I remember when I first started learning about negotiating, being introduced to the concept of Pareto efficiency with a fairly complicated graph and a bit of economic theory. In fact, over the years, I have introduced this same graph and theory to many of my workshop participants. For today, I’m going to save you the graph and theory but give you the headline concepts you need to think about.
We often focus on getting to an agreement in a negotiation. In doing so, both sides may put various offers on the table. Each of these is an “option” in negotiation speak – it is a possible outcome that the parties could agree to as a commitment in the negotiation. With options being put back and forth between the parties, it is usual that as soon as an option is put by one party that is acceptable to the other party, the music stops and we move towards implementing the agreement.
This is all good, after all a deal has been done and we should be happy. But there’s a problem. In agreeing to the first acceptable option, the parties have got to “Yes” but have they got to the best “Yes” possible?
Take the following example. Jake and Fiona both operate manufacturing businesses in a rural city. After several conversations and some engineering inspections, Jake agree to buy a piece of machinery from Fiona for $100,000. The machinery will be delivered in two months. They are both comfortable with the price and the delivery timeframe. The sale is documented and the parties get on with their business pending the transfer date.
In the meantime, Jake has to send several of his staff off to be trained in how to use the machine. He loses valuable production time as the training is 4 hours away and he also incurs travel and accommodation costs. Also, he’s really frustrated at the delivery delay because he’s got orders waiting to be started. For Fiona, she’s got customer commitments that require the use of the machinery for the two month period but only at a reduced capacity. She stopped taking orders when she decide to sell. So, now the machine is taking up space on the factory floor but is idle for a large part of the time. And, she’s paying for a full-time operator who she can’t make redundant until after the machine sale completes.
If the parties had shared their concerns about missed sales and underutilized staff, a much better option could have been reached. For example, Jake could have sent staff to Fiona’s factory for on site training, commencing production on the stock that Jake wants to make. Fiona could have recouped some of her labour costs and Jake gets stock much faster.
A good thing to do in negotiation is to take a pause once an outcome is reached. Agree that this is a minimum outcome but keep the conversation going to see how it might be improved.
Have you had an example of going from a good negotiation to a great one by sharing interests and slowing things down?
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