Articles > Positional and Mutual Gains Negotiating (Part 3)
Positional and Mutual Gains Negotiating (Part 3)
by David Bryson
Norton Media
Create Value
- Generate options and packages that “make the pie larger”
- Explore interests on both sides
- Suspend criticism
- Invent without committing
- Use neutrals to improve communication
As commercial managers and negotiators, we should understand that it is always our responsibility to look for ways to make “pies” larger. Larger “pies” can be beneficial in two ways. Firstly, obviously, our own organisation would benefit by taking all or some of the increase in the value of the “pie”. Secondly, if the supplier/customer receives some or all of the increase in value, then that supplier/customer feels well disposed towards us, often breeding loyalty and other positive reactions. It will give us a competitive advantage over those who do not make the “pie” larger.
The main issue for me is when and by whom the “creating value” work is done. Whilst we should always seek larger “pies” during negotiation, however narrowly defined, the behaviours involved in successful value-creating exercises are completely different to those required for successful negotiation. Value-creating exercises require us to “let go”, to be highly creative through flights of imagination. Negotiation requires us to be completely in control (of ourselves at least) and to be determined to get the very best possible deal for our own team. There are other states of mind and modes of behaviour that apply respectively to the two disciplines and they are mostly mutually exclusive. And so, to mix up creating-value exercises with negotiation can lead to a lack of success in one or both areas, sometimes with disastrous consequences.
In addition to the matter of the timing of the two activities, we need to consider carefully the issue of who from our organization should be involved in each activity. Are the brilliantly-creative and technically-excellent product and process development managers really the best people to negotiate the contract, and vice-versa?
Giving information
This is probably the best point at which to bring up the difficult and important issue of provision of information to the other side. “Positionals” tend to give less information, and “mutual gainers” more. “Positionals” believe that information is power and so the less you say, the less you give away. “Mutual gainers” are inclined to provide as much information as possible, hopefully without damaging their cause too much, because it breeds trust, encourages speedier agreements and allows the other side to give them what they want.
I am afraid that for me the reasoning on both sides is sound. How much information we should provide is simply a matter of judgment. The question we have to ask ourselves is “Do the advantages of providing this bit of information outweigh the disadvantages?” And of course this question needs to be asked during creating-value exercises as well as during negotiation because there can be no effective communication barrier between the two.
Distribute Value
- Behave in ways that build trust
Negotiators should always do this if a long-term relationship is involved or if the organisation’s reputation is at stake. There are many ways of building trust and most of them can be employed whichever style of negotiation is used. We can all build trust, for example, by actually sticking to the terms of an agreement once it is in place, or by working hard to provide maximum value to the other side within the terms of an agreement – perhaps by maximising mutual sales volume.
In this area though, the “mutual gains” lobby would say that “positional bargainers” destroy trust by their approach to bargaining i.e. opening high/low, appearing to be intransigent but shifting their position towards agreement. My experience suggests that, in most commercial situations, trust is not necessarily damaged by such behaviour. It all depends on how it is done – on the level of skill of the negotiator. Most people in negotiation expect some positional bargaining behaviour and will not necessarily lose trust in you if, for example, your answer to a question such as “What’s the best price you can give me?” turns out not to be entirely honest! (If it was, there would be no negotiation.)
- Discuss standards or criteria for “dividing” the pie
- Use neutrals to suggest possible distributions
So, what is being suggested here is that we do not use our skills to bargain for the deal that we think will be best for our own organisation, but instead that we employ objective criteria e.g. market rates, or that we ask a neutral third party to make such decisions for us. This is where I have my biggest disagreement with the “mutual gains” approach.
First of all, I should state that, occasionally, when I have found myself in a very weak position in a negotiation and heading for a deal that I think can be improved upon by so doing, I have proposed the above approach. To back up my case I have even appealed to the other side’s sense of fairness. This has often been a successful strategy from my point of view. But please note my reason for employing it!
However, unless you find yourself in this sort of weak position, I would suggest that by agreeing to divide the value of the contract in this way will lead you to agree many commercially sub-optimal deals. So often, “market rates” do not apply - there are factors involved which mean that this is not a “standard” transaction. Imagine agreeing to buy a house at the “market rate” without testing the vendor’s resolve on price. You subsequently find out that the vendor was moving to a job overseas within the month and that, as a result, she would have accepted £10,000 less for a quick sale. This might make you feel like a nicer person and you have every right to pay £10,000 more than you could have done…as long as it is your own money. However, as executives, we are usually paying with our employer’s money and in this situation we have a responsibility to get the best possible deal for our own organisation.
- Design nearly self-enforcing agreements
Very sensible, whichever code we are following.