Welcome to the third article in a monthly series from John Viner-Smith.
How to negotiate effectively
If you’re a student of negotiation (and, as a procurement professional, how could you not be a student of negotiation?) then you should have a well-thumbed copy of Richard Fisher and Bill Ury’s “Getting to Yes” within easy reach on your bookshelf. Fisher and Ury literally wrote the book on what is termed “principled” or “interest-based” negotiation (often simplified to “win-win” negotiation). When asked “what’s the best way to negotiate?” most academics will point you to this approach.
There are five central guiding principles to this approach.
- Separate the people from the problem. In other words, seek to decide issues on their merits rather than the emotions, fears and egos of the negotiators
- Focus on interests, not positions. Fisher and Ury assume that almost all disputes can be resolved with principled negotiation because, when you cut through the positions adopted by negotiators to their actual interests, they are often more easily reconciled
- Invent options for mutual gain. By working creatively and collaboratively around the interests, negotiators can achieve outcomes that deliver gains to both sides.
- Insist on objective criteria for decisions. The classic examples quoted here are the purchase or sale of something like a house or a car, where there will be plentiful benchmark data available pointing to the “fair” price for the item being traded or an independent appraisal can be carried out.
- Know your BATNA (best alternative to a negotiated agreement). Your BATNA is the best outcome you can achieve if you don’t do this deal. If the proposal on the table is as good as or better than your BATNA, the deal is worth doing. If it isn’t, it’s not.
There are definite advantages inherent to this approach. If you genuinely have scope to negotiate this way you can engineer “all gain” deals which add value to both sides. In some cases, correct and thorough preparation on both sides and conscientious commitment to maintaining an atmosphere of curiosity, creativity and collaboration can result in deals which represent increased value to both sides and are the foundation of strategic partnership in business.
In a previous Procurious article I wrote that “win-win” is a myth, so you may be wondering how I reconcile that view with the idea of engineered, all-gain deals. “Win-win” is a term that is bandied about so much it has lost all meaning. All too frequently it’s used by one side or the other when they’re winning something, but haven’t given any real thought to what the outcome does for the other side. Engineered, All-Gain deals are only possible when both sides are genuinely curious enough to understand the other side’s underlying interests and candidly share their own. Sharing that information makes both sides vulnerable to the other, so an environment of trust and authentic commitment to the long term is vital. Business relationships like that are like marriages, and it is no more appropriate to talk about who won what in such a relationship than it is to call a winner in a marriage.
So is interest-based negotiation the best way to negotiate? My answer would be “sometimes”.
Let’s start by looking at this idea of calling interest based negotiation “principled”. Does that imply that all other kinds of negotiation are unprincipled? That’s a dangerous value judgement to make! Let’s use an example to explore this question. “Joe” is buying a house.
- Joe’s budget is £500,000
- The asking price for the house is £510,000
- The vendor (unbeknownst to Joe, of course) needs £455,000 from the sale
- The identical house next door sold last week for £489,000
Getting to yes-style, “principled” negotiation theory dictates that Joe should work with the vendor to find the deal that best suits both their interests and is fair to both, possibly taking market benchmarks into account. Under these conditions, you might consider that a settlement around £490k is fair and principled.
Instead of doing that deal, Joe uses an array of questioning skills, market knowledge and tactics to establish that the vendor could do the deal at £455k and wants money fast. Joe then uses that information to apply pressure on the vendor to close the deal for £460k, thirty thousand pounds less than the “objective”, “fair”, benchmark price. Recognising that he’s never going to see the vendor again and therefore there is no value in a warm or trusting relationship, Joe uses every available lever to push the vendor down to a price that is closer to their walk-away point than the middle of the range.
Joe’s negotiating methodology is the antithesis of Fisher and Ury’s approach. He deliberately makes the person the focus by using the pressures on the vendor to create leverage. He focuses that leverage entirely on meeting his own interests to the greatest degree at the expense of the vendors’ and makes no attempt to come up with options for mutual gain. He ignores the objective criteria, focusing instead on the subjective pressures in the vendor’s head. Finally he closes a deal, keeping the lion’s share of the value in the deal for himself. So does that make Joe unprincipled?
If you’re tempted to say “yes”, ask yourself why. Certainly Joe is unlikely to enjoy a warm relationship with the vendor after the deal but why should that matter? He’s never going to see the vendor again. So if you did answer “yes”, is it possible that you just don’t like Joe? Maybe he seems greedy. Maybe you have some sympathy for the vendor. Viewed in isolation, Joe’s approach might seem aggressive and selfish. But let’s say Joe has a family, ask yourself this; who has more right to Joe’s £30,000; the vendor or Joe’s kids? They can’t both have it. Viewed that way, you might conclude that by pushing the vendor to accept the lowest possible price and saving himself enough money to put one of his kids through University without debt, Joe’s actions are entirely principled.
Life (personal and business life) is complex. We all balance complicated and often conflicting principles and duties and it is tempting, in the stress of negotiation, to lose sight of who’s interests you are there to serve. As a matter of principle you owe yourself the best deal possible. You owe your stakeholders the best deal possible. You owe your counterparty only what the circumstances of the deal at hand dictate that they are due, at the lowest possible cost to yourself.
Saying “It’s always best to adopt an interest-based approach to negotiations…” is correct in academic terms, but in the real world you have to qualify that by adding “…when you can”. As a negotiator you have other options available to you and they will be valid some of the time. In selecting which approach you adopt, I offer you a single guiding principle that works for me;
“Adopt the approach that will deliver the greatest benefit to yourself and the interests you represent”.
If circumstances allow an interest-based approach, this one principle will guide you to that approach. If not, this principle will help to focus you on doing what is necessary.