Reading books on negotiation could easily lead you to conclude that multiple issues are not merely helpful for value creation but essential to it -- that a single-issue negotiation (e.g. price) is purely distributive, or win-lose. Whatever you gain must come at the expense of the other party(ies).
Many analyses take it as given that if only one issue is being negotiated there is no real scope for value creation (and thus negotiators are urged to find creative ways to add issues or to meet the other's needs).
Consider the following:
Sometimes negotiation is about only one issue...such negotiations are typically zero-sum in nature: one party can gain only at the expense of the other (assuming they reach agreement). Such negotiations are said to have a "fixed pie" of value or resources: the only thing negotiators can do is slice up the pie and try to get a big piece of it.
- Malhotra and Bazerman, Negotiation Genius
Or, from a more technical book:
By distributive we mean negotiations...concerned with the division of a single good. ... Distributive negotiation is about getting a bigger piece for oneself.
- Howard Raiffa, Negotiation Analysis
But is this really correct? If you're negotiating a single issue, like price, is the pie really fixed such that your only consideration is how to get the biggest piece for yourself? Often the answer is no.
If you're negotiating a simple asset sale (or purchase) you may not care whether your counterpart got a good deal. Your ideal (having maximized the size of the pie, of course) would be to capture nearly all of the value, leaving the other party with something only slightly better than his or her BATNA. If, however, you have any sort of ongoing relationship that may be far from ideal. In those cases, your value from a deal is partially contingent on the value received by the other parties.
In Negotiation Genius, Malhotra and Bazerman give the example of "Sharon and Mark," a couple that wanted to build their dream house. Having taken a negotiations course they held an auction for the project, with eight different contractors bidding. The winning contractor was 10% below the runner-up and Sharon and Mark suspected that he was probably desperate for business. They pushed for a further price cut and got a further 3% reduction. From a price perspective they had done a fantastic job.
You can probably guess what came next. Having been pushed hard, the contractor saw the relationship as adversarial and once the project was underway he had no interest in working with them as partners. Change orders received very high prices and when the project fell behind schedule the contractor simply blamed subcontractor problems, which the couple discovered their contract didn't cover.
When the project was complete, the problems didn't end. The couple found several major problems with the work and chasing the contractor to repair things was anything but easy. In one angry exchange he said, "I know I'm obligated to fix the cracks in the drywall, but I'm not obligated to do it at your convenience."
It could be that this contractor would always be difficult to work with -- that his strategy was to bid low and then hit hard on changes. (It's unsurprising that contractors often give way on price before they have the project but not once they do, since there is a massive shift in the parties' respective BATNAs once work has begun.) It could be that he regularly saves money by doing second-rate work and then delays fixing it. But it's also likely that his willingness to work together with Sharon and Mark was destroyed by them when they set out to capture every dollar of value in the deal.
Several years ago I ran the Product Marketing department for a start-up within Siemens Mobile. With a marketing budget of EUR60 million ($86 million), one of my key partnerships was the advertising agency that would be our overall creative lead. We visited leading agencies throughout Europe and invited two finalists to give a pitch presentation. One of them, Mother, was the clear winner -- so much so that halfway through their presentation our CEO leaned over and joked, "Don't tell them they've won yet."
The negotiation (held before Mother knew they'd won) must have been a nightmare for the Siemens purchasing rep who thought that the only thing that mattered was price. She wanted to squeeze them as hard as possible and if they said no we could always use the other agency. When I explained to her that I wanted the contract to give them a good margin she seemed to think I was either insane or bad at math. At one point she reminded me that their fee was coming out of my budget so every dollar we saved was another dollar I could spend elsewhere.
In the end, Mother got a price they were happy with...and I got an agency that consistently did whatever they could to exceed my expectations, both because we were a profitable client and because we'd established a relationship of partners rather than merely vendor-client. Even without any unforeseen events this would likely have been worth more than the Euros we might have squeezed out of them, but how many relationships don't encounter unforeseen events? (As it happened there was a significant unforeseen event almost immediately that could easily have cost a lot of time and money but which was instead solved with a couple of phone calls and at no financial cost.)
So here we have two real-world examples of price negotiations. In one case the buyers squeezed hard and claimed nearly all of the value, with terrible results. In the other the buyer negotiated with the goal of making the deal profitable to the seller, with good results. What's going on?
I think the theorists are falling into two common traps -- one they know a lot about and one that academics in general are often vulnerable to. The first trap is the fixed-pie bias -- a common human tendency to think that a given negotiation is over a limited amount of value and to underestimate the potential to increase (or, sadly, reduce) the amount being divided. Like many biases, knowing about it doesn't necessarily free one from it.
The second trap is the beauty of math. Theorists (myself included) tend to love math and in particular the power and beauty of a mathematical model that illuminates important real-world concepts. A single-issue negotiation is so elegantly represented by a ZOPA created by two BATNAs, as is value creation by trading off differently-valued issues. A model can be extremely useful but we have to remember that it's just a model, and its underlying assumptions may not be correct in the real world.
In the real world, what you buy is often not fixed. Two "identical" service contracts aren't identical if one client is top priority while the other one's requests are put off as long as the contract allows. Two "identical" purchases aren't identical if the seller makes a note to tell one buyer (but not the other) the next time he has something interesting to sell. Two "identical" employee hires aren't identical if one employee feels like a partner and the other is looking for the exit.
Most of us know this intuitively. We've been on both ends of agreements (business or personal) where the actual value delivered varied based on how the parties felt under the terms. The practical question, of course, is how to turn this intuitive knowledge into better negotiation work.
I'll try to provide an answer in my next post.