I have recently read Split the Pie, a Radical New Way To Negotiate by Barry Nalebuff
The book, as per its title, claims to be a completely new way to negotiate. My short summary of the book is that as Barry suggests, there are ways of maximising value by making the pie of a deal bigger and then splitting the created value with your counter-party.
The simplest way of explaining the Split the Pie approach in my own words and in technical terms is:
1. Identify the effects of no deal versus the benefits of reaching the deal.
2. Split the benefits of reaching a deal equally, base power adjusted, adding it to the no deal position of each party
What is the Split the Pie approach?
Barry explains it wonderfully in the first 10 pages of the book with the pizza example:
Two people, let's call them John and Jane go to a pizzeria to order a pizza each but there's only one pie left, the owner of the pizzeria presents them with the following offer:
- They can make an agreement to split the 12 slices pizza between them
- If they don't reach an agreement, then Jane will get 4 slices and John will get only 2 slices, effectively forgoing 6 slices
Let's analyse this scenario
- BATNAs (Best Alternative to a Negotiated Agreement)
Jane (4 slices) has a far better BATNA than John (2 slices) - assuming they are both equally angry, there are no other shops around, and so on.
- Power Balance
From a competitive perspective, Jane has more power than John, as her BATNA is stronger
Nalebuff explains 4 different scenarios could happen:
Fair solution: 6 pieces shared equally
Power-based solution: Jane exercises her power over John and requests 8 slides
No deal: 4 slices to Jane and 2 slices to John
Split the Pie approach: Jane and John realise that by making a deal they would be both "accessing" 6 further slices when comparing the scenario to no deal. Therefore, as the 6 additional slices are accessed only by making a deal, they may decide to split them fairly (hence: Split the Pie -> not the TOTAL pie, the pie created as a result of reaching an improved deal).
I have tried this example with my parents the evening after I read the book while at a pizzeria and they went for the fair solution (6 slices each) straight away - at which point it was very clear to me my attitude in negotiation has not been acquired genetically.
The Commercialiser® potential solution to this negotiation
If I was haggling over a pizza with a friend, we would have recommended that the friend has 10 and I get 2, so I can reduce the amount of fat intake for the day and I might have entertained the Split the Pie solution for the intellectual pleasure of applying this new technique.
If we were supporting a $500m deal we would have planned and executed the negotiation differently, because we don't like to leave money, nor slices of pizza, on the table. Biggest principle: If we have earned our position of power in a negotiation (as a result of our market position and other elements) we need to use it, fairly and honestly, of course, but we need to use it nonetheless.
This is one potential plan of action (say I am Jane and the counter-party is John):
- STEP 1 (OPENING PROPOSAL): 11 pieces to me, 1 piece to them
Risk deadlock, risk of insulting counter-party; counter-party says no (95% probability, unless they've had too many beers prior to ordering their pizza). Apologise if they feel insulted.
- STEP 2 (CONCESSION): 9 pieces to me, 3 pieces to them (1 slice better than their BATNA)
Risk; feels very unfair. They reject (65% probability of rejection).
- STEP 3 (EXERCISE POWER POSITION): 8 pieces to me, 4 pieces to them (2 slices better than their BATNA), I am making a request which is proportional to the starting balance of power, in relation to our starting BATNAs.
John will probably consider it, having been anchored to my initial, unreasonable proposal. If they still refuse firmly, go to step 4.
- STEP 4 (SPLIT THE PIE APPROACH): suggest that the 6 additional slides are created as a result of our joint collaboration, we both have EQUAL power therefore, without me you will NOT access the 6 additional slices. If you want the 6 additional slices, then we will have to share them: 3 each. Jane (me) will have 4 (BATNA) + 3 slices (half the pie created) = 7 and John will have 2 (BATNA) + 3 slices (half the pie created) = 5.
If they still don't accept, threaten to walk away. Keep conceding if, and only if, in your professional opinion, you believe there really won't be a deal.
The point I am trying to make is that the Split the Pie approach I would only use with extremely trusted partners, in a high-dependency scenario i.e. where both plan to work together for many more years, where there is complete trust in each other, where we are both fair and committed to treating each other fairly and equally. People pay lip service to such situations and, in reality, they are rare and, as such, a competitive-first approach might protect us from exploitation, I would keep the option of splitting the pie as a second or third level strategy. It would be my plan A only if the above conditions were met.
Comment from one of our clients
I read this book with the CEO of a $4.8Bn+ automotive company and he shared the below during our discussion:
"I think this is a very "Geeky" approach to negotiation: it makes the process very systematic but also takes many of the negotiation tools (the most interesting ones and the one where you can make a difference) off the table; this may work if you are somebody who, for example, is not good at using conflict as a tool, but it may not work if you have that skill in your toolbox. It's good to focus on how to increase the pie as the first step, but your DUTY when negotiating is to maximise the share you get in the second step.
Not all negotiations are performed on the super collaborative approach Nalebuff proposed and in his own example of the airstrip it is clear that power plays a role. The approach the author suggests is especially useful if you need to systemise certain negotiation processes, like Uber rides (interesting example to look at, together with pizza and airstrip's ones) but too idealistic in 90%+ of the other cases.
Regardless, given the small time investment required I think is a worthwhile read."
Positives
- I like Barry's intent to wanting to create a fair world. This is how the world should be and this is how negotiators should be educated to negotiate. Let's collaborate, let's discuss openly about the opportunities of the deal, and let's split what we create together during the negotiation fairly.
- Simple idea, can add a simple tool into a negotiator's arsenal
Negatives
- The fairness approach is too idealistic rather than realistic. Too many times we've encountered negotiators who created value together and then, they still wanted the upper hand on the amount of value created. It is their job, after all, to maximise the deal
- If used too openly without the appropriate due diligence, it will put the negotiator using it first in a weak position, with significant risk for commercial exploitation
Overall book review - 3.5 out of 5
There are competitive and collaborative negotiations. The biggest flaw with Barry's theory is that it is based on fairness and other people wanting to "split the pie" of added value equally. I think, in principle, it is a sane principle and this is how the world should work. In actual practice, I think it's unlikely to happen. Therefore, it's not so radical a solution and it isn't frame-breaking (what I typically look for when learning), it is, however, one of the tools a negotiator may want to consider when negotiating win-win agreements.
I believe this approach is applicable only in 2-5% of negotiations, here's why:
Competitive negotiations (win-lose, distributive) make up about 70% of negotiations. (unfortunately). Collaborative negotiations (win-win, value-creating) make up the remaining 30%.
You need a very high level of sophistication and mutual trust on both sides to be able to engineer truly win-win negotiations, this is a rare occurrence in itself, which reduces the spectrum to about 5-10% of cases. Even in such cases, then negotiators will try to "hard-bargain" over the value created and then reach a deal. Therefore, in only a small minority of cases you may succeed in adopting this approach, namely:
- Both negotiation parties are sophisticated negotiators
- Both negotiation parties want an extremely fair solution and share such values (you'd be surprised how few people aren't actually fair and have no interest in being fair)
- Both negotiation parties need to understand the principle well to apply it appropriately
Do I recommend reading it? Yes, if you're an expert negotiator you'll be able to read it quite quickly in one or two sittings as most concepts you will find you will already be familiar with.
You can buy it here.
Enjoy and stay in control
Alex Adamo
Chief Negotiator
The Commercialiser®