In a business negotiation, two polar-opposite errors are common: reaching agreement when it wouldn’t be wise to do so, and walking away from a mutually beneficial outcome. How can you avoid these pitfalls? Through careful preparation that includes an analysis of the zone of possible agreement, or ZOPA in business negotiations.
The Agreement Trap
The “agreement trap” describes the tendency to agree to a deal that is inferior to your BATNA, or best alternative to a negotiated agreement. That is, we sometimes reach agreement even though a significantly better deal is available to us elsewhere.
Negotiators can fall victim to the agreement trap for a number of reasons, according to researchers Taya R. Cohen (Carnegie Mellon University), Geoffrey J. Leonardelli (University of Toronto), and Leigh Thompson (Northwestern University). First, one party may successfully hide the fact that a proposed deal would not be in the other party’s best interest. For example, a contractor might attempt to significantly overcharge a homeowner when bidding for a renovation project.
Second, parties may be reluctant to walk away from a subpar deal due to the significant time, money, and energy they’ve invested in the negotiation process. This phenomenon, known as escalation of commitment, was first identified by the University of California at Berkeley professor Barry M. Staw. Because past negotiation costs cannot be recovered, we shouldn’t consider them when deciding whether to commit further in a negotiation, economists tell us. Yet abundant research suggests that we will be driven to try to recoup our losses.
Third, a desire to strengthen the relationship and please the other party may prevent us from recognizing that it’s time to walk away, according to Cohen and her team.
The Mythical Fixed Pie of Negotiation
What causes negotiators to walk away from deals that are superior to what they could achieve elsewhere?
This error tends to be rooted in a phenomenon that Harvard Business School professor Max H. Bazerman calls the mythical fixed pie of negotiation. We often approach negotiations with the assumption that the pie of resources is fixed, a mindset that leads us to interpret most competitive situations as purely win-lose.
It’s true that a small percentage of negotiations are distributive—that is, parties are restricted to making claims on a fixed resource, such as the price of a rug at a bazaar. However, in most business negotiations, many more issues than price are involved, such as delivery, service, financing, bonuses, timing, and relationships.
Negotiators fall victim to the mythical fixed pie mindset when they fail to recognize that they have the ability to make tradeoffs across issues. That is, one party could compromise on an issue she values less in exchange for a concession from the other party on an issue she values more.
BATNA and understanding your ZOPA
Avoiding these twin perils—either accepting a subpar deal or walking away from a great one—begins with thorough preparation for negotiation, including reaching an accurate understanding of the ZOPA in business.
Your ZOPA analysis should begin with a consideration of your best alternative to a negotiated agreement, or BATNA, write Roger Fisher, William Ury, and Bruce Patton in their seminal negotiation text Getting to Yes: Negotiating Agreement Without Giving In. Your BATNA is the course of action you would take if you do not reach agreement in the current negotiation. For example, if you decide not to accept less than $70,000 per year for a particular job offer, your BATNA if you cannot negotiate this salary might be to accept a different job, to look harder for other opportunities, or to go back to grad school.
Your BATNA is “the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept,” according to Fisher, Ury, and Patton.
In addition, analyze the other party’s BATNA. By exploring the other party’s alternatives—whether through research or by asking him questions directly—you can gain a realistic sense of what to expect from the negotiation.
BATNA analysis helps you determine each party’s reservation point, or walk away point, in your negotiation. If there is a set of resolutions that both parties would prefer over the impasse, then a ZOPA exists, and it would be optimal for you to reach a settlement. For example, if a job candidate would accept an offer between $70,000-$80,000 per year, and an organization is willing to pay between $65,000-$75,000, then a ZOPA of $70,000-$75,000 exists. (Issues other than price can and should be incorporated into the ZOPA as well, such as vacation time and work assignments.)
If, by contrast, there is no overlap between the two (or more) parties’ reservation points—for example, if the job candidate will accept no less than $70,000, and the organization will pay no more than $65,000, then no ZOPA exists, and both sides would be better off pursuing their BATNAs.
Through a rational analysis of the ZOPA in business negotiations, you will be better equipped to avoid the traps of reaching an agreement for agreement’s sake and viewing the negotiation as a pie to be divided.
Leave a comment below and tell us when finding your ZOPA in business has helped you reach an agreement.