Negotiating Financial Strategies that Work: Adding Third Parties to Seal the Deal

By — on / Business Negotiations, Daily

As negotiation experts, David Lax and Professor James Sebenius find that many negotiators focus on process and substance. Whether in person, over the phone, or through email, business outcomes seem determined by how well parties can establish trust, communicate, and put the best deal on the table. These are the first two and best known dimensions to financial negotiations. So Lax and Sebenius then ask, “What about moves away from the table?” In particular, this third dimension can include adding or subtracting parties with different interests and resources before negotiations begin. Here’s an example:

Consider a supplier of goods to retail stores who is highly averse to the risks of late payment or nonpayment. Such a supplier may insist on much tougher payment terms than the stores are willing to offer, leading to an impasse in the supplier-retailer negotiations. Yet, bringing in a factoring firm that will purchase the supplier’s retail accounts receivable at a discount may permit the transaction to go forward on less onerous payment terms. Adding a third party with different risk attitudes (as well as different collection capabilities and reputation) may reduce risk-bearing costs. In fact, this move may actually lessen the magnitude of the risks themselves, leading to the potential for joint gains.

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.

Adapted from Negotiation January, 2002.

Related Article: Discussing the Bottom-Line in Budget Negotiations

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