Category Archives: Negotiation

The Art of Negotiation and Learning from Failures

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Negotiation has been defined in a variety of ways like the ‘art of resolving conflict’ or a ‘conversation to reach an agreement’ or a cliched term called as ‘win-win for both the parties’. Four major negotiation agreements are discussed which are:

  1. Budapest Agreement signed in 1994 between Russia and Ukraine
  2. Oslo Accords between Israel and Palestine 1993-95
  3. Camp David Accord between Egypt and Israel in 1978 &
  4. The Treaty of Versailles between Germany and the Allied Powers after the First World War – 1919

1.Budapest Agreement between Russia & Ukraine: 1994

Ukraine during the erstwhile USSR had nuclear warheads. It was expected by the US, UK and Russia that Ukraine signs up the Nuclear Non-Proliferation Treaty (NPT) and give up the nuclear arsenal. Bill Clinton, Boris Yeltsin and Kravchuk, the president of Ukraine were the signatories of the Trilateral agreement signed on 14th January 1994 in Moscow. Ukraine demanded security guarantee in exchange of denuclearization. What did Ukraine receive apart from the compensation for the Uranium that was returned? Maintaining nuclear equipment was also difficult after the Chernobyl disaster and the economic hardship the country was going through.  

The terms of the agreement were: . 1.Respect the independence and the sovereignty of the signatories within the existing boundaries. 2. Refrain from threat or use of force against the territorial integrity or political independence of the signatories.

With Russia’s attack on Ukraine in February 2024, Boris Tarayuk the lead negotiator of the Budapest agreement said , “not only did Russia violate its commitment as the guarantor of Ukraine’s national security but other signatories like US and the UK failed to fulfil their commitment under this agreement.” (1) Four years and no end in sight Ukraine is on the verge of collapse as it is used as a pawn by all other nations.

2. Oslo Accords between Israel and Palestine: 1993-95

The Oslo Accord was signed in December 1993 at Washington DC between Israel and Palestine Liberation Organization (PLO) represented by Yitzhak Rabin and Yasser Arafat and brokered by Bill Clinton. It included limited self-governance for the Palestinians in West Bank and Gaza strip by creating the Palestinian Authority(PA). It included the following clauses:

  1. Israel’s right to exist.
  2. PLO as the representative of the Palestinians
  3. Transfer of Authority to PA for education, health, social welfare, taxation and tourism. However the issue of Jerusalem was not resolved

Oslo II accord was signed in Taba, Egypt in 1995

Yitzak Rabin, Shimon Peres and Yasser Arafat were the stakeholders in the Oslo 2 accord. The negotiation focussed on issues like Jerusalem refugees, settlement and border and was to be implemented  latest by May 1996. However, in November 1995, Yitzak Rabin was assassinated by a Jewish extremist and Benjamin Netanyahu came to power. Even though discussion went on, there was distrust and tension between the two parties. The issue became complicated by Ariel Sharon who made a provocative visit to Temple mount which led to anger among the Palestinians. (2)

3. Camp David Accord between Egypt and Israel : 1978

Camp David Accord was signed between Anwar Sadat of Egypt and Menachem Begin of Israel in 1978 and the deal was brokered by Jimmy Carter. The award failed because it was perceived as a unilateral peace initiative and  did not include the interest of the establishment of Palestine.  The Arab interests were also not given due respect. The negotiation lasted for 13 days from 5th to 17th September 1978.

4. The Treaty of Versailles: 1919

The first World War was fought between the Central Powers represented by Germany and the Ottoman Empire  and the Allied Powers which included France, Britain and Russia.

The Istanbul Agreement allowed Russia the control of Istanbul, France got the control of Syria and Great Britain with Cyprus, Egypt, Haifa and Acre. Palestine came under the British regime. Palestine is a place considered sacred by Jews, Muslims and Christians.

Treaty of Versailles was a peace document signed at the end of World War I by the Allied and associated powers and by Germany in the Hall of Mirrors in the Palace of Versailles, France, on June 28, 1919; it took force on January 10, 1920.

The conference was dominated by the national leaders known as the “Big Four”—David Lloyd George, the prime minister of the United Kingdom; Georges Clemenceau, the prime minister of France; Woodrow Wilson, the president of the United States and Vittorio Orlando, the prime minister of Italy. None of the defeated nations had any say in shaping the treaty, and even the associated Allied powers played only a minor role. Some of the conditions were:

  • Territory of Germany to be reduced by 10%
  • Compensation by Germany for all damages done to the civilian population of the allies and their property by the aggressors ( Germany) by Land, Sea and Air
  • War Guilt Clause
  • Losses estimated to be $33 Billion
  • German army reduced to 100,000
  • Manufacturing of armoured cars, Submarines and aeroplanes was forbidden (3)

The German delegates were presented with a fait accompli. They were shocked at the severity of the terms and protested the contradictions between the assurances made when the armistice was negotiated and the actual treaty. Accepting the “war guilt” clause and the reparation terms was especially odious to them.

What was the outcome of such a harsh and unilateral impositions of clauses? Did the execution happen as per the agreement? Harsh Treaty and Lax enforcement paved the way for German Militarism. When Hitler militarized Rhineland, the Allies did nothing. To a greater extent the rise of Hitler and the seeds of the second world war were sowed in the Treaty of Versailles marked by harsh unilateral negotiation and poor execution.  

The negotiators included eminent leaders like Clinton, Carter, Wilson, Yeltsin, Anwar Sadat  among others. Even then, why did the negotiations fail? Was it the lack of positive intent  among the parties, the trust deficit or force majeure conditions? Roger Fisher and William Ury from the Harvard Business School say that in integrative negotiation, ‘people should focus on interest and not position’. Easier said than done.

Neil Rackham has made an interesting observation about the characteristics of a  Skillful Negotiator who:

  1. Is rated effective by both the parties
  2. Has a track record of significant success.
  3. Has a low incidence of implementation failures. (4)

Most of the leaders discussed above have passed into oblivion. If they were to think of leaving a legacy behind; of the long-term consequences taking precedence over the short-term glory, would the history be different?  Dr. Manmohan Singh made a prophetic statement after the incessant criticism of him during the final years of his prime ministerial tenure, “history will be kinder to me.”

I am reminded of the concluding couplet from Alexander Pope’s satirical masterpiece, the Dunciad.

Thy hand great anarch, lets the curtain fall, universal darkness buries all.

Ref: 1. Through a Diplomat’s Lens – Capturing Momentous Times:  Sudhir T. Devare

2.  Encyclopaedia Britannica 

3. Wikipedia

4. Behaviour of Successful Negotiators – Neil Rackham

Do we mean what we say?

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“The Galaxy Z flip 5 is ONLY Rs 99,999/ said the salesman at the mobile counter. Being a latest product from Samsung, we can work out a special price for you with an exchange of the old mobile additional upgrade bonus and extra bank cashback…”

While the salesman was rattling off the technical specifications in his sales pitch; I got stuck at the word ONLY.  What happens when people use the word ONLY, is it something to convey or to hide?

Jacob and Isaac were two religious Jews living in an apartment complex with their balconies facing each other. They  had not fasted on the Yom Kippur day, the day of atonement. They went to the Rabbi to ask for forgiveness. The Rabbi replied that it is possible only through observing a penance.  He asked both about what they liked the most. Jacob said, “sharing the marital bed with my wife.” Rabbi said, “Jacob, for the next three weeks, you shall be sleeping in a separate bedroom.” To the same question, Isaac replied, “smoking a cigar.”  Rabbi said , “likewise you are not going to smoke a cigar for the next three weeks.”

One night, Jacob’s wife knocked on his  bedroom door. Jacob said, “Darling, it is ONLY the third day. We are not supposed to be together for the next three weeks.” His wife said, “ I ONLY wanted to tell you that Isaac is smoking a cigar.”

There are many undesirable thoughts and images which are in our subconscious mind which try to escape into the conscious mind. The way the word ONLY is used is to push back the undesirable thought coming into the consciousness. You may see that from the bottom of their hearts; both Jacob and his wife wanted to be with each other; but by using the word ONLY; were trying to repress the desire. Rationalization is a process by which a person justifies his action by hiding the real intention. As Voltaire said, ‘men use thought only to justify their wrongdoing and speech only to conceal their thoughts.’

Another example to illustrate the point: While having dinner with my mother-in-law; she said, “Rajan, is the curry over?” I replied, “No, the dal fry is still there. Do you want me to serve you?” She said, “ I ONLY wanted to see whether the fish curry is over or not.” My mother-in-law being a strict vegetarian; finds it difficult to hide her consternation of someone partaking of a non-veg dish while having her meals. You may observe the word only conveys, ‘for heaven’s sake, when will the curry get over?’

When a salesman is telling you that a product costs ONLY  Rs 99,999/- what he wants to tell you is that the mobile is economical and value-for-money (as conveyed by the management).What he wants to hide is his personal opinion of the product being expensive. If you are a seller, use ONLY during order closing;  but if you are a customer; beware of the trap laid down by the seller. 

“Sir, would you like to go for this model?” the salesman interjected. I was taken aback from my reverie of hidden meanings behind the words. “By the way, you shall also get a rebate of around Rs 30,000 on your old mobile; though for specific models.” He added a caveat. When he saw that I was using a Samsung Galaxy A12, an economy model costing only Rs. 12,000, the salesman was in a rude shock. I could see a tapestry of anger, frustration, pity writ largely on his face. “Sir I ONLY need to take this urgent call and shall be back within a minute.” I knew he would not turn back so soon.

So next time when you hear the word ONLY be careful: is your colleague trying to hide more than what he wishes to convey? As someone said, “statistics is like a bikini, it conceals more than it reveals.”

BATNA – The Tool to Improve Your Negotiating Leverage

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“Rajeev, we have been given a mandate by our management. Due to the Covid-19 crisis leading to a steep fall in customer demand, you are expected to reduce the price of your cutting tools by 50%,” said Mr. Padmanabhan, (the purchase manager of Shockproof, a shock absorber manufacturing company from Delhi) adding a veiled threat, “else we have no choice but to switch over to the competition.” Rajeev is a technocrat running ‘Techno Enterprises,’ a MSME manufacturing cutting tools enterprise with a turnover of around Rs. 10 crores. When asked about the customer details, he shared that ‘Shockproof’ is a major supplier of shock absorbers with a turnover of ₹ 1000 crores catering mainly for the two wheeler industry.

One of the questions often asked in our training and consulting assignments is ‘how does one deal with such arm-twisting tactics, especially when the customer is too big compared to the supplier?’

One important concept in Negotiation theory is BATNA, which stands for the Best Alternative To a Negotiated Agreement, a term coined by Roger Fisher and William Ury of the Harvard Program on Negotiation. BATNA is an important tool while preparing for negotiation. Both parties have their BATNA independent of each other. The party having a stronger BATNA has a stronger negotiating leverage. In case the parties are not able to conclude the negotiation, the best option each one has can be called as their BATNA. In the above example, if the negotiations fail, the BATNA for the customer and vendor can be improved as follows:

Customer: Look for other vendors who can give a similar product at the desired price.

Vendor: Develop alternate customers who can provide the requisite amount of volumes at the desired price.

It is not as simple as it looks above. Does the customer have a vendor who can provide deliveries just in time to meet his production targets? Alternatively, does the vendor have alternate customers where his current inventory can be offloaded? Now you will appreciate that BATNA is not only decided by the number of options but also the feasibility and attractiveness of those options.

Whose BATNA is stronger? The conventional answer favours that of the buyer who is much bigger in size. Some points to ponder:

  1. Identify your BATNA: The tool required for cutting/drilling is made with precision which requires tungsten carbide or diamond as the raw material. It also requires a great deal of R&D to develop a tool for a specific application. The vendor has been supplying the tools for the last 15 years. With considerable technical expertise, the production department found the tool useful. The rejection rate was less than 1% and the cost-per-component was low.
  2. Identify the weakness in the other party’s BATNA: The seller knows that the buyer has the option of other vendor but also has the critical information that the rejection rate of the competition’s tool is close to 50%. Also, the shop floor people do not appreciate the tools supplied by the competition.
  3. Spot the customer’s bluff: Even though the Indian two-wheeler volumes fell by 15% in FY 20, the impact on Shockproof was much lesser at around 8.4%. The customer was able to absorb the shock (pun not intended) as it focussed more on improving the content per vehicle. As per a newspaper report, Shockproof had notched up a top-line of ₹ 5000 crores and its EBIDTA rose by 4% to Rs. 800 crores. (Remember the excuse of the Covid -19 crisis the purchase manager articulated earlier?)
  4. Do Proper Homework: Rajeev shared that the customer’s turnover was ₹ 1000 crores, whereas in reality it was 5 times. This can be perceived two ways: conventionally it may produce a feeling of helplessness. Alternatively the helplessness could be transformed into strength as in the end result of a David vs. Goliath fight. The vendor could feel that a supply of ₹ 1 Crore of material is insignificant from the customer’s perspective and there need not be any need for the customer to be so aggressive in reducing the price. Can David stand his ground?
  5. Improve your BATNA: Let us take a different example where both the customer and the vendor are equally strong. For its Power PC, Apple had developed its microprocessor in collaboration with Motorola and IBM. In 2005, Steve Jobs took a call to switch over to Intel, which apart from being a market leader in microprocessors was offering a cutting edge technology in computing. Developing microprocessors needs a huge investment and also technical expertise. Intel had both and was the only vendor for such a high-technology product. With a single vendor, the vulnerability was high for Apple.

Three years later, Apple bought over a 150-employee start-up in chip design called PA semi. Most of the team members had worked earlier at Intel, including Johny Srouji who now reports directly to Apple CEO Tim Cook. In 2020 Apple announced that it will use its in-house microprocessors for the new range of Macs.*

  1. Risk Mitigation: Apple was giving a business worth $3.4 Billion of microprocessors for Macs to Intel every year according to C.J. Muse an Evercore analyst. For Intel it was like losing a major account which was powering around 20 million Macs shipped by Apple annually. The impact of such a Key Account leaving Intel can be minimized when the figure is perceived not in absolute numbers but by the percentile share. Apple was contributing to 5% of Intel’s annual business and the total no of PCs sold annually are 260 million.

While understanding one’s BATNA, apart from the actual value an account produces, the share of the total business also needs to be considered. It is better not to keep too many eggs in too few baskets. An important tool in risk mitigation is the sales funnel which can help in improving your BATNA.

  1. Guard against Pitfalls while analyzing one’s BATNA: There are two mistakes people make while going in for negotiations. Either they are too optimistic or too pessimistic.

Being too Optimistic: There is a tendency to aggregate all the options and assume it to be The BATNA. Consider for example, Rajesh, an unemployed engineer in Bangalore who has applied for a job in IT and feels that he deserves a salary of Rs. 10 lakhs as he has the following options:

  1. Has applied for similar jobs in Mumbai and Delhi.
  2. Has plans of a start-up in 3-D printing.
  3. Is exploring further studies in the US by answering GRE and TOEFL.
  4. Is pursuing MBA by giving CAT.
  5. Joining the family’s 2-decade old fabrication business which is running well.

It is risky to assume the sum total of all these options as the best alternative because at any moment Rajesh can select only the best one. Contrast this with Gautam who already has a job with a ₹8 lakhs CTC. You will appreciate that Gautam has a better BATNA than Rajesh as a bird in hand is worth two in the bush!

Being excessively Pessimistic: The other mistake in negotiation is being too pessimistic when one is too committed to reaching an agreement without any preparation. There is an assumption that agreeing to all of the customers’ demands will make him happy, giving rise to a long-term business and relationship.

In the cutting tool example, the vendor though small in size vis-à-vis the customer, had a better product quality, a low rejection rate, a lower component cost and a shorter delivery period vis-à-vis the competition, which meant him having a better BATNA than the customer. Does it mean that he should rest on his laurels? Competition will be always trying to catch up with him, which necessitates him having to improve his BATNA all the time so as to keep the competition at bay.

Thus, negotiating strength, rather than being decided by the absolute size of a party or the size of the deal (as in Apple vs. Intel) or the number of back-up options, is decided by your BATNA.

Whether you are a buyer or a seller, starting a new venture or looking out for a new job opportunity, please spend time in identifying and developing your BATNA.

Remember, in life, you do not get what you deserve, but what you negotiate and that is decided by your BATNA, the Best Alternative to a Negotiated Agreement!

(* International Herald Tribune, Don Clark and Jack Nicas – After 15 years Apple prepares to break up with Intel DH – June 23, 2020)

Webinar on Skillful Negotiation; Wednesday 11th May 1000 HRS IST