Separation of creation and distribution phases in negotiation: advantages and disadvantages

Business NEGOTIATIONS (200-250 Words per Question Requested)

Why might a negotiator want to separate the value creation and distribution phases when negotiating? What advantages and disadvantages does this approach offer, whether psychologically or in other strategic ways? Give an example from at least one negotiation you've carried out in the course.

In principle, the negotiator would prefer to separate and differentiate value creation from benefit allocation because that allows the parties maximum latitude and flexibility in setting out their respective interests and objectives. By definition, the distribution phase occurs subsequent to and substantially as a direct function of the respective interests of the parties. If distribution were to precede value creation, the proposed distributions could very likely fail to reflect the interests of the parties and could leave both parties in less desirable situations than they could have achieved through the process of first having articulated their respective objectives. Another fundamental psychological and strategic reason that distribution should follow the value creation phase is that the value creation phase allows both parties the opportunity to articulate the objective justifications for their respective claims or demands. Sometimes, this process reduces resistance of adversarial parties because it helps them understand the rationale for one another's demands and negotiating positions.

The Redstone case illustrates this principle. The objective of the developers (Redstone) was to establish a condominium in conjunction with a street level commercial business venue and an income-generating parking facility. The City Council's principle objection related to the number of units and the displacement of affordable housing. The value creation process allowed both parties to outline their main concerns in ways that facilitated a mutually acceptable resolution that incorporated both of their main concerns.

2. What are some innovative ways of creating value in negotiation? And, why is "bundling" issues, rather than taking them up one by one, often important? Choose one of our negotiation exercises, and explain how you would approach a similar situation in the future the same way or differently, based on the concepts in your answer and how the negotiation went. We want you to offer a brief negotiation analysis, and extrapolate from that to derive lessons for your future practice.

Value can often be created during the process of negotiation by proposing solution approaches that increase the value to the respective parties that exceed those values that they may have envisioned on their own and that are reflected in their opening negotiating positions. Another innovative way of creating value in negotiation would be to ask both parties to rank the relative importance of all of the individual components of their different objectives in a way that promotes equitable trade-off of similarly-ranked interests and objectives. In principle, both of those mechanisms illustrate why, in general, bundling issues rather than taking them up one by one is often preferable to considering each objective of the respective parties in isolation. Ultimately, both parties may want outcomes that encompass multiple elements. The more elements at issue, the harder it will be to identify a mutually-agreeable resolution without understanding how much each party values each element and what concessions each is willing to make to accommodate the most important concerns of the other.

The Wiley case illustrates that concept. By approaching the negotiation from the standpoint of proposing and considering various potential options outside of the isolated issue of the monetary value of the contract, the parties were able to maximize the joint gains for both parties. Conversely, had the parties focused exclusively on the monetary value of the contract, they might never have identified other possible resolutions that represented other valuable gains for both parties.

3. In your opinion, what is a fair approach to distributing value? What is an efficient approach, and why does efficiency not ensure fairness? Use an example from negotiations you've carried out in the course.

The fairest approach to distributing value, in my opinion, is to employ an impartial arbitrator who is privy to all of the details of the objectives, advantages, and disadvantages for each party to the negotiations, including the respective constraints on each party. Without a disinterested and impartial intermediary, it may be impossible ever to negotiate a resolution that represents the maximum conceivable fairness. By contrast, the most efficient approach would trade optimal fairness for expedience, such as where one party makes an initial offer that is known to be sufficiently advantageous to the other party to incentivize acceptance but that expires quickly. That approach is efficient in that it promotes a quick resolution but it may not represent the fairest possible outcome for both parties.