If parties in the negotiation weight issues differently, there will be an opportunity for increasing the size of pie by trading off something unimportant for important. Such action can make both sides better off. In the case above, the main interest of TBG is to investment. It gets a higher monthly contribution by giving up some employees’ welfare. Although trading issues is the most popular way to create value, people can create value by developing bets, in other words, crafting contingent contract. The endowment effect indicates that people likely to overvalue what they own.
Negotiators would have different judgement on issues because of the endowment effect. In the situation, bets can be a very effective ways for dealing with differing predictions. For instance, lawyer and clients may have the different view of winning in the court. If the lawyer wins the case, he will receive a large payment. Otherwise, he will get nothing. In the example, the pie of both sides is enlarged through bets. Bazerman and Gillespie (1999) concluded several advantages of creating value through bets. Firstly, Bets build on difference to create joint value.
It indicates that the different predictions is an opportunity instead problems. Secondly, bets help manage biases. The contingent contract allows agreement to be formed despite biases such as endowment effect, overconfidence, and egocentric interpretations of fairness. Thirdly, bets diagnose disingenuous parties. Most of dishonest negotiator is afraid of a large loss in the bet. As a result, they will reject. Fourthly, bets establish incentives for performance. In the above example, the lawyer will try his best in the court as the large payment after winning in the court.
TBG can raise the contribution by changing scheme and issue some shares to the employees, additionally, company promise to secure some fund to buy the annuity. In the case, if the company gain a large profit, people can get more money from dividend. If they do not gain the profit, retirees can still receive money and TBG will pay less than the final payment scheme. This also can motivate the employees to work harder to make the corporate more profitable. The most important thing for creating value is to understand other parties’ interest. There are 6 strategies to get this information. a. Build trust and share information
The easiest way to share information and create value is building trust, because it can maximise joint benefit. However, it’s easier said than done. The reason is that to give away the information may expose the reservation point and be disadvantageous. Malhotra and Bazerman(2007) argue that it is useful to build trust when your cooperative behaviour cannot be interpreted as self-serving. So the key skill to build trust is to be trustworthy. b. Ask questions To ask questions is another way to get what you want. Most negotiators do not like to actively disclose the information. At this time, you need to ask.
First of all, do not assume other party will not answer you when you ask. Secondly, it is very important to ask suitable question such as how we can make our offer better than that of our competitors. c. Strategically disclose information This strategy indicates to give away some information with a purpose of exchange information with others. But do not disclose the reservation point. It can make you lose your negotiation power. There are 2 advantages of this technique. Firstly, it allows negotiators make a bigger pie. Secondly, we can get more important things by giving up some less important ones.
d. Negotiate multiple issues simultaneously When negotiation, we need to insist that nothing is settled until everything is settled. If one of the issues is decided, it is easy to make other side inflexible. This may limit the value creation and even fail to reach agreement. So you need to consider everything simultaneously before the negotiation and review the package issues after negotiation. e. Make multiple offers simultaneously When all the information you have got cannot create value, you can put several offers which are equal value to you.
Sometimes, all the outcomes may be rejected by other side. A better strategy suggests you can ask them “If I was to rework one of the offers, which one is the best starting point? ” This signals that you are willing to settle the problem and interested in their preference. f. Search for Post-Settlement Settlements (PSS) Raiffa(1985) suggests that after reaching the agreement, negotiators should employ a third party to help them search for a Pareto-superior agreement – one that is potentially even better for both parties than the agreement they already reached.
Negotiators can make the pie much bigger by proceeding PSS. C. Brief summary In the part, two tasks: claiming value and creating value are discussed. The process of claiming value is mainly based on the system one thinking. To create value depends on the interest of other parties. According to the different motivation, the negotiation can be taken through trading issue and bets. There are 6 strategies to gain information. To attempt these techniques as much as possible could make a bigger pie.