Is Your Negotiation Strategy Wrong?
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Leadership Jul 6, 2015

Is Your Nego­ti­a­tion Strat­e­gy Wrong?

Six ways to get more of what you want.

Based on insights from

Margaret A. Neale

Thomas Lys

Advice on how to nego­ti­ate used to come from two camps. On one side were the econ­o­mists, who tra­di­tion­al­ly assume that peo­ple act ratio­nal­ly. On the oth­er side were the psy­chol­o­gists, whose research reminds us that humans are often bun­dles of needs, desires, emo­tions, and even contradictions.

Kel­logg pro­fes­sor Thomas Lys, whose basic train­ing is in eco­nom­ics, and Stan­ford pro­fes­sor Mar­garet Neale, whose basic train­ing is in psy­chol­o­gy, bridge that divide in their new book, Get­ting (More of) What You Want: How the Secrets of Eco­nom­ics and Psy­chol­o­gy Can Help You Nego­ti­ate Any­thing, in Busi­ness and in Life.

Behav­ioral eco­nom­ics has become main­stream, and we set out to build on that ground­work to enhance the per­for­mance of nego­tia­tors,” Lys says. Using decades of empir­i­cal research, the two authors have ana­lyzed a range of nego­ti­at­ing strate­gies to deter­mine which are most effec­tive — and when. Their research led to a num­ber of touch­stones for how to nego­ti­ate better.

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Don’t assume. We all have cer­tain expec­ta­tions in terms of what is pos­si­ble dur­ing a nego­ti­a­tion, some of which may be hold­ing us back. It’s a good idea to broad­en your per­spec­tive about what is nego­tiable,” Lys says, and to think about how your expec­ta­tions influ­ence your behavior.”

One com­mon road­block is what Lys calls con­fir­ma­tion bias” — the decep­tive sense that we already know most of what we need to know: what the issues are, what our coun­ter­part wants, and how the process is like­ly to proceed.

One mis­take peo­ple make is that when they ana­lyze a sit­u­a­tion, they only ana­lyze the sit­u­a­tion from their own per­spec­tive,” Lys says. They spend very lit­tle time ana­lyz­ing their counterpart’s per­spec­tive — not just from a ratio­nal per­spec­tive, but also from a psy­cho­log­i­cal per­spec­tive.” When diplo­mats get togeth­er to dis­cuss the terms of a cease-fire, for exam­ple, they always have to ask them­selves: Is this a deal that the oth­er side can even enter­tain? Do I real­ly know what they want?

Lys says that the aver­age person’s approach is too nar­row­ly focused on get­ting the nego­ti­a­tion over with. While it may be tempt­ing to accom­plish the task as quick­ly as pos­si­ble, nego­tia­tors who come out of the gates swing­ing” often make the nego­ti­a­tion more adver­sar­i­al than it needs to be and leave val­ue on the table. You shouldn’t think of a nego­ti­a­tion as a zero-sum game,” Lys says. You should think about it like solv­ing a prob­lem — there may be more than one solution.”

It’s a good idea to broad­en your per­spec­tive about what is negotiable.”

Cre­ate val­ue — but make sure to claim it, too. It is com­mon wis­dom that one should cre­ate val­ue in a nego­ti­a­tion, since it is the only way to achieve the much-vaunt­ed win-win.” But val­ue cre­ation has long been over­rat­ed, Lys says, and the Get­ting to Yes frame­work ignores a crit­i­cal point: It’s not what you cre­ate that mat­ters,” he says, it’s what you take home.” Iron­i­cal­ly, view­ing val­ue cre­ation as your pri­ma­ry focus might actu­al­ly hand­i­cap your abil­i­ty to claim value.

Not that Neale and Lys are advo­cat­ing a bull­head­ed approach. The point is sim­ply to rec­og­nize that nego­ti­a­tions are fun­da­men­tal­ly exchanges of infor­ma­tion, and reveal­ing infor­ma­tion indis­crim­i­nate­ly can hand­i­cap your abil­i­ty to claim val­ue. Shar­ing infor­ma­tion is nec­es­sary to cre­ate val­ue in nego­ti­a­tions — but shar­ing the wrong infor­ma­tion or over­shar­ing can cre­ate a strate­gic dis­ad­van­tage for claim­ing val­ue,” Lys says. So it is best to think care­ful­ly about the infor­ma­tion being exchanged. What have you revealed, and what you have learned?

Neale and Lys rank infor­ma­tion by how strate­gic it is. One’s reser­va­tion price” — the tip­ping point at which the nego­tia­tor is indif­fer­ent between walk­ing away and an agree­ment — is almost sacro­sanct. You should nev­er give away your reser­va­tion price,” Lys says. In fact, if you do, we find that your coun­ter­parts are like­ly to assume that you are lying.” Oth­er infor­ma­tion, includ­ing your pri­or­i­ties among the issues in ques­tion, should be revealed strate­gi­cal­ly. Of course you should cre­ate val­ue,” Lys says, but you should under­stand the impli­ca­tions of what it is you are sharing.”

Con­sid­er whether your pref­er­ences are real­ly at odds. Be clear about your goals before enter­ing a nego­ti­a­tion, and try to under­stand your counterpart’s goals. Neale and Lys advise tak­ing one’s pre­pared­ness a step fur­ther. Before any nego­ti­a­tion, they say, it is impor­tant to iden­ti­fy exact­ly what kinds of issues you are deal­ing with. They divide these issues into three cat­e­gories: dis­trib­u­tive (those where the par­ties have oppos­ing pref­er­ences), inte­gra­tive (those where par­ties have dif­fer­ent pref­er­ences, but one assigns greater val­ue than the oth­er), or con­gru­ent (those over which the par­ties have no dispute).

Most peo­ple think that vir­tu­al­ly all issues are dis­trib­u­tive,” Lys says, but that’s a mis­per­cep­tion.” Know­ing what kind of issues you are deal­ing with helps you devel­op a strat­e­gy. If I dis­cov­er a con­gru­ent issue,” Lys says, I can use that infor­ma­tion to claim addi­tion­al val­ue.” Take, for exam­ple, the case of a recent­ly hired man­age­ment con­sul­tant who is assigned to work in Kuala Lumpur, a loca­tion the firm assumes is less desir­able than Sin­ga­pore or Hong Kong. Unbe­knownst to the firm, though, Kuala Lumpur is the new hire’s top choice. This means she can make a con­ces­sion that costs her noth­ing at all, and she may be in a posi­tion to ask for some­thing in return. Or, she may use that infor­ma­tion strate­gi­cal­ly to gain good­will by offer­ing to go to Kuala Lumpur.

Know when to make the first offer. It is a ques­tion any nego­tia­tor faces: whether to make the first offer or wait to hear from the oth­er side. The biggest advan­tage to mak­ing a first offer is the anchor­ing effect,” where­by the first stat­ed ref­er­ence anchors the entire nego­ti­a­tion. When a car­pet sales­man quotes a price — even if it is high — that first offer” can have a pow­er­ful impact on the final deal. The buy­er will hag­gle, of course, but research shows that nego­ti­a­tion out­comes are strong­ly influ­enced by the first offer — by where the nego­ti­a­tions begin.

The dis­ad­van­tage to mak­ing the first offer is that you reveal infor­ma­tion that your oppo­nent can use to his or her advan­tage. For exam­ple, by mak­ing the first offer and ask­ing to be assigned to Kuala Lumpur, the recruit allows the firm to infer that Kuala Lumpur is a con­gru­ent issue, and the firm can now use that infor­ma­tion strategically.

So the deci­sion about whether to make the first offer involves weigh­ing the advan­tage of the anchor­ing effect against the dis­ad­van­tage of sur­ren­der­ing infor­ma­tion. Lys says that in gen­er­al — and con­trary to pop­u­lar wis­dom — it is best to make the first offer, espe­cial­ly if you are well pre­pared. Then again, if you are real­ly well pre­pared and you think that your coun­ter­part is not, you may want to let him or her make the first offer, because the anchor­ing effect will not have as pow­er­ful an impact on you.”

Don’t give up on a bet­ter deal. Typ­i­cal­ly, a nego­ti­a­tion pro­ceeds rough­ly along these lines: you set up a meet­ing, you exchange infor­ma­tion strate­gi­cal­ly, and you come to a final agree­ment. But what if there were a way to get even more val­ue from the exchange? In some cas­es, Lys rec­om­mends arrang­ing a post-set­tle­ment set­tle­ment. Once we have an agree­ment, you and I are bet­ter off than we were at the begin­ning. That makes the sit­u­a­tion less adver­sar­i­al, because we have both ben­e­fit­ed from the inter­ac­tion. At that point, you might ask: Is there anoth­er deal out there that’s bet­ter for both of us?”

Of course, in some sit­u­a­tions this approach may not be the best strat­e­gy. When Lys and Neale con­duct­ed sem­i­nars in the Mid­dle East, they found that a post-set­tle­ment set­tle­ment often led to a total break­down when one par­ty found out that their coun­ter­part ben­e­fit­ed more than they did. We found sit­u­a­tions where peo­ple can­celed the orig­i­nal deal when they learned how much the oth­er par­ty got,” Lys says. Peo­ple sim­ply refused to accept deals that may have tar­nished their image, even when the deal itself was fine.” So just as in the nego­ti­a­tion itself, infor­ma­tion shar­ing dur­ing the post-set­tle­ment set­tle­ment should be tempered.

Reap­praise your emo­tions. Emo­tions can affect our abil­i­ty to nego­ti­ate. Lys says this is because we often seek two things simul­ta­ne­ous­ly — emo­tion­al sat­is­fac­tion and val­ue — and that as a nego­ti­a­tion pro­gress­es, peo­ple tend to con­fuse the two. A good way to avoid this is to write down your goals and stick to them,” Lys says. You should only devi­ate from these goals if you learn some­thing you could not pos­si­bly have known before.”

Sur­pris­ing­ly few peo­ple actu­al­ly fol­low this rule: Neale and Lys found that up to 25 per­cent of peo­ple agree to an out­come that vio­lates one of the par­ties’ reser­va­tion price. They get so involved, and they’ve spent so much time nego­ti­at­ing, that they sim­ply can­not walk away.”

Lys says emo­tions that arise in a nego­ti­a­tion should not be sup­pressed — in some cas­es, they can be used to your advan­tage. If a home­buy­er tries to low­er the price unfair­ly after inspec­tion, the home­own­er may find that an angry response — cou­pled with an expla­na­tion — caus­es the buy­er to back down. But Lys does rec­om­mend a reap­praisal” strat­e­gy — that is, work­ing to under­stand why your coun­ter­parts are behav­ing the way they are. That under­stand­ing can mit­i­gate your emo­tion­al response and can change how you assess the sit­u­a­tion. Sup­press­ing and fab­ri­cat­ing emo­tion both require cog­ni­tive ener­gy that is then not avail­able for solv­ing the dispute.

As we write in the book, nego­ti­a­tion is not impro­vi­sa­tion­al the­ater,” Lys says. It requires plan­ning, strat­e­gy, and dis­ci­pline if you want to get it right.”

Featured Faculty

Thomas Lys

Professor Emeritus of Accounting Information & Management

About the Writer

Drew Calvert is a freelance writer based in Iowa City.

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