Manage Your Power at the Bargaining Table

Avoid the common traps that come with having high power or low power.

By on / Negotiation Skills

Avoid the common traps that come with having high power or low power.

In early August, employees of the Massachusetts Institute of Technology (MIT), New York University (NYU), and Yale University sued their employers for allowing investment companies to charge excessive fees on their retirement plans, the New York Times reports. The universities were accused of failing to negotiate for competitive rates from retirement-plan providers such as TIAA and Fidelity, among other charges. The complaint against NYU, for example, alleged that the university did not use its considerable negotiating power to choose a single low-cost record keeper to administer employee retirement plans and overpaid for such administrative services for many years. Yale also was blamed for using multiple high-priced record keepers that cost plan participants millions of dollars over the past six years; offering too many similar investments; and using higher-cost funds instead of identical lower-priced ones. (Yale recently made changes aimed at reducing fees.) The suit against MIT claimed that because of its long relationship with Fidelity (both are based in the Boston area), the university failed to search thoroughly for a plan provider that might have given employees better service at a lower cost.

Thanks to their size and status, the three universities could have brought substantial muscle to negotiations with retirement-plan providers as they searched for competitive options and rates for their employees. Instead, they may have failed to take advantage of that power at the bargaining table. The story highlights a common feature of negotiations: Those armed with considerable power often fail to recognize or take advantage of their privileged bargaining position. It’s also the case that negotiators who lack power routinely miss out on opportunities to gain leverage. In this article, after reviewing the three main types of power in negotiation, we offer advice on making the most of the power you have and increasing both your subjective and objective power.

An overview of power in negotiation

Power tends to come from the following three sources in negotiation, according to Columbia Business School professor Adam D. Galinsky and NYU professor Joe C. Magee:

1. A strong BATNA.

Your best alternative to a negotiated agreement, or BATNA, tends to be your best source of bargaining power. When you develop a strong alternative to closing the current negotiation, you have the power you need to walk away from an agreement that doesn’t meet enough of your interests. For example, a job candidate will be less likely to accept a position with a lower salary than she’d like if she has other attractive options.

2. Role power.

We can also gain power from our role, title, or position, such as a high rank in an organization. A subordinate may need to defer to the wishes of his boss in a negotiation over an upcoming project, for example.

3. Psychological power.

Independent of their objective power, negotiators can come to the table armed with a sense of psychological power—the mere feeling that they are powerful. Just thinking about a time when you had power can actually improve your confidence and your outcomes, Galinsky and Magee have found.

3 dos and don’ts for coping with power

Let’s take a look at three guidelines to help you make the most of the power you have in your negotiations.

1. Don’t squander your negotiating power.

As our opening example suggests, objective power doesn’t always translate into strong outcomes. As prestigious universities and large employers, MIT, NYU, and Yale all would bring significant role power and strong BATNAs to their negotiations with retirement-plan providers. Yet they allegedly failed to make the most of their power, in some cases by not shopping among competing providers and in others by not adequately negotiating the terms offered by providers.

Most buyers recognize the importance of casting a broad net to identify potential partners, analyzing the value each might bring and having them compete on price and other issues. Powerful buyers—those with lots of options—clearly have the greatest ability to do so.

Yet more-powerful negotiators may actually engage in less-informative and less-accurate analyses than their weaker counterparts do. Powerful negotiators tend to rely on mental shortcuts that oversimplify their decision making, according to Notre Dame University professor Ann E. Tenbrunsel. By contrast, weaker negotiators are more likely to conduct deliberate, complex information processing. Consequently, those who have the upper hand may sacrifice their power and get worse deals—without even realizing it.

Exacerbating the situation, low-power negotiators tend to be more deceptive when communicating with high-power negotiators than vice versa, Tenbrunsel and Kellogg School of Management professor emeritus David Messick found in their research. In addition, the greater the perceived power differential in a negotiation, the more likely counterparts will be to view an upcoming negotiation as a competition rather than as a collaborative enterprise.

Powerful negotiators tend to rely on mental shortcuts that oversimplify their decision making.

In sum, powerful negotiators receive less-accurate information than low-power negotiators and tend to analyze the information they receive less carefully—and they face more competitive negotiations. The message is clear: Don’t take your power for granted in negotiation, or the balance of power could flip, to your disadvantage.

Because they can be viewed as easy marks, powerful parties should prepare more, not less, for their negotiations. Thoroughly analyze your power, researching your various alternatives and assessing your role power in particular. You might find out that you have more power than you assume.

2. Don’t let a lack of power get to you.

Negotiators with little power face clear challenges in negotiation, and not just because of a dearth of alternatives or status. A lack of objective power can harm people’s sense of psychological power, with detrimental effects on their outcomes, researchers Sonia K. Kang of the University of Toronto, Galinsky, Laura J. Kray of the University of California at Berkeley, and Aiwa Shirako of Google have found in a new study.

Their research focused on stereotype threat, or the fact that simply being aware that others may be judging us according to negative stereotypes can hinder our performance. For example, in another study, women negotiated less successfully than men when they were led to think that their performance reflected negotiating ability, Kray, Leigh Thompson of Northwestern University, and Galinsky found. In essence, being reminded of negative stereotypes about a group or situation to which we belong can cause us to choke.

Low-power negotiators face the same risk of being intimidated by reminders of their weakness, Kang and her colleagues learned in their study. In one of their experiments, pairs of students engaged in a simulated job negotiation in which the recruiter had greater role power than the job candidate. Some of the pairs were told that the simulation was designed to accurately assess their negotiating skills—information that put pressure on them to do well. Other pairs were told the simulation was not an accurate gauge of their negotiating skills, information that created a low-pressure negotiating environment. The results showed that those playing the candidate (the low-power role) did much worse in the high-pressure condition than in the low-pressure condition, while those playing the recruiter (the high-power role) performed significantly better in the high-pressure condition than in the low-pressure condition.

The research provides evidence of what the authors call “low-power threat” and “high-power lift.” That is, high pressure causes the performance of weaker parties to suffer but raises the performance of the more powerful. The knowledge that they are being judged on their performance reminds low-power negotiators of their weakness and causes them to choke.

Interestingly, in one of the experiments, low-power negotiators who were given five minutes before they negotiated to write self-affirming descriptions of their most important value in negotiation behaved more assertively and performed better in the simulation that followed.

Thus, low-power negotiators may be able to improve their sense of power in high-stakes negotiation by thinking about their values and strengths or looking for ways to take the pressure off. More specifically, weaker parties may be able to bolster their performance and outcomes by thinking about times when they had power in a negotiation, Galinsky found in his research.

3. Do take practical steps to boost your power.

Even as you work on enhancing your psychological power, there are steps you can take to improve your actual power at the bargaining table.

If your organization regularly bids for business and has difficulty competing on price, you may be used to feeling like the weaker party in the negotiations and auctions you face. You might be able to increase your power by changing the nature of the game, write Deepak Malhotra and Max H. Bazerman in their book Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond (Random House, 2007).

Instead of accepting that you have to compete on price, call the customer and describe why you offer better all-around value than your competitor. Try to set up a meeting to discuss how you can meet concerns of theirs other than price, such as reliability and quality.

If the organization remains fixated on price, try submitting two or three bids (that you value equally) simultaneously, such as one that’s low on price and service and another that’s higher on both, recommend Malhotra and Bazerman. You can do so before a price auction or even after you’ve lost one to show the potential partner that she has other choices.

Finally, stay in touch with prospective customers between auctions, updating them on your offerings and encouraging them to share their needs with you. Because organizations that rely on price auctions often get burned by shoddy products and services, you could gain substantial power just by waiting for your competitors to fall short.

3 more ways to boost your power:

  • Don’t reveal your weak position.
    1. In many cases, your counterparts may be unaware that they have more power than you do, particularly when they don’t know that you have few alternatives to negotiating with them. So, if your BATNA is weak, keep it under wraps.

 

    1. Assess their power. When we focus on our own weak BATNA, we may erroneously assume the other party’s is much stronger. But closer examination may reveal that the other party has as few alternatives as you do—and needs you just as much, or more, than you need him.

 

  1. Team up with others. When facing off against a powerful party, you may be able to gain significant leverage by teaming up with others in your position. In the case of a company that holds price auctions to generate low bids, you might ask your competitors (if it’s legal to do so) to join you in declining to participate in the auction and asking to negotiate instead.

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