One-sentence summary of “3-D Trading – Powerful Tools to Change the Game in Your Most Important Deals”: Many negotiators focus only on one aspect of trading: tactics, as do many books and courses on the subject; this book goes further by adding two additional dimensions: the deal design — the art and science of reaching agreements that have lasting value — and the setup — the art and the way of putting in place the best possible negotiation situation.
By David A. Lax and James K. Sebenius, 2006, 286 pages.
Chronicle and summary of “3-D Negotiation”
The authors begin by asking us the question: why are we born with two eyes?
To see in three dimensions. While it is quite possible to spend a lifetime with only one eye and to see the world in one dimension, binocular vision gives us the enormous advantage of depth perception. This book is about seeing negotiation in three dimensions, rather than one-dimensionally, as is often the case.
In fact, the world is, according to the authors, filled with one-dimensional negotiators, who are only interested in the tactical aspect by neglecting two other fundamental dimensions. Most of these negotiators fall into one of two categories:
The “win-lose” category:
They’re from the old school, battling for the best price, the biggest piece of the pie and all the rest. Their typical readings are Winning Through Intimidation and Start With No. They sit at the table intending to walk away; not only with what is theirs, but also with what is yours.
The “win-win” category:
They have represented the new way for some time. They promise innovative solutions, more value and better relationships. Their typical readings are Getting to Yes and Getting past No. Win-win negotiators do not sit at the table to find a unilateral way to have more than their share; they prefer to engage in joint brainstorming sessions to find creative solutions that “make the pie bigger for everyone”.
According to the authors, each of these approaches has its advantages and disadvantages: yes; aggressive win-lose negotiators sometimes do better business. However, they can damage the relationship with other parties in the process; may miss out on more creative arrangements, and may even stalemate, ending the discussions prematurely (although; as we will see later, some discussions deserve to be ended). The serious win-win negotiator may be more focused on creativity; and he certainly has more friends – but can be caught off-guard in encounters with big stakes. In the name of good long-term relationships; naive win-win negotiators can give up on making substantial gains by finding compromises of little benefit.
So, the win-win and the win-lose negotiators couldn’t be more different, right?
Well, according to the authors, something makes them very similar: they both focus almost exclusively on the tactical and face-to-face aspects of the negotiation. They see the negotiation process mainly in terms of actions to be performed at the bargaining table (which can of course include virtual tables like phone, fax, emails, etc.).
Years of practice in concluding agreements and analyzing negotiations have convinced David A. Lax and James K. Sebenius that these two approaches often fail, as they confine themselves to seeing only one dimension in the negotiations when there are actually three.
What are they?
Dimension 1: Tactics
This is where all the win-win or win-lose tactics are.
Dimension 2: Deal design
It’s the art and science of creating deals that bring lasting value. This is where the win-lose negotiators aren’t effective. When a proposed deal does not offer enough value to all parties, or when its structure does not achieve its objectives, then the deal designers have to rework its foundation by returning to the drawing board.
This return to the source is necessary to stimulate creativity, invention and a clear thought guided by powerful underlying principles.
To make it clearer, here are two examples of deal design:
“When Egypt and Israel were negotiating about the Sinai region – which had been under Israeli rule since 1967 and the Six Day War – their positions seemed incompatible. When the negotiators wanted to go beyond their positions, however, they discovered a vital difference in the underlying priorities and interests: Israelis were more concerned about security, while Egyptians were more concerned about their sovereignty over the territory. The solution was a demilitarized zone under the Egyptian flag, which was ratified during the Camp David Accords, which for more than 25 years have made Sinai a zone of peace.”
Differences in interests or priorities can open the door to many new elements and give each party what matters most to them at the least cost for the other party.
This is a fundamental principle of deal design.
“An entrepreneur is genuinely optimistic about the prospects of his fast-growing electronics manufacturing company. He is in talks with a potential buyer who appreciates the company but who is more skeptical than the entrepreneur about its future earnings. They negotiate in good faith, but at the end of the day they are in real disagreement about the future of the company and cannot find an acceptable price.
Instead of seeing these different forecasts as barriers, a savvy deal designer will see the opportunities created by this situation. An option would be a deal where the buyer would pay a fixed amount now and a conditional price later, the latter price being determined by the performance of the company. Well-structured, with adequate commissions and good monitoring systems, such a conditional payment may appear very valuable for the optimistic seller – who expects to earn a lot – but having a low cost for the less optimistic buyer.”
Dimension 3: Setup
The setup is simply the fact of setting up the most promising situation before you even sit down at the bargaining table, which you will exploit once at the table. In other words, the negotiation has been set well before the tactical phase began.
What does “setting the table” mean? Simply put, it means the right parties are involved, in the right sequence, to deal with the right issues that engage the right set of interests, at the right table, at the right time, with the right expectations, and facing the right consequences if you have to walk away without making a deal.
An example of a good negotiation setup:
“In 1986, Thomas Stemberg created Staples, an office supply company whose originality was to offer “office supply stores”. The concept was a huge success, surpassing the 50% sales forecast. With these positive results in hand, and the threat of new competitors like Office Depot launching into this new market, Thomas Stemberg urgently needed additional capital. Logically, he turned to the venture capitalists who helped him start his business.
But during this second round, the question of assessing the value of the company emerged as a potential obstacle. From Stemberg’s point of view, it appeared that the venture capitalists were closing ranks and refused to value Staples as high as he had hoped. It was not a new tactic, of course, but it was surprising because of its monolithic character: wherever he went in the venture capital community, he heard the same thing.
The best thing to do in the negotiation
What was the best thing to do in the negotiation in order to, as Staples said, “break this venture capitalist cartel”? To be a better tactician at the table? Should he work harder to look bankers in the eyes without flinching and decipher their body language more acutely?
No, the best thing to do was to create better global conditions for negotiation. And that’s exactly what Stemberg did. In these cases, a good 3-D negotiator wonders: “Who are the players with the greatest potential value? Who are the currently uninvolved parties that could value this agreement more strongly than those currently around the table?”
To answer these questions, Stemberg went to Harvard Business School and spoke with a professor; an expert in venture capital firms and in start-up financing. Stemberg asked, “How do you break this cartel?” and the professor answered him: “Go directly to the institutions: the pension funds and the insurance companies… They may be limited partners of venture capital firms; but they often donate 20 percent of their profits and pay high management fees from them.”
For a 3-D negotiator, these institutions were potentially high-value players: if they were directly involved in the negotiation; they would see the prospect of investing in Staples as the opportunity to have a 20% higher return on investment than if they had invested in venture capital firms. In addition, the arrival of new players would be an incentive for other investors by creating a competition between them.
And that’s exactly what happened. Now, Staples is a multinational company employing 74,000 people worldwide, and owns the JPG brand in France.”
Now let’s look at the fundamental question that underlies the whole approach of the book: what are we trying to do when we negotiate?
Beyond the specifics of each negotiation, the most profound answer to this question is: “Our negotiation objectives should be to create and claim value over the long term by creating and implementing a deal that is satisfactory for all parties.”
Chapter 2: Do a 3-D Audit of Barriers to Agreement
How can we get the deal we want?
We must first have a clear understanding of what we want. What are the broad outlines of the deal that we hope to do? Then, we need to develop a clear picture of our current position. From this picture, we ask ourselves the question: “What stands between me and the possibility that I have to reach the full potential of what I want?”.
To accurately identify such barriers, it’s important not to jump straight to conclusions such as “it’s a price problem” or “it’s a cultural problem”. You have to use the 3-D approach and ask yourself, “Is there a flaw in the setup that could prevent a profitable deal? Or problems with the deal design? People?”
There are three main areas that may contain such barriers:
This means the wrong parties, interests, and/or exit options in case of no agreement. Going beyond these barriers requires a disciplined imagination that 3-D negotiation will teach you.
These are problems in the order in which the negotiation takes place. These are, for example, errors in the order in which the different parties are approached, which can kill a negotiation or get it off to a bad start.
Process choice flaws
These include problems in the way the negotiation is organized. For example, there may be nothing planned for a third party, such as a mediator, which might have been helpful.
There are countermeasures for each of these flaws. First, we need to map all the issues: all parties, their interests, and their exit options. Then, we have to check the sequence. Afterwards, we need to check the basic process choices to make sure they have no flaws. Let’s take a look at these three countermeasures in detail.
Make a map of all parties and their exit option in case of no agreement.
It may seem simple: it’s just me and the guy across from me. As we saw with the case of Staples, this couldn’t be more wrong. And to really understand who all the actual potential parties are requires a real act of imagination.
Moreover, in other cases, you can negotiate with the right parties, but at the most useful level: past a certain size, companies are not monolithic, and you negotiate with specific people who may not be the ultimate decision makers for the final agreement. To properly design your negotiation, you need a precise map of the organization: what is the hierarchy? Who influences whom? What are the oils, the influencers? How can they influence the negotiations?
Then you have to draw a map focused on the interests. Sometimes it’s as easy as determining the right price, but in general, there are a lot of different interests that may not be put on the table, but they have the potential to significantly affect the negotiations. If there is a difference between what people say they want (their bargaining position) and what they really want (their interests), you need to understand what that difference might be.
Finally, in each negotiation, you and the other parties involved face a fundamental and continuous choice: to stay or leave. To make a deal or not. And to say yes or no.
For say “yes” to an agreement, you must understand how this agreement serves your interests. But you can’t do this calculation in a vacuum. The real question is “How well does this deal serve my interests, compared to what?”
This is the deal/no deal balance: on one side of the balance, you have the proposed deal; on the other hand you have your exit option, also called the best alternative to a negotiated agreement (BATNA). Can you find another buyer? Is there an alternative supplier or other partners to ally with? Can you afford to go to court? Can you be attacked? Or can you risk another war with Egypt?
Your alternative in the absence of a deal sets the bar, in terms of value, of what you expect from a deal. If the proposed deal is worth less than your alternative, you leave the table.
The deal/no deal balance is not only present on your side, it is also valid for the other party. In order to negotiate well; you must also know and understand as much as possible their alternatives; notably because a significant part of a good negotiation is to shape the other party’s perception of their own exit options in such a way; as to make them say “yes” to the deal you want. They must decide for themselves that the deal you offer them; is better than any of their alternatives, including a no deal.
Getting them to reach this decision can involve a number of actions on your part, including: improving the value of the deal for them, ensuring they see their best no-deal alternatives as bad (and going from worse to worse) and seeing your own no-deal alternatives as good (and improving over time).
A good no-deal option is a powerful bargaining tool. Many people think that it’s the ability to inflict or not to suffer damage that turns into bargaining power; but in fact, your ability to walk away is often more important. Imagine, what you would like to have to negotiate your salary with your boss; a gun or a great job offer from a desirable company that is also one of your boss’s most serious competitors?
Checking the sequence and process choices
Ideally, you need to put in place the best sequence in which the different potential parties involved will create the best possible setup. The way you orchestrate the process can significantly affect the outcome. Perhaps you will be tempted to follow this old prescription, “get your allies on board first”. If so, you may want to think again because it’s not always the best sequence.
Let’s look at an example for a better understanding:
“When the United States wanted to create a global coalition against Iraq following the invasion of Kuwait in 1990, Israel was the most loyal and powerful ally in the region. And yet the Israelis were completely excluded from the coalition because their involvement would have discouraged or even prevented any involvement of the Arab countries, which the United States considered essential. An alternative sequence – starting with moderate Arab states and assuming Israel’s tacit involvement – completely avoided this problem.”
Another thing often advocated is to ensure that your own house is in order by first creating an internal consensus before taking care of the outside parties. That said, it’s not always the best choice. Let’s look at it through another example involving the Gulf War:
“In preparing for the Gulf War, George H.W. Bush first sent US troops to the region (in Saudi Arabia, in particular). He then engaged in comprehensive negotiations – he personally called more than 60 heads of state – to build a coalition under the auspices of the United Nations, which culminated in a UN Security Council resolution that authorized “all means” to expel Iraq from Kuwait. Only then did he begin serious negotiations with Congress for permission to use force in the Gulf.
If Bush had started by seeking the internal approval of a deeply skeptical US Congress; his chances of success would have been slim. But what could Congress do when a broad coalition of 33 states backing the United States was assembled; and the UN Security Council approved the use of force?”
Thus, setting up the right negotiation sequence, in these cases, led to success.
Chapter 3: Create a 3-D Strategy to Overcome the Barriers
Here is an example of a difficult negotiation that will illustrate how to create a 3-D strategy from the identification of barriers:
“In 1999, the Pacific Maritime Association (PMA), an association of 72 different naval and terminal operators on the US west coast, from San Diego to Seattle, attempted to conclude an agreement with the International Longshore and Warehouse Union (ILWU), a union defending the interests of dockers and other docker warehouse employees, to introduce new computer technologies that would improve ship efficiency and improve the capacity of the often-congested ports on the West Coast.
The problem is that dockers and other port workers had regularly lost their jobs because of technological advances such as containerization (from 100,000 in the 1950s to about 10,500 in 2002). Unsurprisingly, they were afraid that these technologies would cause further losses in their ranks. Yet, despite their small numbers, this union is very powerful: it’s able to effectively stop the West Coast sea trade, causing a loss of $ 6 billion a week.
So, in response to the PMA’s attempted negotiation that they perceived as a threat; the ILWU refused and started an informal labor slowdown, which led to monstrous bottlenecks; causing massive back orders nationwide. All of the shipping companies’ clients; who for the most part depended on the supply of boats to fuel their stocks; like Wal-Mart and Home Depot – put pressure on the PMA to make a deal, any deal.
The PMA, a fragmented organization of large and small companies, quickly abandoned its demand for new technologies, but vowed to reintroduce them in the 2002 negotiations.”
But in 2002, the strength of the ILWU remained intact. Imagine then that you are Joseph Miniace, the president of the PMA, licking your wounds after the debacle of 1999. You’re contemplating the approaching 2002 negotiations, during which you’re planning to reach a new technology deal. If you had to do a 3-D audit of the barriers, what would you do?
Perhaps you could conclude that something very bad happened in terms of your style of negotiation, and that you could remedy it by enrolling in seminars to develop your active listening skills, become an expert in body language, and a much more persuasive communicator. But probably, during and after the seminar, a little voice somewhere in the back of your head would tell you that the union’s ability to stop $ 6 billion in trade in one week would still triumph over bargaining.
And that little voice would be right.
So, Miniace made a good analysis of the situation. He faced the threat of a union work slowdown, or a strike that would paralyze much of the US economy, and which would incite clients of companies to push for an agreement. It was a strong barrier to setup, which originated as a poor balance between the PMA’s exit options and the ILWU.
How could Miniace act to correct this deal/no deal balance clearly in his disfavor and put in place a more promising situation? How could he make the ILWU more likely want to say “yes” than “no”?
He began spending months visiting the 72 member companies of the PMA, in an internal campaign to restructure the board of directors, which he filled with more executive operators who understood the economic consequences of repeated concessions, coming from highest levels of member companies. The voting power was correlated with the annual tonnage of each company so that the major participants had a decisive influence.
Then, Miniace focused his attention to the outside. He worked closely with Robin Lanier, president of the International Retail Mass Association; representing the interests of major importers and retailers such as Wal-Mart. Lanier was convinced that the new technologies would reduce the problem of port congestion; and was a valuable ally for Miniace. He then visited with his team the departments of commerce, finance, labor, transport and homeland security; explaining to all those they met their situation, the stakes, what had happened the last time and what might happen next time.
Finally, the PMA hired a public relations company to communicate its message to the media and a wider audience.
Thus, with a restructured and better-informed board of directors and commercial and political allies, the PMA had a much stronger position to negotiate with the ILWU, even though it had also started a public relations campaign.
And sure enough, when the ILWU began to slow down these activities, and when, in response, the PMA locked the ports, preventing the dockers from working, President Bush invoked the Taft-Hartley Act to force all parties to get back to work and dispatched a federal mediator. During the negotiations, Secretary of Homeland Security; Tom Ridge; called the ILWU president to say, “If you fail to reach an agreement, you will begin to be seen as an economic terrorist.”
In this much more favorable context, the PMA managed to reach an agreement with the ILWU. A relevant diagnosis of the barriers faced by the PMA – a determined adversary and a deal/no deal balance largely in their favor – made it possible to pinpoint precisely what the PMA should do. A purely tactical answer would have failed. And it’s all the more obvious here that it was the context and the negotiation’s setup which made it possible to succeed, because the main actors were the same between 1999 and 2002.
The book 3-D Negotiation was one of the books of My Crazy Project: read 52 of the best business books in 52 weeks, and publish here a summary per week.
Part 2: Set Up the Right Negotiation (Away from the Table)
Chapter 4: Ensuring That All Parties Are Understood
A vital part of a negotiation’s successful setup is to ensure that all important parties are involved. To do so, a considerable amount of thought must be given drawing a precise map of all the parties and their interrelationships.
In order to draw this map, you need to take a disciplined and rigorous look beyond the most obvious parties to try to understand what really matters: the actual and potential parties, inside and outside, the executives and agents, the decision-makers and the influential people, the allies and adversaries, the high – and low – value parties, as well as those who must approve and implement the agreement.
Then, make a map of the relationships between all parties while recognizing the formal and informal decision-making processes.
Chapter 5: Ensuring That All Interests Are Understood
Creating a supportive context involves understanding the interests at stake. Anything that concerns the parties involved and is at stake in the negotiation is of interest.
To fully understand the interests, you need to map out the interests – yours and theirs – well before formal negotiations begin, and then continue to update it during the process. Your interests may seem obvious, but you would be surprised at the number of people who enter a negotiation without explicitly articulating them and who, ultimately, don’t actually know what they want. To understand the interests of others, you can use mainly:
- Questions, active listening, surveys
- Sources of public information
- Internal sources
- Advisers with information
You can also directly and indirectly ask your counterpart what his/her interests are. Don’t make the same mistake as King Midas, who, out of greed, asked Dionysus for the power to turn everything he touched into gold, and then begged the god to take back his power because he couldn’t eat. So, do not let the price bulldoze a potentially rich set of interests, such as reputation, ethics, perceived sense of justice (is the proposed deal fair or not, apart from anything else?), relations between the parties, etc.
Also, be aware of subconsciously biased perceptions of interests such as:
The authors, during a training program for senior executives at Harvard, divided a large group of participants in financial and industrial information about a company negotiating to acquire another. Some were in the group of sellers, others in that of the buyer. After giving them enough time for the analysis, the authors asked participants to tell them, in private; their genuine estimated price of the company, regardless of tactical considerations.
The result was enlightening. Based on the same information, the sellers estimated on average a price twice that of the buyers. This schism between the estimates was not based on any fact: it came entirely from the role that had been randomly assigned to individuals.
Evidence suggests that we humans err consistently when we interpret facts. We are even worse when it comes to evaluating the other side, especially in a confrontational situation. Research has documented a mechanism in human psychology that makes us see our own side as more talented, honest and morally upright, while at the same time denigrating or even belittling the opposition.
One-sided perceptions can easily become self-fulfilling prophecies. Experiments show the effects of teachers’ expectations on students – my teacher thinks I’m stupid; so, I must be stupid. So, it’s pointless to work very hard. If you sit down at the bargaining table with the absolute and unshakable conviction that your counterpart is stubborn and has a difficult personality, you will most likely act in such a way that you will trigger and reinforce those behaviors.
How then can we overcome these biases? The best way is to put yourself completely in the place of the other party and to see things from their point of view.
Let’s look at this example to understand its power:
“A senior partner in a large law firm called a lucky young associate in his office on a late Friday afternoon and asked him to represent a plaintiff in negotiations that would soon come, and – if the negotiations failed – in a possible legal action. The young lawyer worked non-stop over the weekend, and on Monday morning, he presented a brilliant case for the plaintiff.
The old lawyer warmly congratulated his colleague for his job well done. Then, he revealed that the firm would represent the defendant, rather than the plaintiff, in the negotiations.
“Now that you completely understand the other side’s point of view, we need you to defend our side.”
Chapter 6: Ensuring That Exit Options Are Identified
Many inexperienced negotiators think they have to hold on until the agreement is reached. But they would be wise to listen to Robert Rubin, US Secretary of the Treasury minister: “When others sense your willingness to walk away, your hand is strengthened… Sometimes you’re better off not getting to yes.”
To fully understand this, let’s imagine a situation in which you try to negotiate the price of a car you want to buy:
“The seller has the strong impression that you have firmly chosen the car of your dreams – let’s call it A – and it’s right there, in stock. You are obviously a serious buyer. As you go to the seller’s office, your wife says, ‘Honey, we searched for a long time and we found absolutely nothing. Our old car is on its last leg. This car is perfect!’. Now you sit down and discuss the price”.
And a different situation:
“The seller sees you arguing with yourself whether you prefer car A (the same as in the previous example), which is in stock, or car B, which is at a competing dealership. This time your wife doesn’t hesitate: ‘Honey, I think I prefer car B’. Yes, you like car A a lot, but B has functions that you clearly prefer, and it’s also cheaper than A. In this scenario, you negotiate the price of car A to help you decide if you choose it in relation to the other beautiful car, which, conveniently, is somewhere else, but not very far. Now you sit down and discuss the price”.
In which situation do you think you will have the best chance of negotiating a good price?
To take advantage of the power that solid exit strategies give, there are 5 specifications to follow:
1 – Use your best exit strategy, and those of other parties involved in the negotiation, to determine if a possible deal area exists, and if so, where it stands.
In fact, between the minimum price at which the seller is willing to sell, and the maximum price that the buyer is willing to spend, there is a zone of possible agreement (ZAPA).
2 – Be sure that the other side sees you as capable and willing to walk away. When your counterpart perceives a credible increase in your willingness to leave – especially towards an attractive alternative – your bargaining power often increases. So, make sure to improve your best alternative and consider the actions that can damage that of your counterpart.
3 – Be careful to protect – and not inadvertently weaken – your exit strategy.
4 – Consider the possibility of damaging your own exit strategy under certain carefully selected circumstances.
5 – When analyzing a potential negotiation, use your understanding of exit strategies to determine where bargaining can play a major role and where it plays a smaller role.
Chapter 7: Ensuring That the Sequence and the Process Choices Are Understood
We have seen above the importance of the sequence, that is, to do things in order in a negotiation.
To make a good sequence:
- Look broadly to map potential parties, as well as their relationships, including potential costs and benefits if you get the agreement of each party.
- Make a map of the participants needed to seal the deal. Respectfully ask a key participant what prior agreement with other key participants might persuade them to say “yes”. Do this with each key participant. Keep working this way until you have found the most promising path among the cloud of possibilities.
- Ask if the parties should see each other together or rather separately at each stage of the process. Similarly, decide if it would be more productive if the negotiation stages are public or private.
- Manage the flow of information carefully and think about how to set up each step.
In addition to the sequence, negotiators should have the parties choose the process choices to use, including:
Should mediation or arbitration be included?
- Basic features to be determined are participation rules, decision-making and procedural expectations, agenda considerations, staging, standards for external communication, support processes (technical advice to third parties as mediators or facilitators), and post-agreement arrangements.
- When considering the elements of this list, think about whether it’s better to deal with them explicitly or to deal with them more implicitly and “as is”. You should also decide whether these elements should be put into negotiation, or whether you will try to stipulate, or even enforce, your selection process.
Part Three: On the Drawing Board
Chapter 8: Moving Northeast
Many people see the possible agreement zone as a battle line, in which the gains of one party automatically result in the losses of the other. For many people, the size of the pie is immutable, and it’s up to them to take the most. The authors think that this is sometimes true, but that, in many cases, it’s possible to make the pie bigger for everyone. To explain this, they use a map-based metaphor: according to them, if North is the direction in which we want to go, and East is the direction in which the other party wants to go, then moving Northeast might be a very attractive solution, and even the best one for each party.
The authors illustrate this with an example that is strikingly reminiscent of those employed by Jay Abraham in Getting Everything You Can Out of All You’ve Got:
A local radio station of Lille, the LoL, has many problems: for lack of budget, its equipment is poorly maintained, which results in the listeners being disturbed by a spurious signal and in the emission having even dangerously deviated from its assigned frequency (which can lead the radio station to being completely cut off by the regulatory authority). Because of this low technical quality, the radio station always fails to sell all its advertising time.
On the other hand, a recently established company, the Société d’Ingénierie Lilloise (SIL), failed to sell all the work it could do. SIL’s partners discussed ways to raise awareness of SIL, including by buying advertisements. But the advertising manager indicates that the budget is used up.
Here an agreement based on money is not possible. However, you can easily see how the companies could work it out, right? Couldn’t the LoL exchange free advertising time for SIL technical support? In this way, the value created by this agreement is much greater than what all parties could create on their end.
Negotiation also includes creating value that benefits both parties simultaneously, at no cost to anyone. This kind of displacement to the Northeast is fundamentally different from the mutually acceptable compromises that have run down the battle line.
While common ground and shared values are important, value is often created by significant differences and complementing interests and priorities.
To be able to do these kinds of value-creating actions, you have to tirelessly seek interests that are quite easy for one side to give, while having a lot of value for the other side. These kinds of differences can form the basis for future profitable interactions. Look for low-cost, high-profit actions.
To that end, try to think creatively and perhaps go beyond the specific agreement. Ask yourself, “What can the two parties possibly do together to create the most value for everyone?” What are the specific steps that can be undertaken to maximize the net worth of the pie?
If you encounter skepticism – or you feel skeptical yourself – remember that there are good psychological reasons why people think that value creation cannot be real. And remember that these psychological blind spots sometimes prevent negotiators from discovering immense potential for cooperation. And don’t forget that creating value is only half the story: it must also be claimed. This is done at the same time as sequentially. The real challenge of negotiation is to productively manage the tension between the cooperative measures that are needed to create value and the competitive measures to claim it.
Chapter 9: Differences That Complement Each Other
Knowing what you are looking for can counteract powerful psychological biases that make the world seen as a “pie in fixed portions”.
As we have seen, rather than looking for common ground and shared values, deal designers look for differences of any kind that can create value. They are looking for things that are cheap. Yes, things that are relatively cheap for one party to give but that the other party can find profitable.
Let’s go a little deeper with another example:
In the 1980s, an electrical engineering company wanted to create a series of power plants that burn solid waste to generate electricity. The company would be paid for both garbage removal and electricity supply to its clients. For its first agreement, the company found a city that was able to provide the waste and was able to use the power provided by the plant. However, both sides could not agree on the price of energy. Yes, the city needed new sources of energy, but only at an affordable price. And the company planned to finance the construction of the plant through a loan that took into account its income with a decent energy price.
The differences seemed irreconcilable, but both sides agreed to go beyond their disagreement on prices and find common ground. They discovered that they didn’t have different interests, but different forecasts: the city expected an oil surplus in the years to come and thus a decrease in the cost of energy, while the company expected the opposite.
The solution? Both parties structured a conditional arrangement in which the price of energy would be partially indexed to that of oil.
To detect these differences, an inventory of them must be developed, with a clear understanding of how deals designs can provide shared gains from distinct categories of differences in:
- Interest or priority can lead to mutually beneficial exchanges or creative solutions that discover underlying interests.
- Complementary in capacity can be combined with profit.
- Beliefs about the future can lead to shared gains from carefully crafted agreements, paying close attention to the commissions and information needed to determine them (as we saw in the example with the company sold in the first part of this review).
- Attitudes towards risk – to evaluate, position or influence it – can lead to mutually interesting mechanisms.
- Attitudes toward time, whether simple measure differences or more complex manifestations, may suggest differentiating benefits and costs based on perceived time differences.
- Many other differences – in tax status, accounting treatment, people’s sensitivity, etc. – can be arbitrated, alone or in combination, by sophisticated deal designers to create value in the long run.
Looking beyond the immediately involved parties, a different orientation can often suggest actions to profitably change the context for all parties – removing parties or adding parties that have clear complementary interests.
Chapter 10: Making Lasting Deals
When you sell a pair of tickets for a football game or negotiate the sale of your house for an unconditional monetary transaction, you want the agreement to close the deal once and for all and not have to deal with it anymore. Under normal circumstances, you don’t want to have more interactions with the other parties. In other types of deals, however, you may not want this type of conclusion. You will want to keep some options open in order to allow the deal to develop in a better and new form.
Many of the actions described above do more than create a positive process, build good working relationships, and set the scene for good results. They can also improve the viability of deals in the event of significant changes, whether internal or external.
Although many negotiated agreements are clearly limited in time and scope, it could be a mistake to treat social and economic contracts as fixed and static. In many cases, the probabilities of new challenges and opportunities require changes, which in turn require deals designed to be profitable.
Think about the future and likely changes in the deals and the attitudes that accompany them. Design economic deals and negotiate expectations that proactively anticipate predictable changes in circumstances.
After the agreement is reached, it’s important to keep an eye on the changes in the deal/no deal balance, which is constantly evolving. In particular, pay attention to potentially precarious contracts: deals in which, when one of the parties performs an irrevocable or high-cost action, the other party has the advantage of not following through with the deal.
For secure precarious contracts, try:
- To put in place measures to make the situation more sustainable.
- To design preventive measures: for example, conditional or more flexible contracts, performance obligations, bilateral links and other various compliance mechanisms.
And don’t forget that in some cases, the best prevention is to not conclude an agreement to begin with.
Chapter 11: Negotiate the Spirit of the Deal
Most experienced negotiators have no problem working on the economics of contracts – negotiating for the best price, trading equitable shares, scrutinizing exit clauses, and so on. In other words, concerning the letter of the contract, they are experts. That said, few of them give much thought to the spirit of the contract, what the authors call the social contract.
One of the results of this is that, although the parties can agree on the same terms on paper, they may in fact have very different expectations about how these terms will be concluded. And because they fail to arrive at a true deal of the spirits, deals that have been signed can fall apart. Ensuring that the deal design is adequate requires that both the letter and the spirit of the deal be in harmony for each party.
The social contract has two levels:
- Underlying answers the question: “What are our expectations about the true nature, extent and duration of our agreement?”
- Ongoing answers the question: “how do we expect to make decisions, handle unforeseen events, communicate, and resolve disputes?”
Inconsistent perceptions of the social contract can lead to impasse, conflict; and value destruction during both the bargaining process and after the deal. Pay particular attention to possible divergences concerning views on the social contract; when the parties come from different cultures, organizations or professions. When external negotiators lead the process, look for divergences in the main points of view concerning the social contract. Make sure you bring good people and good spirits together – among all those who work on the deal. You can also consider conducting explicit and periodic audits of each camp’s perceptions for the underlying and ongoing social contract.
It’s also important to know how to balance the economic and social part of the contract. Resist the temptation to treat the social contract as unwritten and purely subjective; and the economic contract as written and objective. When completed in the right way, many of the expectations of underlying and ongoing social contracts can; and should be integrated into economic agreements, which would reinforce each other.
Pay attention to other misconceptions about the social contract: that it’s primarily about labor relations, that it must be cooperative, democratic and participatory; and that most of its content cannot be captured by the spirit.
Part 4: Problem Solving Tactics – At the Table
Chapter 12: Shape Perceptions to Claim Value
In the first part of this review, we have seen what the zone of possible agreement (ZOPA) is: the area between the minimum you are willing to accept and the maximum that the other party is willing to give. It’s essential to try to get the most value from knowing the true zone of possible agreement and shaping the other party’s perceptions favorably.
You can learn the ZOPA by using previous research, by analyzing your best exit strategies, just like those on the other side, and by constantly analyzing the actions of the other party to find information about the true ZOPA. You must update your ZOPA assessment frequently.
Focus on opportunities
To effectively claim the most value, it’s important to focus on opportunities, rather than disadvantages. As you prepare, write a short paragraph about what you hope to accomplish, not what you want to avoid. Remember to aim for an ambitious goal.
It’s important to shape the perceptions of the other party for them to believe that your acceptable minimum is well above your true minimum. So, if you are negotiating with Caroline to sell your business and have analyzed that 1) your best exit strategy is a firm offer from Caroline’s competitor who offers you 740,000 €, and that 2) Caroline’s best exit strategy is the offer of one of your competitors, who offers her company 860,000 €, you want to make sure that Caroline perceives your minimum acceptable (say 750,000 €) as much higher than it actually is (for example, by hinting to her that it’s 800,000 €):
In addition, one must realize that humans are notoriously bad at dealing with uncertainty. Numerous studies have shown that even inaccurate external information can profoundly influence judgment in case of uncertainty. The authors already conducted this experiment several times with senior executives, giving them this scenario:
A supplier – for whom the executives are working – receives an urgent order of high-tech motorcycle headlights from a Japanese manufacturer, who asks them to offer a price. In this scenario, it’s reported to executives that the Japanese translator was very difficult to understand and made many mistakes.
The executives are divided into two groups:
- First group: the translator seems to be asking for an offer of $ 12, but when asked for clarification, he denies the fact that he gave a price range.
- Second group: the translator seems to be asking for an offer of $ 32, but when asked for clarification, he also denies the fact that he gave a price range.
In both groups, it’s clearly and strongly stated to executives that, given the difficulties in understanding the translator, his suggestion of $ 12 or $ 32 is completely irrelevant.
In general, the average offer made by executives who heard the $ 12 request is $ 19.80 per unit. The one of those who heard the useless reference of $ 32 is $ 30.10. In other words, the meaningless numbers $ 12 and $ 32 served as anchors, pushing the offers in their direction; while the negotiators were aware of their meaninglessness.
Thus, human perception is influenced by anchors that do not need to be relevant or true but simply need to exist; and to reach people at the right time to influence them. In other words, when an anchor is introduced into a negotiation; it may alter perceptions of the ZOPA in its direction, thereby increasing the chances of a final deal being closer to the anchor.
You can use anchoring by:
- Meta-anchoring: by implicitly shaping the definition of the problem that negotiation will solve. Brainstorm possible meta-anchors, evaluate their implications, and take the initiative to meta-anchor the negotiation favorably and eliminate the unfavorable meta-anchors.
- The use of anchors directly with favorable offers, numbers or data, and “extreme but flexible offers”. Don’t forget to justify your proposals.
Strongly consider making the first offer to get the anchor gains. If the other party makes the first offer, use the middle point rule to respond to their offer: counteroffer so that the middle point between the two proposals is your target.
Moreover, avoid being anchored by an extreme offer: communicate clearly that the offer is unacceptable; and change scale in order to dislodge the anchor and to place your own anchor that is more favorable. You can also make concessions to an assumed limit; which is not the actual limit – to enhance the credibility of your supposed limit. Be aware that the other party can also use this technique. Also use, and be aware of, the reciprocity standard (studied in detail in Influence and Manipulation); which implies that if you make a concession, they will be more likely to make one, and vice versa.
Use the principle of contrast: an offer that follows an extreme offer may appear more generous; than if you made it directly.
In the end, you must persuade your counterpart that saying yes to your price is better than other alternatives; that accepting the price you like is a good (and honest) choice for them; and that the constraints on you make it hard for you to get away from this price.
To do this:
- Prepare honest arguments and prepare answers to their honest arguments.
- Avoid unsupported commitments and prefer commitments with support. A support is an external constraint on you; and makes it difficult or impossible for you to get away from the price you offer. So, if a client tries to negotiate with you a discount price on your products; and you have contracts with other clients at higher prices and stipulating that you must offer them your lowest price; you can invoke this clause by telling your client who’s trying to negotiate; that a deal on a lower price would force you to offset the price of all your other contracts; making any deal with that client below your normal price immediately unprofitable.
- Treat unsupported commitments as aspirations. When the other party supports its commitments with a clear demonstration that other interests would be in jeopardy if they moved; cancel their commitments by finding other ways to satisfy those interests.
Chapter 13: Solve Joint Problems to Create and Claim Value
After studying tactics purely for value in the previous chapter, the authors present tactics that both create and claim value. Creating value requires cooperation to extract information – about interests, points of view, abilities; etc. – and the use of this information to generate mutually beneficial options. It requires communication, trust, openness and creativity. And these same qualities can open the door to their exploitation by a determined value claimant; a negotiator from the old school win/lose category.
If you put all your cards on the table; while others hide their hand, it’s likely that you’ll find yourself in a very unfavorable position. And if everyone hides their hand, it’s almost impossible to find additional mutually beneficial gains. You and your counterpart are probably going to make a pitched battle; to get the biggest share of a tiny pie.
Thus, information in a negotiation is a double-edged sword. Effective tactics must productively manage the tension between cooperative measures needed to create value; for everyone and competitive measures to claim value for oneself. That means you must reveal enough information to generate good options while managing your vulnerability.
For this, you have to ask, listen and learn:
- Listen actively.
- Ask open, rather than closed, questions which only require yes/no answers: “And what if? Why? Why not? How could this work for you?”
- Bring a designated person to listen.
Therefore, it’s vital to disclose information strategically:
- Start at the end: first, calmly imagine the pot filled with gold at the end of the rainbow; perhaps by writing a press release ahead of the expected results that satisfy the deep interests of each party.
- Use the reciprocity standard to build trust and share/gain information; start offering low risk information, and go up a notch as you go.
- Present multiple equivalent offers.
- Carefully sequence problems and negotiate into packages.
Encourage an interesting and productive negotiation by establishing a positive atmosphere:
- Psychologically place the parties together against the problem rather than against each other.
- Focus on the advanced interests rather than the debating positions.
- Focus on the future rather than the past and on problem solving rather than blame.
- And finally, focus on fact-based communications rather than theoretical statements.
You should also adopt a persuasive style:
- Be open to persuasion.
- Be both empathetic and assertive.
- Tell stories while using facts and logic (you can read my review of Made to Stick to elaborate on this).
- Immune yourself against potentially disadvantageous arguments.
- Make sure your charm passes through the cultural filters.
To be well prepared, write the victory speech of your counterpart; showing their key audience why accepting your proposal was a wise decision.
Book critique of “3-D Negotiation”:
This book completely changed the way I look at negotiations; even though I had not read anything on the subject prior. Comprehensive, dense and covering many aspects of negotiation; it allows to considerably broaden our radius of action and reflection; and provides us with many tools to prepare, the best we can, our negotiations. From the global to the particular, from strategy to tactics, from cooperation to competition; the authors did not neglect anything and thus provide us with a complete training manual for novices like myself; and probably the opportunity to deepen many topics and discover new areas of action for more seasoned negotiators.
The authors further support their arguments and theories of numerous notes referring to very serious scientific studies; and other resources that give credibility to the whole of it; and will allow the interested reader to examine these subjects more closely.
In terms of its flaws, it should be noted that the book is written very dry; and is extremely dense, with many repetitions. As such, many chapters are just a repetition with a deepening of the first three; which finally summarize concisely and effectively the entire book. Chapters “8 – Moving Northeast”, “11 – Negotiating the Spirit of the Deal” and “12: Shape Perceptions to Claim Value”; however, bring real added value to the whole of it and are definitely worth reading.
Applying what is taught in this book takes time
As with many things, applying what is taught in this book takes time; both to assimilate it and to put it into practice; drawing a map of all parties and interests requires preparation time; which can be quite long and is only the beginning of the actions recommended by the authors! Each person will have to choose which techniques to use depending on the importance of the upcoming negotiations; and clearly the book is primarily designed for negotiations of which the stakes are very high and significant.
In any case, I think that this book is absolutely excellent; and can make a considerable difference in the carrying out of negotiations for those who have read it. Definitely a must-read for all those who have to make negotiations with high stakes!
- Very comprehensive.
- Covers many aspects of negotiation, from the global scheme to the smallest detail.
- Supported by sound scientific research.
- Full of many clear and telling examples.
- Very dense.
- Uses complex English with lots of jargon.
- Many repetitions.
- No French translation.
My rating :
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