HOW TO MAKE A DEAL

THE EXPONENTIAL IMPROBABILITY OF SUCCESS AND OTHER NEGOTIATION THEORIES

BY HUGH HOLUB

People try and negotiate agreements and fail. They try to get Slobodan Milosevic to quit murdering Albanians. Or they try to get Mexico and the United States to build a wastewater treatment plant in a border city. Or they try and buy a house. And they don't succeed. Why?

The Ponzi Institute at the General Delivery University has studied the negotiation process for several weeks and stumbled upon a new Negotiation Theory that could be worth millions if offered in seminars at cheap hotels around the country. It is called The Exponential Improbability of Success (EIS).

The more parties to a negotiation, the less likely anything will happen.

The basis for the EIS is that with each additional person or party involved in a negotiation, the probability of success decreases exponentially.

Thus, if there are only two people involved in a negotiation--say a Buyer and a Seller with the Buyer trying to buy a house from the Seller, there is a fairly high probability of success...so long as the Buyer offers the Seller enough money.

But, if a third person is added to the negotiation, such as the wife or husband of one of the parties, the probability of success decreases by one order of magnitude. The Buyer and the Seller might agree about the price, but the Seller's spouse wants the money all in cash, which the Buyer isn't willing to agree to.

Add both spouses to the negotiation, and the probability of success decreases by two orders of magnitude. The Buyer's spouse may not like the color of the house, and the Seller won't agree to repaint the house to sell it.

The amount of time it takes to negotiate a deal (or realize the deal is impossible) will double with each additional party to the negotiation.

Take for instance the negotiation of a wastewater treatment plant that would serve a US and Mexican city on the border.

Such a negotiation involves (1) the United States Section of the International Boundary and Water Commission, (2) the United States Environmental Protection Agency, (3) the US state water resources agency, (4) the US state environmental agency, (5) the local city in which the plant would be located, (5) the Mexican Boundary and Water Commission, (6) the Mexican National Water Commission, (7) the Mexican state involved, (8) the Mexican city involved, (9) the Border Environmental Cooperation Commission, and (10) the North American Development Bank. Ten parties for a sewage treatment plant decision.

This is what would be called a Tenth Order of Magnitude of Improbability Negotiation. Each party adds an order of magnitude of improbability that a deal will be made, and doubles the amount of time to negotiate the deal or realize that no deal is possible. In this example (which is true), the negotiations have been going on for 8 years.

Any negotiation which ends in success with 8 or more parties (an Eighth Order of Magnitude of Improbability) is a miracle. By the time more than 10 parties are involved, the probability of success is so infinitesimal that few people even bother wasting their time in such negotiations, unless they work for the US State Department or counterpart foreign ministries. Generally such complicated negotiations last longer than the term in office of the government seeking a deal, bringing to light another element of this Negotiation Theory:

Whenever a party to a negotiation changes, everything goes back to square one and starts over.

This finding should be self-evident. The new person hasn't got a clue what has gone on before, and will not agree to anything previously agreed to when he or she was not present.

Exceptions

Anecdotal evidence has uncovered an infrequent exception to the Orders of Magnitude of Improbability of succeeding in the multi-party negotiation. The ability to succeed in a multi-party negotiation depends heavily on the quality of the people doing the negotiating.

In a typical negotiation each party has a clear idea of what they want, but almost no clue what the other party wants. As a consequence, neither party actually listens to the other, and they talk past each other. Each party seeks to win, but only if they can defeat the other party. As no one in a typical negotiation wants to lose anything, it is obvious why this type of negotiator fails to negotiate a deal.

The more parties seeking to win, and refusing to hear what the other parties are saying, the longer the time it takes to realize the negotiation is futile.

The successful negotiator listens very carefully to what the other party is saying, to determine what is that party's "Deal Points"-- in other words, what the other side wants. More often than not, one party's Deal Points are actually Throw Away Points of the other party. Generally people ask for more than they reasonably believe to get in a negotiation, and have some points they must get, and others that are simply put on the table to trade away for what they want--the "Throw Away Points".

One party's Deal Points are usually the other Party's Throw Away Points

Interestingly, the limited studies conducted in Negotiation Theory proves that it almost always the case that one party's Deal Points are the other party's Throw Away Points, and vice versa.

If each party would make a list of Deal Points and Throw Away Points right at the beginning of a negotiation, and exchange them at the first session, the deal could generally be made in 15 minutes.

The Amount of Negotiation Must Equal the Size of the Deal

However, the factor of the the Amount of Negotiation Must Equal the Size of the Deal comes into play.

Two people representing major corporations cannot make a $100 million deal in 15 minutes. Even though it may be obvious to both negotiators that the deal is X within a few minutes of exchanging Deal Points, neither can go back to their bosses and explain how they cut a $100 million deal in a few minutes. Thus, there is a lot of theater in negotiating in order to make the length of the negotiation equal the size of the deal. Unfortunately, one party to the negotiation may realize the negotiating process is simply theater to extend the length of the process to equal the size of the deal, and another party may think the elaborate arguments are serious. This generally results in the failure of the negotiation.

Personal Perspective Negotiators vs Institutional Perspective Negotiators.

Another factor discovered in the negotiation study is that there are two basic kinds of negotiators--those who negotiate from an Institutional Perspective, and those that negotiate from a Personal Perspective, generally in total disregard for whatever is in the best interests of the entity, agency or government they are negotiating for.

It is always easy to negotiate from a Personal Perspective. One always knows what one wants for themselves. However, the entity the negotiator is representing might have a very different idea of what they want.

An entity that does not want a negotiation to succeed will generally assign a person who doesn't have a clue about the policy goals of the entity to do its negotiation. For example, if the United States doesn't want to succeed in an arms control negotiation with the Russians, it will send a virulently anti-Russian negotiator to the table who will never agree to anything the Russians want, no matter how much safer the world might be, because he won't ever give an inch to the Russians. He has no Deal Points, because he will not make a deal.

Sometimes, however, an entity will send some to the negotiating table who will negotiate from his Personal Perspective, and that person will get a deal...which may be awful for the country, but be perfect in the mind of the negotiator. This often happens when the entity has no policy to guide its negotiator. A great deal of American foreign policy was made by negotiators working without any guidance of what a national policy was. They made it up at the table.

Trade negotiations frequently result in success because the negotiators are representing specific economic interests, and could give a rat's ass about human rights. These negotiators frequently go to work for the large corporations that benefited from the trade negotiations, not long after a trade deal is made. This why, for example, we have a lot of Chinese-made goods in our stores while Chinese political dissidents rot in prison.

If there is a clear common goal of all parties to a negotiation...ie getting rich....the Order of Magnitude of Improbability often does not operate, provided each party is seeking a different Deal Point. If at least two parties are trying to sell the same thing, like bananas, a trade war may erupt instead.

One Must Always Be Able To Claim They Screwed The Other Side.

A lot has been written about the "Win-Win" theory of negotiating. What this actually means is each party must be able to go home and tell really good stories about how they succeeded in screwing the other party. Each side must "win".

Negotiations Vary By Culture

In negotiations between Chinese, inordinate amounts of time may be spent over trivial items, so each side has "face", meaning they succeeded in screwing the other party. Interestingly, once a deal is made between Chinese, there is almost no litigation, since neither party is willing to risk the possibility of losing face.

In Mexican negotiations, a great deal of attention is paid to getting to know the other parties to the negotiation on a personal basis, to establish a climate of trust. This is necessary as the Mexican legal system is highly unpredictable as to who would win a lawsuit. During the socializing phase, each party is also figuring out where they could get even with the other party in the event one party welshes on the deal. Once a good balance is struck, the exchange of Deal Points happens rather quickly, much to the surprise of an American participating in a negotiation with Mexicans. Usually the America is getting fairly upset about all the evasion of substance in a negotiation and is eager to "get to the point". Mexicans think this is rude.

Some cultures (such as New Yorkers) value a lot of shouting and arm waving as a prerequisite to a successful negotiation. A deal just doesn't feel good unless a lot of disparaging remarks are exchanged between the parties. The negotiation is actually theater, and neither party actually takes the substance of the negotiation seriously. They might even be brothers.

Mixing cultures in a negotiation can greatly increase the Improbability of Success

Mixing cultures in a negotiation can greatly increase the Improbability of Success where the various parties don't understand the cultural requirements for a good negotiation. Thus, it is useful to make sure each negotiator in a multi-cultural negotiation has some training about the other culture's negotiating styles. Americans generally can't do this inside their own country, let alone on the international scene. Thus, a negotiation between an environmentalist and a rancher almost always fails, because these are two different cultures. And if a US environmentalist can't succeed in a negotiation with a US rancher, this person isn't going to get anywhere trying to get the Japanese to stop hunting whales.

This we call the Sushi Test. All parties to the negotiation must like the same food. This provides at least one common ground for the negotiators to talk about, and dinner is a great place to make deals. However, the US environmentalist, when served sushi at a Japanese diplomatic event, is likely to object to fishing treaty violations.

Finding some sort of common ground among negotiators is crucial. Often the success in a negotiation does not come at the bargaining table, but out behind the building when the negotiators take a break for a smoke. Any sort of common ground among negotiators decreases the Improbability of Success. This is why the United States is becomming much less successful in its negotiations, since smoking is considered bad for your health. Fewer Americans smoke, leaving them in the negotiating room alone while everyone else goes out for a puff.

Form Always Avoids Substance.

Finally, the issue of Form versus Substance often arises in a negotiation. Is the table round or square? Negotiations over form achieve no substance.

Form is used solely to probe the other side and protect one's identity and credibility with the home folks. Only when arguments about Form cease and talks about Substance begins is there are any chance for a deal.

Now, consider the 14 members of NATO, Milosevic, the Russians and the Chinese.

Copyright 1999 By Hugh Holub


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