David Lax is a principal and founder of Lax Sebenius LLC, which specializes in assisting companies in complex negotiations. He and Harvard Business School professor, James Sebenius, are also the co-authors of 3D Negotiation and The Manager as Negotiator.
Dr. Lax was co-founder and Director of the Negotiation Roundtable at the Harvard Business School, where he served as an Assistant Professor. He has been dubbed the “new negotiation theorist” by Forbes Magazine.
McLaughlin: With all that’s been written about negotiation in recent years, what do you think is missing from current negotiating strategies?
Lax: Most people focus on just the first dimension of negotiation, which is what’s happening at the negotiating table. For example, win/win and win/lose negotiation approaches have that emphasis. Most of what is taught on negotiation is really about communication skills. Again it’s an at-the-table focus.
Good negotiators go beyond that to what we call the second dimension of negotiation by addressing the question, “Have we created enough value in the deal for each party?” And that’s not just about price. You should also consider aspects such as payment terms, support, delivery, the use of newer technology or products to cut overall costs, and risk sharing.
Great negotiators add yet another layer. They focus on the third dimension of negotiation, which is getting the right setup, sequence, and process.
McLaughlin: Can you give us an example of how 3-D Negotiation™ works?
Lax: Sure. One of our client CEOs talked with his largest customer about developing a strategic alliance and building cooperation in a variety of areas. In spite of general agreement between the two companies, our client’s key account manager and sales team met with resistance from the customer’s VP of procurement, who was grinding out pennies. It turned into a tough negotiation that felt very unpleasant.
Our client CEO asked us to provide a course in negotiation skills for his team members. Their intention was to improve their persuasive ability and tactics because they assumed that the negotiation was largely about arguing price with a tough customer.
We helped them to step back and look at the negotiation more broadly, which is hard for people to do well when they are in the thick of things.
We suggested that they think about what the procurement VP really cared about. Maybe it would turn out to be a performance bonus, or maybe the criteria for promotion. What else does that person care about? Your negotiation approach should address how you can meet some of those other interests in an effective way.
McLaughlin: What’s the best way to understand the motivations and interests of the people you are negotiating with?
Lax: First, you need to develop your understanding of those motivations and interests well before the negotiation begins. Information is much easier to get before people think you’re negotiating with them.
Second, you need to know the parties beforehand: who are all the potential players and influencers for this negotiation? What’s in it for them? What might get in your way?
Also, is there an issue of trust in interpersonal communication? Is there really enough value in the deal for the other side and for us? Do we have the right setup and the right sequence that will produce the right results?
Especially in big companies we often get this question: “How do we learn about the other side?” Even if you’re dealing with IBM, though, you’re not actually negotiating with IBM. You’re negotiating with a bunch of people and internal process at IBM, and each of those people has different interests and perceptions. What’s important is to figure out what those are.
How do you do that? Well, ask around inside your own company and you’ll probably discover that you have people who’ve negotiated with IBM on similar matters, or used to work for IBM, or used to negotiate for IBM when they worked for another company. Take advantage of the insights within your company.
Also, you can glean a surprising amount of valuable tidbits from public records. Another option is to hire a consultant who is experienced in the industry, used to work for the company you’re negotiating with, or has a lot of experience with that company.
Lastly, you can ask the other parties in the negotiation. If you ask the right questions at the right time, you’d be surprised by how much information people will offer.
McLaughlin: You talk about the need to create and claim value as essential to a successful negotiation. Can you elaborate on that concept?
Lax: Well, one of the useful things that came out in the early 1980s was the notion that people spend too much time and effort on bargaining positions: I tell you my position, you tell me yours, and then we’ll have a tug of war.
In fact, what you need to do is look beyond incompatible positions to find potentially compatible solutions. For example, a private equity firm was negotiating to buy a European consumer brand. It was a fantastic brand that was owned by a holding company and controlled by a European family.
The private equity firm did their present-value calculations and concluded that the company was worth no more than $200 million. The owners were unwilling to sell it for less than $400 million, so they had incompatible positions.
We asked ourselves, “What do the owners care about?” They cared about the cash, of course, but the extra $200 million was not going to make a dent in their lifestyle one way or another. We asked more questions and heard that the family would have a hard time admitting to friends, relatives, and colleagues that they sold the business for such a small sum. So they also cared about the appearance of this deal.
Shortly thereafter, a newspaper published an article saying this company had been sold for $400 million. In reality, the company was sold for $200 million from a private buyer to a private seller. What was going on there?
The buyer had found a way to meet the interests of the seller through the reported sales price. If you ask carefully about the interests of the other side, you often find ways to make the agreement more palatable.
McLaughlin: How do you come to these arrangements and create value for all parties?
Lax: You can do it with trades. As in the previous example, we’ll meet your interest in appearance if you meet our interest in price. You do it with contingent contracts based on forecasts. You do it with risk sharing. You can change the timing of payments and receipts of payments. To create value, you must find ways to make the agreement better for all parties.
That’s often hard to do in the context of the negotiation itself because both parties are trying to claim as much value as they can. In a sense, you’re dividing up a pie. Value claimers try to get as big a slice of the pie as they can. Value creators bake a bigger pie.
In a negotiation you need to do both—expand the pie and get a good piece of it.
McLaughlin: If you could give a negotiator just one piece of advice what would it be?
Lax: Step back from the negotiation and map out the setup: who the parties are, what their interests are, what you’re going to be discussing, and what will happen if you are unable to reach an agreement.
Look at who has to say yes in such a way that you’ll get what you need. Then map backwards from that party to the others who influence that person. Sequence carefully so that when you finally come to the person you’re negotiating with, what you want looks good to that person.
McLaughlin: Thanks for your time.
Find out more about David Lax at www.negotiate.com.