Wednesday, October 17, 2012

Vanderbilt and Scott v. Rockefeller

In the 1870's, after John D. Rockefeller's formation of Standard Oil, Cornelius Vanderbilt and Thomas Scott colluded together in an attempt to get Rockefeller to pay a much higher rate if he was to ship his product using their railroads.


Rockefeller controlled the oil, but he couldn't reach his customers without using either Thomas's Pennsylvania Railroad or Vanderbilt's New York Central and Hudson River Railroad.  

For years, Rockefeller had successfully played Vanderbilt and Thomas against each other as competitors, driving his own shipping rates lower and lower.  But in a search for a competitive advantage, the two combined forces and agreed a standard rate.  In today's marketplace, this is known as 'price fixing' and is illegal.


But it wasn't in those days.

Rockefeller was stuck.

It bears mentioning that at this point in time, Vanderbilt and Scott were among the richest, most powerful men of their day.  And while Rockefeller was the undisputed king of his industry, he wasn't yet the titan that history remembers him as.  

But he was a shrewd negotiator.  He had proven that over the years through countless business transactions with the railroads.

So, faced with a rate that was nearly triple what he was used to paying, what did Rockefeller do?

He once again deployed the negotiation skills that made him so formidable.

On the face of it, Rockefeller came from a place of weakness - Rockefeller needed the railroads to facilitate the distribution of his product. 

Vanderbilt and Scott were in the stronger position - colluding together, they absolutely controlled the transportation routes. 

Rockefeller appeared to be at the mercy of these two legends.

And then he found a way to strengthen his position.

He realized that the oil that was being transported through his refineries in pipes could just as easily be transported across the country in the same manner.  He would build a pipeline and bypass the railroads altogether.  Within a decade, he brought both railroads to their knees.

So what does this have to do with you?

Well, I've promised for a while now that we would have a discourse on negotiation, and we will be looking over the topic for the next few weeks.

Whether you like it or not, you will have to negotiate for goods and services on countless occasions throughout your lifetime.  If you are good at it, times will be easier than if you are not.

I'm not suggesting that you channel Rockefeller and bring the other party to the brink of doom, but you ought to realize that not everyone you interact with is honest and seeking a win-win arrangement.

Over the coming posts, we will go into more detail, but for now, it is important that you realize that negotiations happen in a number of stages:

First, there is preparation.  Every negotiation is prepared for by assessing your side's strengths and weaknesses, similarly assessing your opponent, and determining just what it is that you'd like to accomplish.

Next, there are the early rounds of the actual negotiation process.  These are about undermining your opponent's position by questioning the facts that they present, ferreting out those which they withhold, challenging the logic by which they arrived at their conclusions, and raising issues which they are unprepared to address - all done whilst simultaneously strengthening your own position.

Finally, you reach across the aisle and reconcile with them.  This is often the hardest part, as they will not have enjoyed having their position questioned.  But remember, they are at the table because they need you, just as you need them.  Reconciliation is not as difficult as you may initially believe.

Over the next three weeks, we will examine each stage of the process.  

I think you'll find that when you add this knowledge to what you've already learned about body language, you will be a force to be reckoned with in any negotiation.

And now, a bit of fun:







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