Every year, billions of dollars are left untouched in business transactions due to negotiators competing for success in the zero-sum game -- a transactional model in which there can be only one winner and one loser. Conversely, many negotiators miss out on potential value by fearing the bargaining process. They over-cooperate and seek an easy 50/50 split of the pie or they fail to push the other party's limits and roll over at the first sign of confrontation.
Both of these styles lead to agreements in which the overall deal potential is never fully realized. In fact, recent studies by MarketWatch Centre of Negotiation of over 25,000 negotiations found that over one-third of the negotiations failed to reach an agreement and, of the deals that did "succeed," an average of 42% of the potential value was collectively forfeited due to failure to bargain for hidden variables.
Today's high-risk negotiation climate calls for a new style of negotiation -- one in which cooperation builds powerful partnerships that allow hidden value to be found. Once uncovered, the extra value is skillfully debated and divided. This negotiation style, which I call Power Bargaining, requires going far beyond the examination of variables of typical contractual agreements; it involves creating trust and sharing information to build a pie far bigger than either party initially thought was possible.
The Essence of Power Bargaining
While there are many steps for a procurement professional to successfully Power Bargain, it all really comes down to two areas of work:
- Cooperating to find ways to generate added value.
- Then, using a zero-sum strategy to divide the added value.
When two parties agree to cooperate and focus on a common goal they realize that they need more information; otherwise, it will be extremely difficult to find a solution. When they choose to incorporate trust in the negotiation relationship and be open, honest, and transparent with information, they have a better basis for decision-making. They perceive the negotiation as a joint project where the goal is to find the most cost-efficient solution, minimize the risks, and to create improved earning possibilities. In the end, the quality of the solution is directly proportional to the amount of available and correct information.
Some examples of ways to create high-value solutions include when parties:
- Leverage different costs and physical conditions
- Benefit from comparative advantage.
- Have different expectations and attitudes towards risk.
- Take advantage of synergies.
- Utilize economies of scale.
- Avoid or clear up misunderstandings.
After the added value is created, negotiators must shift their mindset to the zero-sum strategy and work to get their piece of the optimized solution they helped create. With near endless possibilities on how to divide the added value, this stage can be tricky and requires the expertise and experience of the negotiator to address each bargaining process on a situational basis.
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