Claiming value in negotiation

The negotiator's task Part 1

Standard negotiation theory teaches us that the task of the negotiator is to create and claim value (Lax and Sebenius, 1992). Three constant so-called 'negotiator dilemmas' arise from the tension between these two dimensions of negotiation performance. First, claiming value for oneself implies a more assertive or competitive stance through, e.g., the strategic use of leverage, anchoring, very ambitious opening offers, etc. However, these tactics might inhibit effective value creation, which relies on a more cooperative stance to enlarge the pool of benefits and resources available to the parties.

The information disclosure dilemma is a second dilemma tied to the first one but deserving of separate attention. Value creation requires a certain amount of transparency between the parties about their respective needs, interests, motivations and concerns, yet being too trusting in this regard might make one concede too much value exactly because of the spirit of collaboration that has developed. Failing to provide such information, on the other hand, limits opportunities for maximising value in a negotiation.

A third dilemma concerns the impact that value claiming might have on building and maintaining a good working relationship between the parties. While little tension typically exists between collaborative moves to create value and maintaining a strong working relationship with one's counterpart, competitive moves to claim value could harm that relationship (Allred, 2000).  

Managing the dilemmas

There is no 'magic bullet' solution to managing these dilemmas. The key is for negotiators to be conscious of them and to find ways to deal with them. And while the dilemma is sometimes presented in terms of a simple choice between competing and collaborating, it is really about how much collaboration or competition might be needed in a particular situation, and when to pursue each approach because every negotiation provides opportunities to grow and divide the proverbial pie. Competition and cooperation are choices made to accomplish a goal. Various negotiation tactics, e.g., asking questions, making first offers, etc. can also be used competitively as well as cooperatively.

Options for managing these dilemmas.

Here are a few options for managing the dilemmas:   

a.  Use constructive behaviours: Negotiators sometimes believe that becoming more competitive or assertive implies that one would need to behave differently when one attempts to create value, e.g. by making extreme first offers, using threats, bluffing, playing games, behaving disrespectfully, etc. to claim the largest share of the pie. Yet taking a more assertive stance does not have to involve such behaviours, which are bound to damage the relationship with one's counterpart or one's own sometimes hard-won reputation. While one's strategy may be ratcheted up a notch or two when claiming value, effective negotiation behaviours such as asking questions, listening with understanding, seeking the other party's perspective, being ethical, etc., can (and should) remain constructive. Value claiming means taking a firm position on a negotiation issue, but the position should only be taken once one has a fuller understanding of the real issues at stake (the underlying needs, interests and concerns of all parties) and the best options available for maximising one's value. Only then will, e.g., the anchoring and adjustment bias play out in one's favour.

Wise negotiators will remain alert to the possibility that despite the parties taking firm positions on some issues, creative options might nevertheless be available to bridge divides that might exist instead of fighting over fixed positions. For example, if a distributive issue such as price stands in the way of finalising a deal, instead of simply splitting the difference, the parties could explore the option of requesting a valuation from a jointly appointed expert, which the parties commit to accepting in advance. Or they might agree to use a common external benchmark, value or standard to determine the issue.

b.  Leverage differences: Without some common ground or shared concerns and goals between the parties, engaging in negotiation might be a waste of time. Yet common ground alone does not necessarily create value. I always tell my students that common ground is akin to love in a romantic relationship: it is a foundation, but the real value lies in understanding the differences, i.e., each party's individual needs and interests, and finding ways to create value out of that. The same for negotiation: common ground provides a basis for working together and is used to develop a joint goal to strive towards. For example, if parties agree that they want to establish an ongoing business relationship, they can try to imagine an ideal outcome and ask themselves how they can get there and what obstacles might stand in the way of doing so.

As is the case with the metaphor of a romantic relationship, real value creation lies in discovering and leveraging differences between the parties (e.g., differences in concerns, risk appetite, time preferences, resources, etc.) and finding creative ways to integrate those, while also seeking creative ways to bridge competing concerns. For example, in the context of the sale of a house, the purchaser may be happy to allow the current owners to remain in occupation as tenants for a limited period after the transfer of ownership and for the rental due to being set off against the balance of the purchase price.

c.   Negotiate package deals by linking issues: Because no single option is likely to satisfy all the key concerns of all the parties, it is advisable for them to jointly search for ways to consolidate different options into one proposal by using what has become known as 'logrolling'. This involves trading (making concessions) across issues: you ask for concessions on issues that are of more value to you than to the counterpart, while offering concessions on issues that are of less value to you but more valuable to the other party. Negotiating issue-by-issue, on the other hand, is likely to lead to compromise solutions that limit value creation.

Logrolling effectively requires that a negotiator knows their priorities but also the priorities of the other party. A creditor, for example, might be less concerned about when a debt will be paid and more concerned about an assurance that it will be paid, while the debtor might be more concerned about the timing of payment. They can agree on a payment schedule, interest on late payments, relevant tax issues and the nature of the payment guarantee that will satisfy the creditor. When logrolling, it is advisable not to give away value without seeking value in return. The use of linking language is useful here, e.g.: 'If I can persuade my party to give yours X, do you think you could try to persuade yours to give us Y?' Or, 'If your party could do X for us, we would be prepared to do Y for yours'. What you get in exchange should ideally be at least of equal value to what you are conceding, if not better. You can design a simple concession strategy matrix for planning such concessions.  

d.  Make Multiple Equivalent Simultaneous Offers ('MESOs'): This is a technique I and several of our course participants have used to good effect. The first research to demonstrate the efficacy of this technique is that of Leonardelli and others (2019). Psychologically, most of us value autonomy, the freedom to make up our own minds, to make our own decisions. Nobody likes to be squeezed into a corner or be made to feel that they have no choice but to accept what they are offered ('take it or leave it'). Also, we have little influence over the reactions of someone whom we have forced into a corner - they may well submit to our demands but end up dissatisfied and bearing a grudge that stems from a sense of victimhood, or they might adopt hard bargaining tactics or simply walk away. We have more influence over someone if we offer them options (packages) that are broadly acceptable to us in terms of value and then allow them to choose the option that is more attractive for them and that they would like to discuss in greater depth.

A MESO involves presenting two or three distinct proposals to the counterpart, each of which should be of a roughly equivalent value and cost to you but with a different combination of values for the other party. The proposals should contain nearly the most generous terms you can offer based on a rational and defensible justification. The proposals should be tabled simultaneously and not consecutively, as this allows for a better comparison between the options than if they were made sequentially and also rigger the anchoring and adjustment effect that good first offers tend to have.

An important condition (ground rule) should be that 'cherry picking' across packages will not be entertained as each proposal consists of a discreet, carefully calculated set of alternatives. Each package can then be discussed separately. It is advisable to leave some - even if limited - room for concessions within each package because negotiators tend to want to feel that they have worked for or 'won' some concessions. If there is no room for negotiation, they might still be dissatisfied with the outcome, no matter how generous the terms.

In their study of the use of MESOs in negotiation, Leonardelli and others (2019) found that - 

… recipients are likely to prefer the experience of choice relative to no choice because it increases their flexibility in reaching an agreement. … People prefer having a choice because it gives them a greater sense of flexibility. Choice resulting from MESOs is also likely to produce flexibility by offering different ways to accommodate the recipients’ interests. Because recipients are likely to feel a choice accommodates their own interests, it will impact their perception of the offers, reducing perceptions of competitive bias. [W]e think it will lead to what we call agreement sincerity, which we define as the recipient’s perception that the offer is a genuine and legitimate attempt at reaching an agreement.

They also found that -

1. Simply offering a choice of options lent greater credibility to the information and value contained within those offers.
2. This changed the nature of the relationship between the negotiating parties in a positive manner.
3. Proposing a MESO at the outset of negotiation provides the offeror with both economic and relational benefits.
4. By proposing a MESO, a negotiator faces less extreme counteroffers, secures better final agreements, and walks away with a cooperative reputation. These benefits, however, originate from a common source: the recipient and their perception of things.

Using a MESO strategy also has other benefits, e.g. they increase the chances for value discovery; the offeror may enjoy more profitable outcomes and be evaluated more favourably by the other party; they can also be more aggressive in anchoring the negotiation favourably, gain better information about the other party's priorities, be more persistent, signal their priorities more effectively and overcome concession aversion on the part of the other party. Negotiator stress may be reduced as well. Our perception of our ability to exert control over our environment has a substantial effect on how we respond to stress factors that affect us. When we feel more autonomous in a situation, we're much more resistant to stress. Because MESOs provide the recipient with a sense or perception of autonomy, the feeling of certainty this generates tends to reduce stress.

A MESO also reduces the impact of the so-called 'prisoner's dilemma' in several ways. First, it appeals to the self-interest of the recipient and thus can limit their need to defect. Second, it enhances the recipient's feelings of efficacy or control (even if that control is in fact, illusory). Gaining a feeling of control over a decision-making process - even if that control is illusory - enhances a person's sense that they have been treated fairly. Third, by reducing the negotiator's dilemma for the other party, negotiators can reduce the dilemma for themselves as well because we tend to create more value for ourselves if we can others value as well. Or, as Leonardelli and others put it, we can often help ourselves best by helping others.

 A possible downside

However, there is a potential downside as well which needs to be kept in mind and managed. As stated earlier, any strategy you use to help create value (whether a MESO or any other tactic) can bring about collateral problems in value claiming. While a MESO can enhance the value-creating aspect of negotiation by providing information about your counterpart's preferences, it might well limit the amount of value that you can ultimately claim. This is because when you propose multiple packages that are similar in value from your perspective, you also provide information that might allow your counterpart to triangulate the value that you place on individual issues.

 In Part 2, I will discuss the use of so-called post-settlement settlements and the use of both coercive and 'soft' power as value claiming strategies.

Sources

Primary source: Barney Jordaan (2022). Negotiation and Dispute Resolution for Lawyers Edward Elgar Publishing, UK.

Other sources:

Allred, K.G. (2000). Distinguishing best and strategic practices. Negotiation Journal. October: 387-397.

Galinsky, A.D.; Schaerer, M. & Magee, J.C. (2017) The four horsemen of power at the bargaining table. Journal of Business & Industrial Marketing. Vol. 32(4): 606–611.

Lax, D. & Sebenius, J. (1992). The Manager as Negotiator: New York: The Free Press.

Leonardelli, G.J.; Gu, J.; McRuer, G.; Medvec, V.H. & Galinsky, A.D.

(2019). Multiple equivalent simultaneous offers (MESOs) reduce the negotiator dilemma: How a choice of first offers increases economic and relational outcomes. Organizational Behavior and Human Decision Processes. Vol. 152: 64–83.

Shell, G.R. (1999). Bargaining for Advantage: Negotiation Strategies for Reasonable People. New York: Penguin.