3-d Negotiation

Powerful Tools to Change the Game in Your Most Important Deals

David A. Lax, James K. Sebenius

• Publisher: Harvard Business Review Press
• Year: 2006
• ISBN:
  9781422143445
• Topic: Persönliche Entwicklung
• Subtopic: Verhandlungen

When discussing being stuck in a "win-win vs. win-lose" debate, most negotiation books focus on face-to-face tactics. Yet, table tactics are only the "first dimension" of David A. Lax and James K. Sebenius' pathbreaking 3-D Negotiation (TM) approach, developed from their decades of doing deals and analyzing great dealmakers. Moves in their "second dimension"—deal design—systematically unlock economic and noneconomic value by creatively structuring agreements. But what sets the 3-D approach apart is its "third dimension": setup. Before showing up at a bargaining session, 3-D Negotiators ensure that the right parties have been approached, in the right sequence, to address the right interests, under the right expectations, and facing the right consequences of walking away if there is no deal. This new arsenal of moves away from the table often has the greatest impact on the negotiated outcome. Packed with practical steps and cases, 3-D Negotiation demonstrates how superior setup moves plus insightful deal designs can enable you to reach remarkable agreements at the table, unattainable by standard tactics.

Part One

Overview

3-D Negotiation in a Nutshell

Chapter One

Negotiate in Three Dimensions

WHY ARE WE BORN with two eyes?

One reason, of course, is redundancy: it’s good to have a backup, in case we lose an eye to an accident or illness. But there’s another consideration. Having two eyes is different from having, say, two kidneys, or two lungs. Having two eyes gives us the extraordinary ability to see the world in three dimensions. Yes, it’s certainly possible to get along in the world with only one eye—and many people do—but “binocular” vision gives us the enormous advantage of depth perception. When seen with two eyes rather than one, a formerly flat world acquires all kinds of useful complexity.

This is a book about seeing the world in three dimensions. More specifically, it’s about learning to negotiate in ways that recognize—and take advantage of—the rich complexities of human interactions. We call our approach 3-D Negotiation because it draws on three distinct dimensions to achieve great outcomes. But before getting into the specifics of our approach, let’s look at the alternative, which we’ll refer to as one-dimensional negotiation.

Negotiating in One Dimension

There are many kinds of one-dimensional negotiators; in fact, the world is full of them. But most fall into one of two broad categories, which for the purposes of this overview chapter we’ll call “win-lose” and “win-win” negotiators. Whether you’re a pro or a novice, you’ll instantly recognize these two types. They offer competing seminars. They do battle in academic journals. And in many cases, they engage at the table.

Win-lose bargainers are from the old school, although you can certainly still find plenty of them plying their trade in the boardrooms, town hall basements, rented conference facilities, and the other venues where negotiations take place. Their bookshelves bulge with manuals on adversarial ploys, such as Robert J. Ringer’s Winning Through Intimidation and Jim Camp’s Start with No. They battle and scrap for the best price, the biggest share of the pie, and so on. They sit down at the bargaining table intending to walk away not only with their share of the goodies, but most of yours, too.

Win-win negotiators, by contrast, have for some time now represented the new way. They promise innovative solutions, more value, and better relationships. The win-win library consists of books that emphasize the cooperative potential of negotiation, including valuable ones like Getting to Yes and Getting Past No.¹ Win-win types don’t sit around cooking up unilateral ways to get more than their fair share at the table; they’d rather engage in joint brainstorming sessions to come up with creative solutions that “make the pie bigger” for all.

Experience has probably given you an intuitive feel for the pluses and minuses inherent in each approach. Yes, the aggressive win-lose negotiator gets a better deal some of the time. But he or she may damage relationships in the process, may overlook more creative agreements, and may even precipitate a deadlock, thereby causing promising discussions to break down unnecessarily. (Although, as we will emphasize in later chapters, some discussions deserve to break down.)

The earnest win-win player may be more focused on creativity—and almost certainly has more friends—but may come up short in tough encounters. It’s a trade-off, and not always a beneficial one. In the name of long-term relationships, naive win-win negotiators may give up achievable gains in the here and now.

So win-lose and win-win negotiators couldn’t be more different, right? Well, no. In fact, we see them as being very similar in a fundamental way: they are both one-dimensional negotiators. They both concentrate almost exclusively on the face-to-face and tactical aspects of negotiation. They view the negotiating process mainly in terms of actions at the bargaining table, which of course comprises not only the conference room, but virtual tables (phone, fax, e-mail, etc.).

Negotiating advice from both camps focuses mainly on how best to deal directly with the other side. From the win-lose side of the house, this means tips on how to size up your opponent’s weak spots; who should make the first offer; how much to demand; how to persuasively overcome objections, decipher body language, and threaten to walk away; and how to profit from various ploys—the “powerless agent” story, the “good cop, bad cop” routine, and so on.

Meanwhile, the win-win playbook shows how to build trust, communicate clearly, probe for real interests behind bargaining positions, brainstorm new options, avoid cross-cultural gaffes, and successfully counter the ploys used by their hardball counterparts. But note again that the focus is on the tactical. The players are predetermined, the chess board is set up; all that remains is for the game to be played there and then, whatever the choice of approaches may be.

In our experience, most people consider negotiations to be one or the other of these approaches, or a blend of the two. And obviously, win-win negotiators and their win-lose counterparts do more than interact at the table; they also prepare before they get there. But mainly, they prepare by planning their face-to-face approach and tactics. Take a look, for example, at the many negotiation seminars offered by the venerable American Management Association, which are mostly listed under the category “Communication and Interpersonal Skills”: Negotiating is what happens at the table. It is about tactics and dealing directly with the other side.

Years of doing deals and analyzing negotiations have persuaded us that this apparently commonsense focus on the table often fails. It routinely misses the larger potential game that can really drive the outcome. Even if they don’t recognize it or acknowledge it, one-dimensional negotiators are actually playing in a 3-D world, and they often pay a steep price for their very limited approach. They, or the people whom they represent, are the losers.

The 3-D Negotiation Alternative

So what is this larger 3-D game? Like any good bargainer, a 3-D Negotiator must master the tactical, at-the-table, face-to-face techniques that rely on effective communications and interpersonal skills. But as we’ve said, 3-D Negotiation involves not one, but three dimensions, all of which are in play more or less concurrently throughout an effective negotiation. The three dimensions are:

1. Tactics
2. Deal design
3. Setup

By now, you’ve already got a sense of tactics—at least of the win-win and win-lose kind. The second dimension, deal design, will likely be somewhat familiar to you as we begin to shift our focus away from one-dimensional moves at the table. So let’s look at deal design before getting into our much less well-understood—and most powerful—third dimension.

The 3-D Focus on Deal Design

Here is deal design in a nutshell: negotiation involves the art and science of drawing up deals that create lasting value. Deal design employs a good old-fashioned tool—the drawing board—in new and productive ways. This is where the win-lose negotiator, in particular, comes up short. In the win-lose mind-set, the broad outlines of the deal are self-evident. So the core challenge of negotiating lies in choosing the best tactics to win—the best price, the most generous terms, or whatever.

Here’s what we mean by a systematic approach to deal design: when a proposed deal does not offer enough value to all sides, or when its structure won’t achieve its purposes, deal designers must go to work on the drawing board, sometimes on your own, sometimes with your team, and sometimes in concert with the other party. Their deal designs create value, often unexpectedly, guided by general principles and specific techniques that we’ll demonstrate to you in chapters 8 through 11.

Maybe we need to make a definitional aside as we introduce this term. “Back to the drawing board” sometimes has a negative connotation—that is, scrapping a failed project and having to start over—that we don’t intend. Rather, we use the drawing-board metaphor to invoke notions of creativity, invention, and fresh thinking guided by potent underlying deal-design principles.

Smart people working at the drawing board can sometimes discover hidden sources of economic and noneconomic value, then craft agreements—design deals—that unlock that value for the parties involved. For example: Is it really a pure price deal? Does some sort of trade between sides make sense and, if so, on what terms? Can we unbundle different aspects of what looks like a single issue and give to each side what it values most? Should it be a staged agreement, perhaps with contingencies and risk-sharing provisions? If there’s a contract involved, should it be an unusual kind of contract—one with a more creative concept and structure than we’ve used before? One that meets ego needs as well as economic ones?

A Few Deal-Design Examples

Conventional wisdom says that we negotiate to overcome the differences that divide us. So, typically, we’re advised to find win-win agreements by searching for common ground. While identifying common ground almost always helps, many of the most frequently overlooked sources of value in agreement arise from differences among the parties. Deal-design principles can systematically point to agreements that create value by dovetailing differences.

For example, when Egypt and Israel were negotiating over the Sinai, their positions on where to draw the boundary were incompatible. When negotiators went beyond the opposing positions, however, they uncovered a vital difference of underlying interest and priority: the Israelis cared more about security, while the Egyptians cared more about sovereignty. The solution was a demilitarized zone under the Egyptian flag.

Differences of interest or priority can open the door to unbundling different elements and giving each party what it values the most at the least cost to the other (as the Egyptians and Israelis did): a core principle of deal design. A good win-win negotiator may well come up with such creative agreements through focusing on interests, not positions, and brainstorming options. The distinctive contribution of deal design, however, is to crystallize and much more systematically develop the underlying principles.²

Let’s look at an example of another kind of difference, focusing on how divergent forecasts can fuel joint gains. Suppose an entrepreneur who is genuinely optimistic about the prospects of her fast-growing electronics-components company faces a potential buyer who likes the company but is much more skeptical than the entrepreneur/owner about the company’s future cash flow. They negotiate in good faith, but at the end of the day, the two sides sharply disagree on the likely future of the company and so cannot find an acceptable sale price.

Instead of seeing these different forecasts as a barrier, a savvy deal designer would perceive opportunities to bridge the “value gap.” One option would be a deal in which the buyer pays a fixed amount now and a contingent amount later, with the latter amount determined by the future performance of the company. Properly structured, with adequate incentives and monitoring mechanisms, such a contingent payment (or “earn-out”) can appear quite valuable to the optimistic seller—who expects to get that earn-out—but not very costly to the less optimistic buyer. The seller’s willingness to accept such a contingent deal, moreover, may give the buyer the confidence he or she needs to go through with the deal. The two-step payment process may make the deal sufficiently attractive to both parties—and more attractive than walking away.

As we will demonstrate in later chapters, a host of other differences make up the raw material that skilled deal designers transform into joint gains. For example, a less risk-averse party can “insure” a more risk-averse one. A more impatient party can get more of the early money, while his more patient counterpart can get considerably more over a longer period. Differences in cost or revenue structure, tax status, or regulatory arrangements between two parties can be converted into gains for both. If one party mainly cares about how a deal looks to a key constituency, while the other focuses on substance, the right deal design can create value for both. Indeed, for a savvy deal designer, conducting a disciplined “differences inventory” is at least as important a task as identifying areas of common ground.

By now, you should be getting a better sense of what we mean by the second dimension in our 3-D scheme: deal design on the drawing board. While our first dimension, tactics, focuses mainly on the interpersonal process at the table, deal design shifts toward substance and outcomes, often significantly away from the table itself.

The 3-D Focus on Setup

The third dimension, setup moves—often the most potent actions a 3-D Negotiator can take—completes the shift in focus. These moves take place entirely away from the table. 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. Before taking a seat at the table, the 3-D Negotiator has taken advantage of powerful negotiation principles—carefully developed in later chapters—to create the optimum conditions before the parties face each other directly. In other words, the table has been set well before the tactical interplay (the focus of win-win and win-lose negotiators) begins.

What does “setting the table” mean in this context? Simply put, it means acting to ensure that the right parties have been involved, in the right sequence, to deal with the right issues that engage the right set of interests, at the right table or tables, at the right time, under the right expectations, and facing the right consequen...