James K. Sebenius
There are two important negotiating truths: The most powerful ingredients of a joint gain are sometimes the result of differences between the parties, and finding those differences requires researching and understanding the true interests of the other party.
One of the keys to making joint gains is differences capable of creating value, those that one party can satisfy relatively cheaply, and that offer significant gains for the other.
That basic agreement principle applies to a number of other differences that can lead to mutual benefits.
1. Differences of interest or priority.
When Egypt and Israel negotiated the Israeli withdrawal from the Sinai Peninsula in 1978, their positions regarding where to draw the border were incompatible. Each attempt gave too much territory to the Egyptians or vice versa.
When negotiators examined beyond their positions, they discovered a difference in interest. Israelis were more concerned with security. Egyptians were more interested in sovereignty. The solution, which created value, was a demilitarized zone where only the Egyptian flag was flying.
Even when an issue seems purely economic, finding the differences helps restart stagnant deals.
2. Differences in forecasts
Differences in opinion on how future events will unfold - the price of an essential commodity, determining whether a technological invention will work - may be the basis of mutually beneficial contingency arrangements.
When an entrepreneur tries to sell his company to a larger corporation, there is often a gap between the price the buyer can pay and what the seller will accept. The entrepreneur may have the idea that his company has a bright future, but he lacks the capital necessary to achieve those goals. Meanwhile, the buyer may have a more skeptical opinion.
Both sides could bridge that value gap by structuring a contingency agreement in which the buyer pays a fixed amount up front, and then delivers other amounts depending on the firm's future performance and the continuity of management by the current manager.
3. Differences in attitudes regarding risk
Even when both parties share interests and forecasts, they may have differences in risk tolerance. For example, a steel company that traded its shares on the stock exchange and made a small profit margin discussed creating a company with a very profitable private firm that was in the scrap metal business.
Both sides tried to build a steel facility that would use scrap metal and be run by the steelmaker, and they also agreed on forecasts for future expenses and profits.
The proposed settlement offered an even division of investment costs, operating costs, and refunds. Although the proposal seemed fair, the steel company did not want to continue the operation. What was the problem? The steelmaker did not want to lose money. In contrast, the company that processed scrap metal was much more aggressive in relation to risk.
The two firms managed to reconcile their interests by structuring an agreement in which the scrap metal company agreed to share a higher cost of losses in exchange for a larger portion of the profits.
4. Differences in attitudes towards time
The differences in the attitudes of the parties in relation to time can also be profitably integrated. The simplest version of that difference involves a very patient sector that negotiates an association to make investments with another very impatient party. Suppose that both parties are trying to invest equally in a predictable, secure business that offers constant income.
The impatient party gives more importance to early repayments and does not worry much that there will be a constant flow of income later. Instead, the more patient side is willing to sacrifice early refunds in exchange for more profit in the long run. One solution would be to evaluate the withdrawals to reflect that difference: more money early and less money late for the impatient sector. And a mirror image of those refunds for patients.
Once you start looking for differences in your negotiations, you and your counterpart will surely discover possibilities to create values and improve the income of all parties.
Courage at the negotiating table
The frequency of poor deals and unnecessary impasses suggests that value creation is often ignored in the real world.
Leigh Thompson of the Kellog School of Management at Northwest University in the United States and Dennis Hrebec, a researcher at Seattle-based Human Engineering Research Associates, surveyed more than 5,000 people in 32 study laboratories.
The research found that participants failed to notice compatible issues nearly 50 percent of the time.
All this despite the fact that most studies offered monetary rewards for those who were successful.
Free rewards, left on the table by both parties, were virtually the norm, not the exception.
Concentrating deeply to find differences that create values in many dimensions is a powerful response to this challenge in negotiations.
