3 Powerful Guidelines on How To Negotiate a Business Deal

One way for business negotiators to avoid being predictably surprised is to overcome the cognitive biases associated with intuitive thinking. A particularly pernicious cognitive bias in negotiation is the tendency to discount the future. Research consistently shows that when making decisions, we tend to focus on short-term considerations and discount the future in a way that we regret later. Concerned about maximizing short-term shareholder value, for example, business leaders sometimes rush headlong into “quick fix” solutions, such as merging with another company.

Here are three guidelines for those looking for new guidance on how to negotiate a business deal:

1. Add long-term considerations to the conversation. You may understand the value of discussing what will happen during the implementation stage of a business contract, but you may have to convince leaders in your organization and your counterparts across the table to give future concerns the same attention. If short-term concerns—such as a current financial slump—are looming large, try to counter them through your negotiation behavior. Vividly portray the potential risks of rushing into an ill-thought-out deal, such as a broken agreement, bankruptcy, and so on. Seek unbiased advice from financial and legal experts about the risks of a deal. In addition, try to set deadlines for your negotiation that will give all parties plenty of time to weigh the pros and cons of a deal.

2. Take time to build rapport. The more time you spend getting to understand your counterparts and their organizations, the better equipped you will be to assess whether your partnership is a good idea or not. Even if you get along well with those seated across the table, seek out information about the organization’s culture and share information about your own. What values and norms are employees of both firms encouraged to ascribe to? How are employees selected, trained, and assessed? Spend time visiting one another’s headquarters and speaking to employees in different areas. If you are thinking of merging, discuss how your workers would be combined and what challenges you might face. Even if you are hammering out a simpler deal, such as a purchasing agreement, it pays to know whom you’ll be working with.

3. Prepare for adverse circumstances. Another common cognitive bias that exacerbates short-term thinking is the tendency to be overly optimistic about the future. Our unrealistic expectations about how a deal will play out lead us to search only for information that confirms our existing views and overlook information that might challenge them. This error explains why so many new businesses quickly fail. Negotiators need to envision not only best-case but also worst-case scenarios, including the possibility that conflicts will arise during the course of their partnership. You may be able to head off conflicts through two deal-design First, agree in advance to regular check-in meetings throughout the life of your contract to address any disagreements, dissatisfaction, or misunderstandings that arise. Second, prepare to handle such conflicts efficiently by including dispute-resolution clauses in your contracts that mandate the use of mediation.

In the flush of dealmaking, it’s easy to focus single-mindedly on closing the deal in negotiations. By playing devil’s advocate, you can teach yourself and your counterparts how to negotiate a business deal: by looking more realistically at the challenges that lie ahead and preparing to face them.

Culled from: www.pon.harvard.edu