Value Negotiation: How to Finally Get the Win-Win Right 1/x

Horacio Falcao

We’ve been recommended this book at the “Negotiation Dynamics” course at INSEAD. I’ve actually decided to read it so that to reinforce my knowledge. Was the course helpful? You bet!

book link

01/ Introduction

• Value Negotiation is the negotiation system that focuses on delivering the most possible value at the lowest possible risk in the widest range of situations.

• Negotiation is not a process of defeating an opponent – it’s a process to pursue value involving other people. It’s a journey of self-improvement.

• Mastering multiple negotiation styles is helpful; but they need to be used one at a time, otherwise they cancel each other out.

Basic Assumptions of Value Negotiation

• Negotiation is everywhere – at home, at work, in a corridor, etc.

• Negotiation is a skill – it’s about conscious practice, not just upbringing.

• We can try to negotiate everything – many seemingly non-negotiable things are negotiable (and we own much less than we think). [MK: I wonder if it’s possible to make this behaviour not annoying at the same time. Or maybe I’ve come across people who are doing it wrong.]

• Negotiation is not a magic pill – the goal is to increase our success rate of doing what we do, but other activities may also be needed.

• There’s no one best way to negotiate – knowing which tool to pick from a toolbox is always helpful, though.

• From strategy to implementation – poor implementation kills a good deal [MK: same as poor integration kills a good M&A deal. The rule is quite universal].

Risk and Reward Analysis

• Split negotiations into multiple elements and analyse them individually for their risks and rewards. Ideally the elements that are already low risk and those which risk needs to be lowered.

• Assess the risk appetite of both sides in the context of this negotiation.

• Realise there are no right or wrong answers.

• Accept there are trade-offs between different strategies and actions (otherwise there’s no need for a negotiation).

• Different people behave differently in response to the same arguments.

02/ Understanding Negotiation

• Negotiation is a process when one party wants another party to do or not do something for them. Simple as that. There could be several parties (and the negotiation becomes a multi-party one), but the basic principle is simple.

• Negotiation is everywhere; it has a purpose (hence it’s a process that can be learned and not a skill); it takes place within a relationship (which can last as little as the time it takes to make a purchase); and there are numerous ways to negotiate based on a context.

• A war is a negotiation, too, in a sense that it’s an extreme means to get another country or its leadership to accept a certain point of view and act upon it.

• Negotiation can be thought of as creating and capturing value in a network of relationships. There may be no value creation per se but focus on value itself and the relationship context are fundamental.

• We negotiate to increase value for ourselves. [MK: It may be not obvious, too altruistic, or naïve, but this mindset is essential for predictability: it’s much easier to deal with self-centred than altruistic people.] Value is subjective in a way that things that bring pleasure and reduce pain vary between people, sometimes dramatically.

• Value can be split into two distinct categories: substance value (the object of the negotiation, something that has market value) and the relationship value (intangible, associated with a feeling). Every negotiation move has the intention to alter either the substance, or relationship value to someone, preferably not both.

Win-Lose Negotiations

• Since the beginning of time fighting for resources was common, but to an extent: negotiations arose when it became clear that one can’t fight for every consumable resource without incurring damages to oneself.

• What this dynamic evolved into is the demonstration or the threat of using power. Welcome to the win-lose negotiation style, deeply ingrained into our evolutionary traits.Win-lose negotiations (AKA bargaining) are the ones that involve the use of power (usually coercive) and are the default approach for negotiation everywhere. The conflict is resolved by one party dominating over the other (hence the win-lose dichotomy), and the winner’s interests are independent on the loser’s will.

• Win-lose approach implies a sizeable power difference (which can be true or faked, the power gets accumulated beforehand, etc.) where challenging the power is an unfavourable option. Such approach is also short-term (“a single stage game” in the game theory terms); it destroys enough value to be repeatable.

• Using power always meets resistance. Victim’s resistance may lead to a smaller win for the bully and a smaller loss for the victim. The following outcomes and concerns are not uncommon:

• Certainty – does the bully really have an upper hand in the negotiation? [MK: in other words, does the other party has alternatives that will backfire on the bully?]

• Focus on lose-lose – under pressure parties may shift focus from value to power, concentrating on not losing or losing less. The game becomes about the choice of losing more or losing less – both shouldn’t be played in the presence of alternatives.

• Value destruction – winning is not free, and the size of the resulting pie is likely to shrink.

• No opportunity for future interactions – people don’t like to be humiliated more than once by the same party and would avoid another round of confrontation. But if they do – they will try to collect all the power and turn the table on the bully.

• Losing ethics (lying, manipulating) becomes a less unfavourable option to pay the bully back.

• Learned helplessness – the danger of win-lose negotiations is that it’s very easy to accept the status quo and the company’s lower status and to start acting accordingly.

Tit-for-Tat

• Game theory: a winning strategy is repeating the other side’s previous move (tit-for-tat). Over the long term (i.e., repeated games) this strategy wins over others, even more advanced ones. Collaboration leads to collaboration and more value for everyone.

• The observed behaviour of the party sticking to this strategy (since they wouldn’t announce it) is being retaliatory (defect in the next round after another’s party defection) but forgiving (returning to cooperation if another party does so).

• This strategy can be cleverly gamed or misapplied when the intentions of the other team are not clear leading to wrong retaliation, or when human emotions kick in focusing on the retaliation part, there’s a big temptation to betray on the last round, and alliances/coalitions of players can beat the consistent player.

• Tit-for-tat is considered a win-win strategy but it’s not the most effective win-win strategy. The best strategy makes resistance unnecessary since there’s not application of power over another party.

• The best tool for win-win is communication, because the solution lies in the area of interest for both parties and guessing another party’s interests is very error-prone at best.

• Since win-win is more complex than win-lose and thus not commonplace, one doesn’t know how it looks in all life situations, and process failures occur from time to time:

• The other party may refuse to focus on win-win and rather sooner than later will attempt to use power. It’s understandable that the injured party would want to reciprocate in kind and resort to win-lose.

• Being nice is not collaboration. Being positive and being naïve are two different things, and sometimes it’s not worth wasting time.

• Fairness doesn’t mean a 50/50% split. There is a wonderful book written on this topic, but in short – there’s no reason to choose this method of splitting value.

• Sometimes win-win doesn’t create as much value for the party as applying the win-lose strategy (say, when the power difference is huge and the interaction is definitely non-repeatable).

Final Thoughts

• When the negotiation isn’t about just a single dimension (price), it actually turns less nervous for all parties and there’s no power and resistance. And with the key question out of the immediate attention span it becomes more productive to focus on the overall value.

• A win-win outcome is not necessarily achieved by a win-win process as it may have been achieved accidentally or by other means. However, the win-win process makes the win-win outcome more likely. And the other party will be more likely to use this process for future interactions.

• The absence of resistance is underappreciated: the parties can finally dedicate their resources to exploring new options rather than wasting them on positional games.

• Without the need to win at all costs parties don’t have to resort to unethical means or experience fear and anxiety.

Part 2.