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.

Negotiate ‘Off The Line’

In late Feb. ’07 the Edmonton Oilers ice hockey team dealt away one of their top players, Ryan Smyth, to the NY Islanders. Many were surprised, because Smyth is a native Canadian, (he grew up near Edmonton in Banff) and Canadian teams don’t often trade away Canadian players—it ticks off the locals. Why they did may have been a miscalculation by Smyth’s agent, Don Meehan.

Apparently, and I have no inside information (I read http://chuqui.typepad.com/two_for_elbowing/), Meehan and team G.M. Kevin Lowe were talking right up to the trade deadline, and were about $300K apart out of $5 million a year on a five-year deal. (Imagine the airborne testosterone.) Who is going to blink first? Meehan supposedly did not think Lowe would do a trade, but would blink first and kick in the extra 6%. Instead, Lowe picked up a phone and traded Smyth away.

Doing that, he ticked off fans but also scared every player negotiating with him for several years, until the memory fades. He probably pays a lot less for the player he gets for Smyth, giving him money to buy other players and maybe wins more games each year over the long haul. Also, he wounds Meehan’s reputation, perhaps helping himself even more, since Meehan has several players in his stable. There’s another hooker: not having signed a 5-year contract as they were discussing, Smyth apparently becomes a free agent in a few months, and Lowe can try to get him back, but maybe at his price.

I am not going to second guess what should have happened in the emotional last 30 minutes. I am instead going to talk about how difficult it is to bargain when you insist on inching along the line that separates the two parties on price, each making small concessions.

Bargaining experts suggest you get “off the line.” Here’s what I mean—and from here I allow myself a bit of fiction, since I don’t know the facts about this hockey player. Maybe the length of the contract could also have been put in play. Depending on his age and injury history, Smyth might want a contract longer than five years, to protect himself. Lowe (management) might really have wanted a shorter contract, if Smyth’s future beyond three years or so is uncertain.

Meehan, the agent, might have offered to do a four-year deal, but with a guaranteed fifth year if Smyth scores so many goals the fourth year, in exchange for the $300K per year. Presumably, he knew his client’s needs exactly at this time, and had “chess-boarded” what might happen at the last moment. What if Lowe, the G.M., sees a long future for Mr. Smyth and refuses that? Then Meehan can suggest—or Lowe might—a longer deal than five years, with a few more bucks per year.

Or there could be bonuses each year for goals scored, or opponent goals blocked (or major opposing players sent home on medical leave—maybe not).

The point is that it is no longer a pure blinking contest. When there are continuing relations between the negotiators, no one really wins a blinking contest. It makes everything a personal contest, with the players as pawns. Better to get into shared problem solving. (Better, also, not to bargain in the last 30 minutes, but humans tend to procrastinate, including me.)

Bargaining ‘off the line’ is an example of what negotiation pros call moving from the personal to problem solving—treating the situation as a problem both sides want solved, and working together despite different interests to satisfy the both interests as well as possible. It’s a lot less stressful than horse-trading and gets better results.

A Successful Negotiation and its Lessons

Global Software, a large developer/marketer of specialized software, bought out the stock and thereby the main product of SuperTech Software. That main product was not fully developed, but promised great returns for Global, because the timing was right to take advantage of new government regs requiring such software. Global budgeted an extra ten per cent beyond the buy-out price to purchase training for its software people to learn enough about the product to finish developing it to something marketable.

Then they approached Cindy, the project manager and a principal developer at the former SuperTech, seeking the training they needed. They offered the budgeted 10%, but had a list of training tasks, although with missing parts. Cindy was confident that, personally and with colleagues she would organize, she could deliver the training. But not for the ten percent. What could she do?

Cindy’s business coach spent an hour or two with her persuading Cindy she could conduct an effective negotiation. She also got a few pointers from a professional negotiator. Then she approached Global’s project manager, Charles. She set a date to visit with him, and prepared a spreadsheet showing all the tasks that would be needed, reasonable prices for each task, and the total, which was about three times the budgeted 10%.

On the appointed day, and in several later phone calls, Cindy went over the details of the spreadsheet with Charles, explaining the amount of time required for each task, why the prices were in line with industry standards. She also explained how Global would waste its large investment if it went cheap on the tech transfer training, perhaps never completing the project, or completing it after the window of sales opportunity closed. He countered by explaining how they had set up a fixed budget and could not change it.

Finally, with persistence she convinced Charles, Global’s project manager. He in turn went to his boss and his boss’s boss to seek additional investment in training, using the materials Cindy provided. After hemming and hawing, the higher managers agreed, and Global issued a contract to Cindy, one that would assure her and her colleagues months of remunerative and interesting work.

This story—the names have been changed—illustrates several points about successful negotiating. The first is how important preparation is. The detailed spreadsheet greatly helped Cindy make her points. Doing it in advance enabled her to take the time to do it right.

The second is the use of outside, objective data. Here, that data were the prices for the various tasks, compared to typical pricing for similar training tasks.

Point three is that Cindy separated out any personal emotions she had initially about Global apparently trying to cheat her by offering a lowball contract, and using Charles as a battering ram.

The fourth point is Cindy stuck to her guns without being personally obnoxious or angry, but instead remaining informative. Eventually this negotiation worked out successfully.

Everyone Knows About Them

Someone mentioned to me that I tend to use a lot of scenarios from international relations for starting points for my Negotiation 101 lessons. It's true.

I do that because they are situations most discerning people know about, even if they have no idea what they would do if they were personally involved. (Heck, I don't know what I would do, if I had a grasp on all the subtle details.) They are also high stakes, and generate some emotion.

The emotion, high stakes, and complexity are what I find make for lessons people will remember, and that is why I use them as takeoff points. They are negotiation situations of the highest water, and worth discussing.

Still, if you have a situation you'd like to use as a starting point - perhaps a situation you really have or expect you might get into - by all means please send it to me at NP(at)NegotiationPro.com and I will try to add a posting.

Thanks very much and Happy Holidays.

Phil Marcus, the Negotiation Pro

That SOB Has To Give Up His Ace Before I’ll Talk With Him.

The recent Iraq Study Group report and the various reactions to it shine a light on a frequent problem in all kinds of negotiation and dispute resolution.

The Study Group recommended that the US and Israel, with slightly different interests, both begin talks with Iran and Syria. The idea for the US is to find a way to extricate itself from Iraq. From what I can tell, Pres. Bush refuses to speak with Iran until and unless Iran in advance gives up its apparent vision of having nuclear weapons.

I am not going to tell the world’s leaders how to solve the Iraq and Israel/Palestine problems. I don’t have all the facts. Still, as I have said, this position shines light on a stance people sometimes take in negotiating. Simply stated, “I will not sit down with that SOB unless he first [gives up his strongest negotiating card, his ace].” Well, you know he is not going to, and things will remain at impasse, likely with continual provocation back and forth.

What’s going on? Some folks think that a negotiating position that strong will pressure the other person to give up his ace and back down. Not likely.

For some folks it isn’t a tactic. They really are that stubborn, and don’t care whether the other person gives up his ace, as long as they don’t have to change their stated position that demands that the other person does give up his ace. That is, it is pure stubbornness, a/k/a “principal.” Things will remain at an impasse with escalating hostility a long time. Just the same as if it were just a negotiating tactic.

How does that impasse get broken down and a deal get done? Maybe it can’t be. Maybe both sides have to be so bloodied they can no longer stand, and the people who eventually take over for them are more reasonable.

There is another way. The person with the unmeetable demand can permit someone to negotiate for him (or her) without apparent authority. This ‘back channel’ can open a door. True, at the start there will be little if any trust on either side. So, why negotiate with someone you don’t trust?

The short answer is if you don’t you will never resolve the issues, and may spend years in hostile disagreement, with each side taking various types of hits. Or break a deal that might be good for both sides.

The longer answer is trust can be built up with a series of small concessions, sometimes as little as the shape of the bargaining table. (Don’t laugh. The negotiations that ended the Viet Nam War took several years and in the beginning focused on that subject.)

The gradual process can help each side understand the other and learn what makes the other tick, partly based on carrying through with promises and on operating in apparent good faith. Note that good faith is not the same as caving in. It means honesty and a degree of candor.

Why negotiate with your enemy? Because, again, if you don’t you will remain at war. That may be as small as continuing exchanges of neighborhood nastiness like throwing garbage over the fence at 2 a.m. or making unnecessary noise. Of course, it can be as large as confrontations of thousands or millions of heavily armed troops. Or something in between. It always means no-one wins. In other words, the alternative to talking with your enemy stinks.

Negotiation 101: Consider sitting down to talk with your sworn enemy or someone you don’t trust a danged bit, because if you don’t the alternative stinks.