• How authoritative standards and norms bracket the bargaining zone
• The ways that relationships influence negotiations
• How the other party’s interests can unlock deals
• What leverage is and how to use it
These six key factors will reliably prepare you for success in negotiation. Moreover, each of these six elements rests on deep, psychological foundations that are often invisible to the untrained eye. These motivational influences, summarized on the following chart (see Figure 7.1), are what give negotiations their emotional rhythm.
FIGURE 7.1
The Psychological Foundations of Negotiations
The Four Stages of Negotiation
In Part II of the book, I will show you how the Six Foundations and their associated psychological bases can help you achieve your goals as you move step by step through the negotiation process. Part II’s organization will reveal a simple but important truth: Negotiation is a dance that moves through four stages or steps. This and the following chapters will cover these four steps, each in turn. Let’s look at a simple example from real life to see how the four-step sequence works in practice.
Imagine you are approaching a traffic intersection in your car. You notice that another car is nearing the intersection at the same time. What do you do?
Most experienced drivers start by slowing down to assess the situation. Next, they glance toward the other driver to make eye contact, hoping to establish communication with the other person. With eye contact established, one driver waves his or her hand toward the intersection in the universally recognized “after you” signal. Perhaps both drivers wave. After a little hesitation, one driver moves ahead and the other follows.
Note the four-step process: preparation (slowing down), information exchange (making eye contact), proposing and concession making (waving your hand), and commitment (driving through). This may seem like a unique case, but anthropologists and other social scientists have observed a similar four-stage process at work in situations as diverse as rural African land disputes (the Arusha example in Chapter 1), British labor negotiations, and American business mergers. The four stages form an unstated and often unseen pattern just below the surface of negotiations.
Of course, in complex bargaining encounters, people vary the sequence and pacing of these steps. They may reach an impasse in the concession-making stage, so they go back to exchanging information. And some aspects of a deal may move faster than others—commitments may come on issues “A” and “B” while information exchange and concession making continue on issue “C.”
People in different cultures also tend to go through the stages at different speeds. Task-oriented negotiators from Western industrialized countries often move hastily past information exchange, eager to “put something on the table” and get down to the business of opening and making concessions. They then spend an extended time exchanging, testing, and arguing over proposals.
Relationship-oriented negotiators from Asia, Africa, South America, and the Middle East prefer a more leisurely process of information exchange to establish a degree of mutual trust before they bargain. With a relationship established, the explicit concession-making stage often goes very quickly. A consultant I know once closed a multimillion-dollar deal in Saudi Arabia over coffee, after spending ten days attending what an outsider might consider a boring series of formal dinners and social events. Beneath the surface, however, a carefully planned minuet of relationship development was unfolding. When this stage was completed, the actual deal took only a few minutes to conclude.
Regardless of culture, skilled negotiators everywhere are a bit like good dancers. They are alert to their counterpart’s pace, striving to stay “in step” as the process moves along.
With that introduction to what lies ahead, let’s get started. This chapter will deal with the first step in the negotiation process—preparing your strategy.
Preparation Step 1: Assess the Situation
The goal of good preparation, even for a relatively simple negotiation, is to construct a specific plan of action for the situation you face. There are basically four different types of bargaining situations, depending on (1) the perceived importance of the ongoing relationship, if any, between the parties (how much might the parties need each other’s help and cooperation in the future to achieve their respective goals?) and (2) the perceived conflict over the stakes involved (to what degree do both sides want the same limited resource such as money, power, or space in this particular transaction?). Every negotiation—no matter how friendly or apparently confrontational—combines some measure of conflict over substantive issues with a degree of sensitivity to the way people should treat each other.
FIGURE 7.2
The Situational Matrix
Relationship concerns can be relatively high or low compared with the stakes and vice versa. The Situational Matrix (see Figure 7.2) combines these two factors relative to one another and describes the four situation types: Tacit Coordination, Transactions, Relationships, and Balanced Concerns.
Let’s examine each type of situation beginning with the simplest (Quadrant IV) and working up to the most complex (Quadrant I).
QUADRANT IV: TACIT COORDINATION
The most rudimentary of all negotiation situations is the one found in the lower-right-hand box: Quadrant IV, “Tacit Coordination.” Quadrant IV is characterized by both low conflict over stakes and a limited future relationship. My example of two drivers meeting at a traffic intersection given above is a Quadrant IV event. There is no need for a collision at the intersection (managed correctly, there is little need for conflict over the space), and the parties are unlikely to see each other again (the future relationship is not a factor). Tacit Coordination situations do not call for negotiation so much as tactful avoidance of conflict.
QUADRANT III: TRANSACTIONS
Now move left to Quadrant III, “Transactions.” These are the situations in which the stakes matter substantially more than any future relationship. House, car, and land sales between strangers, business acquisitions in which the incumbent management will be thrown out after the purchase, and many other market-mediated deals are typical Transactions.
It is tempting to think of Transactions as simple “haggling” or “winner-take-all” events in which the relationship between the parties is irrelevant. Transactions can be this simple, but often they are not. The bargaining situation itself usually creates the need for a form of working relationship between the negotiators if they are to close the deal. In the West, this relationship is often limited to mere civility unless the negotiators are professional agents who deal with each other on a repeated basis. In other cultures, a personal relationship (or at least the appearance of one) remains a necessity, even in a Transaction. How do sophisticated negotiators treat each other in a high-stakes Transaction? Let me illustrate with a story.
“Mr. Morgan, There Must Be Some Mistake”
My example of a Transaction situation comes from the “gilded age” of American business and involves three of its most memorable historical figures: Wall Street tycoon J. P. Morgan (whom we met in Chapter 4 handing two checks to Andrew Carnegie); Standard Oil’s founder, John D. Rockefeller, Sr., and Rockefeller’s young heir, John D. Rockefeller, Jr.
In 1901, J. P. Morgan was intensely interested in buying an area of land rich in iron deposits known as the Mesabi ore fields. Morgan was putting together his steel trust, which eventually became U.S. Steel Corporation, and these iron fields were a vital source of supply for the minerals needed to make steel.
The elder John D. Rockefeller owned this valuable property. Rockefeller was in retirement at this point of his career and had made it clear he had no particular interest in buying or selling major assets such as the Mesabi ore fields. He repeatedly refused to discuss the matter with Morgan, a man whom he personally disliked.
But Morgan wanted the Mesabi ore fields. He pestered Rockefeller into finally granting him an au
dience at Rockefeller’s New York City mansion. At this meeting, Morgan asked Rockefeller to name his price for the ore fields. Rockefeller demurred, instructing Morgan to take up the matter with one of his newest advisers, his twenty-seven-year-old son, John D. Rockefeller, Jr.
Sensing an opportunity for advantage, Morgan invited the younger Rockefeller—a stranger to him—to come to his Wall Street office for a discussion. A few weeks later, the younger Rockefeller presented himself at Morgan’s Wall Street address.
As a Morgan aide ushered Rockefeller Jr. into Morgan’s office, Rockefeller took in the scene. This was not just an ordinary office; it was the hub of the most important financial empire of its day. And Morgan took pains to make sure Rockefeller knew it.
Bent over paperwork and speaking intently with an adviser, Morgan at first gave no indication that he knew Rockefeller had come in. Rockefeller, for his part, stood patiently while Morgan continued to ignore him. At length, Morgan looked up and glared at the younger man.
“Well,” Morgan growled, “what’s your price?”
Rockefeller Jr. looked back intently at the great man.
“Mr. Morgan,” he replied quietly, “I think there must be some mistake. I did not come here to sell. I understood you wished to buy.”
The two men held each other’s glance. Morgan, impressed by the young Rockefeller’s firm demeanor, was the first to blink. He adopted a friendlier tone. As the two men discussed the possible sale in general terms, it became clear that neither was willing to state an opening price. Morgan had been privately advised by his friend Judge Elbert H. Gary that an “outside figure” of $75 million was the top price he should pay for the ore fields. But Morgan was too smart a negotiator to mention that or any other specific figure.
Sensing Morgan’s uneasiness, Rockefeller finally suggested that Morgan engage someone to serve as a go-between to help him establish a fair value for the ore fields. They agreed that Henry Clay Frick—someone trusted by both Morgan and the elder Rockefeller—could serve in this role.
Once appointed, Frick quickly discovered that Morgan did not intend to pay more than $75 million. Frick brought this number to the elder Rockefeller and discovered that Rockefeller did not like the idea of saying “yes” to anything Morgan suggested.
“I frankly object to a prospective purchaser arbitrarily fixing an outside figure,” Rockefeller said to Frick, “and I cannot deal on that basis. That seems too much like an ultimatum.”
Frick and Rockefeller discussed the ore fields and finally agreed that $80 million was a fair value Frick could endorse. Frick took this number back to Morgan and Judge Gary. Judge Gary urged Morgan to reject it as too far beyond the outside figure.
But Morgan knew what he was up against. Even at $80 million he could not walk away from the ore fields, and he knew Rockefeller did not need to sell. To cap it off, the neutral Frick had endorsed Rockefeller’s offer.
“Write out an acceptance,” he told Gary.
And the deal was done.
It turned out to be a good bargain for Morgan. The fields went on to yield hundreds of millions of dollars’ worth of ore.
So a Transaction is a situation in which the stakes are substantially more important than the relationship. The parties may need to cooperate to arrange meetings, explore the issues, and communicate effectively. But as the case between the Rockefellers and J. P. Morgan shows, no accommodations need to be made for the purpose of securing cooperation in future periods. Leverage counts.
QUADRANT II: RELATIONSHIPS
Our next situation is the exact opposite of Quadrant III. In Quadrant II—the upper-right-hand square—the relationship matters a great deal, and the particular item being negotiated is secondary. This is the Relationships box. Negotiations between couples in healthy marriages, employees working on well-functioning executive teams, and certain kinds of recruitment tasks fall into this category.
When relationships are the most important factor, we should strive to treat the other party well, observing careful rules and limits to our bargaining conduct. To illustrate this important idea, let’s look at another example from history. This one involves probably the greatest scientist of the twentieth century, Albert Einstein. It arose when Einstein was in the market for a job.
“Unless You Think I Can Live on Less”
In the early 1930s, a new research organization, the Institute for Advanced Study in Princeton, New Jersey, was looking for world-class scholars and researchers to create one of the world’s first “think tanks.” The faculty of this institution would not teach. Instead, they would do basic research, share meals and seminars together, and publish papers.
The institute’s new director, Abraham Flexner, approached Albert Einstein to join his new organization. Einstein, who was then living in Europe and looking for a new situation, said he was interested. As their discussions advanced, Flexner eventually asked Einstein what his salary requirements might be.
Einstein replied that $3,000 per year would suffice him, unless, as he put it, Flexner thought he would be able to “live on less.” The director’s response? He more than tripled Einstein’s request, offering him $10,000 per year. After further discussion about relocation and pension needs, Einstein ultimately received a final package that some sources say was worth close to $15,000—a superstar sum in the Depression-scarred 1930s.
Einstein’s story shows how negotiations look when they focus mainly on the relationship. Flexner’s problem was how to make a “crown jewel” professor feel honored and appreciated so he would make the institute his professional home. The amount of Einstein’s salary was distinctly secondary. And Flexner’s generous treatment of Einstein worked. Einstein went on to become an icon at the Institute for Advanced Study, attracting many other distinguished scholars and firmly establishing the institute’s world-class reputation.
QUADRANT I: BALANCED CONCERNS
The upper-left-hand quadrant is the most interesting and complex of the four situation types. This is the Balanced Concerns situation. Here, the future relationship and the immediate stakes are in balanced tension with each other. Quadrant I is where many employment disputes, family business matters, partnerships, mergers (in which incumbent management will remain to manage the firm), long-term supplier relationships, strategic alliances, and institutional relationships between different divisions of the same firm are located.
You want to do well in these situations but not at the expense of the future relationship. You want the future relationship to be sound, but not at too high a price. My example of a Balanced Concerns situation involves Benjamin Franklin, an American founding father.
Benjamin Franklin’s Meal Deal
Among his many talents, Franklin was an astute negotiator. Perhaps for this reason he played an important role both as a diplomat—representing America’s interests in France at a critical time in U.S. history—and as a skilled facilitator who helped the disputing members of the Constitutional Convention of 1787 bridge their differences and draft the Constitution of the United States.
Franklin displayed his talent for finding ingenious solutions to potentially contentious problems at an early age. One example can be found in a negotiation he had in 1722 about vegetables—a deal that ended up putting money into the pockets of everyone involved.
When Ben was a boy of twelve, he moved in with his older half-brother James in Boston and became apprenticed to James to learn the printing trade. James was not married, so he and his apprentices took their meals at a boardinghouse. James paid a monthly fee, and the boardinghouse cook prepared their meals.
Four years into this arrangement, Ben—now an active and inquiring teenager of sixteen—read a book on vegetarianism and was attracted to both its health benefits and its philosophy. He began refusing to eat meat at his meals.
This was fine for Ben, but the boardinghouse cook complained loudly to James about having to prepare special meals. And the other apprentices began to grumble and gossip about what Ben later c
alled his dietary “singularity.” James was irritated, and the situation rapidly threatened to escalate into a conflict both within the Franklin household and among the apprentices.
To resolve the situation, Ben proposed a deal. He said he would stop taking his meals with the rest of the apprentices and relieve James of the burden of paying his boarding fee—if James would give Ben 50 percent of what James was paying the cook for Ben’s meals. Ben would then use the money to buy his own vegetables and cook his own meals.
Ben Franklin reports in his Autobiography that this arrangement worked out especially well for, of all people, Ben himself:I presently found that I could save half of what [James] paid me. This was an additional fund for buying of books; but I had another advantage from it. My brother and the rest [of the apprentices] going from the printing-house to their meals, I remained there alone, and dispatching presently my light repast . . . had the rest of the time till their return for study.
In short, by insisting on his vegetarian principles, Franklin found a way for everyone to be better off. James saved 50 percent of Ben’s boarding fee, and Ben got to keep his vegetarian diet, pocket 25 percent of the fee for himself, and gain some peace and quiet for reading.
This story does not have the same stakes as the negotiation between Rockefeller and Morgan over the $80 million ore fields. Nor does it carry the same momentous relationship implications as did the Institute for Advanced Study’s successful recruitment of Albert Einstein. But the boarding fee was important to both James and Ben Franklin, and Ben’s insistence on his vegetarian diet threatened to provoke a nasty family feud, spoiling delicate relationships within James’s small printing shop.
Bargaining for Advantage Page 16