We negotiate all the time. It’s an indispensable part of our lives, whatever role we take up. As a spouse, we negotiate with our partners. As parents, we negotiate with our kids. As a child, we negotiate with our parents. As a buyer, we negotiate with vendors. The list is endless. Negotiation is one of the most important skills that affect the outcome of almost every interaction with another human being.

In the professional world, this skill is even more critical as a leader for the successful running of the organization or as a manager to manage the team and other stakeholders. Sometimes, it does not simply work when you just exercise power to influence the outcome. Negotiation is not just limited inside an organization but at times, leaders must negotiate with external stakeholders like other organizations outside of their own organization. They negotiate with vendors to purchase certain goods, with potential partners, including merger and acquisition candidates and may also have to negotiate with government agencies, nonprofit organizations, and advocacy groups.

How parties with different goals, objectives, and interests sometimes engage in competition, but also cooperate with one another is better understood with game theory. Game theory can help us think about how parties act in one-time interactions as well as how patterns of behaviour may evolve if people are engaged in a series of repeated actions over time.

The Dilemma

There are two fundamental ways in which negotiation can play out:

A sequential negotiation is where a person can decide on the negotiation strategy based on the outcome of the first who poses the negotiation and in vice-versa where a backward induction can be applied. Backward induction is a strategy in a sequential game, the player that has to move first should think about how the opponent is going to respond and then reason backwards, contemplating which strategy is best for him or her (look forward, reason back).

In a simultaneous negotiation, parties involved need to decide on the proposal of a negotiation simultaneously without being able to predict the other party’s decision but each of the decision collectively will either be mutually beneficial or harmful. Prisoner’s dilemma is a classical example of this. In Prisoner’s dilemma, there are two alleged criminals, partners in a crime, who are offered the same deal by the police. If one confesses and testifies against the other, the confessor will get no prison time, and the partner will get ten years in jail. If both stay silent, there is enough evidence to put both away for one year on a more minor offence. If both confess and testify against each other, each alleged criminal gets five years in prison. In this case, both criminals have to make a simultaneous decision or at least decide without knowing the other partners’ decision.

Robert Axelrod has studied the prisoner’s dilemma and has looked at what strategies elicit the best results if people play that game over and over again instead of only one time. The simplest example of these strategies is the tit-for-tat strategy.

  • Be nice first, rather than defecting first and ratting out your partner.
  • Punish a defection by the other party by defecting, at least in the next round.
  • Be forgiving by offering the other party a chance to resume cooperation.
  • Be clear, as clear as you can be, in the signals you send.

The prisoner’s dilemma game is used as a team-building activity or in certain corporate training to bring out the principle of co-operative behaviours, the importance of winning together as a team and how to find a win-win solution for all.

A Value-Driven Negotiation

When negotiating, leaders must clearly understand others’ goals and objectives—not just their stances on issues. Part of a leader’s job is to get everyone to look at the situation as more than a zero-sum game. To do so, leaders should ask questions to uncover opportunities for mutual gain and recognize that people’s perceptions of fairness matter whenever there is a conflict.

Leaders must view negotiation as a process that unfolds over time. During this process, people need an opportunity to share their ideas, goals, and objectives. Parties must work to understand each other’s position as well as why they’ve taken that position. The process ends with the parties finding some common ground.

In a corporate setting, people often seek to advance their own interests, viewing negotiation as a zero-sum game. Relationships are often torn, and suboptimal solutions arise for the organization. Parties don’t realize that they can work together to achieve much better gains.

Value-creating behaviour is about working together with another party to create more value that could then be split among multiple parties. Value-claiming behaviour is about individual gain. The prisoner’s dilemma highlights this tension. The leader’s job is to help people discover the existence of mutually beneficial opportunities and ensure that value-claiming behaviour doesn’t overshadow all potential for collaboration within an organization.

David Lax and James Sebenius argue that there are two broad ways to arrive at beneficial agreements among parties in an organization: You can make the other party’s alternatives seem worse, or you can highlight and enhance the potential for joint action and joint gains.

Negotiations can also be used as an effective tool for dispute resolution. Roger Fisher and William Ury outline a model of dispute resolution. The general idea is to get people to disclose interests because then opportunities for collective gain (value creation) become more apparent. Opportunities to creatively resolve disputes also become more apparent.

  • Focus on interests, not positions: Realize that each side has multiple interests—the most powerful of which are basic human needs. Remember to put the problem before the answer and to look forward, not back.
  • Separate the people from the problem: Step into each other’s shoes, but don’t jump to conclusions about the other’s intentions. Give the other a stake in the outcome by making sure they participate in the process.
  • Invent options for mutual gain: Separate inventing from deciding, and brainstorm on both sides. Invent agreements with different strengths and change the scope of the agreement.
  • Insist on using objective criteria whenever possible: Use fair standards and a fair procedure. Reason and be open to reason, and never yield to pressure, the only principle.

The sources of collaboration for joint gains are:

  • Shared interests – we discover that we actually have common goals.
  • Scale and scope economies – we discover that we can do better together than apart.
  • Differences – which provide the opportunity for “trading” between parties.

Negotiation is an art to be mastered for winning the other party as well as getting what you want. It’s understanding and creating a fine balance of value for both parties. Before a communication, a rule of thumb to remember is to think negotiation from the other parties shoes and then communicate empathically.

Let me conclude with the quote by author Chris Voss –

Empathy is not about being nice or agreeing with the other side. It’s about understanding them. Empathy helps us learn the position the enemy is in, why their actions make sense (to them) and what might move them. As negotiators we use empathy because it works.

Chris Voss