I'd like to introduce the concept of added value. I think this is an incredibly useful tool to understand your power in negotiation. Added value is equal to the size of the pie when you're in the game, minus the size of the pie when you're not in the game. It turns out that no player can ever get more than his or her added value. And let's understand why that's the case. Imagine your added value is 4, but the other players in the game are giving you 5. Well, what happens if they kick you out? They save the $5 they were giving you but they lose $4 because the pie shrinks since you're no longer there. So they're better off kicking you out and losing the four because they get back the five. And so if a player ever gets more than his or her added value, that player is really in jeopardy. Note that the idea of added value is almost exactly the flip side of your BATNA, your best alternative to a negotiated agreement. A BATNA says you should never take less than that amount, an added value says you should never expect to get more than that amount. It's also the case that it's not your actual added value that matters, it's the perceived added value. That is, it's what other people think your added value is that determines the most they're willing to give you. I'd like to use the concept of added value to help you understand power in a particularly interesting card game that I've created with my co-author and friend Adam Brandenburger. And here's how the game works. I take a deck of cards and in here we have 52 cards, half black, half red. And the deal is that any black card, together with any red card, is worth a $100 paid for by some third party. So you don't need to put the six with the six, any red and any black together, adds up to $100. And what I'm going to do, is I'm gonna take the red cards, and distribute them to all of you out there. So Tom here's one for you. >> Thank you. >> Craig here's one for you. >> Thank you. >> My friends out there, one more, here we go. So we got the 26 cards that are out there. Each of you has one, and the question is how do we divide up the 2600 between me who has all the black cards and the folks out there who have all the red cards. Okay, so yeah, yeah we'll take all the rest, there we go. Now I don't have any red cards but I got the black cards. And the question is, what is my added value? I'm going to claim it's 2600, right, because without me there is no there there. You can't do a deal unless you come to me. So, my added value is 2600. No pie without me. How about Tom and Craig and all the rest of you? Well, for each person with a red card, their added value is $100. Why? Because, if we lose a red card I can only make 25 deals not 26, and so, therefore, the pie shrinks by $100. You might have thought that I was really in the driver's seat, in the sense that I had all the power, because I was the only one with black cards. But what the perspective of added value shows you is that's not really right. My added value is 2600 and the combined added value of the all the players on the other side is also 2600. So that suggests the negotiation game is symmetric and therefore perhaps we should divide each one of them 50/50. And here's why I think that's true from an intuitive perspective. Say I say to Tom, hey, Tom, I'll give you $5 for your red card. >> No. >> No, okay, no. Well, so why might he say no? The answer is, not now, come back to me, we'll talk about it. And so, here's a thing, after I've done 25 other deals, if I wanna do that 26th deal, I've gotta go and talk to Tom. And at that point, I'll have one black card, he'll have one red card, and we'll be in a completely symmetric position. And so therefore, just like all the cases we've talked about in terms of splitting the pie, I'd expect it to be 50/50. And even though I've done these other 25 deals, the 26th deal is just as valid as any other. I want that extra hundred. I need Tom just as much as he needs me. So you might think that this negotiation in the end really is symmetric power 50/50, but there's something I can do to change the game, and here's what. Tom, I'm gonna give you $5 dollars for your card, what do you say? >> No. >> No, okay, getting a little more convinced at this. Well that's unfortunate because you see, Tom, I've just destroyed one of the black cards. And what that means is the following. I can only do 25 deals. So there's somebody who's not gonna get a deal. And frankly, that might be you. >> I'll take the five. >> You'll take the five, that was a wise move. And let's think about this for a moment. What is my added value now? Well, since I only have 25 cards, there's only 25 deals that can be done. I've cut my added value from 2,600 to 2,500. So I've destroyed 100 of value and I've reduced the pie, and my added value is now down to 2,500. What is Tom's added value? Well, I can still do 25 deals without him and so therefore the size of the pie is 25 with Tom with or without, his added value is zero. And for that matter so is Craig's, and so are all of the 26 people holding the red card. So by destroying 100 of my added value, I destroyed 2600 of the added value on the other side of the negotiation. And just like I did the deal with Tom for $5 bucks, I go to Craig. I keep going down the list because each person knows if they don't do the deal, they're gonna be the one who ends up with zero. Now of course, if you are on the other side here, you should get together and form a coalition. And then you do much better. And if you did form a coalition, guess what? Your added value would no longer be zero. It would go up. If you have a coalition of eight people, your added value would be 700. The larger your coalition, the more your added value. So this exercise, I think, helps you understand how added value can take what might look like a complicated negotiation situation, and allow you to understand who really has power in the circumstance.
