Many negotiators will be so focused on claiming the maximum value in a negotiation that they will forget the bonuses from value creation. Being a successful negotiator involves knowing when it is appropriate to give and when it is appropriate to claim. An effective negotiation strategy consists in coming to the bargaining table with creative solutions. Solutions that will create more value and experience mutual gain. By aiming to express genuine interest in the other party’s priorities, each party naturally fares better than they would have in a straight win-lose negotiation.
By focusing on creating value in negotiation, the parties leave in the same or better position than where they started, which is often the aim of every negotiator. Value creation is vital to dispute resolution and ensures that future discussions and conflicts are resolved effectively. This article will outline the importance of creating value and outline ideas for creating value in any negotiation.
Defining Value Creation
Value creation is the art of adding more value to the bargaining table. Value is what the parties involved are negotiating for. When skilled negotiator approaches a bargaining table, they are prepared to find ways to make value both for themselves and for the other party. Value creation requires focusing on the interests and competing multiple issues between the parties to identify ways to add to the pot while claiming value for themselves as well.
Creation occurs when the parties can sacrifice their desire to secure maximum profit and instead find ways to transform good deals into great deals.
By increasing the value to be claimed, the parties can leave with negotiated agreements that give both parties the satisfaction of a job well done.
Claiming Versus Creating Value
To better understand what it means to create value in negotiation, it can be helpful to explore the opposite of creating value -claiming value. Claiming refers to when one or both parties take or ask for a portion of the value being negotiated for. What the negotiators do with value tends to dictate the type of negotiation that they will have.
In most negotiations, there are two options for the type of negotiation: distributive and integrative. Distributive and integrative negotiation will result in very different outcomes.
Distributive negotiation is the negotiation style that many people imagine when they think of a difficult bargaining table. Distributive bargaining is frequently considered a win-lose scenario because the value that can be negotiated for is set from the beginning. There is either little room or desire to create value in the process. Each party focuses on its own interests and tends to ignore the other party’s interests. These win-lose scenarios are created because everything that one party claims, the other party loses and faces major sacrifices.
When it is focused on claiming, negotiation results in a breakdown of relationships and encourages hard bargaining tactics. While distributive or competitive negotiation can have its role at the negotiating table, other negotiation tactics can help negotiators achieve agreements and leave the negotiation satisfied. Although, it is important to consider the scenarios where the parties have a negotiating agreement that clearly lays out the set parameters for the negotiation.
The opposite set of negotiation skills includes the ability to resolve conflicts through value creation and finding a win-win outcome. A more skilled negotiator sees the value in balancing multiple issues and focusing on joint gains in the deal-making process. Integrative negotiations occur when the parties choose to expand the negotiating pot and find value-creating opportunities at each step of the process. Doing so does not mean that each bargaining party necessarily leaves in the best position, but each party naturally fares better overall than they would have in other situations. Integrative negotiation encourages a focus on the uncommon ground, value creation, and finding a win-win negotiated agreement.
Value Creation Encourages Win-Win Negotiation
To gain a deeper understanding of why value creation is important, it can be helpful to understand the benefits that creating value adds to a negotiation table. Aside from actually adding more value to the outcomes for both parties, it can encourage the following benefits.
- Foster Goodwill: When the parties focus on adding to the negotiation instead of taking from the other party, they will often foster goodwill among the parties. This means that the parties leave with a new or renewed sense of goodwill or respect for the other party. When one party feels that the other is working for their interests as well as their own, they will be more likely to return to the deal-making table. Business relationships can be formed and fostered because one party chose to create value rather than claim it.
- Bolster Cooperation: In a similar vein, creating value will often encourage and bolster cooperation between the parties in the current negotiation. This means that a negotiation that has gone sour can quickly be turned around by finding ways to bring value in for the other party, even if you never give anything you have already claimed up. By looking to create value for the other party, the person will often feel that they are being acknowledged and find other ways to create value and cooperation right back.
- Creative Solutions: Another benefit of value creation is that it encourages the parties to identify creative solutions to their problems. When the pot seems fixed, it is often difficult to identify ways to add value for one party; however, when the parties can find value in the most creative solutions, the negotiation will often move past a standstill and into a negotiated agreement.
- Productive Dialogue: Similar to the cooperation and goodwill that value adds to the mix, it can also encourage productive dialogue between the parties that would immediately be shut down without adding value. Although a suggestion may matter necessarily in a negotiation, the value that is suggested can often lead to a productive dialogue about the options that were presented and can lead to even more value being added to the conversation.
- Better Outcomes: If the parties are focused only on claiming value, they will often miss various benefits that could have been added with the addition of more. This means that even the party that “wins” may not have achieved maximum value.
Adding value to negotiations is vital to overall negotiation skills and strategy. Learning to create rather than claim when possible will help a negotiator reach deal-making success.
How to Add Value to Business Negotiations
When it comes to tips on how to add and create value in negotiations, there are various schools of thought and lists of ideas. From Harvard Law School to business partners at the firm, everyone will have their own ideas, yet that is the beauty of value creation. The more that one asks for advice, the more ideas and creative solutions one has. This list of options is not exhaustive, but it should help point you in the right direction when looking for some ideas or inspiration.
As with any action related to conflict resolution, one of the best ways to ensure that you walk away with the best results possible is to prepare extensively beforehand. In fact, if it is the only negotiation tactic that you focus on, you will likely use other strategies and techniques without necessarily focusing on them. A thoroughly prepared negotiator is often the best weapon in a hard bargaining situation.
Preparation begins from the moment one determines that negotiation is the route to go. A negotiator must first understand the interests and needs that are at play for their position. You must determine what is the lowest or highest that you will be willing to go in the negotiation. As well as what other considerations may be able to get you to land outside of that range because they add value to your position. These interests will be the way that you can concede points or value in a negotiation without losing everything you came for.
The preparation process also includes understanding the needs and interests of the other party. You will need to determine what their zone of acceptance is and what other interests outside of money or the main focus of the negotiation is the motivating factor for them. The other party’s priorities are the sweet spot where you can create value for the other party that will make it difficult for them to decline. It helps you understand how to claim value as you create it.
Share Information Effectively
The more information that the parties have about each other’s interests, the more they will be able to identify the value to add. However, this does not mean that the parties should share everything with each other as they negotiate. If you give a party too much information too quickly, you may not have any cards to rely on later if you need additional value for yourself. This means that you need to share information but avoid divulging details early or at all that could affect the negotiation later on.
If you would be willing to give up $1000 if the other party apologizes publicly, you may want to hold onto that until that $1000 is less of a concession for you and more appealing to the other side. The timing of details and information is crucial to adding value to a negotiation.
In the example above, a nonmonetary interest, the apology, was traded for a monetary interest. This is a creative way to find value in the toughest of negotiations. This can sometimes be referred to as the “free press” tactic, because many companies may be willing to offer free press to the other company or individuals instead of a higher pay rate. This strategy relies on the interests of a party outside of money that can encourage cooperation and lead to a better result. Identifying some options for nonmonetary offers can add value without costing anyone anything.
Find Uncommon Ground
Another tactic that many negotiators will use is to find uncommon ground with the other party and use it to identify interests or values. The best way to create value between the parties is to focus on where they are different rather than where they are the same. When you identify uncommon ground, value creation will often follow because these differences will highlight the areas where you can give up value to claim it in other areas.
An additional tactic for value is to offer reciprocity. Often a party will begin to resent the other if they feel that they are releasing value and compromising more than the other or all the time. By offering reciprocity, you can show that you are willing to compromise on an issue if they agree to do the same. This allows the parties to feel like they are working together to effect change.
Multiple Equivalent Simultaneous Offers
Multiple equivalent simultaneous offers are when one of the parties presents two or more offers to the other party that have the same or similar value to the person offering. This allows the other party to choose which one has more value for them while not costing the offering party anything more. By offering the other side a choice rather than demanding cooperation or concession, you can foster goodwill and bolster cooperation throughout the negotiation.
Know Your Limits
Finally, it is important to know your limits and the value of your perspective. This means that you know where the point is that you will walk away without a deal because it would cost you too much value or consideration. It also means that you know the limits of how much you can claim before you threaten to blow up the negotiation for the other side. This allows you to take a break if necessary because the conversation is getting too heated. Preparation is key here because when you know your limits and the other side’s limits, you can sense when they are approaching and address them head-on.
To succeed in bargaining talks or conflict resolution, one must understand negotiation and what it means to create and claim value. Negotiation is a skill that can be learned, and focusing on developing negotiation skills can turn partners and managers into skilled negotiators.
To unlock negotiating power, it can be beneficial to attend negotiation training or hire a negotiation coach. By focusing on your skills, you will be able to add value and blow the competition away.
If you are interested in developing your negotiation skills further after reading, please click on the training opportunities below.