While many people think of negotiations as a competition where one side wins and the other loses, in reality, negotiations involve a more complex mixture of winning and losing. The outcome of almost all two party negotiations can be categorized as win-lose (one party benefits to the detriment of the other), lose-lose (both parties are worse off after the negotiation), or win-win (both parties come out ahead). If the negotiation fails, no agreement has been reached and the parties are forced to seek alternative solutions.
Frequently in a win-lose scenarios, both sides have attempted to win, without much regard for the outcome of the other party. Both parties may have come into the the negotiation with a desired goal and a "walk away" point. In a win-lose scenario, one party falls within this target range (or even exceeds it) and the other party falls below their target range.
Notice that win-lose outcomes occur when the losing side can be pushed below their “walk away” point. This can happen when the losing side doesn’t know what their best alternative is to reaching an outcome in the negotiation, or where they keep negotiating against their own interest. Many other factors, like coercion and asymmetric information can also lead to win-lose outcomes.
In a Lose-Lose scenario either both parties concede bargaining positions outside their target ranges. If the negotiators fail to reach an agreement, both parties may end up in worse positions than when they started the negotiations, this is often included as a lose-lose outcome.
If one or both parties can’t walk away from a negotiation, but are unwilling to make concessions, both will be forced to deal with the poor consequences of not reaching an agreement. Alternatively, both parties could be too quick to make concessions, reaching a compromise that is fair, but detrimental to both sides. Likewise, if both parties are mistaken about the benefits of what the other side is offering, they may reach an agreement they later come to regret.
In a Win-Win scenario, both parties end up, at minimum, within their target ranges. This could simply be reaching a fair middle ground that both parties benefit from, or it could mean finding a creative new solution that improves the position of both parties.
If both parties come to the table with goals that are mutually compatible, there is a good chance that the negotiation can result in a win for both sides. Of course, there is nothing that prevents a negotiator from trying to press an advantage and push the other side into a losing position, but there is a risk in that case that the other side will walk away from the negotiation.
Win-win results are the most stable outcomes of negotiations; since both parties are happy with the result, they have little reason to back out at a later time. Both parties have an incentive to negotiate with each other again, laying the foundation for a mutually beneficial working relationship.
A Little Game Theory
In game theory (the application of mathematical modeling to competition and decision making), some competitions, or games, are called “zero-sum”. In zero-sum games, one player can only benefit to the equal detriment of another payer. An example of this is dividing a finite resource; every increase in a player’s stockpile must be taken from another player’s stockpile. Since the resource can only be passed between the players, any change from equal division will be a win-lose situation.
Not all games are zero-sum. In fact, many negotiations in the real world, even competitive ones, can be resolved in a way that lets both parties come out ahead. These non-zero-sum games are what allows for cooperation, market economies, and pro-social activities.
Example Negotiation - Three Different Outcomes
Imagine Craftsy Corp. is negotiating with Alexa to sell her artisanal widgets. Their experienced curation team thinks she has a great product with lots of potential. The only sticking point in the contract is the number of widgets Craftsy Corp. needs from Alexa for the venture.
Artisanal widgets are labor intensive, so it has been hard for Alexa to scale her business. She has only 250 widgets in stock and could probably make 250 more, if she needed to, before running out of funds. Craftsy Corp. needs to start with at least 1000 widgets to cover the fixed cost of bringing Alexa on board.