The Dynamics of Credibility and Leverage
This is the third in a series of blog posts The Principles of International Negotiation: Finding Universal Value in a Complex World.
"You lied to us."
That was what we heard from across the table on the opening of our fifth consecutive negotiation meeting during a Japanese engagement. The actual issue was minor, having only to do with the meeting’s start time. But tensions were high. Days one through four had started at eight a.m., usually stretching until two or three a.m. the following morning. The man making the accusation was a key Japanese negotiator from the customer’s procurement organization. He had been difficult, not because he was hard to work with, but because he was detail-oriented – and often right. In the preceding days he had used good logic and persuasion to push costs of the deal onto our side.
In New York this issue might have been resolved with an apology and a mild expletive. Then everybody would have gotten back to work. But this wasn’t the case in Japan, where a tremendous credibility problem had been created when our teammate was attacked in front of 40 people. Marked as a "liar," she would have real difficulty operating in a culture where partnership and relationship are critical to an agreement. To complicate things, she was one of our two top negotiation leaders, and knew the deal inside and out. What to do?
We reverted to facts. The actual issue was that she had made a side agreement to change the start time with the speaker’s management, and they had neglected to tell him. When this became known, her credibility (and by extension, our whole team’s credibility) was preserved. We could continue our negotiation.
But there was an important follow-up step. A major accusation, in a public forum, was a real "face" issue for our team. We prevailed on the Japanese accuser’s management for a suitable public apology in the same forum. On their own, they removed him from any future negotiating session. His credibility was now gone, as he had embarrassed his own team. We closed the deal – good for both sides, but in some ways better for us than if their team had kept one of their stronger players.
Preparing yourself for negotiation success with a company from another country or culture can seem overwhelmingly complex. There are many layers to the process to consider. In later chapters we will discuss the tools and techniques for systematically analyzing and managing all the variables.
But at the core of the process are universal dynamics that, like Newton’s laws, are the same in any country. Among these are the dynamics of credibility and leverage. When both are managed well, the chances are high for a favorable deal. Whether we are training companies how to negotiate or engaging with them as negotiation partners, we begin here.
In short, credibility is the ability to inspire belief. It determines the likelihood that someone will act upon what you are saying. That’s because credibility has two components. You are credible when you are not only trustworthy but when you have proven yourself as capable by reliably doing what you have promised to do. Credibility is what makes persuasive value arguments believable and compelling. As we explained in the last chapter, being a good listener is the basis of generating credibility. Without it, your ability to illuminate roadblocks to the deal and express the value that you deliver is severely compromised.
- Listen carefully
- Deliver what they promise
- Treat people as individuals, not stereotypes
- Have the facts
- Do not automatically reject what others say
- Anticipate the effect of their speech
- Accept responsibility for what they say
For you to win wisely at the negotiating table, what you say must be understood, valued, and believed. Think of a few people whom you find extremely credible. Do the things they do to earn your trust and belief line up with the list above? Beginning with P&L (Patience & Listening), credibility is the cornerstone of effective communication. Hand in hand with leverage, credibility is a formidable asset.
The concept of leverage originally comes from physics, referring to levers in a pulley system; the more you have, the more easily you can move objects of heavier mass with less force. In negotiation, leverage is the ability to move people closer to your way of thinking. Your value arguments are your levers. The more credible value arguments you have, the more easily you can move people closer to your point of view voluntarily, and thus with less force.
What exactly is leverage? At K&R Negotiations, we’ve developed the concept of the Leverage Slope, defining the relationship between the buyer and the seller. The buyer wants the optimal solution at the lowest possible price, and the seller wants the best price for their product. A good negotiator in a sales organization will convince the buyer that these are the same thing.
The seller’s leverage is driven by the unique characteristics of the value they provide to the buyer. It is influenced by incumbency – if the buyer already has had a good experience with you, you should have an advantage. At the bottom of the Leverage Slope are commodity products or solutions. These are relatively undifferentiated – both in their descriptive characteristics and the value they provide – and available from a number of vendors. With a commodity product, the main purchasing factor is price, which competition naturally drives down.
Further up the slope are competitive products, which have some uniqueness and value that separates them from the other alternatives. A seller can negotiate a higher price by successfully articulating some kind of unique value as a competitive advantage. However, keep in mind that there is usually a price point at which the buyer will look for less optimal solutions.
The peak of the slope is the seller’s best position. This “transactional monopoly” is where the buyer’s clear best choice is to go with that offering because of the value it provides. Sellers in this position have a lot of leverage. As a seller in this position, use that leverage wisely by explaining your value fully, so that the buyer feels good about their decision and the relationship. This will pay off in later transactions, when you may not have that degree of negotiating strength.
Sometimes the concept of leverage has a negative connotation. People can view it as a weapon used against somebody in a disadvantaged position. When people view leverage this way, the expectation is that the person with leverage will use it arrogantly and refuse to "negotiate." This is misused leverage, and likely to damage otherwise profitable relationships over the long term. The best leverage is not born of intimidation. It comes from a clear, mutual understanding of value. As a good negotiator, it is your job to reveal and express this value to your counterpart.
There are many additional sources of leverage – both for the buyer and the seller. Certain common buying tools, such as RFPs or reverse auctions, are intended to move solutions to the buyer-preferred (lower) end of the leverage slope. Incumbency with good performance provides leverage for the seller. But even incumbency with average (or in some cases poor) performance can provide leverage if the cost of change is high. Almost no one changes cars mid-lease, for example – too much leverage for the seller is in play. External events create leverage as well. Y2K fears drove a lot of actions. Laws such as Basel III, because they set dates for compliance, also create leverage, particularly as those dates get closer. A good negotiator will look at as many sources of leverage as can be identified – for both sides.
In most business negotiations, however, value to the buyer is the positive force that shifts positions and gets the deal done. We’ll focus on that as we go forward in our series.