To Avoid Disaster, Plan Ahead

By — on / Business Negotiations

Adapted from “How Short-term Focus Contributes to Future Disasters,” by the Editors, first published in the Negotiation newsletter.

In the midst of the recent financial crisis, accusations of greed on Wall Street have sounded across the globe. Greed may be a significant factor in the collapse of credit markets, but it’s not the only one. Overlooked in cries to punish the “bad apples” is the role of a mistake that virtually all negotiators make: ignoring how our short-term decisions will affect us and others in the future.

In their book Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Harvard Business School Press, 2004), Max H. Bazerman and Michael D. Watkins describe the financial scandals of 2001 and 2002 that led to the fall of Enron, Arthur Andersen, Tyco, and other companies. They label such crises “predictable surprises”—disasters that shock those involved even though they had the information needed to anticipate them.

The Enron-era crisis, Bazerman and Watkins argue, was rooted in a conflict of interest that could cause auditors to make compromised judgments. Looking at today’s credit crisis, an unprecedented demand for affordable mortgages prompted banks, unhindered by significant regulations, to make risky lending decisions and equally risky investments. Defaults and foreclosures by overextended homeowners led to a credit crunch that brought down financial institutions and triggered a $700 billion taxpayer-funded Wall Street bailout package.

The two crises share a common thread: the desire to maximize short-term returns blinded decision makers to predictable surprises lurking down the road. In both cases, warning signs went unheeded. Here are some suggestions for injecting more forward thinking into your negotiations.

  1. Weigh long-term matters. As you prepare for your next negotiation, take time to think about how the issues at stake could play out down the road, advises professor Kimberly A. Wade-Benzoni of Duke University. Bring up these concerns when you meet with your counterpart, and remind her of the value of reaching an agreement that will stand up over time. At any point in the negotiating process, you might also make a decision tree that charts the likely long-term results of various options.
  2. Challenge broken systems. Simply talking about future concerns isn’t enough to ward off predictable surprises. You’ll also need to evaluate whether certain groups and structures in your organization are promoting short-term thinking at the expense of the future. Perhaps your company’s board of directors focuses myopically on short-term earnings reports. Maybe your company spends too much on lavish retreats. Brainstorm ways to fix the system and then lobby influential others to support your ideas.
  3. Negotiate in stages. Negotiators often get into trouble when they implement long-term contracts for complicated, risky ventures. That was the case in 1998 when the U.S. spy satellite agency, the National Reconnaissance Office (NRO), awarded Boeing a $5 billion, five-year contract to build two different complex satellite systems. Six years later and billions of dollars over budget, NRO fired Boeing for failing to deliver. The lesson: Negotiate one project at a time, and insist on incremental progress before awarding additional work.

Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.

Related Article: Negotiating for Continuous Improvement: Monitor and Assess Your Negotiation Skills

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