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Wednesday, January 23, 2013

Big Idea 2013: Charging More for Good Ideas than Bad Ones

Big Idea 2013: Charging More for Good Ideas than Bad Ones

In the marketing world, because the creative services business is still mired in the hourly billing model, it’s an unfortunate fact that bad ideas cost the same as good ideas. Advertising agencies count up their time and charge their clients the same for a game-changing campaign as for a poorly-crafted series of messages destined to be ignored.
It’s time to change that.
Looking to Hollywood, some of the biggest stars take the biggest risks when it comes to compensation by taking a percentage of the box-office earnings. A good film makes more than a bad film, and the leading actors get paid accordingly.
In the world of professional photography, a good photograph earns more than a bad photograph. Because the photographer owns the rights, the more the photo gets used, the more the photographer earns. The iconic Maxell photo showing a man in a chair “blown away” by the sound of Maxell audiotape is still earning royalties more than 25 years later.

Stuck in an outdated paradigm

Despite the fact that most of the professionals that advertising agencies draw upon to complete their work -- photographers, actors, musicians, voice talent, illustrators, etc. -- earn more for good work than bad work, most advertising agencies themselves are stuck in a pricing paradigm that doesn’t correlate at all to value.
It’s time for marketing communications firms to realize that they’re in the intellectual property business instead of the hourly rate business. An advertising campaign is a piece of intellectual property, just like a photograph, an illustration, or a software program. And most IP is sold based on usage. Adobe sells licenses to advertising agencies to use its Creative Suite of software. Agencies don’t pay Adobe by the hour, or based on the number of hours Adobe invested in creating the software. Ad agencies typically pay companies like Adobe and Microsoft a lot of money, because ad agencies use these types of software products a lot.
But then these same ad agencies charge their clients not based on the value of their work (how much it gets used) but rather based on the time it took to create it. It’s time for all parties in the marketing world to stop and realize that the value of an idea cannot be measured by a clock. This is the wrong measurement; like sticking a yardstick in an oven to determine the temperature. The value of an advertising idea can only be measured by the outcomes it creates in the marketplace.

Moving to an IP model

The best way for ad agencies to wrap their heads around the concept of intellectual property is to first separate the concepts of ideationexecution and usage. These are three different things. Currently agencies derive most of their revenues from execution, followed by ideation(although most agencies undervalue and undercharge for this). Most firms don’t even consider usage as a potential revenue source, even though this is how agencies pay most of the outside creative resources they themselves hire.
For example, the Advertising Photographers of America (APA) espouses a set of principles that establishes the day rate as just a minimal part of a photographer’s income (really just to cover basic expenses) and instead has its members charge for the usage of the image, in which the buyer pays:
  • More if you use an image more than once
  • More if you use it in more than one way
  • More if you use it over a longer period of time
Ad agencies can price their work and services in a similar way by thinking in terms like these:
IDEATION (Developing the idea)
  • Agency charges a modest concept fee, or no concept fee
EXECUTION (Executing the idea)
  • Agency charges outside production costs only, or agency pays all costs
USAGE (Using the idea)
  • Agency charges a per use fee
In this way, good ideas earn more than bad ideas because good ideas (ones that produce effective outcomes) will keep getting used by the marketer. And good ad agencies will earn more than bad ones.
As long as agencies stay on the hours-based “work-for-hire” treadmill, their earnings and profitability will stay on the downward course that started almost 40 years ago. Paying for usage instead of time is a better way for talented marketing problem solvers to be compensated for value created, and a better way for marketers to pay for value received.

Wednesday, January 9, 2013

5 Common Negotiating Mistakes And How You Can Avoid Them

5 Common
Negotiating Mistakes
And How You Can Avoid Them

Mistake No. 1: Viewing negotiation as a fixed pie
In the business world, why is competition so often the norm, while cooperation seems like an impossible goal? Why do we so often settle for “better than
nothing” compromises?
One of the most destructive assumptions we bring to negotiations is the
assumption that the pie of resources is fixed. The mythical-fixed-pie mindset
leads us to interpret most competitive situations as purely win-lose. Of course,
a small percentage of negotiations are distributive—the parties are restricted to
making claims on a fixed resource. For instance, if price is the only issue on the
table, your gains come at the expense of the other party and vice versa. Haggling
over a piece of jewelry in a bazaar is one type of distributive negotiation.
But in organizational negotiations, far more issues than price are typically
involved, including delivery, service, financing, bonuses, timing, and relationships. For those who recognize opportunities to grow the pie of value through
mutually beneficial tradeoffs among issues, the complexity of such negotiations is
an asset. Tradeoffs allow you and your negotiating partner to achieve more than
you would if you merely compromised on each issue. For instance, buyer and
seller negotiating a purchase might both be satisfied by increasing the order size
and slightly decreasing the price per unit.
Finding tradeoffs can be easy when negotiators know to look for them, yet
our assumptions about the other party’s interests often keep us from this search.
The problem is, we tend to apply the fixed-pie mentality too broadly, assuming
that any gain for the other side comes at our expense.
Finding trades. Once negotiators have broken the assumption of a mythical
fixed pie, the search for value can begin. To create value, you need to learn about
the other party’s interests and preferences. The three proven strategies that follow
will increase your likelihood of uncovering value in the negotiation process.
1. Build trust and share information. The most direct way for parties to
create value is to share information in an open, truthful manner. But even in
negotiations within companies, parties fail to follow this strategy. The value created by sharing information with your most trusted customers will often outweigh
the risk of having that information misused. If the two parties can put their
tendency to claim value on hold, they may well be able to share valuable information about how much each side cares about each issue. “On-time delivery is
critical to us,” you might tell a representative of a technology consulting firm in a
negotiation over new business. “Our old contractor did good work, but couldn’t
meet deadlines. Now tell me some of your key concerns.”
2. Ask questions. Your goal is to understand the other party’s interests as
well as possible, yet both parties may be unwilling to fully disclose confidential
information. What should you do next? Ask lots of questions! Many executives,
especially those trained in sales persuasion tactics, view negotiating primarily
as an opportunity to influence the other party. As a result, we do more talking
than listening, and when the other side is talking, we tend to concentrate more
on what we’ll say next than on the information being conveyed. Listening and
asking questions are the keys to collecting important new information. “What
mechanisms does your firm have in place to make sure you meet our deadlines?”
you might ask the consulting rep.
3. Make multiple offers simultaneously. Most negotiators tend to put one
offer on the table at a time. If it’s turned down, they learn very little that will help
move the process forward. Instead, imagine making three offers that are very different but all equally profitable to your side. If the other party rejects all the offers
but is particularly negative about the first and the last, you have learned what’s
most important to them and where potential trades are located. For example,
after you learn what’s most important to a consulting firm you’re talking to,
present three preemptive offers that demonstrate your flexibility and your commitment to sealing the deal.
Adapted from “The Mythical Fixed Pie,” by Max H. Bazerman
Negotiation, November 2003
Mistake No. 2: Overvaluing your assets
Imagine that you are moving from one city to another and putting your
home on the market. How would you determine the true value of the residence?
Now imagine that you are in the market for the same residence rather than selling it. How would you determine its value? Do you think you would reach the
same estimate regardless of whether you were the buyer or the seller?
According to basic economic principles, we should place the same value
on an item whether we’re selling it, buying it, or merely window-shopping. Yet
few of us behave with such level-headed rationality. Specifically, psychological
research shows that sellers typically value their own possessions more highly
than the possessions of others. In negotiation, that’s a problem if you need to
make a sale.
Priceless or “pseudosacred”? Some possessions truly are priceless—we
wouldn’t part with them for any amount of money. Others are virtually priceless, or “pseudosacred,” according to Harvard Business School professor Max
Bazerman. We might claim that these possessions aren’t negotiable, but we would
consider making a trade under certain conditions. Your mother’s engagement
ring might be permanently sacred, for instance, but your great-uncle’s watch
may be another matter when money is tight.
What happens when you decide you’re ready to part with a pseudosacred possession? You’ll be prone to resist beneficial tradeoffs and compromises and to
respond to counteroffers with anger and rigidity—not a recipe for a successful deal.
Consider what often happens when a family’s longtime home goes on the
market. Sacred memories lead family members to set an irrationally high asking
price for the house. After an initial flurry of interest, the house sits on the market
for months, even years. Price cuts fail to attract much interest, and a once-beloved
home becomes a source of stress and anxiety.
Your treasure, their trash. Interestingly, we also tend to overvalue ordinary possessions that have no sentimental value. In a 1990 Journal of Political
Economy article, researchers Daniel Kahneman, Jack Knetsch, and Richard
Thaler describe what happened when they gave ordinary objects such as coffee mugs, pens, and chocolate bars to the college students participating in their
experiments. Sudden, arbitrary ownership provoked participants to value these
trifling goods more than other participants did, a phenomenon the researchers
dubbed the “endowment effect”—in this case, the instant endowment effect.
Contrary to rational economic theory, we seem to view almost anything as
more valuable once it belongs to us. Why? Ownership, like any stroke of good
fortune, is accompanied by the threat of loss relative to the status quo. This “loss
aversion” can lead us to overvalue our assets and ask too much for them.
4 tough questions for sellers. To overcome loss aversion and put together
a more rational and competitive package prior to your next sale, answer these
questions as honestly and thoroughly as possible:
1. “Would I want it if it weren’t mine?” Once you’ve made the difficult
decision to part with a possession, imagine how you’d react if someone
were pitching it to you. When you put yourself in a prospective buyer’s
shoes, the item might not look as appealing.
2. “How much is it really worth?” Improve your estimate of an item’s value
by consulting an expert in the field, such as a financial adviser or an art,
jewelry, antique, or real-estate appraiser.
3. “What if it doesn’t sell?” Imagine what will happen if you are unable to
make a sale after a month or a year passes. If that wouldn’t be a problem,
go ahead and aim high. But if it would cause financial or other difficulties,
rethink your goal.
4. “What other value can I offer?” In most negotiations, price should not be
the only issue on the table. If you can provide delivery options, payment
plans, matching rights, or an ongoing relationship to a potential buyer,
you may be able to justify a higher-than-average price.
“Why Your Selling Price May Be Too High,” by the Editors
(Reproduced in its entirety.)
Negotiation, October 2007
Mistake No. 3: Going on a power trip
When someone seems to need you more than you need him, “Take it or
leave it” can seem like the simplest negotiating gambit. If a seller is desperate
to unload his business and you’re the sole bidder, why not make a rock-bottom
offer? And if you’re hiring in a competitive job market, you might as well aim to
keep labor costs as low as possible, right?
It’s true that negotiators with abundant power tend to get better deals than
their weaker counterparts. Yet whether their power springs from a title, resources,
or (most typically) a strong outside alternative to agreement, powerful negotiators often make a number of predictable and costly mistakes. Most notably, the
powerful are susceptible to underestimating their opponent, overlooking the
other side’s perspective and devaluing his concerns.
If someone leaves the bargaining table feeling that you’ve disrespected or
mistreated her, you may end up the victim of a power backlash. The next time
you think you hold all the cards, prepare to ward off the following three common
reactions to perceived abuses of power.
Power Backlash No. 1: They dig in their heels. Powerful negotiators generally don’t devote enough time to considering the other side’s point of view,
Northwestern University professor Adam D. Galinsky and New York University
professor Joe C. Magee have written in Negotiation. As a consequence, the powerful may fail to anticipate “irrational” behavior from their counterparts. When
confronted with your demands, someone may refuse to concede on principle despite a weak bargaining position.
Here’s one example, as reported by Russell Working in the Chicago Tribune.
During 2003 contract negotiations with its service employees’ union, the Congress
Plaza Hotel in Chicago insisted on a salary freeze and the right to subcontract
certain jobs. Blaming a slump in the travel industry for its tough stance, the
independently owned hotel took a gamble that Unite Here Local 1, a relatively lowclout union, would cave. Yet with their salaries already trailing industry averages,
113 Congress employees, primarily housekeepers and restaurant staff, chose to
strike instead. The hotel brought in temporary workers to replace them.
Four years passed, neither side budged, and the strike became the longestrunning in Chicago history. The constant picket line drove guests away, and the
Congress slashed its rates. For business negotiators, the Congress offers a cautionary tale. The hotel owners underestimated their employees’ tenacity and
overlooked the union’s outside interests. One striker told the Tribune that a five-
or six-year strike would be a small sacrifice for those who had worked at the
hotel for decades.
Power Backlash No. 2: They renege on the deal. The greater the power differential in a negotiation, the more parties tend to focus on maximizing individual gain, Notre Dame University professor Ann Tenbrunsel and Northwestern
University professor David Messick found in their research. When you are the
stronger party, that competitive attitude could lead you to coerce your opponent
into accepting a deal she can’t fulfill. Suppose a big-box retailer tells a sportinggoods supplier that it must submit a lower bid to retain a contract. Reluctantly,
the supplier delivers a revised bid with a slim-to-none profit margin. It should
surprise no one if the supplier misses delivery targets, sacrifices product quality,
or defects to one of the retailer’s competitors.
Even the biggest industry behemoth should be motivated to build trusting business relationships based on more than just a short-term price. To do so,
spend time exploring the other party’s vantage point before talks begin. What are
their outside alternatives and strengths in the broader marketplace? They may be
more powerful than you think. MIT professor Lawrence Susskind advises lesspowerful negotiators to seek an “elegant solution” that will meet both sides’ interests. For the sporting-goods company, that might mean proposing to sell new
products to market segments that the retailer wants to bring into its stores. Let
your fellow negotiators know that you are eager to listen to their ideas and brainstorm value-creating opportunities.
Power Backlash No. 3: They take you to court. People tend to hold
the powerful to higher ethical and moral standards than they do the weak,
Tenbrunsel and Messick found in their research. Our legal system does as well.
In particular, says Harvard professor Guhan Subramanian, the courts may
constrain the actions of the powerful by policing the terms of a deal, reading additional terms into a contract, or imposing procedural constraints on a
In the famous 1978 Canadian case Harry v. Kreutziger, a boat owner sold
his boat and accompanying fishing license to an individual who knew considerably more than the seller about the local boating situation. The seller settled for
a nominal sum, thinking that his boat was not worth very much. He was right
about the boat—but he found out after the sale that the fishing license was extremely valuable. He took the buyer to court and successfully reversed the sale.
The judge found that the seller had been “dominated and overborne” by the
buyer, who had failed in his obligation to be “fair and reasonable” in his dealings
with the seller.
The lesson: Because power can inspire resentment, when you hold all the
cards, you must make an extra effort to meet your own fairness standards and
abide by the relevant legal rules.
“Why Your Next Negotiation Power Trip Could Backfire,” by the Editors
(Reproduced in its entirety.)
Negotiation, December 2007
Mistake No. 4: Not knowing what you really want
How happy do you think you’ll be if your preferred U.S. presidential
candidate wins the next election? How about if your favorite sports team wins
its next national championship? Now imagine how upset you will be if your
candidate narrowly loses the election or if your team just misses winning the
If you’re like most people (and if you care about sports, politics, or both),
you just committed an error in judgment: you overestimated how happy a win
would make you and how devastating a loss would feel.
Across the board, people predict that future events—whether a World Series
win, a promotion, or even the death of a loved one—will have a strong, lasting
impact on their happiness, psychologists Daniel Gilbert of Harvard University
and Timothy Wilson of the University of Virginia have found. Yet when such
events come to pass, they have a lesser long-term effect on happiness than people
expect, a phenomenon that Gilbert and Wilson call the impact bias.
In negotiation, the impact bias can lead us to make mistakes when choosing
what will bring us pleasure or spare us pain, a phenomenon Gilbert has labeled
miswanting. Although miswanting has both pros and cons, overall you’ll benefit
from thinking more carefully about what might make you happy.
Emotions, weak and fleeting. People overestimate the intensity and duration of their emotional responses to a wide array of events, according to Gilbert,
Wilson, and professors George Loewenstein of Carnegie Mellon University and
Daniel Kahneman of Princeton University. In their research, groups of students,
voters, newspaper readers, and job seekers all overestimated their unhappy reactions to failed romances, political defeats, upsetting news, and personal rejections,
respectively. We accurately expect that we’ll be cheered by good fortune and upset
by bad news, but we err in assuming how strong and lasting that mood will be.
The ups and downs of miswanting. Because our brains are wired to adapt
to changing circumstances, we tend to return to a set level of happiness after a
boost or a setback, say scholars in the field of “positive psychology.” As each new
achievement becomes ordinary and less pleasurable, we seek out the next one
that we think will bring us lasting happiness.
Does that mean negotiation is a pointless enterprise, one you’re doomed to
repeat in an elusive quest for greater happiness? On the contrary: The prospect
of delight and the fear of disaster can be powerful motivators for positive change,
whether that means winning a new contract, getting out of a destructive relationship, advocating for your children’s safety, or finding a better job.
Yet a keener understanding of what will make you happy can help you
make better choices in negotiation. In particular, keep in mind that vivid fears
and desires as well as obvious differences between options are likely to capture
your attention. Balance these concerns by factoring other issues that will affect
your happiness into the equation. Research shows that money does not correlate
strongly with lasting happiness, for instance, but that friendships and other social
ties do.
For negotiators who agonize over hard choices, awareness of the impact bias
can bring solace. Knowing that you’re likely to bounce back from adversity may
free you to take calculated risks, and overcoming unrealistic expectations may
promote greater long-term contentment.
Adapted from “Are You Sure That’s What You Want?” by the Editors
Negotiation, July 2008
Mistake No. 5: Binding yourself too tightly to a deal
Consider these two real-life negotiating scenarios:
A. An elderly couple put their Boston home up for sale with the plan of moving into an assisted-living facility six months later. They receive an offer at
their asking price immediately, after the buyers agree to delay the closing by
six months. Six months pass, the subprime mortgage crisis descends, and the
appraised value of the house drops below the agreed-upon price. Claiming
they cannot secure financing, the buyers walk away from the deal, leaving
the elderly couple stuck in a buyer’s market with a lease on a new home.
B. A telecommuter hires a carpenter to build a workstation for her home
office. The carpenter’s contract requires payment of 50% upon signing, an
additional 30% halfway through the job, and the final 20% upon completion. When the job is done, the woman is dismayed to find that the cabinets
are misaligned. She calls the carpenter and tells him she won’t pay him the
final 20% until he redoes his work. He tells her she can keep her 20%.
You probably caught the common thread in these cases: one party is more
committed (or risks being more committed) to a deal than the other. The Boston
couple were legally bound to the purchase contract, but the potential buyers were
able to walk away. The telecommuter is left with a shoddy office, and the carpenter moves on to his next victim.
Researchers have documented the tendency of negotiators to irrationally
escalate commitment to a chosen course of action. A psychological process,
escalation typically occurs in competitive situations such as auctions, strikes,
custody battles, and mergers and acquisitions. When talks get difficult, it can
be easy to conclude that you’ve invested too much to quit and feel trapped in a
disappointing deal.

As these stories show, escalation of commitment is also a possible trap when
negotiating tactics and contract terms would bind you to an agreement more
than they would bind your counterpart. As these stories also suggest, accepting a
lopsided deal can be a recipe for disaster.
Manage your escalation of commitment. How can you ensure that you and
your counterpart are similarly committed to a deal? Harvard Business School
and Harvard Law School professor Guhan Subramanian advises you to follow
these three steps:
1. Play “What if . . . ?” Before negotiating, ask yourself how difficult it would
be to walk away without a deal, both psychologically and economically. Reduce the
potential for escalation by cultivating your best alternative to a negotiated agreement (BATNA). For the elderly couple, this might have meant waiting for any other bids and negotiating a better deal. The telecommuter might have negotiated with
several carpenters and checked their references before hiring one.
2. Assess each side’s commitment. During your negotiation (and before
agreeing to a deal), assess each side’s level of commitment. Ask yourself the following questions:
• How difficult will it be for me to back out of the deal if conditions change?
• How difficult will it be for my counterpart to back out?
• What will happen to me if the other side backs out?
3. Level the playing field. Suppose your answers to these questions suggest
that you would be more committed to the potential deal than your counterpart
would. What should you do?
First, don’t assume the other party is trying to take advantage of you. It
could be that your counterpart is simply trying to protect herself from escalating
commitment. Most home buyers wouldn’t sign a purchase contract without the
possibility of walking away if they couldn’t secure a mortgage. Similarly, a carpenter might insist on upfront payments after being burned by past clients.
It’s up to you to negotiate a more balanced deal—and to be prepared to walk
away if your counterpart won’t cooperate. Begin by pointing out your risk exposure to the other side. “What if I’m unhappy with the completed work?” the telecommuter might have said to the carpenter. “How can we both be protected?”

If the carpenter were confident in his workmanship, he might have been willing
to negotiate inspection rights before payment of the 30% installment or even deferred payment of 80% until after inspection.
Along these lines, the elderly couple could have insisted on a tighter deal
with respect to financing or structured a contingency to bind the seller if the appraised value of the home changed significantly before closing. A negotiator who
wants to do a deal will listen to you and consider making adjustments. If someone won’t cooperate, you may need to explore alternatives to the current deal.
Adapted from “Are You Overly Committed to the Deal?” by the Editors
Negotiation, April 2008

Top 10 Negotiation Stories of 2012

I especially liked the strategies used in #6. The Chen Guangcheng Crisis and 5. Talks with North Korea

Top 10 Negotiation Stories of 2012

December 21, 2012
Edited by: , filed in: Negotiation Skills
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Top 10 Negotiation Stories of 2012
Here’s a recap of some of the most interesting and challenging negotiations of 2012 – some of which are ongoing:
10. Disney’s Purchase of Lucasfilm
On October 30, the Walt Disney Company made a surprise announcement that it was acquiring Lucasfilm, home of the immensely successful Star Wars brand, from its founder, George Lucas, for $4.05 billion, split evenly between stock and cash. Lucas is the sole shareholder in his company.
The acquisition bolsters Disney’s status as a leader in animation and superhero films and gives it the opportunity to reap huge earnings from the already lucrative Star Wars media and merchandising empire. Disney promised to begin producing and releasing new films in the Star Wars franchise every two or three years. The acquisition even included a detailed script treatment for the next three Star Wars films.
The 68-year old Lucas decided to sell his company after beginning to plan his retirement several years ago. According to Walt Disney Chairman Robert Iger, he and Lucas conducted the negotiations personally, beginning in early 2011. Speaking of Lucas’ decision to hand over his creative legacy to Disney, Iger told the New York Times, “There was a lot of trust there.”
9. Apple and U.S. Book Publishers
On April 12, 2012 the United States Department of Justice (DOJ) sued Apple and five major U.S. publishers for colluding to raise the prices of ebooks. Three of the publishers settled the suit; two others and Apple have been unwilling to settle.
By January 2010, the publishers negotiated a new business model for ebook pricing with Apple as it prepared to launch the iPad: in exchange for a 30% sales commission, Apple would let the publishers set their own prices for ebooks. For the publishers, this pricing model appeared to be a vast improvement on their wholesaling arrangement with Amazon. After at least one of the publishers threatened to delay release of its digital editions, Amazon reluctantly replaced its flat $9.99 price for ebooks with Apple’s model, and prices rose industry-wide to about $14.99 on average.
The DOJ’s lawsuit suggests that the negotiators and attorneys involved may have neglected to thoroughly analyze whether their agreement would truly create value for consumers—and thus whether it fell within the parameters of U.S. antitrust law. In the flush of hammering out a deal that appears to create synergy for everyone involved, negotiators sometimes neglect to consider how their agreement could affect outsiders, an oversight with ethical and legal implications.
8. The Chicago Teachers’ Strike
After being elected mayor of Chicago in February 2011, Rahm Emanuel, President Obama’s former chief of staff, took a series of actions that alienated Chicago schoolteachers, such as rescinding a promised pay raise and lobbying the Illinois state legislature for an education-reform that limited the issues the Chicago Teachers Union (CTU) could negotiate and strike over.
In mid-2012, failed contract negotiations between the CTU and the City of Chicago led to a 10-day strike. The CTU and the school board eventually reached an agreement that provided victories for both sides, including a longer school day and annual teacher raises.
When a conflict looms, it can be tempting to try to make unilateral decisions on key issues for fear that negotiation with the other side will be a dead end. This strategy may pay off in the short term, but it’s important to factor in the long-term cost of a backlash. 
7. The Mortgage Foreclosure Settlement
In early February, following months of difficult negotiations, the attorneys general of 49 states and the Obama administration reached a settlement agreement with five of the nation’s largest banks aimed at stabilizing the U.S. housing market and punishing the banks for foreclosure abuses, theNew York Times reports.
Some analysts cheered the agreement as a positive sign that the country was beginning to move on from the housing crisis. But others criticized it for helping only a fraction of affected homeowners. The negotiations reflect the difficulty of balancing multiple goals in complex multiparty talks—a challenge that stronger communication and negotiation within each party could help to resolve.
6. The Chen Guangcheng Crisis
The Obama administration’s powers of diplomacy were put to the test this spring when Chinese dissident Chen Guangcheng made a dramatic escape from house arrest to the American Embassy in Beijing on the eve of the United States and China’s annual negotiations on strategic and economic issues.
Negotiations between U.S. and Chinese officials involving Chen’s fate were conducted under top secrecy, at the Chinese government’s insistence. Only after Chen decided he wanted to leave China for the United States did Secretary of State Hillary Rodham Clinton broach the topic of his fate with her Chinese counterparts, and even then she did so indirectly. Within hours, the Timesreports, the Chinese announced that Chen had been granted permission to study in New York.
“Face is more important in Asian society than any contract,” one senior American officials told theTimes, emphasizing China’s need to keep the sensitive negotiations under wraps and speak only indirectly about ChenThe talks illustrate the potential value of adapting to your counterpart’s negotiating style in international negotiations.
5. Talks with North Korea
Beginning in 2011, the United States negotiated for many months with the erratic, secretive leadership of North Korea. The drawn-out talks began in the era of Kim Jong-il and, after his death, resumed under the new regime of his son Kim Jong-un.
On February 29, the countries announced an agreement in which North Korea promised to freeze its enriched-uranium weapons program and its long-range-missile activities in exchange for large amounts of U.S. food aid. But just 17 days later, North Korea sabotaged the deal by announcing plans to launch a satellite using a long-range missile. On April 13, North Korea launched its rocket, which exploded in midair.
When dealing with untrustworthy counterparts, it can be worthwhile to negotiate a “test” agreement within which you make only a few concessions, but be sure the consequences of reneging are explicit to the other party. Prepare for the potential consequences of a broken deal, including damage to your reputation.
4. Iran’s Nuclear Option
In a White House meeting on March 5, Israeli Prime Minister Benjamin Netanyahu expressed skepticism that international pressure will succeed in convincing Iran’s leaders to halt the country’s nuclear program. Netanyahu reportedly told President Barack Obama that the West should not reopen negotiations with Iran until it agreed to suspend its uranium enrichment activities, according to the New York Times.
Obama is said to have disagreed, saying this condition would doom talks from the start. He urged Netanyahu to give economic sanctions and diplomacy a chance to work before considering military action. Meanwhile, some Republicans expressed impatience with the notion that U.S. negotiations with Iran could be effective.
Instead of writing off a negotiation with someone you deem to be evil, irrational, or unethical on principle, advises Program on Negotiation chair Robert Mnookin, thoroughly analyze the decision regarding whether to negotiate, including the potential costs and benefits. Examine factors such as your interests, the other side’s interests, your alternatives to the negotiation, the shape of a potential deal, the various costs you might incur, and the likelihood that you can successfully follow through on a deal.
3. The European Debt Crisis
On June 5, another casualty in the European debt crisis emerged, as Spain announced that  it soon would be unable to borrow in the bond market without assistance from other European Union nations. Spain’s announcement launched unofficial negotiations over a deal to rescue the nation’s banks. As the euro zone’s fourth-largest economy, Spain was considered too big too fail. By demanding emergency aid for its banks, Spain tried to avoid the austerity measures and deep recessions faced by smaller nations such as Greece, Portugal, and Ireland.
Spain’s banking crisis underscores how the European Union has lurched from one crisis negotiation to the next. “The strategy of plugging holes only works for so long,” Friedrich Mostböck, chief economist and head of research for the Erste Group in Vienna, told the Times. “Eventually, you come to the point where a common euro area requires a common fiscal policy.”
This lack of a unified, guiding fiscal policy gave Spain and other troubled countries negotiating power—possibly at the expense of the broader European economy. The situation illustrates the value of establishing ground rules and policies before a crisis hits to make sure that you are playing on a level, fair field.
2. The Conflict in Syria
On August 2, former U.S. secretary general Kofi Annan announced he was resigning as the special peace envoy of the United Nations and the Arab League to the conflict in Syria. The peaceful uprising against President Bashar Assad that began in early 2011 has since exploded into a civil war.
Annan had negotiated a proposal that called for the Syrian government to withdraw heavy weapons and troops from populated areas and for opposition fighters to disarm. The proposal also detailed a process for political transition that included replacing Assad. Assad vowed to abide by the peace plan, but his government never took steps to implement it; nor did the rebels put down their weapons.
Annan had received unanimous backing from the U.N. Security Council, but Russia and China, which had veto power, opposed additional coercive measures that might have imposed a change of government by outside powers or foreign military intervention. The United States, Britain, and France clashed with Russia and China on the issue.
Insufficient pre-negotiation with Security Council members prior to the drafting of Annan’s proposal may have contributed to the international conflict over the terms of the deal and its implementation. Annan’s resignation underscores the importance of securing a mandate to negotiate from one’s constituents before engaging in a significant negotiation or conflict-resolution effort.
1. The Fiscal Cliff
Soon after his reelection, Obama signaled some flexibility on the issue of whether tax rates for affluent Americans should go up as part of a negotiated plan with Congressional Republicans to reduce the deficit and avoid the “fiscal cliff.” But weeks later, Obama did an about face, saying he would insist on higher tax rates for on top earners.
Many Republicans in Congress have said they would not support a tax increase for any Americans. In early December, however, some Republican leaders reportedly were weighing a “fallback position”—legislation to extend middle-class tax cuts while delaying more difficult negotiations over spending and taxes until late January or February 2013.
The Republicans’ search for a compromise reflects their relatively weak BATNA, or best alternative to a negotiated agreement, as compared to that of the Democrats. Polls suggest most Americans supported tax increases for the top 2% and would blame Republicans more than Democrats if the country went over the fiscal cliff. Moreover, the cliff itself was a better BATNA for Congressional Democrats than for their Republican counterparts, as the spending cuts and Clinton-era tax codes that would be triggered are less onerous to Democrats than Republicans.
In their most important negotiations, business negotiators would be wise to spend a great deal of time thinking about what would happen in the event of impasse in the current negotiation—and looking for ways to make their BATNA better.

Negotiation Strategies Simplified 1

At the negotiation table, discuss the benefits of viewing each other as collaborators rather than arch enemies.