The Power of Understanding

Increasing Negotiation and Leadership Performance through the Power of Understanding

Laws of Power 29: Maximize Your Leverage

By Karen S. Walch

The possession of leverage is an essential requirement in classic laws of power. The word “leverage” was originally used as a noun to indicate positional advantage over others in a negotiation. This term has eventually become a verb to mean that a negotiator can move and force counterparts to yield to tactics used against them. In classic notions of power, a negotiator with leverage has the ability to wield force and have authority to coerce obedience from others. In the next several weeks, we will explore the possession and exercise of negotiation leverage in the 21st century.

Each week we will address the classic notion of leverage not only as dominion over other negotiators, but also as a tool to transform negotiation limitations. We will investigate leverage as an ability to engage untapped physical, mental, social and psychological resources often overlooked in negotiation preparation and strategies.

This week we begin by defining leverage and how to evaluate it as a noun. Every negotiator, whether they utilize a hard ball or problem solving strategy, must understand how to evaluate their leverage, what steps to take to improve it, and, then, how to exercise that leverage as a verb. The first step is to become more conscious about how to define one’s leverage and how to maximize it. Leverage is the central ingredient for getting what we need in a negotiation.

In short, leverage can be understood by evaluating how much each party in a negotiation needs or wants from an agreement. More specifically, it is about how relative the needs are between the parties and what the consequences are if agreement is not reached. Negotiation leverage is a measure of who, at any given moment, needs the other party relatively more. For example, Jose, a graduate student seller, can have positive leverage relative to Ricardo, a graduate student buyer, who says, “I want to buy your car – I love the color”. Jose can have negative leverage if the Ricardo can threaten Jose by saying, “If you don’t fulfill a commitment to me for a discount, I will ruin your reputation.”

The amount of buyer leverage relative to the bargaining power and leverage of the seller depends on the information that seller and buyer have about the product or the relative scarcity or abundance of the product. The relative leverage of either Ricardo as a buyer or Jose as a seller determines the price and terms of transactions and the nature of their negotiation relationships. Business procurement negotiators, for example, use their past purchase histories to get better deals from sellers. Positive and negative leverage can be balanced by the use of third party standards and norms to support the value of the buyer or seller. For example, in the car sale, the parties can use a Blue Book value to define or maximize their negotiation leverage.

Leverage relates to how relatively easy it is for each of the negotiators to walk away. The easier it is for the Ricardo, for example, to walk away and the harder it is for Jose, the seller, Ricardo has stronger leverage. Donald Trump defines leverage as ‘having something the other guy wants. Or, better yet, needs. Or, best of all, simply cannot do without”.

Therefore, the first step is to evaluate your own and your counterpart’s initial leverage by researching how relative the needs and wants are between the negotiators. A disciplined evaluation of leverage goes beyond just not only research about what the parties want and need but also how much they want and need something. This information is difficult to assess and is often reluctantly shared. However, the earlier you can find out how much your counterpart needs or wants in an agreement, the less likely your counterpart will be prepared to misdirect you about it later on.

Leverage is only strong or weak in comparison to the other sides’ needs and wants. In leverage terms, your needs and wants do not mean much independently. They only gain relevance when analyzed relative to the others parties’ needs and wants. For example, if Ricardo as the buyer has limited time relative to Jose, the seller, Jose has positive leverage. Ricardo may state he is desperate to buy because of a limited time frame, even though Jose does not state that he also needs to sell quickly. Relative leverage shifts in the favor of Jose based on the perceptions disclosed in the negotiation. If the Ricardo really wants the car, and does not know that Jose is also in a hurry, the Jose has stronger leverage. The perception of the negotiators’ needs impacts the negotiation, not some ‘true’ level of desperation.

In addition to the parties’ relative level of need, leverage also depends on what will happen to each party if they cannot reach an agreement. A strong Plan B or BATNA (alternative to a negotiated agreement) increases leverage. A weak Plan B means weaker leverage. This leverage is also a relative term. Ricardo’s leverage is dependent upon other attractive cars to purchase in relation to the Jose’s potential credible buyers for the car. If both the Ricardo and Jose have limited options, they have balanced leverage between them.

In the Ricardo and Jose’s example, one way to enhance and strength leverage is for Jose to make Ricardo’s alternatives look less attractive by highlighting the quality of his car relative to other models of the same year. Jose could also strengthen his leverage by creating an auction like situation or taking bids for the car sale. Jose could strengthen his alternative by creating the scenario of alternative buyers. If Ricardo finds out that this was staged by Jose’s friends, Ricardo can potentially strengthen his own leverage. Both Ricardo and Jose know that power can change throughout the negotiation and they need to be prepared for the fluid nature of leverage.

Law 29 exercises

Observe this week the ways in which you can increase your position of strength in a negotiation with a few leverage-enhancing techniques

1. Quantify your need level relative to your counter part’s need level – on a scale of 1 – 5.

2. How do the needs levels change throughout the negotiation?

3. What is the strength of your and your counterparts’ plan B or alternative solution if you cannot reach agreement?

4. How can you enhance your plan B?

Extra credit

For more on specific steps to maximize your leverage, see “Golden Rule Two” from Gain the Edge, by Martin Latz, 2004, St. Martin’s Press.

48 Laws for 21st Century Global Negotiators: Join Thunderbird Professor Karen S. Walch, Ph.D., as she explores the laws of power for 21st century global negotiators. Each Monday she discusses one law and provides an exercise to identify and enhance individual negotiation power. Go to the main menu for the series.