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The cost of focused negotiation

September 4, 2014

Max Bazerman is a behavioral economist and he has recently written a book, The Power of Noticing: What the Best Leaders See. He draws from his personal experience in failing to notice things, which he attributes to his tendency to focus.

In the book, Professor Bazerman offers many illustrations from the world of business, including examples related to negotiation and contract terms. For instance, he highlights a case study involving Walmart, which one of my colleagues has summarized thus:

In their contracts with Walmart, suppliers must agree to accept any financial or criminal liability resulting from the sale of their products. …Perhaps because it is protected from liability, and its value proposition is so firmly focused on low prices, Walmart historically had limited incentive to act on issues related to quality.

It is stated that, back in 2006, a company called Blitz presented a revised gas can design to Walmart that would prevent explosions and burn injuries by installing an “arrestor,” a device that would prevent a flame from flowing into the can, at a cost of between 80 cents and $1 per can. According to testimony, Walmart rejected Blitz’s design on the basis of the price increase, and Blitz halted its redesign project because it would be difficult to launch a national product that Walmart refused to purchase.”

 The root of the problem seems to be that a narrow focus on price and risk allocation stood in the way of broader business or ethical judgment. And before we are too critical of Walmart in this regard, we must ask how many negotiations (and business decisions) are similarly driven by narrow value criteria and measurements that cause the negotiators either not to notice or to ignore the bigger picture.

The key to good commercial decisions and effective contracting is to ensure breadth of perspective. As Professor Bazerman points out, this is challenging, but essential to achieve.

 

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