the WHEEL of negotiation
The Wheel of Negotiation is a visual representation demonstrating the relationship of the different negotiating styles across many different characteristics. The right-hand side of the Wheel captures the distributive negotiations while the left-hand side illustrates the integrative or collaborative types of negotiations. The model is circular based on the relationship between High Dependency and Auctions. High Dependency occurs when trust is high, dependency is high, relationship is high, deals are complex, information is open, and parties can’t afford to walk away without substantial loss (unions, JVs, strategic partners, problem solving, marriage etc.).
When High Dependency negotiations fail, the parties typically end up on the right side of the Wheel haggling over remaining elements.
Negotiations are not static and do not occur in only one sector of the Wheel, quite often as things change (especially behaviors and reactions) the style of the negotiation will move clockwise or counter-clockwise in response. You will have a natural pendulum motion except at the very extremes as noted above.
AUCTIONS and RFPs
Auctions aren’t just for eBay and Sotheby’s anymore. An auction doesn’t require a barker or online presence either. An auction can be held by a buyer or a seller. The primary characteristic is a one-to-many relationship. Auctions are always one-off transactions where price is usually the only factor and at the very least the dominant driver of the deal. The hallmark of an auction is utilizing game plan theory to take advantage of competitive behavior to maximize value without respect to the other party.
Hard Bargaining is probably the most recognizable type of negotiation. Buying a house, buying a trinket in a foreign market, selling an asset, buying close out inventory, disposing of equipment, etc. When most people picture Hard Bargaining they think of some over the top personality slamming his fist on the table making ultimatums and demands. Because motives are clear (it’s all about the price) trust is not a factor. A lack of trust combined with high levels of conflict breeds an environment filled with all sorts of negotiating tactics. (Click the link for a list of common negotiating tactics)
The balance of power is much more equal during Concession Trading. This is the most common form of business negotiation. The increased complexity of the deal shifts the focus away from just price. These types of deals require ongoing support through execution and delivery phases, thus creating the need to manage the relationship. Multiple transactions occur over time. Value, profitability, competitive advantage, and price tend to shape the terms as well as the length of these deals. There may be few alternatives or substitutes. Typical negotiations include supplier agreements, business customers, accounts, your personal accountant, event planning, etc.
The balance of power is equal. The deals are based on profit and are characterized by a long-term, strategic focus. Incremental value is created by leveraging each others comparative cost and value advantages. These deals are appropriate with your strategic partners. There may be few alternatives or substitutes. Typical negotiations include long-term strategic partner, key customers and suppliers, licensing agreements, etc. Power comes through the ability to creatively unlock both tangible and intangible value for both sides.
High Dependency negotiations are nothing more than a Collaborative Negotiation where the parties are mutually dependent upon each other. The consequences of deadlock are often substantial. Typical situations falling into this category are joint ventures, partnerships, union negotiations, strategic alliances, etc. (marriages if you count personal situations). The difficulty with High Dependency situations is that information is transparent, the other side sees the P&L and knows how much each item costs. Therefore discussions are often emotionally charged.