For those interested in negotiation I might suggest watching this video or downloading the podcast.
Steve Young was the Quarterback for the San Francisco 49ers and in this lecture he talks about his experience negotiating.
I have to confess I had some really low expectations coming in, but was blown away by how classy, humble, funny and smart, Steve Young is. It’s a fun listen and is packed with the types of lessons that guide my negotiation consulting.
Last week a few press articles described how Google apparently lost to Microsoft in a bidding war to invest in Facebook. (MS won – investing $240M in Facebook)
Did Google lose? I’m not so sure… by “losing” it may have just pulled off one of the savviest negotiations I’ve ever seen. Google may never have been interested in Facebook, only in pumping up its value to ensure Microsoft overpaid.
Why?
Because Google is planning to destroy Facebook’s value.
Facebook – like all social network sites – is a walled garden. It’s like a cellphone company that only allows its users to call people on the same network – for example if you were a Rogers cellphone user, you wouldn’t be allowed to call your friend who is a Bell cellphone user. In Facebook’s case you can only send notes, play games (like my favourite, scrabblelicious) and share info with other people on Facebook. Want to join a group on Friendster? To bad.
Social networking sites do this for two reasons. First, if a number of your friends are on Facebook, you’ll also be inclined to join. Once a critical mass of people join, network effects kick in, and pretty soon everybody wants to join.
This is important for reason number two. The more people who join and spend time on their site, the more money they make on advertising and the higher the fees they can charge developers for accessing their user base. But this also means Facebook has to keep its users captive. If Facebook users could join groups on any social networking site, they might start spending more time on other sites – meaning less revenue for Facebook. Facebook’s capacity to generate revenue, and thus its value, therefor depends in large part on two variables: a) the size of its user base; and b) its capacity to keep users captive within your site’s walled garden.
This is why Google’s negotiation strategy was potentially devastating.
MicroSoft just paid $240M for a 1.6% stake in Facebook. The valuation was likely based in part, on the size of Facebook’s user base and the assumption that these users could be kept within the site’s walled garden.
Let’s go back to our cell phone example for a moment. Imagine if a bunch of cellphone companies suddenly decided to let their users call one another. People would quickly start gravitating to those cellphone companies because they could call more of their friends – regardless of which network they were on.
This is precisely the idea behind Google’s major announcement earlier this week. Google launched OpenSocial – a set of common APIs that let developers create applications that work on any social networks that choose to participate. In short, social networks that participate will be able to let their users share information with each other and join each other’s groups. Still more interesting MySpace has just announced it will participate in the scheme.
This is a lose-lose story for Facebook. If other social networking sites allow their users to connect with one another then Facebook’s users will probably drift over to one of these competitors – eroding Facebook’s value. If Facebook decides to jump on the bandwagon and also use the OpenSocial API’s then its userbase will no longer be as captive – also eroding its value.
Either way Google has just thrown a wrench into Facebook’s business model, a week after Microsoft paid top dollar for it.
As such, this could be a strategically brilliant move. In short, Google:
Nice move.
So a few months ago I wrote this piece and this piece hypothesizing what went wrong in the hockey negotiations between Ryan Smyth and the Edmonton Oilers. It’s been a favourite example in negotiation workshops because it symbolizes how frayed relationships and poor process can scupper a deal that both sides would like to close. It has all the dynamics of a great business case.
What I’d love to know is if there was something Ryan Smyth felt the Oilers organization did that frustrated him, or left him feeling disrespected. One possibility – or at least a symptom of a larger problem – is the press conference the Oilers allegedly held before the negotiation in which they announced they would not reward “emotion.”
One can imagine the message the franchise sought to send: We intend to protect the franchise’s financial viability, and not yield to unreasonable demands.
The message Smyth likely received?: We don’t value the intangible leadership qualities that make you an important part of this team.
Is it any wonder the negotiation got off to a bad start and faltered over 100K a difference (out of $5.4M).
Rather publicly devalue the players that work for you, and with whom you negotiate salary, it might pay to manage relationships effectively.
Take a look at the Ottawa Senators general manager Bryan Murray. He recently re-signed centre Mike Fisher to a five-year contract extension worth US$21-million. According to the National Post:
Fisher’s new contract represents a huge increase over the US$1.5-million he will earn this season, but he may have left some money on the table. If he had tested the market next summer, he might have attracted an offer worth another US$4-million to US$5-million.
Fisher, however, wanted to stay in Ottawa.
“I want to be here and I want to show the team this is where I want to play, and I’m very happy with the contract and being here for another five years.”
Is Bryan Murray carefully managing the Senators relationships’ with its players? I don’t know. But I do think it is interesting that Dan Heatley, another Ottawa player who could command a big pay raise recently commented that “Communication has always been open.” Maybe that’s why he’s gone on record stating he isn’t opposed to taking a “hometown discount” to stay in Ottawa.
It would appear that at least some managers, even in the macho world of NHL franchise management, are dragging themselves into the 21st century and taking seriously the benefits that managing relationships can have on negotiations, morale, success and, the bottom line. Interesting, eh?
Job actions just aren’t what they used to be.
Here we are in the middle of summer and the pools and library’s are all closed, plus the garbage isn’t being picked up. Interestingly I haven’t read about throngs of Vancouverites complaining (are they? has anybody heard?). Indeed, many businesses and condo associations seem to have private garbage pick up which may explain why.
So far it Vancouverites appear to be blaming neither the union nor city hall. Rather, most Vancouverites simply don’t seem to care. Perhaps what the strike reveals more than anything is that, aside from Police, Fire Department and Public Transport (none of whom are involved in this strike) municipal government services don’t seem to touch the day to day lives of most Vancouverites. That’s a sobering thought for the state of “public services” It certainly isn’t a winning outcome for either City Hall or the union.
That said, the union had better be careful. Mayor Sullivan appears to finally be under lock and key, so the union can no longer rely on his public blunders to boost their case. Indeed, the news stories seem increasingly focused on their blunders: First they expressed outrage at volunteers who pick up the trash after public events. Then they blocked cars from entering a private members club, because that club was offering to dispose of their garbage for $5 a bag. As picket boy documents quite well, what could have been a positive story quickly turned ugly.
If the emerging narrative becomes the union against the city’s citizens, it’s the union that will come out looking bad.
Either way, the optics aren’t good when 240 lb men are pushing around private citizens… regardless of how wealthy they may be.
Back in March I wrote this post about the breakdown in negotiations between Ryan Smyth (a hockey star) and the Edmonton Oilers. Because things fell apart despite the fact that Smyth, the Oilers and their fans all wanted an agreement, this negotiation remains my favourite example about how process, and not substance, can torpedo agreements and destroy relationships. Indeed, the case is so good, it has become a key teaching tool in my negotiation workshops (when in Canada, of course…).
Interestingly, recent events have added to the important negotiation lessons that can be drawn.
When sharing the case some people contended that Smyth and the Oilers didn’t fall out but instead cut a secret deal, one that would bring Ryan back to Edmonton once he became a free-agent. The fact that, after being traded, Ryan stood crying in the Edmonton Airport while awaiting his flight to New York didn’t dissuade these doubters. This was of course, all part of the act.
Well, on July 2nd, on the first day of free-agency, Ryan Smyth signed a contract with the Colorado Avalanch for $31.25 million. A bad outcome for Oilers fans, but a good outcome for my credibility as a negotiation consultant.
So why didn’t Smyth go back to Edmonton?
I can think of two reasons – both of which spring from the positional negotiation process Smyth and the Oilers adopted.
Firstly, the previous negotiations permanently damaged relations between Smyth and the Oilers. A haggling process never builds a stronger relationship. It generally involves the parties slugging it out as they tell one another why the other’s current offer is insulting. Of course none of it’s “personal.” But isn’t it is telling that the Oilers broke off negotiations and traded Smyth without notifying him (I believe he learnt he’d been traded by watching TV). Moreover, as I mentioned before, Smyth was distraught enough to cry during the interview in the airport. You don’t have to be a negotiation consultant to know that when one person makes another cry, the agrieved party is looking for ways to work with them again. In this case, Smyth probably wasn’t receptive to any new offers from the Oilers. Their prior negotiation burnt that bridge.
Second, the Oilers painted themselves into a corner on the issue of price. I’ve maintained that Smyth probably wanted to be in Edmonton or Calgary. In the above linked to YouTube video Smyth says his heart is in Edmonton, and he probably wants to be close to family, community, charitable work, etc… I suspect he might have accepted a marginally reduced salary in order to stay there. But with other teams now offering over $31 million, the Oilers probably needed to offer $29-30 million in order to compete. Given their previous “best” offer had been $27 million, any new higher offer would be an admission that they’d undervalued Smyth. That left them with two options. Option 1: Eat humble pie, offer $30 million and admit they’d been lowballing Smyth. In the testosterone world of hockey I suspect the Oilers GM’s ego couldn’t stomach that choice… Not that it would have mattered, any such an offer would have been tainted. It would be like saying “sorry we tried to screw you in our previous negotiations, but we hope that you’ll come work for us now that we’ve been forced to offer you more.” That left option 2: Save face by walking away and claiming the Avalanch over-paid.
Of course, the Oilers’ GM may genuinely believe that Smyth isn’t worth $30 million. Who knows, he may be right. Only time will tell. But, the negotiation process he adopted – and not the substance – destroyed an opportunity for getting Smyth at a much lower price. Most people believe negotiations succeed or fail based on substance (can buyers and sellers agree on a price), sadly that is only sometimes the case. All too often, the determining factor is how we conduct negotiations.
Yesterday I was commenting on Jim Prentices proposed reform to the First Nations treaty negotiation process. Specifically, he is considering giving the Indian Claims Commission (ICC) the authority to make legal rulings and thus settle agreements.
While the details have not all been made clear, it would appear that Prentice’s reform seeks to shift the ICC’s role from that of mediator – where any agreement is determined by the parties themselves rather than being imposed by a third party – to arbitrator – where agreements are imposed by the arbitrator and to which the disagreeing parties agree, in advance, to be bound.
The problem with arbitration is that it may not solve the underlying problems plaguing the process. For example, Prentice sites two shortcomings of the current process – it is too slow, and not perceived to be legitimate.
Arbitration, may increase the speed. However, it may not be any more legitimate, and could actually be less so…
For example, on what basis would arbitrated decisions be made? What would be the guiding principles the arbitrators would reference? Who would establish these principles? Will these be negotiated? If so, by who? All First Nations and the government? Or a representative sub-group? Ultimately, if the principles that guide the arbitration are not perceived by all parties to be fair and legitimate, or if the arbitrators themselves lack the respect of the opposing parties then the process may actually be seen as less legitimate then the current negotiations.
Indeed, this is even more important given the nature of the negotiations. Because the parties are negotiating over sovereignty this process is deeply political. Will Canadians, or First Nation, feel comfortable handing such a sensitive decision over to a third party who has no track record in making these decisions and so, to which the outcomes will be unpredictable?
Another problem with arbitration is that it does little to resolve any relationship/trust/cooperation problems between the parties. By bringing in a third party to resolve the dispute First Nations and the government will establish a problematic precedent: When we don’t agree, bring someone else in to arbitrate.
In many respects, treaty settlements are not the end of the process but the beginning. Treaties form the basis for a new relationships between First Nations and the government. Regardless of the treaty’s specifics, the parties are going to have to learn to work together more effectively going forward. To assume, that once the settlement is out of the way, all the actors will know their jurisdictions and powers and so will get along, is probably a false one. Just ask anyone whose ever worked on Fed-Prov relations…
If Canadians are serious about creating a new relationship with First Nations it feels odd that the first step in establishing this new relationship would be to put a third party between the two groups. Negotiating can be fair, legitimate and (relatively) speedy. The question isn’t about arbitration, it is about whether this (or any) government wants to make it a priority.
It is looking increasingly likely that Jim Prentice will reform the First Nations treaty negotiation process. Specifically, he is considering giving the Indian Claims Commission (ICC) the authority to make legal rulings and thus settle agreements.
While the full implications of this decision need to be weighed one part that is a positive development is getting these negotiations out of the hands of INAC. It must be difficult for First Nations to believe that the government is negotiating in good faith when the party they are negotiating with is the same party that provides all their services. This point became the basis for a discussion paper I submitted to the Aboriginal Report to the Liberal Renewal Commission and shared as a post on the Dominion Institute Blog.
“On the one hand, INAC is First Nations’ key partner, essential to ensuring service delivery, representing them and their issues at the cabinet table, and enabling them to raise critical issues in other government ministries. On the other hand, it is also their negotiation counterpart with whom it may be necessary to lock horns and disagree with to ensure a fair and equitable interpretation of their treaty (or in the case of aboriginal groups in British Columbia, to secure a treaty).”
It would appear that even Jim Prentice recognizes the perceived conflict of interest in having his department simultaneously represent First Nations interests within cabinet while negotiating against them… During an interview on Question Period he apparently conceded: “There has been a complaint in this country for 60 years that the government of Canada serves as the defendant and the judge and the jury and the research body. And that it’s too much. And the government of Canada is in conflicting roles. And that’s something that we are trying to get to the heart of.”
Amen.
So moving negotiations out of INAC is a plus. But their remains the question of whether an independent committee like the ICC will be any more legitimate. I’ve argued that the way forward is the establishment of an independent secretariat – with its head reporting directly to cabinet – as the home for these negotiations. Both sides need to represent their interests, handing the process over to a third party probably does not accomplish that. More importantly, an independent may be faster but it is also unclear if it will be more legitimate then the current process. In short, done incorrectly, this may be create as many problems as it solves…
I’ll pick up on this thread tomorrow. For now, Prentice is off to an interesting start. At least he’s thinking new thoughts. However, my fear is that this line of thinking will devolve into: “Out of INAC and into the fire…”
After my friend Taylor published this post about the US-Syrian-Iranian negotiation he asked me how would I structure the talks and what would be the most significant obstacle.
Back in the 1970’s Roger Fisher used a method called the one-text that helped create the document that became the basis for the 1978 Sinai Agreement between Israel and Egypt. The one-text process is a variation of mediation that is simple, but powerful. Clinton also proposed using the process in 2000 with the Israeli’s and Palestinians.
The one-text process feels appropriate because it works best in multi-party negotiations where trust is low. Iranian-Syrian-American relations have deteriorated to such an extent that any conversation is unlikely to be open, honest, or even civil. In short, they are unlikely to be productive. The basis for an agreement, and even just communicating, will be hard to establish. Think that diplomacy is above that? Then why did Bush feel the need to confirm that if Condi ran into her Iranian counterpart, she would be civil?
Indeed, this is the main issue: can the parties trust each other? There are enormous opportunities for joint gain… but the domestic risks for each of the actors are also enormous. This is the tragedy of the situation. Each actor (Syria, Iran and the US) is now hostage to the negative perceptions their domestic populations have of one another, negative perceptions their respective elites helped create, foster and nurture. How can Iran, America or Syria cut a deal with a country that have for 20 years been labeled as a mortal enemy? This would be, at best, politically problematic in the US and potentially destabilizing for the Syrian and Iranian governments.
Consequently any functional solution cannot threaten (in the short and medium term) the legitimacy of any of the actors domestic standing. This probably means that any negotiated solution will have to be discrete. The parties may come to agreement, but they cannot be seen coming to an agreement.
A back channel one-text thus becomes the obvious choice. The starting point being that all the parties recognize the opportunity cooperating presents, but also recognizing they can’t be seen working together. Of course, the other challenge is that this means there are huge risks for cooperating, but the costs of defection (particularly if the interest calculus shifts) are low. The negotiators would have to find a way to make the costs of defection feel relatively high versus the costs of cooperation. A one-text process that explores their interests may reveal such an outcome, but if I had an answer to that quandary offhand I’d probably be in an air conditioned room in Turkey right now, working with State Department officials.
Ironically, the main obstacle to using the one-text process would likely be a reluctance on the part of the United States to submit itself to a mediated process. I suspect that although the Americans feel it is a good enough process for everybody else, the world’s only superpower will never enter into mediation.
About 6 weeks ago during a trip to Ottawa David Brock urged me (for a second time!) to pick up a copy of Robert Axelrod’s “The Evolution of Cooperation.” As the title suggests it is a book about the conditions under which cooperation might emerge. While I’m willing to concede that this book may not be for everyone’s cup of tea, it is still a fine cup I belive many would enjoy. Indeed, given how frustrating and empty game theory felt while I was in grad school I wish I’d had this book at my desk.
I’ve written a review of the book you can find here. In short, I’m glad I moved it to the top of the batting order – it was completely worth it. Thanks D-Rock.
I’m always looking for new creative examples of how people can destroy value in a negotiation – especially when in pursuit of the holy grail of egality.
You may laugh at this man, who literally took half the house in the divorce, but ask yourself honestly: how many times have you terminated a negotiation by walking away with something that was worthless to you, simply because you wanted to send your counterpart a message?
Egality and equity are powerful norms that, when violated, can push us to adopt a punative strategy. The problem is that this can pretty quickly lead to a downward spiral. More often then not, the result is a scorched earth policy where we would rather destroy value than allow our counterpart to recieve more than us.
It may feel good at the time, but then, I have to ask: what are you going to do with half a house?
[tags] negotiation [/tags]
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