LEARNING TO TELL A COMPROMISE FROM AN UNNECESSARY CONCESSION
Ironically, the most solid, unshakable beliefs are the most superficial ones.
Deep convictions can always change.
– LEO TOLSTOY
In this chapter, we will explore concessions, compromises and how to tell the two apart. But before defining these terms, I would like to introduce the concept of a ‘negotiation budget’.
Have you ever given much thought to what this really is? Many would say that the budget is, above all, the money spent on negotiating. In that sense, it can be viewed as a sort of benefit. But it is worth looking at this concept from a slightly different angle.
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CREATING A NEGOTIATION BUDGET: FOUR KEY COMPONENTS THAT AFFECT RESULTS
While the negotiation budget will of course depend on the value of the contract in question and other related concerns, it is also largely dependent on these four parameters:
• Time: the time we spend on the negotiations themselves.
• Energy: the energy we put into preparing and holding these negotiations.
• Money: the cost not of the contract, but of the ongoing negotiations.
• Emotion: the emotional toll of the negotiations.
The following equation for calculating the negotiation budget is based on Jim Camp’s model.
Let’s take a look at these four criteria sequentially and evaluate their impact on the overall negotiation budget.
Time
We all know the saying ‘time is money’. And it’s true – it really is. But even in our everyday life, even when we know and remember this simple maxim, we don’t always value our time as much as we should.
Think about it: I’d say about 80 per cent of our working life is made up of things that we could put to one side, things that don’t bring us any particular benefit in the here and now. Probably only around 20 per cent of tasks produce a specific, tangible result. And where negotiations are concerned, we will often spend 80 per cent of our time around the negotiating table discussing matters that not only bear little relevance to the negotiation process itself, but that have little – if anything – to do with the matter at hand.
Experienced negotiators know how to use time to their advantage. For example, in some situations an opponent might deliberately start to draw out their responses. You won’t get a better indicator of something like this happening than the words: ‘You know, this isn’t formulated very precisely . . . I’ll need to think this through and discuss it with my colleagues . . . When can I call you back? How about in a week?’
This negotiator is buying time. Why? Because they are well aware of what this means to your negotiation budget. So, from their perspective, in order to put pressure on your negotiation budget, they need to increase this particular item of expenditure. That is to say, to increase the amount of time spent on the process itself.
What is this component worth? A lot. But of all of the components highlighted at the start of this chapter, it’s the least weighty: in Jim Camp’s equation, it gets a unit value of 1.
Energy
This component ranks third in its importance and unit weight.
It’s obvious that we put a lot of energy into negotiations – no one needs proof of that. But what is this energy, and where does it go? Into negotiation preparations, the negotiation process itself, travel and more. I’m sure you’ll agree that the question of travel – and who does it – is an important one. Of course, negotiations demand energy regardless, but it’s a different matter entirely if you’re the one doing the travelling, particularly if you have to travel to another city or region. Picture yourself travelling from Moscow to Vladivostok, a distance of about 6,500km. Can you imagine how draining flights, hotel stays, travel around town while pondering your situation are? These are all aspects of energy. Energy can even be crucial in the negotiation process itself.
Here’s an example.
I once flew to Murmansk for negotiations. It was winter, in the depths of polar night. I’m not even going to go into how draining it is for a Muscovite to be up in the Arctic Circle in constant darkness. Even before setting out for Murmansk, my team and I had put a lot of energy into just setting up this meeting, which had not been a quick process. Anyway, so there I was, having flown in to see them, and what do they tell me: ‘You know, we aren’t in a position to negotiate with you right now.’
In this example, it’s clear that our negotiation budget took a blow that day. Note also how my opponent acted on two components at once: time and energy.
Having already looked at time, we have seen that it has a unit weight of 1 in the negotiation budget. Energy, on the other hand, has a unit weight of 2. In negotiations, energy is the more valuable. Because it’s one thing to spend time sitting comfortably in our office reading books, speaking on the phone, holding timetabled meetings or simply waiting for the appointed date. And quite another to have to travel somewhere for one single purpose.
Money
There’s no escaping it: the goal of any organisation is profit. And when we spend money on negotiations (especially if we spend more than expected), the budget of any activity will have to go up.
Let’s define the concept of money in the negotiation process. A lot falls within this category: the money we spend on communication (phone bills, travel to meet a client), gifts, marketing materials, shipping and forwarding, not to mention remuneration for the work of everyone involved. In short, it is all the expenses incurred for and during the negotiation process.
At times this financial component of the negotiation budget can simply skyrocket – when flying back and forth from Moscow to Vladivostok, say, or organising some sort of congress to prove the advantageousness of a proposal – or even simply when multiple parties are involved in the project who need to come together for talks.
When these costs are very large it’s easy to get preoccupied by how much money we’re actually spending. Which is why this component is very important to the overall negotiation budget, and it has a unit weight of 3.
Let’s briefly explore why this component gets more weight than energy. After all, in the Murmansk example I gave before, energy certainly proved its weight.
Let’s say we’re travelling from one part of Moscow to another. The expenses for this trip will be minimal; all it requires is energy and time. However, if we instead have to fly from Moscow to Kamchatka, then all three components will come into play: time, energy and money. Our costs will increase significantly, meaning that our negotiation budget will go up, too. Incidentally, this is exactly what happened in my Murmansk example, and it’s also why money has the greater unit weight: three times greater than that of time, and 50 per cent greater than that of energy.
The final component of the negotiation budget is emotion. And, as you have probably guessed, it is also the most valuable. Why?
Because when emotions are stirred during the negotiation process, a person can no longer reason logically; they are unable to add up the costs, evaluate a benefit or join up the dots. How often have you heard remarks like ‘But I can’t give up now – I’ve put so much into this!’ in negotiations? If you have, it means it’s likely that the negotiations in question have already gone over budget, and the emotional component in particular is sweeping it off the scale. So it isn’t surprising that the emotional component of the negotiation budget is accorded the highest unit weight: 4.
Let’s return to the negotiations I described in Murmansk and try to figure out the budget of these negotiations.
We spent time. On travel, of course, but also on preparations, agreeing certain points, discussing details. My energy was also affected: I had prepared, studied the company materials, done research to find our common ground. A long flight and twenty-four-hour darkness also took their toll on my energy. And of course we spent money, including on preparations (long-distance phone calls, consultations with experts, compiling documents, etc.), flight and hotel costs, and travel expenses within the city. Add all of these components together, and before negotiations had even begun the unit weight of the budget was 6.
But when they told me they wouldn’t be holding talks that had already been not only agreed upon but confirmed, the budget of the whole enterprise grew. Because that was when the emotional component came into play, in the form of disappointment. I felt that I had been invited, and I had made this long, difficult journey, only to be turned away at the door. But by that point I couldn’t back down.
At this point, the key thing to remember is not to give in to your emotions. If you do, the negotiation budget will immediately reach its maximum weight of 10 (1 + 2 + 3 + 4 = 10). Once the maximum budget weight is reached, a person simply can’t stand down. And, of course, if they can’t get their emotions in check, then they’re on thin ice and liable to make a mistake, whether that’s getting aggressive and souring their relationship with the client, or hanging on desperately waiting (often longer than a day) for any form of negotiations.
Ask yourself this question: will these negotiations lead to anything? I can on good authority predict that in these situations, there is no way of getting the results you planned.
This is why it’s essential to keep tabs on your budget, analysing how much time, energy, money and emotions you are putting into each negotiation process.
Concessions tend to happen once the negotiation budget has already reached its maximum: when that party can go no further; when the process has completely worn them down. Most of the time, this specifically relates to that party’s emotional state. So why is it that they start to make concessions, you ask? To get out of the negotiations faster.
Concessions are due to weakness. If we apply von Clausewitz’s definition of fighting as ‘a trial of strength of the moral and physical forces by means of the latter’12 to this situation, it becomes clear that concessions happen through a lack of moral force or strength of will. A person without this strength will be unable to fight for their benefit, instead moving away from their own interests to partly – or wholly – assimilate their opponent’s terms. This happens once their negotiation budget has already reached its maximum.
In cases like these, you would never say that the two sides reached a compromise. One classic definition of compromise is: a negotiation process through which parties are able to achieve their interests by making mutual concessions. But this definition in and of itself encourages concessions. Here, the word ‘concession’ has no negative implications, but if we cast our eyes back to the last paragraph it’s clear that concessions are a product of weakness. As it turns out, the classic definition of compromise aims to weaken your negotiating position. Personally, I modify this definition slightly, replacing the words ‘mutual concessions’ with ‘movements towards the other party’. So for me, a compromise is a negotiation process through which parties are able to achieve their interests by making movements towards the other party.
A compromise differs from a concession in that a compromise is a conscious decision. You can only make a conscious decision if you still have enough reserves of time, energy and money in your negotiation budget and your emotions are under control. Although your negotiation budget is currently high, you feel that you can continue to fight and that as a result you may get more out of these negotiations.
However, you should remember that the final benefit will either be smaller or equal to the additional budget that you will spend on pursuing that fight. When you make an informed decision like this, it is a compromise.
Many authors suggest that compromise is a mathematical value that can be calculated. My view is that it is a psychological aspect of the negotiation process. If a party is satisfied with what has been achieved in the negotiation process and is prepared to implement the terms of the agreement, it can be considered a compromise. If, however, these terms cause discomfort or regret, they should instead be viewed as a concession.
Always keep tabs on the size of your negotiation budget. Before going into negotiations, it is important to replenish your reserves of time, money and energy. Think about what (and where) these reserves are should you need them.
Compromise is possible only during combat (a fight for the benefit) when you understand what benefit your opponent seeks and what they are fighting for. Otherwise your attempt will make your opponent want to get even more from you.
Let’s look at a few situations.
A client calls in a blind rage and screams down the line:
‘You missed your payment and delivery deadlines! You let us down – we’ve got a disaster on our hands and it’s all your fault!’
An inexperienced negotiator immediately jumps to compensation options.
‘You know, we’d be willing to offer compensation for your costs . . .’
‘What sort of compensation?’
‘How about a discount?’
‘And?’
‘And . . . well . . .’
This game can go on and on.
What’s happening here? This is a manoeuvre. In this situation, neither side knows the benefits at stake. And, when you don’t know what the benefits are, any attempt to compromise will simply lead to further concessions.
Now picture two colleagues sitting at their desks, talking.
‘Oh, I’m out of paper clips,’ says colleague one. ‘Have you got any?’
Colleague two gives colleague one a packet of paper clips. A few minutes pass.
‘How about some music?’ suggests colleague one, breaking the silence. ‘You’ve got a good playlist.’
Colleague two starts playing some music. He’s starting to feel a bit uncomfortable, but he doesn’t understand what his colleague is ‘fighting’ for. As it happens, colleague one is fighting to be the ‘alpha’, the one who gives the orders.
Obviously, after another few minutes, colleague one says, ‘Hey, it’s a little stuffy in here, shall we open the window?’ He glances at the window key, which is next to colleague two.
Colleague two opens the window. He is feeling even more uncomfortable, so decides to go make some coffee. On his way out, he hears colleague one call behind him: ‘Oh, if you’re making some coffee, make some for me?’
You can probably imagine what comes next. If colleague two fulfils this command, he’ll become the errand boy. It is very important to know what we are fighting for. And as soon as that becomes clear, you need to move from manoeuvring to combat (fight for your benefit).
For example, like this:
‘Sure. But when you go to the lunchroom, don’t forget to close the window, OK?’ (Then let it hang in the air.)
BUILD A MAGIC POLYGON OF INTERESTS
Although compromise is an emotional state, it should be achieved with the help of mathematics. The magic polygon of interests, which I mentioned at the end of the last chapter, can play a key role in reaching compromises.
We have already seen that when parties negotiate with one sole interest in mind, negotiations will turn not only tough but heated. There won’t be enough resources to go around, and this deficit will push parties into heated scuffles. It will only be possible to calm the emotions and reach agreements if both sides can see several interests in front of them. These interests are what make up the faces of our ‘magical’ shape.
There are five steps to building a polygon of interests.
Step 1: find your interests
Think long and hard about what your interests might be when resolving a particular situation. These interests will form the faces of the polygon.
There will always be one key interest that you see immediately, but this will always be accompanied by other interests, however insignificant and unimportant they may at first appear.
A person applying for a job will normally pay a lot of attention to the salary. Besides this, however, the employment benefits, incentives, amount and regularity of annual leave, flexibility in working hours, team spirit, work tasks, responsibilities, experience and knowledge gained, study opportunities and more will all need to be taken into consideration.
Similarly, when a supplier wants to start working with a chain, they will have to consider not only the price and payment terms, but also the possibility of reaching the end consumer, promotional opportunities, heightened brand profile and a stronger reputation.
Note in both cases how many faces (interests) there are, far from all of which are material. The more faces your polygon has, the more flexible your position will be and the more likely that you will be able to reach an agreement with your opponent.
Now, it is very important to visualise your interests – material and non-material – by placing them on the faces of the polygon itself. You should have at least three faces, otherwise the shape won’t close.
Always remember:
the most effective polygons have between five and seven faces.
Step 2: monetise the faces
When I was a student, my classmates and I used to give blood. Of course, I’m sure some of us would have done it for nothing, but the majority of us gladly made the most of the fact that after the procedure we were given either money or food rations. That is to say, our loss was in some way compensated for (and I imagine that those who refused the money and food gained a different, non-material compensation: self-respect, a clear conscience, etc.). I take the same approach to compensation for material bonuses and discounts: to a business, giving a discount is like giving blood. So when you altruistically give away bonuses, it is important to realise that you are draining your organism of blood, and that it will be difficult to recover if you’re getting nothing in return.
So now what you need to do is evaluate every face that you identified in the first step in relation to the key interest. If the key interest is price, then you should evaluate what the associated payment deadlines, potential recommendations, increase in product awareness, etc. would be worth to you in price. In other words, you need to consider how much you are prepared to pay for increasing your supply volumes, getting new recommendations, establishing a good relationship, etc.
Everything should have a concrete price, from the experience gained to the opportunity to raise the company profile. If you skip this step, your opponent will easily take advantage of your ignorance by overstating the value of any non-material interests:
‘You do understand that working with us is essentially free promotion for you.’
‘Not everyone gets the chance to work for such a huge corporation.’
Phrases like these seek to provoke the opponent into draining their business of blood for almost nothing in return. But if you have a good idea of what the actual value of the benefit would be, they will have a hard time confusing you.
I myself have experienced one very common example of this. A very large company approached me about doing some workshops with them. After we had met, their HR specialists said they would be happy to commission some workshops on the theme of ‘tough negotiations’. They asked me to give them a 20 per cent discount, which they justified by the fact that I would get to put their name on my CV: many were prepared to work with them for free for that very reason. During our fight for the benefit, my position was open and transparent: I would also be prepared to work for free, but I would need to be clear about what I would get in return. As soon as they asked me about the 20 per cent discount, I turned to my polygon of interests. I had valued the ‘importance of the client’ face as being worth 5 per cent, so that was the discount I agreed to offer.
Every face must be monetised based on the currency of the key interest. Everything needs a price, be it reputation, reviews, or the chance of increased supply volumes in future. When considering this question, it can be very useful to review your own or your company’s strategic plans.
Step 3: work out your desired position
For this step, start with your key interest. Think about what you would want the value of the key interest to be. So if the key interest is the pay package, then pinpoint a salary figure; if it’s the payment deadline, then set a number of days; and if it’s a discount, then work out the percentage.
People are often wired to instinctively demand the greatest possible value for their desired position. For example, when being offered a job, an applicant might mistakenly say they want a salary of 100,000 roubles, when they would have been perfectly happy with 70,000 roubles. The latter should be the desired position.
Then, once you have that in place, you need to decide what the value of the other faces should be in relation to it. If I am offered my desired salary, how much annual leave am I prepared to accept? How important is this job title/team spirit, etc. to me?
By completing the following steps, we outline three important positions in negotiations:
1. The red line: the minimum value of the key interest, below which our needs will not be met.
2. The desired position: the value of the key interest that I will be fully satisfied with.
3. The stated position: the value of the key interest that marks the start of negotiations.
Step 4: determine the red line
Create a new polygon of interests based on your red line. Every polygon has a perimeter. Although the value of the faces may change, this total perimeter must never decrease. This is the most important rule to remember here. In other words, if you reduce the price (i.e. reduce the value of one of the faces), then you need to figure out what other faces you can increase to retain the original perimeter of the polygon.
This rule allows us to meet our opponent halfway without hurting our own interests. For example, if your boss can’t give you a raise, you can still protect your interests through increased annual leave, more flexible working hours or additional skills. If a purchasing agent refuses a shorter payment deadline on a matter of principle, you can protect your interests by increasing the price, introducing a new product, or suggesting that they put your product in a more advantageous position.
Step 5: Figure out your stated position
Now you figure out your stated position. This is the position that you state at the start of the negotiation process. It should be higher than and clearly different to your desired position.
I am often asked how much higher the stated position should be. This will be down to the individual, although it should of course be reasonable. I often test out the adequacy of the stated position using Henry Ford’s rule: ‘If there is any one secret of success, it lies in the ability to get the other person’s point of view.’ I ask myself: ‘If I were in my opponent’s position and had the information that they have, if my opponent started negotiations from this position would I continue to negotiate or would I walk away?’ If I would negotiate, then I have my stated position: I don’t fear it and I don’t doubt it. If I would walk away, however, then it is worth reducing it slightly and once again putting myself in my opponent’s shoes. This is essential, because if your stated position is high even for you, you will quickly surrender it, and in doing so your opponent will see there is the possibility of bringing you down even further.
Two fishermen are sitting on a boat. One says:
‘Yesterday I caught thirty kg of carp!’
‘Yeah right! I was here yesterday and nothing was biting. BUT I did manage to catch a solid gold, eighteenth-century candlestick! And would you believe it, the candles were still burning!’
‘Fine, you’ve made your point, I’ll rein it in by ten kg if you blow out your candles. Deal?’
Why is it so important for us to inflate our position?
Aleksandr, an entrepreneur, has launched an exciting and in-demand software product. Having analysed the market, he came to the conclusion that its market price is typically between 10,000 and 20,000 roubles. However, he decides to ‘play fair’ and offer his best price (i.e. his desired position) to the market upfront: 9,500 roubles. As a result, he typically achieves a sales price of only 9,000 roubles.
If negotiations were a purely mathematical process performed by robots, then Aleksandr would be leading the way in sales. But the psychological aspect is key here. Don’t deny people the opportunity to fight you for a benefit. They value what is harder to earn. As a rule, a benefit that is easily obtained feels less valuable.
Once you have worked your way through the first three steps of this process, you will have created your magic polygon that will allow you not only to consciously regulate the tensions around the negotiating table, but also to fight for your benefit in an informed way. Let’s practice this with a worked example.
An IT specialist is looking for a new job. His reasons for wanting this change are that his current job doesn’t offer a particularly high salary (50,000 roubles), the working hours are inflexible and the commute is inconvenient.
Let’s build his polygon of interests.
Step 1
Let’s see what faces the polygon has. One will of course be salary, and another two are immediately clear: ease of commute and working hours. Let’s add in some other less prominent, but still present, interests: career growth, employment benefits, interesting work. So now we have six faces.
Step 2
Now we give each face a value. How? The figures I use here are all examples and should not be used as a template; they will vary from situation to situation. What matters is that these values should be calculated in the ‘currency’ of the key interest, which in this case happens to be salary. So the question we need to answer becomes: how much am I prepared to pay from my own salary for a job closer to home, flexible working hours, etc.?
And so, in roubles:
Location: max. 5,000.
Working hours: max. 5,000.
Career growth: max. 10,000.
Employment benefits: 2,000.
Having interesting work: max. 5,000.
Perimeter not including salary = 27,000 roubles.
Step 3
From here we work out the desired position. As our key interest is salary, let’s assume that competitors for this job would accept a salary of 70,000 roubles. Remember: this isn’t the maximum they want, it’s what they would accept. Next, we need to go back through how we would value the remaining faces if we had a salary of 70,000 roubles.
Location is important, but being close to home isn’t essential: 2,000.
Flexible working hours don’t matter: 0.
Career growth isn’t so important – money is more so: 0.
Employment benefits aren’t important: 0.
Having interesting work is important: 5,000.
Total perimeter = 77,000 roubles.
Now it’s time to create a polygon for our red line, remembering to always balance the overall perimeter. This is where our list of face values from Step 2 comes in handy. Remember that the red line is the minimum value of the key interest; under no circumstances is this to be crossed.
Salary = 50,000.
Location is important, proximity: 5,000.
Flexible working hours: 5,000.
Career growth is important: 10,000.
Employment benefits are important: 2,000.
Having interesting work is important: 5,000.
From this, we can see that we would be able to compensate for a lower salary through other benefits. In this example, a 20,000 rouble reduction in salary from our desired position can be balanced through the possibility of flexible working hours, career growth, employment benefits and interesting work.
To check this fact: the perimeter of the polygon comes to 77,000 roubles.
Add the values attached to each face (except salary) to find the basis for this position. You can use polygons like these to justify any combination of benefits in a logical, reasoned way, without your demands coming across as an ‘I want it because I say so’ situation.
For your stated position, I recommend taking the perimeter of the red line as your figure for your key interest. So if our key interest is salary, and the perimeter of the red line is 77,000 roubles, then:
Salary: 77,000.
Location isn’t important (although we will say it is): 0
Flexible working hours aren’t important (although we will say they are): 0
Career growth isn’t important (although we will say it is): 0
Employment benefits aren’t important (although we will say they are): 0
Having interesting work is important: 5,000.
The process of drafting these three polygons has actually helped us to pinpoint the interest that is truly important to us. Note that in all three polygons, the only face on which we are not prepared to budge is that of ‘interesting work’. This interest is therefore our weak link, and we need to try to protect it.
Remember that our fight for the benefit will take place somewhere between the desired position and the stated position. Picture the red line as a minefield: keep as far from it as possible. Between the red line and the desired position, the perimeter must always be protected: if we reduce one face, then we will need to make gains in another to protect it.
Build your own polygon of interests based on the following situation
A buyer for a construction company within a major federal holding has made a proposal to a supplier of roofing materials.
The proposed terms include a discount of 20 per cent, a deferred payment period of sixty days and access to a dedicated specialist. The supplier finds these terms unacceptable but they can see that working with this company would give them access to the entire holding moving forward.
You can find my polygons in the ‘Answers’ section at the back of the book. You can also send me your versions at: igor@ryzov.ru.
When moving towards the other side in negotiations, follow these five rules:
• Don’t hurry. It should be difficult for the other side to generate any movement.
• As you move towards the opponent’s position, think about whether they are actually meeting you halfway or simply giving you that impression. Compromise can only be achieved when both sides are meeting each other halfway.
• Don’t give away material benefits in exchange for mythical or non-monetised ones. Everything should have its price.
• Under no circumstances should you make a concession at the start of negotiations in the hope of winning the opponent’s favour: you will only embolden them.
• If you offer discounts, put them together like building blocks or weights on a dumbbell: a collection of smaller units rather than one big figure.
Bargaining will fall between the desired and stated positions, whereas between the red line and the desired position it’s all about protecting your interests. This is where you should apply the rule of protecting the perimeter.
1. Compromise is a decision made from a place of strength and based on expediency. When our negotiation budget allows us to fight on, we should still weigh up the benefit of the combat against the cost to our budget. Then we will be able to make an informed decision: to fight, or to take the terms being offered.
2. If our budget is running off the scale, then we need to stop, get our emotions in check and minimise expenses. Only after that can we continue negotiation.
3. We only compromise once we understand the concrete benefit to us and to our opponent.
