Making deals

MAKING DEALS
Most big deals are built on a series of smaller ones. That’s true of megamergers, major sales, infrastructure projects, and even some UN resolutions. These deals are the culmination of many focused negotiations among various parties, each with its own concerns. Most deal-making advice addresses how to choose the right tactics for each piece of the puzzle. Absent from the literature is guidance on how best to put the pieces together, let alone how to identify them in the first place. This leaves a glaring gap.
Consider the case of Mittal Steel’s takeover of Arcelor, Europe’s largest steel company—an intricate deal ultimately worth $33.1 billion. Suppose that founder Lakshmi Mittal had simply set up a meeting with Arcelor’s chief executive to hammer out an acquisition. However persuasive Mittal’s pitch, Arcelor would have rebuffed it; indeed, the company’s board and CEO were, according to numerous accounts, dead set against the sale at first. Instead, Mittal and his son Aditya, the firm’s CFO, undertook what we call a “negotiation campaign” involving multiple financial agreements; extensive shareholder and political dealings in Luxembourg, France, the Netherlands, and Canada; and regulatory accords in Brussels and Washington. These separate negotiations allowed Mittal to build sufficient support to overcome and even convert potential blockers.
The Mittal deal involved high stakes, but many small-scale deals play out on multiple fronts as well. The champion of a new product, for instance, has to orchestrate complex internal negotiations across individuals and departments in order to secure support and senior executive approval. Founders of a new venture must weave a web of mutually reinforcing deals: raising money on the right terms from the right sources, persuading credible figures to join the board, forging agreements with critical employees, working out contracts with strategic partners, and so on.
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Each component deal in these situations presents a tactical challenge “at the table.” This kind of direct negotiation is familiar terrain to deal makers. Less familiar is how to address the more strategic challenge that unfolds away from the table: sequencing the individual component deals in a way that allocates scarce negotiation efforts toward achieving the target outcome with enough support to make it stick. We have come to think of the process as a campaign, frequently conducted on multiple fronts, each typically involving many parties. On the basis of our analysis of and experience advising dozens of complex deals—and drawing on insights from sales, marketing, political, and even military campaigns—we have developed concepts and tools to help executives conduct such campaigns. In this article, we lay out the process, offering advice on how to identify the relevant parties, define and sequence the fronts, and orchestrate the complex set of deals that build a winning coalition.
But first, to illustrate what we mean by a multifront campaign—and the limitations of direct negotiation—we’ll describe what happened when port operators on the U.S. Pacific coast faced the longshoremen from a position of weakness. (The story draws on various sources, especially a Harvard Business School case written by Kathleen McGinn and Dina Witter.) While labor disputes such as this can be politically polarizing, the Pacific Maritime Association’s multifront approach incorporated many useful principles for overcoming daunting barriers and negotiating agreements that can ultimately be beneficial for all parties.
Even small-scale deals play out on multiple fronts. The champion of a new product, for instance, has to orchestrate complex internal negotiations.
Showdown on the Waterfront
The Pacific Maritime Association (PMA) represents 72 U.S. and global shipping lines, including the behemoths Maersk and Hanjin, along with terminal operators in ports from San Diego to Seattle. The organization traditionally held contract negotiations every three years with the International Longshore and Warehouse Union (ILWU). When Joseph Miniace became the PMA’s president, his priority for the 1999 talks was an agreement to introduce new information technologies that would help overcome the paralyzing inefficiencies of clogged West Coast ports.
At the bargaining table, however, Miniace’s efforts crashed into potent union opposition to anything that might lead to future job loss, even if the agreement guaranteed current jobs. This pushback from organized labor was understandable: Containerization and other technological changes had slashed the ILWU’s West Coast ranks by roughly 90% since the 1950s.
Wielding its power over U.S. seaborne trade flowing through the West Coast—then worth some $6 billion a week—the union began an informal slowdown. Loaded container ships soon backed up in harbors, disrupting supply chains. Pressure on the PMA (and the union) to make a deal came from companies such as Walmart, Dell, Home Depot, Nissan, and Boeing (which all depended on ocean shipping for parts and products), from agricultural interests whose produce would quickly spoil, and from the government. The PMA, a fragmented organization of both huge and minor shipping players, quickly caved.
Looking ahead to the 2002 contract talks, Miniace was resolved to reintroduce technology issues in order to address port congestion, which was only getting worse. But he worried about the ILWU’s response. As labor expert Howard Kimeldorf has said, “In terms of economic muscle, [the ILWU] may be the strongest union in the country.” Its members’ compensation reflected the long-term results of this bargaining power: By 2002 annual wages for union members, including overtime, averaged $83,000 for longshoremen, $118,000 for clerks, and $158,000 for foremen.
Pause for a moment to consider the negotiating advice you would offer Miniace. Standard suggestions might include active listening, persuasion, trust building, putting oneself in the other party’s shoes, starting with no, deciphering body language, inventing win-win options, and locking ’em in a room until they agree. While effective in many situations, such tactics would prove pathetically inadequate in the face of the ILWU’s credible threat to shut down $6 billion worth of U.S. foreign trade a week.
So this time Miniace took a different approach to boosting the PMA’s weak position. Well in advance of the 2002 talks, he embarked on a four-front campaign. Its effect was to set the stage so that the longshoremen would ultimately view a “yes” to Miniace’s technology proposal as better than a “no.”
Front 1: Internal.
Miniace focused on his own organization first, visiting and patiently educating the PMA’s shipping-firm members on the importance of new technologies and sometimes bringing pressure from major retailers and manufacturers. Thus armed, Miniace got PMA agreement to restructure and shrink its board to include fewer labor relations executives, who were invested in smooth contract negotiations, and more operating executives, who were focused on the economic consequences of repeated concessions. The PMA also agreed to change the board’s decision-making procedures, moving from a consensus model to a voting model in which votes would be weighted according to shipping tonnage. Thus the biggest players would have the most influence.
Front 2: Business.
Miniace then coordinated closely with Robin Lanier, who had built many close ties as the president of the International Mass Retail Association. She brought the case to shippers, large importers, manufacturers, and retailers such as Walmart, whose input had been helpful on the internal PMA front. Those parties had a natural, though previously untapped, interest in the negotiations—the new technology would reduce total shipping time and permit more-accurate cargo tracking—so they were eager to press for measures to increase the efficiency of port operations.
Front 3: Government.
Next, Miniace and his team arranged visits to the U.S. departments of commerce, treasury, labor, transportation, and homeland security, and to the Office of the United States Trade Representative. He did not ask for favors. Rather, he pointed out how severe the economic impact of the 1999 union slowdown had been. In the event of a similar move by the ILWU, he said, the PMA would not settle. Instead, it would shut down the ports.
Front 4: The public.
Finally, the PMA took the public relations initiative to frame its message to the media and the wider public. This involved painting a picture of a privileged, well-paid, antitechnology union.
A restructured board, energized business and political allies, and a targeted PR initiative put the PMA in a far stronger position. During the talks, the union initiated another slowdown, and the PMA responded with the promised port shutdown. President George W. Bush believed he had sufficient backing to invoke the emergency provisions of the Taft-Hartley Act—the federal law governing the activities of labor unions—for the first time in more than 30 years. This forced both parties back to work, effectively blunting the ILWU’s weapon and raising the cost of saying no.
Old-school tales of labor negotiations often emphasize table-pounding principals locked in a room until they reach a deal. New-age versions emphasize trust building and careful listening. Here, Miniace’s away-from-the-table, sequential campaign on several fronts made the difference. As the lead union negotiator ruefully observed, “It used to be that the negotiation took place at the table.”
The PMA’s campaign was a forceful one, but the organization tried to avoid a purely coercive approach since the parties would have to live together. Ultimately, with the assistance of federal mediators, the parties negotiated a mutually beneficial agreement that gave technology rights to the shippers and jurisdiction over new technology jobs to union members, and guaranteed current union jobs. In an unprecedented affirmation of the new deal, the two sides agreed to a six-year rather than a three-year term. The PMA and the ILWU uneventfully negotiated another six-year deal in 2008. By 2010 both employment and tonnage through West Coast ports had shot up from 2002 levels by almost 40%.
If you’re negotiating with a politician, you might want to reach major donors. If you’re dealing with a CEO, you could look to big customers.
When and Why to Choose a Campaign
When is a campaign likely to be more effective than direct negotiation? To answer that question, you need to identify your target outcome and then assess any barriers that stand in your way. These often include negotiation weakness (for instance, you have a poor no-deal option, but the other side can walk away without losing much), too little value in the deal, and opponents who could block an agreement.
How would a campaign help overcome the barriers you’ve identified? Would it make your desired outcome more likely by building up useful alliances, enhancing your credibility, increasing the value you bring to the table, strengthening your no-deal option, weakening that of the other side, or thwarting potential blockers? Will you need to negotiate approvals or buy-in—say, securing key contracts or distribution rights—before you even reach the main table? If the answer to any of those questions is yes, proceed with a campaign. In the PMA case, it was time for a different approach: Replaying the failed direct negotiation of 1999 in the 2002 talks without shoring up the shippers’ weak position would probably have led to the same poor outcome, because the same high barriers would have stood in the way.
Designing and Executing a Campaign
There are six steps to reaching your target deal—and building a winning coalition that can make it stick.
1. Choose the right parties and group them into fronts.
Given the barriers to agreement that you’ve identified, what parties must—or could usefully—be involved, and how should you group them into more-manageable fronts? In some cases, the answers are reasonably clear. Consider Boeing’s campaign to sell $11 billion worth of 787 Dreamliners and other planes to Air India in late 2005. To succeed, Boeing needed to negotiate support from internal divisions and executives; strike deals with banks, export promotion agencies, and aircraft leasing companies; and reach agreements with the Indian government—which has an ownership stake in the airline—on the sourcing of domestic content from Indian manufacturers and the creation of local maintenance and pilot training organizations. Thus Boeing’s campaign had to orchestrate negotiations on internal corporate fronts, external financial fronts, and political and national fronts.
But identifying parties and fronts isn’t always so straightforward. As with the PMA campaign, the useful players may not be obvious at the outset. In Miniace’s 1999 talks, he made the conventional assumption about whom to involve: his party and the one on the other side of the table. Yet figuring out the most advantageous set of parties for the 2002 talks—retailers, manufacturers, agricultural interests, federal agencies, and the broader public, as well as PMA members—required creativity and initiative. (The sidebar “Finding the Right Parties for a Chinese Campaign” describes the disciplined process by which the Hong Kong & China Gas Company identified the welter of parties necessary to negotiate its many mainland-Chinese joint ventures.)
Finding the Right Parties for a Chinese Campaign
For decades, Hong Kong & China Gas Company (HKCG) supplied piped gas to Hong Kong’s apartments and ...
“Mapping backward” from your target deal is a useful tool for discovering who must be involved—or could be of use. So, for instance, you could consider your target’s major influencers. If you’re negotiating with a politician, you might want to reach major donors. If you’re dealing with a CEO, you could look to big customers. You’ll also want to seek out potential allies who can provide useful resources or information, players who might present credible alternatives to your target deal, and so on. Probe each party’s interests and perceptions, key formal and informal relationships and constituencies, and no-deal options. (Our previous HBR articles, “Six Habits of Merely Effective Negotiators” and “3-D Negotiation: Playing the Whole Game,” offer more tools for this type of analysis.)
You’ll then want to determine if and how to group the parties. As with the Boeing–Air India case, a front may comprise groups that are of a similar kind or class or from like sectors or locations (bank debt holders, for example, or Brussels regulators). They may be organizationally related (staffs from government agencies or corporate units of a target acquisition). They may share key interests or maintain tight relationships (environmental NGOs or members of a family that has a controlling corporate interest). Although a front can consist of a single (important) party, it will more often be a collection of parties that can be grouped according to a common interest or affiliation.
2. Assess interdependencies among fronts.
Are the fronts you’ve assembled largely independent, or can they positively or negatively affect one another? For example, is provisional agreement at both corporate and political levels helpful for financial negotiations? If a potential ally or blocker becomes aware of your activities on another front, will it help or hurt your overall prospects? If you deploy negotiating resources on one front, will that limit what you can deploy elsewhere? And so on.
3. Determine whether and when to combine fronts.
In complex situations with a large number of fronts, dealing separately with each one may be an effective way to organize your team’s efforts. But it may make sense to keep fronts separate only at the outset and combine them once you’ve made sufficient progress on each.
Combining fronts may generate gains from “package deals,” in which success on a single front yields a resource (such as capital, intellectual property, a valuable customer, a powerful ally) that is worth most when combined with other, similar resources.
At the same time, combining fronts can inadvertently unite your opponents. When Conoco tried to establish consensus over building a pipeline in Ecuador’s Amazon region, it negotiated on several fronts. One was composed of Ecuadorean and international advocates for indigenous peoples; another consisted of environmental NGOs. Both opposed Conoco’s plans but mainly acted independently. However, when Conoco arranged a “consensus seeking” meeting of all stakeholders in a floating hotel on a river in the Amazon, the two groups combined forces in even more formidable opposition to Conoco, which ultimately withdrew from the project.
By contrast, in the late 1990s U.S. trade representative Charlene Barshefsky made a point of scheduling joint events for music, film, and software industry reps—who had traditionally operated independently—in order to unite the formerly separate players as allies behind her push for intellectual property negotiations with China.
In general, keep fronts separate when there is little or no interdependence among them, when there has not been sufficient progress on each, when they might negatively affect one another, or when joining them might create an opposing bloc. Combine fronts when it’s important for transparency, when success on separate fronts can yield joint gains, and when doing so unites your allies. Timing is key, because progress on one front may help set up progress on the next. In the shippers-longshoremen case, for example, gaining the support of important business players greatly strengthened the PMA’s hand as it sought the backing of government agencies and the president.
4. Sequence your campaign.
Just as knowing which parties to approach in what order within a front can make or break a deal, so can smart sequencing among fronts. When the probability or value of success on one front is greatly enhanced by success elsewhere, focus elsewhere first. If a deal with a critical partner is conditional on your having locked in financing, for instance, concentrate first on the financial front.
Proper sequencing may also send important signals. Lining up a highly reputed lead investor, a well-regarded anchor tenant, or a big-name donor early in your campaign greatly increases the likelihood that other investors, satellite tenants, or smaller donors will come on board quickly and on favorable terms. Again, mapping backward is useful. In the run-up to the make-or-break congressional vote on the North American Free Trade Agreement, news would arrive in the office of Bill Daley, President Bill Clinton’s key strategist on the pact, that a member of Congress who had been leaning toward yes had come out as a no. Daley’s response: “Can we find the guy who can deliver the guy? We have to call the guy who calls the guy who calls the guy.”
To help a client prepare for a financial transaction, we mapped backward from the target CEO to the CFO, who had earned the CEO’s trust, and to an analyst who had great credibility with the CFO—and whom we had earlier prepped intensively. This made it much easier to get agreement from the CEO, who immediately turned to the CFO, who, in turn, asked the analyst, who was already on board.
Optimal sequencing decisions may defy conventional wisdom. Take, for example, the advice to “get your allies on board first.” When Secretary of State James Baker was trying to build a global anti-Iraq coalition after Saddam Hussein’s invasion of Kuwait, many saw Israel as America’s strongest regional ally. Yet Israel was pointedly excluded: Its formal membership would have kept numerous Arab states from joining. Baker and his team avoided this by treating Israel as a tacit member of the coalition (and discouraging direct Israeli retaliation against Saddam’s Scud missiles).
Similarly, when preparing to negotiate on external fronts, you might be tempted to “get your own house in order first” or to start by forging an internal position. Yet in preparing for the first Gulf War, James Baker and President George H.W. Bush began by committing U.S. troops to the region and then negotiated exhaustively on multiple international fronts. These efforts culminated in a UN Security Council resolution that authorized “all necessary means” to eject Iraq from Kuwait. Only after this external success did the Bush administration turn to the internal U.S. congressional front for authorization. Had Bush and Baker tried first to gain approval to use force from a deeply skeptical Congress, they would have almost certainly failed, which would have hobbled any subsequent American-led coalition-building enterprise. The external coalition and UN vote were crucial in getting Congress on board.
Common sequencing instincts may also lead you astray for other reasons. For example, when Steve Perlman was getting WebTV up and running, he faced multiple fronts—financial, content provider, distribution, manufacturing, and so forth—on which he could focus his small team’s negotiating resources. With his venture running on financial fumes, many urged the obvious: that he focus on venture capital firms, angel investors, and industrial partners. Unfortunately for the nascent enterprise, those potential funders were deeply skeptical of consumer electronics investments. Instead of a direct approach, therefore, Perlman mapped backward from his aggressive target financial deal. He reasoned that WebTV’s value would skyrocket if he could gain the support of at least one prominent consumer electronics firm. So he turned his attention to Sony and Philips, and once he had completed the difficult deals to get those giants on board, he redirected his efforts on the financial front and negotiated for much more VC money on far more advantageous terms than he could have secured earlier. With this new money, Perlman laid an intricate path of supporting agreements through the remaining fronts, including wholesale and retail distribution channels, content providers, ISPs, and alliance partners abroad. Unexpectedly, what Perlman viewed as a long-term negotiation campaign quickly reached a finale when Bill Gates expressed keen interest and Perlman negotiated the sale of his thriving young business to Microsoft.
Secrecy or hints of backroom dealings, while sometimes tactically useful, may undercut a campaign’s legitimacy.
The optimal sequence in a campaign depends on the nature of the dependencies among fronts. Focus earlier on a front when success at that stage is required for later progress or when it sends a positive signal, takes advantage of deference or influence among parties, or strengthens your later position. But early success may also come at the cost of much greater value later on, and an early failure may preclude subsequent success. (These points only scratch the surface of what is required for effective campaign-sequencing decisions. For more-detailed advice, see our suggestions for additional reading.)
Additional Reading
The art and science of sequencing in negotiation and coalition building is a major topic in and of itself, well ...
5. Determine how much information to share and when.
Your sequencing choices often determine the extent to which you reveal your activities to opponents or to various fronts. For example, you’ll want it to be widely known if a savvy investor has signed on. Just as obviously, you’ll want to be guarded about a failure to sign up a player known for his astute business instincts.
Public perception of the negotiation process can matter. Secrecy or hints of backroom dealings, while sometimes tactically useful, may undercut a campaign’s legitimacy. For example, when the president of Honduras insisted on keeping secret an agreement on a major forestry project with Stone Container, he fueled suspicions of dirty dealings. This energized widespread opposition on several fronts—political, labor, business, environmental—and ultimately derailed an investment that promised huge economic and environmental gains for the impoverished Central American country.
For some activities, such as fundraising efforts, you’ll want to be quiet until you have key pledges in hand. Revealing your interim results may then generate momentum or a sense of inevitability. In other settings, an apparent bandwagon can persuade wavering allies to join and intimidate those who might oppose you if your campaign appeared vulnerable.
In situations where information might mobilize opponents or opportunists, be discreet until you’ve locked in substantial progress. A classic example involves the challenge of assembling enough parcels for a major real estate development. If word leaks out about the status of individual negotiations, the risk of costly holdouts can skyrocket.
6. Learn and adapt.
Campaign design and execution decisions are inherently iterative. We’ve listed the steps sequentially, but throughout the process new information will surface, your counterparts will react to events, and alignments and circumstances may change. You need to continually evaluate where you are and be prepared to update your strategy and tactics. The right mind-set for an effective negotiation campaigner is to think strategically but act opportunistically.
Sample Negotiation Campaigns
Negotiation campaigns are not just for huge deals. They can also be useful in a wide range of situations, whenever a series ...
From Single Deals to Campaigns
Most negotiation scholars and popular handbooks focus on the individual deal as the unit of analysis. They probe communication patterns, tactical choices, and factors that influence the outcome of a direct approach, such as gender or culture. A negotiation campaign also calls for these analytic and behavioral skills, but only as elements of a broader, strategic approach.
When the unit of analysis shifts from one deal to a multifront campaign, the focus turns from tactics “at the table” toward a process that may unfold over months or years. Going straight to a key decision maker to negotiate often makes good sense. Yet designing and executing a negotiation campaign can sometimes be far more effective. In many cases, it’s the only way.
A version of this article appeared in the November 2012 issue of Harvard Business Review.