The Naked Negotiator

To succeed as a negotiator you have to get inside the mind of your opponent.

But the question is; Does success come primarily from understanding the other side’s viewpoint? Or does it come from establishing deep emotional engagement?

In other words, does it pay to get into your opponent’s head or does it pay to get inside their heart?

The May 3 Economist shows research by Adan Galinsky of Kellogg School of Management at Northwestern University has revealed “that it pays to get inside your opponents’ heads rather than hearts”.

First, the researchers defined the two different approaches negotiators used to understand opponents:

1. Perspective-taking

2. Empathy

Negotiators often use these terms interchangeably but they are different.

Perspective taking is the cognitive power to perceive the world from someone else’s viewpoint.

Empathy is the power to connect with others emotionally - to feel the world from their viewpoint.

The simulations using 150 MBA students showed:

1. That the groups who focused on the perspective of the other side were much more likely to strike a better deal - 76% closed their deal.

2. The empathisers, that is those who focused on the other sides feelings were far less successful -only 54% closed their deal.

3. The control group, who simply focused on the own role without regard to the other sides’ perspective or feelings were even less successful - just 39% closed their deal.

Not surprisingly, negotiations when both sides make an effort to understand the perspective of the other side yield the highest joint gains.

But, even with just one negotiator having perspective taking abilities, the odds of a better deal for both sides are good.

In essence, this breakthrough research shows that deal making is about satisfying your opponent’s interests while meeting your own needs. Too much empathy can stand in the way of truly creative deals.

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Research shows negotiators repeatedly make the same irrational mistakes time after time. As a result negotiators repeatedly leave money on the table, walk away from profitable deals and miss opportunities to turn win-lose deals into win-win agreements.

Here are the eleven most damaging mistakes negotiators commonly make.

THE ELEVEN DUMBEST MISTAKES

Dumb Mistake One: Overconfidence, Ego and Hubris
Negotiators are persistently, and irrationally overconfident. Research shows dealmakers consistently overrate their talents, knowledge and skills.

When overconfidence combines with arrogance or excessive pride the result is hubris.

The best and most persuasive evidence of overconfidence and hubris comes from the world of corporate mergers and acquisitions. Empire building CEO’s have created what is now a 3 trillion dollar a year deal making orgy. Yet study after study - carried out over the last 30 years - shows two out of three mergers and takeovers fail. Instead of creating wealth for the buyer they destroy it. A prime reason: An overconfident buyer paid too much for the acquisition in the first place.

Buyers often try to cover up their mistakes with slick PR and creative accounting. The bravest option is to admit your mistakes and cut your losses.

In 1994 Quaker Oats purchased Snapple for $1.7 billion. Analysts at the time said the purchase price was as much as $1 billion too much. But the CEO confidently pushed ahead. “Snapple has tremendous growth potential through increased penetration, broader distribution and international expansion,” he said.

Twenty-eight months later Quaker off loaded Snapple to Triac for $300 million, that is, for less than twenty percent of its original purchase price. The price of overconfidence: $1.4 billion.

Dumb Mistake Two: Loss Aversion
When it comes to taking losses on the chin, dealmakers have a remarkably low pain threshold. Psychologically the pain that we experience from a loss of a dollar is twice as painful as the pleasure that we get from making a dollar.

As a result we are quick to abandon promising deals. Or at the opposite extreme, we hold onto losing investments much longer than we should. And having made a bad deal we continue to try and salvage the deal by sinking more money into it - throwing good money after bad.

Dumb Mistake Three: Plunging In
We often dive into deals without taking the time to systematically think through the reasons for it.

Psychologically, we often decide what we want to do before we have thought through the reasons for doing it in the first place. The result is we fall into what psychologists call the confirming evidence trap. We look for evidence that supports or confirms what we want to do while ignoring information that contradicts it.

Dumb Mistake Four: Anchoring
Because we like to have benchmarks to guide us through a deal we often fall into the trap of using misleading information to influence our decisions. Most homebuyers, for example, judge their success by the amount they can negotiate off the list price. The list price in effect becomes an anchor or reference point, which the buyer uses as a reference point. A smart negotiator would ignore the list price and instead commission an independent valuation to calculate what the house really is worth.

The trouble is most anchors work on us unconsciously. How much would you pay for an engagement ring? Most people reply “two months salary”. That’s the anchor or benchmark De Beers have been not so subtly promoting to us for years in endless ‘Diamonds are Forever’ advertisements.

Think about it for a moment, two months salary. It is an absurd figure. Shouldn’t the price of a ring should be based on what you can afford?

Dumb Mistake Five: Myopic Focus
Too often we become so self-centered, so myopically focused on our own needs, we ignore the motives and needs of the other side.

Negotiators often forget the whole purpose of negotiation is to trade what is cheap for you for what is valuable for the other side. To do this you have to have an intimate understanding of what motivates the other side.

Myopia creates misunderstanding and differences where they shouldn’t exist.

And because - myopia is essentially caused by shortsightedness - it causes dealmakers to focus on the one shot deal. Myopic dealmakers rarely see a deal as the first in a series of deals, which would have long-term benefit for both parties.

Dumb Mistake Six: Frame Blindness
New York Yankees legend Yogi Berra was once asked how many slices he wanted his pizza cut into. Berra’s reply: “You better make it four; I’m not hungry enough to eat eight.”

An optimist looks at a glass of water and views it as half full. The pessimist looks at the same glass and views it as half empty. In the same way, the way we view or frame information has a powerful effect on the way we negotiate.

Research shows negatively framed negotiators give away fewer concessions and deadlock more often than positively framed negotiators.

Dumb Mistake Seven: Focusing on Vivid Events
When Jaws – the film starring a man-eating shark – opened at cinemas across the USA, the number of swimmers visiting Californian beaches dropped dramatically. Sharks do inhabit the Californian coast but the risk of a swimmer actually being attacked by a shark is very much less than the risk of being killed in a road accident while driving there.

Negotiators are often not influenced by the true facts of a situation. More often they are influenced by what makes the most vivid impression on their mind. Vivid information causes negotiators to misinterpret and distort evidence and end up making stupid decisions.

Dumb Mistake Eight: Number Dumbness
The Spanish love their lotteries. Virtually every Spaniard takes a ticket in the weekly National Lottery. The Christmas draw is so large, television broadcasts the event live. To prove to everyone the process is pure luck, children from a Madrid orphanage draw the winning numbers.

The winners become instant celebrities. One grand prizewinner was asked, “How did you do it? How did you know which ticket to buy?” He answered “For seven nights in a row, I dreamed of number seven, since seven times seven is forty eight…”.

The winner clearly can’t multiply. He doesn’t even understand he is claiming credit for an event that was determined by random chance, something that was totally out of his control.

Most negotiators rate their mathematics ability better than our lottery winner. But the fact remains, innumeracy (ignorance of mathematics) afflicts most negotiators. Typically negotiators miscalculate probabilities and fail to appreciate the impact of inflation on deals. The also fall into the trap of ignoring the small numbers in deals, the cost of which can add up to a small fortune over time.

Dumb Mistake Nine: Irrational Commitment
Knowing when to quit or when to walk away form a deal separates the smart from the dumb dealmaker. Comedian W.C. Fields said it all. “If at first you don’t succeed, try, try and try again. Then quit. No use being a damn fool about it.”

Yet too often negotiators ignore Fields advice. Committed to a course of action they become emotionally entrapped. The history of investment fiascos provides dozens of examples. Investors buy stock when they think it is a bargain, and when it collapses they buy more of the same stock, since now it is an even better deal. The commitment and the dollars invested escalate out of control.

What started out as a rational investment decision has turned into desperate folly. “Fanaticism, says George Santayana, consists in redoubling your effort when you have forgotten your original aim.”

Dumb Mistake Ten: Win – Lose Mindset
Few people are more competitive in business than the late Steve Ross, the founder of Warner Communications and later CEO of Time Warner Inc. On one plane trip aboard his corporate jet (with his wife and another couple), he was playing canasta. They were coming into land when he lost the last game. So he commanded the pilot to circle the airport until he could win a hand.

Hyper-competitive personalities like Ross often fall into the trap of treating negotiation as a contest. They can’t bear to lose – or even share the spoils of a deal with another party. They win – you lose.

The trouble is win – lose negotiators come to the deal table with the belief they are fighting for a slice of a fixed pie. Since they believe the size of the pie is fixed, negotiations become a battle over who gets the biggest slice.

Even when the other side offer generous concessions the super-competitive personality automatically devalue the concessions – since they believe what is good for the other side has to be bad for them. Win – lose negotiators also often reduce negotiations to one issue, often money. As a result potentially good deals degenerate into acrimony.

Dumb Mistake Eleven: The Lemming Effect
Lemmings are dumb creatures because when one panic driven lemming charges over a cliff, other lemmings follow the first lemming dumbly and blindly to their death.

In the same way dealmakers will pay higher and higher prices for property, paintings and companies simply because other people, for the most part whom they have never met are willing to pay similar prices.

Wall Street calls this “investing with the herd.” Financial advisers take advantage of you by preaching another Wall Street aphorism cliché. “The trend is your friend.” Translated this says, “don’t think” – follow the herd. Smart dealmakers should know better.

Overcoming Irrational Thinking
How do you overcome or prevent these potentially catastrophic mistakes?

Most of the psychological mistakes we make in negotiation are made when our minds are locked unthinkingly on automatic pilot.

To move your brain from dumb mindless thinking, to smart conscious decision-making, negotiators have to recognize the thinking traps they fall into. This requires intensive simulation-based training where negotiators are exposed to all the common pitfalls.

Once negotiators can recognize the cognitive patterns that cause their mistakes, they can then be trained how to avoid the mistake. Plus, they can be taught to exploit the thinking mistakes opponents make.

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A friend of mine confronted me the other day with a challenge.

“Harry, you’ve written books on negotiation, sales, marketing and presentation. If you had to boil all the advice into one quick phrase what would it be?”

“KFC”, I replied.

“What do you mean KFC? I didn’t ask for nutrition advice.”

I explained, “KFC. The K stands for Know what you want. The F stands for Find out what you’re getting. The C stands for Change what you do until you get what you want.”

All great persuaders, sellers, negotiators, and marketers practice KFC. They know that knowing what you want is the first critical step in persuasion. The second step is to pay attention to the feedback. Feedback is not called the breakfast of champions for nothing.

If what you tried isn’t working you change what you are doing until you get what you set out to get in the first place.

So remember - KFC:

Know what you want

Find out what you’re getting

Change what you’re doing

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I have always been fascinated by how experts make decisions. Take chess. After a quick glance at a chess board, chess masters (who have 50,000 patterns stored in their memory) can play fast “blitz chess” with minimal loss of performance.

When we first learn a skill such as chess, we are novices, we learn by rules. Experts see things that are invisible to novices.

They notice:

• Patterns
• Anomalies
• The big picture
• Opportunities
• Differences too small for novices to detect
• Their own limitations

Experts, it seems, can rely on intuition because years of experience has given them the abilities to look for the “patterns” of whatever game they are playing.

As a result, when we teach negotiators, in our seminars we are always teaching to read the patterns.

We’ve found showing learners how to “read the patterns” dramatically accelerates negotiators learning and mastery.

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Brilliant negotiators know how to play a weak hand. They appreciate that power or the lack of all - is often a state of mind - a matter or perception.

Consider the problems an Eskimo trapper faces when he emerges from the Arctic darkness to trade his fox furs at the one and only trading post for hundreds of miles around. If ever a buyer enjoys a monopoly, it has to be the Arctic fur buyer. Yet the Eskimo knows just how to limit the power of the trader.

When a fur laden sledge carrying an Eskimo trapper, his wife, and family, emerges from the farthest wilderness on its six monthly trading mission, all the inhabitants of the village gather round to welcome them. The trapper and his wife enter the trader’s house for a big feast. All the villagers come in too, listening and looking on. Peter Freuchen, a Norwegian fur trader, describers what follows in his Book of the Eskimos.

We discuss the weather, the hunting in the summer, the dogs. The only matter we don’t talk about is foxes. Next day the same thing - eating, dancing, talking - and the next day and the next, until for my part I think that the hospitality has come to an end. Then I just casually ask the man whether he has caught any foxes this year.

“Me, foxes?” he answers. “Nothing doing. One is a poor hunter as far as that goes, but especially for foxes.”

“Well,” I say, “I’m sorry, because I’d like to have a few foxes just to send home to the white people’s country when the ship arrives next summer.”

“Oh!” the man yells out. The big, nice white man has made a mistake. “Oh, you don’t know how unable I am to catch foxes.”

“Well,” I remark, “I saw a couple of bags out on the load which is now on the meat racks, and I thought they contained fox skins.”

“Well,” the man says, “maybe there’s just a couple of skins in the bags, but we just use them to wipe the grease off our hands and other dirty things.”

“Good!” I say. “But just the same I might like to have some of them. What about looking at them tomorrow?”

Next day comes, and after breakfast I again have to encourage the customer to show his merchandise. Now comes the big moment of the year. They bring in a couple of sacks, each containing some fifty blue fox skins, and they have beforehand assured themselves the whole village is present to witness their triumph. As if they were being dragged to the gallows, they open the sacks and pour the contents out. Now it is my turn. I look at the skins, amazed, surprised and beaten.

“Well,” I say, “as usual, these are the best skins in the year. I knew they would come from you; and they certainly did. Here is something I will have to mourn about for years, because I am unable to get those foxes.”

The man raises his head, interested. “What did you say? Are they too poor for you to accept?”

“Oh no; not at all. Just the opposite. You will have to take every one of your skins back with you because I have nothing to pay with. The trading goods that came out this year were especially bad. We haven’t got enough of them and they certainly aren’t of a kind that can pay for such skins as yours.”

“Pay!” yells the man at the top of his voice. “You don’t think that I should show myself low enough to take any pay for these poor skins?” I will feel myself happy if you’ll accept them.”

Finally I put in a question. “I am unable to pay for the skins but anxious to show my gratitude through my poor gifts. What could you be thinking of wanting in case I should be presumptuous enough to compare my unworthy goods to your valuable furs?”

He starts in. “What do I want! What do I want! Oh, I am a man without wishes. I don’t know if I want anything.”

It is then up to me. “Don’t you want a gun?”

“A gun! A gun! Oh, a gun had been in my mind and in my dreams for a long, long time; but I, the man you listen to now, am a terrible hunter. Why should I have a gun?”

“Well, I will give you a gun. You need a knife too, and you need some tools. And what more?”

Now that the big time is here he doesn’t know what he wants. But I have the skins, so I invite the man, his wife and his children to go into the store and look the things over. They get the key and go down to the store. They go in, closing the door carefully behind them, and spend the rest of the day going through everything.

Meantime, I get a chance to look these skins over and figure out my prices, and finally, in the evening when the couple comes back, the man has his wishes. He never tells what he wants, but he relates of what knives he saw, both those with the white handles and those with the brown, and the small ones with the point.

He goes on: “And then I looked at the files. My what beautiful files. And I saw out there you have axes.”

He is interrupted by a sort of yelling or crying from the background. It is his wife, carefully instructed by him, who now breaks in complaining what a bold and fresh husband she has, keeping on asking like a beggar even when it has been proved to everybody that he has nothing to pay with. This, of course, only serves to cause me to protest that his skins are marvelous, unmatched so far, etc.

I turn to the wife. “What about you? Aren’t you going to trade? Don’t you want something?

She blushes and looks for a place to hide. “Me? Certainly not! What should I want? Am I one who deserves anything? Oh, no; I have no wants, no wishes at all.”

“But wasn’t there something that you would like?”

“I would like to have — oh, I happen to be without wishes; only those people who are worth something should have something.”

“Well, but I just want you to take something with you.”

After several more excuses, she tells what she might like to have. A few needles. And she wanted some scissors, and she wanted thread. Maybe for the children some undershirts would be good, and some for herself; also combs. And “I would like to have a mirror, even though I, of course, will never look at myself in it.”

The wife keeps on asking, and finally I have to stop her from asking for more. Meanwhile I have figured out how much they can have for each skin and write it down on a piece of paper, sending them out to my clerk, who now is in the store ready to deliver the goods. Now the clerk has his troubles out there while they are making their choice between the different cups, the different kettles, the guns and whatnot.

And now comes the end of the trading, where they show their smartness and prove what fine businesspeople they are.

The man will come running in. “Oh, I’m so sorry; when I told you what my needs were I forgot to ask for tobacco. I’d like to have some tobacco.”

“All right.” I allow him the tobacco.

A few minutes after he will be back with his purchases.

“Well,” he will say, “I saw a knife out there I would like to have instead of this one, though it will ruin my sleep to part with this one, too.”

I let him have the knife.

The wife will be there. “There was also some red cloth.”

Then the man comes again. “I have the whole time been thinking of a saw, but the tongue refuses to pronounce the word.”

I let him have the saw. And they keep on. The only way to stop them is to have lunch ready. And the deal is closed.

Next day departure takes place. The dogs are harnessed up and attached to the sledge. But sure enough, he comes in at the last moment: “Oh, I forgot matches! Why didn’t I mention a saw file! If I had only asked for a little more goods! Enough for a harpoon shaft.”

The smartest man is the man who remembers most. He gets a reputation amongst his countrymen. Of course the perfectly straight-minded man doesn’t know about this and doesn’t allow for it, but the seasoned trader keeps back four or five fox skins to make up for the forgettings and additional wishes.

When everything is loaded on and woman and children place on top of the sledge, the man gives a signal to the dogs to rise up and be alert. Then I come out with a package in my hand, giving the wife some tea and sugar, or whatever else I know she would like. Of course these things have been allowed for too.”

The Eskimo showed all the skill of a master negotiator. From the start he involved the whole village in the negotiation. The villagers witnessed many of the proceedings. As a result the fur trader was always under public pressure to behave fairly and reasonably.

By playing the role of the reluctant seller the Eskimo forced the trader to publicly state how marvelous the furs were and how much he wanted them.

The Eskimo used time well. Throughout he displayed great patience; there was never any hint of desperation to sell.

Before they got down to the actual trading, the Eskimo and his family spent a whole day in the store sorting out their priorities. The actual trading was carefully orchestrated with his wife chiming in at opportune times. Then after the trading had supposedly ceased they were not averse to extracting a few last minute extras.

In short, the Eskimo understood the different ways power can be used, and exploited each of these to the fullest.

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