The 80/20 Principle 

Time plays a critical role in negotiations. Most often, negotiations will conclude in the final 20 percent of the time allowed. This aspect of negotiation follows an interesting rule that seems to apply to life in general. It's called the 80/20 rule, or Pareto's Law (after Vilfredo Pareto, the Italian economist and sociologist who defined it).

Pareto's Law states, "Twenty percent of what you do produces 80 percent of the results; conversely, 80 percent of what you do produces only 20 percent of the results."

In negotiation, this means that 80 percent of your results are generally agreed upon in the last 20 percent of your time. We consistently see this phenomenon in the seminars we present. As the participants negotiate with each other, the seminar leader periodically tells them how much time they have left. Normally, the majority of the negotiations are concluded in the final two minutes.

The 80/20 Principle in Action

Here is an example of the 80/20 principle at work. In 1998 the National Basketball Association (NBA) team owners locked out the players in a dispute that lasted seven months. The issue was determining how the owners and players would divide $2 billion in annual revenue. Everyone was convinced that the players would not want to miss a paycheck, and assumed that the lockout would be concluded by the beginning of the 1998 basketball season.

Some of the richest players were making decisions on behalf of the players' union, and these players, who could well afford a lengthy strike, voted to decline the owners' initial offer of 50 percent of the revenues. So the season started, and there was no basketball. The next theory was that an agreement would be reached prior to the All Star game because the best players would never agree to miss that. But the All Star game came and went, and there was no basketball. In the first three months of the season, losses in players' salaries exceeded $500 million.

On November 7, the New York Times published an article that revealed a fact most people didn't know. It was the underlying reason why the majority of owners were so unwilling to back down and give in to the players' desire for 60 percent of the NBA revenue. The NBA is a league of "haves" and "have nots." Some teams, like the Los Angeles Lakers ("haves"), are very profitable. Other teams, like the Los Angeles Clippers ("have nots"), lose money every season. The team owners who were "have nots" were losing less money when the team was not playing. They were actually financially better off during the strike and had less financial incentive to settle quickly.

Finally, David Stern, the NBA commissioner, set a deadline of January 7, 1999, for the owners and players to come to an agreement. If a settlement could not be reached by that deadline, he said, the entire basketball season would be cancelled. On January 6, with the time clock for negotiation running down, the owners and players agreed to a new contract, and basketball resumed on January 7. The 80/20 rule had taken effect.

Like most labor negotiations that end in a lockout or strike, the players and owners both lost by failing to come to a timely agreement. And they weren't the only losers. What about the fans, and the hourly workers at the basketball arenas? And, as if these collective losses were not enough, an ESPN poll conducted from October 31 to November 1, just before the games were originally scheduled to begin, reported that 47 percent of the NBA fans said that even when the lockout ended, they would attend fewer games, and 26 percent said they would watch fewer games on television. This is clearly an example, not only of the power of the 80/20 rule, but also of a lose-lose outcome.

Source: Peter B. Stark, Visit our website at www.negotiatingguide.com for more great resources on negotiation

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