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New tools for


Tera Allas and Nikos Georgiades
A few simple ideas make it possible to construct powerful strategies for even the most complex deals.

egotiations are the stuff of business life, and volumes of advice tell managers how to prepare for and conduct them. But most of the advice applies to deals that are simpler than those pursued today. Negotiations nowtypically involve many parties that have an interest in the outcome— the “stakeholders”—and require decisions on many complex issues. Immense sums of money may ride on the outcome.




Sophisticated support for negotiators is available—for example, computer simulation models based on dynamic game theory. These models can predict the behavior of stakeholders in multipartydeals and guide negotiators to winning strategies. As yet, however, few business leaders feel comfortable surrendering their personal judgment on such crucial issues to a “black box.” We have therefore been developing a middle way: a set of readily understood tools to help decision makers in complex multiparty negotiations.1 With the help of these tools, negotiators can develop strategies that are notonly

The methodology builds on the theoretical and empirical work carried out by Decision Insights Incorporated (DII), a consulting company specializing in the computer-supported simulation of negotiations and political decisions. In particular, DII’s dynamic-game-theory model for conducting multiparty negotiations gave us the concepts of “position,” “salience,” and “clout,” which arefundamental to analyzing the behavior of stakeholders in negotiations.


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favorable to them but also palatable to the other parties. This method rests on the same logic as sophisticated simulation tools but doesn’t require an elaborate computer model. It has been used so far to develop strategies for several real-life negotiationsand is appropriate whenever many stakeholders have different goals on a number of issues and the final decision emerges from bargaining among those stakeholders. The tools are therefore relevant to mergers and acquisitions, partnerships and alliances, regulatory rulings, litigation, and labor disputes—in short, to many of the items at the Who are a deal maker’s allies and top of a chief executiveofficer’s enemies? What is the chance that agenda.

a particular outcome will stick?
Applying the tools at the start of a deal should answer many crucial questions. Who are a deal maker’s true allies and enemies? What is the chance that a particular outcome will stick? Who is worth lobbying for support on particular issues? What bargaining chips can be traded for that support? Used together,these fact-based tools suggest effective strategies for arriving at decisions that all parties can accept, and they help negotiators refine their plan of action as circumstances change. To see how the tools operate, consider how they helped negotiators in two real situations.

Power play
A European government decided to liberalize its electricity generation and supply industry. One major move incarrying out that plan was the privatization of a near-monopoly utility, which we will call Power. Negotiations had to be conducted on several issues, including the level of end-customer tariffs that Power could charge, the wholesale-market structure most appropriate for competition, and the possible forced sale of Power’s generating plants. Power’s first task was to identify the key issues and therange of possible outcomes for each. On the tariff issue, for example, the regulator proposed a one-off cut of 15 percent in tariffs charged to end customers. Power, by contrast, aimed to keep the existing tariff levels. In addition to such obvious issues, Power considered several others, such as “green” subsidies: higher tariffs for electricity produced at environmentally friendly plants. Some...
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