Monday Insights #3
Subject: Unlocking the True Potential of Negotiation
Dear Readers,
Negotiation is an art, a skill, and, often, a transformative process. Yet, even seasoned professionals fall into the same trap: assuming the size of the pie is fixed. This mindset can limit opportunities for value creation and lead to suboptimal outcomes.
Today, I’d like to share some insights from Max H. Bazerman’s recent article, "What People Still Get Wrong About Negotiations," which explores strategies for creating value in negotiations. These principles are invaluable not only in professional settings but also in our personal lives.
Unlocking the True Potential of Negotiation
The Fixed-Pie Fallacy
At the heart of ineffective negotiation lies the fixed-pie fallacy—the assumption that gains for one side equate to losses for the other. This zero-sum thinking blinds negotiators to opportunities for expanding the pie, leaving value on the table. Bazerman’s research shows that shifting our focus from merely claiming value to creating it benefits all parties involved.
Consider a common scenario: a technology transfer between two divisions of a corporation. Negotiators often haggle over the price, neglecting other factors like licensing terms or collaborative ventures that could maximize profitability for both divisions and the company as a whole. By broadening the scope of discussion and exploring creative trades, negotiators can achieve better outcomes.
Preparing for Value-Creation
Preparation is crucial. Before sitting at the negotiation table, list all the issues that could influence the deal’s attractiveness. For example, in a venture capital negotiation, equity percentage might be the central topic, but other aspects—such as board seats, consulting agreements, or options for future equity—are equally important.
Once you identify these issues, rank them by importance. Bazerman recommends using a weighted score sheet to evaluate the relative value of different options. This tool can help negotiators identify low-cost, high-value trades. For instance, a job candidate might prioritize location flexibility over salary, enabling them to negotiate a package that better meets their needs.
Four Key Strategies for Value Creation
Bazerman outlines four practical strategies to unlock value during negotiations:
Build Trust and Share Information: Trust fosters open communication, which is essential for uncovering mutually beneficial opportunities. For example, two corporate divisions negotiating a technology transfer could openly share their needs—one prioritizing market exclusivity, the other aiming for broader sales—to craft a win-win agreement.
Ask Questions: Thoughtful questioning can reveal the other party’s priorities and constraints. Instead of asking, “What do you want?” try, “Which of these issues is most critical to your team?” This approach signals collaboration and a genuine interest in finding common ground.
Give Away Some Information: Sharing non-critical information often encourages reciprocity. For example, a job candidate might disclose their preferred start date to prompt the employer to reveal flexibility on other terms.
Make Multiple Offers Simultaneously: Presenting several options can reveal your counterpart’s preferences without direct questioning. A venture capital firm might offer different equity and consulting combinations, allowing the startup to signal which structure aligns best with its goals.
Beyond the Initial Deal: Post-Settlement Settlements
An often-overlooked strategy is the post-settlement settlement (PSS). Even after an agreement is reached, revisiting the deal can uncover further opportunities for improvement. By proposing a PSS, both parties can refine the agreement without jeopardizing the original terms, ensuring maximum value for all.
Negotiation as a Way of Life
Negotiation extends far beyond boardrooms and contract discussions; it’s a daily practice. From deciding family vacation plans to managing project responsibilities, every interaction involves some level of negotiation. The goal should always be to expand the pie and avoid waste.
As Bazerman emphasizes, value creators build stronger relationships, develop better reputations, and contribute positively to the world. By adopting these strategies, we can not only achieve better outcomes in negotiations but also foster a culture of collaboration and mutual success.
To delve deeper into these ideas, I encourage you to read Max H. Bazerman’s full article, which I’ve gifted to you here: [Link to the article].
Wishing you insightful and fruitful negotiations this week!
Warm regards,
Werner Mouton, CGMA