3-d Negotiation

1. Negotiate in Three Dimensions: Setup, Deal Design, and Tactics

3-D Negotiation is our effort to crystallize this very different set of insights and skills about setup and deal design, as well as tactics.

Setup dimension. The first dimension, setup, involves actions away from the table to create the most favorable situation for negotiation. This includes ensuring the right parties are involved, in the right sequence, dealing with the right issues, at the right time, and with the right consequences for walking away.

Deal design dimension. The second dimension focuses on creating value through creative agreement structures. Deal designers probe beneath surface-level positions to uncover sources of economic and noneconomic value, then structure agreements to unlock that value for all parties.

Tactical dimension. The third dimension encompasses the more familiar interpersonal skills and moves made at the negotiating table. While important, tactics alone are often insufficient for achieving optimal outcomes in complex negotiations.

2. Map All Parties, Interests, and No-Deal Options

To negotiate truly compatible views, consider an explicit and periodic "audit" of all sides' perceptions.

Identify key players. Map out all actual and potential parties involved in or affected by the negotiation. This includes obvious counterparts, but also internal stakeholders, decision-makers, influencers, and those who must implement any agreement.

Uncover true interests. Look beyond stated positions to understand the underlying interests, motivations, and priorities of all parties. Probe for both economic and non-economic interests that may drive decision-making.

Assess alternatives. Evaluate each party's best alternative to a negotiated agreement (BATNA) or "no-deal option." Understanding these alternatives provides insight into each side's leverage and willingness to make concessions.

3. Dovetail Differences to Create Value

Differences of interest or priority can open the door to unbundling different elements and giving each party what it values the most at the least cost to the other (as the Egyptians and Israelis did): a core principle of deal design.

Identify complementary differences. Look for areas where parties have different priorities, valuations, forecasts, risk tolerances, or time preferences. These differences create opportunities for mutually beneficial trades.

Unbundle issues. Break down complex negotiations into component parts to identify more opportunities for value creation. This allows for creative problem-solving and customized solutions.

Structure win-win agreements. Design deals that capitalize on differences to create more value overall. For example:

• Trade low-cost concessions for high-value gains
• Use contingent agreements to bridge different risk tolerances
• Structure payments to match time preferences

4. Move "Northeast" to Expand the Pie

Many otherwise experienced deal makers forget that they can advance their interests in three ways: to claim a bigger share of a small pie, a somewhat smaller share of a much bigger pie, or, best of all, a full share of a very large pie.

Shift from zero-sum thinking. Move beyond the mindset that one party's gain must come at the other's expense. Instead, look for ways to increase the total value available to both sides.

Focus on interests, not positions. Probe beneath stated positions to understand underlying interests and motivations. This opens up more possibilities for creative solutions that satisfy both parties' core needs.

Brainstorm options. Generate multiple potential solutions without immediately evaluating them. This encourages creative thinking and can lead to breakthrough ideas that create more value overall.

5. Design Lasting Deals with Flexibility

While many negotiated agreements are clearly time- and task-limited, it may be a mistake to treat social and economic contracts as fixed and static.

Build in adaptability. Design agreements that can evolve as circumstances change. This may include:

• Contingency clauses
• Renegotiation provisions
• Staged implementation

Consider long-term implications. Look beyond immediate gains to consider how the agreement will function over time. Address potential future scenarios and build in mechanisms to handle them.

Balance flexibility and commitment. While adaptability is important, also ensure there are sufficient commitments to make the deal stable and enforceable. Find the right balance for your specific situation.

6. Negotiate the Spirit of the Deal

Even though the provisions of the economic contract—the letter of the deal on economic terms, governance, and the like—were not in dispute, it was clear that there had been no meeting of the minds on the underlying social contract.

Align expectations. Ensure all parties have a shared understanding of the deal's nature, scope, and duration. Discuss both the "what" (terms) and the "how" (implementation).

Address the social contract. Pay attention to unwritten expectations about how parties will work together, communicate, and handle unforeseen events. These "soft" elements can be critical to long-term success.

Foster relationships. Invest time in building trust and rapport, especially for ongoing partnerships. A positive working relationship can help weather challenges and create future opportunities.

7. Shape Perceptions to Claim Value

When an anchor is introduced into a negotiation, it can shift perceptions of the ZOPA in its direction, thereby increasing the odds that any final agreement will drift toward the anchor.

Use anchoring strategically. Make the first offer when possible to set a favorable reference point. Ensure your anchor is ambitious but justifiable.

Frame proposals effectively. Present your offers in ways that highlight their value to the other party. Connect your proposals to their interests and priorities.

Manage the midpoint effect. Be aware that final agreements often gravitate toward the midpoint between opening offers. Use this knowledge to inform your negotiation strategy.

8. Solve Joint Problems to Create and Claim Value

Without effective tactics to take advantage of a more promising setup and superior deal design, none of these three negotiations would have come to fruition.

Foster collaboration. Create an atmosphere of joint problem-solving rather than adversarial bargaining. This encourages information sharing and creative thinking.

Ask insightful questions. Use open-ended questions to uncover interests, generate options, and test assumptions. Active listening is crucial to gather valuable information.

Manage the tension. Balance cooperative moves to create value with competitive moves to claim it. Be prepared to shift between these modes as appropriate.

9. Map Backward to Craft a 3-D Strategy

To do this effectively in your own negotiations, you must have (1) a clear sense of your target deal, and (2) a clear understanding how the other side sees the deal/no-deal balance.

Define your target. Start by clearly articulating your desired outcome. What does success look like in concrete terms?

Identify barriers. Work backward from your target to identify potential obstacles. These may include setup issues, deal design challenges, or tactical barriers.

Plan your approach. Develop a strategy that addresses each barrier through appropriate setup moves, deal design elements, and tactical choices.

10. Think Strategically, Act Opportunistically

With such a 3-D map, they are able to embrace the most effective negotiating approach we know. Bottom line: Think strategically, but act opportunistically.

Maintain flexibility. While having a clear strategy is important, be prepared to adapt as new information emerges or circumstances change.

Recognize opportunities. Stay alert for unexpected openings or shifts that could lead to better outcomes. Be ready to adjust your approach to capitalize on these moments.

Balance preparation and improvisation. Thorough preparation provides a foundation, but skilled negotiators also excel at thinking on their feet and seizing unforeseen opportunities.

Last updated: October 12, 2024