Short Takes
Selected new research by HBS faculty.

Negotiating in 3-D: An Overarching Way to Get to Yes?

From resolving a labor dispute, to orchestrating a merger, to getting a new company off the ground, negotiation plays a vital role in nearly every facet of business. In a course note titled "Negotiation Analysis: Summary Framework and Examples," HBS professor James K. Sebenius (with David A. Lax) has developed a "three-dimensional" model that, in addition to utilizing two familiar and traditional aspects of negotiation, offers a third, multifaceted approach that has enormous potential to increase effective negotiation.

According to Sebenius, the first dimension - by far the most studied and familiar - consists mainly of the process taking place at the bargaining table, elements such as setting a positive atmosphere, establishing trust, and being persuasive, creative, and sensitive. It also includes deciding who makes an opening offer and when, how high or low it should be, and the dynamics of successive counteroffers.

The second dimension moves beyond process to substance, with a focus on designing sustainable agreements that create value. While a one-dimensional negotiation, especially if inexperienced participants are involved, may get bogged down in a battle of bargaining positions, a two-dimensional negotiation is informed by the search for any deeper interests that may underlie the parties' positions. For example, during a seemingly intractable dispute over the Sinai, negotiators concluded that the Israelis cared more about security, while the Egyptians were more concerned about sovereignty. The solution was to establish a buffer zone under the Egyptian flag rather than continue a vain zero-sum search over where to draw a boundary line in the sand.

The third dimension challenges the basic architecture of negotiation and considers what each party might do if the two-dimensional approach cannot render an outcome acceptable to participants. Its most familiar element involves what each party will do if no deal can be reached - in other words, the "best alternative to negotiated agreement" or "BATNA." Rather than expending efforts at the bargaining table seeking to improve a potential deal that under the best of terms may still be unsatisfactory, more sophisticated negotiators carefully assess whether those efforts might be better spent away from the table, generating competing offers or involving other parties - activities, in other words, that tend to enhance one's BATNA.

Sebenius cites the example of Kennecott Copper Corporation, which a number of years ago was faced with what the company felt might be an eventual government takeover of its mines in Chile. Simply continuing a narrow, legalistic relationship-by-contract with the state would leave the company vulnerable to expropriation. So Kennecott undertook to strengthen its bargaining position and enlarge its negotiating parameters by repositioning itself vis-à-vis the larger Chilean society. The company gained leverage by transforming the situation into a multilateral business deal involving a number of players that had strong and stabilizing connections with various nonmining quarters of Chilean life, including the financial, industrial, and legal sectors. "Kennecott involved a variety of other parties that it could count on for support, and it changed the nature of Chile's BATNA in favor of the company," Sebenius observes.

The three dimensions of his model, Sebenius says, are related and cumulative rather than separate, with the most effective negotiators often crafting mutually reinforcing moves from each dimension. He emphasizes the importance of how each party's interest and BATNA interact to set up a joint problem. "A 3-D negotiator solves that problem elegantly by using both process insight and substantive understanding, by taking actions both at and away from the table, and by playing the given Œgame' well and changing it advantageously," Sebenius says. "Options can be framed in such a way that what you choose in your perceived interest is in fact what I want. Ideally, I can build an attractive bridge from where you are now to where I would like you to be."

by Anita M. Harris

The Message and the Media: Advertising's Brave New World

Long defined almost exclusively in terms of print and broadcast outlets, mass media as an industry has been undergoing a major transformation - and that means big changes for the advertising industry, too. The Internet, for example, which doubled its advertising revenues between 1997 and 1998, now generates more than $1 billion annually in ad revenues. That puts the Internet ahead of two long-established media sectors, network radio and billboards.

In a new working paper titled "Restructuring in the U.S. Advertising Media Industry" (coauthored with HBS doctoral candidate Lisa R. Klein and MIT professor Ernest R. Berndt), HBS professor Alvin J. Silk looks at both internal and external forces affecting the industry, with particular attention to the impact of the Internet. According to Silk and his colleagues, changes in the industry's external environment fit into three broad categories: technical, regulatory, and economic. Advances in technology, which enhance existing advertising capabilities and create new ones, reach well beyond the Internet and include things such as innovative new software, sophisticated data management systems, and convergence technologies such as broadband. On the regulatory front, the Telecommunications Act of 1996 and a relaxation of restrictions on multiple ownership of media outlets are realigning and consolidating the power of media ownership. Lastly, in the economic arena, a wave of mergers and acquisitions has reshaped the industry with companies strengthening themselves across several media activities. Thus Disney, which began as an entertainment provider before adding network and cable television companies, now owns a 43 percent stake in Infoseek, the Internet search firm, and has become a true multimedia giant. "Companies are attempting to expand their market power through vertical and horizontal integration," Silk explains.

Within the media industry, a central fact is that its many actors, from venerable big-city dailies to the hottest Internet sites, are competing for a limited pool of dollars as spending by national advertisers increases only modestly. The traditional face of the industry has changed, with "full-service" agency-client relationships giving way to cost cutting, streamlining, and consolidation. Outright alternatives to advertising - including options such as publicity, product sampling, and sales promotion - are on the increase. These substitutes compete directly with traditional media for advertisers' marketing dollars. Similarly, mergers between media providers and content suppliers (such as news and entertainment programming) also influence industry structure, as illustrated by the merger that produced Time Warner.

Technology-driven new entrants are also changing the industry and none more so than the Internet. Will the Internet eventually replace television as a major consumer-advertising medium, or will it remain a secondary choice of advertisers, used as an adjunct to television? The answer, according to Silk and his colleagues, lies in a given medium's ability to reach efficiently - and hold onto - an advertiser's target audience and to be flexible and responsive to the advertiser's requirements and demands. Because of its ability to do these three things, Silk says, "the Internet looms as a potential complement or substitute for all of the major categories of existing media and appears capable of serving a wide range of communications objectives for a broad array of advertisers."

Silk and his colleagues note that their research points to an industry whose future is fraught with increasing rivalry and change and one that will be characterized by continued downward pressure on advertising rates. As Nobel Laureate Herbert A. Simon once said, "A wealth of information creates a poverty of attention." "That has always been advertising's problem," Silk concludes, "and in an age of new media, it will continue to loom large."

by Peter K. Jacobs

(This issue's "Short Takes" are adapted from articles that appeared in the Summer 1999 edition of Working Knowledge, a publication of the HBS Division of Research.)

A Stitch in Time
(Second Edition)
by Frederick H. Abernathy, John T. Dunlop, Janice H. Hammond, and David Weil
(Oxford University Press)

Spurred on by advances in information technology, a retailing revolution has been taking place during the past two decades, especially in the apparel and textile sectors. A new book by HBS professor Janice H. Hammond and coauthors Frederick H. Abernathy, John T. Dunlop (both of Harvard University), and David Weil (of Boston University) examines this transformation. A Stitch in Time: Lean Retailing and the Transformation of Manufacturing - Lessons from the Apparel and Textile Industries is based on eight years of study.

The keys to success in an age of product proliferation, the authors found, are no longer economies of scale and cheap labor but an up-to-the-minute knowledge of what is selling and what is not, flexible manufacturing capabilities that can respond appropriately to demand, lean inventories, and the rapid replenishment of stock. "The old way was to gear planning and production decisions to forecasts and guesses made months in advance of a selling season," write Hammond and her colleagues. "Now firms receive periodic ongoing orders based on actual consumer expenditures. Lean retailing allows department stores, mass merchandisers, and other retail outlets to capitalize on information, allowing them to minimize their exposure to demand uncertainty."

Given this new scenario and the changes in technology, management, and manufacturing practices documented in their book, the authors are optimistic about the future of U.S. apparel and textile firms. "This important sector of our economy is more advanced and productive than ever," concludes Hammond. "As Mark Twain might have put it, any reports of its impending death are greatly exaggerated."

by James E. Aisner

(Adapted from the Winter 1999 edition of Working Knowledge, a publication of the HBS Division of Research.)

The Real Estate Game
by William J. Poorvu with Jeffrey L. Cruikshank
(Free Press)

T he multitrillion dollar real-estate industry is a potential gold mine for smart participants, but successful investing, whether direct or through syndicates and REITs, is a complicated undertaking. In The Real Estate Game: The Intelligent Guide to Decision-Making and Investment, HBS adjunct professor William J. Poorvu (with Jeffrey L. Cruikshank) draws on his experience in developing, owning, and managing properties to offer fascinating perspectives on real-estate ventures - both successful and ill-conceived.

Using a format he has shaped during thirty years of teaching at HBS, Poorvu focuses on four key variables in the real-estate game: properties, capital markets, players, and the external environment. He describes how the game works and why it works the way it does. Poorvu also explains the five phases of direct investment: concept to commitment, commitment to closing, development, operations, and harvesting. He concludes by providing detailed definitions of the characteristics of distinct types of property - apartment, office, hotel, industrial, and retail.

Noting that this book is designed to help people spot risks, develop strategies for coping with risks, and assess whether those strategies give them both enough protection and adequate return, Poorvu explains that his "back of the envelope" approach to analysis provides short cuts to quantifying those returns. A practical handbook, The Real Estate Game will help readers recognize good opportunities; make smart decisions about financing, development, and sales; and avoid undue risks at every stage.