How do you solve business situations when you and another party want to pursue conflicting strategic objectives? Or have a disagreement on pricing? Or want to push through opposing interests in a negotiation? Chances are that in order to resolve the conflict of interests, you will settle for a compromise solution at a mid-point between the two possibilities, which ultimately leaves everybody back with a dissatisfied feeling. Let’s face it — any compromise is prone to lead to a lose-lose situation, so the US author Arthur Bloch is probably right: “The compromise will always be more expensive than either of the suggestions it is compromising.”

In their thought-provoking book Future Think, the two futurists Edie Weiner and Arnold Brown introduce an interesting thinking tool named the Lowest Common Denominator, which helps you to avoid falling into the mental trap of settling for a compromise in case of a conflict. In today’s article, let’s take a look at how you can apply this powerful perspective shift to your business.

We all know the concept of the lowest common denominator since our school days. In grade school, we learned that to add fractions (say, 1/5 plus 3/7), we need to take a detour via the lowest common denominator (here 35) in order to calculate the correct result (22/35). If we approached 1/5 and 3/7 with the conceptual logic underlying compromise (i.e., somehow halfway between the two), the tendency would be to settle for 2/6 and then wonder why the solution does not stand the test of time.

Weiner and Brown explain their technique with a simple example from daily life. Let’s assume you and your spouse agree to repaint your living room. You’d prefer the color green because you like earth tones, while your spouse suggests yellow (a cheerful color). Here, the compromise color that is halfway between green and yellow is chartreuse — a rather modern pop color that does not fit with your contemporary living room furniture. The solution here is to shift your perspective from the numerators (green, yellow) to the denominators (i.e., the underlying higher order objectives involved — here: earth tone, cheerful color). Then, just look for a cheerful earth tone color (like peach or terra cotta peach) and keep your marital harmony intact.

But how does this work in business and in innovation? Let’s apply the technique of the Lowest Common Denominator to three business scenarios.

1. The top management of a company wants to tap into the wide idea pool of its managers and employees on how to cut costs in order to survive the crisis (numerator 1, N1). However, most managers, employees and trade union leaders of the firm don’t contribute ideas out of fear that the exercise may result in the loss of their own jobs (numerator 2, N2). Insofar, senior management invites a few managers to a short 2-hour workshop on a Saturday morning to discuss some ideas (the lose-lose compromise solution here).

Now let’s identify the underlying higher objectives (=denominators) of both sides here. Senior management wants to keep the company in business (denominator 1, D1), and all employees want to keep their jobs (denominator 2, D2). So the Lowest Common Denominator is here: “Keep the company a going concern to secure all jobs”. Suddenly the solution emerges: Top Management provides a job guarantee for all employees, provided that they come up with sufficient ideas to improve the bottom line of the firm.

2. A training company usually charges $5000 for a 1-day creativity-training course. A client offers to book a 1-day training for $3000. A possible compromise would be to settle for $4000, which is a lose-lose for both sides. After looking at the denominators (“We don’t want to sell our service below value and thus impair our market positioning” and “We want to get high quality training, but can’t afford to pay more than $3000 at the moment”), it’s easy to find the Lowest Common Denominator (Readjust the value-price tradeoff downward to accommodate a course at $3000). The solution here is for the two parties to agree which value components will be taken out to match the reduced price.
3. A company in a fast-moving consumer goods industry decides to invest in a new innovation initiative. A brand manager in charge of one product category suggests focusing on ideas to extend the current products through image campaigns and incremental new product features (N1). Based on the mandate from senior management, the firm’s innovation manager wants to create completely new value-adding products (N2). The compromise would be to focus an innovation project on incremental product improvements for the existing product line. A discussion of the underlying motives of both sides unveils their real concerns: “Cannibalization of my existing product portfolio” (D1 — brand manager) and “Create viable differentiation from competitors through innovation” (D2 — innovation manager). The Lowest Common Denominator here is: Innovate to create differentiation from both our current product lines and our competitors. Insofar, the counterparties happily agree to embark on a new value innovation project to create radically new value propositions (products, services, solutions, customer experiences) for the firm.

Conclusion: “Compromise is never anything but an ignoble truce between the duty of a man and the terror of a coward”, noted the US writer Reginald W. Kauffman. Avoid simply settling for a (lose-lose) compromise in the future, and also don’t just go for a cheap and easy majority vote (win-lose). Instead put in more effort to discover the Lowest Common Denominator and thus a win-win solution. It’s worth it — and might save all parties from a bad outcome.

Epilogue: The last time I successfully used this tool was one hour before the turn of the New Year. The Lowest Common Denominator helped me to create a win-win proposition that kept our group of New Year celebrants happily together and safe, as half of the group wanted to count down the New Year at a popular nightspot that to me intuitively didn’t sound like fun. Later that night, we all learned of the Santika fire tragedy.

© Dr. Detlef Reis 2009. This article was published in parallel in the Bangkok Post under the title “Looking for the lowest common denominator in business negotiations” on 19 March 2009.