Six Habits of Merely Effective Negotiators
other. The executive subjects were randomly as- signed to the negotiating roles of buyer or seller; the information provided to each side was iden- tical. After plenty of time for analysis, all sub- jects were asked for their private assessment of the target company’s fair value—as distinct from how they might portray that value in the bargaining process. Those assigned the role of seller gave median valuations more than twice those given by the executives assigned to the buyer’s role. These valuation gulfs had no basis in fact; they were driven entirely by random role assignments. Even comparatively modest role biases can blow up potential deals. Suppose a plaintiff be- lieves he has a 70% chance of winning a million- dollar judgment, while the defense thinks the plaintiff has only a 50% chance of winning. This means that, in settlement talks, the plaintiff’s expected BATNA for a court battle (to get $700,000 minus legal fees) will exceed the de- fendant’s assessment of his exposure (to pay $500,000 plus fees). Without significant risk aversion, the divergent assessments would block any out-of-court settlement. This cogni- tive role bias helps explain why Microsoft took such a confrontational approach in its recent struggle with the U.S. Department of Justice. The company certainly appeared overoptimistic about its chances in court. Similarly, Arthur Andersen likely exhibited overconfidence in its arbitration prospects over the terms of separa- tion from Andersen Consulting (now Accen- ture). Getting too committed to your point of view—“believing your own line”—is an ex- tremely common mistake. Partisan Perceptions. While we systemati- cally err in processing information critical to our own side, we are even worse at assessing the other side—especially in an adversarial situa- tion. Extensive research has documented an un- conscious mechanism that enhances one’s own side, “portraying it as more talented, honest, and morally upright,” while simultaneously vilifying the opposition. This often leads to exaggerated perceptions of the other side’s position and over- estimates of the actual substantive conflict. To an outsider, those caught up in disintegrating partnerships or marriages often appear to hold exaggerated views of each other. Such partisan perceptions can become even more virulent among people on each side of divides, such as Israelis and Palestinians, Bosnian Muslims and the Serbs, or Catholics and Protestants in North-
vated the interest of both companies. The divi- sion sold for $45 million. Negotiators must also be careful not to in- advertently damage their BATNAs. I saw that happen at a Canadian chemical manufactur- ing company that had decided to sell a large but nonstrategic division to raise urgently needed cash. The CEO charged his second-in- command with negotiating the sale of the divi- sion at the highest possible price. The target buyer was an Australian com- pany, whose chief executive was an old school friend of the Canadian CEO. The Australian chief executive let it be known that his com- pany was interested in the deal but that his se- nior management was consumed, at the mo- ment, with other priorities. If the Australian company could have a nine-month negotiating exclusive to “confirm their seriousness about the sale,” the Australian chief executive would dedicate the top personnel to make the deal happen. A chief-to-chief agreement to that ef- fect was struck. Pity the second-in-command, charged with urgently maximizing cash from this sale, as he jetted off to Sydney with no meaningful alternative for nine endless months to whatever price the Australians of- fered. Negotiators often become preoccupied with tactics, trying to improve the potential deal while neglecting their own BATNA and that of the other side. Yet the real negotiation prob- lem is “deal versus BATNA,” not one or the other in isolation. Your potential deal and your BATNA should work together as the two blades of the scissors do to cut a piece of paper. Mistake 6 Failing to Correct for Skewed Vision Youmay be crystal clear on the right negotiation problem—but you can’t solve it correctly with- out a firmunderstanding of both sides’ interests, BATNAs, valuations, likely actions, and so on. Yet, just as a pilot’s sense of the horizon at night or in a storm can be wildly inaccurate, the psy- chology of perception systematically leads nego- tiators to major errors. 3 Self-Serving Role Bias. People tend uncon- sciously to interpret information pertaining to their own side in a strongly self-serving way. The following experiment shows the process at work. Harvard researchers gave a large group of executives financial and industry information about one company negotiating to acquire an-
Many people associate the ability to inflict or withstand damage with bargaining power, but your willingness to walk away to an apparently good BATNA is often more important.
harvard business review • april 2001
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