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power points

It’s common when going out to a meal with friends to split the tab. It’s fair. You share the good time and the cost, equally.

But when negotiating, we jettison that instinct for fairness and seek uneven rewards. We want as much as we can get, often at the expense of the other person.

Yale School of Management Professor Barry Nalebuff says that’s a mistake. There are rewards that come from successfully negotiating agreements. The best way to negotiate, therefore, is to calculate those rewards and agree to split that pie.

That strategy highlights the ultimate value of an agreement – what you are creating together. It sidesteps the issue of power and size, and the nastiness that can unleash. It’s more fair and can be quicker because of that fairness.

“The scope of a negotiation is what the two sides can jointly create over and above what they can do on their own – the pie. To create the pie takes both parties. By definition, what is jointly created is what neither side can create alone. When viewed from this perspective, neither side is more powerful. This is the simple but profound insight that leads to the claim the pie should always be divided 50:50,” he writes in his book Split the Pie.

That goes not only against the impulse to win – to get more – but also the feeling that fairness requires a return proportionate to what each side is contributing to the deal. He cites an example: A brother and sister who team up to buy a $25,000 certificate of deposit with a 3-per-cent return. The brother contributed four-fifths of the total investment, $20,000, which if invested alone would have garnered a 2-per-cent return; the sister’s $5,000 would have entitled her to a 1-per-cent interest rate. The brother therefore wanted to get four-fifths of the $750 the joint investment would earn.

The sister, who took Prof. Nalebuff’s negotiation course, argued that if they invested separately they would have been entitled to $450 – $50 for her and $400 for her brother. Together, they were pulling in $300 more. That’s the pie. And it should be split equally.

Prof. Nalebuff concedes that most people have difficulty with his argument when the two parties are bringing different items to the table. That’s why the bigger player generally gets more. But if the deal doesn’t happen, there’s nothing gained – no pie. So they are jointly responsible for any gain.

It’s more than an academic argument. He used it in negotiations for Honest Tea, an organic iced tea company he co-founded, when dealing with the industry goliath, Coca-Cola. Before the two companies started talking about an acquisition, it came out that given the tremendous purchasing power of Coca-Cola it could help the fledgling operator cut prices on bottles it used from 19 cents to 11 cents each, a saving over three years at expected growth rates for the company of $20-million.

Coca-Cola generously offered to give Honest Tea $1-million of that bounty, while keeping $19-million for itself. After all, the suppliers were offering the lower price because of Coca-Cola’s scale. But it was Honest Tea’s customers drinking from those bottles. “Your purchasing power is great, but to get the extra savings on an extra 250 million bottles you need access to our customers,” Prof. Nalebuff told them.

In the end, that was superseded by Coca-Cola’s offer to purchase Honest Tea, and in that negotiation splitting the pie was the presiding principle. As will be the case in many negotiations, the size of the pie was unknown but the two parties agree to decide afterward based on a multiple of extra future sales of Honest Tea.

The specifics can be complicated. But the principle is simple: Split the pie.

Quick hits

  • When presenting to senior executives, don’t begin with too much background and details, as they could lose interest. Get to the main recommendations quickly, advises executive coach Melody Wilding. Also, expect to be interrupted by questions and to have the presentation end abruptly if the top brass are running late. Structure your presentation like an accordion that can be expanded or shortened as needed.
  • In a recent research study, people told to seek out discomfort and take it as a measure of progress toward their goal were motivated to tackle emotionally challenging tasks. The individuals tended to reappraise discomfort as a positive cue, a sign that they were making progress and learning something valuable, Chicago Booth Review reports.
  • The problem with traditional wisdom in advertising is that it creates ads that feel familiar – and familiarity breeds contempt, notes advertising consultant Roy H. Williams. Put things in your ads that are truly new, surprising and different.
  • When choosing a new habit, many people effectively ask themselves, “What can I do on my best days,” observes Atomic Habits author James Clear. Instead ask, “What can I stick to even on my worst days?”

Harvey Schachter is a Kingston-based writer specializing in management issues. He, along with Sheelagh Whittaker, former CEO of both EDS Canada and Cancom, are the authors of When Harvey Didn’t Meet Sheelagh: Emails on Leadership.

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