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Why didn’t those last giao dịch work out the way you expected? You brilliantly followed all the rules in negotiation manuals: You built enormous goodwill. You demonstrated astute cultural sensitivity. Và you unlocked hidden value for all parties. But you were still left empty-handed.
Like most of us, you may have waited too long khổng lồ start negotiating. We’re trained to think that negotiation happens at the bargaining table—in the first dimension of interpersonal and process tactics—or at the drawing board—the second dimension, where the substance of the deal is hashed out. But by the time parties are sitting down to lớn hammer out an agreement, most of the trò chơi has already been played.
That’s why savvy 3-D negotiators work behind the scenes, away from the table, both before and during negotiations to set (and reset) the bargaining table. They make sure that all the right parties are approached in the right order to giảm giá khuyến mãi with the right issues at the right time.
3-D moves help you engineer giao dịch that would otherwise be out of tactical reach. Rather than playing the hand you’re dealt, you reshape the scope & sequence of the entire negotiation lớn your best advantage.
The Idea in Practice
In addition to skillfully handling tactical và substantive challenges, consider these guidelines to lớn 3-D negotiation:
Scan Widely
Search beyond the existing khuyến mãi on the table lớn find complementary capabilities & value that other players might add. Ask such questions as: Who, outside the existing deal, might most value aspects of it? Who might supply a piece missing from the current process? Who might minimize the costs of production or distribution?
This process will identify all the actual và potential parties & crucial relationships among them, such as who influences whom, who defers to whom, who owes what khổng lồ whom. Example:
When WebTV Networks was launching, founder Steve Perlman obtained seed funding, developed the technology, created a prototype, & hired his vi xử lý core team. But in order khổng lồ turn the start-up into a self-sustaining company, he needed more capital & broader capabilities. So he identified potential partners in many fields: internet service providers, nội dung providers, consumer-electronics businesses, manufacturers, distributors.
Map Backward & Sequence
The logic of backward mapping is similar khổng lồ project management: You begin with the over point and work back lớn the present to lớn develop a critical path. In negotiation, the completed “project” is a set of agreements among a coalition of parties.
To start, identify what you’d ideally like to happen. Then, determine who must sign on lớn make your vision a reality. Often, approaching the most difficult—and most critical—partners first offers slim chances for a deal. Instead, figure out which partners you need to lớn have on board before you initiate negotiations with your most crucial partners. Example:
Even though WebTV badly needed capital, Perlman didn’t approach obvious investors immediately. He knew that VCs were skeptical of consumer electronics deals, so he mapped backward from his VC target. Since VCs would be more apt khổng lồ fund his company if a prominent consumer electronics company were already on board, he first forged a khuyễn mãi giảm giá with Phillips and then used that giảm giá to sign up Sony, as well. When he finally approached VCs, he was able khổng lồ negotiate new venture money at a higher valuation.
Manage Information Flow
How you tailor your message to each potential partner can dramatically alter the outcome of your negotiation. Timing is vital: Decide which stages of the negotiation process should be public, which private, & how much information from one stage you should convey at other stages.
What stands between you and the yes you want? In our analysis of hundreds of negotiations, we’ve uncovered barriers in three complementary dimensions: The first is tactics; the second is deal design; & the third is setup. Each dimension is crucial, but many negotiators & much of the negotiation literature fixate on only the first two.
The Three Dimensions of Negotiation
For instance, most negotiation books focus on how executives can master tactics—interactions at the bargaining table. The common barriers to lớn yes in this dimension include a lack of trust between parties, poor communication, và negotiators’ “hardball” attitudes. So the books offer useful tips on reading toàn thân language, adapting your style to the bargaining situation, listening actively, framing your case persuasively, deciding on offers và counteroffers, managing deadlines, countering dirty tricks, avoiding cross-cultural gaffes, and so on.
The second dimension, that of deal design—or negotiators’ ability to lớn draw up a giảm giá khuyến mãi at the table that creates lasting value—also receives attention. When a khuyến mãi does not offer enough value to lớn all sides, or when its structure won’t allow for success, effective 2-D negotiators work to diagnose underlying sources of economic and noneconomic value và then craft agreements that can unlock that value for the parties. Does some sort of trade between sides make sense and, if so, on what terms? Should it be a staged agreement, perhaps with contingencies and risk-sharing provisions? A khuyến mãi with a more creative concept and structure? One that meets ego needs as well as economic ones?
Beyond the interpersonal and giảm giá design challenges executives face in 1-D and 2-D negotiations lie the 3-D obstacles—flaws in the negotiating setup itself. Common problems in this often-neglected third dimension include negotiating with the wrong parties or about the wrong mix of issues, involving parties in the wrong sequence or at the wrong time, as well as incompatible or unattractive no-deal options. 3-D negotiators, however, reshape the scope và sequence of the trò chơi itself to achieve the desired outcome. Acting entrepreneurially, away from the table, they ensure that the right parties are approached in the right order to khuyễn mãi giảm giá with the right issues, by the right means, at the right time, under the right mix of expectations, & facing the right no-deal options.
Former U.S. Trade representative Charlene Barshefsky, who has negotiated with hundreds of companies, governments, & nongovernmental organizations lớn spearhead deals on goods, services, & intellectual property, characterizes successful 3-D negotiations this way: “Tactics at the table are only the cleanup work. Many people mistake tactics for the underlying substance và the relentless efforts away from the table that are needed lớn set up the most promising possible situation once you face your counterpart. When you know what you need và you have put a broader strategy in place, then negotiating tactics will flow.”1
3-D Negotiation in Practice
Even managers who possess superior interpersonal skills in negotiations can fail when the barriers khổng lồ agreement fall in the 3-D realm. During the 1960s, Kennecott Copper’s long-term, low-royalty contract governing its huge El Teniente mine in Chile was at high risk of renegotiation; the political situation in Chile had changed drastically since the contract was originally drawn up, rendering the terms of the khuyến mãi unstable. Chile had what appeared to lớn be a very attractive walkaway option—or in negotiation lingo, a BATNA (best alternative khổng lồ negotiated agreement). By unilateral action, the Chilean government could radically change the financial terms of the khuyễn mãi giảm giá or even expropriate the mine. Kennecott’s 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, Kennecott’s management team would assess the personalities of the ministers with whom it would be negotiating. It would try khổng lồ be culturally sensitive, & it might choose elegant restaurants in which to meet. Indeed, Kennecott’s team did take such sensible actions. But that approach wasn’t promising enough given the threatening realities of the situation. Chile’s officials seemed to lớn hold all the cards: They didn’t need Kennecott to lớn run the mine; the country had its own experienced managers and engineers. And Kennecott’s hands seemed tied: It couldn’t move the copper mine, nor did it have a lock on downstream processing or marketing of the valuable metal, nor any realistic prospect, as in a previous era, of calling in the U.S. Fleet.
Fortunately for Kennecott, its negotiators adopted a 3-D strategy và set up the impending talks most favorably. The team took six steps & changed the playing field altogether. First, somewhat to lớn the government’s surprise, Kennecott offered lớn sell a majority equity interest in the mine to Chile. Second, lớn sweeten that offer, the company proposed using the proceeds from the sale of equity, along with money from an Export-Import bank loan, to finance a large expansion of the mine. Third, it induced the Chilean government to lớn guarantee this loan và make the guarantee subject to new york state law. Fourth, Kennecott insured as much as possible of its assets under a U.S. Guarantee against expropriation. Fifth, it arranged for the expanded mine’s đầu ra to be sold under long-term contracts with North American và European customers. & sixth, the collection rights lớn these contracts were sold to a consortium of European, U.S., và Japanese financial institutions.
These actions fundamentally changed the negotiations. A larger mine, with Chile as the majority owner, meant a larger and more valuable pie for the host country: The proposal would result in more revenue for Chile & would address the country’s interest in maintaining at least nominal sovereignty over its own natural resources.
Moreover, a broad array of customers, governments, & creditors now shared Kennecott’s concerns about future political changes in Chile và were highly skeptical of Chile’s capacity khổng lồ 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 have future dealings with that country—not only in the mining sector but also in the financial, industrial, legal, and public sectors. Chile’s original BATNA—to unceremoniously eject Kennecott—was now far less attractive than it had been at the outset, since hurting Kennecott put a wider set of Chile’s present and future interests at risk.
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And finally, the guarantees, insurance, & other contracts improved Kennecott’s BATNA. If an agreement were not reached & Chile acted to expropriate the operation, Kennecott would have a host of parties on its side. Though the mine was ultimately nationalized some years later, Chile’s worsened alternatives gave Kennecott a better operating position & additional years of cash flow compared with similar companies that did not take such actions.
This case underscores our central message: Don’t just skillfully play the negotiating game you are handed; change its underlying thiết kế for the better. It is unlikely that 1-D tactical or interpersonal brilliance at the table—whether in the khung of steely gazes, culturally sensitive remarks, or careful and considered listening to lớn all parties—could have saved Kennecott from its fundamentally adverse bargaining position. Yet the 3-D moves the company made away from the table changed the negotiation’s setup (the parties involved, the interests they saw at stake, their BATNAs) và ultimately created more value for all involved—much of which Kennecott claimed for itself.
How 3-D Moves Work
Successful 3-D negotiators induce target players to lớn say yes by improving the proposed deal, enhancing their own BATNAs, and worsening those of the other parties. 3-D players intend such moves mainly khổng lồ claim value for themselves but also lớn create value for all sides.
Claiming Value.
3-D negotiators rely on several common practices in order lớn claim value, including soliciting outside offers or bringing new players into the game, sometimes khổng lồ create a formal or informal auction. After negotiating a string of alliances và acquisitions that vaulted Millennium Pharmaceuticals from a small start-up in 1993 to a multibillion-dollar company less than a decade later, then–chief business officer Steve Holtzman explained the rationale for adding parties to lớn the negotiations: “Whenever we feel there’s a possibility of a khuyến mãi with someone, we immediately điện thoại tư vấn six other people. It drives you nuts, trying to juggle them all. But number one, it will change the perception on the other side of the table. & number two, it will change your self-perception. If you believe that there are other people who are interested, your bluff is no longer a bluff; it’s real. It will come across with a whole other level of conviction.” (For more on Millennium, see “Strategic Deal-making at Millennium Pharmaceuticals,” HBS case no. 9-800-032.)
While negotiators should generally try to improve their BATNAs, they should also be aware that some of the moves they make might inadvertently worsen their walkaway options. For instance, several years ago, we worked with a U.S. Manufacturing firm on its joint-venture negotiations in Mexico. The company had already researched possible cultural barriers và ranked its three potential partners according lớn the competencies it found most desirable in those companies. After approaching the negotiations in a culturally sensitive spirit, và in what had seemed a very logical sequence, the U.S. Team had nevertheless come lớn an impasse with the most attractive partner. The team abandoned those talks and was now deep into the process with the second most desirable candidate—and again, things were going badly. Imagine subsequent negotiations with the third, barely acceptable, partner if the second phối of talks had also foundered—in an industry where all would quickly know the results of earlier negotiations.
As each mix of negotiations failed, the U.S. Firm’s BATNA—a deal with another Mexican company or no joint venture at all—became progressively worse. Fortunately, the U.S. Company opened exploratory discussions with the third firm in parallel with the second. This helped the U.S. Company to discover which potential partner actually made the most business sense, to lớn avoid closing options prematurely, và 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 khuyễn mãi giảm giá with the most desirable Mexican partner would function as its BATNA in talks with the second most desirable partner, & so on. In short, doing so would have created the equivalent 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 promising 3-D thiết lập would have greatly enhanced whatever 1-D cultural insight & tactical ingenuity the U.S. Firm could muster.
In addition khổng lồ strengthening their own position, 3-D negotiators who địa chỉ parties and issues khổng lồ a khuyến mãi can weaken the other side’s BATNA. For instance, when Edgar Bronfman, former CEO of Seagram’s và head of the World Jewish Congress, first approached Swiss banks asking them lớn compensate Holocaust survivors whose families’ assets had been unjustly held since World War II, he felt stonewalled. Swiss banking executives saw no reason khổng lồ be forthcoming with Bronfman; they believed they were on strong legal ground because the restitution issue had been settled years ago. But after eight months of lobbying by Bronfman, the World Jewish Congress, & others, the negotiations were dramatically expanded—to the detriment of the Swiss. The bankers faced a de facto coalition of interests that credibly threatened the lucrative Swiss tóm tắt of the public finance business in states such as California & New York. They faced the divestiture by huge U.S. Pension funds of stock in Swiss banks as well as in all Swiss-based companies; a delay in the merger between Swiss bank and UBS over the “character fitness” license vital to doing business in New York; expensive và intrusive lawsuits brought by some of the most formidable U.S. Class-action attorneys; & the wider displeasure of the U.S. Government, which had become active in brokering a settlement.
Given the bleak BATNA the Swiss bankers faced, it’s hardly surprising that the parties reached an agreement, including a commitment from the Swiss bankers to pay $1.25 billion khổng lồ survivors. It was, however, an almost unimaginable outcome at the beginning of the small, initially private game in which the Swiss seemed to hold all the cards.
Another way for negotiators to claim value is lớn shift the issues under discussion và the interests at stake. Consider how Microsoft won the browser war negotiations. In 1996, AOL was in dire need of a cutting-edge mạng internet browser, & 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 foothold but was considered by Bill Gates lớn be a strategic 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 khuyễn mãi giảm giá was Netscape’s lớn lose. They were dominant. We needed lớn get what the market wanted. Most important, we saw ourselves as smaller companies fighting the same foe—Microsoft.”
But when all was said và done, it was Microsoft that had etched a giảm giá khuyến mãi with AOL. The software giant would provide Explorer lớn AOL for free and had promised a series of technical adaptations in the future. Microsoft had also agreed that AOL client software would be bundled with the new Windows operating system.
Microsoft—a direct competitor lớn AOL—would place the AOL icon on the Windows desktop right next to the icon for its own on-line service, the Microsoft Network (MSN). AOL’s position on “the most valuable desktop real estate in the world” would permit it to reach an additional 50 million people per year at effectively no cost, compared with its $40 to lớn $80 per-customer acquisition cost incurred by “carpet bombing” the country with AOL disks. In effect, Bill Gates sacrificed the medium-term position of MSN khổng lồ his larger goal of winning the browser war.
How did 3-D moves swing the negotiations in Microsoft’s favor? Microsoft’s web browser was technically inferior to Netscape’s, so the chances of Microsoft winning on those grounds were poor, regardless of its negotiating skills và tactics at the table. Instead, Microsoft shifted the negotiations from Netscape’s technical browser-for-dollars giảm giá toward wider business issues on which it held a decisive edge. Rather than focus on selling to the technologists, Microsoft concentrated on selling to AOL’s businesspeople. As AOL’s lead negotiator and head of business development, David Colburn, stated in his deposition lớn 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 factor that was impossible for Netscape khổng lồ match.” Instead of trying to skillfully play a poor hand when dealing with buổi tiệc nhỏ X on issues A và B, Microsoft changed the trò chơi toward a more compatible counterpart Y, emphasizing issues C, D, & E, on which it was strong.