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Most people focus only on the tactics of negotiation, but that is a one-
dimensional strategy.
Be three-dimensional: Focus on tactics, deal design and setup.
When you set up a deal, make sure you know each partys interests.
Review the context and all useful parties.
Setting up a deal involves determining which sequences and processes will
work best.
Good deal design dovetails the parties different interests.
Deals designed to accommodate change will endure as situations evolve.
Design your deals to account for everyones expectations about how youll interact.
At the negotiating table, use your tactics to shape the mutual perception of the
zone of possible agreement, or ZOPA.
When you can, work creatively and cooperatively to create value.
7 8 7 7
3-D Negotiation
Powerful Tools to Change the Game in Your Most Important Deals
by David A. Lax and James K. Sebenius
Copyright 2006 David A. Lax and James K. Sebenius
Summarized by permission of Harvard Business Press
286 pages
Leadership & Management
Strategy
Sales & Marketing
Finance
Human Resources
IT, Production & Logistics
Career Development
Small Business
Economics & Politics
Industries
Intercultural Management
Concepts & Trends
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3-D Negotiation Copyright 2009 getAbstract 2 of 5
Relevance
What You Will Learn
In this Abstract, you will learn: 1) What 3-D negotiation is; 2) How 3-D negotiation can
help you; and 3) How to apply the principles of 3-D negotiation.
Recommendation
If you have read a few books on negotiation, you will find much in this book familiar.
If youre serious about the subject, however, reading it will amply reward your curiosity.
Many of its negotiating techniques and approaches are familiar because the authors,
David A. Lax and James K. Sebenius, reviewed and tested the existing literature on the
subject. They put the best current suggestions into a larger conceptual frame that can
help negotiators make better deals. This book is approachable for beginners and useful
for experienced negotiators, so getAbstract recommends it to both types of readers, even
if it isnt perfect. In some parts of the book, the authors highlight negotiating issues
that parties must face without giving practical guidance on how to handle them. On the
whole, though, this is a useful, methodical and realistic treatment of negotiation.
Abstract
What is 3-D Negotiation?
The two most common approaches to negotiation are win-lose and win-win. Win-
lose negotiation focuses on playing tough and forcing the other party to agree to your
terms. Win-win negotiation focuses on creating mutually shared value. However, these
approaches often fail because they are narrowly focused on only the tactics used at the
negotiating table. But tactics are only one dimension of the negotiating process. The other
two dimensions of 3-D negotiation are deal design and deal setup. Deal design involves
making a systematic review of the situation to find the best way to achieve good results.
Identifying differences in interests among the negotiating parties is an important step.
Deal setup is related: Make sure youve got the right people negotiating, that you contact
them in the right order and that you know everyones reason for coming to the table.
To negotiate successfully, determine your goals and identify the forces arrayed against
you. Examine who is involved in the negotiation and who is really making decisions.
Understand why each party is motivated to negotiate, and what would make him or
her walk away. Who beyond those at the table is interested? What barriers to deal
making are related to process or sequence? Do communication problems exist? The
biggest barriers of all are unbalanced situations, where one party enters negotiations
with incomplete data, for example, or can walk away from the negotiating table much
more easily than the other.
Once you have assessed the situation and all the barriers to successful negotiation, create
a 3-D strategy to dissolve or sidestep those barriers. Start by thinking through the
setup of the deal, the best order for approaching the negotiation. Consider how broadly
or narrowly to define the issues. Plan to involve everyone who could contribute to a
winning deal and prepare for any opposition. Next, design the deal. Try to align all the
parties in the spirit of fair negotiation. Aim for deals that maximize value for everyone
and continue generating benefits over time. Make sure proposed deals address the best
If you dont
see all three
dimensions of
negotiation, you
may end up stuck
as a 1-D player in
a 3-D world.
The three
dimensions are:
tactics, deal
design, setup.
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3-D Negotiation Copyright 2009 getAbstract 3 of 5
interests of all parties; otherwise the idea may not endure over time or wont get approved
in the first place. Identify issues that are far more important to one party than the other
and weave them together to advance negotiations. Plan tactics to master each obstacle
and reach each goal. Imagine completing a successful negotiation and then retrace each
step on that route.
Setting Up Your Negotiations
Getting the right parties to the table is essential for setting up a successful negotiation.
Systematically develop an all-party map of those involved. This map lists the parties
who can bring the greatest value to the deal and identifies which entities they represent
other than themselves, if any. The map identifies any party who could block the deal, and
details each partys motives and the relationships among the parties (and their agents, if
any). Anticipate how you would address any entity that must approve your deal, such as
a regulatory commission. Then review the map: Is it too complicated? Can you reduce
the number of parties involved?
Just as you mapped all the parties involved, also engage in regular, methodical interest
mapping. Start with your own interests and dont assume you already know what
they are. Too many people reach the negotiating table without first distinguishing
their needs from their wants. Then, they try to meet their needs by bargaining for
something they merely want, and end up disappointed. Next, explore the other parties
interests. Dont let yourself get hung up asking about prices or stated positions. Instead,
look deeper and wider. What relationships are involved and which are desired? What
process will result in agreement? Research all the parties and the situation, first by
using publicly available resources, then by engaging sources within the organizations.
Ask questions about other parties interests and listen actively to the answers. Dont
presume that the value to be divided in the negotiation is fixed. Everyone at the table
is there to create more value.
You may not have to make a deal, of course, and sometimes walking away is better.
Before entering a negotiation, know your zone of possible agreement (ZOPA) and its
outer limits. Actively consider alternatives to the deals you are pursuing. You will give
yourself greater latitude and you may put more pressure on the other party. Recognize
each partys no-deal option the consequences they would face for walking away
and its value relative to the deal you want. In rare instances, you may purposely want
to elect a no-deal option more drastic than the other partys, as military commanders do
when they burn the fleets behind their men, so that they have to win.
Sequence and basic process choices complete the deal-setup process. Sequence refers
to the best order of doing things. To begin your prenegotiation sequence, scan the overall
context of the negotiation, and map the parties involved and their relationships. Then
look at the desired outcome and work backward. Examine existing relationships and
their history to determine whos most critical to the deal. Work from those essentials to
continue your sequence, then identify the party who will be hardest to persuade. Ask
yourself what youll have to do to produce an agreement. Think about each party you
need as an ally. What challenges block such alliances? Keep working backward until you
establish a chain of supportive parties that lead you to a deal.
The next step is to develop your process, a precise plan for dealing with each specific
challenge you anticipate, right up to achieving the result that you want. Planning and
preparing a fair deal will help you move smoothly through the negotiation.
One-dimensional
bargainers believe
that negotiation
is mainly about
what happens
at the table. To
them, preparation
and execution
are mainly
about process
and tactics.
Perhaps the
simplest, and
the most often
neglected,
technique to set
up an effective
negotiation is to
simply ask the
other side a series
of interest-related
questions and then
listen actively to
the responses.
In a nutshell, here
is what we mean by
setup: Negotiation
involves moves
away from the
table to set up the
most promising
situation once
youre at the
table.
If you dont like
the way the table
is set, reset it by
attacking the scope
and sequence of
the negotiations.
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3-D Negotiation Copyright 2009 getAbstract 4 of 5
Deal Designs that Create Value
Many people misuse the phrase win-win negotiation to refer to a compromise, that is,
a deal thats better than nothing and improves the existing situation. More accurately,
win-win deals create so much mutual value that the parties can hardly believe their good
fortune. Try moving northeast. If one side wants to go east and the other north, both
may win by going northeast. An example of this might be a deal between a computer
company that has surplus inventory, lacks cash and needs media exposure, and a radio
station that also lacks cash and needs new computers. In a barter transaction, the radio
station could give the company advertising time in exchange for new computers. This
shows how to dovetail differences. Also try to expand the entire pie being divided,
not out of the goodness of your heart but to create more value to be split.
As you align the gaps between parties through negotiation, youll discover various
categories of differences. In negotiating the sale of a company, for example, the parties
may disagree about future business trends and their likely impact on the companys
value. Contingency agreements offer one approach to reaching a resolution. Such an
agreement may require the buyer of a company, for example, to make additional payments
to the seller based on the companys future performance. Differences in risk tolerance
frequently are important in bringing deals to fruition. Rather than merely tolerating risk,
some parties actually can influence the amount of risk in a deal. This power can come
from an official position, such as having a particular license, or simply from being more
knowledgeable or persuasive in a given field. Under some circumstances, you have the
option of calling in a third-party mediator.
Whenever you design a deal, prepare to do much more than just getting the contract
signed. If you want a deal to endure over time, plan for predictable change. If one party
eventually may want to exit an agreement, or acquire the other party, perhaps the deals
design should accommodate such possibilities. What happens when the interests of the
parties diverge over time? Sometimes you can plan for change by designing multiparty
deals, so youre not vulnerable to one partys shift in attitude. Or, you could design a deal
that covers multiple issues so the entire agreement doesnt rest on just one factor.
In business buyouts, pursue flexible terms that take future uncertainties into account.
Such deals are more likely to endure if they are written in anticipation of business
downturns. Bonds for performance and other mechanisms that link payouts to outside
parties can help. In general, look at the structure of the situation and ask: What will
produce change or insecurity? Plan for those elements after you have identified them.
Another important way to ensure that deals endure is to negotiate the spirit of the deal.
Think of all deals as designed within the context of the larger social contract among the
parties. This social contract is based on the parties expectations and has two elements:
The underlying social contract is based on the expected scope of the negotiation; the
ongoing social contract is shaped by expectations about how youll negotiate and how
youll interact if you make a deal. These expectations usually are left unspoken but,
nevertheless, deserve careful examination.
The underlying social contract determines whether two parties negotiate a single deal
or an ongoing relationship, among other arrangements. If one party envisions a one-
time deal with a competitor, and the other sees the negotiation as a single step in an
ongoing exchange among cooperative equals, the parties will struggle to forge lasting
deals. Likewise, differences in the ongoing social contract can sink a deal. This contract
Heres a
prescription that
may at rst sound
self-evident: Start
preparations for
a negotiation
by thinking
hard about the
interested parties.
Sometimes
negotiations lead
to a solution that
is the bargaining
equivalent of
the perfect trade
between two stamp
collectors: Its the
deal thats better
than any other
deal either side
could imagine
possible.
The main
point here is
that compatible
interests often
underlie
incompatible
positions.
Your best no-
deal option may
involve simply
walking away
and doing without
any agreement.
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3-D Negotiation Copyright 2009 getAbstract 5 of 5
encompasses the relationship among the parties, how they will interact, what information
they will share and at what rate. How do the different parties expect to make decisions
and deal with changing circumstances? What happens in the case of disagreements or
serious disputes, which often occur? Make sure all the parties in a negotiation are clear
about the cultural and social elements of their contracts.
Negotiation Tactics
When you reach the negotiating table, use appropriate tactics to shape the perceptions
of all the parties at the table. Start by confirming that price is the main issue to
be negotiated, if thats the case, but consider more creative ways to create value.
Decipher the true ZOPA while shaping the other partys perception of it. Research
is vital. Study similar deals, the market, and the other parties and the pressures they
face. Identify the likely range of agreements. Focus on what you can achieve, not
what you wish to avoid.
If youre sure about the ZOPA, make the first offer, at a favorable price, so you anchor
all further discussions in terms of that initial number. When you present a proposal,
give reasons that vindicate your choice. Justify the amount you cite with a measurable
reference point, or soft anchor, such as a profit figure. Research shows that people
grant requests accompanied by any kind of justification, even if it is nonsensical, more
often than they grant unjustified requests.
If your offer turns out to be outside of the other partys ZOPA, you can withdraw smoothly
by explaining that you want to do more research. However, if youre really unsure about
the true contour of the ZOPA, dont make the first offer. Let the other party do it, because
if you make the first offer, further negotiation of terms may linger at levels you find
unacceptably low.
Use reciprocity to your advantage. People tend to return favors to those who have given
them something, even a token. Recognize that negotiators often expect to agree on a
midpoint between the first offer and the first counteroffer. Make sure your target price
is near the likely midpoint. Respond to extreme offers by reframing the terms of the
discussion. As you advance toward closing a deal, be creative in making concessions.
To move others away from firm statements, reframe them. Break the deal into different
parts if need be. If youre unable to amend or accept an offer, support your decision with
clear reasoning.
Three-dimensional negotiators create value by identifying the underlying interests
the parties share. They paint a verbal picture of the rich final outcome of a successful
negotiation and then help create a fair process of exchanges leading to that result, all
before the tactical phase of the talks ensues at the negotiating table. Indeed, much of
the power of 3-D negotiating stems from its visionary potential for identifying and
neutralizing barriers to making a deal long before the parties come to the table.
About the Author
David A. Lax and James K. Sebenius are principals of a negotiation strategy firm. Lax
is a former Harvard Business School faculty member. Sebenius teaches at both Harvard
Business School and Harvard Law School.
Unfortunately,
when it comes to
negotiating success,
caring deeply
doesnt make
the difference.
Only effective
preparation
and focused
action make
the difference.
Nothing will kill
an otherwise good
deal as quickly
as a value gap
that is, a gap
between the deal
and the no-deal
alternatives of one
or more parties.
We have
witnessed dozens
of deals fall well
short of their
potential or even
unravel because
the participants
failed to achieve
a meeting of the
minds on the spirit
of the deal.
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