Du Malone writes: This post is the third of an extended series on the topic of contracts in FM.

Homo ludens: playing the negotiation game

You’re about to negotiate a contract — let’s say you’re offering to renew your physio’s contract. When you open your bidding, you probably don’t start by bidding either the amount you’re expecting to pay or the highest amount you’re prepared to play.

No, you know there’s game to be played: you’ll start with a low bid and then raise your offer as as the negotiation proceeds.

The question then is, How high do you go?

Sticking points

If I say here that it’s advisable, when you’re going into a negotiation, to have defined the point at which you’ll stick, most people will agree with me and, indeed, treat that idea as a commonplace.

The problem is, it’s easier said than done.

When, for example, the physio has succeeded in bidding you right up to your sticking point and says they’re still not happy, what then?

The cool, rational, part of your brain says, ‘”That’s it. Take it or leave it. I’ll go no higher”.

But it’s likely that another part of your brain will say, “I really want to keep this physio. It would be a big disappointment to lose him. And we’re so close. If I go just a little over, no real harm will be done”.

People who make their living in markets where there’s no fixed price — auctioneers, brokers, or agents — know that bidders will often listen to that second voice. Like a sand castle being breached by the incoming tide, the sticking point will be swept away.

But once that happens, you’re in dangerous territory. You’re flying blind. If you didn’t stop at your sticking point, where on earth will you stop?

How can this be?

What explains the (at least apparent) lack of self-discipline?

I suggest the chief explanation is that, when before the negotiations you’re defining your sticking point, you will think you’re performing one mental operation while your brain will actually be performing two.

The first operation is indeed an attempt to decide the true value of whatever you’re bidding for — that is, the rational sticking point.

The second operation consists of defining your self-image. And it may be that the self-image you want to believe in is a tough one. You play hardball. No physio, or anyone else, is going to push you around.

Often there is a dissonance between the valuations that these two operations arrive at. The second (that is, the one determined by your self-image) may be a lower value than the first.

The danger then is that sticking point you determine will be the second of the two values (that is, based on self-image) while you tell yourself it’s actually the cool rational one.

In other words, it’s easy to deceive ourselves.

How can this pitfall be avoided?

In FM I’ve come up with a few techniques to solve the problem of determining the sticking point. None is perfect, but each helps.

First, bench-marking. I do my homework on what other people are paying. What’s the market rate?

Second, I dramatise the upcoming negotiation in my head. If my offer of such-and-such doesn’t prove sufficient, what am I going to do? Stick with the offer and hit non-negotiable — or raise the offer? When I say ‘dramatise’ I mean picture the offer on an imaginary screen.

Third, I try to picture myself afterwards. What will I be saying to myself? If I walked away, will I be saying, “Though it’s shame, it’s better than over-paying. I can find other physios?” I note that, if the negotiation has genuinely reached my rational sticking point and I walk away, I typically feel a sense of pride.

Or will I be saying, “Why did you do that, you fool? I might have ended up paying more than I’d hoped, but a bid of [insert higher sticking point] would still have constituted reasonable value.” Sometimes you concede more ground that you’d hoped but still obtain good value.

Though these techniques aren’t strong enough to actually guarantee that I make the best decisions, they do at least enable me to stay honest.

Previous post in the series: What is the secret of contracts? Timing!

Next up in the series: How negotiating contracts is like juggling

Image credit: ‘Contract key’ generously made available by CreditDebitPro under a CC BY 2.0 licence.

 

 

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