Five essential strategies for creative negotiations

In negotiation, the creativity of the counteroffer appears to be the most significant variable influencing the success of the final deal.

By Kandarp Mehta

Negotiation is described as an art form, and for good reason. The successful outcome of a negotiation depends as much on the creativity of the participants’ offers and counteroffers as it does on their relative positions of bargaining power. When creativity is lacking in a negotiation, results tend to be disappointing. Even when two counterparts negotiate a deal that should, in theory, be equally beneficial to both of them, the negotiations can end in deadlock.

Consider the following hypothetical example: A sports agency is representing an African soccer player called Demba Sweetstrike. At the age of 32, he is approaching the twilight of his career but is still a sharp and deadly striker.

However, competition for places at his current club is intense, and he is finding it increasingly difficult to compete with the club’s younger strikers for a place in the first team. Rather than continue to warm the substitutes’ bench, Sweetstrike has instructed his agent to seek a loan arrangement with another team.

During the January transfer window, a struggling club in the same league needs to find a replacement for its lead striker, Mr. Goalmachine, who recently tore his Achilles tendon.

Unable to find a promising youngster to fill in at such late notice, the club’s manager is desperate to sign Sweetstrike, who played for the club at the beginning of his career and would take little time to settle back in.

Despite concerns that he may not be as prolific as Mr. Goalmachine, the club is prepared to offer Sweetstrike almost the same salary that he gets at his current club, despite the fact that it far exceeds Mr. Goalmachine’s current wages.

For Sweetstrike’s part, this mid-season switch offers the prospect of more first-team playing time and would improve his chances of revitalizing his career. What he most wants is to preserve his chances of playing for his national team in the World Cup in two years’ time, which he sees as the perfect swan song to his career. Indeed, he wants the switch so badly that he has told his agent that he would even be willing to play for free, although he would never say no to more money.

What we have, in a nutshell, is the perfect win-win situation. Both parties may be oblivious to each other’s precise demands, but they both want pretty much the same thing: for Sweetstrike to play for his old club.

In such a scenario, you’d think that signing on the dotted line would be a mere formality. But it’s not, as I discovered when participants of a course I run on negotiation participated in a similar exercise. Each had only one side of the story, and their job was to negotiate a deal.

In total, 207 dyadic negotiations were conducted, with one side taking the role of the buyer and the other, the seller. At the end of the exercise, participants were asked to write down the first offer, the counteroffer and the conditions of the final deal. In total, 193 of the negotiations resulted in some kind of deal, while the rest ended in stalemates.

Out of the 193 deals, 119 were classified as “creative” in that they included factors beyond price, while the rest were negotiations that ended simply on price.

The analysis of the results revealed that the creativity of the final deal was determined by the amount of creativity deployed in the tabling of the first offer and the resulting counteroffers. Most surprising, the creativity of the counteroffer appeared to be the most significant variable influencing the creativity of the final deal.

Most of the negotiation research that looks at the dynamics of offers and counteroffers concurs that the first offer plays an anchoring effect in the negotiations. However, my research shows that as far as the creativity of the deal is concerned, it’s the initial counteroffer that sets the tone.

This article discusses why creative offers and counteroffers play such a vital role in the negotiating process, and also proposes a number of strategies to help you improve your own negotiating skills.

Before we get to that, let’s first consider why being creative in a negotiation is such a vital challenge for today’s hard-bargaining entrepreneurs, large corporations, institutions and national governments alike.

A version of this article is published in IESE Insight magazine (Issue 15, Q4 2012).

This content is exclusively for personal use. If you wish to use any of this material for academic or teaching purposes, please go to IESE Publishing where you can purchase a special PDF version of “Five essential strategies for creative negotiation” (ART-2273-E), as well as the full magazine in which it appears, in English or in Spanish.