9/03/2017 1 Hierarchic Thinking Week 4 Workshop MBA506 Thinking Styles, Negotiation and Conflict Management Small Group Discussion How do you make $1 million in real estate? You start with $2 million. Small Group Challenge Donald has devised an investment strategy to save tax. He is going to buy blocks of apartment towers in Australian capital cities then spend millions upgrading their interiors with high quality fixtures and fittings. Vogue-styled mosaic tiled bathrooms, ultramodern kitchens, and hardwood timber floors throughout. He plans to fund the upgrade costs by using a ‘negative gearing’ strategy, that is, he will claim the costs in his tax returns as allowable deductions against his assessable income. Donald explains that by doing this the upgrade costs are offset by the reduction of the same amount he would otherwise be liable to pay in income tax. He believes this strategy will save him millions in income tax and the apartment tower upgrades will effectively cost him nothing. In groups, explain the problem with Donald’s strategy. 9/03/2017 2 Monarchic Thinking • A single-minded focus on obtaining tax savings can cause investors to ignore investment fundamentals such as achieving returns. • Similarly, a single-minded focus on reaching agreement can cause people to ignore negotiation fundamentals such as satisfying interests. Agreement Bias • Agreement bias is a tendency for a person to overvalue agreement and be more likely to settle for unfavourable terms despite the availability of better options. • Agreement should be a priority in negotiation but it need not be the only priority or even the highest priority. Hierarchic Thinking • Hierarchic thinking is about being aware of all relevant matters and prioritising them in order of importance. • In negotiation, hierarchic thinking means understanding and prioritising your interests. • An agreement, given the terms, may not be in your best interests. 9/03/2017 3 Hierarchic Thinking • The purpose of negotiation is to produce something better than the results you could obtain without negotiating. • It is important not to accept terms that are against your interests. • It is equally important not to reject terms that are in your interest. • What does Ancient Greek philosopher Pythagoras mean when he says: Small Group Discussion Man know thyself; then thou shalt know the Universe and God. In groups, determine who has the most negotiating power Francisco or Kim? Francisco Ruiz Diaz is a wealthy businessman travelling South East Asia in search of business opportunities. As he runs to meet his next train he sees, at one of the many market stalls, a beautiful Non La (leaf hat) that would make a fantastic gift for his daughter back in Sao Paulo. Approaching the market vendor, Francisco conceals his eagerness to purchase the item, a skill he developed from decades of experience negotiating high stakes business deals. Kim Nguyen is market vendor at Saigon Railway Station. She sells Ao Dai and Non La to tourists but struggles each day to raise enough money to support her large family. Every sale she makes is a big improvement to her financial situation. Small Group Challenge Ho Chi Minh City, Vietnam 1995 9/03/2017 4 Self-Knowledge • Know your Best Alternative To a Negotiated Agreement – BATNA. • Your BATNA is the reality you will face if you reach no deal in the current negotiation. • Vigorous exploration of what you will do if you do not reach agreement can greatly strengthen your hand. What is my BATNA? • To work out your BATNA follow these three steps: 1. Identify all the alternative options you might pursue if you are unable to reach an agreement. 2. Estimate the value associated with each alternative. 3. Select the best alternative; this is your BATNA. What is my BATNA? • Without a clear understanding of your BATNA, it is impossible to know when to accept a final offer and when to walk away in order to pursue other options. • Your BATNA is the standard against which any proposed agreement should be measured – not an arbitrarily selected price point. 9/03/2017 5 Reservation Value • When you know your BATNA you can calculate your reservation value. • Your reservation value is your walk away point in a negotiation. • If the other party’s final offer is below your reservation value you should walk away because you have a better alternative to pursue. • What does Chinese General Sun Tzu mean when he says: Small Group Discussion Know the enemy and know yourself; in a hundred battles, you will never be defeated. In groups, recommend at least two strategies George could use to help resolve the copyright infringement issue. George Perkins, campaign manager for presidential candidate Theodore Roosevelt, has a serious problem. He has printed three million copies of a campaign brochure including Roosevelt’s photograph for circulation with a campaign speech but has failed to obtain the photographer’s permission. Copyright law allows the photographer to demand as much as $1 per copy to use the photograph. The campaign certainly does not have a spare $3 million to cover this cost nor does it not have the funds or the time to reprint the three million brochures. Small Group Challenge United States 1912 9/03/2017 6 Reconnaissance • Assessing your BATNA and calculating your reservation value will identify the worst deal you are prepared to accept. • But the worst deal you are prepared to accept is not your goal. • Your goal is to achieve the worst deal the other person is prepared to accept. Other Person’s BATNA • Ask yourself, “What will the other person do if the negotiation fails?” • Your BATNA may be weak but the other person’s BATNA may be even weaker. • Once you have estimated the other person’s BATNA calculate their reservation value, the worst deal they are prepared to accept. Other Person’s BATNA • Exhaust all pre-negotiation sources of information about the other person including their website and any social media pages such as Facebook. • Identify your own assumptions prior to the negotiation and remember your assessment of the other person’s BATNA is only an estimate. 9/03/2017 7 Other Person’s BATNA • Ask the other person questions that challenge your assumptions: We understand that you might be interested in applying to council for development approval of the land we are offering for sale. Of course, we both understand that this makes the land quite valuable. Other Person’s BATNA • Ask indirect questions: How many hours do employees typically work each week? What kinds of projects will I be working on? Who will my clients be? What are the formal constraints on salary for new employees? Other Person’s BATNA • Be prepared to revise your estimate of the other person’s BATNA as new information comes to light prior to, and during, the negotiation. 9/03/2017 8 • What does Canadian anthropologist Lionel Tiger mean when he says: Small Group Discussion Economics and ethics are not mutually exclusive. In groups, figure out how many mathematics students did not enrol in John’s economics class or ethics class. Logician and university lecturer John Venn has a problem. Last semester John taught a mathematics class to 40 students. This coming semester however, he has been assigned to teach an economics class and an ethics class. He is told by the faculty administration that of his mathematics class from last semester, 14 students have enrolled in his economics class and 29 have enrolled in his ethics class. He is also told there are 5 students enrolled in both economics and ethics. John would like to know how many of his 40 mathematics students did not enrol in either economics or ethics. Small Group Challenge Cambridge, England 1869 Vesica Piscis • A Venn diagram is a representation of the common area created by two overlapping circles or sets of values. • The vesica piscis of a Venn diagram is the area of overlap between two circles. • In negotiation the vesica piscis is called the Zone of Possible Agreement. 9/03/2017 9 Zone of Possible Agreement • Between your reservation price and that of the other person lies the Zone of Possible Agreement – ZOPA. • The ZOPA is the set of all possible deals that would be acceptable to both parties. • Your objective is to claim as much of the ZOPA value as you can. Zone of Possible Agreement Buyer Reservation Value Seller Reservation Value Zone Of Possible Agreement $90,000 $110,000 • The ZOPA is worth $20,000 • Who will claim the lion’s share? A Buyer and Seller negotiate a house price