By Katri L. Nousiainen.
There is perhaps room for improvement in negotiation practice. The current negotiation practice sometimes leads to a situation where the negotiation process becomes increasingly timely and may be needlessly complex. Through the traditional positional negotiation process, interpersonal relationships frequently suffer, parties may feel they have been taken advantage of, and there could be money left on a table.
A novel approach to the negotiation process is introduced – namely, legal design. Through the innovative approach to negotiation, the legal design process is anticipated to foster the measuring of quality in the legal profession, and particularly in negotiation, and bring further understanding of the impact and value of legal design in interest-based negotiation. Employing legal design to negotiation is expected to provide for various benefits and incentives, such as business sustainability, accelerated deal making process, legal quality, reduced transaction costs, relationship building, satisfaction with a prospective deal, increased deal value, foster innovative and creative problem solving and value creation propositions.
There are various reasons to leave the traditional positional negotiation practice behind and move forward towards a more interest-based and innovative approach to negotiation. Next, I will discuss the shortcomings of the traditional positional negotiation process. Then I will discuss how the proposed legal design approach can bring understanding on underlying incentives and interests of the parties, comprehensibility for tackling complexity, savings in time, money, and transaction costs, as well as on building and nurturing interpersonal relationships in negotiation. I will also cover innovative aspects of interest-based approach to negotiation, where transparency and comprehension help in extending the pie, and foster the idea generation and early prototyping through legal design.
Why do we often have challenges in traditional positional negotiations?
Some challenges that the traditional positional negotiation practice brings upon, is that often the negotiation process opens with a firm, explicit and frequently exaggerated position that leaves little room for understanding the parties underlying real needs and interests.
The traditional positional approach does a good job in avoiding revealing parties’ desires and wants. In traditional positional negotiation, discussion is, as its best, merely on exaggerated firm and explicit demands that are not helpful to bring the negotiation successfully forward to real value creation. What often takes place after the first firm position, is that parties start making concessions gradually. This process seems like a ping-pong game, where it is most important to win, and the other party is regarded as an adverse in a competition for the highest self-interest. Unfortunately, here, the negotiators merely try to get the other party to concede more than what they do themselves. The traditional positional negotiation practice makes it extremely troublesome to extend the pie – as the pie is seen as fixed - and as negotiation is seen through lenses where “if you get more, it means less for me”. Another typical element for traditional positional negotiation practice is that one criticizes the other side’s arguments and information. This kind of conduct hardly ever leads to any good in parties’ trust, interpersonal relationship building or successful and sustainable business practice.
Figure 1 states some challenges and problems of the traditional positional negotiation practice.
With traditional positional negotiation, focus on explicit and firm positions makes it difficult to create options, generate ideas, and to concede on things that matter less. This creates a risk of value loss, inefficient, and low value deals – that tend to be bargained to the middle point.
Parties tend to waste money and time, as there has been no- or just a little benefit for the effort invested, thus transaction costs become sunk cost! The traditional positional negotiation practice thus hinders generating ideas and inventing valuable opportunities and deals - that are beyond the obvious. The positional negotiation approach affects interpersonal relationships in diminishing trust, credibility, and transparency in the relationship. Also, it damages real and true collaboration and relationship building. Moreover, the traditional positional approach can cause confusion and mistrust between the negotiating parties. Within traditional positional negotiation practice we are likely to see more disputes and disagreements. Ultimately, the focus on positions can cause that there will be no agreement or entering a deal – even with a large zone of a possible agreement. Next, let’s discuss how one can move forward from the traditional positional negotiation practice into a more innovative, human-centric, value creating, collaborative, and efficient negotiation approach.
How can we improve our negotiation practice - How legal design can make a difference?
As legal design is based on the idea of human-centred design, transparency, comprehension, and understanding parties’ various underlying needs and interests, it can come in handy in improving negotiation processes and solving negotiation related challenges.
Legal design in negotiation is aligned with an interest-based negotiation approach where understanding parties’ interests and incentives as well as extending the pie – are at the core of the negotiation. Legal design in negotiation diverges from the traditional interest-based negotiation approach in that it offers a prototype - here, a draft contract or settlement - at an early stage of the negotiation process. Employing legal design in negotiation brings i) initial stage understanding of parties underlying needs, interest, and possible bottlenecks or challenges; ii) generating of ideas, opportunities, and prospective value (extending the pie); iii) prototyping and failing at an early stage (initial contract or settlement drafts); iv) learning more of the conditions and improving accordingly (advanced contract or settlement drafts); v) implementing/ testing /executing; vi) follow up and through.
Legal design fosters transparency and clear communication. In negotiation, good communication - sending and receiving clear and concise messages and having confidence and curiosity to ask questions to learn- is the key to better understand parties’ underlying interests and needs. Asking open-ended questions is crucial to increase knowledge. Moreover, idea and value creating what if -questions provide for excellent tools to test an idea, learn about what matters, and to mingle without committing. Finally, through continuous learning and increased knowledge it is possible to diminish information asymmetry between negotiating parties, and to increase opportunities for value creation and efficiency!
How to measure success in negotiation?
Here are some practical metrics which you may employ to measure your success as you negotiate:
Satisfaction: Is the negotiation result satisfying for all the parties? Does the negotiation result foster commitment and follow through?
Efficiency: Are there significant sunk costs? Is money or time being wasted? Was there value, money or opportunities left on the table? Were there room for a more value creating negotiation result? Is the reached negotiation result efficient?
Significant disagreements or negative feelings: Is the negotiation completed in an amicable manner?
Damaging the relationship? Did anyone suffer? There were no ruined relationships? Existing relationships or situations did not get worse?
To conclude, legal design helps to understand the various stakeholders and their underlying interest in negotiation. This often improves and deepens parties’ relationships and makes any future interactions easier. Legal design fosters understanding of parties’ aspirations and bottom lines – namely, the zone of a possible agreement. Moreover, in negotiation it can help in value creation through innovative ideating and prototyping process, which generates an early-stage contract/settlement draft(s) that can bring process efficiency.
About the Author Dr. Katri L. Nousiainen is a lawyer and professional in legal and economics education. She is a Teaching Faculty in the Management Program at Harvard University and holds a Resident Research Fellow position at Harvard Law School in the Program on Negotiation (PON). In addition, she is also affiliated with the University of Cambridge Law (the United Kingdom) and Hanken School of Economics (Finland). She is known for her articles, podcasts, and book chapters on legal design, negotiation and contracting, and on law and emerging technologies, especially related to quantum technologies. In her work, she supports and assists companies and other operators in improving the quality and efficiency of their legal processes, products, and services. Presently she is pioneering research projects on law, emerging technologies, and on legal design in negotiation and commercial contracting. #KatriNousiainen #legaldesign #negotation
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