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In business you don't get what you deserve, you get what you negotiate.

- Dr. Chester L. Karrass

After an era of confrontation, the time has come for an era of negotiation. [At the beginning of the end of the Cold War.]

- Richard Nixon

Many of the patterns and processes which characterize conflict in one area also characterize it in others. Negotiation and mediation go on in labor disputes as well as in international relations. Price wars and domestic quarrels have much the pattern of an arms race.

- Journal Of Conflict Resolution

Once Upon A Time there was a bear who was hungry and a man who was cold, so they decided to negotiate in a neutral cave. After several hours a settlement was reached. When they emerged the man had a fur coat and the bear was no longer hungry.

In life it is just as hard to determine whether the outcome of a negotiation favors one party or the other. It is said that in a successful negotiation everybody wins. Let us be realistic. In a successful negotiation both parties gain, but more often than not one party wins more than the other. In this book we will find out why some people win and others lose; and why losers make substantially larger concessions than necessary while winners do not.

The potential for negotiation exists whenever we buy and sell. Terms of sale may be open to discussion even when price is not. For example, a purchasing executive who I know recently bought a new house in a wealthy development. When he tried to negotiate price, he found the developer firm. After moving in he learned that a neighbor had obtained better credit terms. Despite long and successful experience in purchasing, it simply had not occurred to him that credit terms were flexible in such a transaction.

Negotiation plays a subtle part in everyday affairs. At work we bargain with supervision for high stakes. Those successful win a greater share of money, freedom and respect. Some capable people are always told precisely what to do while others are treated as thinking human beings. Some quiver at the sight of authority while others hold their heads high and demand a share of power. Some managers get work done by force while others exert influence through persuasion, loyalty and reason. A negotiation takes place whenever ideas are exchanged for the purpose of influencing behavior.

It is said that a camel is a horse designed by a committee. The Edsel was a man-made camel designed by negotiating executives at the Ford Motor Company. Those who said it would not sell did not prevail and a half-billion dollars was lost. When executives meet to make decisions they represent differing points of view and aspiration levels. The outcome, as in all bargaining, is based upon power and bargaining skill as well as logic. It is well to remember that budgets and schedules represent negotiated decisions between individuals who have joint and conflicting interests.

Congress allocates funds for highways, construction projects and water programs. There is no Golden Rule that specifies what is or is not fair; no simple formula determines what share belongs to Idaho, Texas or California. Justice notwithstanding, the allocation of federal funds is settled by hard bargaining. In 1968 1 read that a young western senator told a reporter that he did not "give a damn" for President Johnson's Vietnam policy. The president reportedly retorted, "That guy will give a damn when he tries to get a dam." Later in the chapter we will learn of a politician who was probably the worst negotiator of his time, and perhaps of all time.

Ninety percent of all lawsuits are settled out of court. Some lawyers have high aspirations and thereby enrich their clients; others do not. One lawyer may believe that a whiplash case is worth $30,000 while another may appraise the same case at $60,000. The critical role of bargaining skill and aspiration level in determining settlement outcome will receive detailed attention later.

Some in business are poor negotiators. They unknowingly give away the store. The story that follows involves the loss of a relatively large amount of money in only a few hours. Because it is true, the company name has been changed to protect those who still work there.

The Starmatic Company

Years ago the aerospace industry was a lot better off than it is today. When the Russians began the "space race" with Sputnik in 1957, Americans were shocked. They realized that President Eisenhower had made a poor decision in scrapping space supremacy for economic reasons.

After Sputnik the people demanded action. This was good news for those in the missile business. Since few suppliers knew anything about this new technology, the government was willing to spend money to teach them. Study contracts were given to anyone who could spell. "elliptical orbit." President Kennedy, shortly after his inauguration, challenged the Russians to a "moon race," thereby committing us for a decade.

In 1961 the Hughes Aircraft Company received a large contract to land the first unmanned space vehicle on the moon. Since this had never been tried, the contract was placed on a cost-plus-fixed-fee basis. This meant that the company would earn a fixed profit whether actual costs were 50, 100 or 500 million dollars. In theory a company has nothing to gain by running costs up unnecessarily but may use a certain amount of discretion in developing advanced designs. Spending and technical progress are monitored by the government on a continual basis.

Two years later design engineers decided to purchase special power-generating equipment for the spacecraft. A bid specification was written and submitted to four companies, one of which responded. Starmatic Company bid $450,000 on a firm fixed-price basis. The company had considerable experience producing less complex generating equipment.

(Continues...)

Excerpted from Negotiating Game Rev by Chester L. Karrass Copyright © 2003 by Chester L. Karrass
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.