Bargaining for Advantage

by G Richard Shell

  Determining interests and issues builds on the preparation work you did using the Six Foundations and analyzing the Situational Matrix. In effect, the information exchange stage allows you to test the hypotheses you developed earlier about the other party’s needs and arguments and communicate your own basic interests—without giving up anything.

  To frame our discussion of sharing information on interests, issues, and perceptions, I would like to tell a story about a cross-cultural negotiation that utterly failed on this score. It is another story involving Akio Morita, the chairman of Sony, whom we met in Chapter 2 selling transistor radios in New York. The story shows some very skilled negotiators making some very costly mistakes.

  This time the year is 1976—twenty-one years after Morita had vowed to make Sony a household name in quality electronics. The story involves the litigation by which the American movie industry tried to stop the spread of an emerging technology—the videocassette recorder or VCR.

  AKIO MORITA GETS A VISIT

  In September 1976, Sidney Sheinberg, president of both Universal Pictures and its parent company, MCA, had a problem. Sony was launching a new electronic device called Betamax, the forerunner of what we now call the VCR. The Betamax permitted television viewers to copy and replay TV programs.

  As Sheinberg saw it, the Betamax was a threat to his basic business strategy. It would enable consumers to tape Universal’s movies and TV shows free of charge and replay them as often as they liked. If the audience already had an original show on tape, what station would pay for a rerun?

  “It’s [the Betamax] a copyright violation. It’s got to be,” said Sheinberg when he heard about the Sony machine. “I’d be crazy to let them [market it].”

  To complicate matters, MCA and Sony were engaged in a number of joint projects. In particular, MCA was hoping that Sony would become a key manufacturer of playback machines to run the “videodisk”—a new technology MCA had developed to play prerecorded films. The two firms had also cooperated on several deals.

  So, from Sony’s point of view, the two firms were in a collaborative relationship. But from Sheinberg’s point of view, the stakes had just risen sharply. It was a ticklish situation.

  As it happened, Sheinberg and MCA’s chairman, Lew Wasserman, had a dinner meeting with Morita scheduled in New York to discuss Sony’s participation in the videodisk project. Sheinberg hoped the informal setting of a dinner conversation following a cooperative, brainstorming session about the videodisk project would be an effective way to raise the Betamax issue without threatening the overall Sony-MCA relationship.

  In preparation for the meeting, Sheinberg had his law firm research and prepare a legal memorandum regarding the legality of the Betamax. Reading the memo, Sheinberg became even more convinced that he could and should stop the advance of this technology. His positioning theme was straightforward: Under U.S. law, the Betamax was an illegal machine. He intended to sue if Morita did not drop it.

  FRIENDS DON’T SUE

  On the appointed day, Sheinberg and Wasserman met with Morita and Sony’s top U.S. executive, Harvey Schein, at Sony’s U.S. corporate headquarters. The four men engaged in a lengthy, animated discussion of the videodisk project.

  They then moved to a catered dinner in Sony’s main boardroom. As the dinner came to a close, Sheinberg reached into his coat pocket and pulled out the legal memorandum. To his astonished audience, Sheinberg explained that Universal would be forced to sue unless Sony either dropped the product or made some other type of accommodation.

  Morita reacted with surprise and confusion. Hadn’t the parties just finished discussing a major cooperative deal? What was all this about lawsuits?

  As a business matter, Morita rejected MCA’s analysis regarding the conflict between the Betamax and the videodisk. “I totally disagree with that argument,” he said, “because in the future the videodisk and the video recorder will coexist, just as the record and tape recorder coexist in the audio field.”

  Morita then went on to express his confusion about what the dispute would mean for the MCA-Sony business partnership. It was hard, Morita said, to see how two business partners such as Universal and Sony could be talking about a joint project such as the videodisk one minute and about suing each other the next.

  He tried to make his point with an image that any Japanese would understand. “When we shake hands [with one hand],” he told Sheinberg, “we will not hit you with the other hand.” That was a basic principle of Japanese business.

  After Sheinberg and Wasserman had departed, Morita assured Harvey Schein that MCA could not be serious about a lawsuit. “We’ve done a number of things over the years, and we’re talking about the videodisk,” Morita said. “Friends don’t sue.” Case closed.

  Within a month and without telling Sony, Universal had formed a coalition with Walt Disney and other entertainment producers and begun drafting its lawsuit. Private investigators were gathering evidence to prove that the Betamax was being used to copy legally protected television shows. Finally, on November 11, 1976, Universal and Disney filed their lawsuit against Sony.

  Morita was getting ready to play golf in Japan when he heard the news. As a colleague later recalled it, “He let out a kind of death cry” when he was told about the lawsuit.

  But once he was sued, he accepted the challenge. And Sony eventually won the case. Eleven years and millions of dollars in legal fees later, the U.S. Supreme Court put an end to the dispute by upholding Sony’s right to make and sell the videocassette recorder.

  By the time the lawsuit was over, everyone involved in the case—from Disney and Universal to Sony—was making millions of dollars selling a new product, videotapes, through an entirely new type of convenience outlet, the video store. Contrary to Sheinberg’s fears, TV stations were still paying top dollar for reruns. And everyone was still going to theaters to watch movies—even to see films they could rent and watch on videotape. Morita, meanwhile, had written and given a talk at Harvard University entitled “The Role of Lawyers in Handicapping Entrepreneurial Efforts in the United States.”

  DON’T BE A “BLABBERMOUTH” NEGOTIATOR: ASK QUESTIONS

  Sheinberg made three classic mistakes in his Betamax negotiation: He thought he could gain advantage by surprising an unprepared opponent, he focused on delivering information instead of asking questions and listening, and he ignored a potential cross-cultural difference. For his part, Morita failed to get beyond his own Japanese frame of reference and into his opponent’s shoes. He did not listen to what the other side was telling him.

  First, what did Sheinberg gain by surprising Morita with the Betamax issue? People who approach negotiation as if it is a game or sport often think they can gain an advantage by tricking or surprising the other side. They think they can score a bargaining point by faking one way and moving in another. But this is usually a mistake in important negotiations. You actually do better when the other side is prepared to deal with the real issues.

  A professional labor mediator and I were once called in by management to help facilitate a union-management labor negotiation. The company viewed the union as stubborn and disrespectful. The union leaders, disorganized and new to their jobs, assumed the company was out to take advantage of the workers. Relations at the plant were terrible. What did we do? We spent the first three months of the engagement helping the union become better organized. Why? Because it had not had a real meeting in over a year and the leaders were both inexperienced and out of touch with the real issues. To make progress, management needed an organized and informed opponent at the bargaining table.

  Sheinberg’s next mistake came from his lack of curiosity about Morita’s interests, issues, and perceptions. By framing the problem as a matter of legal rights on which there could be no debate, he shut down communication regarding business interests.

  Finally, Sheinberg failed to consider Morita’s Japanese approach to business relationships. As I made clear in Chapter 1, cultural differences
must be considered for the signaling part of information exchange to work. Americans file literally millions of court cases each year. In America, litigation is not a last resort; it is a normal part of being in business. In Japan, very few disputes go to court. To the Japanese, a lawsuit is a burial service for a productive business relationship, as it was in this case.

  Probe First, Disclose Later

  The research on negotiation effectiveness repeatedly underscores a simple fact about skilled negotiators: They focus more than average negotiators do on receiving, as opposed to delivering, information. As I suggested in Chapter 1 when I identified listening as a key effectiveness factor for the skilled negotiator, the best practice in this stage of negotiation is to probe first, disclose later. The average “blabbermouth” negotiator does it the other way around: He carelessly discloses information first and asks questions later.

  Look at Table 8.1, reporting the results of a study by Neil Rackham and John Carlisle that monitored the behavior of English labor and contract negotiators engaged in actual transactions. What do skilled negotiators do that average negotiators do not?

  First, they ask twice the number of questions that average negotiators ask. These questions have a purpose: They are designed to elicit real information (“When can you make delivery?” or “How did you calculate your offer?”). Next, they test their understanding of what the other side has said (“When you say ‘ten days,’ do you mean ten calendar days or ten business days?”). Third, they summarize where they think the parties are in the process (“As I understand it, we have agreed to pay you net ninety days of delivery and you have promised to deliver within seven business days of the date you receive our specifications—is that correct?”). Finally, they listen to all of the other party’s answers.

  TABLE 8.1

  Information-Gathering Behavior as a Percentage of All Behavior Observed

  The Rackham and Carlisle study shows that skilled negotiators spend 38.5 percent of their time acquiring and clarifying information—as compared with just under 18 percent for these activities by average negotiators. In addition, by testing their understanding, effective negotiators nail down what they have heard and what everyone has agreed to do. This means there are fewer problems in the commitment and implementation stages, when miscommunication is both common and costly.

  These findings have been confirmed by other researchers studying a variety of professions. One study of American lawyers found that the most effective negotiators were “skillful at reading cues,” “perceptive,” and able to “probe an opponent’s position.” Another study, this time of American bankers, found that “listening skill” ranked as one of the top three traits of the best negotiators in that industry. The other top-rated skills? Willingness to prepare (rated number one), knowledge of subject matter being negotiated and ability to think clearly under pressure (tied for number two), and ability to express one’s thoughts (tied with “listening skill” for number three). Yet a third study of working professionals in several different fields found “listening skill” to be the number two rated communication skill after “verbal clarity.”

  Asking questions and getting clarification regarding others’ answers have obvious benefits in terms of information flow. But these techniques also give the people using them additional time to plot their next moves. Most people are so grateful to have an attentive audience that they take little notice of your tactful probing until they suddenly feel the urge to get a few answers themselves. By then the effective negotiator has the information he or she needs to frame just the right responses.

  THE STRATEGIC NATURE OF INFORMATION EXCHANGE

  It all sounds so easy. All you need to do is ask negotiators on the other side what is important to them and they tell you, right? Not quite. In negotiation, information—especially information about what people want—is power. If the other negotiator is awake (and you must assume he will be), he will want you to disclose your interests and needs before disclosing his own. Why? Because, as U.S. sports agent Bob Woolf said in Chapter 6, “Every reason that the other side wants or needs an agreement is my leverage—provided that I know those reasons.” Negotiators on the other side will want to find out what you want so they can see if your needs provide them with leverage.

  The leverage effect of information disclosure often gives the opening stage in negotiations a somewhat comic “you first—no, you first” rhythm. I once ran a negotiation seminar for high-level managers at a South Korean firm. I devised a fairly complex, international negotiation scenario in which there were many issues. Some of the issues were more important to one side than the other, and some issues were equally important to both. To give the workshop a realistic flavor, we invited a group of American executives to negotiate against the Korean managers.

  One American in attendance was a backslapping, talkative entrepreneur who was obviously used to controlling most situations in which he found himself. He and his team of Americans sat down with their Korean counterparts to begin the negotiation. Before anyone could say anything, this man made a speech.

  “Look,” he said, “I am sure there are some things here that are more important to you and some things that are more important to us. Why don’t you guys just tell us what your ‘hot-button’ issues are? Then we’ll figure out what the best deal is for both of us.”

  I am sure this speech must work for him in many settings, because he gave it with great confidence. After he finished, the Korean team put their heads together and spoke rapidly in their own language for a few moments. At length, the Korean team leader—who spoke perfect English—gave the team’s response.

  “Thank you very much for your idea,” he said. “We too are looking for a good deal for both sides. However, you must forgive us because we are not sure what you mean by ‘hot-button issues.’ All of these issues are important to us. Perhaps you could give us your ‘hot-button’ issues first. Then we will see what you mean by this, and perhaps we can give you ours. Would that be acceptable?”

  The entrepreneur sputtered and fumed. Finally, one of his teammates suggested that the two sides begin a general discussion of the issues, one at a time, without bothering about “hot buttons.” Eventually, both sides arrived at a working understanding of each other’s priorities, but they did so by listening to the signals hidden in the give-and-take of discussions and through careful questioning about why one issue mattered or another option was not possible. The entrepreneur’s opening gambit and the Korean’s clever response were forgotten.

  Research confirms that information exchange on interests and issues is a tricky business. As I mentioned in Chapter 5, one recent survey analyzed thirty-two different negotiation research studies involving more than five thousand participants. The survey found that negotiators failed to correctly identify shared priorities about 50 percent of the time.

  Most of this confusion arose because the parties were bluffing each other during the negotiation process, trying to gain tactical advantage by pretending some issues were more important than they really were. Bluffing distorts the information flow in negotiation in ways that can be costly. In one study, for example, 20 percent of the subjects, including some experienced professionals, ended up agreeing to options that neither side wanted due to bluffs that backfired.

  The best way to manage the flow of information about interests is to realize that it is a strategic process and take it slowly. It almost never hurts to talk less.

  Open your ears before you open your mouth. Probe first, disclose later.

  Purpose 3: Signaling Expectations and Leverage

  Sidney Sheinberg did a poor job of probing Akio Morita’s interests and issues regarding the Betamax controversy, but perhaps that is an unfair criticism. After all, Sheinberg had made up his mind that MCA and Sony had strictly conflicting interests. He was not there to ask questions. He was there to deliver a message: Drop the Betamax or pay us royalties under copyright law. Otherwise, we sue.

  If you must deliver an ult
imatum (or any other “deal breaker”) to the other party in a negotiation, how should you do so? Most experts agree that the best way to deliver bad news is to do it early, clearly, and credibly. That way you condition the other negotiator’s expectations and avoid disappointing him later, after he has made plans based on an assumption that you might be flexible. A realistic sense of what is possible saves everyone a lot of time and confusion.

  That brings us to the third basic function of the information exchange process: signaling regarding your expectations and leverage. Recall from my discussion in Chapter 6 that your leverage in negotiation is a matter of perception as much as reality. You have only as much or as little leverage as the other side gives you credit for. If you have attractive alternatives or good sources of normative leverage or can easily live without the other party’s cooperation, the information exchange stage is the time to signal this to the other party. If you have none of the above, you had better have a plan for dealing with that fact.

  FIGURE 8.1

  Signaling Leverage

  I will break down the discussion of signaling into two basic situations: when you think you are relatively weak and when you think you are relatively strong. Figure 8.1 summarizes the signals that you might send in these two situations, depending on how flexible you are willing to be.

  SITUATION 1 : YOU HAVE A WEAK HAND

  If your leverage is weak, I recommend you emphasize the uncertainty that always attends the future. If you are selling something and have no other offers, you can discuss what you will be pursuing by way of additional marketing efforts if no deal happens, or talk about your comfort with the status quo. In short, even if you are in a weak position and have few options, you can still appeal to the other party’s desire to minimize future risk by closing a deal now—and the other side can also save himself the expense of continuing his search for a partner. These are not strong signals, but they can keep the process moving without getting you deeply involved in lies or misrepresentations about your own situation.