Successful Negotiation Involves Managing Tensions

Any time there’s a negotiation, tension arises. This shouldn’t be surprising. Sitting down to negotiate or entering a mediation is like getting ready to throw or defend against a punch.

To become a better negotiator, it’s important not to try to avoid tension. Tension instructs us. But first we must let ourselves feel the tension to know we have to react to it in a calm and strategic way.

My work over the past 40 years as a negotiator has led me to study the tension of negotiation and break it down into seven distinct components. Being aware of the seven tensions, knowing when to expect them, and knowing what tactics or moves are most likely to counter them, will allow you to reverse the direction of the negotiation and gain advantage.

The seven tensions of negotiation include:

1. Relationship tension. With whom am I negotiating? Will there be an ongoing relationship with this person or is it a one-time transaction? The type of negotiation will depend on who the person is across from you at the table.

2. Outcome tension. This tension arises from wanting something, maybe not with full clarity and, further, not knowing what you will get. You will have outcome tension related to your perceptions or opinion regarding who should get what.

3. Process tension. Where will the negotiation take place — your place or theirs or a neutral location? In what order will matters be addressed? How will you share information? All of the tactical components — strategy, planning, logistics, agenda and so on — create process tension. It revolves around how the parties are going to decide to engage.

4. Timing tension. The timing needs for resolving your negotiation create timing tension. For example, when setting out to buy an asset or company, do you need it to close this year or sometime in the first two quarters of next year? The shorter time means more timing tension. Likewise, the seller may have timing needs. They may want to avoid a stub accounting period. They may have tax timing issues. Your timing and their timing matter to the negotiation.

5. Power tension. Power tension revolves around concerns that the other party may be more powerful because they have more resources or choices. They may know something that you don’t or have the ability to influence or control you. It’s important to understand power tension in terms of what leverage one party may have over the other.

6. Agent tension. Many transactions involve intermediaries — lawyers, investment bankers, accountants and consultants for example — which elicit tension. What agents should you have? How confident are you in your agents? How aggressive will the agents be when negotiating for you? How will the agent change the power or relationship dynamics, and does the agent have sufficient expertise in the subject matter? All are causes of agent tension.

7. Team tension. Most negotiation work is done by teams. You are accountable to other constituents. Team tension revolves around the makeup of the team, the coherence of the team, how to divide team duties, to whom you are accountable, and more.

To illustrate how the seven tensions factor into a negotiation, let’s consider a typical acquisition:

Relationship: Who will survive to manage the combined companies? If you are the buyer, do you need their management? If you are the seller, do they need you or your management? Whose culture will become the new culture? Is it a buyout where everyone will just be laid off after closing? What the future relationship will be will affect the negotiation. And it should.

Outcome: What are the terms you want for the deal? What is the maximum you will pay? What are the other terms? What indemnities will you want? Who will bear the risk of what? What if it doesn’t close? What choices do you have if you don’t complete the deal?

Timing: When do you want the deal to close? When do they need it to close? Are there conditions or legal changes that affect when it should get done? For example, certain tax cuts may be expiring that would be favorable to a deal.

Power: Who has more leverage? Is either party desperate due to its financial condition? Does one party have more staying power if the negotiation drags on? Who is better off if the deal happens? If it doesn’t? Who has a stronger balance sheet and income statement?

Process: How will you go about negotiating? Will you have lots of meetings, phone calls, or meet face to face at your place, theirs, or a neutral location? Will you leave it to the intermediaries? What will you let them do versus the principals.

Agency: What agents do you need? Do you need an investment banker? Outside lawyers? Consultants? Accountants? What do you want from them? How much authority will you give them? How will you evaluate their effectiveness? How much will they cost?

Team: Who is your team? You are accountable to some team of a board, shareholders, and maybe some other constituents. What team will you assemble to negotiate the deal? Will you lead it? Should you even be on it or should you be the detached final decision maker?

Once you have identified these tensions, you can recognize them when they are being used against you. When your counterparty pressures you, which tension are they working? “We need to do this in 90 days”… timing tension. You can say, “Sorry we need 180 days.”

You can also use tensions of different types in response to a tension. Your counterparty presses you on outcome. “We must have $100 million for the company or we won’t sell.” You might counter with the process “due diligence” or with the importance of the relationship to the future money you will make together.

Each of these tensions can be felt, segmented and addressed in a disciplined way. Having the ability to understand, address and manage the seven tensions—rather than letting them manage you—is the key to negotiation success. Retrain your instincts to feel them, breathe, don’t panic, determine the source of the tension, and then work to resolve it, trade one for another or pass it to the other party.