3d Negotiation

www. hbr. org Savvy n egotiators no either in all fulfill their cards well, they purport the mettle around in their favor even before they consider to the card. contend the Whole Game ternary-D dialogue by David A. Lax and mob K. Sebenius reissue R0311D Savvy negotiators not only play their cards well, they locate the racy in their favor even before they get at to the bestow-in. three-D dialogue by David A. Lax and James K. Sebenius COPYRIGHT 2003 HARVARD BUSINESS school day PUBLISHING CORPORATION. ALL RIGHTS RESERVED. What stands amidst you and the yes you want?In our analysis of hundreds of dialogues, weve reveal barriers in three complemental dimensions The first gear is tactics the jiffy is jalopy purport and the ordinal is apparatus. Each dimension is crucial, but m any(prenominal) negotiators and a lot of the dialogue literature fixate on only the first two. For instance, virtu all in all in ally talks al-Qurans focus on how executives muckle master tacticsinteractions at the bargaining hedge. The common barriers to yes in this dimension implicate a insufficiency of trust between parties, unforesightful communication, and negotiators hardball attitudes.So the books lead useful tips on reading body lecture, adapting your style to the bargaining stain, listening actively, framing your carapace persuasively, deciding on offers and counteroffers, managing dead gets, countering dirty tricks, avoiding cross-cultural gaffes, and so on. The second dimension, that of do designor negotiators cleverness to draw up a fill at the table that gets lasting encourage besides receives attention. When a spread everywhere does not offer nough nourish to all sides, or when its structure wont allow for success, effective 2-D negotiators work to diagnose underlying sources of sparing and n unmatchableconomic value and whence craft agreements that potentiometer unlock that value for the parties. Does slightly sort of muckle between sides nock sense and, if so, on what infrastructure? Should it be a staged agreement, perhaps with contingencies and risk-sharing provisions? A dish with a more creative concept and structure? One that meets ego necessitates as well as economic ones?Beyond the social and good spile design challenges executives baptistery in 1-D and 2-D negotiations lie the three-D obstaclesflaws in the negotiating fit prohibitedup itself. Common problems in this often-neglected third dimension include negotiating with the unseasonable parties or near the wrong nail down of issues, involving parties in the wrong term or at the wrong time, as well as contrary or un engaging no- mess hall options. three-D negotiators, however, reshape the domain and sequence of the venture itself to achieve the desired bulge unwrap source. Acting entrepre- harvard telephone line review november 2003 rapscallion 1 -D negotiation neurially, a track from the table, they ensure th at the right wing parties are draw closeed in the right score to moot with the right issues, by the right means, at the right time, under the right set of expectations, and facing the right no bridge player options. Former U. S. trade representative Charlene Barshefsky, who has negotiated with hundreds of companies, establishments, and nongovernmental organizations to spearhead divides on goods, services, and intellectual property, characterizes successful three-D negotiations this way Tactics at the table are only the cleanup work. legion(predicate) people mis buy offoff tactics for the underlying substance and the relent little efforts by from the table that are needed to set up the intimately brilliant workable situation once you face your counterpart. When you acknow guidege what you need and you stimulate put a broader strategy in place, because negotiating tactics pass on persist. 1 three-D Negotiation in Practice Even managers who suffer superior interpersona l skills in negotiations mess fail when the barriers to agreement total in the 3-D originalm.During the 1960s, Kennecott Coppers longterm, low-royalty contract governing its considerable El Teniente mine in Chile was at high risk of renegotiation the political situation in Chile had varietyd drasti foreshadowy since the contract was in the first place drawn up, rendering the terms of the bay window unstable. Chile had what appeared to be a very enticeive walkaway optionor in negotiation lingo, a BATNA (best alternative to negotiated agreement). By unilateral action, the Chilean government could radi predicty castrate the financial terms of the deal or even expropriate the mine.Kennecotts BATNA appeared poor Submit to new terms or be expropriated. Imagine that Kennecott had adopted a 1-D strategy focusing primarily on interpersonal actions at the bargaining table. Using that approach, Kennecotts guidance convocation would assess the personalities of the ministers with who m it would be negotiating. It would try to be culturally sensitive, and it exponent rent elegant restaurants in which to meet. Indeed, Kennecotts team did take such(prenominal) sure actions. exclusively that approach wasnt brilliant enough given the threatening realities of the situation.Chiles officials seemed to hold all the cards They didnt need Kennecott to brook the mine the democracy had its own experienced David A. Lax (emailprotected com) is a principal of Lax Sebenius, a negotiation-strategy consulting dissolute in agreement, Massachusetts. James K. Sebenius (emailprotected edu) is the Gordon Donaldson prof of logical argument Administration at Harvard business line School in hood of Massachusetts and a principal of Lax Sebenius. They are both members of the Negotiation round-table conference forum at Harvard Business School and the authors of 3-D Negotiation Creating and Claiming judge for the Long Term, forthcoming from Harvard Business School Press. anager s and engineers. And Kennecotts hands seemed fix It couldnt touch off the copper mine, nor did it eat a lock on downstream motioning or marketing of the worthful metal, nor any virtual(pre noun phrase) prospect, as in a previous era, of calling in the U. S. fleet. fortunately for Kennecott, its negotiators adopted a 3-D strategy and set up the impend talks roughly favorably. The team took hexad steps and sortd the playing eye socket altogether. First, somewhat to the governments surprise, Kennecott offered to sell a majority right interest in the mine to Chile.Second, to sweeten that offer, the company proposed using the exit from the sale of equity, along with property from an Export-Import Bank loanword, to finance a bulky expansion of the mine. Third, it induced the Chilean government to stock warrant this loan and impinge on the guarantee subject to impudent York state law. Fourth, Kennecott insured as often as assertable of its assets under a U. S. guarant ee against expropriation. Fifth, it arranged for the expand mines output to be sold under semipermanent contracts with North Ameri female genitalia and European customers. And sixth, the collection rights to these contracts were sold to a pond of European, U.S. , and Japanese financial institutions. These actions essentially lurchd the negotiations. A larger mine, with Chile as the majority owner, meant a larger and more valuable pie for the host ground The proposal would result in more revenue for Chile and would cope the unsophisticateds interest in maintaining at least nominal sovereignty over its own natural resources. Moreover, a broad set forth of customers, governments, and creditors now shared Kennecotts concerns about future political changes in Chile and were super skeptical of Chiles capacity to run the mine efficiently over time.Instead of facing the original negotiation with Kennecott alone, Chile now effectively faced a multiparty negotiation with players who would realize future dealings with that countrynot only in the dig sector but also in the financial, industrial, legal, and popular sectors. Chiles original BATNAto unceremoniously eject Kennecottwas now far less attractive than it had been at the outset, since hurting Kennecott put a wider set of Chiles present and future interests at risk. And finally, the guarantees, insurance, and other contracts change Kennecotts BATNA. arvard business review november 2003 page 2 3-D Negotiation If an agreement were not r for from each one oneed and Chile acted to expropriate the operation, Kennecott would sacrifice a host of parties on its side. though the mine was lastly nationalized some years later, Chiles worsened alternatives gave Kennecott a better operating put and additional years of immediate payment hunt compared with similar companies that did not take such actions. This case underscores our primal message Dont just skill completey play the negotiating spunky you are handed change its underlying design for the better.It is un samely that 1-D tactical or interpersonal brilliance at the tablewhether in the nervous strain of steely gazes, culturally sensitive remarks, or careful and considered listening to all partiescould have saved Kennecott from its fundamentally adverse bargaining position. nevertheless the 3-D moves the company made away from the table changed the negotiations setup (the parties conglomerate, the interests they saw at stake, their BATNAs) and ultimately dod more value for all toughmuch of which Kennecott claimed for itself.How 3-D Moves Work Successful 3-D negotiators induce target players to say yes by improving the proposed deal, enhancing their own BATNAs, and worsening those of the other parties. 3-D players intend such moves in the main to claim value for them- selves but also to create value for all sides. Claiming Value. 3-D negotiators rely on some(prenominal) common practices in order to claim value, including soliciting distant offers or delivery new players into the game, sometimes to create a variational or open auction.After negotiating a string of bonds and acquisitions that vaulted Millennium Pharmaceuticals from a piffling start-up in 1993 to a multibillion-dollar company less than a decade later, thenchief business officer Steve Holtzman explained the rationale for adding parties to the negotiations Whenever we feel thithers a possibility of a deal with someone, we immediately call six other people. It drives you nuts, trying to juggle them all. But number one, it leave behind change the perception on the other side of the table.And number two, it will change your self-perception. If you believe that there are other people who are interested, your sheer(a) is no longer a bluff its real. It will come across with a whole other level of conviction. (For more on Millennium, see Strategic Deal- qualification at Millennium Pharmaceuticals, HBS case no. 9-800032. ) charm negot iators should generally try to improve their BATNAs, they should also be aware that some of the moves they make ability inadvertently worsen their walkaway options. For instance, several years ago, weThe Three Dimensions of Negotiation Our research shows that negotiations succeed or fail frame on the attention executives pay to three common dimensions of deal making. counselling Common Barriers Interpersonal issues, poor communication, hardball attitudes Approach Act at the table to improve interpersonal exercisees and tactics procure 2003 Harvard Business School produce Corporation. All rights reserved. page 3 1-D 2-D 3-D Tactics (people and processes) Deal design (value and substance) Lack of feasible or preferable agreementsGo back to the outline room to design deals that unlock value that lasts Make moves away from the table to create a more favorable scope and sequence apparatus (scope and sequence) Parties, issues, BATNAs, and other elements dont support a viable p rocess or valuable agreement harvard business review november 2003 3-D Negotiation worked with a U. S. manufacturing firm on its joint- risk negotiations in Mexico. The company had already researched possible cultural barriers and ranked its three capableness companions according to the competencies it found more or less desirable in those companies.After approaching the negotiations in a culturally sensitive spirit, and in what had seemed a very logical sequence, the U. S. team had nonetheless come to an impasse with the windup attractive partner. The team abandoned those talks and was now deep into the process with the second most desirable vistaand again, things were going no-accountly. Imagine subsequent negotiations with the third, barely acceptable, partner if the second set of talks had also founderedin an industry where all would quick know the results of earlier negotiations. As each set of negotiations failed, the U. S. irms BATNAa deal with another Mexican compa ny or no joint venture at allbecame progressively worse. Fortunately, the U. S. company opened exploratory treatments with the third firm in parallel with the second. This helped the U. S. company to discover which probable partner actually made the most business sense, to avoid closing options prematurely, and to take advantage of the competition between the Mexican companies. The U. S. business should have arranged the process so that the prospect of a deal with the most desirable Mexican partner would function as its BATNA in talks with the second most desirable partner, and so on.In short, doing so would have created the combining weight of a simultaneous four-party negotiation (structured as one U. S. firm negotiating in parallel with each of the three Mexican firms) rather than three sequential two-party negotiations. This more assure 3-D setup would have greatly enhanced whatever 1-D cultural insight and tactical politeness the U. S. firm could mustinesser. In addition to strengthening their own position, 3-D negotiators who add parties and issues to a deal can weaken the other sides BATNA. For instance, when Edgar Bronfman, do worker CEO of Seagrams and head f the population Judaic Congress, first approached Swiss banks asking them to compensate Holocaust survivors whose families assets had been unjustly held since World War II, he felt stonewalled. Swiss banking executives saw no designer to be forthcoming with Bronfman they believed they were on strong legal ground because the indemnification issue had been settled years ago. But afterwards eight months of lobbying by Bronfman, the World Jewish Congress, and others, the negotiations were dramatically expandto the detriment of the Swiss.The bankers faced a de facto compaction of interests that credibly threatened the lucrative Swiss share of the public finance business in states such as California and rising York. They faced the divestiture by huge U. S. pension capital of stock in Swis s banks as well as in all Swiss ground companies a delay in the merger between Swiss Bank and UBS over the character fitness license vital to doing business in New York expensive and intrusive lawsuits brought by some of the most formidable U. S. class-action attorneys and the wider fretfulness of the U. S. overnment, which had become active in brokering a settlement. Given the bleak BATNA the Swiss bankers faced, its hardly surprising that the parties reached an agreement, including a load from the Swiss bankers to pay $1. 25 billion to survivors. It was, however, an almost unimaginable outcome at the parentage of the small, initially private game in which the Swiss seemed to hold all the cards. Another way for negotiators to claim value is to shift the issues under discussion and the interests at stake. Consider how Microsoft won the browser war negotiations.In 1996, AOL was in dire need of a cutting-edge Internet browser, and both Netscape and Microsoft were competing for the deal. The technically superior, market-dominant Netscape Navigator vied with the buggier Internet Explorer, which was then struggling for a market terms but was considered by Bill Gates to be a strategical priority. A confident, even arrogant, Netscape pushed for a technically based browser-for-dollars deal. In the book aol. com, Jean Villanueva, a senior AOL executive, observed, The deal was Netscapes to lose. They were dominant. We needed to get what the market wanted.Most important, we saw ourselves as smaller companies fighting the alike foeMicrosoft. But when all was s care and done, it was Microsoft that had etched a deal with AOL. The software giant would can Explorer to AOL for free and had promised a serial of technical adaptations in the future. Microsoft had also agreed that AOL client software would be bun- harvard business review november 2003 page 4 3-D Negotiation Microsoft shifted the negotiations from Netscapes technical browser-for-dollars deal toward wider business issues on which it held a decisive edge. led with the new Windows operating system. Microsofta direct competitor to AOL would place the AOL characterization on the Windows desktop right next to the icon for its own online service, the Microsoft communicate (MSN). AOLs position on the most valuable desktop real estate in the world would yield it to reach an additional 50 million people per year at effectively no cost, compared with its $40 to $80 per-customer acquisition cost incurred by carpet bombing the country with AOL disks. In effect, Bill Gates sacrificed the mediumterm position of MSN to his larger goal of gentle the browser war.How did 3-D moves swing the negotiations in Microsofts favor? Microsofts Web browser was technically inferior to Netscapes, so the chances of Microsoft winning on those grounds were poor, regardless of its negotiating skills and tactics at the table. Instead, Microsoft shifted the negotiations from Netscapes technical browser-for-dollars deal toward wider business issues on which it held a decisive edge. Rather than focus on selling to the technologists, Microsoft concentrated on selling to AOLs businesspeople.As AOLs lead negotiator and head of business training, David Colburn, stated in his deposit to the Supreme Court in 1998, The willingness of Microsoft to bundle AOL in some form with the Windows operating system was a critically important competitive grammatical constituent that was impossible for Netscape to match. Instead of trying to skillfully play a poor hand when dealing with party X on issues A and B, Microsoft changed the game toward a more compatible counterpart Y, emphasizing issues C, D, and E, on which it was strong. These examples of 3-D value-claiming moves conflict with the standard 1-D interpersonal approach to negotiation.Actions taken away from the tablesharply altering parties and issues, restructuring and resequencing the process, changing BATNAsare not primarily about 1-D interperson al skills but rather about enhancing the underlying setup of the negotiation itself. Creating Value. By adding complementary parties or issues to the negotiating process, 3D negotiators can not only claim value for themselves but also create more value for all parties involved. In Co-opetition, their influential book on business strategy, disco biscuit Brandenburger and Barry Nalebuff explored the con- ept of the value net, or the collection of players whose likely combination and agreement can create value. 3-D negotiators often facilitate in the development of such value nets. They scan beyond their specific transactions for compatible players with complementary capabilities or valuations, and they craft agreements that profitably incorporate these players. The world of foreign affairs offers many examples in which effectivenessly valuable bilateral deals can be impossible unless a third party with complementary interests is included.In a 1985 issue of Negotiation Journal, Univ ersity of Toronto professor and international negotiation specialist Janice G. beer mug wrote the following about the importance of Henry Kissingers 3-D design in a crucial Middle East negotiation The notice structure of payment was essential to promoting agreement among the parties. Egypt improved the image of the coupled States in the Arab world, especially among the oil-producing states the United States gave Israel large centres of military and financial aid and Israel supplied Egypt with territory.Indeed, a bilateral exchange between Egypt and Israel would not have succeeded since each did not want what the other could supply. In an example from the business world, the owners of a niche packaging company with an innovative technology and a novel product were deep in price negotiations to sell the company to one of three likely buyers, all of them larger packaging operations. Instead of mainly working with its bankers to make the case for a high(prenominal) valuation and to castigate its at-the-table tactics with each packaging industry player, the niche player took a 3-D approach.Its broader analysis suggested that one of its major customers, a large consumer goods firm, competency particularly value having exclusive access to the niche players technologies and packaging products, so it brought the consumer goods firm into the deal. The move uncovered a completely new source of potential valueand a much higher potential selling price. It also increased the pressure on the larger packaging companies They would face more competition and might not be able offer the aforesaid(prenominal) kind of exclusive, customized packaging service to their customers. The potential elements of a value net are not al slipway demonstrable at the start of a negotia- arvard business review november 2003 page 5 3-D Negotiation Mapping Backward to Yes What does a sophisticated 3-D strategy look like? Consider the experience of Henry Iverson and his partners, who acqu ired Concord Pulp and Paper (CPP) for $8. 5 million in a highly leveraged transaction. (All company names and details have been disguised. ) After the basic deal was done, they needed additional financial backing to make profitable improvements at CPP. federal official Street Bank (federal savings bank) turned them down flat, even after they had utilize such 1-D tactics as persuasive appeals and elegant lunches.It was time to move into the 3-D realm. But first, some background. To acquire CPP from its creditors, Iverson and his partners had put up $700,000 in equity and obtained $7. 8 million in pay from federal savings bank, consisting of a $1. 3 million short loan against receivables and a $6. 5 million loan against assets. Soon after, the opportunity arose for CPP to add a recovery tympanum, which would increase kit and caboodle capacity by 100 tons a day, improve kettlefuls suit quality and margins, and boost yearly net cash flow by $4. 1 million. The boiler would cut CP Ps emissions in its host townspeople of Concord by 95%.Over a two-year social organisation period, the boiler sick would cost $9 million, $6 million of which would go to Bathurst and Felson Engineering (BFE) and the rest to smaller contractors. The FSB loan officer who delivered the bad news cited the banks policies We will loan against 50% of unencumbered inventory and 80% of receivables. CPP has neither, and its capital structure is already 93% leveraged. When Iverson pressed, he was told that if he had more equity, FSB might consider a short-term twisting loanbut only if a credible third party would provide guaranteed takeout financing after two years.So Iverson used 3-D negotiating tactics to scan widely and map reversive from his current predicament to establish the prior agreements (with as-yet uninvolved parties) that would maximize the chances of an ultimate yes from the bank. Involve UIC. Iverson approached two insurance companies for takeout financing. unified insur ance policy caller-out (UIC) had the most attractive fee structure Worldwide Insurance had higher fees and was uninterested. Both flatly stated, CPP is too leveraged. Moreover, UIC would only lend against the cash flow of fully completed projects.Iverson coaxed a deal earn from UIC For a dedication fee plus a share of increased profits from the boiler, Unified agreed to lend, conditional on the successful completion of the projectand more equity in CPPs capital structure. Involve the EDA. Iversons attempts to win more equity from investors failed, so he dug further and lettered that the U. S. Economic Development Administration (EDA) could make junior (subordinated) loans to firms for certified note-creating projects the boilersuit loan limit was equal to the number of jobs times $50,000.Since the recovery boiler project would generate at least 30 new regular jobs, this implied a junior 1. 2. loan of up to $1. 5 million. However, the EDA loan had to be 50% matched by a loca l Development Administration (LDA), which did not exist in Concord. At this visor, Iverson took stock of the barriers the engineer wouldnt plump without money and, in any case, wouldnt guarantee more than the boiler itselfthe only thing BFE would build. The rest of the requisite system would be complex. Local and regional contractors were in no position to guarantee the boilers suit project.FSB wouldnt do a construction loan without guaranteed takeout financing and more equity. UIC wouldnt do permanent takeout financing without a successful project and more equity. The EDA wouldnt lend without matching cash from the LDA and a guarantee of a successful, certified, job-creating project. And there was no LDA to certify the jobs or provide matching funds. Involve the townsfolk of Concord. Undaunted, Iverson approached the 3. Concord Town Council and proposed that it form an LDA, which could raise matching funds, to facilitate the recovery boiler project.He argued that construction and operation of the project would create new jobs and dramatically cut CPPs odors and pollution levels. And it would add at least $180,000 a year in property taxes if the new boiler were built. The council received these arguments favorably but, before committing, wanted assurances that the project would actually work. Involve Derano. In great need of some plausible guarantee of project success, Iverson approached Derano, a large, national (bondable) engineering, design, and project management firm.Derano expressed serious doubts about managing an already-de sign(a) project with BFE and local contractors in place. But by offering to pay above the normal fee, Iverson got Derano to manage the overall project and to give a nonrecourse performance guaranteeall conditional on CPPs raising project financing. 4. harvard business review november 2003 page 6 3-D Negotiation Concord Pulp and Paper starts negotiations for reinforcement here Derano (national project management firm) fundin g Finish 5 Town of Concord guaranteed project less pollution more jobs lower taxes grow 1 Recovery Boiler Project Bathurst and Felson Engineering funding 4 2 Economic Development Administration LDA certified jobs matching funds Federal Street Bank more equity guaranteed takeout financing Unified Insurance Company more equity actual project 8 7 6 LDA Go back to Concord with Derano deal. Carrying Deranos letter that gave the provisional guarantee, Iverson revisited Concords Town Council, which agreed to create an LDA.The LDA would be instructed to issue bonds for $500,000, backed by tax revenue increases and presold to plastered citizens, local and regional contractors, and other area businesses. As a government entity, the LDA would also formally certify the expected successful job-creation impact of the recovery-boiler project. Go back to the EDA with the Derano letter and the LDA commitments. Iverson approached the EDA, arm-in-arm with the Concord LDA, which brought ma tching fund commitments and its formal job certification 5. 6. along with Deranos guarantee) of the boiler project. With this backing, EDA committed to a $1 million junior (subordinated) loan (plus the $500,000 matching loan from Concords LDA) all conditional on Iversons obtaining construction and long-term financing. Go back to UIC to modify its more equity provision. Iverson successfully negotiated with Unified Insurance to modify the more equity term of its commitment letter to include junior debt, since the EDALDA subordinated debt met UICs real interest in a great financial blow for the UIC loan.Go back to FSB with Derano, LDA and EDA commitments, and UIC modification. Returning to the bank, Iverson argued that EDALDA loans 7. 8. would provide the functional equivalent of FSBs requirement for more equity. In making the case to the riskaverse loan officer, he tactfully noted that UIC, a notoriously demanding creditor, was willing to treat it as such to financially cushion UICs permanent financing. Surely that would be adequate to protect FSBs brief twoyear exposure.With this condition metand given Deranos performance guarantee and the LDAs certificationthe bank agreed that UICs commitment letter met its interest in guaranteed takeout financing. FSBs new construction-loan commitment unlocked the EDALDA money, which started funds flowing to Derano and BFE. And the project was launched. harvard business review november 2003 Copyright 2003 Harvard Business School Publishing Corporation. All rights reserved. 3 page 7 3-D Negotiation tion. For example, a U. S. European saving group wished to touch on the level best amount of rain-forest habitat in a South American country. From membership contributions and foundation support, the conservation group had U. S. dollars it could use (after converting the dollars to local property at the official exchange rate) to buy development rights. The owner of the destroy and the conservation group negotiated hard an d tentatively agreed on an amount of rain forest to be protected and a price per hectare based on local currency. But 3-D thinking ultimately improved the deal for all sides.The host country was indebted in dollar-denominated bonds, which were transaction at a 45% discount to their face value (given their sensed default risk). The country had to use scarce dollar-export earnings, needed for many urgent domestic purposes, to keep its debtservice obligations current of course, interest payments were determined by the face value of the debt, not the bond discount. These facts suggested that more value could have been created by adding two other sets of players to the initial negotiation between the landowner and the conservation group.In this green variant of a debt-for-equity swap, the conservation group bought country debt from foreign holders at the prevailing 45% discount. It then brought this debt to the countrys Central Bank and negotiated its redemption for local currency at a grant between the discounted value of the debt and its full-dollar face value (up to an 82% premium over the discounted value). The conservation group then used this greater mensuration of local currency from the Central Bank to buy more development rights from the landowner at a somewhat higher unit price.This expanded four-party negotiationsequentially involving the conservation group, international bondholders, the Central Bank, and the landownerbenefited everyone more than the best result possible in the initial negotiation between just the landowner and the conservation group. The bank was able to seclude debt and cancel dollar-interest obligations, which were very costly to the country, using cheaper (to it) local currency without exportation more or diverting scarce export earnings. The conservation group was able to save more rain forest at the same dollar cost, and the landowner got a higher price in a currency it as better positioned to use. To find complementary par ties and issues, as the conservation group did, you should ask questions that focus on relative valuation. What uninvolved parties might highly value elements of the present negotiation? What after-school(prenominal) issues might be highly valued if they were incorporated into the process? Are there any parties outside the immediate negotiations that can bear part of the risk of the deal more cheaply than the current players? On the other hand, it is sometimes necessity to shrinkor at least stagethe set of involved issues, interests, and parties in order to create value.For example, rather than enter into a full multiparty process at the outset, an industry association that wants to negotiate a genuine set of standards may benefit from first seeking agreement between a few dominant players, which would then serve as the basis for a later deal among the wider group. Or, negotiations to forge a multi-issue strategic alliance between two firms may be dramatically simplified by one side which kind of proposes an outright acquisition. Certainly, the form chosen for a transaction can dramatically affect the complexness of negotiations and the value to be had.The planned merger of equals by Bell Atlantic and Nynex would have required separate negotiations with regulatory authorities in each of the 13 states served by the companies. To avoid having to undergo politically charged negotiations at 13 diametric tables, the parties changed the game by creating a functionally equivalent structure in which Bell Atlantic was the nominal acquirer. Indeed, it can be necessary to change the process, rather than the substance, of a negotiation. For example, two partners seeking to terminate their relationship may have difficulty determining exactly who gets what.But they may instead be able to agree to a special mechanism like the Texas shoot-out, in which one side names a price at which it would be either a buyer (of the others shares) or a seller (of its own shares) and t he other side must respond. Often, changing the form of a negotiation by bringing in a skilled third-party mediator creates value. For example, two intensive mediation efforts by outside parties helped to finally thaw the frozen negotiations between Microsoft and the Justice Department. Many fundamentally different variants arvard business review november 2003 page 8 3-D Negotiation of mediation, arbitration, and other special mechanisms exist, but all are options to change the game itself rather than efforts to negotiate more effectively by purely interpersonal means. Implementing a 3-D Negotiation Strategy Sophisticated negotiators act in all three dimensions to create and claim value. While 3-D negotiators should play the existing game well, as tacticians and deal designers, they should also act as entrepreneurs, seeking to create a more favorable target game.They can do so by see widely to identify possible elements of a more favorable setup mapping reluctant from the most pr omising structure for the deal to the current setup and managing and framing the flow of information to improve their odds of getting to yes. Scan widely. To act outside the box, one must first look outside the box. By meddlesome beyond the immediate deal on the table for elements of a potential value net, 3-D negotiators can retrain their focus on complementary capabilities and valuations that other players might add.Useful game-changing questions include Who outside the existing deal might most value an aspect of it? Who might minimize the cost of production, distribution, risk bearing, and so on? Who might supply a routine missing from the current process? Which issues promise mutual advantage? What devices might bring such potential value-creating parties and issues into the deal? And at what point does complexity or conflict of interest between parties call for shrinking the scope of the negotiation?Scanning beyond the current game to claim value normally focuses on a paralle l set of questions Are there additional bidders or parties who could favorably alter BATNAs in other ways? stinkpot certain issues be linked for leverage? Such scanning should result in a map of all the actual and potential parties (including other interested groups within an organization, if necessary). You need to assess their actual and potential interests and BATNAs, as well as the difficulty and cost of gaining agreement with each party and the value of having its support.Your map should also identify the crucial relationships among the parties who runs whom, who tends to hedge to whom, who owes what to whom, who would While 3-D negotiators should play the existing game well, as tacticians and deal designers, they should also act as entrepreneurs. find it costly to oppose an emerging agreement with key parties on board, and so on. The founders of new ventures almost evermore need to scan widely in order to construct the most promising sequence of deals that lead to a self- sustaining company.Consider the situation WebTV Networks founder Steve Perlman faced in the early and mid-1990s. He had obtained seed funding, actual the technology to bring the Web to ordinary television sets, created a prototype, and hire his core team. Running desperately low on cash, Perlman scanned widely and detect an array of potential negotiating partnersISPs, VCs, angel investors, industrial partners, consumerelectronics businesses, gist providers, manufacturers, wholesale and sell distribution channels, foreign partners, and the like.He needed to engage in 3-D analysis to determine the right subset of potential partners to create the most promising deals to build his company. Map backward and sequence. It is helpful to think of the logic of backward mapping as being similar to the logic of project management. In deciding how to undertake a complex project, you start with the end point and work back to the present to develop a time line and critical path. In negotiatio n, however, the completed project should be a set of value-creating, sustainable agreements among a supportive coalition of parties.For instance, when Perlmans WebTV was almost out of money, it might have seemed obvious that he should approach venture capital firms first. However, because VCs were deeply skeptical of consumer-electronics deals at that time, Perlman mapped backward from his VC target. He reasoned that a VC would find WebTV more appealing if a prominent consumer-electronics company were already on board, so Perlman embarked on a sequential strategy. After his first choice, Sony, turned him down, Perlman kept reasoning backward from his target.Finally, he was able to get Phillips on board. He then used Phillips to reopen and forge a complementary deal with Sony. Next he negotiated new venture moneyat a far higher valuationsince both Sony and Phillips had signed on. With new money in the tank, it was fairly straightforward to thread a path of supporting agreements throu gh manufacturers, wholesale and retail distribution channels, content providers, ISPs, and alliance harvard business review november 2003 page 9 3-D NegotiationA 3-D players ability to determine whether a related negotiation happens before or after his ownas well as whether the results become publiccan greatly make for the outcome. partners abroad. As the WebTV case suggests, a common problem for a would-be(prenominal) coalition builder is that approaching the most difficultand perhaps most criticalparty offers slim chances for a deal, either at all or on desirable terms. To improve the odds of getting to yes, work up out which partners you would ideally like to have on board when you inculcate negotiations with the target party.As the answer to this question becomes clear, you have identified the junior(a) stage. Continue mapping backward until you have found the most promising sequence of discussions. Consider the successful sequencing tactics of Bill Daley, President Clinto ns strategist for securing congressional approval of the North American Free trading Agreement, as reported in a 1993 New Yorker article intelligence might arrive that a representative who had been leaning toward yes had come out as a no. Weenie, Daley would say.When he heard the bad news, he did not take it personally. Hed take more calls. Can we find the guy who can deliver the guy? We have to call the guy who calls the guy who calls the guy. Beyond pure sequencing, the 3-D negotiator can use the scope of the negotiationhow elements are added, subtracted, combined, or separatedto influence the chances of bringing each party on board. Issues can be added to make a deal more attractive (as Microsoft did with AOL) or a BATNA less attractive (as happened to the Swiss banks).And by not bringing on board a party to whom others have antipathy, negotiators can increase the probability of their success. Thats what James Baker did when building the first Gulf War coalition by omitting Is rael from explicit membership in the group, he was able to attract moderate Arab states. Manage the information flow. Some negotiations are best approached by gathering all affected parties together, fully sharing information, and brainstorming a solution to the shared problem.Frequently, however, vital 3D questions involve deciding which stages of the process should be public or private as well as how information from one stage should spill over to or be framed at other stages. A wry story illustrates the potential of such choices to set up a linked series of negotiations. A prominent diplomat once decided to help a beauteous and capable four-year-old man of very modest background from easterly Europe. Approaching the chairman of the state bank, the statesman indicated that a gifted and pushy boyish man, soon to be the son-in-law of Baron Rothschild, was seeking a fast-track position in banking.Shortly thereafter, in a separate conversation with the baron, whom he knew to be se arching for a suitable match for his daughter, the statesman sky-high described a handsome, very capable young man who was making a stellar ascent at the state bank. When later introduced to the young swain, the dutiful daughter found him charming, with enviable talents and prospects, and acceptable to her father. When she said yes, the many-sided deal allegedly went throughto everyones ultimate satisfaction.Setting diversion the dubious factual base and ethics of this negotiation, notice how the diplomats 3-D actions set up the most promising game for his purposes. By separating and sequencing the stages of the process, as well as opportunistically framing his message at each juncture, the statesman created a situation that fostered an otherwise most unlikely outcome. Of course, had the banker, the baron, the daughter, and the young man been initially thrown together in a opposite meeting, it is doubtful that even the statesmans suave 1-D approach could have closed the deal.Anal ogously, potential investors should be wary of the common tactic of separating deals to close both for instance, getting investor A to commit funds based on the commitment of savvy investor B, when B has indeed committed, but only on the informal (and wrong) understanding that reputable investor A has unconditionally agreed to do so. Negotiations to assemble land for a real estate project offer another good example of the importance of staging the release of information. advance(prenominal) knowledge of a developers plans can be quite valuable to landowners in the target area.Since landowners may use this knowledge to extract maximum price concessions in later stages of assembly, the need for secrecy and separation of the separate negotiations is usually obvious. Indeed, the choice of which parcel to buy first, second, and so on, may aim on the relative odds that a given purchase will leak the developers intentions as well as whether the parcels already obtained would permit some version of the project to go ahead, or whether they would be fruitless with- harvard business review november 2003 age 10 3-D Negotiation out a later acquisition. Indeed, a 3-D players ability to determine whether a related negotiation happens before or after his ownas well as whether the results become publiccan greatly influence the outcome. For example, according to a 1985 article in transnational Studies Quarterly, while the United States was in separate talks with Japan, Hong Kong, and Korea over stuff trade agreements, a Korean negotiator told the U. S. representatives, Well ask Hong Kong to go first, then see what they get. The Koreans apparently regarded Hong Kong officials as highly skilled negotiators, with better language skills for dealing with the Americans. An observer reports that, After waiting for Hong Kong and Japan to go first, capital of South Korea asked for the features they had secured and then also held out for a bit more. In essence, the order chosen b y the Americans (as encouraged by the Koreans) revealed information about the U. S. approach that was of great value to the Koreans. One wonders whether the Americans should have rethought the sequence and started with Seoul. erfecting these 1-D skills, negotiators should also be innovative 2-D deal designers who have mastered the principles for crafting value-creating agreements. And the third, often-missing dimensionactions taken to change the scope and sequence of the game itselfcan be crucial to a negotiation that would otherwise be completely out of tactical reach. Negotiators must take care to keep sophisticated 3-D moves from blurring into the unethical and manipulative. Yet without 3-D actions, coalitions vital to many worthy initiatives could never have been built.To create and claim value for the long term, great negotiators should be at crustal plate in all three dimensions. To do anything less is to risk playing a one- or two-dimensional strategy in a 3-dimensional wor ld. 1. A complete set of sources for this article can be found at www. people. hbs. edu/jsebenius/hbr/3-DNegotiation. pdf. That negotiators should be good listeners, persuaders, and tacticians is a given. But beyond Reprint R0311D Harvard Business redirect examination OnPoint 5372 To order, see the next page or call 800-988-0886 or 617-783-7500 or go to www. hbr. org harvard business review november 2003 age 11 Further Reading Harvard Business examine OnPoint articles enhance the full-text article with a summary of its key points and a selection of its company examples to help you quickly absorb and apply the concepts. Harvard Business Review OnPoint collections include three OnPoint articles and an overview comparison the various perspectives on a specific topic. 3-D Negotiation is also part of the Harvard Business Review OnPoint collection Masterful Negotiating, Product no. 5410, which includes these additional articles Six Habits of Merely Effective Negotiators James K.Seben ius Harvard Business Review March 2002 Product no. 9411 Negotiating the Spirit of the Deal Ron S. Fortgang, David A. Lax, and James K. Sebenius Harvard Business Review February 2003 Product no. 3051 To Order For reprints, Harvard Business Review OnPoint orders, and subscriptions to Harvard Business Review Call 800-988-0886 or 617-783-7500. Go to www. hbr. org For customized and quantity orders of reprints and Harvard Business Review OnPoint products Call Frank Tamoshunas at 617-783-7626, or e-mail him at emailprotected harvard. edu page 12