What's Your Negotiation Strategy? - Harvard Business Review

When we advise our clients on negotiations, we often ask them how they intend to formulate a negotiation strategy. Most reply that they'll do some planning ... Youhave1freearticlesleftthismonth. Youarereadingyourlastfreearticleforthismonth. Subscribeforunlimitedaccess. Createanaccounttoread2more. Negotiationstrategies What’sYourNegotiationStrategy? Here’showtoavoidreactivedealmaking by JonathanHughes and DannyErtel by JonathanHughes and DannyErtel FromtheMagazine(July–August2020) ·Longread JeffMinton  Summary.    Manypeopledon’ttacklenegotiationsinaproactiveway;instead,theysimplyreacttomovestheothersidemakes.Whilethatapproachmayworkinalotofinstances,complexdealsdemandamuchmorestrategicapproach. Thebestnegotiatorslookbeyondtheirimmediatecounterpartstoseeifotherconstituencieshaveastakeinthedeal’soutcomeorvaluetocontribute;rethinkthescopeandtimingoftalks;andsearchforconnectionsacrossmultipledeals.Theyalsogetcreativeabouttheprocessandframingofnegotiations,ditchingthebinarythinkingthatcanlocknegotiatorsintounproductivezero-sumpostures. Applyingsuchstrategictechniqueswillallowdealmakerstofindnovelsourcesofleverage,realizebiggeropportunities,andachieveoutcomesthatmaximizevalueforbothsides. Tweet Post Share Save GetPDF BuyCopies Print IdeainBrief TheChallenge Negotiatorsoftenmainlyreacttotheotherside’smoves.Butforcomplexdeals,aproactiveapproachisneeded. TheStrategy Strategicnegotiatorslookbeyondtheirimmediatecounterpartforstakeholderswhocaninfluencethedeal.Theyintentionallycontrolthescopeandtimingoftalks,searchfornovelsourcesofleverage,andseekconnectionsacrossmultipledeals. ThePayoff Tacticalnegotiatingcanlockpartiesintoazero-sumposture,inwhichthegoalistocaptureasmuchvaluefromtheothersideaspossible.Well-thought-outstrategiessuppresstheurgetoreacttomovesortotakepreemptiveactionbasedonfearsabouttheotherside’sintentions.Theyleadtodealsthatmaximizevalueforbothsides. Leerenespañol Leremportuguês Whenweadviseourclientsonnegotiations,weoftenaskthemhowtheyintendtoformulateanegotiationstrategy.Mostreplythatthey’lldosomeplanningbeforeengagingwiththeircounterparts—forinstance,byidentifyingeachside’sbestalternativetoanegotiatedagreement(BATNA)orbyresearchingtheotherparty’skeyinterests.Butbeyondthat,theyfeellimitedinhowwelltheycanprepare.Whatwehearmostoftenis“Itdependsonwhattheothersidedoes.” Fairenough.Formostroutinenegotiations,areactiveapproachissufficient.Whenthestakesarelow,skillednegotiatorscanpivotwithrelativeeasefromonetactictoanotherastheoppositesidemakesmoves,andoftenthat’senoughtoensurethatthefinaldealfullycapturesvalueforthem.Butfromtimetotimedealmakersfindthemselvesincomplexnegotiationswithhigherstakes.Inthosesituationstheyrequireamuchmorerobustapproach.Justlikebusiness,political,andmilitaryleaders,negotiatorsneedastrategicframeworkthatilluminatesthekeychoicestheymustmaketoachievetheirultimateobjectives. Inthe30yearswe’vespentasadvisersonhundredsofnegotiations,rangingfromagreementstoresolvearmedconflicttomultibillion-dollarcommercialdeals,wehavecodifiedwhatmakesnegotiationstrategieseffective.Negotiatorsshouldstartdevelopingthemwellbeforetheinitiationoftalks,buttheprocessisdynamicanditerativeandshouldcontinueuntilthefinaldealisinked—andinsomecasesbeyond.Withwell-thought-outstrategies,negotiatorscansuppresstheurgetoreacttocounterpartsortomakepreemptivemovesthatarebasedonfearsabouttheotherside’sintentions.They’llbeabletopreparefortheworstbutnottriggerit—andtoidentifytheactionsmostlikelytohaveasignificantimpactondealoutcomes. Herearethekeystrategicprinciplesnegotiatorsshouldapplytotheirnextcomplexdeal. RethinkCounterparts Peopletendtopursuedealswiththeobviousparties.Ifwe’resellers,wesearchforabuyer;ifwe’reborrowers,wesearchforalender.Butweoftenoverlookmanyothersintheecosystemsurroundingthenegotiation:ourcompetitors,suppliers,andcustomers—andtheircompetitors,suppliers,andcustomers.Weneedanapproachthatencompassesallthepartiesthatcanandwillhelpusfulfillourobjectives. Todeviseone,negotiatorsshouldanswerthefollowingquestions: Whatbusinessoutcomesdoweseekthroughthisnegotiation? Whocaresaboutthoseoutcomes? Whocandosomethingtobringaboutthoseoutcomes? Howcanweengage,directlyorindirectly,withpartiesthatsharesomeofourinterestinachievingthoseoutcomes? ConsiderhowtheholderofkeypatentsnecessarytoplaymoviesandmusiconDVDssoughttopreventlow-costmanufacturersinChinafrominfringingonitsintellectualproperty(andcompetingunfairlywithitsdulylicensedpartners).Initially,ittriedtonegotiatewiththosemanufacturers,butinmostcasesitwassimplyignored.AndevenwhentheChinesemanufacturersweresuccessfullychallengedandsubjectedtoalegalprocess,theywouldsimplycloseshopandthenreopenunderadifferentname. Workingbackwardfromthedesiredoutcome(haltingsalesofinfringingproductsinsignificantmarkets),thepatentholderrealizedthatalthoughitcouldn’tdissuademanufacturersfrommakingunlicensedDVDplayers,itcouldpersuadelargeimportersanddistributorstostopbuyingandsellingthoseproducts.Byhelpingtheimportersanddistributorsrecognizetheinfringementandintellectualpropertyissues,thepatentownergotthemonthesamesideofwhatwouldotherwisehavebeenasteepuphillnegotiationwiththeunauthorizedmanufacturers. AnalyzeCounterparts’Constituencies Inhigh-stakesnegotiations,dealmakerstendtotalkabouthowmuchpowerandleveragetheothersidehas,whattheothersidewillorwon’tagreeto,andhowtoinfluenceitsbehavior.Whileviewingcounterpartsasiftheywereonemonolithicentityisconvenient,thatattituderegularlyleadstoanalyticalandstrategicmissteps.(Intherealmofinternationaldiplomacy,negotiatorshavetraditionallybeensomewhatmoreattunedtothinkingabouthowtoinfluencemultipleconstituencieswhenforgingdeals—beitwiththeTalibanortheoldSovietUnion.) Thereareoftenopportunitiestochangeadeal’sscopeandachievebetterresults. Forexample,acustomermightperceiveitselftobeatadisadvantageinanegotiationwithanimportantsupplierbecauseitrepresentsonlyasmallpieceofthatsupplier’soverallbusiness.Acloserlook,however,mightrevealthatitaccountsforafairlylargepercentageofthebusinessatoneofthatsupplier’splantsorinaspecificgeographicmarketforaparticularunit.Thoughthesupplier’scorporateleadersmightviewthecustomerasinsignificant,theplantmanagerorunitheadwhodependsonitwouldseeitascritical.Acorporationisn’toneuniformorganization;it’safederationofbusinesses.Mostoften,profitsandlossesareassessednotonlyattheenterpriselevelbutbyunit,geography,product,andplant.Theauthoritytonegotiatecontractsisusually(thoughnotalways)delegatedaccordingly.Carefullyparsingacounterpart’sconstituenciesisessentialtounderstandingnegotiationleverage. Thesupplychainteamatalargehospitalityandentertainmentcompanytookthatlessontoheartinnegotiationswithmajorbeveragesuppliers.Theteammembersrecognizedthatbargainingwiththeirsalescounterpartsovervolumediscountswouldachievelimitedvalue.Itwasonlybybroadeningthediscussionwellbeyonddiscountsandthepurviewofsalesthattheylearnedthatotherstakeholderswithintheirsuppliershadmuchmorevaluetocontribute.Therewerealsoopportunitiestodiscusspromotionalsponsorshipsattheentertainmentcompany’svenuesandevents,thestrongrelationshipsthebeveragesuppliershadwithperformerswhocouldfillthosevenues,marketingeventsthatthesupplierscouldhostattheentertainmentcompany’shospitalityproperties,andmore. RethinktheDeal’sScope Thevastmajorityofnegotiatorstakethefundamentalscopeofadealasagiven.Theymayconsideralimitedsetofchoices—forinstance,shorter-versuslonger-termdeals—butbyandlargetheirtacticsareguidedbyacomparisonbetweentheirBATNAandhowclosetosomepreferredoutcometheythinktheycanget.Astheentertainmentcompany’sexampleillustrates,however,thereareoftensignificantopportunitiestochangethescopeofnegotiationsandachievemuchbetterresults. JeffMinton Considerahealthcarefirmthatwasseekingtorenegotiatethetermsofamajorsupplycontractwithapharmaceuticalcompany.Thehealthcarefirmneededmuchmoremanufacturingcapacityfromamajorplantownedandoperatedbythepharmacompany.Thepharmacompanywasloathtooffermorecapacitythantheoriginalcontractspecified,becauseitanticipatedneedingtomakemoreofitsownproductsatthesamefacilityinthefuture.Manycreativeoptionswereexplored,includingsharedcapitalinvestmentstoincreasetheplant’sefficiencyandoutput,alteredfinancialterms,andthepossibilityofa“plantwithinaplant”operatingmodel.Nonetheless,nosolutionappearedtomeetbothsides’needs. However,whenthescopeofthenegotiationwasincreasedbeyondalteringtheexistingagreement,andbothsidessteppedbacktoreevaluate(andshareinformationon)theirrespectiveglobaloperations(includingplansforbuildingnewplants)andgrowthobjectives(andassociatedcapitalinvestmentneeds),theywereabletoreachanagreement.Thenewcontractrebalancedproductionandsupplyacrossmultipleplantsanddeliveredsubstantiallymorevaluetobothparties.Thenegotiatorsdidn’texpandjustthepie;theyexpandedtheentiremenu. Ortakethefinancialservicesfirmthatwasseekingtorenewacontractwithacompanythatownedproprietarydataassetsandwasdemandingaheftypriceincrease.Ananalysisoftheannualreportandearningscallsofthedatacompanyshowedthatitwasfocusedonincreasingrevenuefromotherproductsandservices—onesthefinancialservicesfirmwaspurchasingfromseveralothersuppliers.Whilesomeofthosecurrentsupplierswerehighlyvaluedpartners,anditdidn’tmakesensetocontemplateshiftingbusinessawayfromthem,inothercasesthefinancialfirmcouldgivethedataprovideranincreaseinbusinessintheareasitwantedtobuild.Thefirm’snegotiatingteamofferedtodothat—butonlyiftheprovideragreedtomore-reasonabletermsonthedataitenjoyedadefactomonopolyon. It’sworthnotinghowcounterintuitivethisapproachis.Whenconfrontedwithopposingpartieswhoseemtohavemoreleverage,thenaturaltendencyistolookforwaystoweakenthatleverage—tofindwalkawayalternativesandissuethreats.Suchattemptsoftencomeupshortorunderminedealsuccess.Thelessonhereistooffertheothersidenewopportunitiesinsteadoffocusingjustontheneedsthatonlyitcanmeetforyou. Thinkabouthowprecedentsadealsetsmaycreateanchorsinfuturenegotiations. Sometimestherightstrategyiseventoreducethescopeofthedeal.Aclassicpieceofnegotiationadviceistocarefullyevaluate(andseektoimprove)yourBATNA.Theproblemis,inmosthigh-stakesnegotiations,there’sreallynoviablealternativetosomedealwiththeotherparty.DiggingdeeperintoBATNAanalysisisvitalinsuchscenarios.Thekeyisnottosimplyconsiderwholesalealternativestoanyagreementwithapowerfulcounterpartbutrathertoexplorealternativestosomeelementsofwhatyou’reseekingthroughthatdeal. JeffMinton Abouttheart:PhotographerJeffMintoncapturedthesalespeopleatacardealershipinLevittown,NewYork,hustlingtomeettheirmonthlyquotas. Here’showthatapproachworkedforamedicaldevicecompanythatfeltpowerlessinitsnegotiationswithadistributorthatdominatedanimportantregionalmarket.Nootherdistributorhadcomparablecoverageintheregion.Afterconsideringexpandingthescopeofthedeal,thedevicemakerinsteadoptedtonarrowit.Itidentifiedalternativedistributionchannelsforsomeofitsproductsinsomesegmentsoftheregionalmarket.Bringingitsproductstomarketwithaportfolioofsmallerdistributorswouldhavebeenprohibitivelycomplexandwouldhaveincreasedcostsandreducedrevenue.Butoncethedevicemakerhaddefinedastrategytonarrowthescopeofthedealwiththeincumbentdistributor,thenegotiationsmovedtoaconsiderablymoreevenfooting. Infact,thedistributorstoppedmakingdemandsandthreatsandbecamewillingtoengageinacollaborativeprocess.Thetwosidesjointlyevaluatedwhereitwasespeciallycostlyforthedistributortoservicethedevicemaker(businessthedistributorwasactuallyhappytogiveup)andwhereitwouldhavebeenmostdifficultforthedevicemakertomovetoalternativedistributors.Thenarrowerscopemadethedistributorwillingtoreducesomeofitsrequirements(meanttocoverthecostsofdistributinglow-marginproductsinexpensive-to-servicesegments).Forthedevicemaker,thecostofagreeingtomuchofwhatthedistributorwasrequestingdroppedsignificantly. RethinktheNatureofLeverage AlltoooftendealmakersconflatenegotiationpowerwithastrongBATNAandtheconcomitantabilitytohurttheotherparty.Essentially,themessagetheysendis:Wedon’tneedadealwithyou,andyouneedadealwithus,sowegettodictatetheterms.Suchamindsetleadstopressuretactics.Italsomakesnegotiatorswholackattractivewalkawayalternativesconcludethattheyhavenopower,whichinturncausesmiscalculationsandunwarrantedconcessions.Moreover,theirsenseofpowerlessnesscanbreedfearandresentment—negativeemotionsthathampercreativethinkingaboutpotentialavenuestoanoptimaloutcome. Thesolutionisthinkbeyondwalkawayalternativesandconsidermultiplesourcesofnotonlycoerciveleveragebutalsopositiveleverage.Bypositiveleverage,wemeanthingsnegotiatorscanuniquelyoffertomaketheothersidedesireadealratherthanfeartheabsenceofone. ManytechnologyfirmshaveIPteamsthatseektopersuadeconsumerelectronicscompaniessuchasApple,Sony,andLGtopayforlicenses.ThenegotiationofIPrightsinthismarketisdauntinglycomplex.Patentinfringementispervasive—thoughoftenunintentional.Legitimateeffortstocollectroyaltiesarevastlycomplicatedbythewell-knownphenomenonofpatenttrolls.Asaresult,mostIPlicensingteamsstruggleto“moveupinthequeue”forsimpleconsiderationbyunderresourcedin-licensingteams,whofeelbesiegedbyallthepartiesclaimingtherighttoroyalties—andofferinglittleinreturnexceptanagreementnottosue. TheIPlicensingteamatonewell-knowntechfirmhadastrongclaimsportfolioandcompellingmarketdataabouttherightsthatothercompanieswereinfringing.Theteamtriedtobecreativeandflexible,offeringtoblendpaymentsforpastinfringement,ongoingroyalties,andcross-licenses.However,itsBATNA—filinglawsuitsagainstinfringersthatignoredit—wasn’tstrong,becausetheabilitytoenforcepatentrightsandcollectdamageshadbeenhamperedinrecentyearsinmanyjurisdictionsaroundtheworld.Thefirmdidn’thaveaparticularlygoodtrackrecordincourt,either.Tovariousconsumerelectronicscompanies,itmadesensetorebufftheteam’sdemands.Andsotheydid. Thinkinginbinarytermsisalmostalwayscounterproductive. Byresearchingthebusinessmodelsandstrategiesoftheelectronicscompanies,theteamwasabletopinpointwhichofitsfirm’spatentedtechnologieswerecomplementarytoimportantinitiativesateachtargetlicensee.Workingwiththefirm’stechandsalesdepartments,theteamthendefinedvaluepropositionsshowingeachtargetlicenseehowitcouldusethefirm’sIPtogeneratenewproductsorrevenuestreams.Oneelectronicscompany,forexample,couldleveragethetechfirm’ssoundandimagingIPinelder-careofferings,andanothercouldenhanceitsdevicewiththefirm’svirtualrealityexpertise.Thoseopportunitiesmadeitworthwhilefortheelectronicscompaniestoengageinmeaningfulnegotiationswiththeteam.Thoughthisstrategyrequiredalotoftimeandeffort,thepayoffwasworthit. LookforLinksAcrossNegotiations Mostnegotiatorsfocusexclusivelyonmaximizingthevalueofthedealathand.Indoingso,theyoftenunderminethesuccessoffuturenegotiations—theirownandthoseoftheircolleagues.Astrategicapproachrequiresconsideringsuccessbeyondthecurrentdealand,inparticular,howtheprecedentsitsetswillcreateanchorsandshapedynamicsinfuturenegotiations.Afterall,exceptwithpuresalesandpurchasesofassets,mosthigh-stakesbusinessnegotiationsarerepeattransactionsundertakeninthecontextoflong-termrelationships. Analyzinglinksacrossmultiplenegotiationscanunearthhiddenformsofleverage.ConsiderthecaseofaglobalsemiconductorcompanythatfeltcontinuallysqueezedbyunreasonablepriceincreasesfromOEMcomponentsuppliers.Amajorproblemwasthatnegotiationsoverinitiallicensingorcodevelopmentoftechnologyfornewproductswereconductedbyonegroup,whereassubsequentcontractnegotiations(withthesamesuppliers,butoccurringyearslater)werehandledbyanothergroup,withrelativelylittlecoordinationbetweenthetwo.Meanwhile,negotiationswiththosesuppliersandotherthirdpartiesformaintenanceandrepairservicesandsparepartswerehandledbyyetanothergroup,andallthreekindsofnegotiationsoccurredondifferenttimetables. HowtoPressure-TestYourStrategy Onekeytonegotiationstrategyisputtingyourselfintheshoesofyourcounterpartsandtrulyunderstandingtheirmotivationsandlikelyactions.Thebestapproachistoformallycharterateamtoanalyzethenegotiationfromtheotherparty’spointofview—aso-calledRedTeam.(DuringtheColdWar,RedTeamsplayedtheroleoftheSovietUnioninwar-gamingsimulations.) Ofcourse,mostnegotiationplanninginvolvesanalyzingthegoalsandlikelyactionsoftheotherside.Inourexperience,however,failuresofimaginationandinevitablehumanbiastendtolimitanddistortsuchefforts.Especiallywhenthestakesarehighandpowerimbalancescreatefearandresentment,strongemotionsstuntthinkingandwarprationalanalysis.We’vealsofoundthatunlesstheRedTeamincludesseniororhighlyrespectedandinfluentialmembers,theinsightsthatcanbedrawnfromwar-gamingareoftendiscounted. Insomecases,simulationsmightbedoneaspartofstrategydevelopmentandnegotiationplanning.Butit’sevenmoreeffectivetodothemthroughoutthenegotiationprocess,havingtheRedTeamreviseitsstrategyaseventsunfoldandusingongoingsimulationstoanticipateactionsbytheotherside. Bylookingattheseseparatebutrelatednegotiationsholistically,thesemiconductorcompanywasabletoalterthepowerdynamics.Teamsnegotiatingsupplyagreementsacknowledgedthattheyhadlittlechoicebuttoacceptanincumbentsupplier’spricingandtermsbutwereabletopointtoupcomingproductintroductionsandwarnthatunreasonablepositionsheldnowwouldmostlikelyexcludesuppliersfrombeingconsideredfornext-generationproducts—andallassociateddownstreamrevenue.Theyalsoshareddataaboutmaintenanceandrepairrevenuestreamsandtheirgrowingabilitytoredirectsuchbusinesstopartnerswhodemonstratedreasonablenessandgoodfaith. Threatsandpromisesaboutfuturebusinesshadbeenmadeinthepastbythecompany’snegotiators,buttheyweren’tspecificandlackedcredibility.Nowthebenefitsofincreasedcooperationandthepotentiallossofopportunitiesweretangibletosuppliers—andhencepersuasive. ConsidertheImpactofTimingandSequencing Manypeopleseektospeeduporslowdownnegotiationstoputpressureontheothersideandextractconcessions.Butpressuretacticsoftenbackfire.Carefulconsiderationofhowtheothersideislikelytorespondshouldguidewhentoaccelerate,slowdown,orpauseanegotiation. Severalyearsagoasmalltechnologycompanywasinnegotiationstorenewacriticaldealwithaninternetbehemoth.Thesmallcompanydependedalotontherevenuethedealproduced,andthethoughtofgoingwithoutitforevenashorttimewasfrightening.Seekingtopressurethesmallfirm,thebehemothshowedlittleurgencytocompletethedealandsignaledthatitwasn’tsurethecontractwasworthrenewing. Thatturnedouttobeamajormiscalculation.Recognizingthatitcoulddolittletogettheothersidetogofaster,thesmallcompany’snegotiationteamdecidedtomakeuseofthetimetobuildsupportwithinthefirm’secosystemofcustomersandbusinesspartnersforthepossibilityofpartneringwithoneofthebehemoth’sgiantcompetitorsinstead.Thattimewaswellspent.Assuchanalternativewentfromunimaginabletoconceivabletoplausible,thesmallerfirm’sleveragegrew.Intheendthecontractwiththebehemothwasrenewedforanine-figurevaluethatrepresentedanearlyfive-foldincreaseovertheexpiringdeal.Whilethepassageoftimedidmakethesmallfirmnervousaboutitsdwindlingcashreserves,italsogaveittheopportunitytosubstantiallyalterthelandscapeinwhichthenegotiationtookplace. Choreographingthesequenceinwhichyouaddressissuesorengagedifferentplayersisalsoimportant.Resolvingsomeissuesmayresetthestakesorreframetheremainderofthenegotiation. Agoodexampleofstrategicallyrethinkingsequenceinanegotiationcomesfromtheoilandgasindustry.Aspartofajointventuredealwithanationaloilcompany,onelargemultinationalhadagreedthatifaparticularcompetitorwantedtoadditselftothedeallater,itcoulddosobypayingitsshareofthecapitalplusinterestforthetimeithadn’tparticipated.Afewyearslaterthatsecondmultinationalindeedtriggereditsoptionandsoughttoopennegotiationsontherateofinterest.InsteadofdiscussinghowmanypointsaboveorbelowLIBORwouldbeappropriate,themultinationaldecidedtogobacktotheoilcompanyandnegotiatewhatfurthertermsshouldapplytothereviseddeal.Themultinationalproposedtheprinciplethatalaterentrantshouldn’tearnahigherrateofreturnthantheoriginalpartners,whohadtakenagreaterriskbeforetheprojecthadproveditsvalue.Theoilcompanyreadilyagreed. Withthatmattersettled,themultinationalturnedtothenewpartner-to-beanddemonstrated,usingtherecentlyauditedbooksforthejointventure,thattheinterestowedbyanincomingpartnerwouldhavetobe60%ayear,notanythinglikeLIBOR.Aftersomeinitialshock,theincomingpartneragreed. Fivequestionscanhelpnegotiatorsstrategicallymanagetimingandsequencing: Whatchangesintheexternalmarketplacemightincreaseordecreasethevalueorimportanceofthedealforeachparty? Towhatextentcanweuseadditionaltimetostrengthenourwalkawayalternatives? Towhatextentcantheothersideuseadditionaltimetostrengthenitswalkawayalternatives? Howmightdealsnegotiatedwithotherpartiesaffectthescopeofthenegotiationorcreateprecedentsthatinfluencethewayweresolvekeyissues? Whateventsorchangesintheexternalmarketplacemightadverselyaffectthestrengthofourwalkawayalternatives—andtheotherside’s—orcreatemutuallybeneficialopportunities? BeCreativeAbouttheProcessandFraming Whenapproachingahigh-stakesdealwithapowerfulcounterpart,manynegotiatorsdebatewhethertostartbyissuingtheirownproposalorbyaskingtheothersidetodoso.Theyalsooftenwonderwhethertheyshouldpro​jectstrengthbyaskingforaggressivetermsintheirfirstofferorcounteroffer,orsignaladesireforawin-winoutcomethroughmore-balancedandreasonableterms.Butsuchbinarythinkingblindsustothemanywayswemightshapethenegotiationprocesstoreduceriskandincreasethelikelihoodofagreatoutcome. Let’slookataglobalhealthcarecompanythatdependedonasinglesuppliertomakeoneofitsbiggestrevenue-generatingproducts.Thesupplierheldnumerouspatentsessentialtothemanufacturingprocess,soswitchingtoadifferentonewouldhavetakenyearsandmajorinvestmentsinredesign.Butformanyyearsthesupplierhadbeenunwillingtocollaborateonimprovingqualityandmanufacturingefficiency.Asthecontractwithitnearedexpiration,thehealthcarecompanyponderedhowtoopenthenegotiationforarenewal.Shoulditdemandbigpricereductionsandotherimprovements?Orshoulditbeginwithmore-reasonabletermsandhopethatthesupplierrespondedinkind? Aftermuchdebateaboutthetrade-offs,thehealthcarecompanydevelopedathirdapproach.Ratherthanbeginningbysendinganinitialtermsheet,itinvitedthesuppliertoaprenegotiationsummit—ajointdiscussionofwhathadworkedwell,andwhathadn’t,foreachsideunderthepriorcontractandofhowthemarketandeachside’sbusinessobjectiveshadchanged.Thiswasdeemedalow-riskmove.Thesuppliermightwelldeclinetheoffer,butsowhat?Thehealthcarecompany’snegotiationteamwouldthensimplyreverttosendinganopeningtermsheet. HowReactiveandStrategicApproachestoNegotiationDiffer Reactive Strategic Focusonthedealterms Focusonshapingthenegotiationcontextandprocess Lookforwaystogetthemaximumshareofdealvalue Considerifandhowtosignificantlyalterthescopeofthedeal Engagewithallstakeholdersatthecounterpartasifthey’realigned Considerdifferentconstituencieswithinthecounterpartandhowtheirdivergenceoralignmentmayaffectthenegotiation Respondtotheotherside’sactions Anticipateandinfluencetheotherside’sactions Maximizepressureontheotherside Employbothpositiveand(whennecessary)coerciveleverage Treateverynegotiationasdiscrete Analyzeandleverageconnectionsacrossnegotiations Tothesurpriseofsomeontheteam,thesupplieracceptedtheinvitation.Duringthesummitthehealthcarecompany’steamsharedananalysisoftheeconomicsandevolvingmarketpositionofthecompany’sproduct.Itshowedthatunlesstheproduct’spricefellsignificantly,newcompetitiveofferingswouldtakesubstantialmarketshareawayfromit.Thatwouldreducenotonlythehealthcarecompany’srevenuebutalsothesupplier’s.Theanalysistriggeredananimateddiscussionfocusednotonbargainingbutonjointproblem-solving.Thatinturnledtothinkingabouthowtocreativelyrestructurethewaythecompaniesworkedtogetherandtoasetofprinciplesfornegotiatingcommercialtermsinthenewcontract,includingaframeworkforsharingrisksandrewards.Theultimatedealsavedthemanufacturertensofmillionsofdollarsbutwasviewedbythesupplierasmorefavorablethantheearliercontract.Bothsidesagreedthatatraditional“offer-counteroffer”negotiationprocesswouldatbesthaveyieldedasignificantlylessvaluabledealforboth—andcouldeasilyhaveresultedinnodealatall. CONCLUSION High-stakesnegotiationstendtoproducealotofanxiety.Thisleadsdealmakerstofocuson(perceived)threatsratherthanidentifyallpossibleformsofleverageandthinkexpansivelyaboutoptions.Whenthathappens,negotiatorsaremorelikelytomakepoortacticalchoices,eithergivingintopressurefromtheothersideorinadvertentlycausingtheirownworstfearstocometopass. Astrategicnegotiationapproachinvolvesmorethanchoosingacooperativeorcompetitiveposture,andthinkinginsuchbinarytermsisalmostalwayscounterproductive.Assessingconnectionsbetweenonenegotiationandotherswiththesamepartyovertime(andevenwithotherparties),takingahardlookatwhetherthey’renegotiatingabouttherightthings,andfocusingonwhenandhowtomosteffectivelyengagewiththeothersidewillunlockfarmorevaluefordealmakers. AversionofthisarticleappearedintheJuly–August2020issueofHarvardBusinessReview. ReadmoreonNegotiationstrategies orrelatedtopic Strategyformulation JH JonathanHughesisapartneratVantagePartners,aglobalconsultancyspecializinginstrategicpartnershipsandcomplexnegotiations. DannyErtelisapartneratVantagePartners,aglobalconsultancyspecializinginstrategicpartnershipsandcomplexnegotiations. Tweet Post Share Save GetPDF BuyCopies Print ReadmoreonNegotiationstrategies orrelatedtopic Strategyformulation PartnerCenter Diversity Latest Magazine Ascend Topics Podcasts Video Store TheBigIdea Data&Visuals CaseSelections