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Negotiation Blog - Strategic Preparation
A for Apple: Impacting the Negotiation long before the Negotiation
By Thomas Wood
It may be months before you start trading concessions with your customer, supplier or business partner, but good negotiators know that every conversation preceding negotiations is an opportunity. With all eyes on Tim Cook, CEO of Apple Inc., as he follows in the footsteps of his legendary predecessor, Steve Jobs, we see a master negotiator who knows how to seize the opportunity to create value in negotiations that seemingly haven’t yet begun.
With September almost over and the school year in full swing comes the anxiety of grades, so we looked around to see who is likely to earn an A this year. We had to take note of how Apple’s CEO, Tim Cook, handled his testimony before the US Congress at the start of this summer. Along with other Apple executives, Cook responded to a battery of questions from the Senate Permanent Subcommittee on Investigations. Tim Cook, who is still proving his mettle as the nation’s most famous succession CEO, ostensibly arrived on Capitol Hill to defend Apple’s corporate position on tax matters. He had not been invited to negotiate with Congress, but to be grilled about Apple’s use of tax loopholes. Yet, he used the opportunity to influence the negotiations that inevitably will unfold on this issue over the next few years.
Tim Cook deftly and proficiently demonstrated strategies consistent with Watershed Associates’ Best Negotiating Practices®. He reframed the issues to Apple’s advantage, was more prepared than his counterpart, and recognized and adjusted to his counterpart’s culture.
First, Cook used the opportunity of testifying to reframe the debate. Rather than solely responding and attempting to justify Apple’s corporate tax practices, Cook framed his corporate position based on the source of the rules. Cook accurately argued that Congress is the ultimate author of U. S. tax policy. Cook’s defense was primarily that Apple acted completely within the bounds of the law, and that Congress owns the authority and prerogative to change the law and its specifications. It’s the negotiator’s version of “don’t blame us when your lawyers wrote the clause!” Reframing this debate worked as an effective negotiating strategy so far for Apple, and caused Business Week and other news entities to declare that Cook “dominated” Congress.
Second, compared to some of the Congressional Committee members asking questions, Tim Cook appeared far more prepared. The vacuous nature of some of the “questions” posed, and fawning remarks delivered, to the Apple CEO is well documented. Cook’s answers, by contrast, were so deliberate and thoughtful that his extensive preparation for this appearance was made plain. The depth of Cook’s advance preparation was notable and widely observed in the Wall Street Journal's commentary. Similar to any business negotiation whether a mega-merger or spot buy, being more prepared gave Apple the upper hand that would not otherwise be easily retrieved down the road in the negotiation.
Finally, Cook seemed aware, and responsive to, distinct differences in culture between his organization—a massive, secretive, market-driven, successful for-profit corporation, and the comparatively dramatic, public and august entity that is the U. S. Senate. At Watershed Associates, we train clients about negotiating in contexts where there are definite cultural differences -- between corporate cultures, transnational or multinational. Our cross-cultural Safe-skills help businesses identify and assess distinctions in how their counterparts may operate, such as relationship v task orientations or collective v individual decision-making. Variances in style and strategy with regard to time, team hierarchy, and familiarity to name a few, are to be expected when negotiations take place across cultures. These variations need to be noted and appropriate adjustments incorporated into the negotiation plan.
Apple’s CEO recognized the most basic of these distinctions between cultures: formal versus informal hierarchies. Cook consistently (and perhaps insistently) referring to his Congressional interviewers very formally, as “Sir” and “Madam”. Conventions of address such as these are very rarely used in American corporate activity, and certainly not in the Jobs era of Apple. However, in other cultures—like the US Congress, but also in other countries—formal address is expected and is an effective signal of respect for the negotiation process and the negotiation counterpart. Apple corporate executives are unlikely to use these modes of address in any of their daily business, but in the business of negotiating with the Senate Subcommittee, Tim Cook acknowledged this cultural variance, and acted in a way that captured value for Apple’s objectives.
Although Tim Cook probably has years to go before he can be measured against his legendary predecessor, after Mr. Cook’s performance in front of the Senate Subcommittee on Investigations, he brought Apple’s corporate practices through unscathed, and for the moment, unchanged. By reframing the debate, preparing extensively, and honoring the differences in organizational cultures, Mr. Cook led Apple with supreme effectiveness. Apple and its leader earned a Negotiator’s “A”.
Negotiators use the Power of Alliances at Dubai Air Show
By Thomas Wood
The 2013 Dubai Air Show was the most lucrative in the history of the event, with more than $200 billion in transactions in only five days. We can only imagine the intense preparations for negotiations, and the trades and sparring that followed suit. What we can say for sure, however, is that a strategic approach used by a few of the airlines resulted in a win-win deal.
On my recent trip to Kuwait to work with management and their teams at a multi-national client on their negotiations, there was much talk about the 2013 Dubai Air Show, where Boeing alone received roughly $100 billion in orders for its new 777X “mini-jumbo.” This was a truly astounding accomplishment, lauded by its CEO as the “largest product launch in commercial jetliner history.” This was definitely NOT "business as usual." But it wasn’t just the pure volume of business that made this feat "NOT business as usual."
Qatar Airways and Emirates Airline, long-time fierce competitors, joined forces to buy hundreds of Boeing’s new models – a groundbreaking development that has been heralded as a transformative moment for the industry. As the two largest airlines in the Middle East, the two companies have had a long history of suspicion, competition, and rivalry. Executives realized, however, that although alone they each lacked sufficient negotiating leverage to demand discounts from Boeing, together they could secure better terms.
This joint effort – the first time the two regional giants had worked together in such a manner – shocked many analysts. The Wall Street Journal reported that Mr. Akbar Al Baker, CEO of Qatar Airways, explained his thinking to reporters. “Don’t you think it is good to align with one of the neighboring airlines and order airplanes? It is good for the industry and also to show to the world that we are competitors, but we also work together.” Gulf News reported that Al Baker noted, "When you negotiate with a supplier, you get the benefit of economies of scale,” and those large purchases allowed Boeing to offer discounts without sacrificing its own margins. Negotiating teams on both sides seized the opportunity to think creatively and create value for all parties.
The negotiators also created strong working relationships that are likely to pay dividends in future deals. Gulf News also reported that Al Baker proudly informed reporters that “when we do a similar program in the future, yes I hope that we will be able to do it together.”
But alliances aren't built in a day, so let’s give Boeing some credit as well. As reported by the BBC, Boeing’s negotiators identified that lucrative opportunities existed in the Middle East market and invested the necessary time and effort to understand that market’s unique characteristics. While budget gridlocks are jeopardizing opportunities in Western capitals, for example, Boeing saw that business leaders in the oil-rich nations of Qatar and the United Arab Emirates (UAE) are racing to become a global hub for air travel. To take advantage of this, Boeing’s negotiating team members no doubt did their cultural homework before engaging with their Arab counterparts in Dubai. The UAE government published cultural advice for Western negotiators, stressing the importance of face-to-face meetings when building relationships, and properly conveying respect when greeting your local counterparts. Boeing’s negotiators apparently took this advice to heart and earned the respect, trust, and admiration of their Qatari and Emirati partners.
Strategically building alliances and creative trades resulted in Boeing walking away from the Dubai Air Show with more than $100 billion in orders, more than twice the value of orders it’s European rival, Airbus, received. The impact of that is far reaching. As reported on NPR, Boeing is now in a stronger position to head off competition from its main competitors in the highly contested mini-jumbo market throughout the next decade.
Boeing executives may also benefit in future negotiations with its labor unions. The International Association of Machinists (IAM) in Puget Sound voted down a recent contract proposal because it had too many give backs (frozen pensions, lower wages for new hires, etc). Boeing had been on the defensive in those discussions, partly due to the success of Airbus. Now Boeing may be able to leverage its triumphs in Dubai -- the guarantee of future work -- as a solid BATNA: sending that work away from Puget Sound if a deal with the IAM isn't reached.
I always counsel my clients to think more strategically about their negotiations. Leverage can come from many sources.