Negotiate 1-2-3

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CLOSINGS

Overcoming Obstacles

Learning Objectives Est. time: 20 min.

  • Diagnosing barriers to agreement
  • Prescribing effective approaches to overcome those barriers
  • Bringing negotiations to a successful conclusion

Introduction

Not everything is negotiable—even if both parties have the best of intentions. Sometimes the very most you can offer your counterpart may not be enough to satisfy them. Or it may be that they can’t match a more attractive offer you’ve received from someone else. There just may be no room for agreement.

But deadlocks can also mask lost opportunities. Parties may abandon negotiation, thinking agreement is impossible, and walk away when there was a potential deal that could have left both sides better off.

This module provides a framework for understanding barriers to agreement and recognizing ways to overcome them. We’ll start with a short puzzle.

Barriers to Agreement

Mindset. Some beliefs are self-fulfilling. If you are convinced that there is no room for agreement, you won’t bother to look for solutions. Or if you believe that a particular negotiation is zero-sum (that is, that one party’s benefit exacts an equivalent cost for the other), you will haggle rather than explore value-creating trades that might benefit both sides.

Harvard Business School Professor Max Bazerman has written persuasively about “the mythical fixed pie,” the narrow assumption that negotiation is inherently a win-lose process. People with that mindset act accordingly and make it so. Potential mutual gains get squashed.

That’s not to say that negotiation is always win-win. Some one-time, price-only transactions can be like a tug of war. Believing otherwise doesn’t change the underlying dynamic. But these situations are more the exception than they are the rule. Even when price is the primary issue, tweaking other terms can be mutually advantageous.

There is little cost in beginning negotiations with the premise that the pie can be expanded. Keeping that possibility alive requires little effort, and it needn’t make you vulnerable. Often it just takes one party with an optimistic mindset to spark a process of exploration. Discovering joint gains can rescue a deal where there’s an apparent gap between the parties’ best offers. And even where there is bargaining range, generating additional value can improve the outcome for both parties.

Lapses in judgment. Try as we may, we don’t always make decisions that serve our own best interests. Cognitive psychologists have long demonstrated the power of the “framing effect.” How choices are worded can influence whether we say yes or say no—even though the basic question is exactly the same. But that means that sometimes we agree when we should walk away. Other times we give up when we should accept the deal.

The problem isn’t limited to negotiation. It applies across the board, to decisions involving everything from public policy and business strategy to medical diagnosis and personal investments. Countless books have been written on the framing effect, from tomes like Daniel Kahneman’s Thinking Fast and Thinking Slow, to practical handbooks like Smart Choices by Howard Raiffa, John Hammond, and Ralph Keeney.

Decision-making research is far too wide a territory to summarize here (though some examples of common biases are provided in the Persuasion module, also in this unit). It is fair to say, though, that no one is immune from making misjudgments. A willingness to challenge your own assumptions and to consider counter-arguments against choices you’re about to take provides some protection against later regret.

Strategic miscalculation. Committing yourself—refusing to budge—is a form of bargaining power, but it must be used cautiously. Before you make a firm and final offer, you have to weigh the pros and cons of the possibility that the other party may react negatively.

It’s easy to miscalculate. Your counterpart may have less flexibility to meet your terms than you imagined. Even if they can bend, they may so resent being given an ultimatum that they walk away from a deal that actually meets their needs. It’s hard to backtrack once you’ve made a supposedly final offer. It's a credibility problem. Having already drawn a line in the sand and then erased it, how do you later convince the other side that there really is a limit to how much more you're willing to concede? When both parties paint themselves into corners, things are even worse.

Later in this module we’ll consider forcing moves and techniques for responding to take-it-or-leave-it offers. The Dispute Resolution module (also in this unit), gives an overview of mediation and arbitration tools. A third party can sometimes help negotiators reach an agreement that they could not fashion themselves, as it did in the Balkans.

Process failures. Even experienced negotiators can fall into the trap of merely exchanging offers and demands. One party makes a proposal. The other pokes holes in it and proposes something else—which the first party then rebuffs in the same way. They might ultimately stumble on something workable, but the repeated cycle of rejections can poison the process.

One of the precepts of the classic book Getting to Yes (by Roger Fisher, William Ury, and Bruce Patton) is “invent before you judge.” Make time for wide-open brainstorming, the authors advise. Criticism is forbidden in this phase. Each person has permission to float a notion that he or she might disavow after further thought. Thus liberated, the negotiators may be able to craft a solution from bits and pieces what’s been bandied about.

The approach isn’t easy to institute in practice, however. It requires open-mindedness and a measure of trust by all the parties. Attempting to brainstorm unilaterally can confuse and even frustrate other parties who are unfamiliar with this variety of negotiation. If you think you’re just tossing ideas around, but they hear what you say as a firm offer, you’ll both have a problem.

On the other hand, you can’t count on brainstorming taking place spontaneously. And if it doesn’t happen, value-creating opportunities that could spell the difference between deal and deadlock might be missed. As illustrated by the module Negotiating How to Negotiate (in the Openings unit) is important to establish ground rules, either explicitly or by example.

Organizational constraints. Contextual factors can also interfere with reaching agreement. Even if the negotiators at the table are creative, make well-reasoned decisions, and avoid strategic traps, they may have limited discretion if they represent other parties or organizations. That problem is compounded if their interests aren’t aligned with those of their constituents.

For example, a purchasing agent and a vendor might come up with an ingenious way to structure a service agreement, but be thwarted by company policy on one side or the other (or both, perhaps). Their creativity will be of no avail if the solutions they generate are beyond the scope of their authority.

Or take the case of a sports agent fielding offers for a star athlete. If the agent is paid on commission (a percentage of salary), they may steer their client toward the highest paying team and give less weight to intangible factors (the livability of various cities, the prospects of different teams, etc.).

These barriers—from mindsets and poor decision-making down to process failures and organizational constraints—are not mutually exclusive. More than one may be hampering progress in a given case. But each requires its own particular remedy. Diagnosing the underlying problems is itself a big step forward in solving them.

Sources of Value Creation

“Differences of opinion make horse races,” so it’s said. The idea is simple: if everyone agrees on how the horses will finish, there’s nobody to make a bet with.

The same applies in negotiation. If you and I agree on what my house is worth and we both have the same needs and resources, we’d have no incentive to make a deal. It takes differences in priorities, expectations, and attitudes toward risk to motivate negotiation. It may seem paradoxical, but value is created when negotiators find uncommon ground.

Here’s an example: if the owner of a painting likes what they have but someone else really loves it, the parties should make a deal. Negotiators have come to understand this, at least intuitively. In fact, all successful negotiations create value. Say that I’m about to trade in my car for $8,000, while across town, you’re ready to pay $10,000 for the same model in identical condition. If we find each other through Craigslist and make a private deal, we’ll both be better off. Basically, $2,000 worth of value will be created. The only question is how much of that amount will be profit to me and what will be savings to you. Perhaps we split the difference. Maybe we haggle.

If we’re limited to price, our negotiation is characterized as distributive, or zero-sum. In those cases, any dollar gain for one party comes out of the other’s pocket. A price of $8,100 would be great for you, while $9,900 works much better for me. But either of those numbers—and every one in between— would leave each of us better off than no deal.

When negotiators speak of value creation, however, they usually mean finding outcomes that improve their mutual welfare, so that one person’s gains don’t come at the other’s expense. Joint benefit arises from trading on different priorities, expectations, time horizons, or attitudes toward risk. Here are some quick examples.

It’s highly unlikely that a pair of negotiators will have precisely the same needs, priorities, and perceptions in regard to all of these factors. And this is good news, since trading on these differences creates value that may bridge gaps and break impasses. Even where there’s already room for agreement on price alone, the added value can improve the outcome for everyone. But this can happen only if the parties recognize the opportunity-and that depends on how effectively they negotiate.

If you’ve established a collaborative relationship, you may be able to devote time to brainstorming explicitly, following the "invent before you judge" precept, noted earlier. Other times you may have to work indirectly by setting an example. (It’s unrealistic to expect that others will be comfortable voicing creative solutions if you’ve been reticent yourself.)

Whatever the relationship with your counterpart (be it cooperative or more contentious), resist the temptation to deal with issues one at a time. Doing so may seem more orderly, but it makes each item a win-lose contest. It’s unreasonable to expect others to make a concession on a particular point if they don’t know whether it will be reciprocated by something you’ll concede on another issue. Instead, you should consider issues more holistically by comparing alternative packages.

Here’s an analogy. Let’s say you’ve been offered a bag of groceries. Everything in the bag may have some value to you, but some items you like, while others—like fresh raspberries—you love. How many cans of soup would you surrender in order to get another point of berries? One? Two? Three? Maybe Ten?

Any proposal on the table will be a mixed bag of provisions: some things that you gain from the other party, and other items that you must grant in return. Your joint task is to explore further swaps that improve the give-and-take distribution from each of your different points of view.

It’s not just a mathematical exercise, a search for the most economically efficient outcome. Learning takes place as negotiators compare different packages. They may reassess their priorities and consider issues (positive and negative) that hadn’t occurred to them initially. It’s in your interest that they do so in an open-minded way. The chances of an idea being accepted improve if both parties have had a hand in generating it.

The more issues there are to trade on, the more value that can potentially be created. But there’s a psychological catch. Researchers have found that the more options there are to choose from, the harder it is for people to make any decision. Columbia University psychologist Sheena Iyengar says that it’s partly a problem of information overload, but also a matter of anticipatory regret. The more paths a person can take, the more reasons they have to second-guess whichever one they choose.

As a negotiator, you have to balance the theoretical advantage of extending the search for value against the practical need to get the deal done. Focusing on a relatively small set of options makes sense for yourself. It’s also smart with respect to how many alternatives you present to counterparts. That’s Salesmanship 101.

Paul Ehrmann is a Hollywood actor and screenwriter, but he also sold cars early in his career when roles came in fits and starts. The cars that he sold were Rolls-Royces on Wilshire Boulevard in Beverly Hills. That experience taught him an important negotiation lesson: "When you pull out the color chart, you’ve lost the sale."

Creative Relationships

The entertainment business runs on negotiations, of course. Screenwriter-producer Robert Kosberg is called the "king of the pitch" in Hollywood. To sell an idea to a studio, he says, "You want the listener to become your collaborator so by the time he goes to pitch it to his boss, it’s his story, and he has a vested interest. He’s no longer pitching Bob Kosberg’s project. He’s pitching his project, and I’m lucky if my name gets mentioned."

A dialogue where both parties are building solutions, not tearing them down, will be peppered with comments such as "Just thinking out loud," "How can we go to school on what others have done?" "This may be off the wall, but," and "Wouldn’t it be great if we could . . ." In negotiation, that kind of interchange requires a high level of comfort, openness, and trust. Over the course of a negotiation, we should be regularly asking ourselves:

Sometimes the relationship itself becomes the heart of the negotiation and can trump serious dollars-and-cents issues.

Jesse Lyn Stoner moved to San Francisco when the real estate market there was red hot. Nice properties were getting snapped up fast, often at prices well above the asking price. Bidding wars erupted between would-be buyers. She was well aware of this when she finally found a place she loved.

Jesse carefully crafted a three-pronged strategy. First, she made an all-in bid, holding nothing back in reserve, hoping to blow out potential competition. Second, her offer was all cash, so the seller wouldn’t worry about financing problems. And finally, Jesse wrote a personal letter expressing how much she loved the house and how it would be the last home she would ever own.

But it didn't work! At the last minute, somebody else jumped in with what the broker called an “out-of-the-ballpark” offer, far beyond Jesse’s means.

Jesse chose not to increase her original offer. But she also didn’t give up. Instead she thought of other items she could add to the package. One was being able to close the next day; another was telling the family that they could come back for visits and stay at the house. She also had four 1-ounce gold coins that she’d been saving for something special.

There was one more thing. By sheer coincidence, Jesse knew the fire chief in the town these particular sellers were moving to. In fact, she had donated several copies of her book, Full Steam Ahead, to the firefighters. Jesse could introduce the sellers to lots of people in the community. She spelled out all of this in a follow-up letter.

Her second letter sealed the deal. The owners wrote back that in spite of the higher bid, they would sell to Jesse at her price—along with the other terms. (They only took two of the coins, though: one for each of their children.)

The big lesson, Jesse persisted in spite of the price gap. She dug deeper creatively. The new items she came up with had some value in their own right, but as Jesse herself notes, they transformed what normally would be a dollars-and-cents transaction into something relational.

It can’t be known for sure, but it’s possible that if her first offer included all the terms the parties ultimately agreed to, the sellers probably wouldn’t have appreciated them nearly as much. From start to finish, Jesse conducted the process in such a way that the sellers got to know and like her. It seems clear that this experience was about transformation, not a simple exchange. Jesse never saw her friendship with the fire department as a means to some other end. It had ample meaning in its own right.

Afterwards she said, "I have found I am a happier person when I give more than I take and when I can make a difference in another person’s life. And sometimes, just sometimes, what you put out does come back to you from unexpected sources." (For further analysis of this case, see “How relationships can trump dollars” on LinkedIn’s Influencer platform.)

Forcing Moves

Negotiations can end several different ways:

The module on Ultimatums in the Critical Moments unit goes more deeply into this topic than we do here. In a nutshell, there are various motivations for making a take-it-or-leave-it demand:

Ultimatums are risky, however. Once issued, they are hard to retract. They also put the outcome entirely in the hands of the other party. The counterpart may respond to the tactic emotionally and reject a deal that actually was better than whatever they can obtain elsewhere. Gauging whether stating an ultimatum is wise comes down to weighing the possible upside of winning against the downside of ending up empty-handed. (An exercise in the Ultimatums module illustrates the challenge of balancing these alternatives.)

Exploding offers in job negotiations are a variant of classic ultimatums. Here a recruiter makes an offer to an applicant but attaches a very short deadline for acceptance. The idea is to keep the applicant from using the offer as leverage to get an even better deal from another organization. (The recruiter also doesn’t want be left hanging and lose the chance of hiring someone else if the candidate takes too long to accept.)

The tactic puts a lot of pressure on applicants. Indeed, that’s the point. A number of prominent business schools—including Harvard’s—try to prohibit the practice on the grounds that it can lead to hasty decisions that are in neither the applicants’ interests nor, ultimately, the companies’ (if it leads to bad working relationships). Monitoring compliance with the ban is not easy, however, as people on both sides of the table can speak in code. Some recruiters avoid being explicit, but hint that an offer would be forthcoming if they felt it would be accepted.

There’s also the hour-glass gambit, where the offer doesn’t explode entirely, but its value declines with passing time. Several years ago a professional hockey player—call him Henrik Steen—became eligible for free agency. Under the National Hockey League’s rules, he could to sign with a new team, but his current team—the Bombers—had the right first to make him a qualifying offer, which essentially sets the bar that others must top.

The general manager, known to be a tough bargainer, offered Henrik the minimum permissible raise (five percent), which would bump Henrik’s salary up to $1,050,000 for the coming year.

Henrik’s agent called the GM to complain. “That’s not nearly enough,” he said. “Henrik is worth a lot more than that. “Okay,” the agent replied. “I’ll send you a new number tomorrow.”

The revised offer was $950,000.

The agent called up, bewildered, and said, “I don’t get it. You said you were going to send me a new number. This is $100,000 less.”

“Yes,” said the GM. “Do you get the trend?”

Henrik signed two days later for $825,000. He was traded to another team—at the low salary—later that week.

Dealing with Take-it-or-leave-it Offers

When Ellen Pao was CEO of Reddit, she banned bargaining over salaries at her company. “We provide offers at the high end,” she told an investment group, “and they are non-negotiable.”

The policy got attention in the press, but was quickly overshadowed by controversies over own her leadership (as well as hateful content on the Reddit site). Less than a year later, Pao left the company. But questions about non-negotiable offers remain:

The first two questions are linked; here’s a quick look at them. Gender equity was one of Pao’s motivations. The wage gap between men and women has been widely documented. And there is plenty of behavioral research that shows that men tend to negotiate more aggressively than women. Women who try similar tactics risk being labeled as pushy (or worse).

Whatever the merits from a company’s point of view, what about job candidates who get a take-it-or-leave-it offer? Here are three rules.

Non-monetary items can be just as important—perhaps more so. The start date, promotion schedule, work assignments, and training opportunities should be on your list.

Address these issues holistically. Together with the employer, you should be figuring out what kind of resources will enable you to do a great job that generates high value for the company. Remember to express your enthusiasm and commitment. It may help you indirectly build a case for being moved into a higher paying slot. (By contrast, playing hard-to-get would subvert that message.)

The wisdom of making job offers non-negotiable is debatable, no matter how well intended. Perhaps they are appropriate for well-defined jobs where there is a sufficient pool of similarly qualified candidates. Fairness matters in its own right, and perceived fairness matters, too.

In many situations, though, people bring different skills, experiences, and temperaments to the table. They also may have different needs and priorities. One-size-fits-all compensation plans stifle creative solutions that could benefit both the employer and the employee.

The Risk of Being Too Agreeable

The CEO of a midsized company once bragged at an executive meeting, “In twenty-five years, we’ve never failed to reach agreement with a customer or a vendor.”

That unblemished record probably isn’t something he should be proud of. As the saying goes, “If you never miss a flight, you’re spending a lot of time in airports.” The same principle applies in negotiation. If you always come to agreement, there are two explanations and neither of them is good.

Either you’re being overly cautious and only going after sure things, or sometimes you’re saying yes when you’d be better off walking away. There are flights that you can’t afford to miss, of course, and deals that must be made, but don’t agree simply for the sake of agreement.

Understanding this principle is easy in the abstract, but many people have trouble honoring it in real world cases. Companies often unwittingly set up incentives that make it hard for their employees to come home from the bargaining table empty-handed. John Hammond (co-author of the excellent decision-making book, Smart Choices) has consulted for major insurance companies. One particular firm was concerned that it was being too generous in settling multi-million dollar claims, even when the odds of losing in court were very low.

In John’s confidential interviews, adjusters conceded that they were over-paying. Yet they had learned from experience that their bosses would blame them for not settling the one time in ten that juries ruled for the claimant but not credit them for the other nine times where the insurer was absolved of any liability.

If anybody should be risk neutral, it should be an insurance company. But what might be true for the firm doesn’t necessarily apply for the employee who feels that their career is on the line. Savvy plaintiff lawyers on the other side understood and exploited individual adjusters’ risk aversion.

John offered two seemingly simple suggestions that significantly improved the performance of the company’s negotiators. First the company revised criteria for annual reviews so that an adjusters’ portfolio of cases would be assessed as whole, rather than piecemeal. Instead of being a badge of honor, an ultra-high settlement rate became a red-flag. Top management wanted to see a reasonable number of stalemates where the overall cost of going to court was less than caving into extravagant demands.

Then, to signal their policy change to the plaintiffs’ bar, they changed the way that staff assistants answered the phone. When a lawyer would call an adjuster to negotiate a claim, he or she would be told, “I’m sorry but Chris is in court today and tomorrow. Can we set up a time to talk on Thursday?” The intended message was, “We’re not afraid to litigate.”

Negotiators need to know that they have permission to say no whatever the context, be it lawsuit settlement, sales, or purchasing. That doesn’t mean they have to be hard-nosed or rigid. Creativity can spell the difference between deadlock and a deal. Likewise, forging a constructive relationship can lead others to accept terms that they might have originally rejected.

But even when people are operating in good faith, some things simply may not be negotiable. Overpaying or undercharging doesn’t make sense in a specific transaction, and it can lead counterparts to have unrealistic expectations in future negotiations.

The same is true for your own personal negotiations, whether you’re buying a car, seeking a raise in pay, or trying to solve a problem in a community organization. Have the nerve to seek deals that may or may not work out. And have the good sense to walk away when they don’t.

Summary

Heinz ketchup has dominated the market for more than a century. Its classic glass bottle was introduced in 1890. Though the product was wildly popular, the bottle’s design was a problem: the tomato puree poured very slowly from its narrow neck.

Then the company had a pretty good idea: make that short-coming a virtue! In the 1970’s they ran ads to selling the idea that the ketchup’s rich taste was worth waiting for. Carly Simon’s "Anticipation" was the theme song.

A quarter century later, Heinz had an even better idea (see image to the right).

It took Heinz more than a century to come up with a better ketchup bottle. (If you’ve had a chance to see the Agility module in the Critical Moments unit, you may recall the story of how an owner of a cable television system saved a business deal by using the same idea of turning things upside down.) It was years before Richard Holbrooke’s team resolved the Serbian-Bosnian license plate crisis. In your negotiations, you may only have days or even hours or minutes to devise a way to break deadlock. To foster your creative agility, whatever the timetable, remember to:

  • Trade on differences to generate value.
  • Be creative about process as well as substance.
  • Open up your imagination, by stepping back to see what you’d suggest to someone else in your situation.
  • Think analogically. How does the problem at hand compare and contrast with other deadlocks you’ve resolved?
  • Expand your mental library of creative solutions.

Resources

Teresa Amabile, Ch. 6 “The Catalyst Factor: The Power of Project Support,” The Progress Principle: Using Small Wins to Ignite Joy, Engagement, and Creativity at Work.

Max Bazerman, “The Mythical Fixed Pie,” Harvard Business Review, # N0311A-PDF-ENG.

John Hammond, Ralph Keeney, and Howard Raiffa, Smart Choices.

Sheena Iyengar, The Art of Choosing.

Daniel Kahneman, Thinking Fast and Slow.

David Lax and James Sebenius, Ch. 5 “Where Do Joint Gains Come From?” The Manager as Negotiator.

Robert Mnookin, Scott Peppett, and Andrew Tuminello, Ch. 3 “The Tension Between Principles and Agents,” Beyond Winning: Negotiating to Create Value in Deals and Disputes.

Barry Schwartz, The Paradox of Choice: Why More is Less.

Michael Wheeler, Ch. 11 “Silk Purses,” in The Art of Negotiation: How to Improvise Agreement in a Chaotic World.

Next Module: Persuasion [15 min.]
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