Defining Negotiation in the Modern World

Published: Nov 28 , 2016
Author: Alan Smith

Two questions:

When negotiating, do you want the other side to act reasonably?

And,

Is it a good strategy to be reasonable when negotiating?

Most people will say yes to the first question. It would be crazy not to.

The second however creates a bit more of a dilemma. We are sometimes tempted to go high or low, pad and exaggerate what we really anticipate being able to achieve. Because that is what we should do right?

The problem with going extremely high or low, being unreasonable, is that it encourages the other side to do exactly the same. You start high, they go low, the dance begins, the handbags are placed on the dance floor, before you eventually converge on a deal that is ‘reasonable’. In the meantime, you have both spent a lot of time, energy and money, and potentially done a lot of harm to what could have been a harmonious relationship.

Would it be to everyone’s advantage to come to the table with a realistic starting position? Not soft, certainly challenging and ambitious, but with a foothold in reality, one that certainly can be explained and the basis understood.

An interesting proposition indeed and one that recently inspired a Final-Offer negotiation challenge by AIG. AIG are an insurance giant. Like many insurance firms they spend billions of pounds involving thousands of cases and often end up in court battles dealing with inefficient settlements. Expensive right.

Also like many insurance companies they build their reputation on trust and fairness. That is why people use them in the first instance. They certainly do not want to overpay on claims, commercial suicide, but it does need its customers to recognize that it wants to do the right thing.

AIG created a final-offer arbitration mechanism to try to speed up dealing with claims. Essentially parties on either side of the claim would make an offer and present them to an arbitrator who would then decide which offer was most fair. That would be the legally binding offer going forward. No splitting the difference or further negotiation.

AIG took the view that if they made an offer that was reasonable and the other side didn’t, theirs would be the one that carried the day. They also opined that this would be seen as fair to their important customers and that it would encourage them to come to the table with a reasonable offer in return. Fairness was actually built into the system.

Apparently the system has shown some degree of success.

The challenge for such a methodology in the commercial world is of course who decides what is fair? What margin should your bid be allowed to have built in? How many migrants should be allowed across your borders to protect free trade? What time should you be able to come home, if you tidy your room?

Fairness may just be in the eye of the beholder.


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Alan Smith
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Muck Shift

Just when is a deal not a deal…? I heard this story from a friend of mine the other week; there are some lessons to be learned! So, my pal is a developer and is building some houses on what is essentially a square site. Two sides of the square can be accessed from the road in a neighboring housing estate and the other two are beside a field owned by another developer. There is a huge pile of muck to shift before the actual building project; this phase is known in the trade – and not unreasonably - as a "muck-shift"! As there will be 80 -100 lorries coming in and out each day for 6 weeks, it was considered more convenient to access the site over the field, so an approach was made to the developer to discuss the terms under which he would allow access. This is a standard arrangement and the deal typically is that the field would be returned to the owner in its original condition. Developer makes a bit of money, where otherwise he wouldn’t; homeowners in the adjoining estate are less inconvenienced; builder does not need to spend money cleaning the streets and getting them back to a usable state at the end of the project. Win-win.

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