R2. Creating value in negotiation - Chapter 2.pdf

If their priorities were identical there would be no

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priorities. If their priorities were identical, there would be no way for one person to con- cede on Issue A in return for more of Issue B. Similarly, consider the essence of contingency contracts: they create value because the two parties have different expectations about the future. If their expectations were identical, they would have no opportunity to introduce clauses that increase both parries' expected value. Negotiation geniuses understand this crucial insight: you can leverage differences of all types to create value. For example, consider differences in risk preferences. If you are risk averse and someone else is risk neutral, you are in a position to pay that person to take on your risk. Sounds funny, right? But that is exactly what an insurance com- pany does. You pay your health, automobile, 01' home insurance company a premium to cover your losses in case something goes
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78 NEGOTlATlON GENIUS wrong. On average, you willlose money when you buy insurance. But because you are risk averse, you are willing ro lose some money in ex- change for paying the risk-neutral company ro take away your risk. This makes both of you better off and no one worse off-which means value has been created! As another example, consider differences in time preferences. If you are not currently using something you own, but another party needs it right away, you can give them what you have in return for a payment. If this sounds familiar, it's because this is what happens when you de- posit some of yóur money with a bank. You give your money to the bank because you do not need to spend it immediately. In return, the bank gives your money ro its borrowers and pays you for the use of your money in the form of interest. This exchange makes both of you beder off. When negotiating, rather than tryi¡-{g to ignore, reconcile, or over- come your differences with the other party, you should try to seek out differences, and then find ways to leverage them ro create value. For example, the next time someone strenuously objects to a particular as- pect of your proposal, do not be dismayed. Instead, try to discover how much the other side values getting their way on this aspect of the deal. If they value it sufficiently, they may be in a position to make the deal even sweeter for you by making other concessions in return for your flexibility. POST-NEGOTIATION STRATEGIES FOR VALUECREATION Negotiation geniuses do not stop after having created value during the negotiation; they continue to seek out Pareto improvements even after the deal is signed. A powerful tool for valuecreation is the use of post-settlement settlements (PSS) settlements that are reached after the initial agreement is signed. 4 Imagine the following: After weeks of negotiation, you have just signed a complex deal with the CEO of Firm X. You are satisfied with the deal and so is the other party. You want nothing more than to go home, CREATING VALUE IN NEGOTIATION take a shower, and pop open some champagne. But y¿u recon- sider, deciding ro try something a litde different. You ask the CEO
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