[Book Notes] 10 insights: Negotiating the Impossible



I attended a lecture by Prof. Malhotra in the final week of my MBA and had found the lecture to be one of the most insightful at HBS. Therefore, I was not surprised at the amount of wisdom and useful negotiation advice contained in his book Negotiating the impossible. The book gives many practical suggestions on how to negotiate better. Ultimately a negotiation is an interaction between two or more humans and, therefore, one cannot hope to succeed if you do not show empathy for the “opposing” party.


My notes from this book are as follows:


#1

The need for all sides to declare victory is at least as old as recorded history itself

Example 1: The Treaty of Kadesh was recorded in 2 languages: hieroglyphics (the Egyptian translation) and Akkadian (the Hittite translation). A comparison of the translations reveals that the two versions are, as we ought to expect, very similar. But there is at least one important difference. The Egyptian translation states that it was the Hittites who came asking for peace terms. The Hittite version claims exactly the opposite.


Example 2: In 2011, there was a revenue sharing disagreement between owners and players in NFL. The owners were demanding a $2 billion off-the-top credit to support investments before any split of revenues would take place, after which the players would receive approximately 58% of what remained. Players wanted no off-the-top credit for owners, and a 50–50 split of all revenues.

The resolution came when the parties agreed to a proposal that called for an entirely novel structure for revenue sharing. The parties would divide “all revenue” into three separate buckets that represented the different streams of NFL revenue. Then, they negotiated a different revenue sharing percentage for each bucket. After looking at the historical split across these buckets, it was very clear that the players would get 47-48% of all revenue. If that’s the case, why go to all the trouble of creating three buckets with different percentages for each? Why not avoid the hassle of creating a new accounting system and simply agree to the players getting ~47.5% of all revenues?


The three-buckets approach is superior to the one-bucket approach in one essential respect: it allows each side to go back to its constituents and declare victory. Power of framing: objectively identical proposals can be made more or less attractive simply by how they are presented.

 

#2

Write their victory speech

The role of optics is especially pronounced when there is an audience. The audience can be voters, the media, competitors, future negotiation partners, a boss, colleagues, or even friends and family. We are usually aware of our own audience, but we pay insufficient attention to audience of the people that we are negotiating with.


In fact, their audience is just as important to consider as ours, especially if we are asking them to back down or make hefty concessions. To think of their audience as “their problem” ignores a central tenet of most difficult negotiations: there is no such thing as their problem; what seems to be their problem, if left unsolved, eventually becomes your problem. 

 

#3

Negotiate multiple areas, simultaneously.

Counterintuitive as it may seem, negotiations are often easier when you have more than one thing to fight about. When there is only one issue on the table, and it is not easy to see how both sides can get what they want. If there is only one issue, try to split it into two or more separate issues. Negotiate multiple issues simultaneously. In other words, instead of trying to reach agreement one issue at a time, create the habit of making “package” offers and counteroffers. It eliminates the risk that a concession made now will not be reciprocated later.

 

#4

Empathy is being smart

For negotiators, the reason to empathize with the enemy is not because it is somehow the “nice” or “liberal” or “enlightened” approach to dealing with nasty people. We need to empathize because it makes it more likely that we can achieve our own goals. It is important not to confuse empathy with sympathy. The goal is to understand what is causing someone to behave a certain way; it does not mean you have to approve of their goals or actions. There is a difference between explaining the other side’s behavior and justifying. Empathy is needed most with people who seem to deserve it least. The more intolerable their behavior, the greater the potential benefit of understanding. Do not force people to choose between doing what is smart and doing what helps them save face.

 

#5

Prepare your audience

The “curse of knowledge” describes the following phenomenon: Once we know something, it becomes very difficult for us to understand what it feels like not to know it. That is, once we have learned something, or reached a conclusion, we seem to lose the ability to put ourselves in the mind-set of someone who has not yet had that realization—even though we were that person not so long ago. Don’t just prepare your arguments, prepare your audience for your arguments.


 

#6

Yielding means “going with,” and not “giving in.”

You can sometimes overcome resistance to your ideas and proposals by yielding—that is, understanding and co-opting the other side’s frame or perspective to make it work for you. Yielding is a principle that is often discussed in the martial arts: the idea is that there can be tremendous power in going with—and perhaps redirecting—rather than resisting the energy or attack that is coming your way. Likewise, in negotiations, yielding means “going with,” and not “giving in.” Doing so effectively requires a clear and unbiased understanding of how the other side views the situation, and of the metrics they will use to evaluate ideas and options.


Example: Ibn Saud wanted to introduce telephone in Saudi Arabia. However, the clerics were against this. Ibn Saud decided that the only way to tackle religiously expressed objections would be through religion itself, not by going around. He asked a cleric to read a passage from the Quran, the Muslim holy book. As the voice was carried over to the speaker on the other end, Ibn Saud made the argument that would win the debate: if this machine were the work of the devil, how could it possibly carry the words of the Quran?

 

#7

Map your negotiation space

Think trilaterally: evaluate how third parties influence or alter the interests, constraints, and alternatives of those at the table. The negotiation space consists of all parties that are relevant to the negotiation. This includes: (a) any party that can influence this deal, and (b) any party that is influenced by the deal. If there are parties that can influence the deal, consider in what capacity you or others might benefit from bringing them in to the process (or from keeping them out). If there are parties that are influenced by the deal you are negotiating then keep an eye on them, because they are likely to have an incentive to make moves that could impact your strategy and outcomes.


Prof. Malhotra has developed the ICAP framework that can help to organize the negotiation space around 4 critical factors: (1) Interests, (2) Constraints, (3) Alternatives and (4) Perspectives.

Example 1: During the negotiations between Spain and France, Napoleon’s ambassador allegedly gave “the most solemn assurances” that France would not sell or cede the Louisiana Territory to any other country, but rather would return it to Spain if France wanted to dispossess it. When Napoleon decided to turn around and sell the land to the United States, it came as a surprise to the Spanish, the Americans, and even many in France.

In 1803, the United States bought the Louisiana Territory from France for approximately four cents an acre. With the Louisiana Purchase, the United States doubled in size, acquiring land that would make up all or some of 15 future states. Why would the French sell land claimed by the Spanish to the Americans?


Simply put, because of the British. France was at war with England. If all went exactly as planned, France could deal with the British as well as take possession of Louisiana. This was not looking likely. A slave revolt against the French in what is now the island of Haiti and Dominican Republic—along with bad weather that kept French ships stuck in the icy waters of Europe—depleted resources necessary to stave off the growing threat from England.


To make matters still worse for the French, there was a risk that if they tried to hold on to Louisiana, the United States would decide to ally with England against France. This is because the Louisiana Territory included New Orleans, which was of great strategic importance to the United States. The single biggest factor in Napoleon’s decision may have been his fear that the entire Louisiana Territory could be taken by the British if France was defeated in war. Better to give it to the Americans than to the British, reasoned Napoleon—and if doing so empowered the United States and gave the British more to contend with in the future, all the better.


In the case of the Louisiana Purchase, the negotiation space consisted not only of the United States, England, France, and Spain, but also the people who were actually making the decisions. Companies and countries don’t make decisions, people do. Napoleon is not the same as “France.” The negotiation space also consisted of lawmakers in the United States who might facilitate or obstruct the deal, and the slaves in Haiti and their oppressors, because any change in the outcome of that revolt could influence whether France still feared losing the war to England.


As in the case with US interests in the Louisiana Territory, one’s greatest source of leverage may have nothing to do with traditional measures of power (US willingness to go to war with France), and everything to do with the dynamics elsewhere in the negotiation space (heightened French fears caused by a slave revolt in Haiti and bad weather in Europe).


Example 2: In the aftermath of the Crimean War (1853–56), in which Russia had been defeated by an alliance that included England, France, and the Ottoman Empire, Tsar Alexander II began to fear that he might lose control of Russia’s Alaskan territory in a future war with England. Like Napoleon a half century earlier, the tsar reasoned that it was far better for the land to go to the Americans in exchange for some cash than to the British in exchange for nothing. When substantive negotiations were finally conducted in 1867, the Americans agreed to purchase the land. 

 

#8

What is not negotiable today can be negotiable tomorrow

When reaching agreement seems a distant hope and nothing you can do today will guarantee success, it is useful to instead think about how you can improve positioning and create option value. Consider the deal-making process that resulted in the acquisition of basketball star James Harden by the Houston Rockets. In a simple trade, you would make one move: for example, give the other team some of your players in exchange for receiving your preferred player. But if you don’t have what the other team wants, you might need to make a few moves to first improve your position.


In the case of the Houston Rockets, in a strategy that unfolded over five years and involved 14 separate moves, General Manager Daryl Morey built up the necessary assets—the right mix of players and draft picks—to acquire James Harden from the Oklahoma City Thunder.

 

#9

Strategic ambiguity involves a trade-off between minimizing current conflict and minimizing future conflict

When neither side is willing to openly subordinate its demands on key issues or principles, strategic ambiguity—language that is deliberately open to multiple interpretations—can help the parties reach an agreement. It is risky because it creates an agreement that can be interpreted differently by different parties.


But multiple interpretations can also be valuable. This is because sometimes the problem isn’t that the two sides cannot live with each other’s demands, but that writing down or announcing explicitly what you’re willing to live with is too problematic. In these relationships, mutual interests are aligned enough so that the relationship is self-sustaining regardless of what you write down. Here, you have the flexibility to keep the contract incomplete or ambiguous if doing so helps you solve other problems (e.g., optics).


On the other hand, there are relationships in which one or both parties have the incentive and ability to exploit the other—and will do so—unless a contract or treaty makes this impossible or extremely costly. In such a case, it is wise to have an agreement that clearly delineates the rights and responsibilities of each side and clarifies what behaviors are proscribed. Strategic ambiguity should be avoided in these instances.


Unfortunately, even when there is no underlying agreement on substance, parties sometimes opt for strategic ambiguity simply because it is a convenient way to overcome a deadlock, or because it allows them to reach “some sort of agreement” rather than no deal. If negotiators are rewarded for reaching a deal or punished for failing to do so, they will find a way to reach an agreement, however flawed.

 

#10

Negotiate process before substance

Even when there is clear agreement on process at the outset, parties can sometimes get misaligned regarding their views on where they are in the process.


Example: The one savvy—or fiendish, depending on your perspective—tactic the NHL players used was choosing not to call for a strike at the start of the season in October, but to wait until it would be most harmful to owners. The season started with no signed CBA in place, but games continued while the owners and players negotiated. Then, as soon as the regular season ended and the playoffs were about to begin in April, the players walked out. This gave them tremendous leverage. Simply put, players earn paychecks throughout the season, but owners stand to make a disproportionate amount of their profits during the playoffs. With the playoffs held hostage, the cost of not reaching a deal was asymmetric; owners now had much more to lose.


The result? The players got everything they asked for. After being burned in 1992, the owners seem to have made sure they would never be caught in such a vulnerable position again. Every time a CBA has come up for negotiation since 1992, the owners have preemptively locked out the players at the start of the season. This destroys tremendous value, all in the service of ensuring that both sides are losing money and owners are not the only ones having to make concessions. Waiting to strike before the playoffs may have seemed like a brilliant tactic in 1992, but it’s the kind of tactic you can use exactly once. The 1992 strike, which was the first NHL work stoppage in 75 years, created a destructive precedent that has been unbroken since.

 

Others:


Control the frame of the negotiation: The frame that takes hold will shape how negotiators make decisions, evaluate options, and decide what is acceptable. There are no “right” or “wrong” frames, but which frame takes hold has important implications for how the parties behave and what they will ultimately be willing to accept.

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Convincing the other party that they will have to concede or withdraw from initial positions is not enough. One or both parties may come to the conclusion that their earlier demands are not possible, and that major concessions will be needed to avoid a truly disastrous outcome. When that day comes, you may find that people are still unwilling to lower their demands. Now, you no longer have an education or trust problem to solve. The problem is how to get the other side to admit that they initially asked for more than was reasonable, and to back down and accept what is actually possible. You have to make it easier for them to back down.

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The safer you make it for the other party to tell you the truth, the more likely they are to do so.

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In our rush to portray our solution as unique, path-breaking, and better than the competition, we sometimes inadvertently shoot ourselves in the foot. A salesperson, for example, who is trying to convince the customer that she will have the advantage of being among the first adopters of a new technology or solution may find that the strength of this pitch is eroded (or wiped out completely) by the fact that the other side is implicitly hearing “Other people like me don’t do this,” and thinking “What do they know that I don’t?” or “There must be no urgency to do this.”

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In sales and in negotiations of all sorts, if you’ve crafted your proposal carefully and think it is appropriate, don’t apologize for it. The moment you seem apologetic, you give the other side the license to start haggling. This does not mean you should be unwilling to negotiate price. Nor does it mean you shouldn’t explain your price. But when you apologize for your offer, you are creating a frame that says your proposal is inappropriate and that even you do not think it is a reasonable starting point. If you are bringing more to the table than competing offers, you want to shift the frame to a discussion of value.

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Keep a low bar for progress, but a high bar for final agreement: This preserves momentum because it reminds people that although every person at the table is likely to find certain elements of the deal to be objectionable, or even abhorrent, these ought not to be showstoppers; it may be wise to continue the negotiation to see whether the final agreement is still preferable to no deal.

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History typically begins the first time I did the right thing or you did the wrong thing—not the other way around. Labor leaders typically have longer memories than management; the party that got less value in the last round of negotiation perceives the current negotiation as an opportunity to settle scores, while the other side takes a “rational” forward-looking perspective.

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The willingness to incur a cost early on when there is no guarantee that the investment will pay off is a powerful means of signaling commitment to a new way forward. Friends cast members were negotiating their salaries. Schwimmer recommended to his fellow cast members to negotiate as a group rather than as individuals. He was asking them to pay no attention to their individual value-add to the show and to instead negotiate based on their collective contribution. If they could somehow stick together regardless of who “objectively” deserved more or less in any given season, they would have increased leverage. Schwimmer’s proposal was not going to be costless; occasionally, one or more of the actors might be worse off with this arrangement. To articulate with credibility that he believed such costs were worth incurring, he took the first hit.

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Label your concessions: Signaling that you are committed to the process does not do you much good if it does not encourage others to be committed as well. For e.g. when a government agrees to preconditions, it might end up signaling desperation rather than commitment to a worthy cause. Even genuine acts of kindness and wisdom can be interpreted as weakness or incompetence. Shape the attributions others will make of your behavior to ensure that you encourage reciprocity rather than exploitation.