The best negotiated outcomes likely arise from where the parties find mutually beneficial trade offs

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The interdependence of parties is often affected by the nature of the differing interests or objectives. The parties may find themselves in situations where the interest or objective of both parties is the same and is finite. 

Finite generally means that the interest is a fixed sum and cannot be expanded. We will use the phrases fixed pie and expanding the pie to refer to the finite or non-finite nature of interests. A negotiation involving finite objectives or interests is known as a distributive negotiation. 

Alternatively, parties may find themselves in situations where the interests and outcomes of each party are not mutually exclusive (not the same and/or not finite); rather, both parties to the negotiation may be able to obtain a more favorable or desirable outcome than they could achieve without negotiating. 

That is, if the parties have competing interests (opposite interests) that can be improved through negotiation, this is known as an integrative negotiation. If the parties have interests that are not directly in conflict (i.e., the parties want exactly the same thing), this is known as a compatible negotiation. 

Distributive, integrative, and compatible negotiation scenarios are re-explained as follows:

Back to: Negotiations & Communications

What are Distributive Negotiations?

The interests or objectives of the parties are the same and are mutually exclusive. As such, it is a competitive (win-lose) situation. Any value claimed by one party in the negotiation is at the expense of the other party. This scenario generally is very competitive and does not foster cooperative behavior. 

What are Integrative Negotiations?

The interests or objectives of the parties are related and are NOT mutually exclusive. Any value claimed by one party is not at the expense of the other party; rather, the parties negotiate to create or generate value in the situation and both parties may achieve mutual gains beyond what they could achieve independently. This is a potentially (win-win) scenario. 

Parties must generally much some degree of tradeoffs to improve both interests from their best alternative to a negotiated agreement (BATNA). These tradeoffs allow each party to gain in an interest that is important to her in exchange for the other party gaining in an interest that is important to him. The net result is both parties being better off because of the negotiation. 

What are Compatible Negotiations?

The interests of objectives of the parties are the same and NOT mutually exclusive. In fact, the parties desire the exact same outcome. There is no need for tradeoff. The parties want the exact same outcome with regard to the interest or objective at stake in the negotiation. 

While untrained negotiators tend to see negotiations as distributive in nature, negotiations generally combine aspects of claiming and creating value. Each requires unique strategies and tactics for a negotiator to effectively achieve her objectives while creating the greatest value possible for all parties. 

Note (IMPORTANT): A single negotiation may have multiple interests at stake - each of which is either distributive, integrative, or compatible. 

Related Topics

Can you provide an example of a distributive negotiation scenario? Integrative negotiation scenario? Compatible negotiation scenario? How do you think the nature of the negotiation (distributive, integrative, or compatible) affects the strategy employed by the negotiator? If there is a mix of distributive, integrative, and compatible interests in a negotiation, how would it affect the strategy and tactics employed by the negotiator?

Most people erroneously equate win-win negotiations with fair division of resources. Allocating resources is always necessary in negotiation, but win-win means something different. Win-win is not:

• Compromise: to reaching a middle ground between negotiator's positions. Win-win is about how the pie is enlarged by negotiators.
• Even split: how the bargaining zone is divided among the negotiators.
• Satisfaction: It doesn't guarantee that money and resources have not been wasted; in fact, happy negotiators don't expand the pie.
• Building a relationship: to build the relationship, people tend to give up not to push the counter-party. This is not win-win

Telltale signs of win-win potential

Questions to ask when assessing the potential of a negotiation situation:

- Does the negotiation contain more than one issue?

By definition, single-issue negotiations are not win-win because whatever one party gains, the other party loses. So more than one issue must be identified to negotiate in an integrative fashion. It is differences in preferences, beliefs and capacities that may be profitably traded off to create joint value.

- Can other issues be brought in?

The more moving parts, the better the potential deal.

- Can side deals be made?

To bring other people into negotiations to make side deals may increase the size of the bargaining pie. Sort of bringing more issues.

- Do parties have different preferences across negotiation issues?

If parties have different strengths of preference across the negotiation issues, then a win-win negotiation is possible.

Pyramid model (pic. missing)

Beginning at the base, each successive level subsumes the properties of the levels below it. Higher levels are progressively more difficult to achieve, but they are more beneficial.

Level 1. Mutual settlement: Excess parties' no-agreement possibilities, or reservation points. Reaching an agreement that exceeds parties' no-agreement possibilities creates value relative to their best alternative.

Level 2. Settlement demonstrably: are better for both parties than are other feasible negotiated agreements. Negotiators create value with respect to one negotiated outcome by finding another outcome that all prefer.

That implies that the bargaining situation is not purely fixed-sum.

Level 3. Pareto-optimal: no other feasible agreement exists that would improve one party's outcome while simultaneously not hurting the other party's outcome. No more joint value can be created.

Most common pie-expanding errors

- False or illusory conflict

When people believe their interests are incompatible with the other party's interests when, in fact, they are not.

When people fail to capitalize on compatible interests, this is known as a lose-lose agreement. Recommendations to avoid this:

• Be aware of the fixed-pie perception. Don't assume automatically interests are opposed.
• Avoid making premature concessions.
• Develop an accurate understanding of the other party.

- Fixed-pie perception

This is the biggest detriment to reach integrative agreements. Most negotiations are mixed-motive in nature, meaning that parties' interests are imperfectly correlated with one another. The gains of one party don't represent equal sacrifices by the other.

Strategies that don't really work

- Commitment to reaching a win-win deal

- Compromise

Win-win negotiations are not equal-concession negotiations. Compromise pertains to slicing the pie, not expanding the pie.

- Focusing on a long-term relationship

- Adopting a cooperative orientation

Revealing one's BATNA is a pie-slicing, not a pie-expanding, tactic. Some negotiators think cooperation means compromise, and compromise often leads to lose-lose outcomes

- Taking extra time to negotiate

Strategies that work

- Perspective-taking

Understanding the counter-party's situation, interests. That enhances problem solving abilities as well as negotiator's abilities to claim resources and react effectively to the anchoring attempts of the counter-party.

Perspective taking (cognitive ability) is different from empathy (emotional ability to connect with the other person). 

- Ask questions about interests and priorities

To expand the pie, make questions about underlying interests, priorities, preferences, to diagnose situations. Diagnosis questions are effective because they don't put negotiators on the defensive. The help to discover where the value is while not tempting the counter-party to lie or misrepresent himself.

- Provide information about your interests and priorities

A negotiator should never ask the counter-party a question that he is not willing to answer truthfully. The important question is not whether to reveal information but what information to reveal.

By signaling your willingness to share information about your interests (not your BATNA), you capitalize on the powerful principle of reciprocity.

Information unraveling process goes this way:

• First quarter: Influence strategies as they battle for power and influence.
• Second quarter: Share information about their priorities.
• Third quarter: Offers and counteroffers plus rational for and against arguments.
• Forth quarter: Work towards agreement by building on each other's offers.

Illusion of transparency: when negotiators believe they are revealing more than they actually are. The counter-party may not understand the information. Messages can be unclear. When it can hold multiple interpretations, it can lead to settlement delays and to divergent expectations. However, when a single interpretation is obvious, information sharing leads to convergence of expectations and speed settlements.

- Unbundle the issues

Adding issues, and creating new issues can transform a single issue, fixed-negotiation into an integrative, multi-issue negotiation with win-win potential.

- Make package deals, not single-issue offers

Many negotiators make the mistake of negotiating issues one by one. Why?

• It doesn't allow to make trade-offs between issues, capitalizing on different strengths of preference
• Impasse is more likely, specially is the bargaining zone is narrow and trade offs are necessary to reach a mutually profitable outcome.

- Make multiple offers of equivalent value (to oneself) simultaneously

        + Devise multiple-issue offers

        + Devise offers that are all of equal value to yourself

        + Make all the offers at the same time

By doing so negotiators are perceived as more flexible. Moreover, multiple offers increase the discovery of integrative solutions.

Substantiation. arguments for one's own position or agains the other position.

•     Be agressive in anchoring
•     Gain better information about the other party

Inductive reasoning: a negotiator can deduce what the other party's true interests are and where the joint gains are. By active listening the opponent's response, negotiators can learn about the other party's preferences.

•     Be persistent and persuasive regarding the value of an offer
•     Overcome concession aversion

- Structure contingency contracts by capitalizing on differences

Differences must be exploited to capitalize on integrative agreements.

•     Differences in valuation. Strengths and preferences. Logrolling: trading off so as to capitalize on different strengths of preference.
•     Differences in expectations. Negotiation involves uncertainty, so negotiators may differ in their forecast or beliefs about what will happen in the future.
•     Differences in risk attitudes. Risk seekers and risk averse people. Gain-framed negotiators are more likely to logroll or trade-off issues in a win-win fashion. Loss-framed negotiators are more likely to accept a contingency contract.
•     Differences in time preferences.
•     Differences in capabilities.
•     Cautionary note. Contingency contracts to be effective, must:

#1. Not create a conflict of interest.

#2. Be enforceable and therefore often they may require a written contract.

#3. Clear, measurable, and readily evaluated, leaving no room for ambiguity

#4. Exist continued interaction among parties

- Pre-settlement settlements (PreSS)

• Formal. They encompass specific, binding obligations.
• Initial. Intended to be replaced by a formal agreement.
• Partial. Parties don't address or resolve all outstanding issues. It only resolves a subset of the issues on which the parties disagree.

It is a sort of frame.

- Search for post-settlement settlements

Attempt to improve the pre-settlement settlement. This current settlement becomes both parties' new BATNA. This strategy allows both parties to reveal their preferences without fear of exploitation.

A strategic framework for reaching integrative agreements. Pic missing

- Resource assessment

It involves the identification of the bargaining issues and alternatives. Parties identify the issues that are of concern. A superset emerges from the combination of both parties' issues.

• Issue mix. The union of both parties' issues. In addition to specifying the issue mix, parties also define and clarify the alternatives for each issue. Unbundle and add new issues and alternatives

- Assessment of differences

- Offers and trade-offs

Parties should focus on issues that are of high value to one party and of low cost for the other party to provide.

- Acceptance/rejection decision

- Prolonging negotiation and renegotiation

Don't forget about claiming

• Old fashioned negotiator. Tough, hard stance to negotiate successfully.
• Flower child negotiator. Busy expanding the pie, but forget to claim it.
• Enlightened negotiator. Realizes that negotiation has a pie-expanding aspect but at the same time dies not forget to claim resources.