Career Negotiation June 8, 2007

Concessions -- Much Like Investing in the Stock Market

A negotiator should approach their concessions like an investor approaches the stock market.

Prudent stock market investors look to increase the value of their money. They look at growth potential, expected dividends, and risks associated with an investment. They attempt to compute the present value of the investment given the expected growth rate and dividend payouts. This present value is balanced against the associated risks, compared to other potential investments, and a decision is made to buy or not. Is the investment fairly priced, over-valued, or under-valued?

A good negotiator does the same thing, but on a very subjective level. Negotiators need to focus on the present value of satisfaction, determine the present value of future satisfactions (and dissatisfactions), and compare that to making no deal at all or holding out for a better deal.

This brings up a fundamental but subtle point about any negotiation. The flow of positive and negative satisfiers in any deal is in the head of each participant. Some participants are optimistic about the future. Others are pessimistic. Some are "I-want-my-kicks-right-now" people, while others are prepared to wait a long time.

Much of your strength as a negotiator comes from your ability to provide satisfaction in one form or another. You can help raise the present value of the deal by getting the other party to place a higher value on future satisfaction. You can do the same thing by showing them that future dissatisfactions are unlikely. If they want kicks now, show them how much more important kicks will be later.

Concessions can play a big role in creating the flow of satisfaction. But this flow between people is not as simple as it looks. Before you start making concessions to increase satisfaction, think about how you want to do it. Take into account who will benefit, in what way, when, and from what source.

A concession can provide satisfaction to the receiver now or later. Maybe the receiver wants to take it all at once or a little at a time. A concession can direct its benefits to the organization, specific parts of the organization, third parties, to the other negotiator on a personal level, or to all of them at once.

Every negotiator has the same role to perform: to raise the present value of future satisfaction for the other person and thereby help the other party reach a decision.