Creating Value in Deals

1. Creating Value in Deals Randy Richards St. Ambrose University

2. What is a deal? • A voluntary economic arrangement between two or more parties includes: • Business ventures • International treaties • Marriages • Buying and selling • Mutually beneficial arrangements • Helping all parties get what they want

3. What is ‘creating value’? • Reaching a deal that compared with other negotiated outcomes • Leaves both parties better off • Makes one party better off without making the other party worse off

4. Disputes and distribution • Likely seen as a contest, conflict, battle. • Characterized by lack of trust, ill-will • Seen as a zero-sum situations • I gain, you lose • You gain, I lose • A pie, a cake and an orange • Rarely see the opportunity to create mutual beneficial values

5. Typical view of dispute over buying a flat Seller reservation price = 200,000 Buyer reservation price = 250,000 0 Zone of Possible Agreement (ZOPA) Zero Sum – The more the seller gets, the less for the buyer; vice versa ZOPA – the overlap of acceptable solutions, the settlement range BATNA – the best alternative to a negotiated agreement, find a different buyer, find a different flat

6. Zero-sum Thinking The belief that any agreement will result in a gain for one party means a loss for the other party. Leads to a party seeking to maximize his/her outcome at the expense of the other party. If the pie can’t be made any bigger then any piece I get means you get less and any piece you get means I get less. 

7. True Opposed Interests? • Appearance and reality • Too often assumed • Lack of adequate thought • Failure to look • Positional thinking • Example for class: • This twenty litas • Zero sum?

8. Seeing past zero-sum thinking Discovering interests – shared, different Reducing the costs of the dispute Changing the timing Predicting different futures Accepting different risk profiles Matching capabilities Grow and then divide

9. Discovering interests • Shared interests • Parties have the common interests • Class generate examples • Differing but compatible interests • Parties have differing but not opposing interests • Class generate examples • Differences that create opportunities (next slide)

10. Differences that create value Different resources: Different relative values Different expectations about future Different risk preferences Different time preferences

11. Reducing the costs of the dispute • Disputes have costs for the parties • Direct costs of on-going dispute • Missed opportunities as a cost of the dispute • On-going costs • Not getting what you need • Negotiation costs: what is the cost of the time and effort? • Missed Opportunities • Damage to relationship • Overlooking creating value

12. Changing the timing Can we speed this up? Can we slow this down? Can we start earlier or later? Can we end later or earlier? Can we delay until . . .? Can we change the sequences?

13. Predicting different futures • More or less likely events • Trading current values for different possible futures • Betting on the future • Guarantees

14. Accepting different risk profiles • More or less danger • More less willing to accept • Trading current values to defer some future risk • Insurance is a good example.

15. Matching capabilities • My strengths and your needs • Your strengths and my needs • Mismatch is actually helpful • Examples from class

16. The Pakanstani Prunes Negotiation • Next slide show