How can you uncover additional value, make useful trades, and put together a package that exceeds your party’s expectations? Here are four value-creating moves that all negotiators should add to their toolkit.
Prepare to Create Value
When preparing to negotiate, always take time to consider these important questions:
- What’s my BATNA – my walkaway option if the deal fails?
- What are my most important interests, in ranked order?
- What is the other side’s BATNA, and what are his interests?
Careful analysis, estimation, and conversations with colleagues will help you answer the first two questions. Next, contemplate the other side’s BATNA and interests as thoroughly as you did your own. After all, you may not be able to propose a package that he’ll accept if you haven’t thought about his outside options, needs, and wants.
In addition, be sure you have a mandate from your superiors to explore options for mutual gain. Finally, get ready to propose packages that exceed your BATNA, and elegantly meet your interests.
By preparing to propose multiple packages at the same time, in the spirit of Roger Fisher, William Ury, and Bruce Patton’s cautioning people to “separate inventing from deciding” in Getting to YES: Negotiating Agreement Without Giving In (Penguin, 1991), you can avoid having an early feeler misconstrued as a final offer. Design each package to probe your estimates of the other side’s BATNA and interests. All this preparation makes it more likely that the parties will find items of differing value that can be traded to create value.
Explore Interests and Add Issues
At the bargaining table, what’s the best way to uncover your negotiation counterpart’s hidden interests? Ask questions, then listen carefully. Even if you’ve decided to make the first offer and are ready with a number of alternatives, always open by asking and listening to assess interests. Note that if your style of listening isn’t sufficiently empathetic, it won’t elicit honest responses.
Furthermore, you’ll have to ask a lot of questions to get a clear picture of someone’s interests. And to model the type of response you’re seeking, you must be willing to reveal your own interests. Practitioners often assume that exposing their interests will give the other side an unfair advantage, but this is rarely true.
If your efforts to uncover the other party’s interests fail, try a new tack. Suppose that you’re a lawyer negotiating with a potential client on behalf of your firm. You ask, “Are you more concerned about the cost or the quality of our services?” His reply: “Both!”
You might then inquire, “Would you like us to assign our most senior attorney to your account? Her hourly rate is a bit higher than anyone else’s, but she’s one of the best in the field.” The client’s response will reveal whether he’s more concerned about price or quality.
Here’s another way to probe the same person’s interests: “Other clients have raved about the incredible devotion of our junior associates – and we only hire the best – to their cases. Giving them a prominent role would allow us to give you a lower hourly rate. Would you like to talk to some of the clients who have benefitted from this approach?”
Sometimes negotiators snag on an underlying value difference.
When this happens, bridge the gap by identifying overarching values that could provide a motivation to work together. Suppose that a community organization is challenging your company, a manufacturer, to pay more attention to the health concerns of local residents. Rather than arguing that your company has to stay focused on the bottom line, point out that you share the neighbors’ commitment to environmental improvement. Then consider proposing an effort to replace aging, polluting equipment with more efficient production technologies that save your firm money in the long run while simultaneously reducing the community’s health risk. Such value-creating opportunities can be uncovered by searching for a common interest, such as commitment to environmental improvement, rather than letting the differences that exist between you dominate the discussion.
Play the Game of ‘What If?’
The practice of value-creation almost always means playing the game of ‘What If?’ Specifically, to test whether a trade genuinely create value, try it out on the other side.
Imagine that you’re renegotiating a contract with a customer who satisfied with the product you currently supply. Your company, however, has invested heavily in a new, improved version of the product, and your own interest lies in persuading the customer to switch to it. By questioning him about his interests, you learn that he’s concerned about the rising costs associated with expanding his business. Here’s one ‘What If?’ scenario you might propose: “If I offered you a 10% rebate on every new unit you purchase beyond the $50,000 mark, would you be willing to switch to our improved version?”
Assuming you’ve agreed to brainstorm ideas before putting together a final deal, you can feel comfortable testing a variety of packages.
You can further reduce the risk that your customer will assume a premature commitment by offering more than one ‘What if?’ proposal at the same time. “Here’s another idea,” you might say before he has had a chance to respond to your first offer. “Instead of that 10% rebate, I could offer you free delivery of the new product. Which offer sounds better to you?” If your counterpart appears to value a rebate more than the free delivery, follow up with two more proposals: “I could even give you a rebate of 15% on orders above $100,000 if you buy the new version, or I can extend the payment due date by three months with no interest.”
Each package is designed to create a little more value by taking advantage of mutually beneficial tradeoffs.
Bring New Parties to the Table
Make no mistake: there comes a time in every negotiation when the value you’ve created must be divided or distributed. Sometimes, anxiety about this competitive dimension inhibits negotiators’ ability to create value. Sharing information and engaging in empathetic listening may seem like risky behaviors when you anticipate a distributive battle.
What should you do when little or no trust exists between negotiators? Consider recruiting an intermediary, trusted by both sides, to serve as a go-between focused on creating value. This role could be filled by a professional mediator or by someone with whom both sides have worked in the past, such as a banker who has financed earlier deals.
The neutral’s duties would include meeting privately with each side, exploring interests, and helping to identify mutually advantageous tradeoffs. Adding a neutral to your negotiation can help you and your counterpart overcome reluctance about revealing too much.
When two parties have found little or nothing to trade, they can also create value by inviting still other potentially interested parties to participate in the negotiation.
- Bringing in an additional equity partner, for example, can close a gap between buyer and seller, though a third party likely would reduce the original players’ profits. Similarly, a company seeking to buy a new technology through its global purchasing department might find that involving its engineering staff in early discussions with the license holder could lead to new ideas about how to test the technology (once it’s in the buyer’s hands) in ways that will give the seller new performance results and greater credibility with a far larger market.
While adding parties to a negotiation undoubtedly adds complexity, it can also help you enlarge the pie before turning to traditional issues such as cost, delivery, and maintenance.
In sum, remember that situations that appear to be zero-sum rarely are.
The key to value creation?
Bringing a degree of optimism about the chances of expanding the pie to every negotiation.