Not in the spirit of war

May 21, 2018

We all negotiate with each other, all the time. We negotiate with our bosses and co-workers, with taxi drivers and waiters and hotel clerks, with market traders and bank managers. Teachers negotiate with their pupils over what work they will do and when. Parents and children negotiate with each other about pocket money and bedtime and whether they will eat their meals.

Negotiations are the glue that binds human relationships together, and human relationships in turn are the bedrock on which civilization is built. In my experience, this is true all across the world, no matter where you are. Chinese, Japanese, Indian, American, European, we all negotiate. We have different negotiating styles—how the Chinese negotiate is different from how Americans negotiate—but the basic principles remain the same. It is curious, then, given what a fundamental human activity negotiation is, how most of us seem to be so very bad at it.

Why is this so? The most common observed error in negotiations is to treat the negotiation process as a conflict.

Other parties at the negotiating table are regarded not as potential partners, but as rivals. The aim is to ‘win’ by securing a better deal than the rivals get. For example, President Trump’s attitude to the Iran nuclear deal is that it is—in his words—‘insane’ because too much was given away to Iran. The outcomes of the deal in terms of relaxing and normalizing relations with Iran are ignored; the only principle that matters is scoring points against the rival.

focus on the outcome, not the process

What often happens is that negotiators become so focused on the process that they forget about the outcome. Negotiating, be it a trade detail, a joint venture, or persuading your children to eat their breakfast, becomes a game of poker. You make a move, I make a counter-move. But the process is just that, a process. When the negotiations are over, no one will remember the process; all they will care about is the outcome.

What do we want to happen at the end of the negotiation? Equally importantly, what do we think our opponents want to happen? If we know both of these things, then we can prepare a realistic negotiating position. And from that knowledge too, we can come to a conclusion about the possibilities for creating value. When we speak of the outcomes of negotiations, that is exactly what we mean. At the end of the day, what value has been created—or destroyed—for the parties taking part in the negotiations?

In terms of value creation, we can see there are essentially three possibilities:

  • Win-win, or positive sum negotiations, where the aim is to increase value for all parties engaged in negotiations by increasing the total sum of value available
  • Win-lose, or zero-sum negotiations, where the sum total of value available does not increase, and any gain by one party must result in losses for others
  • Lose-lose, or negative sum negotiations, where the sum total of value available will decrease, and parties strive to minimize their own losses.

Lose-lose negotiations are comparatively rare. A company might, for example, engage in lose-lose negotiations to get out of a contract that is leading to financial loss; a manager might engage in such negotiations to get out of a contract of employment where the environment has become toxic. In such cases, parties negotiate on the basis that a small loss now will offset larger losses down the road. In Britain, many people see the Brexit negotiations as examples of lose-lose negotiations; both Britain and Europe will lose out economically through this separation, and the aim of the negotiations is—or should be—to contain and minimize the damage.

Win-lose negotiations are the most commonly encountered. One or more parties enter the negotiations with the primary aim of securing the best possible position and taking away value from the other parties involved. During the 1990s, I was witness to a number of joint venture negotiations in China between European and American companies on the one hand, and Chinese firms on the other. The aim of the negotiations was supposed to be to establish a joint venture in China that would create value for both sides, but you would never know it from the atmosphere in the room. Each side was hell-bent on securing the best possible deal for itself, and never mind the other people at the table.

One of the issues that surfaced constantly during these negotiations was control. Neither side was willing to surrender a majority share in the joint venture to the other. Management consultants, business advisors, and lawyers stood on the sidelines, urging their clients to stand firm. Control is a zero-sum issue; there is only 100% of a business to be shared around, and if one side wants more, then the other side must be prepared to give something up. But if each side demanded a 51% share in the business, and neither is willing to settle for less, then what hope is there for the negotiation?

Eventually, of course, something had to give and one party or the other would relent and settle for a minority stake. Throughout the process, these negotiations were seen as conflicts, battles between two opposing parties. Small wonder that most of these negotiations and the ventures they eventually created came to a bad end. Few of these ventures ever delivered the value that was expected. And how could they, when they were created in an atmosphere poisoned by conflict and distrust?

But there was another way, and occasionally during these negotiations I saw companies that were willing to take a bigger view and look beyond the mere issue of control. These companies instead chose to look at value created. One British firm I worked with briefly pronounced itself quite happy to take minority stakes in Chinese joint ventures, often as low as 25%. Their reasoning was that this would make the Chinese partner happy and engender trust—a vitally important element when doing business in China, and indeed in most of the world—and also, that trying to ‘control’ a joint venture in China from the far side of the world in Britain was much too risky. Why not leave control to the people on the ground?

Most of all, though, companies like this took the view that what mattered about negotiations was growing value for everyone. The purpose of creating a joint venture is to yield value—profits, intellectual property, skills and knowledge, access to markets and resources—for all parties. A successful joint venture is one that does this. In these cases, negotiations were characterized by an attitude, not of ‘what can I get from you?’ but ‘how can we work together to make sure we both get what we want?’

Negotiating in a win-win style is not ‘always’ possible, but in the vast majority of cases it ‘is’ possible, and taking up this position is much more likely to yield a durable business relationship based on trust and harmony than taking up an adversarial stance. To be a win-win negotiator, though, you need to observe a few simple rules:

  • Be humble. Remember, it is not about you against them, but you ‘and’ them. Do not put your own interests first. Put your combined interests first.
  • Be very clear from the outset what you want from these negotiations. What is a good outcome for you?
  • At the same time, understand what your negotiating partners want. What is a good outcome for them? Put yourself in their shoes, try to see the world through their eyes? This requires empathy and tolerance, not always easy to do especially when negotiating across cultural boundaries. But it is vitally important.

know your own position

One of the arguments against the win-win approach is that in the desire to achieve the best outcome for everyone, we can end up giving away too much ourselves and enter into a bad deal. It is important to be clear what constitutes positive value, and where the red lines lie.

Experienced negotiators often speak of a concept called BATNA, or Best Alternative To a Negotiated Agreement. This is also sometimes known as the walk-away line. At what point is a deal no longer creating sufficient value to make it worth entering into? At what point would it be better to withdraw from the negotiations and try another alternative? For example, if we are negotiating a joint venture and the other party insists on conditions which would be harmful to our own business—surrendering IP rights, for example—then we have to consider whether it might be better to walk away and try to make another deal elsewhere. A deal made just for the sake of making a deal is seldom a good deal.

Knowing your BATNA is the foundation. The rest of the process consists in knowing our business needs and what it can secure from the negotiations, but also, what it is prepared to give away? What concessions can we make? Here is where the humility comes into play. For many of us, the instinctive reaction is to not give ‘anything’ away, on the grounds that this means a surrendering of power and that in turn places us at risk. It can be hard to get used to the notion that sharing power with another party can actually reduce risk and create a more stable platform for the business. When considering concessions, remember again to look at the outcome and the potential for value creation, not just the loss of control.

know the other negotiators

Of course, while we have our own BATNA, so does the other side. They too will—or should have—worked out what their own red lines are, and where they will find it better to walk away. That is why good negotiators spend a lot of time researching their negotiating partners before they ever sit down at the table. If we understand the other side’s business model, strategy, and goals, we stand a better chance of predicting where their BATNA is.

Pushing the other side beyond their BATNA is likely to be counterproductive. Instead we need to concentrate on what negotiators call the ZOPA, the Zone of Possible Agreement, which is the area lying between the two BATNAs. This is the area where both parties are prepared to continue talking and discussing and where, if both are prepared to make concessions, an agreement can be reached.

But knowing the negotiating position of the other party, or parties, is only the beginning. We also need to know ‘how’ they will negotiate and what style they prefer. In adversarial negotiations, this is often a matter of knowing what tactics the other side will use and what pressure points they will reach for. But even in collaborative, win-win negotiations there is still a need to understand how the other side thinks and works. Cultural differences can play a key role here.

American and some European negotiators like to lay their cards on the table, spell out what they want, and then launch into immediate discussion. Chinese negotiators like to take their time, get to know their negotiating partners and establish rapport and trust, very often over lengthy lunches where everything under the sun is discussed and business only makes an appearance in the conversation at the very end. Negotiators must learn to be patient, to sound their negotiating partners out, and find a pace and style of negotiation with which all parties are comfortable.

negotiate to win vs negotiate to build

The reason why so many negotiations fail is that some of the parties—very often, all of the parties—at the table focus only on themselves, and on gaining advantage over the opposition. Testosterone takes over logic; what matters is hammering the other side into the ground and then walking over top of them. But even if we succeed in doing this, we might have created an environment so hostile that we can never work with these people again. We won the battle, but in doing so we lost the war.

Instead of negotiating to win, we should negotiate to build. How can we create synergy with our partners? How can we harness our joint efforts so that we create more value that everyone can share? Focusing on that goal, answering those questions, and then building trust and rapport with our negotiating partners is the best away to succeed. This method is not foolproof, not by any means, and much can still go wrong in negotiations. But talking to our negotiating partners as friends is a lot more likely to succeed than engaging them in gladiatorial combat.