RESEARCH & IDEAS

Negotiating in Three
Dimensions
Q&A with: James Sebenius
Published: October 2, 2006
Author:
Martha Lagace

Executive Summary:
"Negotiation is increasingly a way of life
for effective managers," say HBS professor
James Sebenius and colleague David Lax.
Their new book, 3-D Negotiation, describes
how you can shape important deals through
tactics, deal design, and set-up, and why three
dimensions are more powerful than one. Here's
a Q&A and book excerpt. Key concepts
include:
Three-D negotiation comprises tactics, deal
design, and set-up. Their use depends on the
nature of the barriers you face.
A 3-D strategy is an aligned combination of
set-up moves that occur away from the
table, deal design moves, and tactics at the
table, all designed to overcome the barriers
you've identified.
The best response to a barrier in one
dimension may be moves within other
dimensions.

Tactics, deal design, and set-up are three

crucial components of the most effective
negotiations. Yet many negotiators focus only
on the tactical part, running the risk of
undermining their own best interests. How can
you negotiate more skillfully and confidently
with clients, partners, and adversaries as well as
with colleagues within your organization?
In this Q&A, James Sebenius and David
Lax, authors of 3-D Negotiation: Powerful
Tools to Change the Game in Your Most
Important Deals, discuss the common mistakes
of negotiators, the power of a three-dimensional
approach, why negotiating is an essential skill,
and where the science of negotiation is headed.
Negotiation is a core competence for life,
"not merely an important skill to be wheeled out
for special occasions," they argue.
James K. Sebenius is the Gordon Donaldson
Professor of Business Administration at
Harvard Business School and a principal of Lax
Sebenius LLC, a negotiation strategy firm. He
also serves on the Executive Committee of the
Program on Negotiation at Harvard Law
School. David A. Lax, a former faculty member
at Harvard Business School and investment
banker, is now principal of Lax Sebenius LLC.

Martha Lagace: 3-D Negotiation presents

a multi-dimensional approach for people
who thought negotiation was only about
what happens at the bargaining table. What
common mistakes do you see and what
typical assumptions about negotiation are
you challenging?
James Sebenius and David Lax: Even
experienced negotiators make mistakes in all
three dimensions. Let us start with the least
familiar kind of mistake. Flaws in our third
dimension, the set-up of a negotiation, can take
many forms: wrong parties, wrong issues,
wrong walkaways, wrong sequence, wrong
basic process choices. Here's one common
set-up error (among many): It is easy to make
one kind of mistake in your choice of
negotiating agents. You know the importance of
using a skilled and knowledgeable negotiating
agent as well as crafting a contract that aligns
your agent's incentives with your own. Yet a
well-structured contract with your agent may
not be enough.
For example, top executive pay attorney Joe
Bachelder once took his client aside after the
first negotiating session. The board had selected
his client to be its next CEO and was working
out his compensation package. Bachelder
informed his client that he would end up with
everything he wanted from the negotiation.
Why was Bachelder so confident of total
victory? Because, he explained, the board had
put the firm's well-regarded general counsel in
charge of the negotiations. Why was this a
mistake? It was not an issue of effectiveness:
The general counsel was undoubtedly a skilled
negotiator. Yet, as Bachelder happily informed
his client, "When this is over, you're going to be
that guy's boss. He knows that. He can't fight
you too hard on anything."
In retrospect, the board made a simple
set-up error; it got the parties wrong in this
negotiation. For its representative in these
critical talks, the board should have hired an
outside specialist, with properly aligned
interests and incentives. More generally, you
should look hard at a potential agent's other
interests and relationships to determine whether
he or she is part of the right negotiating set-up.

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

Negotiators sometimes can

discover hidden sources of
value and then craft
agreements to unlock that
value
and
overcome
barriers created by poor
deal design.
Now let's move to some errors in our most
familiar first dimension, face-to-face tactics "at
the table." Negotiators listen and communicate
poorly, make cross-cultural gaffes, fail to
respond effectively to hardball styles, and so on.
One of the most common tactical errors arises
when people become fixated on their bargaining
"positions" rather than probing for the full set of
underlying "interests," or what each side really
cares about. Failure to uncover interests often
leads to mistakes in our second dimension, deal
design, such as treating potentially more
cooperative agreements as pure price deals in
which the interests of the parties are strictly
opposed.
Consider an example of both kinds of
mistakes from the U.S. Midwest. In this case,
environmentalists and farmers opposed a power
company's plans to build a dam. On the surface,
the parties appeared to have deep, irreconcilable
positions, which had resulted in a long
stalemate. Yet a superior deal could be designed
if the parties looked past their stubborn
bargaining positions to their underlying
interests.
By stepping back and mapping the parties'
real interests, it emerged that the farmers were
worried about reduced water flow below the
dam, the environmentalists were focused on the
downstream habitat of the endangered
whooping crane, and the power company
urgently needed new generating capacity and a
greener image. After a costly legal impasse that
threatened to last for years, the three groups
designed a better deal that included a smaller
dam built on a fast track, water-flow guarantees,
downstream habitat protection, and a trust fund

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

to enhance whooping crane habitats elsewhere.

Working solo or jointly at the drawing
board, negotiators sometimes can discover
hidden sources of value and then craft
agreements to unlock that value and overcome
barriers created by poor deal design. Here are
some questions to ask the next time your talks
seem stalled for deal-related reasons:
Is price truly the only issue?
Can we unbundle different aspects of what
looks like a single issue and give each side
what it values mostat low cost to the
other side? Are there other high-benefit,
low-cost trades?
Should we add value-creating contingencies
and risk-sharing provisions to the contract?
Can the contract cope not only with
economic issues but also with the egos
involved?
These are but a few of the many common
negotiating errors we see in practice.
Q: Your 3-D alternative draws on three
dimensions: tactics, deal design, and set-up.
In a nutshell, what do these elements mean
individually and together? Should a
negotiator weigh them equally, especially
under time pressure?
A: Whether your focus should be on one or
a combination of tactics at the table, deal
design, or set-up moves away from the table
depends directly on the nature of the barriers
that you face. When you have a potential deal in
mind, we have developed a set of tools to
quickly perform what we call a "3-D barriers
audit" to determine what barriers stand between
you and your desired agreement. While there
are many specifics, the broad diagnostic
questions follow our three-dimensional scheme.
First, you should ask whether it is a tactical
or people-related barrier like communication,
trust, misperceptions, or the like. Second, you
should ask whether the problem is deal-related:
Does the proposed agreement offer sufficient
value to the parties to be more attractive than no
deal? Does it accomplish their objectives?
Third, are there set-up problems such as wrong
parties, interests, no-deal options, sequence, or
basic process choices?
When talks stall, it's tempting to jump to
conclusions: "It's purely a price gap." "They're
being
unreasonable."
"We're
not
communicating well." "We're in a weak
position." Instead of focusing on the first
explanation that leaps to mind, you should
critically diagnose the key barriers to the kind
of agreement you have in mind; this will then
allow you to devise the most promising
approach to overcoming them. Without an
accurate barriers assessment, the strategy and
tactics you craft may address the wrong
problems.
Imagine that a supplier is negotiating with
an important but difficult client who adamantly
refuses to budge on certain contract terms.
Assuming that they face an interpersonal or

tactical barrier, suppliers often seek training on

the
principles
of
persuasion,
joint
brainstorming, how to make advantageous
initial offers, body language, and so on.
Yet apparent tactical or interpersonal
barriers may actually be another type of
problem. More broadly, the best response to a
barrier in one dimension may be moves within
other dimensions. As the purchasing agent
calms down a bit, for example, he mentions that
cash is very tight, "especially this quarter." Is
this a deal-design barrier? Perhaps a delayed
payment schedule would do the trick, with the
bulk of the payment due when procurement
budgets are replenished.
The frustrated supplier also may be
overlooking a fundamental set-up barrier.
While top management from both firms might
speak of the importance of "partnership" and
"quality," the purchasing agent may be
motivated by monthly targets and pennies
ground out of suppliers. To succeed, the
supplier may need to create a more promising
set-up with more sympathetic parties involved
in the negotiation.

When talks
tempting to
conclusions.

stall,
jump

it's
to

This can mean finding and nurturing an

influential internal champion on the other side
who would truly benefit from added quality and
service. The supplier might induce such an
advocate to persuade the agent on her behalf,
directly or via links to senior management.
Beyond a good proposal and the effective
interpersonal skills needed in the initial
two-party negotiation, a three- or four-party
set-upinternal
champion
plus
senior
management in addition to the supplier and
agentcan maximize the odds of the supplier's
success at the ground level.
The broader point is to do a 3-D barriers
audit, then craft a 3-D strategy to overcome
those specific barriers. A 3-D strategy is an
aligned combination of set-up moves away
from the table, deal design moves "on the
drawing board," and tactics "at the table" all
tailored to overcome the barriers you've
identified.
Q: One-on-one negotiations are often
tough, but the complexity is magnified
during multiparty negotiations, especially
when some of the interested parties are not
obvious. How do you advise flagging all key
influencers?
A: To get the set-up of a negotiation right,
you need to get the parties right. You might
think that the parties are simply you and the
person on the other side of the table, but it is
often much more complex, requiring an act of
disciplined imagination rather than a
mechanical list. In our new book, we

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

systematically work through ways to get the

right "all-party map." In a nutshell, you need to
take a disciplined look beyond the usual
suspects to figure out who might really matter:
potential and actual parties, internal and
external players, principals and agents, decision
makers and influencers, allies and blockers, and
high- and low-value parties, as well as those
who must approve and implement the deal. Map
the relationships among those on your all-party
map by assessing the informal as well as the
formal decision and governance processes.
For example, to improve the odds of your
ultimate target saying "yes," we often use a
process called "backward mapping." Start by
trying to discern who influences the target
player and to whom that player defers. For
example, when we were advising a client who
was eager to sell his company, we counseled
him against his instincts to quickly open serious
negotiations with a potential acquirer's CEO.
Instead, we researched whom the CEO would
turn to regarding acquisitions. Of course, his
CFO would be pivotal. Continuing to map
backwards from the CFO, we turned up an
analyst in the finance department whom the
CFO deeply respected and who would almost
certainly do the valuation work on this
somewhat unorthodox deal. After initial contact
with the CEO, we spent a great deal of time
ensuring that the key analyst bought into the
deal. When intensive negotiations finally began
with the CEO, the groundwork had been laid.
The CEO turned to his CFO, who turned to his
key analyst, who made our case from the inside.
Q: You've asserted that negotiation
should be a core skill for virtually all
managers. Why? How can managers who are
not directly involved with deal making assess
and hone their own skills on a regular basis?
A: Most important managerial problems
involve people whose interests and perceptions
are in some conflict. Effective management and
leadership often depend on the capacity to
envision and bring about sustainable
agreements among these parties. This is true
with respect to discrete transactions such as
mergers, labor contracts, and out-of-court
settlements. It is true when working out new
supplier and customer relationships, dealing
with large shareholders and creditors, as well as
initiating and managing cross-border strategic
alliances. It is true inside the firm where people
from different functional areas and divisions
need to reach and implement new cooperative
arrangements in response to change. It is true
with respect to conflicts arising from the
interaction of businesses with governments as
well as with environmental and other
nongovernmental organizations. It is true as
workforces become more diverse and business
increasingly crosses borders and cultures. And
it is endlessly true for entrepreneurs who must
come to productive terms with investors,
potential employees and board members,

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

technology partners, distributors, and possible

acquisitions as well as would-be acquirers.
Yet beyond such formal deals, negotiation is
increasingly a way of life for effective
managers for at least three sets of reasons.
First, formal authority, hierarchy, and
command are less and less able by themselves
to ensure productive cooperation and genuine
commitment. This is the case internally where
cross-functional and inter-unit coordination is
crucial and where greater professionalization
means that key employees and colleagues both
have and value more autonomy. It is also true
externally with an increasing number of
influential stakeholders outside the traditional
chain of command. Newer and flatter
organizational formsstrategic alliances, joint
ventures, tightly-knit supply chains across
different firms, virtual corporations, network
entities,
as
well
as
team-based
processesgenerally require almost continuous
negotiation to function effectively.
Second, the sheer pace of change in
markets, technologies, and competition puts a
sharply increased premium on the capacity of
organizations to flexibly respond by devising
new arrangements and renegotiating the old
ones. Salient examples requiring some truly
complex negotiations include the convergence
of computing, telecommunications, and
information/entertainment sectors as well as a
steady flow of restructurings, especially in
heavily leveraged parts of the corporate,
financial, and real estate sectors. Operationally,
"flexibility" in the face of a faster pace of
changecombined with an increasing number
of influential stakeholdersmeans that
yesterday's arrangements must be reworked into
today's, and that today's will have to be altered
to meet the needs of tomorrow. Persuading key
stakeholders to abandon familiar practices and
perceived entitlements can severely test a
manager's negotiation skills.
Third, increasing demographic diversity of
the work force and genuine globalization of
business raise the risks of unproductive cultural
misunderstandings and costly conflict. These
outcomes can often be prevented or mitigated
by effective negotiation. In short, negotiation
has always been a useful skill for managers to
deal with disputes and to make deals. But with
more influential stakeholders, with authority
and hierarchy necessary but decreasingly
sufficient, with looser organizational forms,
with an increased pace of change, and with
greater diversity and global reach, negotiation
assumes greater importance. For effective
managers, it is a way of life, a new core
competence, not merely an important skill to be
wheeled out for special occasions.
To hone their negotiation skills, the first
requirement is to recognize the prevalence of
formal and informal negotiating situations.
Then, naturally, we suggest becoming familiar
with the framework of 3-D negotiation. Much
like the job of a manager, 3-D negotiation is not

merely an interpersonal task, but also a

substantive one (designing value-creating
arrangements), and an architectural one (getting
the set-up right to induce maximally productive
cooperation).

influence are really on board.

You'll find the counterpart of Brahimi's
thought process in many complex private-sector
deals. And this is but one relatively
straightforward example.

Q: Given geopolitical tensions today,

what are the complexities of the challenges
facing professional negotiators whose work is
very high-stakes? If it's possible to
generalize, how do you view the skills and
practices of most negotiators working on
high-stakes issues? Are there large or
different "skill issues" compared to previous
periods of time you've witnessed?
A: There is a fruitful dialogue underway
between people negotiating business, legal, and
financial deals and their international
counterparts
faced
with
life-and-death
negotiating challenges. Each group can learn
important lessons from the other since there are
remarkably many similarities.
Here at Harvard, we have initiated and
hosted an annual Great Negotiator Award series
over the past six years, sponsored by an
inter-university consortium of Harvard, MIT,
and Tufts through the Program on Negotiation.
Honorees have included such figures as George
Mitchell, Charlene Barshefsky, Richard
Holbrooke, Lakdhar Brahimi, Stuart Eizenstadt,
and Sadako Ogata. We've written detailed cases
on the most challenging negotiations faced by
these remarkable men and womenwhether
ending the war in Bosnia, creating an interim
government in Afghanistan, crafting a
U.S.-Chinese trade deal over intellectual
property, or getting Protestants and Catholics in
Northern Ireland to come to terms. By spending
intensive time with these great negotiators,
writing cases on their most challenging deals,
and relentlessly probing their thought processes
and approaches to some of the world's most
difficult negotiations, we are able to add even
more valuable source material to our
intellectual and practical treasury.
For example, when you asked above about
how to get the right parties involved to set up
the most promising negotiation, we might have
drawn on the experience of one of our
awardees, veteran U.N. diplomat Lakdhar
Brahimi. Prior to his recent efforts negotiating
interim governments in Afghanistan and Iraq,
he took the lead in ending the bloody,
seventeen-year civil war in Lebanon. Should the
negotiating set-up simply include the leaders of
the warring factions? No. As Brahimi recalls:
we met in Jedda [Saudi Arabia] to discuss
our plan. We needed the Americans with us.
We needed the United Nations with us. We
needed France with us because France was very
close to the Christians and we needed the
Vatican, which is a very important player there.
So we went to Beirut, Damascus, Baghdad,
Paris, Rome, Washington, New York, London,
Moscow, and Beijing. That is the first step to
make sure that all the people who carry some

Q: You have a chapter coming out in the

new book Advances in Decision Analysis
called "Negotiation Analysis: Between
Decisions and Games." Please tell us more
about the emerging field of negotiation
analysis and what it could mean for
managers. Where do you see this field going
in the future?
A: This fairly technical chapter, mainly
written for scholars and specialists, is Jim's
current take on the field increasingly referred to
as "negotiation analysis" that was pioneered by
HBS emeritus professor Howard Raiffa, to
whom both of us owe a great deal.
Raiffa's approach essentially joins two
initially separated intellectual traditions, the
descriptive and the prescriptive. For many
years, cognitive and social scientists performed
careful laboratory experiments to determine
what subjects actually do in negotiating
situations, typically where better performance is
rewarded with good money. This work led to
many insights, but was fundamentally
descriptive in nature. Meanwhile, largely in
parallel, decision and game theorists typically
analyzed what ultra-rational people would (or
should) optimally do when interacting with
other similar beings in negotiations. Of course,
real people do not typically act in the
ultra-rational manner assumed by such
"symmetrically prescriptive" models.
Howard Raiffa's intellectual innovation,
since furthered by others such as HBS professor
Max Bazerman, was to make his highly rational
prescriptive advice conditional on the most
empirically accurate description of what people
actually do, often as studied by behavioral
scientists. In a nutshell, this is the intellectual
approach of negotiation analysis: to generate
the best possible advice to one side given the
most faithful possible descriptions of likely
behavior of the other side or sides.
We have contributed to all aspects of this
negotiation analytic quest, both theoretical and
empirical, but especially by extensive fieldwork
studying great negotiators and challenging
negotiations. We've also spent years, as part of
each of our nonacademic careersas
investment bankers, entrepreneurs, and in
government agencies such as the State
Departmentboth doing deals directly and
advising on them. This long-term engagement
with deals and dealmakers has left us
increasingly dissatisfied with the "one
dimensional" model that dominates most
current thinking about negotiation. This model
is primarily focused on the face-to-face tactical
interplay "at the table." Extensive field
observation and analysis has led us to codify the
3-D approach in which moves away from the

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

table set up the most promising situation.

Of course we are hardly alone. Exceedingly
popular negotiation courses for MBAs and
executives abound at major business schools.
Negotiation analysis, in all its three
dimensionstactics, deal design, and set upis
the province of a wide range of scholars. We're
very bullish on the field.
Excerpt from "Get the No-Deal Options
Right," 3-D Negotiation: Powerful Tools to
Change the Game in Your Most Important
Deals, by David A. Lax and James Sebenius.
Editor's Note: Often stuck in a tired
"win-win vs. win-lose" debate, many
negotiation books focus exclusively on
face-to-face tactics at the table. Yet, hard or
soft, table tactics are only the "first dimension"
of David A. Lax and James K. Sebenius' new
"3-D negotiation" approach, developed from
their decades of doing deals and analyzing great
dealmakers.
Moves
in
their
"second
dimension"deal
designsystematically
unlock economic and noneconomic value by
creatively structuring agreements for the long
term.
But what really sets the 3-D approach apart
is its "third dimension": set up. Before even
showing up at a bargaining session, 3-D
negotiators ensure that the right parties have
been approached, in the right sequence, to
address the right interests, by the right process,
and facing the right consequences of walking
away if there is no deal. This new arsenal of
moves away from the tableto set up or reset
the situation most favorablyoften has the
greatest impact on the negotiated outcome.
Superior set-up moves plus insightful deal
designs can enable you to reach remarkable
agreements at the table, unattainable by
standard tactics.
Several elements of a negotiation comprise
its set up: the actual and potential parties, the
full set of their interests, each side's best
no-deal option, the sequencing, and basic
process choices. Great negotiators work hard to
ensure that all these elements add up to the most
favorable possible set up.
In this excerpt from 3-D Negotiation, Lax
and Sebenius introduce one critical set-up
factor: each side's best no-deal option, or
walkaway. The negotiating implications of what
you (and your counterparts) would do in the
event of no deal has a long history, but has been
most memorably captured by Roger Fisher, Bill
Ury, and Bruce Patton in Getting to Yes as the
"BATNA," or Best Alternative to Negotiated
Agreement. Lax and Sebenius take this idea
several steps further in their introduction to the
importance of each side's best no-deal option.
Excerpt:
Many inexperienced negotiators think that
they must hang on at all costs until a deal is
done. But they'd be wise to listen to the words
of Robert Rubin, former U.S. Secretary of the
Treasury and cochairman of Goldman Sachs:

"When others sense your willingness to walk

away, your hand is strengthened Sometimes
you are better off not getting to yes."1 Both the
perception and reality of no-deal options play a
key role in most negotiations. Let's get really
basic for a moment: Contrast two distinct
situations in which you might negotiate with a
new car salesperson.
Situation 1: The salesperson has the strong
impression that you have firmly decided on
the car of your dreamscall it car Aand
it is right there on his lot. You are obviously
a serious buyer. As you settle into the chairs
in front of the salesperson's desk, your
spouse tells you firmly, "Honey, we've
looked for a long time and we've seen
absolutely nothing. Our old clunker may not
even make it off this lot. This car is
perfect!" Now you sit down to talk price.
Situation 2: The salesperson sees you
debating with yourself whether you really
prefer car A (same as previous) that's right
there on his lot, or a car (car B) that's at a
different dealership. This time your spouse
exudes ambivalence: "Honey, I think I
prefer car B." Yes, you like car A a lot, but
car B has a few features that you clearly
prefer, and it is also priced below car A. In
this scenario, you are negotiating the price
of car A in order to help you decide whether
to choose it over that other nice car, which
you also like a lot, but, conveniently, is
elsewhere, but not too far away. Now you
sit down to talk price.
It won't surprise you to read that you are
likely to strike a far better price in Situation
2in which you appear to have an excellent
no-deal option and the willingness to choose
itcompared with the price you work out in
Situation 1, in which you appear to have no
good alternative to car A. Much more broadly
than this simple situation, getting the set-up
right means getting each side's no-deal options
right. And getting no-deal options right is
fundamental to each side's choice of "yes" or
"no."
Should you ultimately say "yes" to a
proposed deal? The answer to that question
depends on more than simply the value of that
deal. It also depends on a comparison of your
options in which you determine whether, to
you, the value of saying yes exceeds the value
of saying no. Sometimes, going back to Rubin's
words, you are better off not getting to yes. And
the same logic, of course, holds true for your
counterparts across the table.
The particulars of a proposed deal define the
value of "yes." But how is the value of "no"
determined? It depends on how well your
interests are served by choosing your best
"no-deal" optionthe most promising course of
action you would take if you decided to say no
to the proposed deal. Along with getting all the
parties right and mapping their interests
accurately,
understandingand
often

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

shapingeverybody's best no-deal option is the

third fundamental element of a negotiation's
set-up.2
Your best no-deal option may involve
simply walking away and doing without any
agreement. (What will the consequences of that
course of action be?) It may involve going to
another dealer, supplier, or buyer, making
something in-house rather than procuring it
externally, going to court rather than settling,
forming a different coalition or alliance, or
taking a strike. In the case of multinational
peace talks, one nation's best no-deal option
may involve anything ranging from the
imposition of economic sanctions all the way up
to the unilateral use of forceblockading,
bombing, or invading. And, in the course of
negotiating, your best no-deal option may be to
continue the process, perhaps in the hope of a
better offer. In all cases, assessing your no-deal
option helps establish the critical relevant
threshold: as compared to what? Meanwhile, of
course, the other side is (at least informally)
making its own assessment of its best no-deal
option.
When we work with our clients, we
frequently talk in terms of the "deal/no-deal
balance." Picture an old-fashioned scale with
two pans. On one of the pans you stack up the
value of your best no-deal option, and on the
other pan, you stack up the value of saying yes
to the proposed deal. As the negotiations
proceed, you regularly "check the scale,"
metaphorically speaking, to see how your
deal/no-deal balance looks. Although the
negotiations often focus on the "yes pan," your
actions as well as outside-world factors may be
affecting the "no pan," as well. Plus, the other
side may have its finger on the scale too: busily
improving its no-deal optionsand, perhaps,
trying to worsen yours. Whatever is going on in
the negotiation, your best no-deal option sets
the hurdlein terms of the full set of your
intereststhat any agreement must clear to be
acceptable. Ditto for them.
All too often, negotiators get caught up in
intense tactical interplay at the table. It feels
like that's where the action is, and where your
attention should be focused. Many negotiators,
even experienced ones, pay insufficient
attention to (1) their best no-deal option, and (2)
the deal/no-deal balance. In too many cases,
they treat their no-deal options mainly as
afterthoughts, rather than as primary elements
of the set-up. This can be a fatal mistake. Like
parties and interestsno-deal options are
foundational to favorably shaping the set-up:
defining necessary conditions for any deal,
strongly influencing outcomes, and often
suggesting actions away from the table to set up
more promising situations.
In the balance of this chapter, we'll present
five prescriptions for using the power of no-deal
options to drive great deals.
1. Use your best no-deal option, and

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2.

3.

4.

5.

those of the other negotiating parties,

to determine whether and, if so,
where a zone of possible agreement
exists.
Make sure the other side sees you as
ultimately able and willing to walk
away. When your counterpart(s)
perceives a credible increase in your
willingness
to
walk
awayespecially in the direction of
an attractive no-deal optionyour
at-the-table outcomes often improve.
Therefore, take steps to improve
your best no-deal option and
consider actions to worsen that of
your counterpart.
Take care to protectand do not
inadvertently weakenyour no-deal
options.
Consider worsening your own
no-deal option in certain very
carefully selected circumstances.
When diagnosing a potential
negotiation, use your understanding
of no-deal options to distinguish
between those situations in which
negotiation can play a major role and
those in which it must play a lesser
role.

Determine if a zone of
possible agreement exists
One simplified way to view negotiations is
to see them as a sort of tug of wara battle that
takes place along an adversarial line segment
(the "rope"), with the seller tugging toward
"high" and the buyer tugging toward "low." The
buyer's
closely-guarded
true
maximum
determines the one end of the line segment (i.e.,
the maximum acceptable price if there is to be a
deal), and the seller's equally well-guarded true
minimum bounds the other end (i.e., the
minimum acceptable price if there is to be a
deal). It doesn't much matter whether the tug of
war concerns the price of a car or a house, an
insurance settlement, or the sale price of a
company. In all cases, you should keep the
mental image of the "price line segment" in
mind; it has a very tight relationship to each
side's best no-deal option.
Your best no-deal option, again, is the most
attractive course of action you could take in the
event of no agreement in the current
negotiation. The value you place on your best
no-deal option sets the barin terms of the full
set of your intereststhat any agreement must
exceed to be acceptable; this is also true for the
other side. As such, no-deal options imply the
existence or absence of a Zone of Possible
Agreement (ZOPA), a bit of jargon we find
useful. The ZOPA simply means the set of
possible agreements that is better for each side,
given its interests, than its best no-deal option.
Suppose that the seller's true minimum falls

below the buyer's true maximum, as depicted in

Figure 6-1. In this case, a potentially profitable
ZOPA exists; that is, agreement can be better
for each side than the value of its best no-deal
option.
To be more concrete, let's say that Joe is
selling his condo and has an acceptable offer (to
him) for $450,000. Betty, meanwhile, would
pay up to $500,000 for Joe's condo, rather than
(a) buying another condo or (b) doing without a
condo. The Joe-Betty ZOPA, therefore,
obviously exists and is the set of prices between
$450,000 and $500,000.
Of course, it's easy to imagine a scenario
with no ZOPA. For example: If Joe already had
a $500,000 offer while Betty could buy exactly
what she wanted elsewhere for $450,000,
there'd be no ZOPA for Joe and Betty.
Each side typically knows its own limits,
which it must continually assess and reassess as
new information unfolds. The problem is that
many negotiators have only a hazy sense of
their own no-deal options, or how to value
themespecially when it comes to more
complex no-deal options than the simple
buy-sell price deal we've been using to illustrate
our points so far. If Joe and Betty were involved
in trying to settle a major class-action lawsuit,
rather than selling and buying a condo, the
no-deal options would be considerably more
difficult to calculate.
Let's see how accurately assessing the true
ZOPAtrivial in theory, but tricky in
practicecan be immensely profitable when
done well. Sometimes the most important
attributes of the other side's no-deal options can
be invisibleunless you actively look for them.
We once advised an American firm during a
lengthy negotiation with a major Japanese
company. The stated goal of the talks was to
create a large-scale joint venture under Japanese
control. In fact, creating this joint venture
would represent a sale of about two-thirds of
the U.S. firm, permitting it to concentrate on
what it felt to be another business line with
higher potential. During an excruciatingly
detailed, two-year process, the negotiations
were suspended several times, due to what the
Japanese negotiators described as a "breakdown
of its internal consensus process." Each time,
however, the Japanese managed to resume
negotiations, after painstaking internal efforts to
rebuild and strengthen consensus within their
company on the central role of the deal to their
long-term global strategy.
When a European firm unexpectedly made a
tender offer for the entire American business,
the Japanese firm suddenly had to fish or cut
bait. When the Japanese signaled their intention
to intensify the negotiationsin part to head off
the Europeansnegotiators for the U.S. firm
reassessed the ZOPA on price: that is, the least
that the U.S. firm would accept and the most the
Japanese company would pay for majority
control of the part of the U.S. business to be

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

contributed to the joint venture.

Obviously, the price ZOPA depended on
financial valuations, including the strategic
benefits and costs to each side of completing
the transaction. Yet, at the very last moment
before the U.S. board was about to authorize its
negotiators to proceed in the final deal process,
we pressed our client to think once again about
the reality of the Japanese no-deal option. We
quickly reviewed the other strategic options
open to the Japanese firm and confirmed their
undesirability.
This last-minute, deeper look at the
Japanese situation, moreover, began to focus
our collective attention on the internal
consequences of no deal to our Japanese
counterparts. Having worked through a grueling
consensus process, virtually everyone at the
Japanese companyfrom the major owners, to
the board to senior managers, to all those
subunits that had required that massive
persuasion effortwas deeply committed to
doing this deal. The company was cash-rich, so
minimizing the price of the deal was important,
but not central.
Armed with this understanding, the U.S.
negotiators were able to leverage the Japanese
company's nearly irresistible organizational
momentumthe firm had spent over two years
mentally integrating the U.S. operations into its
long-term strategy. Now, rather than face the
extreme internal organizational costs of
"losing," the Japanese firm agreed to pay an
extraordinarily high amount for the U.S. firm,
far more than would have been the case absent
the frustratingly lengthy consensus process. (In
fact, it was almost triple its share price at the
outset of the process.) One American negotiator
described how, in effect, the Japanese entity had
"fallen in love" over time with its targetand
paid the price.
This exceedingly profitable outcome (from
the American point of view) probably would
not have been possible had the U.S. negotiators
thought of the transaction in conventional
valuation terms and focused on external no-deal
options. Instead, the other side's consensus
processwhen recognized by the U.S. side as
affecting the Japanese no-deal optionwas
used to recognize that the true ZOPA extended
well beyond what would otherwise have been
justifiable.
Excerpted by permission of Harvard
Business School Press from 3-D Negotiation:
Powerful Tools to Change the Game in Your
Most Important Deals. Copyright 2006 David
A. Lax and James K. Sebenius; all rights
reserved. To order, please call (800) 988-0886
or
purchase
online:
http://harvardbusinessonline.hbsp.harvard.edu/.
1. For these quotes and many other
descriptions
of
Rubin's
approach
to
negotiations, see R. E. Rubin and J. Weisberg,
Uncertain World: Tough Choices from Wall
Street to Washington (New York: Random

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

House, 2003), 118, 168.

2. Negotiation experts Roger Fisher, Bill
Ury, and Bruce Patton coined a useful acronym
to capture this concept: BATNA, short for best
alternative to a negotiated agreement. See R.
Fisher, W. Ury, and B. Patton, Getting to Yes:
Negotiating Agreement Without Giving In (New
York: Penguin, 1991). We like the term, but
have used "best no-deal option" instead simply
to avoid jargon. The importance of no-deal
options has quite a long intellectual history and
many implications for bargaining, which we
first detailed in our article "The Power of
Alternatives or the Limits to Negotiation"
(Negotiation Journal 1, no. 2 [1985]: 163-179).

About the authors

Martha Lagace is Senior Editor of HBS
Working Knowledge.
David A. Lax is a former faculty member at
Harvard Business School and an investment
banker. He is now a principal of Lax Sebenius
LLC, a negotiation strategy firm.
James K. Sebenius is a principal of Lax
Sebenius LLC. He is the Gordon Donaldson
Professor of Business Administration at
Harvard Business School and serves on the
Executive Committee of the Program on
Negotiation at Harvard Law School.

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

Figure 6-1
The ZOPA (Zone of Possible Agreement) as a
Battle Line
Seller's
Buyer's
minimum
maximum