Bargaining for Advantage Page 2

  “OK,” I said at the end of the pitch. “I’ll take the eleven-dollar package.”

  Just then my wife, Robbie, got my attention. “Ask Emily about the guinea pig!” she said. I looked puzzled.

  My older son, Ben, joined in a little more loudly: “Ned’s guinea pig,” he explained. “See if she can take care of Ned’s guinea pig this weekend while we’re away.” Our eight-year-old had recently acquired a pet guinea pig that needed a sitter for the fast-approaching Thanksgiving weekend.

  “Ah!” I said. I got back onto the phone. “Are you going to be here this weekend?” I asked.

  “Yes,” came the reply.

  “Could you take care of Ned’s new guinea pig for us? We’ll be in New York and need to find her a home.”

  “No problem,” she replied brightly. Then she went on without missing a beat: “In that case, do you think you could buy the twenty-dollar package?”

  It was my move. “Sure,” I said with a laugh. “We’ll take the twenty-dollar package.”

  Negotiations—from the megamergers on Wall Street to budget meetings at work to everyday encounters at home—take unexpected turns and involve high stakes so often that many graduate professional schools in the United States now offer semester-long courses on the subject. In fact, they are some of the most sought-after courses in the entire curriculum. Why? Because students entering professional life—whether in business, law, medicine, education, politics, or public administration—are anxious about negotiation and want to improve their skills. They know they will face all sorts of negotiation challenges in their future roles as business and professional leaders, and they want to replace their anxiety with greater confidence.

  These students are acting wisely because anxiety hampers negotiation performance in predictable ways. It interferes with our ability to think on our feet and narrows our perspective about the problem we are solving. Most critically, anxiety leads many reasonable people to seek simplistic answers to the question “How should I negotiate?” They grasp at phrases like “win-win” and “win-lose,” hoping these formulas will explain what negotiation is about. Anxious negotiators search for single, one-size-fits-all strategies that will give them a feeling of control over the process.

  But these attempts to simplify negotiations just don’t work. First, all deals that close are win-win deals. The two sides would not agree to a proposal unless they thought agreement was better for them than no deal. Second, “win-lose” is often just a label we give a deal when we don’t like the way the other side treated us. Finally, all-purpose strategies are an illusion. Experienced negotiators know that there are too many situational and personal variables for a single strategy to work in all cases.

  To become more effective, you need to get beyond simple negotiation ideas such as these. You need to confront your anxieties, accept the fact that no two negotiators and situations are the same, and learn to adapt to these differences realistically and intelligently—while maintaining your ethics and self-respect. And to achieve these goals you need something more than simple phrases; you need a confident attitude based on tested and reliable knowledge about the negotiation process.

  Such knowledge is at hand—the last twenty-five years has seen a veritable explosion of negotiation research and writing—but it is relatively inaccessible. Negotiation scholars publish their findings on negotiation in academic journals and books that most real-world negotiators do not read. And it is hard for reasonable people to sift the good advice from the bad in the popular writing on bargaining. Just because a technique works well for a sports celebrity or Hollywood agent does not mean it will work for you.

  Look Inside Your Toolbox: It’s Your Move

  This is why I wrote Bargaining for Advantage. In my work at the Wharton School, I have canvassed both the academic and popular literatures on bargaining in search of ideas and approaches that dependably help people achieve superior results at the bargaining table. And I have organized this knowledge in a straightforward way so busy people can use it.

  My approach to negotiation starts with you. My own experience and a lot of research tell me that you already have what it takes to be a competent negotiator. You have a set of tools in your own personal negotiation “toolbox.” The same basic communication and cognitive skills that got you where you are today—advancing toward your personal and professional goals—are the ones needed to negotiate effectively. And everyone—regardless of their current skill level—can improve their performance by identifying their strengths and weaknesses, planning more carefully and sharpening their tools through practice.

  Many people are naturally accommodating and cooperative; others are basically competitive; some are equally effective using either approach. But there is only one truth about a successful bargaining style: To be good, you must learn to be yourself at the bargaining table. Tricks and stratagems that don’t feel comfortable won’t work. Besides, while you are worrying about your next tactic, the other party is giving away vital clues and information that you are missing. To negotiate well, you do not need to be tricky. But it helps to be alert and prudent. The best negotiators play it straight, ask a lot of questions, listen carefully, and concentrate on what they and the other party are trying to accomplish at the bargaining table.

  Negotiation is not rocket science, but it is not simple intuition either. No matter who you are, your intuition will fail you in important bargaining situations. To improve, you need to shed your assumptions about the process and open yourself to new ideas. Most of all, you must learn to recognize the hidden psychological strategies that play such important roles in the process.

  For example, as this book will show you, skilled negotiators see more than just opening offers, counteroffers, and closing moves when they look at what happens at the bargaining table. They see psychological and strategic currents that are running just below the surface. They notice where the parties stand in terms of the reciprocity norm. They look for opportunities to use what psychologists call the consistency principle to commit other parties to standards and then hold them to their prior statements or positions, and they know that the timing of a proposal is almost as important as its content. People need to feel they have “earned” concessions even when you are willing to give them away for free.

  Knowledge of these and other patterns embedded in the negotiation process help experienced negotiators structure their proposals and predict what the other party will do next. Once you learn to see these and similar features of the bargaining landscape, you too will be able to “read” bargaining situations more accurately and make your moves with more confidence.

  The Approach: Information-Based Bargaining

  I call my approach to negotiation Information-Based Bargaining. This approach focuses on three main aspects of negotiation: solid planning and preparation before you start, careful listening so you can find out what the other side really wants, and attending to the “signals” the other party sends through his or her conduct once bargaining gets under way. As the name suggests, Information-Based Bargaining involves getting as much reliable knowledge about the situation and other party as possible.

  My approach focuses on six factors or, as I call them, Foundations, of effective negotiation. These Six Foundations, which make up Part I of the book, are: your personal bargaining styles, your goals and expectations, authoritative standards and norms, relationships, the other party’s interests, and the diverse ingredients that go into that most important of all bargaining assets: leverage (this idea is explained in detail in Chapter 6). With information on these foundations in hand, you are ready to move down the predictable path that negotiations follow, from the creation of a bargaining plan to preliminary exchanges of information to explicit, back-and-forth bargaining, and finally to the closing and commitment stage. Part II of the book will walk you through this four-stage process step by step.

  Information-Based Bargaining is a “skeptical school” of negotiation. It treats each situation and person
you face as unique. It cautions against making overly confident assumptions about what others want or what might be motivating them. And it emphasizes “situational strategies” tailored to the facts of each case rather than a single, one-size-fits-all formula.

  To help you learn, the book illustrates the principles of Information-Based Bargaining with stories from the lives of some of the best negotiators who ever lived. You will study bargaining strategies used by successful people from many cultures and eras, including Sony Corporation’s legendary founder Akio Morita, American tycoons such as J. P. Morgan, John D. Rockefeller, Sr., and Andrew Carnegie; modern deal makers H. Wayne Huizenga, and Donald Trump; historical figures such as Mahatma Gandhi and Benjamin Franklin; and a variety of less well-known but equally talented businesspeople and community leaders. You will see how these experts succeeded and, just as important, learn how they sometimes failed.

  Such role models can teach us a lot, but even more important than their experiences are their attitudes about negotiation. The best negotiators treat bargaining seriously, but they also keep a professional perspective. They can always walk away. They maintain their balance no matter what the other side does, respond promptly to the other party’s maneuvers, and keep moving patiently and persistently toward their goals.

  The best negotiators also have explicit ethical guidelines for their own conduct at the table, regardless of what others may do. They know which moves are within the “rules of the game” and which ones lie outside ethical boundaries. To be truly effective, you will need to develop your own ideas about bargaining ethics; Chapter 11 provides a framework for you to begin thinking about this important topic.

  You Can Learn Only by Doing

  At the Wharton Executive Negotiation Workshop, I am fond of quoting a New York lawyer and deal maker named James C. Freund. Freund has written a number of books on business mergers as well as negotiations. He once stated that “in the last analysis, you cannot learn negotiation from a book. You must actually negotiate.”

  I agree. This book is a guide to better negotiation practice���not a substitute for it. So take the knowledge you find here and build your own foundations for an effective style. Consider every bargaining opportunity a “laboratory” to improve your skills. As you gain experience and confidence, you will discover that negotiations will cease being anxiety-filled encounters. Instead, they will become enjoyable—and profitable—challenges.

  PART I

  THE SIX FOUNDATIONS OF EFFECTIVE NEGOTIATION

  1

  The First Foundation: Your Bargaining Style

  You must bake with the flour you have.

  —DANISH FOLK SAYING

  Two men entered a conference room in an office tower high above Lexington Avenue in New York City. It was a cold, wintry day in January. They greeted each other cordially but with noticeable restraint. Taking seats on opposite sides of a large conference table, they settled down to begin discussions over the possible merger of their two giant companies.

  On one side of the table sat Peter Jovanovich, the proud chief executive of an esteemed American publishing house called Harcourt Brace Jovanovich (HBJ), which was now teetering on the edge of financial ruin. As the son of one of the firm’s founders, Jovanovich was deeply committed to preserving his family’s legacy. Across the table sat Dick Smith, the aggressive, entrepreneurial leader of General Cinema, a large, well-funded conglomerate probing for a corporate foothold in the publishing business. Flanking the two men and waiting expectantly were assorted legal and financial advisers.

  Both sides had carefully prepared their “scripts” for the opening of the negotiation. Smith was to be the suitor. After months of analysis, he had concluded that HBJ was a perfect fit for General Cinema. But he was not sure that Jovanovich shared his vision of the opportunities that lay ahead. Smith planned a detailed presentation on General Cinema’s financial strength and reputation. He would indicate that he sympathized with HBJ’s woes and was willing to offer hope. But he would be cautious, not wanting to raise expectations about his price.

  Jovanovich’s team, also very positive about the deal, had prepared Jovanovich for the role of “listener.” They had determined that General Cinema offered HBJ its best chance of corporate survival, but they, too, advised caution: Jovanovich’s attitude would be interested but noncommittal. He would not tip his hand or show his urgency.

  On cue, Smith began his opening speech, but within seconds Jovanovich interrupted—and the HBJ advisers stirred. This was not in the script. What was Peter up to?

  As Jovanovich spoke, he took a small box from his coat pocket and placed it on the table between him and Smith. Jovanovich opened the box to reveal an engraved HBJ watch. He pushed it over to Smith.

  “My father always gave a watch like this to his partners at the beginning of a new business relationship,” said Jovanovich. “This is meant to signify my sincere belief that General Cinema is the right buyer for HBJ.”

  It was a risky admission, and both men knew it. The anxiety in the room eased. The two men, joined by their teams, began to talk in earnest about how a deal might be done. They kept talking into the night.

  Talking to the Mountain

  Many years earlier and thousands of miles away, in a valley in Tanzania, East Africa, two elders representing separate lineages of the Arusha people were meeting in the late morning under a stand of large, shady trees. Beyond the elders in the distance loomed a 14,000-foot mountain: Mount Meru. Two groups of men flanked the elders, standing on opposite sides of the open area under the trees.

  Shade trees are the conference rooms of rural Africa. Like thousands of similar trees near similar villages, these trees near the Arusha village provided a focal point where people could discuss important business at leisure. Today, the trees sheltered a negotiation.

  The two elders addressed each other formally, describing a dispute between two neighboring farmers. Each elder described a list of grievances and demanded compensation for various wrongs. Each farmer, echoed by his group, loudly rejected the other’s demands and elaborated further on his own elder’s arguments.

  Each man lay claim to a vacant area of land between their farms that had once been occupied by a family whose lineage had died out. The farmers’ dispute had led to a series of incidents: One farmer’s son had damaged an irrigation gate on the other’s land; the owner of the irrigation gate had beaten the farmer’s son for trespassing. The father of the beaten boy had gone to the elders, demanding a formal meeting to settle the issues.

  The process they were engaged in reflected their African landscape like a mirror. They were, to use the Arusha word for the opening stage of negotiations, “talking to the mountain.” And it was going well. A full day of discussions lay ahead. Everyone had brought lunch.

  The Path of Negotiation

  Two groups. Two problems. Two cultures. Yet in both situations people were engaged in a single, familiar process called “negotiation”—an instantly recognizable human activity that helps people achieve goals and resolve problems. In both cases described above, as we shall see later, the process ended in a successful agreement. Exactly how and why negotiation achieves such results is the subject of this book.

  People negotiate in generally similar ways in virtually every culture in the world and have done so since time began. An Arusha elder sitting in the New York conference room where Jovanovich and Smith met might not have understood the words being said, but he would have recognized the purpose and value of Jovanovich’s gift to Smith. The Arusha negotiation involved a dispute rather than a deal. But, as we shall see, it concluded with an exchange of gifts. Gifts are part of a universal language of human relationships. And negotiations are fundamentally about the reciprocity norms underlying such relationships.

  Negotiations proceed through a form of prudently cooperative communication. And negotiations commonly follow a recognizable four-step path: preparation, information exchange, explicit bargaining, and commitment. In the world
of sophisticated big-city business deals, lawyers and investment advisers gather in their conference rooms and run through their carefully scripted openings. They discuss the issues, then usually ask for more and offer less than they expect to settle for in the end. In Tanzania, the Arusha people establish their agenda, list their demands, and “talk to the mountain,” making exaggerated offers and counteroffers. They, too, are staking out the boundaries of possible agreement and watching for signals from the other side about what may or may not be acceptable. From here, people get down to the business of making concessions and establishing commitments. Negotiation is, in short, a kind of universal dance with four stages or steps. And it works best when both parties are experienced dancers.

  We Are All Negotiators

  All of us negotiate many times a day. We negotiated as children for things we wanted: attention, special treats, and raises to our weekly allowance of spending money. We negotiate as adults for much more complex sets of desires that, when you examine them closely, often come down to the same things we negotiated for as children. Negotiation is a basic, special form of human communication, but we are not always aware that we are doing it. A single definition that can help us recognize negotiation when it happens is the following:

  A negotiation is an interactive communication process that may take place whenever we want something from someone else or another person wants something from us. We negotiate at kitchen tables as often as we do at bargaining tables. But our personal relationships and professional roles sometimes make complete cooperation and even sacrifice, rather than negotiation, the “right” answer to many requests. When a winter storm knocks out the electric power in our community and a neighbor calls asking for help, we do not stop to haggle with him—we respond. If our work calls on us to deliver uncompromising customer service and a customer needs something, we accommodate.