Sunday, April 08, 2007

Splitting the Difference Can be Lose-Lose Negotiation

I want a million dollars for my building and you think it’s worth half that. Why don’t we just split the difference? One answer is that although it seems on the surface an efficient solution, it is really expedience, not reason.

To see that, let’s look at a famous dispute recorded in history where someone recommended splitting the difference. Two women came before King Solomon, sitting as judge, to settle a custody dispute involving a single living child. Each woman claimed that the other woman's baby had died, and that the surviving child was her own.

There was very little useful evidence. There were only two witnesses, the disputing parties, and each claimed to be biological mother of the child. They contradicted each other about their relationship with the surviving child. Each had a strong reason to lie and thus neither was credible.

Solomon was not stymied. After all, as king he was the law. He ordered the bailiff to bring a sword, to cut the surviving child in half, and to give each woman an equal share.

One of the women shrugged and quickly agreed to the plan. "Seems fair to me."

Still, the other woman wasn't pacified. She shrieked, "This isn't right! Please! Give her the child! Anything, but don't kill the baby!"

Solomon allowed the child to live. Pointing to the woman who complained about his proposal, he said, "This one is the mother," and awarded custody to her.

Who knows whether this really happened? Still, had Solomon not had the wisdom for which he is famous, it certainly would have been a case of splitting the difference.

Is splitting the difference for your current deal best, or would you be better off trying one of two other methods. The first is to think about whether the deal isn’t really more complex than just price. Are there other terms as or more important, such as payment scheduling or a million other things? If you are splitting a pie, is there any way to work together to make the pie bigger?

The other method is to see if the type of object in question or similar ones are sold often enough in the market to warrant looking at comparable sales. In real estate both parties would of course check that. However, in other areas the idea does not always occur. eBay® is a possible basis, but is tricky to use since only final bids are close to valid. Sometimes one can get hold of comparable salary data, while keeping in mind no two people are exactly fungible. Still, it’s worth looking for external market measures before jumping to a split. That is especially true since an exaggerated first offer by one of the parties distorts where the split is between them.

Negotiation 101: Don’t just split the difference. Think about an alternative method, such as negotiating other terms or looking for comparable things actually sold.