Let’s assume you are the CEO of a company and your business struggled over the last three years, mostly because your production is outdated and slow. Now you have the opportunity to merge with a competitor. That company has a tremendous amount of production know-how and could boost your production after the merger. During the M&A negotiations, both companies see that using the production knowledge of one partner to fix the production mistakes of the other partner could create value worth 600k. Now you have to negotiate how to split this value (among other things). Naturally, if you are thinking, as does the majority, than you (as CEO) will feel like you are in the weaker position because your production is not modern and not-state-of-the-art. If your partner claimed the full 600k for himself, you would probably think that that’s a reasonable request.
This reminds me of a parable I read in Prof. Gino’s book “Sidetracked”, which I’d like to share with you:
“Not too long ago, I stumbled upon an ancient Chinese parable. It concerns an elderly Chinese woman who owns two large pots. The two pots are hung on the ends of a pole that the woman carries across her neck. Day after day, the woman engages in the same routine. She walks to a nearby stream, fills the two pots with water, and walks back to her house. By the time the elderly woman gets back home, one of the pots is still full of water, but the other is only half full. This second pot, in fact, has a crack in it, which is why some of the water is lost during the long walk home. Every day for more than two years, the woman brings home only one-and-a-half pots of water when she could have brought home two full pots.
The two pots had different reactions to this fact. The pot that had no crack felt proud of its accomplishments. After all, every day it ensured that a full pot of water reached home. The pot with the crack, instead, felt miserable: it was ashamed of its own imperfection and disappointed that it could do only half of what it had been made to do.
After two years, the cracked pot decided to share its feelings with the old woman. “I am ashamed of myself”, it confessed, explaining that its crack, as she may have noted, caused water to leak during her walk back to the house.
The old woman, well aware of the crack, smiled at the pot. She asked the pot whether it noticed that there were flowers on its side of the path but not on the other pot’s side. Knowing about the crack, the woman had decided to plant flower seeds on that side of the path and water them every day while she walked back home. “For two years”, the woman told the cracked pot, “I have been able to pick these beautiful flowers to decorate the table. Without you being just the way you are, this beauty would not grace my home.”
By focusing too narrowly on its flaw, the cracked pot missed the fact that it was actually doing something of value. Or, in the common idiom, the cracked pot missed the forest for the trees: it was so focused on the details of its problem that it overlooked the bigger picture."
Coming back to our M&A example, we have to remind ourselves what negotiation is about: creating value and claiming a fair portion of the pie. The value of 600k is created, or on the table, just because one party is very good at production and the other company is weak on that side. If both companies would have had great production knowledge, there wouldn’t be a value - at least not one of such a high level - to split. So you, as a CEO, could say “Look, I understand your request and that it might sound obvious to you. But only because we decided to cooperate, and only because my production is outdated, you’ll be able to apply your production knowledge and to create the value of 600k. Therefore, we should split the commonly created value even.”