Category: Negotiation

What is the difference between negotiation and bargaining?

Good negotiation actually either gets you to the point where you can bargain or better yet get you to the point where you don’t need to bargain at all. Bargaining is what people typically think of as haggling, point counterpoint or pushing back and forth in what many people look at as a zero sum game. Most people look at point counter point as being all that negotiation involves. What I want, what I’m unwilling to give up and what I’m willing to trade in order to get what I want.

Negotiation is a broader communication between two people that involves what influences the other side and what drives them. It’s asking open ended questions about what their motivations and goals are, the entire communication process around bargaining. Bargaining is a small subset of negotiation. Negotiation is a much broader idea. A negotiation is really any communication between two parties where you need or want the other party to do something.

You might communicate with them in a way that gets them to do something and because it’s not a request, they won’t have any idea that you influenced their decision. Negotiation is the process of influentially communicating in a way that prompts the other side to react. It’s communication that’s designed to provoke or create a response.

Negotiation is synonymous with navigation. We say the most dangerous negotiation is the one you don’t know you’re in. So if people don’t understand the difference between negotiating and bargaining someone could be negotiating with them in a way that influences their mindset.

A Black Swan is something rare that has great impact. The impact of the highly improbable. Often this “thing” is small or subtle, or at least initially appeared so.

How does this apply to business?

A Black Swan can be a small or large piece of information that has a high impact on the implementation of a negotiated agreement.

Our basic “hypothesis” in any negotiation is that each side is in possession of at least 3 Black Swans, 3 pieces of information that if the other side knew about, would completely change everything.

Most people expect that these pieces of information will be highly proprietary or closely guarded information, when in fact the information may be completely innocuous. Either side may be completely oblivious to its importance.

Black Swans are a large part of the value of approaching negotiation as a navigation process. It’s a process of discovering not only what the other side afraid to share until trust is established, but also what the other side knows, but may not know is important. There are always pieces of information that the other side is holding and does not understand its significance.

A Black Swan is also a talented negotiator. We started with hostage negotiators who had a great impact in the hostage negotiation world and then learned to navigate the business negotiation world with those same skills. We now are developing more Black Swans in the business world by teaching those subtle, improbable hostage negotiation skills that have a great impact in business negotiation.

Negotiation really comes full circle.  Modern day hostage negotiation came into being after what we know as business negotiation and many of the models we apply came from the business world, including the basic bargaining model.

Now, before we get into it, please remember that bargaining is only a subset of negotiation, maybe 1/3 of the process at most.

The bargaining rules are to make your first offer at 65% of your target price and then calculating 3 raises, each 1/2 the amount of the one prior (20%, 10%, 5%).  These come from the real Godfather of international kidnapping negotiation, Mike Ackerman.  Mike shared this with my colleagues in our early days at a conference in Key West.

I recently had the pleasure of discussing this with Mike & he told me that he had shared this idea with Howard Raiffa a number of years back and Howard had concurred.  For those of you who have studied business negotiation extensively you know Howard Raiffa as one of the greatest minds to have ever contributed to the world of negotiation.  He is the author of numerous books (bibles!) including “The Art & Science of Negotiation”.  In the past some of the things he did included offerring to simply make deals better.  Business clients could bring deals they had consumated to Howard and he would simply make them better.  If he couldn’t improve them for both sides, he got nothing.  If he made them better for both sides, and both sides agreed, he was paid a fee.  He made a very good living doing this.

Anyway, Mike ran his model past Howard, Howard showed Mike a bunch of complicated calculations that Mike said made his eyes glaze over, and Howard decreed that Mike’s model was sound.

Since then, we’ve added some wrinkles and taken it a few steps further, but the basic model works for all types of negotiation across the board.  Almost every negotiation I’ve ever seen has about 3 rounds to it.  The form and time frame of each round varies and it takes good assessment to see where they are.  That’s one of the reasons that the real definition of negotiation is very close to the definition of navigation, because negotiation is moving to a goal and compromise is a poor solution.  You still need to get to the goal.

Regardless of how you get there, you’ve got about 3 rounds to do it.  The other side is very likely to walk away because they’re simply sick of the process if you don’t get it done.

If you get drawn into  bargaining, don’t expect to make big leaps in your postion & not make the other side think that there is more room to give ground.  Big jumps only make the other side hungry.  It’s only human nature and you ignore human nature at your peril. When you give up a lot, the other side want more.

And when they get to a goal to easily, they feel cheated and will have buyers remorse, even if they settle.  Leaving them with a bad taste in their mouth only makes them harder to deal with the next time, or worse, there is an inplementation failure in the deal you’ve agreed to.  In kidnapping negotiations, we call that a double dip.  You can’t sue a kidnapper so in that world we have to start over.  Now we have an opponent that is as hungry as a drug addict.

In any world, implementation failure is not someplace you want to be.  It takes less time to do something right then it does to do it over.  If you want to speed a negotiation up, slow down.

I am lucky enough to be an Adjunct Professor at Georgetown University’s McDonough School of Business. I teach a negotiation course in the MBA Evening Program. Most of the students work full time and are working on their MBA’s in the evening. They are an impressive, hardworking group that I love being associated with.

I’m currently conducting a survey of my past students regarding how useful they found the textbooks I utilize. Those books are: “3-D Negotiations” by David Lax & Jim Sebenius, “Start With No” by Jim Camp, and “The Point of the Deal” by Danny Ertel & Mark Gordon. I’ve asked my past students whether they thought the books were useful in the class & whether or not they’ve kept the books as references.

Here is my favorite response so far: “All three books were essential for this class. I ended up keeping all three books and put them to work towards my future. I applied the knowledge that I obtained from reading these books and prepared myself to ask for a raise, interviewed for a new job and negotiated a job offer. Prepare, prepare, look at options and go to the balcony when you need a break!”

Great advice!

I recently advised a client on a salary negotiation and he ended up with an offer that was more than double what he was willing to accept.

He had originally called me feeling pretty stressed-out. The salary negotiation was a few days away. In his last conversation with his prospective “new boss”, he had been asked a question that he felt indicated they were going to offer him an amount much lower than what he was hoping for. He said to me “If they offer me that, in this economy, I’ve got to take it. I’ve got no choice. Heck, I’d even take less.”

The make things more difficult, my client is also a person that avoids conflict. He doesn’t like to negotiate on his own behalf. He prefers to work things out in advance and bring solutions to the table rather than fight it out at the table. He is representative of an extremely significant percentage of highly successful people, including CEO’s.

We talked through all of the other issues besides salary that were involved in the job, the responsibilities, the plans for the future and why the job even existed in the first place. We discussed what he brought to the table that was unique and what his commitment to his employer would for the future.

Then we talked about the possible responses from his prospective employer and how to prepare. My client, like many people was only preparing for one eventuality, which was one part of what I call the hope/fear axis. And he didn’t even realize that the thought process he was going through was in fact preparation.

What he was doing was envisioning what he was afraid they would say and how he was afraid he would respond as a result. This is not uncommon. If this is the extent of someone’s preparation they are only prepared for failure.

If you’ve only thought things through envisioning one type of response, as soon as the person you are negotiating with responds differently, you are caught off guard. The reality is, no one can predict another person’s responses accurately all the time.

I worked with him on what his best (hope side of the axis) answers would be. What were the best things he could say if they said what he was concerned they would say? What were the best things he could say if they said what he hoped they would say? In this way, a person tends to prepare themselves for the spectrum of responses.

The result: he told me that the preparation I did with him put him in a “zone”. He was relaxed and it didn’t feel like a negotiation, it felt like a conversation. His prospective employer was impressed with how well he had thought through the issues of the future and could see his commitment to the job. The employer put a salary range on the table that both sides were happy with.