Split the Pie (2022) reveals a new approach to how everyone should be negotiating. While negotiations often bring out the worst in people, it doesn’t have to be this way. By employing the “pie” approach, you can enter into any negotiation with the confidence that you’ll end up with your fair share.
Introduction: Discover the most logical way to approach any negotiation.
Table of Contents
- Introduction: Discover the most logical way to approach any negotiation.
- The negotiation pie approach is the best way to resolve any negotiation.
- There are different ways to bring the other party around to the negotiation pie approach.
- There are effective ways to deal with a stubborn negotiating partner.
- About the author
Negotiating is something we all have to engage in throughout our lives. Most of the time, the stakes are low – for example, you’re at a flea market and trying to haggle down the price of an item of clothing. But sometimes the stakes are high – you’re negotiating a higher salary with your boss. Some people make their whole careers out of the art of negotiating. It’s their job to close down huge business deals, or even to negotiate ends to wars.
No matter what the stakes are, negotiations are often stressful. Engaging in them can bring out the worst in us. Sometimes we make unfairly low offers to drive down a price. And if we’re on the receiving end of such behavior, we’re likely to react negatively ourselves. So how can we protect ourselves from the stress and greed that’s so often associated with the act of negotiating? Are there any principles we can apply that can help avoid such situations – and still get our fair share?
Well, it turns out there is a powerful technique that you can start applying to all levels of negotiating in your life. The author calls it the “negotiation pie” approach. It dispels a lot of myths surrounding negotiating and guarantees that both parties will always walk away satisfied.
In this summary, you’ll discover
- why splitting everything 50/50 isn’t the fairest result of a negotiation;
- how to enter into a negotiation where the other side is in a position of power; and
- why it’s important to fight fire with water – and not with more fire.
The negotiation pie approach is the best way to resolve any negotiation.
So, how does the negotiation pie approach work? Let’s strip things down to the basics. Meet Alice and Bob. They’re sitting at their favorite pizzeria when the waiter makes them an offer. If they can agree how to split a 12-slice pizza, the restaurant will give it to them for free. If they can’t agree, they’ll still get half a pizza, but unevenly split – Alice will get four slices, but Bob only two.
Alice and Bob need to come to an agreement on how to split the twelve slices. There are several ways they can go about it. One is called the power perspective and results in Alice getting eight slices, and Bob four. This reflects the ratio of their fallback option. After all, if they don’t reach a deal, Alice would receive twice as many slices as Bob. The result is meant to reflect Alice’s position of power in the negotiation.
Another approach is called the fairness perspective, where Alice and Bob simply split the pizza in half, with six slices each. Many people would see this as the fairest option.
Both the power and fairness perspectives don’t take into account a very important fact – the negotiation isn’t actually about the whole pizza. Without a deal, they end up with a total of six slices. With one, they get twelve. This means the negotiation is actually only over the six additional slices that a successful deal would result in. It’s these six additional slices that constitute what the author calls the negotiation pie. And when a negotiation starts from this principle, the rationales behind the fairness and power perspectives quickly vanish into thin air.
With the negotiation pie in mind, Alice and Bob realize that they are both equally needed in order to get the six additional slices. This means they have equal power after all. Sure, it seems that Bob is in a weaker position on the surface level. Keep in mind that if they don’t reach a deal, he gets fewer slices than Alice. But in reality, if they don’t reach a deal, Alice and Bob both end up with fewer slices. In other words, they both lose. In order for them to both get more slices, they need each other equally.
Looking at it this way, Alice and Bob have an equal amount of power. And this equal amount of power needs to be reflected in an equal split of the six slices of the negotiation pie. This leaves Alice with her fallback option of four slices plus three from the negotiation pie, leading to a total of seven slices. Bob, on the other hand, takes his two fallback slices and adds three more, netting him five slices. By using the negotiation pie technique, they’re both winners.
Now, some of you might be wondering why splitting the whole pizza 50/50 isn’t the fairest option. Alice and Bob are getting a free pizza here. On closer inspection, though, a 50/50 split isn’t always as fair as it seems. This is because it doesn’t take into account uneven fallback options. For example, imagine the waiter increased Alice’s fallback option from four to seven slices but kept Bob’s at two. In this case, Alice would be losing one slice if they took six slices each. When viewed this way, it turns out 50/50 splits aren’t actually so fair.
Negotiating effectively is all about leaving with more than what you came in with. And by focusing on the negotiation pie, you and your negotiating partner are sure to both walk away happy.
There are different ways to bring the other party around to the negotiation pie approach.
Now that you understand the theory behind the negotiation pie, it’s time to learn how to put it into practice. As with most things in life, doing so involves coming up with an effective game plan. After all, it’s safe to assume that the person you’re negotiating with definitely has one. More often than not, the plan involves projecting an aggressive stance, playing hardball, and naming their price right away. But with the negotiation pie approach in hand, you can craft an action plan that’s all about nurturing a constructive negotiating environment.
The most important part of your plan is to figure out where the other side is coming from: Are they coming into the negotiation expecting a 50/50 split? Do they have preconceived notions of a supposed power imbalance? In all likelihood, your negotiation partner isn’t even aware of what’s being negotiated – the negotiation pie. If this is the case, your first job is to convince your partner that you both share the same goal – to create the biggest pie possible, and then split it evenly. Your goal here is that you both enter the process in good faith with a common purpose. If this is successful, you can then focus on figuring out how to make a bigger pie rather than worrying about your partner trying to trick you.
Now, explaining the merits of the negotiation pie is easier said than done. Sure, if you’re negotiating with someone who views you as being in a position of power, they’ll likely be receptive to what you have to say. But if the other party sees themselves as having the advantage from the get-go, they might be harder to convince. It’s your job to help them see the light before the negotiations begin in earnest.
To see this in action, let’s go back to Alice and Bob. This time round, they’ve left the pizza restaurant and are deciding to invest together. Alice has $5,000 to invest, and Bob $20,000. If they invest alone, Alice would get a 1 percent return, and Bob 2 percent. However, if they pool their money together, they can get a 3 percent return, and both make more money.
Bob proposes that they split the total interest generated proportional to their investments, but this makes Alice unhappy. It seems that Bob hasn’t grasped the principles behind the negotiation pie. Alice then asks Bob to imagine the result of such a proportional split if they invested together, but the interest rate stayed at 2 percent – in other words, the same interest rate that Bob would have received anyway if he invested alone. In this situation, a proportional split of the interest means that Bob wouldn’t make any additional money.
However, with a 2 percent return, Alice would receive double the amount than if she’d invested alone with a 1 percent return. She tells Bob that this would be unfair to him. If this were the case, she explains, they should split the combined 2 percent return evenly. In other words, she’d divide the negotiation pie down the middle so they’d both make slightly more money.
By reframing the numbers, Alice convinces Bob of the error of his ways. He can’t defend a proportional split that benefits him in one situation but not in another. So he accepts Alice’s suggestion, and they decide to split the 3 percent return evenly.
Alice’s logic here is brilliant, and it’s something you should take into consideration if you’re having trouble convincing your negotiation partner of the merits of the negotiation pie. Instead of explaining why a proportional split is unfair to you, show how it would be unfair to them under different circumstances. The secret isn’t to ask someone else to put themselves in your shoes – it’s to get them to stay in their own shoes, but make them realize how uncomfortable they are.
There are effective ways to deal with a stubborn negotiating partner.
Now, you’ll inevitably run into situations where your negotiating partner is acting like a bully. You try to get them to see the light by explaining the principles of logic and equality behind the negotiation pie. But they don’t buy it. They’ve arrived at the negotiation with a fixed notion of what is rightfully theirs, and it’s their way or the highway.
There are several techniques you can employ to try to get the other party to see the light. But one thing you should definitely avoid doing is fighting fire with fire. If the other party offers an ultimatum, you should never sink to their level and fire one back at them. This only has one possible outcome – to decrease the chance of a deal being made.
Instead, your goal should always be to bring out the rational human being inside your negotiating partner. It’s often the case that people project arrogance when they negotiate as a defense mechanism. But underneath their bullish exterior might be someone who just needs a nudge in the right direction.
So instead of fighting fire with fire, fight fire with water. Try to deescalate the situation – and put out the fire. One way to get them to see the light is to make them doubt their own ultimatum. Let’s return to Alice and Bob to see this in action. Alice wants to sell her company to Bob, but is acting bullish – she refuses to budge from her figure of $25 million. Bob explains the merit of growing the pie together and reaping the benefits but, for whatever reason, Alice sticks to her guns. It’s her final offer – and it’s not open to negotiation.
Bob decides to ask if $26 million would be acceptable, hypothetically speaking. Alice, while confused, responds positively, and asks if Bob is seriously making an even higher offer. He explains that he’s not making a higher offer, but asking if it would hypothetically work. Alice again says yes.
What Bob has done here is so clever. He’s shown Alice that her final offer is not so final after all. Yes, the figure he’s proposed is higher. But the fact that Alice is hypothetically open to it shows that she is in fact open to negotiation. By helping her realize this, the chances of them working together to grow the pie increases.
Using hypotheticals to get the other party to act rationally can be useful in other situations. Say the shoe was on the other foot, and it’s now Bob acting bullish in negotiations to buy Alice’s company. They both know the value of the pie is somewhere around $10 million, but he comes in swinging with the insulting offer of $10. Alice is tempted to fight fire with fire but instead employs a hypothetical. How would Bob feel, she asks, if she were the one proposing such a measly sum while keeping $9,999,990 herself? Without waiting for an answer, she goes on, saying that he’d most definitely be upset in such a situation. And she concludes by saying she wouldn’t expect him to negotiate any further if that were the case.
These hypotheticals often work to unmask the human being behind the bully. If you can demonstrate your humanity and empathy, it’s likely that your negotiating partner will come around.
Now, this isn’t always the case. Sometimes, there’s a gap that can’t be narrowed by hypotheticals. Sometimes you have to sweeten the deal in other ways. This is where the ultimate show of empathy comes in – trying to understand the reasons behind your negotiating partner’s intransigence. Why is it that they can’t budge on their figure? Ask them to explain the ins and outs of their position. While doing so, you might be able to find a way to add something extra to the deal without meeting their ultimatum. Your goal isn’t to be altruistic – at the end of the day, by understanding what they want, you get closer to what you want as well.
Our final encounter with Alice and Bob illustrates this well. Alice is selling her gas station for $500,000 to fund a sailing trip around the world. But she won’t budge on the price of the station. So Bob inquires further into her situation. How much did the boat cost? Where is she sailing to? And what does she plan to do upon her return?
It turns out that Alice has budgeted $75,000 for the time she’ll be looking for a job after returning from her trip. So Bob makes her an offer – when she returns from her trip, she can work as the manager of the gas station. It’s a win-win situation – he gets an experienced manager for the station, and she no longer needs the $75,000 buffer. All of a sudden, the negotiation experiences a breakthrough. All it took was a bit of empathy.
The most important thing to take away from all this is:
The most logical way to negotiate anything is to split the negotiation pie. Instead of wrangling over perceived power indifferences or biased notions of fairness, focus on the additional value created by negotiating. Then, split the pie down the middle.
And here’s some more actionable advice: Don’t treat negotiations like a Miranda warning.
Just because you have the right to remain silent doesn’t mean you should. People sometimes approach negotiations by holding back information or not answering questions. While you think this might help gain leverage, this is rarely the case. Instead, try to foster an open and constructive dialogue. Don’t just answer questions – ask questions of the other party. If you both know what the other one wants, there’s a higher likelihood you can reach an agreement.
Barry Nalebuff is the Milton Steinbach Professor at the Yale School of Management and is the co-author of several business books, including Thinking Strategically and Mission in a Bottle.
Barry Nalebuff is the Milton Steinbach Professor at the Yale School of Management, where he has taught for over thirty years. An expert on game theory, he has written extensively on its application to business strategy. His bestsellers include Thinking Strategically, The Art of Strategy, and Mission in a Bottle. This is his seventh book. He has advised the NBA in their negotiations with the Players Association and several firms in major M&A transactions. Nalebuff has been teaching the Split the Pie method to MBAs and executives at Yale and online at Coursera. His Introduction to Negotiation course has over 350,000 enrolled students and a 4.9/5.0 rating. He is also a serial entrepreneur; his ventures include Honest Tea, Kombrewcha, and Real Made Foods. A graduate of MIT, a Rhodes Scholar, and a Junior Fellow at the Harvard Society of Fellows, Nalebuff earned his doctorate at Oxford University.
Communication Skills, Career Success, Business, Psychology, Economics, Leadership, Self Help, Language, Management, Business Conflict Resolution and Mediation, Business Negotiating, Entrepreneurship
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