The Art of Negotiation: Creating a Value Space

Wheeler, Michael. 2013. The Art of Negotiation: How to Improvise Agreement in a Chaotic World". Simon & Shuster. New York. ISBN: 978-1-4516-9042-2

I'd become acquainted with Michael Wheeler's book some time ago and put it on my professional reading list. When I finally got around to picking it up, it did not disappoint. He maps out his book into four sections:

  1. "A Sense of Direction"--helping the reader or new negotiator get started, saying that any plan is better than no plan and know what you want out of a negotiation is an important first step in possibly getting it. Having a plan, even if it isn't completely realistic is confidence-inspiring and likely to take you a long way to a more favourable outcome.
  2. "Improvising"--is what allows us to set the plan aside or modify it as new information or opportunities present themselves.
  3. "Managing the Process"--contains the sequencing of the negotiation: how to open, how to take advantages of critical moments, and how to conclude the negotiations.
  4. "Mastery"--deals with the conundrums of negotiating: how do I know I struck a good deal? How to merge arrogance with humility so that you are happy with the deal you struck and the other party can walk away with head held high as well. How to add more value to the agreement than either party had without the agreement.

Through it all, Wheeler introduces some interesting metaphors and mnemonics to help remember the theory. For example, he discourages thinking in one dimensional "bargaining terms" such as "The more I get, the less you get." Instead, he suggests that both sides have a baseline, below which the deal holds no benefit for them. But instead of these baselines butting against each other, they share a triangular space with a third line comprised of external constraints to both parties. These constraints could be legislative or regulatory compliance, or some sort of deadline. Wheeler calls this triangle the "deal triangle". I call the interior of this triangle the "value space."

An example came to mind recently as we were considering purchasing a house. We need to move but we have not yet sold our current house and don't want to carry two mortgages. The house we are interested in purchasing has been on the market before (and at a lower price than it is currently listed) but it is presently rented out. The current tenants will be moving out in two months and the owners think this might be the best time to unload this property rather than committing themselves to leasing it to new tenants or sitting on an empty house.

A typical line of thinking would be to put in an offer conditional on the sale of our current house. This would meet our needs and risks, but not necessarily those of the sellers. Similarly, if they received a competing offer that was either a better price or didn't have any conditions, we would be forced to remove our conditions or lose the sale. The sellers want to sell the house, not rent it out again.

But what if we could expand the value space?

Let's say we were to offer the sellers the following proposal: we will pay the sellers a fee of $10,000 as a down payment on an option to purchase the house for a price of $500,000 within the next 12 months. We have the right to execute the option at any time within the next 12 months at our discretion or we walk away from the sale, I forfeit the deposit. The seller also agrees to rent the house to me upon expiry of their current lease with their tenants at the same monthly rental payment as the current tenants are making. The rent will be paid monthly until such time as I execute my option to purchase or the agreement expires.

Looking at it this way, the baselines of both parties will be met: I will have bought the house while minimizing my risk of having to carry two mortgages; the sellers will have a clear agreement to sell their house or to be compensated if I renege on the deal. But we've also added value to the agreement: provided they can wait a bit, the sellers will make some additional rental revenue and can sign for an agreed price that isn't subject to market fluctuations within the next year. I will be protected from some other buyer making a better offer or an offer without conditions.

Wheeler suggests that setting a baseline consists of:

  1. Establishing a benchmark deal. What is the "Best Alternative To a Negotiated Agreement" (BATNA). A deal is tempting only if it is better than your fallback position. For the sellers, this would be to rent out the house under a new lease. For me, it is continuing to wait for my current house to sell before I can buy a new one.
  2. Identify equivalent packages. What other options do I have? I could rent until my house sells. I might be able to live with family. For the seller, they could lower their price to make it more enticing to prospective buyers before the current lease expires. The proposal is better than either of these: I won't have to move twice; the sellers won't have to list their house again when the next lease expires and can get a better price than if they need to low-ball their offer before the current lease expires.
  3. Anticipate likely change. My baseline has room to move. What I think are the seller's priorities may not be what the seller feels to be important. He may indeed need the money now and can't wait for the deal to close sometime over the next 12 months. They might get a conditional offer but at a high price than I am presently offering. Can I change the proposal so that it doesn't fall outside my baseline while respecting the change in the seller's baseline?

This process of creating a plan, analyzing your baseline, what you think your opponent's baseline might be, and how you can create movement and momentum towards an agreement while making sure that the deal works for both (or all) parties is the core of the first section of the book. Yet, in my experience, I find many people who need to find a negotiated solution to a given problem are really only focused on, "What's in this for me?" Failure to anticipate or reflect on the needs of the other party is like traveling at night with your headlights off. Just a little reflective illumination and thought about the entire negotiating terrain goes a long way to helping a negotiator see a much larger section of the total negotiating landscape. With a broader view, a more creative and winnable solution might just be possible.