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Outsource magazine: thought-leadership and outsourcing strategy | September 21, 2017

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What They Didn’t Teach You in Business or Law School about Negotiation

What They Didn’t Teach You in Business or Law School about Negotiation
Outsource Magazine

The John Wayne approach to negotiation is somewhere between competitive and integrative bargaining. For the last three or four decades books and courses on negotiation have emphasised a “Getting to Yes” sort of integrative bargaining. You skip bargaining positions and instead start out discussing negotiators’ interests, hopefully achieving win-win solutions. In the 21st century this is not good enough.

The best negotiators in the world use a third level of sophistication in their negotiations, what we call Inventive Negotiation.  That is, starting with positions or interests limits what can be achieved. Inventive negotiation processes emphasise combining imaginations. Think Jobs and Iger. By their own admission, they walked in the woods. They laid their cards on the table, face up. They traded crazy ideas.

While the business/law school approaches talk about solving problems, resolving conflicts, and closing transactions,  inventive negotiation is all about finding and exploiting opportunities, together.

Inventive Negotiation borrows the best ideas from Americans such as Jobs and Iger and others in Silicon Valley and Hollywood, and from Dutch and Japanese negotiators as well. All emphasise relationships over agreements, that is, getting beyond just “yes” to “infinity and beyond.”

Most knew Steve Jobs as a tough negotiator – “it’s my way or the highway” so the caricature went. But the actual person was different from the uncomplimentary picture. It is quite true that he and Michael Eisner couldn’t agree on much past the companies’ original contract involving distribution of Toy Story. But, once Eisner was replaced by Robert Iger, by all accounts an inventive negotiator himself, then a world-class collaborative relationship was quickly established. Edgar Woolard, the former chairman of Apple and former Chairman and CEO of Dupont, said at the time of the purchase of Pixar by Iger led Disney, “People are misreading Steve Jobs. If he has a good relationship with you, there is nobody better in the world to work with.”

Indeed, Iger reports that the first congratulatory call he got upon his appointment as Disney CEO was from Jobs: “He wished me well and hoped we could work together soon.” And “soon” happened very soon. Two weeks later Iger found himself on stage in San Jose with Jobs introducing Apple’s new video iPod including the availability of Lost and Desperate Housewives, two of ABC’s most popular shows.

Inventive negotiation doesn’t just involve good personal relationships between negotiators. Jobs was also known for valuing diversity of views in a unique kind of “coffee house” approach to innovation at Apple. Also, Iger has demonstrated his collaborative style of leadership at Disney by not only restoring a good relationship with Jobs, but also Roy Disney (nephew of Walt) as well.

The key to inventive negotiation is a long-term commitment to working together. That is, when Disney bought Pixar from Jobs in February 2006 (less than a year later!) it might have just been a cash transaction, a divide-the-pie argument over price. The actual deal, however, is more than just a deal. It is a long-term relationship of invention. Jobs got Disney stock valued at $7.4 billion (he paid $10 million for Pixar in 1986), and that tied Jobs to Disney for the long run. The arrangement also kept the Pixar creative team in charge, with co-founder John Lasseter as Disney Chief Creative Officer and Ed Catmull as President of Disney Animation Studios, both directly reporting to Iger.

How to Get from Splitting Pies to Building Pie Factories

Consider the primordial story of human exchange.  That is, two guys, one pie – what are the options?

1. One bludgeons the other and takes the entire pie.  We call this homicide.
2. The two argue over and agree about how the pie should be divided.  We call this competitive or zero-sum bargaining.
3. The two ask each other about why they want the pie. Luckily one prefers the crust and one prefers the fruit, and they share it accordingly. We call this integrative or interest-based bargaining.
4. The two share the pie as they devise a plan to build a pie factory.  We call this inventive negotiation.  The focus becomes a long-term relationship, not just a deal.  This last option is the key to profiting from new ideas, particularly in today’s global context. Yes, Steve and Bob built a pie factory!

The traditional dialectic of negotiation waffles between the competitive approach and integrative bargaining.  The competitive, “splitting-the-pie” metaphor reflects a zero-sum sort of fairness that once represented a satisfactory outcome. Expanding the pie before splitting it is considered a big advancement, integrating the needs of both parties and yielding win-win solutions. The emphasis is on interests not positions.  Both approaches are deal-focussed. Neither depends much on building trusting, long-term relationships.

Yet inventive negotiators, especially international ones, aren’t satisfied with just making deals.  Instead, they emphasise sustainable, trusting, and personal commercial relationships that more resemble building pie factories than splitting pies: going beyond traditional, primitive approaches that divide resources toward a more civilised approach that combines them. Think the Disney/Pixar story.

The new inventive approach to negotiations we delineate below employs proven concepts gleaned from a variety of disparate sources:

  • Silicon Valley firms
  • Open innovation
  • John Seely Brown’s process networks and performance fabrics
  • Our UCI colleague, David Obstfeld’s description of tertius iungens (the importance of the third party in innovation)
  • Insights from the new brain science
  • Virtual teams research
  • Experimental economics
  • Innovation processes perfected in 30 years of study and practice in advertising, creativity, and innovation

Inventive negotiations also draw on practices typical in Japan and the Netherlands. The Japanese have developed a cultural ritual of negotiation that naturally uses tools of innovative processes in ways unfamiliar to most Western bargainers. The Dutch are the world’s experts in foreign languages, cultures, and openness to international commercial collaboration.  As an example, we present a Japanese gem.

Recall that Mitsubishi Japanese Zeroes fought air battles with Boeing B-17s during World War II.  Then, in 1953, Boeing established its subsidiary in Japan. In 1960 Emperor Akihito met with William Allen, Boeing’s CEO, and by 1969 they signed their first contract. Those continued collaborative efforts have produced many inventive business arrangements: today Boeing buys composite plastic wings designed and manufactured by Japanese suppliers for its new 787 Dreamliner, and then sells the completed 787s back to Japanese airlines, all with a nice subsidy from the Japanese government.  Obviously, inventive thinking after agreements has been a standard part of the Mitsubishi/Boeing long-term relationship. The Japanese negotiation ritual we have studied includes carefully built interpersonal relationships across all management levels (literally from Emperor to shop floor), meeting venues beyond the typical conference room, processes that emphasize questions over demands, and consensus decision-making.

So we have devised a fourteen-step approach to inventive negotiation:
1. Rather than focussing on problems to be solved, instead search for opportunities by combining imaginations.
2. It begins with a glimmer of opportunity, the vision that things can be better, even world-changing.
3. You then find just the right partners and sell them on the vision.
4. Then you build relationships – with those on the other side.
5. You create the system that makes relationships and creativity happen.
6. You add exactly the right people in specific situations, including facilitators.
7. You consider cultural differences and leverage diversity.
8. You meet in the right places and the right spaces, at just the right pace.
9. You leverage emotions and overcome power and corruption.
10. You encourage changing roles.
11. You use tools of innovation.
12. And you use the tools of improvisation.
13. You keep improving relationships in new ways.
14. And even when you think you’ve created the best possible outcome, you keep using these strategies to create an even better, longer-lasting, and more sustainable outcome.

Next we present one of our favorite examples wherein several of these principles are applied. Its emphasis is on the advantages of cultural diversity (Step 7).

Leverage the New Diversity

The primary driver of human progress through the millennia has always been international trade.  Good ideas are passed along and even invented in the context of cross-cultural interactions.  Think the ancient Silk Road or the Silicon Valley of the 21st century.  Of course, the problem with diversity is the associated initial communication difficulties.  But we know those can be overcome, especially as economic opportunity dictates.

The science of creativity and innovation is quite consistent about the advantages of diversity. Research in the Academy of Management Journal shows that diverse work groups put more ideas on the table than homogeneous ones, that is, once the diverse groups have developed relationships and learned to understand one another with the passage of time and perhaps frustrating experiences.  When it comes to diversity, it’s as they say in the weight room, “No pain, no gain.”

Indeed, this notion provided the foundation for General Motors’ strategic plans for overtaking Toyota in the global auto race circa 2007.  After winning a $250,000 consulting contract with GM that year we met with Dr. Lawrence Burns, then Vice President of Research & Development and Strategic Planning and his staff at his offices in Warren, Michigan.  He argued that the only way to catch the Japanese was to use the diversity of the GM global workforce. We had been hired to develop cross-cultural training programs for the firm’s multinational sourcing teams. The sociologists we worked with there told us that GM sourcing teams with American, Brazilian, German, Chinese, and Korean members lost some of their inventive potential because the Americans and the Brazilians tended to do all the talking, while the Chinese and Koreans couldn’t or wouldn’t get a word in edgewise. So far the GM folks had only been experiencing the pain. Our job was to get everyone contributing.  Unfortunately, also in 2007 the budget axe was falling all over the company, and outside consulting contracts such as ours were the first to be cancelled.

Philips and MyHeart

Alternatively, the Dutch have all kinds of advantages in international business negotiations vis-à-vis managers in larger countries like the United States or even neighbouring Germany.  They have a seminal trading heritage. The Dutch know foreign languages better than most. The Netherlands also sits on the north/south divide in Europe. North you have Protestant, south you have Catholic Europe. Going back even further in history, North you also had the “barbarians” unconquered by the Romans. The three rivers flowing east/west that the Romans had trouble crossing make and mark the divide: the Maas, Waals, and Rhine. Thus, it’s no accident that the foremost international business scholar is Dutch – Geert Hofstede. Professor Hofstede also reports another Dutch advantage for inventive interactions: high scores for both individualism and egalitarianism.

But, the fundamental advantage of the Dutch is that they have always clearly recognised their international interdependence as a competitive advantage. The head of Philips R&D Laboratory in Aachen, Germany, once told us quite succinctly: “We have very smart people here at Philips, but we don’t have all the smart people.” And, Philips’ corporate culture and strategic structure represents this realisation. Thus, Philips is one of the originators of “open innovation.” Thirty years ago they pioneered the concepts of partnering to develop new ideas and partnering to market new ideas. So, open innovation for Philips also means they buy ideas from R&D partners and they sell ideas to marketing partners, rather than developing and marketing all their own.

Philips engages in dozens of major and minor business partnerships around the world.  Our favourite is MyHeart.  As part of a major strategic restructuring after the 2001 recession Philips dumped its semiconductor business in favour of stronger emphases on consumer products and services including one focus on the demographic-based burgeoning healthcare market. It’s no accident that Philips located its major R&D efforts in its Dutch (Eindhoven) and German (Aachen and Hamburg) research facilities. Germany is home to the largest ischemic heart disease problem in Europe.  The German diet is a heart attack waiting to happen.

Philips Aachen has led a 33-partner consortium underwritten by a $16 million grant by the European Union to fight cardiovascular diseases through prevention and early diagnosis using the technologies of smart clothing, medical sensors, on-body electronics, software, user devices, and healthcare professionals.  The diverse set of partners from ten countries includes large firms such as Medtronic Iberia, Nokia, Vodafone Foundation; Italian textile companies such as Nylstar and Smartex; major hospitals including university hospitals in Aachen, Heidelberg, and Madrid; and universities in Italy, Spain, Portugal, and Germany.  The set of negotiation practices they described well represent the best of what we call inventive negotiations.

From the beginning and during several stages of the negotiations personnel at Philips Design acted as the key third-party facilitator.  The Design group, headquartered about a 90-minute drive from Aachen, has eight branch studios in Europe, the US, and Asia Pacific, and is one of the largest and longest-established design organisations of its kind in the world.  Its inventive force of some 500 professionals, representing more than 35 different nationalities, embraces disciplines as diverse as psychology, cultural sociology, anthropology, and trend research in addition to the more “conventional” design-related skills.   Philips Design offers a full range of services (to clients both within and outside the Royal Philips Electronics organisation) including design management, corporate identity creation and innovation design, as well as design of products, communication materials, interfaces and solutions for internet and new media.

So Philips has cultural diversity squared, in both the Design Group and the MyHeart Project team.  One of the initial steps in the negotiation process was an all-parties Application Workshop in Madrid that involved brainstorming sessions toward identifying central development projects.  Small groups, a two-day event allowing for “sleeping on it,” and volleyball were all part of the scheme.  One executive at Philips Design described aspects of the process:

“MyHeart started with 33 partners developing 16 totally different concept ideas that were shaped through a people-insights-driven process. In the first phase it entails understanding the domain of personal healthcare from prevention to chronic disease management. The concept ideas that were developed had to start fitting the different contexts of all future stakeholders to be involved and its business model had to be thought through. Through a carefully developed selection process developed by Philips Design the 33 partners were able to unanimously decide on the directions to pursue and the concepts to start developing, merge, and reduce to core supportive modules.”

Based on that event and the follow-up analyses, the 75 people from the 33 companies were divided into eight teams to focus on “work packages” such as functional clothes, on-body electronics, and business assessment.

The Philips executives we talked to emphasied the dual purposes of such meetings: (1) inventive ideas and (2) trust-building among the participants.

We note that since the publication of Henry Chesbrough’s Open Innovation that some of the biggest American companies are beginning to talk about their own similar non-traditional approaches to innovation: GE and Proctor & Gamble are prominent examples. But, this Dutch style of innovation sounds much like that we are familiar with out west – Silicon Valley high-tech firms and the Hollywood movie industry that nurtured a young Robert Iger have long applied such open innovation processes.  And, the executives at Philips are quite comfortable with mixing their own ideas with those borrowed from their American competitors.  Popular reading at Philips is the practices of Silicon Valley old timers such as the Bell Mason Group and the Kelley brothers at IDEO.

The Bottom Line

There are two ways to gain efficiencies within channels of distribution: market competition and transaction cost savings. Both can promote invention, one much more than the other. The market uses coercion: give me a lower price or I’ll go somewhere else. The less inventive vendors fade away. The advantage of the long-term relationships that promote transaction cost savings is that imaginations of both buyers and sellers are combined toward inventing better options. Only in the context of long-term trusting commercial relationships can invention flower in unexpected, even surprising, ways. Cost cutting achieves only short-run benefits.

Walmart puts suppliers across the table from one another and forces an auction to push prices down. Steve Jobs’ Apple depended primarily on vendor loyalty. The Apple/Hon Hai relationship has been one of the most inventive in history. Both Philips and Boeing have assembled similar commercial ecosystems of invention. “Getting to yes” is only half the job. The other half is all about relationships and creativity in your negotiations.

Inventive Negotiation book cover

Inventive Negotiation: Getting Beyond Yes, by John L. Graham, Lynda Lawrence and William Hernandez Requejo is available now via Palgrave Macmillan at http://bit.ly/1mwxApo

This article was first published in Outsource #36 (Summer 2014).


About the Authors

John L. Graham is an author and Professor Emeritus of International Business at the University of California, Irvine. He has provided expert advice and training on international negotiations to executives groups at Fortune 500 companies for three decades. He has written articles for the New York Times, Los Angeles Times, and the Harvard Business Review.

Lynda Lawrence is Chief Idea Officer at Ideaworks Consulting and teaches Innovation Management at the Merage School of Business at the University of California, Irvine.

William Hernández Requejo is president and a senior advisor at Requejo Consulting, a boutique advisory firm specialising in the area of international management, international strategic development, international negotiations, and advanced projects.  

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