Negotiating with Strategy

In order to conduct negotiations strategically, it is important to consider some essential aspects. For this purpose, a needs analysis is presented first, since needs are the basis for motives (conscious and unconscious), as well as for consciously formulated goals. Then, different power bases are systematically presented. Subsequently, the formulation of goals and demands and how to deal with them are dealt with. After that, essential aspects of a character analysis are described. Another point, which is only touched on in its basic outlines, is verbal and non-verbal communication. Finally, power tactics and techniques of influence are described.

The focus is on practical assistance for you and this guide is structured in such a way that you can apply the content systematically. For more in-depth information, you can refer to the sources provided.

Global Management Consultancy (Negotiations) from Rhine-Ruhr (Wuppertal, Cologne, Düsseldorf, Essen, Dortmund)

Negotiations - Table of Contents

Needs analysis (motives and goals)

People have needs and companies reflect the needs of the owners, whereby the people involved also pursue self-interests. It is essential to analyse one’s own needs and those of the other party. Often these can also unconsciously influence goals. In psychology, a distinction is made between unconscious and conscious motives and goals.

One way of analysing needs is to use the pyramid of needs as a guide (Maslow, 1943).

  •  self-actualisation
  •  individual needs
  •  social needs
  •  safety needs
  •  physiological needs

The needs of the pyramid must be met in order from the bottom to the top. This means that the upper parts of the pyramid only become relevant when the lower levels are fulfilled.
With regard to negotiations, the addressed need of the participants must be identified. Then check what possibilities (solution space) there are to fulfil the needs. If the solution space is larger than the consciously formulated goals, the negotiation space increases.
In addition to the needs analysis with regard to the objectives, attention must also be paid to the needs during the negotiations.

Physiological needs are e.g. air, water, food, sleep, exercise and reproduction. Physiological needs are probably less important as the basis for a motive or goal in corporate transactions ( acquisition, sale, merger, demerger). However, it is essential that attention is paid to this during negotiations or if this is used. In a generally good condition (water, food, sleep), the respective party can negotiate better.

Security needs include in particular financial security such as income security and job security, but also stability and family. Security needs are often causal (decisive) in corporate transactions. Thus, financial security may be secured through a company sale (company succession), or a company purchase may be seen as an alternative to a start-up.

Social needs include acceptance in social groups and social exchange. Social needs are less important as a decisive need for a corporate transaction. However, during negotiations it is important to ensure that the counterpart is accepted as an individual.

Individual needs include in particular 1. power and freedom (self-recognition) and 2. recognition by others. Individual needs are often decisive for the acquisition, sale, merger or demerger of a company. The constellations can be manifold and, for example, a company acquisition can increase self-recognition and also recognition by others. A company merger can release a shareholder-manager in terms of time through the distribution of responsibility, while a company demerger increases one’s scope for action.
Self-actualisation means striving for self-development. In particular, a company sale enables the pursuit of corresponding goals if one has already achieved a great deal entrepreneurially.

Analyse the needs both for yourself and for the other party and think about the total solution space. This consists of the intersection of your solution space and the solution space of the other party.

Power Bases

Before addressing the information base, power bases should be discussed. For this purpose, the power base typology by Yukl (2013) should first be discussed, which is based on the observations by French and Raven (1959) and is also excellently described by Weibler (2016). Specifically, a distinction is made between positional power (legitimate power, reward power, conercive power, information power and ecological power) and personal power (referent power and expert power).

Positional Power
  • Legitimate Power
  • Reward Power
  • Coercive Power
  • Information Power
  • Ecological Power
Personal Power
  • Referent Power
  • Expert Power

Legitimate Power is authority that is conferred on one from outside, such as the office of a judge or a policeman.

Reward and coercive power can be obtained legitimately or illegitimately. For example, teachers have the power to reward or discipline their students.

Information power involves control over information, i.e. access to and distribution of it.

Ecological power describes the possibilities to shape physical, organisational and technological circumstances according to one’s own wishes and indirectly influences other persons.

Referent power refers to the way a person affects others and whether others have a positive basic attitude towards the person.

Expert power refers to the power that someone has because of their expertise and on which others depend. This can also be due to credentials such as being a licensed lawyer or tax advisor. 

When preparing negotiations, each of these individual points needs to be thought through. However, not every power base can be used equally. In corporate transactions, the last four points are the most important.

Control of information involves what data is made available to the other party, when and in what way.

Ecological power can be used, for example, by specifying the location and time frame of negotiations.

If a person appears friendly (referent power), one is more likely to do a favour and subconsciously seeks affirmation from them. This power base is closely related to extraversion, a character trait. This is described in more detail a little further on.

Expert power can be exercised in particular by creating a good information base for the negotiations. In M&A negotiations, this may be, for example, good environmental and business analyses and business valuations according to various methods.

A digression on negotiations with superiors follows (Weibler, 2016):

Influence can be achieved through

  • rational argumentation,
  • reference to applicable values and norms,
  • stimulating presentation,
  • persistence,
  • advice/consultation,
  • influence through coalition building, and
  • special kindness in the pursuit of goals.

These influence strategies have different degrees of effectiveness and will not be explained in detail. Perhaps this digression will help one or the other in e.g. salary negotiations.

Goals and Demands

Based on the needs analysis and a mature information base, goals and demands may be formulated. Negotiations, especially during M&A transactions, are often multi-dimensional conflict situations, which can be further differentiated into dominated (forced) and non-dominated (optional) conflict situations (Matschke & Brösel, 2013). Goals are what you want or need to achieve, demands are what you communicate to your counterpart. You should not communicate goals openly, but conceal them. For negotiations, you can concretely distinguish three types of demands, namely:

  • indispensable demands (red cards),
  • important but dispensable demands (yellow cards) and
  • insignificant or bogus demands (green cards).

It is essential that you prioritise your own goals. By making additional demands, you can increase your room for manoeuvre in the negotiations. In the course of the negotiations, you have the opportunity to give in without jeopardising your indispensable goals.

With regard to the other party, it is important that you recognise the priorities of the goals based on the demands. It is quite possible that some demands are only made in order to be able to push through actual essential goals. Here, too, you should systematise the demands and find out what the other party really wants (goals).

Each party has ideas, inner images and opinions about the negotiating positions. These are based on basic assumptions such as global economic development. Even if objectively your demands are fair, the other party may subjectively reject them. It may be necessary for you to try to change the counterparty’s inner images. This may take (a lot of) time and should be done with the help of serious information. Psychologically, there is an attempt to exchange images or correct basic assumptions.

Character analysis

For a character analysis in negotiations, the Big Five model of personalities, among others, can be used to analyse each participant (Costa & McCrae, 1992). The Big Five model distinguishes into:

  • neuroticism
  • extraversion
  • openness to experience
  • agreeableness
  • conscientiousness

Neuroticism means that someone is prone to emotional reactions (joy, surprise, fear, anger, disgust, sadness and contempt). In negotiations, unwanted impulsive decisions can be made, which harms the negotiating party.

Extraversion, more commonly known as an adjective under extrovert, means that someone is confident and dominant, but at the same time friendly and sociable. In negotiations, this character trait is very helpful in asserting one’s own demands.

Openness to experience encompasses much more than an interest in the outside and inside world, namely a strong imagination and thus the ability to find unconventional solutions. It can have positive effects on negotiations, but a tendency to unrealistic (possibly also spontaneous) proposals harms one’s own position.

Agreeableness can be described as helpfulness, good nature and benevolence. However, if the person tends towards selflessness, unselfishness and submission, unreasonable concessions may be made during negotiations.

Conscientiousness means that a person works in a goal-oriented and very thorough manner out of his or her own motivation. This is very helpful for the preparation of the negotiations, but also during the negotiations.

The character analysis should be prepared in writing for each person involved in the negotiations. Often even an overview is helpful.

For one’s own side, an extroverted personality who is not neurotic but acts conscientiously is the optimal negotiator. If necessary, an external party should lead the negotiations.

In the case of the other party, an attempt can be made to target agreeable people who tend to have spontaneous ideas (openness to experience) and to involve them intensively. If the negotiator is neurotic, this should be dealt with at a professional distance and the person should not be exposed to too high a stress level.

In an international context, a cultural analysis of both negotiating parties can be carried out. Hofstede (2001) and Hofstede and Minkov (2010) distinguish specifically between:
  • power distance
  • uncertainty avoidance
  • collectivism vs. individualism
  • masculinity vs. femininity
  • short-term vs. long-term orientation
  • indulgence/restraint

Power distance stands for the expected and (unconsciously accepted) inequality within a society. In relation to negotiations, attention should be paid to a corresponding authoritarian or sociable appearance.

Uncertainty avoidance describes the degree of accepted uncertainty or also norm deviation. In particular, the degree of risk aversion (risk-averse, risk-neutral and risk-loving) or deviation from predefined plans (in terms of content or time) can be an expression of uncertainty avoidance.

Collectivism stands for a strong group orientation, even if one has to take a back seat oneself, while individualism is strongly oriented towards a benefit/cost ratio. During negotiations, inappropriate behaviour in particular can cause an affront.

Masculinity stands for competition, decisiveness and the search for success, while femininity stands for caring, equality and sympathy. In negotiations, it is important to neatly assess the customs of the other side.

Short-term vs. long-term orientation refers in particular to the target horizon. In negotiations, it is important to assess the target horizon of one’s own and the other party, especially in relation to potential conflicts.

Indulgence or restraint can be understood as a kind of self-control with regard to the satisfaction of one’s own needs. If the indulgence is high, a business lunch and a joint outing in the context of negotiations will produce a very different effect than if the culture is restrained.

The aim of cultural analysis in the context of negotiations is to understand one’s own culture, the foreign culture and the differences and to react appropriately to them. There are general studies that analyse nations accordingly and provide a good starting point. Here, too, the results should be recorded in writing and expanded during the negotiations.

Verbal and Non-Verbal Communication

In the following, the importance of verbal and non-verbal communication is pointed out. This section is deliberately kept short, as many may have prior knowledge and the explanations here would otherwise be too long.

First of all, it should be noted that for optimal communication, needs must be taken into account in the sense of the pyramid of needs (Maslow, 1943). Do not expect good results under sleep deprivation, hunger and thirst (level 1), except in terms of attrition tactics. Acceptance (Level 3) and recognition (Level 4) of the other side is also an essential part of a good negotiating climate.

In verbal communication, it is true that by using questioning techniques (open, closed) questions, you can systematically get information from the other side. There are many good sources for questioning techniques on the internet.

Open questions include in particular the so-called W-questions and are used in the case of negotiations to obtain information.

Closed questions, such as suggestive questions, can lead to determinations on the part of the other party.

It is important that you write down essential answers (quotation, date) so that you can refer to the statements later. You should avoid premature determinations yourself. With regard to the other side, it makes sense to provoke favourable decisions for you and to loosen (minimise) unfavourable premature decisions. Once a preliminary decision has been made, it is not so easy to revise it.

If an analysis of non-verbal communication (gestures and facial expressions) is added to these questioning techniques, much valuable information can be obtained. Non-verbal communication is very difficult to hide, especially in cleverly provoked moments of surprise.

For facial expressions, refer to a book by Ekman (2003). For gestures, there are many books of varying quality. It is essential to familiarise oneself with the basic principles of gestures through pictures in order to be able to read them actively. Unconsciously, we communicate non-verbally every day.

Power tactics and techniques of influence

Various power tactics (Wunderer, 2011) can be used during negotiations:

  • information control
  • control of procedures, rules and norms
  • relationship management
  • self-representation
  • situation control
  • pressure to act
  • timing

You decide which information you will pass on, when and in which way. Regarding the other party, you should watch out for distorted or false information (information control).

By controlling procedures, rules and norms, you take a dominant position in negotiations. If you do not have the upper hand yourself, you can at least insist on an even distribution of the framework conditions.

Relationship management means that you consciously use existing relationships. In the case of a company demerger, for example, essential information can be gained through good relationships with employees. Contacting external experts and referring to them also increases your own power position.

Self-representation (impression management) has a particular impact on reputation. Is one perceived as serious and professional oneself? Do not be deceived by the other side. Especially with people who tend to be agreeable (helpful), self-promotion can have an effect.

Situation control can be seen in the context of negotiations through the selection of the location for negotiations, but it encompasses more. Basically, it is a question of “who dictates what to whom?” This can even include the organisation of water bottles or a taxi.

Pressure to act can be caused by e.g. artificial scarcity. You can arbitrarily time an offer in negotiations, or refer to other possible contractors.

Timing means that you or also the other party try to use points in time for their respective advantage.

Another partly overlapping typology on influence strategies in the sense of “principles” has been written by Cialdini (2006):

  • principle of reciprocity
  • principle of scarcity
  • principle of authority
  • principle of sympathy (liking)
  • principle of herd instinct (social proof)
  • principle of consistency

The principle of reciprocity states that when gifts and favours are given, even involuntary ones, there is an inner need to reciprocate. Your negotiating partner gives in on an insignificant point for you, but pressures you to give in on a much more important aspect.

The principle of scarcity states that we attribute a high value to (apparently) scarce goods. Scarcity can also be artificially created, as in the case of time-limited offers. Reference to other negotiating partners also creates this psychological effect.

People tend to hold people with an authoritarian appearance, such as a person in uniform, in higher esteem and are more likely to accept instructions from them. The reference to value assessments and reputable institutions such as the World Bank, national statistics offices, etc. is therefore important.

Sympathy (liking) unconsciously creates the desire to please the person and to act accordingly. Be aware that not every friendly demeanour from the other side comes from the heart and do not give in unnecessarily in negotiations.

Herd instinct (social proof) is a psychological effect. Especially in times of uncertainty, we tend to take our cue from others. The reference for determining the value of a company to well-known but theoretically unsound business valuation methods, such as EBITA multiples, is an example.

The principle of consistency states that we do not like to revise preliminary decisions. Often, insignificant and uncritical aspects are discussed during negotiations. The more time and energy one has invested, the harder it is for us to break off unfavourable negotiations.