Remember the Players Not at the Table

A C-Suite Quick Take

President Trump reversed the decision to escort ships through the Strait of Hormuz a day after announcing it. Though he stated the reason for the change was progress in talks with Iran, the New York Times reported that the decision was forced by Saudi Arabia’s refusal to let the U.S. use its bases or airspace for the mission. While President Trump was focused on trying to gain leverage with Iran, Saudi Arabia was trying to end the conflict though negotiations mediated by Pakistan and was worried the operation would escalate the conflict. President Trump did not consult with Saudi Arabia before announcing the escort plan and U.S. officials were shocked by the Saudi refusal.

The incident is a vivid example of a widespread problem in all types of consequential decisions: leaders operating with a closed mental model. In complex negotiations, this human tendency often emerges through failure to consider actions by parties not “at the table.” Good negotiators try to consider the perspectives and interests of both their “side” and the people they are negotiating with. They need to be aware of the full range of levers that each party has. But it is easy to forget to think about outside players and what they can do, yet these players can and often do dramatically affect the outcome. Regulators reject mergers, workers reject tentative contracts, customers or partners or suppliers or dealers take actions that make one or both parties regret their deal.

Forgetting a Player Kills an Initiative: GM Retail Holdings

General Motors decided in 1998 to buy and run some dealerships. There were good strategic reasons – get closer to the customer, test retail ideas, obtain important data. It knew that its franchised dealers would dislike the idea, but it was legal in most states. An experienced team was assembled, locations were identified, and financing was arranged. A splashy announcement of the new GM Retail Holdings was made - unwisely when GM’s National Dealer Council was in town. Within 48 hours, GM regretted the decision and never bought a dealership; a few months later, GM’s CEO apologized to the dealers and said GM would never try to own dealerships again.

What happened in the 48 hours? GM had underestimated dealers’ fury – organized by the Dealer Council - and their willingness to use levers they controlled to punish GM if it went forward. Even worse, GM forgot a player – state legislatures. Bills were introduced in six states – with the support of GM dealers – to make it illegal for an OEM to “compete” with franchised dealers. GM quickly realized that the bills would pass given the political power of dealers and that other states would follow. Forgetting a player led to a quick and costly end to a major initiative.

Outside Parties Improving Outcomes: The Detroit Bankruptcy Game

Considering outside players goes beyond protecting against disaster. Leveraging outsiders strategically can also help one or even both sides improve the result of the negotiation. A remarkable example occurred during Detroit’s bankruptcy in 2013-14. The emergency manager had difficult negotiations with creditors and unions, though he won some legal rulings. He proposed a plan that included significant spending cuts and deep cuts to pensions for city workers, but creditors pressed for the sale of the collection of the Detroit Institute of Arts (DIA), owned by the city for historical reasons.

A mediator appointed by the bankruptcy judge came up with the idea of asking a group of major foundations to contribute $350M into the city pension funds as part of a “grand bargain” with DIA donors contributing $100M and the state $350M. Pensions would still be cut by 4.5%, and the DIA would no longer be owned by the city but would keep the art. All the contributions were contingent on votes by city workers and bankruptcy judge approval.

The Grand Bargain was successful and Detroit emerged from bankruptcy. The mediator produced this remarkable result by inventing (!) a player – the foundations. He used this new player to leverage other outsiders – DIA donors and the state – to take favorable actions and then going back to the negotiating parties with a “take it or leave it” deal that was better than they could achieve on their own. Negotiators can often leverage the threat or promise of outside action to their benefit.

Win by 360° Planning

How can business and negotiation leaders manage the risks and opportunities from outside players? The key is analysis before negotiations start. Negotiation teams that consider the full landscape prior to bargaining will have a competitive advantage in most complex negotiations. They will often be able to influence – or at least predict – the behavior of important outside players.

A structured process in negotiation preparation improves the outcome, especially if it engages a cross-functional group of internal experts and decision makers. The range of experience and insight will help ensure that players or levers do not “fall through the cracks” and that the preferences of all players (including your own!) are assessed as accurately as possible.

The first step is to consider all the players and their potential strategic and tactical actions – their levers. Then the team should put itself into the shoes of all the players, thinking through how they feel about each of the levers, whether or not they control them. Do they want that lever pulled? How important – out of happiness or fear – is it for that player relative to the other levers? After these steps, the team will have a rich model full of useful insight.

The tools of game theory would enable the team to go even further. Game theory would identify which levers will be pulled and ways the outcome might be improved. Useful ideas for strategy and tactics both at the bargaining table and away from it are likely to emerge.

The Bottom Line

The players who derail or transform your negotiation are often ones you never thought to consider. The antidote to that blind spot is surprisingly simple — build the full map before you sit down at the table.