Value Negotiation: How to Finally Get the Win-Win Right 5/x

Horacio Falcao

Part 4.

06/ Anticipate the Critical Moments

• Critical moments are moments where the negotiation process is in a state of uncertainty before it enters a new stage. They are not more difficult, but they raise the stakes in terms of risks and rewards hence demand heightened awareness. Negotiators can’t be 100% aware of the messages they send or don’t send at all times, but the critical moments truly require this. This is precisely where even small mistakes can derail the process, erode the relationship, or reduce the value potential.

• People who are not skilled negotiators at the first sign of trouble risk falling back on the win-lose bargaining behaviour. It’s important to consciously continue with a value negotiation approach.

Initiating the Interaction (Relationship)

• The first risk is making conclusions about the people on the other side, their status and formulate expectations towards them. Focusing on trust at this moment may be counterproductive if a negotiator leans towards trust (soft style) or distrust (hard style).

• Hard style – value over trust. Lies leads to lies in response, information is withheld, and value is limited or even destroyed.

• Soft style – may forget to prepare a substance negotiation strategy. The arguments are not strong, options generated are less ambitious, and this approach may appear manipulative.

• People need to negotiate independently of trust while promoting interdependency. The focus should be on the ability to work together, not on the trust. Trust is the consequence of interdependence, not the reason for it. Interdependency means the parties are better off dealing with each other to get what they want. This leads to the positive environment where both parties are trustworthy. This helps:

• Avoiding trading between negotiations – base substance decisions on legitimacy, rather than trust.

• Promoting a dialogue pattern – working together for value instead of risking power moves than can backfire.

• Proactively diagnosing – real understanding can occur without the need for trust.

Defining the Process (Communication)

• Many negotiators try to obtain control over the other party earlier in the negotiation [MK: have you ever heard someone saying: “They ate out of my hand”?]. The critical moment is when a struggle for communication control becomes a bargaining struggle for power. All of a sudden communication control becomes a matter of relationship, not a process:

• Hard style – intimidation of the opposite party, talking over them and ignoring or rejecting their every proposition. Doesn’t help value creation or deal closing.

• Soft style – limit oneself to listening and accepting another party’s proposals and the drive for control. Looks like (or actually is) avoiding responsibility and invites strong power moves.

• Transparently (i.e., explaining the process steps) leading the process in order to ensure value maximization is better than hijacking the conversation.

• If no one leads – take charge.

• If someone bargains – intervene and steer towards a value creation process.

• If someone is already leading well – reward good behaviour but look for signs of a power game.

• Transparent explanation of process steps limits the ability to trade between negotiations for whatever reason (ignorance or manipulation). It uncovers the information gaps on the assumptions and/or interests of both parties. It invites value-focussed ideas where it’s hard to justify an idea for the benefit of just one party.

Talking About Value (Interests)

• At some point in the negotiation the parties exchange the info on their interests and value. Jumping to options too quickly turns the negotiation into a positional game.

• Parties that “go straight to the point” either assume or don’t care about what the other party wants; they focus on their positions and ignore everything else.

• Hard style – ignore the other party’s wishes and demand a position that unilaterally maximises own value. The other party responds with resistance leading to concessions, a compromise or walking away from the deal.

• Soft style – want to please the other party while having a poor idea of its true interests. Such party gives away more value to satisfy the assumed wishes of another party. Conflict avoidance leads to partially ignoring own interests.

• Talking about value requires voicing and considering all parties’ interests, not positions or assumptions. Unless a lot of interests of both parties have been revealed, it’s too early to talk about options.

• Each interest belongs to one of the three negotiations; it’s easier to build on interests to ensure consistent options that don’t trade between negotiations. Leading another party to explain the interests behind their positions helps to refine and improve the options.

Coming Up with Solutions (Options)

• Solutions should be discussed after the parties define value. It’s a critical moment because some solutions may require considering something the parties dislike. The safer the environment – the more complex the options generation process becomes.

• The risk here is exchanging single-sided options instead of developing them together.

• Hard style – put forward proposals predominantly favouring themselves. This leads to a response in kind, so the bargaining escalates quickly.

• Soft style – propose solutions very good for another party and not clearly good for themselves. This can create distrust (why does another party damage themselves for us? There must be a catch) or an invitation to exploit (let’s see what else they can give us).

• Options generation should start with mutual-gain options, not necessarily symmetrically good for both parties. This demonstrates the concern for both parties and eliminates misunderstanding and suspicions. Options should be discussed in a way that doesn’t create commitment too soon.

• Done properly, substance options are generated without the underlying motive to create relationship goodwill. Discussing mutual-gain options helps highlight the possible ramifications and roadblocks.

Making the Opening Offer or Counteroffer (Legitimacy)

• That’s where the parties exchange numbers, and this usually focuses the conversation on the number only. This is probably the most critical moment of a negotiation, which most of the time is mistakenly brought up too early in the process.

• Arguing should be done based on legitimacy, otherwise the process degenerates into an exchange of numbers, which are no different from positions, leading to a win-lose compromise. The less time is spent on value creation – the more time is spent on arguing about how to split the smaller pie. Ignoring legitimacy pits substance and relationship against each other.

• Hard style – open with an aggressive number and use power or to coercion to force the other party to commit early without knowing more. It can send a message that this party is not serious or doesn’t care about fairness. This may lead to the deal looking unreachable.

• Soft style – open with a seemingly reasonable number, but another party still thinks it’s a high ball and exerts pressure.

• The opening offer needs to be based on the objective, external and neutral criteria for legitimisation. Data-driven rational persuasion reduces coercion and manipulation. This means that the underlying principles need to be based on a standard, law, best practice, produced by an external party with no interest in the outcome of the deal.

• The number must be separate from the person; the relationship must not affect or be affected by this number. The focus on the fairness of the number reduces the use of power and helps better understand the underlying drivers for this number.

Accepting or Rejecting an Offer (Commitment)

• At this stage it’s tempting to close the deal fast, so one party may rush to offer its preferred position, inviting the bargaining process.

• Hard style – reject any offer made to push the other party to offer more. Constantly doing it leads to reciprocation and lower value or no deal as a result.

• Soft style – quickly accept whatever’s been offered (including bad or ‘too good to be true’ deals) for the sake of building a positive relationship or because of laziness. This can be exploited.

• The solution is committing on the substance at the very end of the process. All the time prior to this should be spent on learning about the other party’s potential interests, options, and legitimacy.

• It’s very tempting to accept offers that can’t possibly be implemented. The lack of curiosity may cost the party dearly. Late acceptance also reduces the change of unexpected power moves of the other party.

• However, it’s advisable to commit on the process (the communication negotiation) early. This helps separate the relationship and substance discussions and commit to the substance late to ensure quality. Process mistakes are less costly than substance ones.

Deciding to Walk Away (Alternatives)

• This is the only critical moment that may never happen (but may happen more than once during the negotiation, too). It makes sense to walk away if the BATNA is better than any option, hence it’s very important to invest in option creation. But BATNA is just one part of a decision, not the “nothing” part of the “all-or-nothing” choice.

• Hard style – disclose BATNA early as a threat to force a desperate party to give in to their demands. This is very risky if the other party’s BATNA is better than yours – the tables may turn. Another party may decide that the hardliner will appropriate the value and reciprocate. A bar set too high may discourage another party from looking for better options and invite a walkout; a low bar short-changes the hardliner from the beginning.

• Soft style – not having, using, or disclosing BATNA for the sake of making a deal at almost all costs may capture less value than diligently possible.

BATNA is a strategy of last resort; it should only be disclosed if needed, and only late in the negotiations (if there’s enough value being created, disclosing it isn’t even needed). Thus, it’s NOT used as a bargaining tool not to cap the upside, while being used internally to cap the downside of the deal.

The decision to walk away and the decision to disclose BATNA are two different decisions. Postponing the decision to walk away gives the parties more time to work out options to overcome everyone’s BATNAs. Not disclosing BATNA early leads to more information exchange with the goal of collaboration and not bargaining.

Part 6.