by Lewis Schiff
The term “win-win” has such a favorable popular image that skilled and cagey negotiators have learned how to employ positive-sounding win-win “happy talk” as a cudgel to beat concessions out of weaker parties. A professional negotiation coach named Jim Camp tells how big companies skillfully invoke friendly win-win bromides such as partnership, fairness, and problem solving in order to squeeze painful price reductions from their smaller suppliers.
In his book Start with No, Camp describes a General Motors effort called PICOS, or Price Improvement for the Cost Optimization of Suppliers. The advertised idea behind PICOS was to work with GM’s parts suppliers to help them hold down their costs of production. “That’s win-win, isn’t it?” Camp writes. “It sure was—for GM, because when the rhetoric was stripped away, ‘cost optimization’ was a politically correct euphemism for bludgeoning suppliers into submission.. . . If a supplier went belly-up or couldn’t deliver under the negotiated terms, there was always another supplier who believed that it could somehow live with those prices. PICOS, and its win-win rhetoric, sounded good in theory, but it was and is devastating in practice for many businesses.” Camp complains that it is common today for business schools to teach “the win-win mantra” in their negotiation courses, while also offering “right across the hall, a course in ‘supply system management’ that’s expressly designed to destroy the win-win model!”
This skepticism about win-win is not confined to professional hardball negotiators like Camp. Few have done more to advance the idea of ethical win-win deal making than Stephen Covey, whose Seven Habits of Highly Effective People is one of the bestselling business books of all time. And yet, even Covey says that the popular conception of win-win can easily make you a loser if you’re not careful.
Covey tells the story of a client who complained that his best efforts at win-win had failed him. The man ran a large chain of retail stores and his recent experience renegotiating some leasing agreements had left him bitterly disillusioned. “We went in with a Win/Win attitude,” he explained to Covey. “We were open, reasonable, conciliatory. But they saw that position as soft and weak, and they took us to the cleaners.”
Covey had to point out to the retailer that if he felt he’d been taken to the cleaners, then he hadn’t been involved in a win-win deal at all. Instead, he had let himself lose and he’d let the other guys win. “When he realized that what he had called Win/Win was really Lose/Win, he was shocked,” Covey writes. In Covey’s view, the retailer’s mistake was that he didn’t have the courage to say “No deal” when the negotiation started to go against him. “With No Deal as an option, you can honestly say, ‘I only go for Win/Win.. . . And if we can’t find it, then let’s agree that we won’t make a deal at all.” Covey believes that win-win is a perilous misnomer. It should really be understood as “win-win or no deal,” which Covey regards as a “higher expression” of win-win. Without saying as much, this is Covey’s way of paying tribute to the least-interest principle. Unless you are willing to walk away—and 80 percent of the Business Brilliant survey’s middle-class respondents are not—then there can be no win-win.
Many hundreds of books have been written about negotiation and its various strategies. Most include some variation on the same essential three-step negotiation preparation process—three steps that have very little to do with win-win. The first step involves identifying and writing down a specific goal or set of goals for the negotiation. The second is making a thorough study of the other party and its bargaining position. The third step is determining in advance the point at which you will walk away, also known as a BATNA, or best alternative to a negotiated agreement. Negotiation guru Michael C. Donaldson sums up the three steps as “wish, want, walk.” You set the goal for what you wish for, determine what you want to know to get it, and then draw the line at which you’ll walk. Negotiating is not so much a battle of wits as it is a contest of psychology. Our surveys tell us that when it comes to succeeding in each of these three crucial negotiating steps, self-made millionaires are much better prepared psychologically than the middle class.
I touched on goal setting earlier, in chapter 3, when we explored the evidence that those who ask for higher salaries tend to get paid much more than those who don’t ask. Numerous studies have shown the same thing about all negotiating and goal setting. Those who start with a high opening bid rarely get what they ask for, but they almost always get a lot more than those who start out by being more reasonable. The studies also show that there is little risk in asking, even for a set of outrageous goals, as long as you ask in a way that is courteous and respectful. Ask nicely enough and you can ask for the moon.
Identifying ambitious goals is just the start, though. The most critical part of goal setting seems to be the simple, fundamental act of writing down the goal or goals on paper. The Business Brilliant survey finds that having written financial goals correlates almost exactly with financial success. One in three middle-class survey respondents have established financial goals. For self-made millionaires, it’s about 5 out of 10. For self-made multimillionaires, it’s well over 8 out of 10.
Negotiation experts say that the pressures of bargaining can make even the smartest people forgetful, so it’s all the more important to have a written reminder of what you want, in your own handwriting, sitting in front of you. Dominick Misino, a former hostage negotiator for the New York Police Department, approached every hostage standoff while holding a sheet of paper with a line drawn down the middle. On the left side he’d write NEGOTIABLE and on the right side he’d write NON-NEGOTIABLE. Then he’d fill in both sides. “It’s not exactly high-tech,” according to Misino. “But I have to tell you, it’s saved many a negotiation. The simple rules are sometimes the very best rules, and this simple one works for everything from hostage negotiation to buying a car or a refrigerator.”
When you have your goals in writing, there are also psychological factors that make you more likely to defend those goals. Research shows that writing makes you feel more committed and less likely to change your mind later. Salespeople in high-pressure fields like real estate and used cars know this, which is one reason why they so often ask sales prospects to fill out so many forms by hand. They know that the more you write down on paper while closing on a time-share condo or a rusty Chevy, the less likely you are to back out of the deal during the three-day cooling-off period. You can use the same technique on yourself if you want to improve your chances of sticking to your goals. By writing them down, you make it psychologically more difficult for you to forget or betray them at some later time when you may be feeling stressed or pressured to compromise.
The second common step in negotiating—learning about the other party’s motives and desires—is also a habit that we find tracks very closely with other aspects of Business Brilliance. As we saw in chapter 5, self-made millionaires make a much greater effort than the middle class in finding out about their business associates’ lives, including how much they make, how much they are worth, and how much they want to make. Less than 2 out of 10 middle-class survey respondents said that “It is essential that I understand the motivations of my business associates,” a statement that 7 out of 10 self-made millionaires agreed with. Among self-made multimillionaires, the verdict was almost unanimous. They always want to know as much as they can about the people they are dealing with.
Negotiators who expend extra effort in discovery about their opposing parties tend to produce better outcomes. A well-known study in Britain revealed that highly skilled negotiators with proven levels of success dedicated four times as many hours as less-skilled negotiators in investigating opponents for areas of potential common ground. All told, these top-ranked negotiators spent 40 percent of their prep time on opposition research, compared with just 10 percent of prep time among the lower-skilled, less-successful negotiators.
The more you understand about what is important to the opposite party, the more likely it is that you can arrive at a true win-win result with mi
nimal sacrifice on your own part. One famous illustration of this idea was the story of how an Arizona-based trash hauler rescued its failed bid for a municipal waste contract with a small California coastal town. The trash hauler’s bid was $5 per ton higher than the winning bid, but instead of giving up, a consultant for the trash company discovered a unique deal sweetener. The consultant was a surfing enthusiast who knew that the California town had a serious problem with beach erosion. Since the trash hauler’s trucks regularly dumped all their waste 230 miles away in Arizona landfills, it wouldn’t cost that much extra if the trucks made return trips filled with tons of Arizona sand. The hauler got its price and the town got its beaches replenished.
Misino, who often faced dangerous half-crazed individuals in his job, says he always tried to see the situation from the hostage-taker’s viewpoint, but only so that he could anticipate the disturbed man’s vulnerabilities and drive a harder bargain. “Empathy,” says Misino, “is not sympathy.” The trick, he says, is to understand the other person’s position thoroughly without feeling sorry for him. A negotiation experiment undertaken at Northwestern University showed that negotiators primed to understand what their opponents were thinking produced much better results than those who were prompted to understand what their opponents might be feeling. The results suggest it really is better to grasp what’s in the heads of those on the other side of the table, but not what’s in their hearts. “You want to understand what the other side’s interests are,” a researcher told the Economist. “But you don’t want to sacrifice your own interests. A large amount of empathy can actually impair the ability of people to reach a creative deal.”
This last point underlines another advantage in knowing all about the other party, an advantage that doesn’t involve win-win at all. It involves searching for the other side’s weak points, and here, also, we find that self-made millionaires are more likely to be psychologically poised for success. About 9 out of 10 self-made millionaires reported in the Business Brilliant survey that “It’s important in negotiations to exploit the weaknesses in others.” Only 1 out of 4 members of the middle class said the same. If that seems a little cold, consider that most self-made millionaires see it as a matter of fair play, since they count on getting the same treatment from the other side of the table. About 7 in 10 said that “In negotiations, I expect people to try and take advantage of me.” Most of the middle class takes a more benign view. Only about 1 in 3 expect the other negotiating party to try and take advantage. And yet, as we saw in chapter 3, every first salary offer you’ve ever received was an attempt to take advantage of you, since every first salary offer is deliberately low in order to allow room for potential negotiation. This simple fact of workplace life seems to be unrecognized by two-thirds of the middle class, and it probably costs them billions of dollars in lost salaries every year.
We opened this chapter with a discussion about the importance of being ready to walk away from a deal, which is the last of the three critical points in negotiating. To recap, about 7 in 10 self-made millionaires told us that “I can easily walk away from a business deal if it’s not just right.” For the middle class, only 2 in 10 say they can easily walk away.
But what if you really do need the deal you’re negotiating? Even then, a willingness to be compliant and an eagerness to please during negotiations is no guarantee of closing the deal. Eagerness can look like desperate neediness, which will make the other party suspicious and reluctant to commit. According to Camp, “More bad deals are signed and more sales are lost because of neediness than because of any other single factor.” He advises his clients to absolutely never exhibit need and coaches them in learning how to never feel need either. “‘Need’ is death, ‘want’ is life,” he writes. “Believe me, this different attitude will be instantly perceived by the folks on the other side of the table. Confidence and trust go up across the board. Control and discipline go up for you.”
Camp tells a story about a new client who had hired him after blowing a big deal with a major multinational corporation. The client felt that his company had offered the big corporation superior technology, superior service, and excellent terms right from the beginning. Then during negotiations over the contract, he compromised in every way possible in order to land the deal, including throwing in a lot of expensive equipment at no charge. The negotiators from the big corporation broke off their talks anyway.
It wasn’t until much later that Camp’s client discovered that the CEO of the multinational had nixed the deal. His eagerness to close the deal by making costly concessions had backfired. Rather than cultivate goodwill, his concessions aroused suspicion that his company was either incompetent, untrustworthy, or unable to deliver. The CEO of the larger company felt certain that something must be wrong for this small company president to be so agreeable and accommodating.
The Reciprocity Trap
An apocryphal quote, often attributed to Bill Gates, says, “You don’t get what you deserve in business. You get what you negotiate.” The discipline of negotiation can be considered a synergistic system for producing financial gain. Its three fundamental principles—stick to high goals, understand the opposing party’s perspective, and set a point at which to walk—function in a way very similar to Toyota’s quality-assurance system discussed in chapter 1. You don’t have to know which part of the three-step negotiation process is working each time, but all the parts work together well enough and often enough that they can combine to create the unpredictable results, which are the hallmark of synergy. Recall Linda Babcock’s story in chapter 3 about the negotiating success of the housekeeping manager at the hotel in Bermuda. The woman had never dreamed of making a six-figure income until she decided to “wish, want, walk.”
So with literally hundreds of books and programs of every kind available on negotiating, why are so many people so bad at it? G. Richard Shell gives three simple reasons, and each one dovetails with wish, want, walk. He says that most people set goals that are too modest, they fail to prepare, and they lack desire. Above all, novice negotiators avoid Donaldson’s “wish, want, walk” because executing on these steps often makes people feel bad. A set of social customs and psychological traps are at the root of all negotiating success and failure.
Shell is a professor at the Wharton School of the University of Pennsylvania, where he gives seminars and workshops on negotiation. He has found that as students and executives learn to set higher, more ambitious goals, they improve their objective results, but in the process they also report feelings of dissatisfaction and discouragement. Aiming high can get you better results and leave you feeling worse at the time. This is why, in psychology, there is a phenomenon known as “preserving self-esteem though reduced expectations.” The old slacker credo of “Aim low, succeed often,” is funny because it contains a grain of truth about human nature. There is some evidence that people feel better when they ask for $50 and get $50 than if they ask for $100 and “only” get $60. Materially, you’re better off with $60, but missing your goals leaves a bad feeling not present when you achieve your low goal.
Shell says that most of the psychological foundations of negotiations can be described in terms of these kinds of common psychological binds, known as biases, that must be overcome in order to excel at negotiating. It is hard for most people to set high goals because they fear the bad feelings that come when they fall short. Most people also feel uncomfortable snooping around to find the other party’s weaknesses. And it feels particularly rude and ill-mannered for most people to draw a line and say “no deal.” Consider for a moment that all of the people who take Shell’s course at Wharton are students and executives studying at a world-renowned school of business. If they report having bad feelings accompanying their negotiation successes, how should the rest of us feel?
From a negotiating perspective, the most pernicious of these psychological biases might be what is called the “norm of reciprocity.” Most people reflexively try to return a kindness with a kin
dness. Say something nice to them, and they will feel an emotional pull to return the favor. This is why flattery and gift giving are such successful social behaviors. The offering of a compliment or a gift incurs a feeling of psychological indebtedness in the receiver. If you’ve ever gotten fundraising junk mail that has “free gift enclosed” printed on the outside of the envelope, the sponsor of that mailing is trying to exploit your instinct for the norm of reciprocity. Mailings that include token gifts, such as a cheap set of personalized mailing labels, have been proven to raise more donations than envelopes without them.
The norm of reciprocity is a nice thing. It is a central feature of our humanity. But in a business negotiation, your natural inclination toward reciprocity can be easily used against you. Every negotiation coach will point out the many ways in which skilled negotiators attempt to engender feelings of camaraderie, friendship, and partnership, all with the sole intent of gaining the upper hand over you. The opposite party in a negotiation will tell you that you’ve been very fair and reasonable and then in the same breath propose an unreasonably low settlement offer. In that moment they are hoping you will yield to your basic human instinct to repay their nice words by submitting to their unfair bid.
If we return once again to the subject of hiring and salary negotiation, many people say they accept the first salary figure they are offered because responding with a request for more money feels somehow ungrateful. That’s exactly how the hiring manager expects you to feel. To save money in his or her budget, the hiring manager will flatter you and welcome you to the team with a rock-bottom salary offer, knowing that human nature will make it difficult for 3 out of 4 people to do anything but shake hands and accept gladly.