “BATNA” (best alternative to a negotiated agreement, which we discuss more below) and (2) overall position on the subject matter of the negotiation?

Each of these factors is unique, moving the needle up or down on your evaluation of the strengths and weaknesses in the parties’ respective positions and your estimated, bottom-line settlement value. For example, if the parties are trying to settle one, relatively small claim without the risk of future exposures (e.g., a ‘one off’ as contemplated in subparagraph [c] above), you might be comfortable offering a larger discount just to close it out. Conversely, if this is one of many future claims projected with the same party, you might instead offer a smaller discount to avoid the accumulative impact of a larger discount applied to many future claims. Under this scenario, you would avoid setting a bad precedent and be more inclined to walk away and let a third party (panel or judge) decide the issues.

You and your team (see team discussion below) must assess each scenario and estimate its impact on your strategic plan. Think of your strategic negotiation plan as a mosaic. Each of the factors above (there are undoubtedly more) reveals one more tile of the mosaic’s pattern, the schematic for your discussions. Failure to identify and plan for enough of these considerations will create significant gaps in your mosaic, leaving its meaning unclear. As a result, you will be rudderless in your discussions, confused about how and why to react as demands and offers are traded, and unaware of when and how to walk away from or to close a deal. This exercise also allows you to discuss and get management approval of any adjustments to your settlement goals, in advance, so you know how far you may go in your negotiations.

Step 2: Determine Your and Your Counterparty’s BATNA.

As discussed in my prior article, the phrase “best alternative to a negotiated agreement,” or BATNA, comes from Roger Fisher, William Ury, and Bruce Patton’s book Getting to Yes: Negotiating Agreement Without Giving In (pg. 99). Simply, your BATNA is the best possible outcome you might achieve (financial, strategic, substantive) if your negotiation fails to produce an agreement. The better your BATNA, the more leverage you have, and the easier it is to reject your counterparty’s unimpressive offers. You should also estimate your counterparty’s BATNA, so that you know whether their “walk-away” position is better than an agreement with you, or vice versa. By the way, one of the best reasons to stall a meeting with your adversary is to first take steps to strengthen your or weaken their BATNA. For example, if they are litigation-averse, you can draft and either file or send them a courtesy copy of a complaint that you intend to file, before you meet. This step will strengthen your BATNA: Even if you don’t settle, you’ll encourage them to settle by suing them and be ready to proceed immediately after your unsuccessful meeting. It will also weaken theirs: If they don’t settle, they’ll need to incur the aggravation, expense and time to litigate the case and know that a complaint is coming quickly.

Step 3: Plot the “Chess Match” in Advance and Determine Your Walk Away Point.

One of the most underused and uber-helpful strategies is to plot out (in your head, on paper, in a team meeting) the potential moves and countermoves of the negotiation in advance. Depending upon the size and importance of the issues and money in dispute, you can do this alone, with a valued colleague, with counsel (in-house or outside), or with subject matter experts hired to act as your counterparty. Forcing your mind to work through the probable steps of a serious negotiation and getting a fresh perspective from an “outsider” reveal ploys, pressure points, strategies and maneuvers you might not have considered had you attended the meeting cold. Knowing and planning for these curveballs in advance “is priceless” (to coin a credit card commercial). It reduces the element of surprise, shows your counterparty that you have done your homework, and fills your quiver with options to deal with potential, non-linear developments during your negotiations.

Step 4: Prepare a List of Questions. Be Ready to Listen First and Negotiate Later.

After over 39 years of negotiating, I have learned one fundamental rule: In negotiations, knowledge is power. The more you know the facts supporting and rationale for your counterparty’s arguments, the better positioned you will be not only to steer the negotiations closer to your goals and objectives, but also to satisfy the underlying needs of your counterparty. I have also learned another cardinal rule: Unless you prepare in advance a list of questions designed to solicit this information from the other side, you will most likely not get it. In fact, most negotiators – even seasoned ones – make the damaging mistake of starting discussions without a prepared list, talking more and listening less, and ultimately defending their position more than understanding their opponent’s.

The prepared inquiries are not any old questions. Avoid “close-ended” questions which can be answered “yes” or “no,” which give you little additional information. To make your counterparty “open up” and provide more information, ask “open-ended” questions which require more detailed answers. For example, “please explain the bases for your position” or “how did you ultimately decide to challenge our claim?” Then listen, acknowledge your understanding by “mirroring” (repeating back their position in summary form), remain curious (not judgmental), and ask more questions until you have all the information you need.

Mirroring is especially important because it tells your counterparty that you are listening and makes them more willing to tell you more. If you want your counterparty to calmly and fully lay out their view of the facts and rationale applicable to the issues, don’t tell them they’re wrong and try to convince them you’re right immediately after initial introductions. Using the list of prepared questions, let them know that you are curious, truly interested in understanding their position, and willing to talk it through with them. Listen 80% of the time and talk 20% of the time. Remember, people want to be heard before they are ready to compromise. Get as much information from them as you can, then try to move the negotiations to terms that satisfy both parties’ needs, not every single one of their (or your) demands.

Step 5: Set the Agenda and Put the Right Team Together.

Setting the agenda is another one of those seemingly ministerial steps that can play a big role in controlling the course of negotiations. Once you set your goals and develop a strategy, you have a good sense of points to emphasize and pitfalls to avoid, and can set the agenda accordingly. If you allow your counterparty to set the agenda first, you relinquish this control and may end up with the worst possible order. Moreover, you may wind up revealing your biggest concerns with specific issues based upon your suggested edits to their agenda. Unless there are specific strategic reasons against it, volunteer to propose the agenda and set it to achieve your goals and implement your strategy.

Finally, there are two elements to putting the right team together. First, the need for a team itself. Although it might be tempting to do so, you should avoid entering into negotiations solo. Forced to listen, talk, take notes and pivot to arguments alone, even the most seasoned negotiators miss points made, subtleties in speech or facial gestures, or changes in direction in the discussions. Also, the team member can act as a witness if a dispute arises over points in the negotiations. The size of the team depends upon the complexities of the dispute and number of issues. Whatever the size, make sure that all team members agree on the goals sought and strategy set to ensure consistency in your positions.

The second issue is composition. Who should be on the negotiating team? Who is the point person? What are each team member’s specific responsibilities? These are very different questions.

Who is involved? There are strategic and substantive reasons why certain people should or should not be on the negotiating team. Even though you have been the point person in discussions to date, if you are butting heads with your counterparty’s representative of late, you might want to step aside and let another trusted team member or more senior supervisor take the lead. Remember, getting the deal done, not who gets it done, is most important.

What are their respective responsibilities? Different issues require different disciplines on the team. For example, if you’re negotiating a commutation with a reinsurer, you’ll most likely need an actuary to take the lead on the financial and mathematical elements of the discussions. If there is a claim issue, you might want either the actual adjuster who handled the file or someone with the requisite claims experience. Remember, if an issue is either irrelevant or a “red herring,” you might want to downplay it by excluding from your team the particular person knowledgeable of that issue. Again, with team selection, strategy is as important as substance.

Conclusion

Adequate and comprehensive preparation is one of the most important factors in planning and executing an effective negotiation strategy. And it must be accomplished early. The actual “negotiation” starts well before the parties sit down to bargain – beginning when they first contact each other to select the agenda, location, and timing of, and representatives attending, the meeting. The key elements include setting your goals and strategy, understanding your and your counterparty’s BATNA, plotting out the parties’ most likely exchange of positions before the meeting (and planning for them in advance), setting a walk away point, drafting open-ended questions in advance to gather information from your counterparty, preparing your team to listen 80% of the time and speak 20% of the time, and finally, preparing a strategic agenda and gathering the right people needed for the job. Take these steps, and you will maximize your chances of achieving the goals needed to shake hands on the deal.

I invite comments and questions at pscarpato@gmail.com.

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