September 2003
What Does it Mean to Create or Claim Value?
Creating and claiming value are two of the most fundamental aspects of negotiation strategy that exist in tension with one another. In any negotiation, the parties must decide whether to be competitive, cooperative, or some of both. (David Lax and James Sebenius call this the "negotiator's dilemma."[1] It is similar to the "prisoners' dilemma" in game theory, because the best outcome for one person is not necessarily the best for both, but if both pursue their best option, they will often both get the worst outcome. This is explained further below, and in the prisoners' dilemma essay.)
Value is created (or the "pie is enlarged") in negotiations through the cooperative process of integrative or interest-based bargaining. This means that the parties in a dispute have managed to find ways to increase the amount of beneficial goods (things they want or that will make their situation better than before) that will be divided between them. This may also be called "joint value" or "joint gains," meaning that new developments are considered improvements by both sides.
The primary way to create value is to focus on the underlying interests of the disputing parties -- why do they want what they want? By sharing information openly and communicating with one another, the parties work to find shared interests and create joint value. Creating value makes it more likely that both sides will get something they want out of the negotiation. This type of mutually-beneficial outcome is called a "win-win" solution.
The competitive process of claiming value involves dividing up a "fixed pie," or the total amount of value available to the disputing parties. This process is most closely associated with distributive bargaining, in which each side tries to get as much of the pie as possible. The more one side claims, the less the other side gets. This is also known as a "win-lose" negotiation. To claim value in a negotiation, you use competitive tactics to try to convince the other side that he wants what you have to offer much more than you want what he has. Some tactics for "winning" at distributive negotiation include starting high; conceding slowly; exaggerating the value of your concessions; minimizing the value of the other's concessions; concealing information; arguing forcefully for principles that imply favorable settlements; making commitments to accept only highly favorable agreements; and being willing to outwait your opponent.[2]
The Link Between Creating and Claiming Value
Davis Lax and James Sebenius argue that creating value and claiming value are linked activities. Creating new value improves both parties' outcomes. However, having created new value, negotiators must still divide the resulting "pie." Unfortunately, the cooperative strategies needed to create value tend to undermine the competitive strategies used to claim value (and vice versa). The exaggeration and concealment needed for effective competition is directly opposed to the open sharing of information needed to find mutual benefits. On the other hand, taking an open cooperative approach makes one vulnerable to the hard bargaining tactics of a competitive negotiator.[3] Therefore, if both parties cooperate, the result is usually good, while if one cooperates and the other competes, the competitor usually does better. However, if both compete, they usually come out worse than they would if both cooperated -- which is the same "payoff structure" as that of the prisoners' dilemma game. The assumption, however, is that claiming value in integrative (i.e., cooperative) situations is more likely to be balanced. This is because the parties are expected to develop cooperative relationships and communicate freely, which is not generally allowed in prisoners' dilemma games.
Davis Lax and James Sebenius argue that creating value and claiming value are linked activities. Creating new value improves both parties' outcomes. However, having created new value, negotiators must still divide the resulting "pie." Unfortunately, the cooperative strategies needed to create value tend to undermine the competitive strategies used to claim value (and vice versa). The exaggeration and concealment needed for effective competition is directly opposed to the open sharing of information needed to find mutual benefits. On the other hand, taking an open cooperative approach makes one vulnerable to the hard bargaining tactics of a competitive negotiator.[3] Therefore, if both parties cooperate, the result is usually good, while if one cooperates and the other competes, the competitor usually does better. However, if both compete, they usually come out worse than they would if both cooperated -- which is the same "payoff structure" as that of the prisoners' dilemma game. The assumption, however, is that claiming value in integrative (i.e., cooperative) situations is more likely to be balanced. This is because the parties are expected to develop cooperative relationships and communicate freely, which is not generally allowed in prisoners' dilemma games.
[1] Lax, David and James Sebenius. "The Manager as Negotiator: The Negotiator's Dilemma: Creating and Claiming Value," in Goldberg, Stephen, Frank Sander and Nancy Rogers, eds. Dispute Resolution. 2nd ed. Boston, MA: Little, Brown and Co., 1992. 49-62.
[2] The listed strategies were drawn from: David Lax and James K. Sebenius, The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain. (New York: Free Press, 1986), 30-32.
[3] Ibid.
[2] The listed strategies were drawn from: David Lax and James K. Sebenius, The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain. (New York: Free Press, 1986), 30-32.
[3] Ibid.
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