R2. Creating value in negotiation - Chapter 2.pdf

In this case fallure to negotiate the sale ofiuniors

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In this case, fallure to negotiate the sale ofIuniors resulted in a net loss of $1 million for the two parcies. Put another way, the ZOPA for ]uniors consisted of all prices between $1-2 millÍon-yet both parcies walked away from the negociacion without agreeing to a sale. How might the sale of ]uniors have impacted final outcomes? Table 2.5 builds on Table 2.4 by including an agreement (Agreement Y) in which the buyer and seller agree to sell]uniors for $1.5 million. This agreement provides an additional $500,000 to each party. (Notice that if the parcies had agreed to a higher price for ]uniors) you [the seller] would have captured more value; if the price was lower, WCHI would have captured more of the value. In either case, the total value created by including the sale of]uniorswouId be $1 million.) Table 2.5 Value to Total Value Agreement Value to You WCHI Created Original (O) $2,000,000 $1,000,000 $3,000,000 Revised (X) $2,500,000 $1,600,000 $4,100,000 AgreementY $3,000,000 . $2,100,000 $5,100,000 The ]uniors issue highlights an important difference between a good negociator and a negotiacion genius. A good negotiator will do whatever it takes to close the deal) while a negociation genius will do whatever it CREATING VALUE IN NEGOTIATlON '0'",:' 63 takes to maximize value in the deal. A good negotiator plays the game well; a negotiation genius changes the nature of the game itself. In this case, that means identitying and pursuing opportunities for value creation that are not obvious. ' Adding issues to a negotiation is an important tactic for value crea- tion because of a simple formula: more issues = more currency. The more issues you have to play with, the easier it will be to find opportunities for logrolling. Imagine that you have agreed to seven runs and a licens- ing fee of$6.5 million. You know that moving to eight runs will create additional value, but you are onIy willing to do so if the buyer gives you something in return. Urtfortunately, WCHI has reached its Iimit on the licensing fee issue; itcanO:ot pay more than $6.5 million. Does this mean that you must forgo the opportunity to create value? Yes-if there are only two issues in the negotiation. But if you add another issue-]uniors-you can engineer the value-creating trade. "It's c;osrly for me to give up any more runs," you might tell Kim. "However, depend- ing on the kind of deal we can structure for]uniors) 1 may be abIe to give you the additional runs you want." IfKim agrees to purchase]uniors for any price between $1.25 miIlion and $2.8 million, in return for adding the eighth run, both of you will be better off! Notice that Kim may be willing to pay even more for ]uniors than it is worth (up to $800,000 more), because doing so allows WCHI to gain $800,000 in revenue on the issue of runs. As this example reveals, the goal of negotiation is not to get the best possibIe outcome on any one issue, but to negociate the best possible,package deal based on a consideration of all of the issues.
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