April 2011

"My father said: You must never try to make all the money that's in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won't have many deals."

J. Paul Getty


In the context of a current project at Carleton University to create creating a deal-making platform, this article presents the results of a recent review of the literature to determine: What is a good deal? This is question is asked from the perspective of the stakeholders in the development of a software-based collaboration tool that is designed to help streamline deal development between members. The stakeholders include the creators, the users, and the investors. We answer this question by examining several streams in the literature, all centered on understanding deals and deal-making processes. These streams explore the concept of a win-win deal, how value may be seen differently, and the group processes involved in deal making.

A key contribution from this review suggests that deal goodness can be separated based on a Me-We construct: the impact to each and every stakeholder of the deal and the impact to the entire collective (not just the deal stakeholders). This implies one can separate the platform management problem into actor-centric (Me) and linkage-centric (We) domains. This is consistent with the notion of players balancing their self interest with the other stakeholders in the deal (Me-We). This is also consistent with the prospect of managing ecosystem health based on player and network-based metrics.


As described by Makienko and De Baets in the August 2010 issue of the OSBR, a project is underway in the Technology Innovation Management program at Carleton University to develop a software-based collaboration tool that is designed to help streamline deal development between members.

This deal-centric collaboration tool has the following features:

  1. Deals can be made between multiple players and firms in a business collective.

  2. Deal can be made between players who are located around the world and across multiple time zones.

  3. Player reputation is captured as part of the deal making process, thereby providing feedback to the collective.

  4. Players can instantly see the status of a deal and actions they can take that will move the deal forward.

The objective of this article is to explore the concept of “What is a good deal?” from the perspective of designing and managing a deal-centric business collective using this tool. The deliverables of this review are a set of principles that can be applied to promote the generation of good deals in a business collective.

The notion of designing and operating a business ecosystem around the concept of a deal seems new to the online searchable English language North American and European management literature in business ecosystems. It is therefore felt that many readers of the academic literature in business ecosystems would have interest in the concept of a deal-centric approach and subsequently would have interest in answering the fundamental question: What is a good deal? However, for pragmatic reasons, our our view of relevance is focused on those who have something at stake in making the platform successful (i.e., individuals who stand to gain or lose through their involvement). These stakeholders are the creators, users, and investors in the platform.

This remainder of this article has four sections. In the first section, we introduce the concept of ecosystem health and how we have connected it to a deal-making model. In the second section, we review three streams of relevant literature. In the third section, we present the lessons learned. In the fourth section, we conclude by describing the contributions of this literature review.

Ecosystem Health

The concept of ecosystem health was introduced by Iansiti and Levien (2002). Hartigh and colleagues (2006) transformed their concept with a proposal to measure health separated into two orthogonal metrics: partner health and network health. This transformation aligns the decision process of Haigu (2009) to expand the ecosystem horizontally (grow the network to grow network health) or vertically (grow the business to improve partner health) with a means to measure it. Hartigh goes on to propose an ecosystem health metric tool to influence ecosystem partner firms to manage their businesses along these dimensions of partner health and network health.

We consider measuring the health metrics of Hartigh by examining the individual deals closed by the partners in the ecosystem, rather than through a retrospective analysis of financial reports. This shift in perspective gives a very different view to designing and managing a business ecosystem. As a result, it transformed our thinking from “What is good governance for a business ecosystem?" into the question of this literature review: “What is a good deal?".

One might question why a shift of examining a business ecosystem from the perspective of discrete deals is interesting. In some ways it is more of a response to the apparent complexity of managing multi-sided platforms. Boudreau and Haigu (2009) raise concerns about the high number and complexity of instruments used by multi-sided platform owners and how the scope of strategy is wider than that of normal firms. By examining the platform as a deal-making engine, this gives us the opportunity to consider understanding rules that govern local behaviour (i.e., rules around the deal) and then derive system-level behaviour from the results of many deals. This approach is consistent with that of complex adaptive systems, where seemingly complex behaviour emerges from large collections of simpler components (Mitchell, 2009). It is also consistent with the principles of swam intelligence and stimergy (Garnier et al., 2007) where simple, local rules can drive self organization and coordination.

By looking at the problem of how to manage a business ecosystem from this perspective it has given us a local instance in space and time (a deal) that we can actively manage to be consistent with our goals for system-wide behaviour. In this sense, the fundamental deliverables of this literature review are to provide a foundation set of principles for tool development to manage a business ecosystem. We are however doing this in the context of exploring the question: What is a good deal?

Literature Review

Our review is centred around deals and deal making. We are targeting deals that require a level of collaboration between players and that go beyond the execution of simple transactions. The first literature stream involves discovering and balancing the needs of all stakeholders in a deal (i.e., win-win situations) through a process of negotiation. Given that stakeholders may value the outcome of a deal in different ways, a second literature stream on "value setting" serves to provide perspectives in this area. The third literature stream examines how groups of people make decisions in a social setting where trust, reputation, and credibility are important factors.

Win-Win Negotiations

The concept of win-win is intrinsically linked to that of cooperation, which itself is linked to the question of trust or confidence in your partner. Cooperation theory is often examined in context to the classic game-scenario decision in the prisoner’s dilemma of cooperation or defection. Axelrod (1984) identified a successful prisoner's dilemma strategy called tit-for-tat, in which an individual cooperates on the first move and then simply reciprocates their opponent’s last action. This work showed the power of a very simple strategy based on a pattern called reciprocal cooperation. This strategy can lead to behaviour that yields a higher net benefit. Beyond the value of a simple strategy, it highlights two factors of importance: the need for a player to identify an individual and the need to track the history of interaction with that individual.

The need to identify and track the history of interaction is based on the need to reward good behaviour and punish bad behaviour. As well, there is a need to have visibility of the defection and that punishment was made. Finally, there is a stated need for the meta-norm of punishing, non-punishers to help to promote long-term cooperation in the population (Mitchell, 2009). In a similar way, Boyd and colleagues (1987) challenged Axelrod’s position that reciprocal cooperation and collective stability is by necessity evolutionarily stable by showing how a rogue player (mutation) can invade the population depending on the attributes of the non-nice variants. He identifies that other mechanisms are likely needed to punish non-cooperation, other than simple reciprocity in tit-for-tat.

As compelling as the prisoner’s dilemma results might seem, Ostrom (1986) challenges the validity of generalizing the prisoner’s dilemma work to human collectives based on the observation that the premise of the prisoner’s dilemma game assumes no communication between the prisoners, no history of previous engagements, no anticipation of future engagements, and no ability to promise, threaten, or retaliate. As stated by Ostrom, the prisoner’s dilemma game is structured in a way to prevent cooperation and is thus limited in its value to study cooperation.

Expanding the scope of the win-win scenario beyond that of the deal (contract signing) and to include the outcome is the centerpiece of Billings-Yun's (2010) work in Beyond Dealmaking. She argues from the perspective of a historian and builds on the work of win-win negotiation from Fisher and Ury (1981), clarifying that the deal (contract) is a promise and not an outcome. If the goals are win-win outcomes, you must think beyond the signing and ensure that the negotiation goals extend beyond a transactional mindset and builds a solid relationship that can be resilient to the issues that will invariably arise during the execution of the contract. In contrast to Billings-Yun’s focus on the relationship aspect of deal making, Fisher and Ury almost take the opposite approach and emphasize the need to separate people from the problem. They highlight the importance of using objective criteria for assessing the options to ensure that the decision will be accepted over time.

Value Setting

The literature stream of value setting can be connected back to the prisoner’s dilemma game with the Ostrom's (1986) challenge to the long-held belief of the “tragedy of the commons”. Through her exploration of the attributes of collective-based governance on several long-standing, self-governing commons around the world, she identified principles, some of which are paraphrased below:

  • Rules are established.

  • The conditions of the commons is monitored.

  • A graduated system of sanctions is available.

  • Members have access to a low-cost conflict-resolution mechanism.

  • Punishment is assigned.

  • Rights to the commons are not fully marketable.

She goes on to identify the dimensions of the rules for a collective:

  1. Position rules: what positions participants may, must, or must not hold

  2. Boundary rules: what characteristics participants may, must, or must not have to enter positions

  3. Authority rules: the authorized actions participants may, must, or must not take independently

  4. Aggregation rules: the formula that participants may, must, or must not use for decision making when multiple persons must decide

  5. Information rules: the information that participants may, must, or must not reveal to others

  6. Scope rules: the states of the world that participants may, must, or must not affect

  7. Payoff rules: the rewards or penalties which may, must, or must not be assigned to actions or outcomes

These rules for collectives are interesting at another level: they may be transferable to influence the behaviour of players in a deal (i.e., deal rules). By tying it to the deal, we can tie it to the role in a deal, rather than to a membership class in the collective as a whole. This allows us to discriminate between deal rules that affect local behaviour (the health of players) and collective rules that affect the management of the ecosystem (the health of the network).

Collectives such as La Via Campesina, an international movement of peasant farmers and workers that defends small-scale agriculture, demonstrate that you can have different rules for operation within and outside a collective. Effectively, relationships are non-capitalistic within the collective and are based on the principles of reciprocity, but members operate in capitalistic relationships externally. Reputation is not for sale, nor can it be purchased in a non-capitalistic collective.

The concept of value domains also extends to norms. Ariely (2009) explains that within the domain where social norms operate, no money is involved and reciprocity in not immediately required. Social norms are linked to purpose, mission, and pride. But you can quickly transition from a world of relationships to that of transactions by putting money anywhere in the equation. Attaching a price to a gift is a good example. Ariely points out that in a world of relationships, any violation of trust is deadly. In a monetary world, it is shrugged off as “just business” or “you get what you pay for”.

Team Processes

The prospect of having to keep processes driven by social or monetary norms separate in stages of a process adds considerable complexity to defining a deal making flow. At some point in a deal, money can and should become part of the equation.

Work in the creative domains also show that taking money out of the equation helps to direct attention to finding creative solutions or new insights. When payment is involved, the level of payment also turns out to be critical. Ariely and colleagues (2009) document where people who are not paid at all exert more effort than those paid a small amount. He then demonstrates how the worst performance in creativity, memory, and motor control always occurred with very high level of rewards.

In a similar conclusion Fisher and Ury (1981) recommend separating inventing from deciding. They posit that the processes associated with judgment block imagination through the mental separation of creative acts from critical ones. In their words, invent first, decide later.

Taking money out of the equation does not mean making it free. It seems to mean that one has to get to a level of trust and financials where players accept and assume they will be paid (or will appropriate) a fair and business-sustaining share of the proceeds.

The final perspective on decision-making processes is examined in Planning with Complexity by Innes and Booher (2010). They take a critical view of decision making and negotiation in setting public policy. They find that success depends on processes that start with shared concerns, not goals. The process must follow a path that creates a common view between all stakeholders and forms a basis for decision making. The common view ensures that complex and interdependent issues are understood by everyone and there is sincerity in the reality being described. It is a social, non-linear, and iterative process that involves both independent experts and stakeholders.

Innes also acknowledges and supports the Fisher-Ury principle of developing your own "best alternative to a negotiated agreement" (BATNA). To negotiate effectively, each party must work out what is the best they can do without a negotiated agreement (i.e., their BATNA). This helps make sure they know when to leave the negotiation.

Lessons Learned

  • A good deal is the outcome of a well-designed process. In the context of a deal-making environment, this is akin to building a factory where it is hard to make mistakes and produce a low-quality product.

  • There are reasons to keep processes driven by social norms separated from market norms. This is related to the ability of the process to take money off the table during the process of discovering a creative solution. One such way may be to establish the trust that net proceeds will be fairly distributed and that sufficient proceeds are structured into the deal.

  • A collective needs to have rules to survive and thrive. They must define what is expected, required, and prohibited. They should cover Ostram's (1986) rules for a collective.

  • The evolutionary stability of the collective has the requirement to identify and manage bad behaviour. This can include the requirement for meta-norms (i.e., punishing the non-punisher).

  • Rights in the collective are not fully marketable and reputation is not marketable at all.


We may be able to abstract Ostram’s “Rules for the Commons” into a set of “Rules for Deal Stakeholders”. As well, by defining rules for the deal players, we can tie it to their role in a deal, rather than to a membership class in the collective as a whole. This allows us to discriminate between deal rules that affect local behaviour (the health of players) and collective rules that affect the management of the ecosystem (the health of the network). This puts us on a path to separate platform management into aspects of the deal that are focused on creating player net wealth (a Me view) from those focused on creating net relationship wealth through strengthened linkages (the We view). By doing this we are also effectively separating deal goodness based on ME-WE.

The effect of this separation would be consistent with the principles of complex adaptive systems, where local rules drive actor behaviour and system-level patterns emerge. This has the benefit of being able to define simple rules that are more likely to be understood and acted upon by the actors in the collective. However, this emphasizes the need for careful and active monitoring of the collective to detect the emergence of undesirable system level patterns and also a means to address the situation in a timely, effective, and appropriate manner.

In a deal-making platform, we may find that large collectives will fragment into multiple smaller collectives, driven by aspects to constrain deal diversity for scalability. By breaking free of the winner-take-all model and encouraging the ongoing birth of new collectives, there will become a need to support trust transivity for members between collectives (i.e., members can transfer their reputation between collectives). This coordination between collectives supports the notion of a collective of collectives that could address this need. Having a common set of principles for deal making may help the process of establishing the reputation of a collective and its ability to cultivate good deals.

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