Value Creation in Negotiation: Capitalize on Multiple Issues

Value creation in negotiation depends on having multiple issues on the table to discuss and trade. So why do so many negotiators want to negotiate issues one at a time?

PON Staff • December 7, 2023

Between 2017 and 2019, the United Kingdom (U.K.) and the European Union (E.U.) negotiated the terms of Brexit, the U.K.’s official departure from the E.U. The talks were contentious and stalled often, ultimately being extended by six months.

The trouble started even before the negotiations began, as the parties disagreed about how the process should unfold. The conflict ultimately highlights the importance of promoting value creation in negotiation by keeping multiple issues on the table.

What’s the Right Sequence?

To achieve a smooth separation, the U.K. and E.U. needed to reach agreement on a daunting array of complex issues, including trade, Britain’s financial obligations to the E.U. for British citizens living in the Union, air travel, security, and the open border between Northern Ireland and the Republic of Ireland, which was set to become the only land border between Britain and the E.U.

Before the negotiations, the 27 E.U. member nations minus Britain favored carrying out the talks in two phases. The first would cover the terms of British withdrawal—particularly, how much the U.K. would pay the E.U. to cover debt obligations, such as funding for British pensioners living in the E.U. Only after such issues were decided, E.U. leaders agreed, should talks proceed to the second phase: negotiating a trade agreement with the U.K.

Why negotiate trade separately from withdrawal? E.U. officials reportedly believed member nations would veto any withdrawal agreement accompanied by potentially painful new trade terms on issues such as taxes and employment. The E.U. sought to gain leverage by focusing narrowly on price haggling.

By contrast, Theresa May, then the British prime minister, wanted to negotiate trade and withdrawal simultaneously to improve the odds that Parliament and the British public would support the agreement.

“We are very conscious of the time sequencing of this,” Boris Johnson, then the British foreign secretary, said in a May 2017 television interview. “We’re also very conscious of how [the E.U.] will use that time sequencing to pressure us. And we’ll avoid that at every turn.”

For Value Creation in Negotiation, Capitalize on Complexity

After talks kicked off in the summer of 2017, the two sides failed to make much headway as they argued about the sequencing issue and haggled over how much the U.K. would pay the E.U. By December, however, they managed to reach an “agreement in principle” on several issues, including a financial settlement, a framework for negotiating the Northern Ireland border, and protections for U.K. and E.U. citizens living abroad.

The E.U. also dropped its resistance to negotiating in phases, agreeing to the U.K. contingent’s oft-repeated negotiating principle, “Nothing is agreed until everything is agreed.”

The argument had self-serving motivations but is rooted in sound negotiation theory. When negotiators agree up front that all issues will remain unresolved until the end of a negotiation, they maximize their opportunities for value creation in negotiation.

Take the example of a customer and supplier negotiating a purchasing agreement. If they agreed to a price per unit near the start of a negotiation, they would lose the ability to later make small concessions on price in return for important gains on other issues, such as delivery, contract duration, and dispute-resolution terms. By moving beyond simple “split the difference” price haggling, this type of logrolling can give everyone involved a better deal and is the key to value creation in negotiation.

As political negotiation examples such as the Brexit talks highlight, complexity—in the form of added issues—is almost always a plus for all parties. Any leverage you might gain by pressuring a counterpart to agree to a concession early on is likely to be outweighed by the benefits you could jointly create by identifying tradeoffs across issues.

3 Moves Toward Value Creation in Negotiation

Explain the logic of tradeoffs. If a counterpart balks at putting particular issues up for discussion or wants to discuss issues separately, describe various ways you might create more value by making tradeoffs across issues based on your different preferences. Your counterpart is likely to become receptive to “complicating” the conversation when you show them what they stand to gain.
2. Beware of sequencing plans. Discussing issues with your counterpart in phases might seem like an orderly way of proceeding with a negotiation, but it risks walling off tradeoff-rich issues from each other. If you do decide to negotiate in phases, at the very least, agree that “Nothing is agreed until everything is agreed.”
3. Present multiple offers simultaneously. Negotiation skills and strategies are available to promote value creation in negotiation. One is to make several offers at a time rather than just one, ensuring that you value each offer equally. Each offer should include a suite of proposals across issues. The other party’s reactions will help you determine what they value most while ensuring that no important issues are neglected.

What other tips do you have for promoting value creation in negotiation?

Beware the Winner’s Curse in Auctions

The winner’s curse—the tendency for the winning bidder to overpay for a commodity—is a common pitfall in auctions. Amazon’s H2Q competition illustrates this risk; we suggest ways to avoid it.

PON Staff • November 23, 2023

In 2017, Amazon announced it was taking bids from cities interested in being the site of its second headquarters, known as HQ2. The online behemoth said it would be investing $5 billion in a campus and creating 50,000 well-paying jobs. Cities and regions across North America snapped to attention, and Amazon received 238 proposals.

Amazon asked applicants to include information about tax breaks and other corporate incentives in their proposal. The implication: Cities would have to pay up to win the prize. The auction created a real risk of the winner’s curse in negotiation, auction, and “negotiauction” scenarios—the common tendency for the winning bidder for an item of uncertain value to overpay.

Was the Contest a Publicity Ploy?

Some cities competing for HQ2 believed that tax breaks would be a small price to pay for the jobs and revitalization that a huge Amazon headquarters could bring to their community: “Whatever it takes,” Tulsa, Okla., mayor G.T. Bynum told the New York Times. But University of Minnesota economist Art Rolnick called Amazon’s requests “blackmail” and “corporate welfare.”

Amazon has had great success winning tax incentives. As of January 2022, the company received at least $41.8 billion in economic-development subsidies in the United States and at least $4.7 billion in other countries, according to a report by research center Good Jobs First and UNI Global Union.

In the end, Amazon announced it would split HQ2 between the two most obvious choices, the Washington, D.C., area and New York City. Many questioned whether Amazon had been negotiating in good faith—or simply held the competition to drum up publicity.

In exchange for a new Amazon campus in Queens, New York, Andrew Cuomo, then New York’s governor, promised Amazon $1.525 billion in incentives, as well as support for infrastructure upgrades, job-training programs, and other perks. The company also would have benefited from New York City tax credits worth nearly $1 billion over 12 years.

But Amazon walked away from the deal in February 2019 after other politicians, including New York representative Alexandria Ocasio-Cortez; unions; and progressive groups protested the agreement as wasteful corporate welfare. Amazon later launched a smaller expansion in Midtown Manhattan without the aid of new subsidies.

What Is the Winner’s Curse?

The bidding war that Amazon ignited raises a broader question: How extreme should your bid be in an auction for a hot commodity?

The winner’s curse phenomenon arises in auctions when the winning bidder of an item of uncertain value overpays. When an auction heats up, the fact that you are the winner suggests that others reached more realistic assessments than you did of the item’s true value.

The winner’s curse is not the same thing as “auction fever”—which refers to the tendency of bidders to irrationally escalate their bids in the heat of the moment, writes Harvard Law School and Harvard Business School professor Guhan Subramanian in his book Dealmaking: The New Strategy of Negotiauctions. Auction fever, a likely factor in the Amazon contest, is an emotional reaction to participating in a high-stakes bidding war. Those who catch auction fever risk overpaying because of a desire to win at any cost. Such winners often have regrets once the “auction high” wears off.

By contrast, the winner’s curse arises from the fact that the average of all bidders’ estimates of a commodity’s worth is likely to be close to the actual value of the commodity up for sale—which means that the bidder, by submitting an above-average price, probably overpaid.

Avoiding the Winner’s Curse

Not every auction winner is afflicted by the winner’s curse, writes Subramanian. Some bidders have knowledge or expertise that allows them to assess an item’s value better than other bidders. For instance, an experienced art dealer will have an “edge” over other bidders if they are the only art expert at a local estate sale.

How do you know if you have such expertise? Ask yourself, What do I know that no one else knows? recommends Subramanian. If the answer is nothing, then the winner’s curse is a very real risk.

Bidders who bring unique value to the contest also may be able to avoid the winner’s curse because their offer may be particularly attractive to the seller. Boston, for example, passed on offering tax incentives to Amazon because city leaders calculated that the city had an edge in other areas (though it didn’t end up winning).

To avoid becoming the next victim of the winner’s curse, ask yourself whether you’d be comfortable making the same bid if you knew that all other bidders valued the item less than you do, advises Subramanian. If you wouldn’t, shade your bid downward.

If you would still be comfortable making the bid, determine whether you have an edge that might make your bid more attractive to the seller than other bids. If you don’t have an edge, again, shade your bid downward; if you do, you should feel comfortable making the bid.

Do you have a winner’s curse example from your own business negotiations?

Teaching Negotiation

women in the workplace,negotiating with your boss

Ask A Negotiation Expert: How Can Women in the Workplace Gain Ground?

Why do women in the workplace incur social costs when asking for higher pay, and how can you navigate this barrier?

PON Staff • January 3, 2023

Deborah Kolb, the Deloitte Ellen Gabriel Professor for Women in Leadership (Emerita) at Simmons College, shares strategies that women in the workplace can use to overcome pay and promotion gaps at work. Kolb is the coauthor (with Jessica L. Porter) of Negotiating at Work: Turn Small Wins into Big Gains (Jossey-Bass, 2015).

Past research has suggested that one reason men continue to earn more than women and dominate leadership positions is that women in the workplace negotiate less often than men for pay and promotions. Is this still the case?

Deborah Kolb: A stereotype has formed that women don’t negotiate for salaries and promotion, but this just isn’t true. In their 2017 study of HR data and practices at 222 U.S. companies, which included surveys of more than 70,000 employees, McKinsey and LeanIn.org concluded that the same percentages of men and women negotiated for promotions. In fact, senior-level women asked for promotions more often than senior-level men. Ironically, men didn’t have to ask as much because they were offered promotions more often than women were. Yet the same study finds that when it comes to pay and promotion, women fall behind early in their careers and continue to lose ground.

NB: What explains the pay and promotion gap for women in the workplace, then?

DK: What I call second-generation gender bias—policies and practices that, unlike the overt discrimination that was more common in the past, appear to be gender-neutral but inadvertently favor men. Consider performance reviews. Women in the workplace tend to get much more feedback than men do on their style—that they talk too much, that they’re too aggressive, and so on, research by Shelley Correll of Stanford has found. Evaluators don’t tie women’s performance to business results, and this shows up at promotion time. Similarly, research on the so-called glass cliff finds that women are more likely than men to be asked to lead assignments, such as change projects or fixing others’ mistakes, where the risks of failure can be high.

Women are also more frequently asked to do invisible work—work that is in addition to their formal roles. They are asked (or volunteer) to train the new hires, help a colleague who is overworked, chair the diversity committee, and plan the office party. Invisible work contributes to an organization’s effectiveness but unless that value is claimed, it doesn’t count at promotion time.

NB: How can women in the workplace use negotiation to avoid these traps?

DK: The good news is that although women still incur social costs when asking for higher pay, they are unlikely to be penalized when negotiating on these other issues. If you’re not getting clear feedback in your performance reviews, you should be able to negotiate rather easily for it. If you’re asked to take on a risky assignment, why not negotiate the criteria that will determine whether it’s considered successful or not?

NB: How can women in the workplace negotiate to avoid the burden of invisible work without being penalized?

DK: It’s a “yes, and . . . ” conversation: “I’m committed to this, but don’t necessarily have the time.” “I’d love to do it, but I can’t do it right now,” or “Let me tell you about my schedule. What do you want me to drop off so that I can take this on?” You could say, “I’m willing to do this, but I can do it for only two weeks.” Or you might say, “I think John would be really good at this job.” These are not hard pushbacks, so you are less likely to face a social cost for asking.

NB: How do organizations benefit when women negotiate in these areas?

DK: It’s better if people get performance reviews that can help them improve. It’s good to get the best talent for the job. Take the case of a woman manager in the energy sector who was assigned to a position in Ghana. She lived in Texas and had a family. She negotiated to go to Ghana for about eight days a month. Why would you have someone who’s not as competent do the job just because that person can relocate? Women need to push back on assumptions that I don’t think people even realize they’re making. Companies will run better as a result.

Do you agree or disagree with the above? What should women in the workplace do to get higher salaries?

Dealmaking

Collaborative Negotiation with Competitors

Collaborative negotiation isn’t something we typically engage in with business competitors, yet there can be benefits to competing with our biggest rivals.

PON Staff • January 3, 2022

In the business world, companies often work so hard to outperform their direct competitors that they overlook opportunities to meet their goals through collaborative negotiation. Several negotiations in the news describe competitors forging innovative partnerships that allowed them to cooperate and compete.

Teaming Up on Product Design

In 2013, U.S. automakers Ford and General Motors announced they were teaming up to develop two new automatic transmissions (a nine-speed and a 10-speed) to comply with tightening fuel-economy regulations. Through collaborative negotiation, the companies found a way to share the high costs of hardware development without affecting their brand identities, writes John Rosevear on The Motley Fool website.

Once they’d designed the hardware, the companies independently developed control software for the transmissions. This enabled them to tailor the parts to their vehicles—while keeping privileged information to themselves.

Through such joint ventures, organizations can find innovative ways to collaborate that still allow them to compete and protect trade secrets. Such partnerships may be particularly suited to developing products customers don’t usually see.

Emphasizing Differences to Create Value

In their book Co-opetition (Doubleday, 1996), Adam M. Brandenburger and Barry J. Nalebuff coin the term “complementor” to refer to market players—including competitors—who can make your product or service more valuable. In recent years, Amazon and Microsoft attempted to become complementors in the realm of digital assistants.

Amazon, Apple, Google, Microsoft, and other tech companies invested millions into devices such as the Echo, Siri, Google Assistant, and Cortana, but the field quickly became a “fragmented mess,” writes Steve Kovach for Insider. “Want to use Alexa? Great! But it’s really only useful on the Amazon Echo [speaker],” writes Kovach. “Want to use Siri? Fine. But you’re stuck inside Apple’s hardware ecosystem.”

In May 2016, Amazon chief Jeff Bezos approached Microsoft CEO Satya Nadella at Microsoft’s annual CEO Summit with a plan to tackle this obstacle by making their devices compatible, the New York Times reports. Nadella was intrigued by Bezos’s suggestion that allowing the assistants to “talk” to each other could help artificial intelligence devices go mainstream.

Following Amazon’s “working backward” process, Bezos emailed Nadella a draft of a hypothetical press release describing how their products would work together. The two then agreed on the outlines of their collaborative negotiation.

Alexa and Cortana were officially integrated in August 2018, but the partnership was short-lived: Microsoft called it off in September 2021. Michael Can and Michael Muchmore of PCMag.com speculate that few people used Cortana on Echo devices and note that Microsoft chose to focus Cortana on its business productivity software. “It’s yet another case of Microsoft abandoning its own technology and yielding to a more successful competitor,” they write. While the collaboration didn’t pay off, it was a valiant effort to try to expand the pie.

Collaborating to Do the Right Thing

As the AIDS epidemic ravaged Africa in the late 1990s, Western pharmaceutical companies faced global outrage for charging high prices for their AIDS drugs—about $12,000 per patient per year. In 2001, Mumbai, India–based pharmaceutical firm Cipla rocked the industry by selling its cocktail of AIDS drugs to the nonprofit Doctors Without Borders for just $350 per year. Other major pharmaceutical firms soon followed suit, and the initiative is credited with saving millions of lives. Rather than competing on price in Africa, the firms compete on an index that rates how effective they are at getting their products to the poor.

As life expectancy has increased across Africa, thanks to lower mortality from AIDS and other diseases, the continent has faced a growing threat: cancer. In part due to a shortage of cancer drugs, oncologists, and technologies, cancer mortality rates are much higher in Africa than in the developed world.

In October 2017, Cipla and New York City–based pharmaceutical giant Pfizer announced an agreement to significantly discount the prices of 16 common chemotherapy drugs in six African nations, the Times reports. As this collaborative negotiation shows, competitors often have unique opportunities to efficiently create value for those who need it most.

A Note on Collusion

At its best, a collaborative negotiation between competitors benefits consumers and society. At its worst, it squelches competition and harms consumers, as when firms secretly collude to fix prices. When considering a collaboration with a competitor, keep your lawyers involved to ensure you engage in an ethical negotiation whose outcome will not violate antitrust laws.

3 Guidelines for Collaborative Negotiation with Competitors

Three negotiation principles emerge from our collaborative negotiation examples:

Look for ways to sidestep trust concerns. When considering collaborative negotiation between competitors, brainstorm practical ways to make privacy and trust concerns moot, as GM and Ford did.
Focus on broadening rather than narrowing the market. Instead of battling to be the last one standing, try to ensure the market’s long-term health by collaborating on innovative ways to attract customers.
Maximize your good deeds. Competitors often can give back to society more efficiently by negotiating joint agreements to tackle pressing problems.

How have your experiences in collaborative negotiation with competitors turned out?

Negotiation Briefings Articles

Ask A Negotiation Expert: How Can Women Gain Ground in the Workplace?

PON Staff • December 31, 2017

This month, Deborah Kolb, the Deloitte Ellen Gabriel Professor for Women in Leadership (Emerita) at Simmons College, shares strategies that women can use to overcome pay and promotion gaps at work.Kolb is the coauthor (with Jessica L. Porter) of Negotiating at Work: Turn Small Wins into Big Gains (Jossey-Bass, 2015).

Negotiation Briefings: Past research has suggested that one reason men continue to earn more than women and dominate leadership positions is because women negotiate less often than men for pay and promotions. Is this still the case?

Deborah Kolb: A stereotype has formed that women don’t negotiate for salaries and promotion, but this just isn’t true. In their 2017 study of HR data and practices at 222 U.S. companies, which included surveys of more than 70,000 employees, McKinsey and LeanIn.org concluded that the same percentages of men and women negotiated for promotions. In fact, senior-level women asked for promotions more often than senior-level men. Ironically, men didn’t have to ask as much because they were offered promotions more often than women were. Yet the same study finds that when it comes to pay and promotion, women fall behind early in their careers and continue to lose ground.

NB: What explains the pay and promotion gap, then?

DK: What I call second-generation gender bias—policies and practices that, unlike the overt discrimination that was more common in the past, appear to be gender neutral but inadvertently favor men. Consider performance reviews. Women tend to get much more feedback than men do on their style—that they talk too much, that they’re too aggressive, and so on, research by Shelley Correll of Stanford has found. Evaluators don’t tie women’s performance to business results, and this shows up at promotion time. Similarly, research on the so- called glass cliff finds that women are more likely than men to be asked to lead assignments, such as change projects or fixing others’ mistakes, where the risks of failure can be high.

Women are also more frequently asked to do invisible work—work that is in addition to their formal roles. They are asked (or volunteer) to train the new hires, help a colleague who is overworked, chair the diversity committee, and plan the office party. Invisible work contributes to an organization’s effectiveness but unless that value is claimed, it doesn’t count at promotion time.

NB: How can women use negotiation to avoid these traps?

DK: The good news is that although women still incur social costs when asking for higher pay, they are unlikely to be penalized when negotiating on these other issues. If you’re not getting clear feedback in your performance reviews, you should be able to negotiate rather easily for it. If you’re asked to take on a risky assignment, why not negotiate the criteria that will determine whether it’s considered successful or not?

NB: How can women negotiate to avoid the burden of invisible work without being penalized?

DK: It’s a “yes, and . . . ” conversation: “I’m committed to this, but don’t necessarily have the time.” “I’d love to do it, but I can’t do it right now,” or “Let me tell you about my schedule. What do you want me to drop off so that I can take this on?” You could say, “I’m willing to do this, but I can do it for only two weeks.” Or you might say, “I think John would be really good at this job.” These are not hard pushbacks, so you are less likely to face a social cost for asking.

NB: How do organizations benefit when women negotiate in these areas?

DK: It’s better if people get performance reviews that can help them improve. It’s good to get the best talent for the job. Take the case of a woman manager in the energy sector who was assigned to a position in Ghana. She lived in Texas and had a family. She negotiated to go to Ghana for about eight days a month. Why would you have someone who’s not as competent do the job just because that person can relocate? Women need to push back on assumptions that I don’t think people even realize they’re making. Companies will run better as a result.

Negotiation Briefings Articles

Negotiation research you can use: When being yourself gets you the job

PON Staff • December 31, 2017

“Just be yourself”: It’s probably the most common advice given to job interviewees. But research suggests most people don’t follow the old cliché: in a study by Julia Levashina and Michael A. Campion, at least 65% of job candidates actively misrepresented themselves, and at least 87% concealed aspects of themselves to create what they felt would be a more favorable impression.

In new research, Celia Moore of Bocconi University in Italy and her colleagues are the first to examine whether behaving authentically helps or hurts us in job interviews. Psychologists use the term “self-verification” to refer to the drive to present oneself accurately so that others understand us as we understand ourselves.

In their first experiment, Moore and her colleagues reanalyzed data from a past study of international teachers applying for jobs with U.S. school districts. Before being interviewed, 1,240 candidates were measured on the degree to which they strive to self- verify. Candidates who were already considered strong (those ranked in the 90th percentile) were 11% more likely to receive a placement if they were high self-verifiers. However, candidates judged to be weak (in the 10th percentile) were 6% less likely to get a placement when they were high self-verifiers.

Moore and colleagues found similar results using a sample of 333 applicants to Legal Corps, an organization that provides independent counsel and legal services to the U.S. military. This time, strong candidates who were self-verifiers nearly tripled their odds of receiving an offer—from 5% to 13%. But the tendency to self- verify didn’t help weak candidates.

When recruiters are deciding among top contenders, the results of this research suggest, they prefer those who are honest and open about themselves—even about their shortcomings. Thus, “Be yourself” appears to be good advice for top contenders.

What if you think you’re a long shot for a job? These results might appear to imply you should keep your weaknesses under wraps. But if you do so and are hired, there’s a good chance you’ll be unhappy in the position and leave rather quickly, other research suggests. So you might want to go ahead and be yourself anyway.

Although this may not be your main concern, the research on self-verification shows that when candidates show their true selves, they improve the overall efficiency of the labor market by helping to ensure that people are matched with the right organizations.

Resource: “The Advantage of Being Oneself: The Role of Applicant Self-Verification in Organizational Hiring Decisions,” by Celia Moore, Sun Young Lee, Kawon Kim, and Daniel M. Cable. Journal of Applied Psychology, 2017.

French impressions

The French are well known for their sartorial style, but what about their negotiating style? Recently, researcher Sebastien M. Fosse of the University of Deusto in Spain and his colleagues analyzed 89 interviews and written impressions from French and Latin American students about their experiences negotiating with the French and collected the following general impressions:

An emphasis on hierarchy, rules, and formality. As compared to the more informal style of Latin Americans, French negotiators focus on drafting formal contracts that leave no stone unturned, negotiators from both cultures recounted. In addition, participants observed that the top leaders of French businesses are more likely to engage directly in negotiations rather than delegating to lawyers or lower-level managers.
Pride in France’s historical legacy of Enlightenment values. The sense of pride in French culture and history that negotiators observed in French negotiators played out as politesse—a keen respect for manners and traditions. But some participants (including French ones) viewed French pride as excessive.
Comfort with conflict. Perhaps due to the tumultuous nature of French history, including revolution and strikes, French negotiators tend to be particularly comfortable with conflict and resistance, some of the Latin American respondents believed. One respondent, for example, felt that the French tend to view conflict “like battles, instead of looking for mutual benefits.”

Of course, cultural observations should always be taken with a grain of salt, as they are filtered through the stereotypes, personality, experiences, and culture of the observer, not to mention the dynamics of the relationship. But these general impressions, coupled with the understanding that individuals are much more than their culture, may be an added tool to pack for negotiations in France.

Resource: “When Dignity and Honor Cultures Negotiate: Finding Common Ground,” by Sebastien M. Fosse, Enrique Ogliastri, and María Isabel Rendon. Negotiation and Conflict Management Research, 2017.

Business Negotiations