Find Strength in Numbers

By — on / Daily, Negotiation Skills

Adapted from “Make Your Weak Position Strong,” by Deepak Malhotra (professor, Harvard Business School), first published in the Negotiation newsletter.

A common complaint among managers and executives who attend negotiation courses and seminars is that they don’t learn enough about negotiating from a position of weakness. What can you do when you have a weak BATNA, or best alternative to a negotiated agreement?

How should you negotiate with someone who knows that you are desperate for a deal? Sometimes the best way to increase your negotiating power is to team up with others in your position.

As an illustration, consider the logic behind labor unions. When bargaining with management, individual employees are in a weak position. A company negotiating with employees one at a time can credibly threaten to hire someone else if an employee demands too much. At the end of such a process, the market wage prevails. Essentially, the firm has held an auction in which potential employees bid for jobs; those who bid the lowest are hired.

By contrast, unions allow employees to bargain collectively and thereby eliminate the source of their weakness. When one person (or team) represents the interests of all employees simultaneously, the firm cannot hold an auction. By negotiating collectively, employees avoid competing against one another; instead, they cooperate. The result is above-market wages. This process creates inefficiency in the market but effectively shifts power and money from shareholders to employees. Not surprisingly, firms often try to block employees’ efforts to unionize. Some, such as Wal-Mart, have traditionally been quite successful in doing so.

Oil cartels are another example of collusion aimed at eliminating sources of weakness at the bargaining table. If oil-producing countries were to compete in the marketplace, oil prices would decrease. (The marginal cost of producing a barrel of oil is stunningly low!) Power would belong to consumers, who could play one oil producer against another. By creating cartels in which they make joint decisions regarding how much oil to release to the market, oil-producing countries are able to keep prices—and profits—high.

Managers can apply this principle in a variety of settings. For example, marketing schemes that promise to match any competitor’s offer can actually be a bad deal for consumers. Such schemes eliminate the incentive competitors have to attract customers by lowering price. As a result, consumers, who previously could pit one firm against another, lose their power. Similarly, professional associations sometimes limit the number of certifications and licenses that can be offered each year, thereby restricting the number of professionals in their industries. In doing so, these associations eliminate a source of weakness; if consumers had more professionals to choose from, wages would fall.