3 D Negotiation

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• Most people focus only on the tactics of negotiation, but that is a one-dimensional strategy.

• Be three-dimensional: Focus on tactics, deal design and setup.

• When you set up a deal, make sure you know each party’s interests.

• Review the context and all useful parties.

• Setting up a deal involves determining which sequences and processes will work best.

• Good deal design dovetails the parties’ different interests.

• Deals designed to accommodate change will endure as situations evolve.

• Design your deals to account for everyone’s expectations about how you’ll interact.

• At the negotiating table, use your tactics to shape the mutual perception of the “zone of possible agreement,” or ZOPA.

• When you can, work creatively and cooperatively to create value.

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3-D NegotiationPowerful Tools to Change the Game in Your Most Important Deals

by David A. Lax and James K. SebeniusCopyright 2006 David A. Lax and James K. SebeniusSummarized by permission of Harvard Business Press286 pages

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This summary is restricted to the personal use of Krishna Medasani ([email protected])

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3-D Negotiation © Copyright 2009 getAbstract 2 of 5

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What You Will LearnIn this Abstract, you will learn: 1) What 3-D negotiation is; 2) How 3-D negotiation can help you; and 3) How to apply the principles of 3-D negotiation.

RecommendationIf you have read a few books on negotiation, you will find much in this book familiar. If you’re serious about the subject, however, reading it will amply reward your curiosity. Many of its negotiating techniques and approaches are familiar because the authors, David A. Lax and James K. Sebenius, reviewed and tested the existing literature on the subject. They put the best current suggestions into a larger conceptual frame that can help negotiators make better deals. This book is approachable for beginners and useful for experienced negotiators, so getAbstract recommends it to both types of readers, even if it isn’t perfect. In some parts of the book, the authors highlight negotiating issues that parties must face without giving practical guidance on how to handle them. On the whole, though, this is a useful, methodical and realistic treatment of negotiation.

Abstract

What is 3-D Negotiation?The two most common approaches to negotiation are “win-lose” and “win-win.” Win-lose negotiation focuses on playing tough and forcing the other party to agree to your terms. Win-win negotiation focuses on creating mutually shared value. However, these approaches often fail because they are narrowly focused on only the tactics used at the negotiating table. But tactics are only one dimension of the negotiating process. The other two dimensions of “3-D negotiation” are deal design and deal setup. Deal design involves making a systematic review of the situation to find the best way to achieve good results. Identifying differences in interests among the negotiating parties is an important step. Deal setup is related: Make sure you’ve got the right people negotiating, that you contact them in the right order and that you know everyone’s reason for coming to the table.

To negotiate successfully, determine your goals and identify the forces arrayed against you. Examine who is involved in the negotiation and who is really making decisions. Understand why each party is motivated to negotiate, and what would make him or her walk away. Who beyond those at the table is interested? What barriers to deal making are related to process or sequence? Do communication problems exist? The biggest barriers of all are unbalanced situations, where one party enters negotiations with incomplete data, for example, or can walk away from the negotiating table much more easily than the other.

Once you have assessed the situation and all the barriers to successful negotiation, create a “3-D strategy” to dissolve or sidestep those barriers. Start by thinking through the setup of the deal, the best order for approaching the negotiation. Consider how broadly or narrowly to define the issues. Plan to involve everyone who could contribute to a winning deal and prepare for any opposition. Next, design the deal. Try to align all the parties in the spirit of fair negotiation. Aim for deals that maximize value for everyone and continue generating benefits over time. Make sure proposed deals address the best

“If you don’t see all three dimensions of negotiation, you may end up stuck as a 1-D player in a 3-D world.”

“The three dimensions are: tactics, deal design, setup.”




interests of all parties; otherwise the idea may not endure over time or won’t get approved in the first place. Identify issues that are far more important to one party than the other and weave them together to advance negotiations. Plan tactics to master each obstacle and reach each goal. Imagine completing a successful negotiation and then retrace each step on that route.

Setting Up Your NegotiationsGetting the right parties to the table is essential for setting up a successful negotiation. Systematically develop an “all-party map” of those involved. This map lists the parties who can bring the greatest value to the deal and identifies which entities they represent other than themselves, if any. The map identifies any party who could block the deal, and details each party’s motives and the relationships among the parties (and their agents, if any). Anticipate how you would address any entity that must approve your deal, such as a regulatory commission. Then review the map: Is it too complicated? Can you reduce the number of parties involved?

Just as you mapped all the parties involved, also engage in regular, methodical “interest mapping.” Start with your own interests – and don’t assume you already know what they are. Too many people reach the negotiating table without first distinguishing their needs from their wants. Then, they try to meet their needs by bargaining for something they merely want, and end up disappointed. Next, explore the other parties’ interests. Don’t let yourself get hung up asking about prices or stated positions. Instead, look deeper and wider. What relationships are involved and which are desired? What process will result in agreement? Research all the parties and the situation, first by using publicly available resources, then by engaging sources within the organizations. Ask questions about other parties’ interests and “listen actively” to the answers. Don’t presume that the value to be divided in the negotiation is fixed. Everyone at the table is there to create more value.

You may not have to make a deal, of course, and sometimes walking away is better. Before entering a negotiation, know your “zone of possible agreement” (ZOPA) and its outer limits. Actively consider alternatives to the deals you are pursuing. You will give yourself greater latitude and you may put more pressure on the other party. Recognize each party’s “no-deal option” – the consequences they would face for walking away

– and its value relative to the deal you want. In rare instances, you may purposely want to elect a no-deal option more drastic than the other party’s, as military commanders do when they burn the fleets behind their men, so that they have to win.

“Sequence” and “basic process” choices complete the deal-setup process. Sequence refers to the best order of doing things. To begin your prenegotiation sequence, scan the overall context of the negotiation, and “map” the parties involved and their relationships. Then look at the desired outcome and work backward. Examine existing relationships and their history to determine who’s most critical to the deal. Work from those essentials to continue your sequence, then identify the party who will be hardest to persuade. Ask yourself what you’ll have to do to produce an agreement. Think about each party you need as an ally. What challenges block such alliances? Keep working backward until you establish a chain of supportive parties that lead you to a deal.

The next step is to develop your process, a precise plan for dealing with each specific challenge you anticipate, right up to achieving the result that you want. Planning and preparing a fair deal will help you move smoothly through the negotiation.

“One-dimensional bargainers believe that negotiation is mainly about what happens at the table. To them, preparation and execution are mainly about process and tactics.”

“Perhaps the simplest, and the most often neglected, technique to set up an effective negotiation is to simply ask the other side a series of interest-related questions and then listen actively to the responses.”

“In a nutshell, here is what we mean by setup: Negotiation involves moves away from the table to set up the most promising situation once you’re at the table.”

“If you don’t like the way the table is set, reset it by attacking the scope and sequence of the negotiations.”




Deal Designs that Create ValueMany people misuse the phrase “win-win negotiation” to refer to a compromise, that is, a deal that’s better than nothing and improves the existing situation. More accurately, win-win deals create so much mutual value that the parties can hardly believe their good fortune. Try “moving northeast.” If one side wants to go east and the other north, both may win by going northeast. An example of this might be a deal between a computer company that has surplus inventory, lacks cash and needs media exposure, and a radio station that also lacks cash and needs new computers. In a barter transaction, the radio station could give the company advertising time in exchange for new computers. This shows how to “dovetail differences.” Also try to expand the entire “pie” being divided, not out of the goodness of your heart but to create more value to be split.

As you align the gaps between parties through negotiation, you’ll discover various categories of differences. In negotiating the sale of a company, for example, the parties may disagree about future business trends and their likely impact on the company’s value. Contingency agreements offer one approach to reaching a resolution. Such an agreement may require the buyer of a company, for example, to make additional payments to the seller based on the company’s future performance. Differences in risk tolerance frequently are important in bringing deals to fruition. Rather than merely tolerating risk, some parties actually can influence the amount of risk in a deal. This power can come from an official position, such as having a particular license, or simply from being more knowledgeable or persuasive in a given field. Under some circumstances, you have the option of calling in a third-party mediator.

Whenever you design a deal, prepare to do much more than just getting the contract signed. If you want a deal to endure over time, plan for “predictable change.” If one party eventually may want to exit an agreement, or acquire the other party, perhaps the deal’s design should accommodate such possibilities. What happens when the interests of the parties diverge over time? Sometimes you can plan for change by designing multiparty deals, so you’re not vulnerable to one party’s shift in attitude. Or, you could design a deal that covers multiple issues so the entire agreement doesn’t rest on just one factor.

In business buyouts, pursue flexible terms that take future uncertainties into account. Such deals are more likely to endure if they are written in anticipation of business downturns. Bonds for performance and other mechanisms that link payouts to outside parties can help. In general, look at the structure of the situation and ask: What will produce change or insecurity? Plan for those elements after you have identified them.

Another important way to ensure that deals endure is to negotiate the “spirit” of the deal. Think of all deals as designed within the context of the larger social contract among the parties. This social contract is based on the parties’ expectations and has two elements: The “underlying social contract” is based on the expected scope of the negotiation; the “ongoing social contract” is shaped by expectations about how you’ll negotiate and how you’ll interact if you make a deal. These expectations usually are left unspoken but, nevertheless, deserve careful examination.

The underlying social contract determines whether two parties negotiate a single deal or an ongoing relationship, among other arrangements. If one party envisions a one-time deal with a competitor, and the other sees the negotiation as a single step in an ongoing exchange among cooperative equals, the parties will struggle to forge lasting deals. Likewise, differences in the ongoing social contract can sink a deal. This contract

“Here’s a prescription that may at fi rst sound self-evident: Start preparations for a negotiation by thinking hard about the interested parties.”

“Sometimes negotiations lead to a solution that is the bargaining equivalent of the perfect trade between two stamp collectors: It’s the deal that’s better than any other deal either side could imagine possible.”

“The main point here is that compatible interests often underlie incompatible positions.”

“Your best no-deal option may involve simply walking away and doing without any agreement.”




encompasses the relationship among the parties, how they will interact, what information they will share and at what rate. How do the different parties expect to make decisions and deal with changing circumstances? What happens in the case of disagreements or serious disputes, which often occur? Make sure all the parties in a negotiation are clear about the cultural and social elements of their contracts.

Negotiation Tactics When you reach the negotiating table, use appropriate tactics to shape the perceptions of all the parties at the table. Start by confirming that price is the main issue to be negotiated, if that’s the case, but consider more creative ways to create value. Decipher the true ZOPA while shaping the other party’s perception of it. Research is vital. Study similar deals, the market, and the other parties and the pressures they face. Identify the likely range of agreements. Focus on what you can achieve, not what you wish to avoid.

If you’re sure about the ZOPA, make the first offer, at a favorable price, so you anchor all further discussions in terms of that initial number. When you present a proposal, give reasons that vindicate your choice. Justify the amount you cite with a measurable reference point, or “soft anchor,” such as a profit figure. Research shows that people grant requests accompanied by any kind of justification, even if it is nonsensical, more often than they grant unjustified requests.

If your offer turns out to be outside of the other party’s ZOPA, you can withdraw smoothly by explaining that you want to do more research. However, if you’re really unsure about the true contour of the ZOPA, don’t make the first offer. Let the other party do it, because if you make the first offer, further negotiation of terms may linger at levels you find unacceptably low.

Use reciprocity to your advantage. People tend to return favors to those who have given them something, even a token. Recognize that negotiators often expect to agree on a midpoint between the first offer and the first counteroffer. Make sure your target price is near the likely midpoint. Respond to extreme offers by reframing the terms of the discussion. As you advance toward closing a deal, be creative in making concessions. To move others away from firm statements, reframe them. Break the deal into different parts if need be. If you’re unable to amend or accept an offer, support your decision with clear reasoning.

Three-dimensional negotiators create value by identifying the underlying interests the parties share. They paint a verbal picture of the rich final outcome of a successful negotiation and then help create a fair process of exchanges leading to that result, all before the tactical phase of the talks ensues at the negotiating table. Indeed, much of the power of 3-D negotiating stems from its visionary potential for identifying and neutralizing barriers to making a deal long before the parties come to the table.

About the AuthorDavid A. Lax and James K. Sebenius are principals of a negotiation strategy firm. Lax is a former Harvard Business School faculty member. Sebenius teaches at both Harvard Business School and Harvard Law School.

“Unfortunately, when it comes to negotiating success, caring deeply doesn’t make the difference. Only effective preparation and focused action make the difference.”

“Nothing will kill an otherwise good deal as quickly as a value gap – that is, a gap between the deal and the no-deal alternatives of one or more parties.”

“We have witnessed dozens of deals fall well short of their potential – or even unravel – because the participants failed to achieve a meeting of the minds on the spirit of the deal.”



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3 D Negotiation