OB -Chapter 14 - Case 1

CHAPTER 15 Conflict and Negotiation

CHAPTER 15Conflict andNegotiationLEARNING OBJECTIVES

After studying this chapter, students should be able to:

1. Define conflict.2. Differentiate between the traditional, human relations, and interactionist views of conflict.3. Outline the conflict process.4. Define negotiation.5. Contrast distributive and integrative bargaining.6. Apply the five steps of the negotiation process.7. Show how individual differences influence negotiations.8. Assess the roles and functions of third-party negotiations.9. Describe cultural differences in negotiations.

Instructor Resources

Instructors may wish to use the following resources when presenting this chapter: PowerPoint Slides, Chapter 15 Text Exercises

o MYTH OR SCIENCE? “When Selling in an Auction, Start the Bidding High” (p. 498)o INTERNATIONAL OB Negotiating Across Cultures (p. 503)o OB IN THE NEWS “Marriage Counseling” for the Top Bosses (p. 504)o POINT/COUNTERPOINT Conflict Benefits Organizations (p. 508)o Experiential Exercise A Negotiation Role Play (pp. 509–510)o Ethical Dilemma Is It Unethical to Lie and Deceive During Negotiations? (p. 510)

Text Caseso Case Incident 1 David Out-Negotiating Goliath: Apotex and Bristol-Myers Squibb (pp. 510 -

511)o Case Incident 2 Negotiation Puts Hockey in the Penalty Box (pp. 511–512)

Instructor Resource Center Instructor’s Choice

o Negotiating with the National Labor Relations Board This section presents an exercise that is NOT found in the student's textbook.

Instructor's Choice reinforces the text's emphasis through various activities. Some Instructor's Choice activities are centered around debates, group exercises, Internet research, and student experiences. Some can be used in-class in their entirety, while others require some additional work on the student's part. The course instructor may choose to use these at anytime throughout the

Copyright ©2009 Pearson Education, Inc. publishing as Prentice Hall

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375 PART THREE The Group

class—some may be more effective as icebreakers, while some may be used to pull together various concepts covered in the chapter.

WEB EXERCISESAt the end of each chapter of this instructor’s manual, you will find suggested exercises and ideas for researching the WWW on OB topics. The exercises “Exploring OB Topics on the Web” are set up so that you can simply photocopy the pages, distribute them to your class, and make assignments accordingly. You may want to assign the exercises as an out-of-class activity or as lab activities with your class.

Summary and Implications for Managers

Many people automatically assume that conflict is related to lower group and organizational performance. This chapter has demonstrated that this assumption is frequently incorrect. Conflict can be either constructive or destructive to the functioning of a group or unit. As shown in Exhibit 15-8 on page 506 of the textbook, levels of conflict can be either too high or too low. Either extreme hinders performance. An optimal level is one at which there is enough conflict to prevent stagnation, stimulate creativity, allow tensions to be released, and initiate the seeds for change, yet not so much as to be disruptive or to deter coordination of activities.

What advice can we give managers faced with excessive conflict and the need to reduce it? Don’t assume that one conflict-handling intention will always be best! You should select an intention appropriate for the situation. The following are some guidelines:1

Use competition when quick, decisive action is vital (in emergencies), on important issues, where unpopular actions need to be implemented (in cost cutting, enforcing unpopular rules, discipline), on issues vital to the organization’s welfare when you know you’re rights and against people who take advantage of noncompetitive behavior.

Use collaboration to find an integrative solution when both sets of concerns are too important to be compromised, when your objective is to learn, to merge insights from people with different perspectives, to gain commitment by incorporating concerns into a consensus, and to work through feelings that have interfered with a relationship.

Use avoidance when an issue is trivial or when more important issues are pressing, when you perceive no chance of satisfying your concerns, when potential disruption outweighs the benefits of resolution, to let people cool down and regain perspective, when gathering information supersedes immediate decision, when others can resolve the conflict more effectively, and when issues seem tangential or symptomatic of other issues.

Use accommodation when you find that you’re wrong and to allow a better position to be heard, to learn, and to show your reasonableness; when issues are more important to others than to yourself and to satisfy others and maintain cooperation; to build social credits for later issues; to minimize loss when you are outmatched and losing; when harmony and stability are especially important; and to allow employees to develop by learning from mistakes.

1

ENDNOTES

? K. W. Thomas, “Toward Multidimensional Values in Teaching: The Example of Conflict Behaviors,” Academy of Management Review, July 1977, p. 487.



Use compromise when goals are important but not worth the effort of potential disruption of more assertive approaches; when opponents with equal power are committed to mutually exclusive goals; to achieve temporary settlements to complex issues; to arrive at expedient solutions under time pressure; and as a backup when collaboration or competition is unsuccessful.

Negotiation is an ongoing activity in groups and organizations. Distributive bargaining can resolve disputes, but it often negatively affects the satisfaction of one or more negotiators because it is focused on the short term and because it is confrontational. Integrative bargaining, in contrast, tends to provide outcomes that satisfy all parties and that build lasting relationships. When engaged in negotiation, make sure you set aggressive goals and try to find creative ways to achieve the goals of both parties, especially when you value the long-term relationship with the other party. That doesn’t mean “giving in” on your self-interest; rather, it means trying to find creative solutions that give both parties what they really want.

The chapter opens by showing how Nelson Peltz, CEO of Train Fund Management L.P., created conflict at the Heinz corporation by buying 3% of Heinz shares of stock and acquiring a set on the Board of Directors. When he began lobbying for changes in the company to raise the slumping stick price, he met with resistance. Whether due to this conflict or not, the stick price has increased roughly 11 The conflicting styles of Peltz and other board members provide an illustrative introduction to this chapter’s material.

Brief Chapter Outline

I. A DEFINITION OF CONFLICT (PPT 15–2) We define conflict as “a process that begins when one party perceives that

another party has negatively affected, or is about to negatively affect, something that the first party cares about.”

II. TRANSITIONS IN CONFLICT THOUGHT (PPTs 15–3 and 15–4)A. The Traditional View

This early approach assumed that all conflict was bad. By definition, it was harmful and was to be avoided.

This view was consistent with the prevailing attitudes about group behavior in the 1930s and 1940s. Conflict was seen as a dysfunctional outcome resulting from poor communication, a lack of openness and trust between people, and the failure of managers to be responsive to their employees.

B. The Human Relations View Conflict is a natural occurrence in all groups and organizations. The human relations view dominated conflict theory from the late 1940s through

the mid-1970s.C. The Interactionist View

The Interactionist view is the one taken in this chapter. This approach encourages conflict on the grounds that a harmonious, peaceful,

tranquil, and cooperative group is prone to becoming static and non-responsive to needs for change and innovation.

Whether a conflict is good or bad depends on the type of conflict. (PPTs 15–5 and 15–6)o Not all conflicts are good. Functional, constructive forms of conflict

support the goals of the group and improve its performance. Conflicts that hinder group performance are dysfunctional or destructive forms of conflict. Task conflict relates to the content and goals of the work. Low-

to-moderate levels of task conflict are functional.


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Relationship conflict focuses on interpersonal relationships. These conflicts are almost always dysfunctional.

Process conflict relates to how the work gets done. Low levels of process conflict are functional and could enhance team performance.



III. THE CONFLICT PROCESS (PPTs 15–7 to 15–13) A. Stage I: Potential Opposition or Incompatibility

1. Communication Communication as a source of conflict represents those opposing forces

that arise from semantic difficulties, misunderstandings, and “noise” in the communication channels.

2. Structure Size and specialization act as forces to stimulate conflict. The larger the

group and more specialized its activities, the greater the likelihood of conflict.

3. Personal Variables Include individual value systems and personality characteristics. Certain

personality types lead to potential conflict. Most important is differing value systems. Value differences are the best

explanation for differences of opinion on various matters.B. Stage II: Cognition and Personalization

Conflict is personalized when it is felt and when individuals become emotionally involved.

This stage is where conflict issues tend to be defined and this definition delineates the possible settlements.

Second, emotions play a major role in shaping perceptions.C. Stage III: Intentions

1. Introduction Intentions are decisions to act in a given way. Primary conflict-handling intentions are represented in Exhibit 15–2 along

two dimensions:o Cooperativeness—“the degree to which one party attempts to

satisfy the other party’s concerns.”o Assertiveness—“the degree to which one party attempts to

satisfy his or her own concerns.” Five conflict-handling intentions can be identified: competing,

collaborating, avoiding, accommodating, and compromising.2. Competing3. Collaborating 4. Avoiding 5. Accommodating 6. Compromising

D. Stage IV: Behavior Stage IV is where conflicts become visible. Stage IV is a dynamic process of interaction; conflicts exist somewhere along a

continuum. Exhibit 15–4 lists the major resolution and stimulation techniques.

E. Stage V: Outcomes1. Introduction

Outcomes may be functional—improving group performance, or dysfunctional in hindering it.

2. Functional Outcomes Conflict is constructive when it:

o Improves the quality of decisions.o Stimulates creativity and innovation.o Encourages interest and curiosity.

Conflict is an antidote for groupthink. o Increasing cultural diversity of the workforce should provide

benefits to organizations.


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3. Dysfunctional Outcomes Undesirable consequences:

o A retarding of communicationo Reductions in group cohesivenesso Subordination of group goals to the primacy of infighting between

members 4. Creating Functional Conflict

If managers accept the interactionist view toward conflict, they encourage functional conflict.

IV. NEGOTIATION (PPTs 15–14 to 15–19)A. Introduction

Negotiation is a “process in which two or more parties exchange goods or services and attempt to agree upon the exchange rate for them.” We use the terms negotiation and bargaining interchangeably.

B. Bargaining Strategies 1. Distributive Tactics

Its most identifying feature is that it operates under zero-sum conditions. Any gain I make is at your expense, and vice versa.

The most widely cited example of distributive bargaining is in labor-management negotiations over wages.

2. Integrative Tactics Integrative bargaining builds long-term relationships and facilitates

working together in the future; it bonds negotiators and allows each to leave the bargaining table feeling victorious.

Distributive bargaining, on the other hand, leaves one party a loser. It tends to build animosities and deepens divisions.

C. The Negotiation Process 1. Preparation and Planning:

Do your homework. Determine your and the other side’s Best Alternative To a Negotiated

Agreement (BATNA).2. Definition of Ground Rules:

Who will do the negotiating? Where will it take place? What time constraints, if any, will apply?

3. Clarification and Justification: When initial positions have been exchanged, explain, amplify, clarify,

bolster, and justify your original demands. 4. Bargaining and Problem Solving:

The essence of the negotiation process is the actual give-and-take in trying to hash out an agreement.

5. Closure and Implementation: The final step—formalizing the agreement that has been worked out and

developing any procedures that are necessary for implementation and monitoring

D. Issues in Negotiation1. The Role of Mood and Personality Traits in Negotiation

Overall assessments of the personality-negotiation relationship find that personality traits have no significant direct effect on either the bargaining process or negotiation outcomes.

2. Gender Differences in Negotiations Men and women do not negotiate differently. The belief that women are “nicer” is probably due to confusing gender

and the lack of power typically held by women. Women’s attitudes toward negotiation and toward themselves appear to

be different from men’s.



3. Cultural Differences in Negotiations Negotiating styles clearly vary across national cultures. The French like conflict. The Chinese also draw out negotiations but that is because they believe

negotiations never end. Americans are known around the world for their impatience and their

desire to be liked. The cultural context of the negotiation significantly influences the amount

and type of preparation for bargaining, the emphasis on task versus interpersonal relationships, the tactics used, etc.

4. Third-Party Negotiations A mediator is a neutral third party who facilitates a negotiated solution by

using reasoning and persuasion, suggesting alternatives, and the like. An arbitrator is “a third party with the authority to dictate an agreement.” A conciliator is “a trusted third party who provides an informal

communication link among parties.” A consultant is “a skilled and impartial third party who attempts to

facilitate problem solving through communication and analysis, aided by his or her knowledge of conflict management.”

V. SUMMARY AND IMPLICATIONS FOR MANAGERS A. Conflict can be either constructive or destructiveB. Inadequate or excessive conflict

Reduced satisfaction Increased absenteeism Lower productivity

C. Optimal conflict Decreases apathy Increases motivation

D. Handling conflict Competition Collaboration Avoidance Accommodation Compromise

E Negotiation Distributive bargaining

Expanded Chapter Outline

I. A DEFINITION OF CONFLICT There are several common themes which underlie most definitions:

o The parties to it must perceive conflict.o Commonalties in the definitions are opposition or incompatibility and some form

of interaction. We define conflict as “a process that begins when one party perceives that another party

has negatively affected, or is about to negatively affect, something that the first party cares about.” o This describes that point when an interaction “crosses over” to become an inter-

party conflict. o It encompasses the wide range of conflicts that people experience in

organizations.


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II. TRANSITIONS IN CONFLICT THOUGHTA. The Traditional View

The traditional view of conflict argues that it must be avoided—it indicates a malfunctioning with the group.

This early approach assumed that all conflict was bad. Conflict was synonymous with such terms that reinforced its negative connotation. By definition, it was harmful and was to be avoided.

This view was consistent with the prevailing attitudes about group behavior in the 1930s and 1940s. Conflict was seen as a dysfunctional outcome resulting from poor communication, a lack of openness and trust between people, and the failure of managers to be responsive to their employees.

B. The Human Relations View The human relations view argues that conflict is a natural and inevitable

outcome in any group and that it need not be evil, but has the potential to be a positive force in determining group performance.

Conflict is a natural occurrence in all groups and organizations. Since it was natural and inevitable it should be accepted.

It cannot be eliminated and may even contribute to group performance. The human relations view dominated conflict theory from the late 1940s through the mid-1970s.

C. The Interactionist View The interactionist approach proposes that conflict can be a positive force

in a group but explicitly argues that some conflict is absolutely necessary for a group to perform effectively.

The Interactionist view is the one taken in this chapter. This approach encourages conflict on the grounds that a harmonious,

peaceful, tranquil, and cooperative group is prone to becoming static and non-responsive to needs for change and innovation.

Group leaders maintain enough conflict to keep the group viable, self-critical, and creative.

Whether a conflict is good or bad depends on the type of conflict.o Not all conflicts are good. Functional, constructive forms of conflict

support the goals of the group and improve its performance. Conflicts that hinder group performance are dysfunctional or destructive forms of conflict.

o What differentiates functional from dysfunctional conflict? You need to look at the type of conflict. Task conflict relates to the content and goals of the work. Low-

to-moderate levels of task conflict are functional and consistently demonstrate a positive effect on group performance because it stimulates discussion, improving group performance.

Relationship conflict focuses on interpersonal relationships. These conflicts are almost always dysfunctional. The friction and interpersonal hostilities inherent in

relationship conflicts increase personality clashes and decrease mutual understanding.

Process conflict relates to how the work gets done. Low-levels of process conflict are functional and could

enhance team performance. For process conflict to be productive, it must be kept low. Intense arguments create uncertainty.

III. THE CONFLICT PROCESS A. Stage I: Potential Opposition or Incompatibility

1. Communication



Communication as a source of conflict represents those opposing forces that arise from semantic difficulties, misunderstandings, and “noise” in the communication channels.

Differing word connotations, jargon, insufficient exchange of information, and noise in the communication channel are all barriers to communication and potential antecedents to conflict.

Semantic difficulties are a result of differences in training, selective perception, and inadequate information.

The potential for conflict increases when either too little or too much communication takes place.

The channel chosen for communicating can have an influence on stimulating opposition.

2. Structure The term structure includes variables such as size, degree of

specialization, jurisdictional clarity, member-goal compatibility, leadership styles, reward systems, and the degree of dependence.

Size and specialization act as forces to stimulate conflict. The larger the group and more specialized its activities, the greater the likelihood of conflict.

The potential for conflict is greatest where group members are younger and turnover is high.

The greater the ambiguity in responsibility for actions lies, the greater the potential for conflict.

The diversity of goals among groups is a major source of conflict. A close style of leadership increases conflict potential. Too much reliance on participation may also stimulate conflict. Reward systems, too, are found to create conflict when one member’s

gain is at another’s expense. Finally, if a group is dependent on another group, opposing forces are

stimulated. 3. Personal Variables

Include individual value systems and personality characteristics. Certain personality types lead to potential conflict.

Most important is differing value systems. Value differences are the best explanation for differences of opinion on various matters.

Teaching Note: At this point in the lecture you may want to introduce MYTH OR SCIENCE? “When Selling in an Auction, Start the Bidding High” found in the text and at the end of this chapter. A suggestion for a class exercise follows. ■

B. Stage II: Cognition and Personalization Antecedent conditions lead to conflict only when the parties are affected by and

aware of it. Conflict is personalized when it is felt and when individuals become emotionally

involved. This stage is where conflict issues tend to be defined and this definition

delineates the possible settlements. Second, emotions play a major role in shaping perceptions.

o Negative emotions produce oversimplification of issues, reductions in trust, and negative interpretations of the other party’s behavior.

o Positive feelings increase the tendency to see potential relationships among the elements of a problem, to take a broader view of the situation, and to develop more innovative solutions.

C. Stage III: Intentions 1. Introduction


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Intentions are decisions to act in a given way. Why are intentions separated out as a distinct stage? Merely one party

attributing the wrong intentions to the other escalates a lot of conflicts. One author’s effort to identify the primary conflict-handling intentions is

represented in Exhibit 15–2 is along two dimensions:o Cooperativeness—“the degree to which one party attempts to

satisfy the other party’s concerns.”o Assertiveness—“the degree to which one party attempts to

satisfy his or her own concerns.” Five conflict-handling intentions can be identified: competing,

collaborating, avoiding, accommodating, and compromising.2. Competing

When one person seeks to satisfy his or her own interests, regardless of the impact on the other parties to the conflict

3. Collaborating When the parties to conflict each desire to fully satisfy the concerns of all

parties. The intention is to solve the problem by clarifying differences rather than by accommodating.

4. Avoiding A person may recognize that a conflict exists and want to withdraw from

it or suppress it. 5. Accommodating

When one party seeks to appease an opponent, that party is willing to be self-sacrificing.

6. Compromising When each party to the conflict seeks to give up something, sharing

occurs, resulting in a compromised outcome. There is no clear winner or loser, and the solution provides incomplete satisfaction of both parties’ concerns.

Intentions provide general guidelines for parties in a conflict situation. They define each party’s purpose, but they are not fixed. o They might change because of reconceptualization or because

of an emotional reaction.o However, individuals have preferences among the five conflict-

handling intentions.o It may be more appropriate to view the five conflict-handling

intentions as relatively fixed rather than as a set of options from which individuals choose to fit an appropriate situation.

D. Stage IV: Behavior Stage IV is where conflicts become visible. The behavior stage includes the

statements, actions, and reactions made by the conflicting parties. These conflict behaviors are usually overt attempts to implement each party’s intentions.

Stage IV is a dynamic process of interaction; conflicts exist somewhere along a continuum.

At the lower part of the continuum, conflicts are characterized by subtle, indirect, and highly controlled forms of tension.

Conflict intensities escalate as they move upward along the continuum until they become highly destructive.

Functional conflicts are typically confined to the lower range of the continuum. Exhibit 15–4 lists the major resolution and stimulation techniques.

E. Stage V: Outcomes1. Introduction

Outcomes may be functional—improving group performance, or dysfunctional in hindering it.

2. Functional Outcomes



How might conflict act as a force to increase group performance? Conflict is constructive when it:

o Improves the quality of decisions.o Stimulates creativity and innovation. o Encourages interest and curiosity. o Provides the medium through which problems can be aired and

tensions released. o Fosters an environment of self-evaluation and change.

The evidence suggests that conflict can improve the quality of decision making. o Conflict is an antidote for groupthink. o Conflict challenges the status quo, furthers the creation of new

ideas, promotes reassessment of group goals and activities, and increases the probability that the group will respond to change.

o Research studies in diverse settings confirm the functionality of conflict. The comparison of six major decisions made during the

administration of four different U.S. presidents found that conflict reduced the chance of groupthink.

When groups analyzed decisions that had been made by the individual members of that group, the average improvement among the high-conflict groups was 73 percent greater than was that of those groups characterized by low-conflict conditions.

o Increasing cultural diversity of the workforce should provide benefits to organizations. Heterogeneity among group and organization members

can increase creativity, improve the quality of decisions, and facilitate change by enhancing member flexibility.

The ethnically diverse groups produced more effective and more feasible ideas and higher quality, unique ideas than those produced by the all-Anglo group.

Similarly, studies of professionals—systems analysts and research and development scientists—support the constructive value of conflict.

An investigation of 22 teams of systems analysts found that the more incompatible groups were likely to be more productive.

Research and development scientists have been found to be most productive where there is a certain amount of intellectual conflict.

3. Dysfunctional Outcomes Uncontrolled opposition breeds discontent, which acts to dissolve

common ties and eventually leads to the destruction of the group. Undesirable consequences:

o A retarding of communicationo Reductions in group cohesivenesso Subordination of group goals to the primacy of infighting between

members Conflict can bring group functioning to a halt and potentially threaten the

group’s survival.


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The demise of an organization as a result of too much conflict is not as unusual as it might first appear. One of New York’s best-known law firms, Shea & Gould, closed down solely because the 80 partners just could not get along.

4. Creating Functional Conflict If managers accept the interactionist view toward conflict, they

encourage functional conflict. Creating functional conflict is a tough job, particularly in large American

corporations. A high proportion of people who get to the top are conflict avoiders. At least seven out of ten people in American business hush up when

their opinions are at odds with those of their superiors, allowing bosses to make mistakes even when they know better.

Such anti-conflict cultures are not tolerable in today’s fiercely competitive global economy.

This process frequently results in decisions and alternatives that previously had not been considered.

One common ingredient in organizations that successfully create functional conflict is that they reward dissent and punish conflict avoiders.

The real challenge for managers is when they hear news that they do not want to hear.

Managers should ask calm, even-tempered questions, such as: Can you tell me more about what happened? or What do you think we ought to do? They should also offer a sincere “Thank you.

Teaching Note: At this point in the lecture you may want to introduce POINT/COUNTERPOINT: Conflict Benefits Organizations found in the text and at the end of this chapter. A suggestion for a class discussion follows. ■

OR

Teaching Note: At this point in the lecture you may want to introduce the CASE INCIDENT 1: David Out-Negotiating Goliath: Apotex and Bristol-Myers Squibb found in the text and at the end of this chapter. Questions for students to answer follow. ■

IV. NEGOTIATIONA. Introduction

Negotiation is a “process in which two or more parties exchange goods or services and attempt to agree upon the exchange rate for them.” We use the terms negotiation and bargaining interchangeably.

Negotiation permeates the interactions of almost everyone in groups and organizations. For example, labor bargains with management.

Not so obvious, however, managers negotiate with employees, peers, and bosses.

Salespeople negotiate with customers. Purchasing agents negotiate with suppliers. A worker agrees to answer a colleague’s phone for a few minutes in exchange for

some past or future benefit.



B. Bargaining Strategies 1. Distributive Tactics

An example of distributive bargaining is buying a car: o You go out to see the car. It is great and you want it. o The owner tells you the asking price. You do not want to pay that

much. o The two of you then negotiate over the price.

Its most identifying feature is that it operates under zero-sum conditions. Any gain I make is at your expense, and vice versa.

The most widely cited example of distributive bargaining is in labor-management negotiations over wages.

The essence of distributive bargaining is depicted in Exhibit 15–6. o Parties A and B represent two negotiators. o Each has a target point that defines what he or she would like to

achieve. o Each also has a resistance point, which marks the lowest

outcome that is acceptable. o The area between these two points makes up each one’s

aspiration range. o As long as there is some overlap between A and B’s aspiration

ranges, there exists a settlement range where each one’s aspirations can be met.

When engaged in distributive bargaining, one’s tactics focus on trying to get one’s opponent to agree to one’s specific target point or to get as close to it as possible.

Teaching Note: At this point in the lecture you may want to introduce OB IN THE NEWS: “Marriage Counseling” for the Top Bosses found in the text and at the end of this chapter. A suggestion for a class exercise follows. ■

2. Integrative Tactics An example: A sales rep calls in the order and is told that the firm cannot

approve credit to this customer because of a past slow-pay record. o The next day, the sales rep and the firm’s credit manager meet

to discuss the problem. They want to make the sale, but do not want to get stuck with uncollectible debt.

o The two openly review their options. o After considerable discussion, they agree on a solution that

meets both their needs. The sale will go through with a bank guarantee that will ensure payment if not made in 60 days. This example operates under the assumption that there

exists one or more settlements that can create a win-win solution.

In terms of intra-organizational behavior, all things being equal, integrative bargaining is preferable to distributive bargaining.

Because integrative bargaining builds long-term relationships and facilitates working together in the future, it bonds negotiators and allows each to leave the bargaining table feeling victorious.

Distributive bargaining, on the other hand, leaves one party a loser. It tends to build animosities and deepens divisions.


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Why do we not see more integrative bargaining in organizations? The answer lies in the conditions necessary for this type of negotiation to succeed. o Parties who are open with information and candid about their

concernso A sensitivity by both parties to the other’s needso The ability to trust one anothero A willingness by both parties to maintain flexibility

Teaching Note: At this point in the lecture you may want to introduce the ETHICAL DILEMMA: Is It Unethical to Lie, Deceive or Collude During Negotiations? found in the text and at the end of this chapter. A suggestion for a class exercise follows. ■

C. The Negotiation Process 1. Preparation and Planning

Do your homework. What is the nature of the conflict? What is the history leading up to this negotiation? Who is involved, and what are their perceptions of the conflict? What do you want from the negotiation? What are your goals?

You also want to prepare an assessment of what you think the other party to your negotiation’s goals are. o When you can anticipate your opponent’s position, you are better

equipped to counter his or her arguments with the facts and figures that support your position.

Once you have gathered your information, use it to develop a strategy. Determine your and the other side’s Best Alternative To a Negotiated

Agreement (BATNA). Your BATNA determines the lowest value acceptable to you for a

negotiated agreement. Any offer you receive that is higher than your BATNA is better than an

impasse. 2. Definition of Ground Rules

Who will do the negotiating? Where will it take place? What time constraints, if any, will apply?

To what issues will negotiation be limited? Will there be a specific procedure to follow if an impasse is reached?

During this phase, the parties will also exchange their initial proposals or demands.

3. Clarification and Justification When initial positions have been exchanged, explain, amplify, clarify,

bolster, and justify your original demands. This need not be confrontational. You might want to provide the other party with any documentation that

helps support your position. 4. Bargaining and Problem Solving

The essence of the negotiation process is the actual give-and-take in trying to hash out an agreement.

Concessions will undoubtedly need to be made by both parties. 5. Closure and Implementation

The final step—formalizing the agreement that has been worked out and developing any procedures that are necessary for implementation and monitoring

Major negotiations will require hammering out the specifics in a formal contract.



For most cases, however, closure of the negotiation process is nothing more formal than a handshake.

D. Issues in Negotiation1. The Role of Mood and Personality Traits in Negotiation

Can you predict an opponent’s negotiating tactics if you know something about his/her personality? The evidence says no.

Overall assessments of the personality-negotiation relationship find that personality traits have no significant direct effect on either the bargaining process or negotiation outcomes.

2. Gender Differences in Negotiations Men and women do not negotiate differently. A popular stereotype is that women are more cooperative, pleasant, and

relationship-oriented in negotiations than are men. The evidence does not support this.

Comparisons between experienced male and female managers find women are: o Neither worse nor better negotiators. o Neither more cooperative nor open to the other. o Neither more nor less persuasive nor threatening than are men. o The belief that women are “nicer” is probably due to confusing

gender and the lack of power typically held by women. Low-power managers, regardless of gender, attempt to

placate their opponents and to use softly persuasive tactics rather than direct confrontation and threats.

Women’s attitudes toward negotiation and toward themselves appear to be different from men’s.

Managerial women demonstrate less confidence in anticipation of negotiating and are less satisfied with their performance despite achieving similar outcomes as men.

Women may unduly penalize themselves by failing to engage in negotiations when such action would be in their best interests

3. Cultural Differences in Negotiations Negotiating styles clearly vary across national cultures. The French like conflict.

o They gain recognition and develop their reputations by thinking and acting against others.

o They tend to take a long time in negotiating agreements, and they are not overly concerned about whether their opponents like or dislike them.

The Chinese also draw out negotiations but that is because they believe negotiations never end. o Just when you think you have reached a final solution, the

Chinese executive might smile and start the process all over again.

o Like the Japanese, the Chinese negotiate to develop a relationship and a commitment to work together.

o Americans are known around the world for their impatience and their desire to be liked.

o Astute negotiators often turn these characteristics to their advantage.

The cultural context of the negotiation significantly influences the amount and type of preparation for bargaining, the emphasis on task versus interpersonal relationships, the tactics used, etc.


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A study compared North Americans, Arabs, and Russians negotiating style, how they responded to an opponent’s arguments, their approach to making concessions, and how they handled negotiating deadlines. o North Americans tried to persuade others by relying on facts and

appealing to logic. They made small concessions early in the negotiation to

establish a relationship and usually reciprocated the opponent’s concessions.

North Americans treated deadlines as very important. o The Arabs tried to persuade by appealing to emotion.

They countered opponent’s arguments with subjective feelings.

They made concessions throughout the bargaining process and almost always reciprocated opponents’ concessions.

Arabs approached deadlines very casually. o The Russians based their arguments on asserted ideals.

They made few, if any, concessions. Any concession offered by an opponent was viewed as

a weakness and almost never reciprocated. Finally, the Russians tended to ignore deadlines.

A second study looked at verbal and nonverbal negotiation tactics exhibited by North Americans, Japanese, and Brazilians during half-hour bargaining sessions. o Brazilians on average said “No” 83 times compared to five times

for the Japanese and nine times for the North Americans. o The Japanese displayed more than five periods of silence lasting

longer than ten seconds during the 30-minute sessions. o North Americans averaged 3.5 such periods; the Brazilians had

none. o The same number of times, but the Brazilians interrupted 2.5 to 3

times more often o Finally, while the Japanese and the North Americans had no

physical contact with their opponents during negotiations except for handshaking, the Brazilians touched each other almost five times every half-hour.

4. Third-Party Negotiations When individuals or group representatives reach a stalemate and are

unable to resolve their differences through direct negotiations, they may turn to a third party.

A mediator is a neutral third party who facilitates a negotiated solution by using reasoning and persuasion, suggesting alternatives, and the like. o They are widely used in labor-management negotiations and in

civil court disputes. o Their settlement rate is approximately 60 percent, with negotiator

satisfaction at about 75 percent. o The key to success—the conflicting parties must be motivated to

bargain and resolve their conflict, intensity cannot be too high, and the mediator must be perceived as neutral and noncoercive.

An arbitrator is “a third party with the authority to dictate an agreement.” o It can be voluntary (requested) or compulsory (forced on the

parties by law or contract). o The authority of the arbitrator varies according to the rules set by

the negotiators.



o The arbitrator might be limited to choosing one of the negotiator’s last offers or to suggesting an agreement point that is nonbinding, or free to choose and make any judgment.

o The big plus of arbitration over mediation is that it always results in a settlement.

o Any negative depends on how “heavy-handed” the arbitrator appears.

A conciliator is “a trusted third party who provides an informal communication link among parties.” o This role was made famous by Robert Duval in the first

Godfather film. o Conciliation is used extensively in international, labor, family, and

community disputes. o Comparing its effectiveness to mediation has proven difficult. o Conciliators engage in fact finding, interpreting messages,

and persuading disputants to develop agreements. A consultant is “a skilled and impartial third party who attempts to

facilitate problem solving through communication and analysis, aided by his or her knowledge of conflict management.” o In contrast to the previous roles, the consultant’s role is to

improve relations between the conflicting parties so that they can reach a settlement themselves.

o This approach has a longer-term focus: to build new and positive perceptions and attitudes between the conflicting parties.

Teaching Note: At this point in the lecture you may want to introduce International OB: “Negotiating Across Cultures.” found in the text and at the end of this chapter. Obtaining a favorable outcome in negotiations may, in part, depend on the cultural characteristics of your opponent. ■

OR

Teaching Note: At this point in the lecture you may want to introduce the EXPERIENTIAL EXERCISE: A Negotiation Role Play found in the text and at the end of this chapter. ■

OR

Teaching Note: At this point in the lecture you may want to introduce the CASE INCIDENT 2: Negotiation Puts Hockey in the Penalty Box, found in the text and at the end of this chapter. Questions for students to answer follow. ■

V. SUMMARY AND IMPLICATIONS FOR MANAGERS A. Conflict can be either constructive or destructiveB. Inadequate or excessive conflict

Reduced satisfaction Increased absenteeism Lower productivity

C. Optimal conflict Decreases apathy Increases motivation

D. Handling conflict


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Competition Collaboration Avoidance Accommodation Compromise

E. Negotiation Distributive bargaining

Text Exercises

Myth orScience? “High Starting Bids Lead to High Auction

Sales”This statement is false. That might surprise you, given that we just reviewed evidence on anchoring bias, which would suggest that if I’m selling something in an auction, I should set the initial bid as high as possible. Research shows that this would be a mistake. In fact, the opposite strategy is better.

Analyzing auction results on eBay, a group of researchers found that lower starting bids generated higher final prices. As just one example, Nikon digital cameras with ridiculously low starting bids (one penny) sold for an average of $312, whereas those with higher starting prices went for an average of $204.2

What explains such a counterintuitive result? The researchers found that low starting bids attract more bidders, and the increased traffic generates more competing bidders so that in the end, the price is higher. Although this may seem irrational, negotiation and bidding behavior aren’t always rational, and as you’ve probably experienced firsthand, once you start bidding for something, you want to “win,” forgetting that for many auctions, the one with the highest bid is often the loser (the so-called winner’s curse).

Class Exercise

1. Consider using the team exercise at this point or referencing this material when you process the exercise.

2. At that time, have students discuss what part the lack of communication had in fostering the conflict or how communicating minimized and/or resolved the conflict.

International Negotiating Across Cultures

Obtaining a favorable outcome in a negotiation may in part depend on the cultural characteristics of your opponent. A study of negotiators in the United States, China, and Japan found that culture plays an important role in successful negotiation. The study found that, overall, negotiators who had both a self-serving “egoistic” orientation and a high goal level fared the best overall compared to negotiators with an other-serving “prosocial” orientation and low goal level. In other words, the strategy combining a self-serving negotiation position, where one is focused only on maximizing one’s own outcomes, coupled with a strong desire to obtain the best outcomes, led to the most favorable negotiation results.



However, the degree to which this particular strategy resulted in better outcomes depended on the negotiating partner. The results showed that being self-serving and having a high negotiation goal level resulted in higher outcomes (in this case, profits) only when the negotiating opponent was other-serving. Negotiators from the United States are more likely to be self-serving and have high goal levels. In China and Japan, however, there is a greater likelihood that negotiators are other-serving and thus are more concerned with others’ outcomes. Consequently, negotiators from the United States are likely to obtain better outcomes for themselves when negotiating with individuals from China and Japan because American negotiators tend to be more concerned with their own outcomes, sometimes at the expense of the other party.

Though this study suggests that being self-serving can be beneficial in some situations, negotiators should be wary of being too self-serving. Though American negotiators may benefit from a self-serving negotiation position and a high goal level when negotiating with individuals from China or Japan, being too self-serving may result in damaged relationships, leading to less favorable outcomes in the long run.

Source: Based on Y. Chen, E. A. Mannix, and T. Okumura, “The Importance of Who You Meet: Effects of Self-Versus Other-Concerns Among Negotiators in the United States, The People’s Republic of China, and Japan,” Journal of Experimental Social Psychology, January 2003, pp. 1–15.

Class ExerciseInstructors may wish to engage their students in a class discussion concerning cultural differences in negotiating.

IN THE

“Marriage Counseling” for the Top BossesThat the two top executives of a company conflicted with one another is no surprise. What’s surprising is what they did about it.

When Watermark, a struggling maker of kayaks and car racks, brought in a new executive team, the top two executives came from very different backgrounds. CEO Jim Clark, 43, was an avid hunter and outdoorsman. COO Thomas Fumarelli, 50, was an urbane professional used to high finance in New York and Paris. Because the organization was struggling, with anxious employees who were playing them off one another, the two executives knew their differences were likely to overwhelm them. So they headed off personality conflicts at the pass with 2½ years of joint executive-coaching sessions.

Although such joint coaching sessions are highly unusual, both Clark and Fumarelli (it was his idea) credit the weekly sessions for helping them work through their differences. “It was like marriage counseling,” said Clark. “You get all the issues on the table.”

Early on, the coaches asked Clark and Fumarelli what they needed from another. Clark said that he needed Fumarelli to be his eyes and ears for the company and to “cover his back.” Fumarelli replied that he needed Clark to support him. “I can check my ego at the door,” he recalls saying, “But I need validation and support from you for the role I’m playing to support you.”

The two discovered a conflict, though, when the coaches asked them separately how much time they should spend on various corporate activities. Both Clark and Fumarelli thought that development of the annual budget was his responsibility. After getting this out in the open, Clark realized the budget should primarily be Fumarelli’s responsibility. “Very early on, we knew we were going to be stepping on each other’s toes,” Clark said.

When a private equity company bought Watermark, both left the company. But even then, the two


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used coaches to handle what they called their “divorce.”Source: Based on P. Dvorak, “CEO and COO Try ‘Marriage Counseling,’” Wall Street Journal, July 31, 2006, p. B1, B3.

Class Exercise

Discuss with students (as a class or in groups) the following:

1. Was the approach taken based on distributive or integrative bargaining techniques?2. What was the most important factor in framing the negotiations?3. Think of recent negotiation that you were involved with. Was the framework distributive or integrative?4. Did relationships play a significant part in your negotiation?5. What could you have done to improve the outcome of the negotiation?

Point CounterpointConflict Benefits Organizations

PointConflict Benefits OrganizationsLet’s briefly review how stimulating conflict can provide benefits to the organization:

Conflict is a means to solve problems and bring about radical change. It’s an effective device by which management can drastically change the existing power structure, current interaction patterns, and entrenched attitudes. If there is no conflict, it means the real problems aren’t being addressed.

Conflict facilitates group cohesiveness. Whereas conflict increases hostility between groups, external threats tend to cause a group to pull together as a unit. Conflict with another group brings together those within each group. Such intragroup cohesion is a critical resource that groups draw on in good and especially in bad times.

Conflict improves group and organizational effectiveness. Groups or organizations devoid of conflict are likely to suffer from apathy, stagnation, groupthink, and other debilitating diseases. In fact, more organizations probably fail because they have too little conflict, not because they have too much. Stagnation is the biggest threat to organizations, but since it occurs slowly, its ill effects often go unnoticed until it’s too late. Conflict can break complacency—though most of us don’t like conflict, it often is the last best hope of saving an organization.

CounterpointIn general, conflicts are dysfunctional, and it is one of management’s major responsibilities to keep conflict intensity as low as humanly possible. A few points support this case: The negative consequences from conflict can be devastating. The list of negatives associated

with conflict is awesome. The most obvious negatives are increased turnover, decreased employee satisfaction, inefficiencies between work units, sabotage, and labor grievances and strikes. One study estimated that managing conflict at work costs the average employer nearly 450 days of management time a year.<EN>3



Effective managers build teamwork. A good manager builds a coordinated team. Conflict works against such an objective. When a team works well, the whole becomes greater than the sum of the parts. Management creates teamwork by minimizing internal conflicts and facilitating internal coordination.

Conflict is avoidable. It may be true that conflict is inevitable when an organization is in a downward spiral, but the goal of good leadership and effective management is to avoid the spiral to begin with. You don’t see Warren Buffett getting into a lot of conflicts with his board of directors. It’s possible they’re complacent, but we think it’s more likely because Berkshire Hathaway is a well-run company, doing what it should, and avoiding conflict as a result.

Teaching Notes

1. Lead a discussion on how conflict between the student body and the administration could help or hurt your institution.

2. Create functional/dysfunctional lists on the board, and ask students first how conflict could help the college or university. Record these under “functional.” In the discussion, see if specific topics or issues are on the students’ minds.

3. Next, ask how such conflict can harm the institution. Again, record these and solicit specific issues, and record to whom the costs or “hurts” would apply.

4. Now discuss what would make such conflict functional or dysfunctional. Is it the topic? The parties involved? The history of the issue? Student expectation of administration reaction to conflict?

5. Finally, discuss: Why have students not spoken up on these issues? How could functional conflict be started and managed over a specific issue? What are the dangers if it got out of hand?

Questions for Review

1 . What is conflict?

Answer: Conflict is a process that begins when one party perceives that another party has negatively affected, or is about to negatively affect, something that the first party cares about

2. What are the differences among the traditional, human relations, and interactionist views of conflict?

Answer: The traditionalist view of conflict is the belief that all conflict is harmful and must be avoided. The human relations view of conflict is the belief that conflict is a natural and inevitable outcome in any group. The current view is the interactionist view of conflict or the belief that conflict is not only a positive force in a group but also that it is absolutely necessary for a group to perform effectively.

3. What are the steps of the conflict process?

Answer: The process is diagrammed in Exhibit 15–1. Stage I: Potential opposition or incompatibility—The first step in the conflict process

is the presence of conditions that create opportunities for conflict to arise. These


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conditions have been condensed into three general categories: communication, structure, and personal variables.

Stage II: Cognition and personalization—The antecedent conditions can lead to conflict only when one or more of the parties are affected by, and aware of, the conflict. Just because a conflict is perceived does not mean that it is personalized. It is important because it is where conflict issues tend to be defined.

Stage III: Intentions—Intentions are decisions to act in a given way. Exhibit 15–2 represents one author’s effort to identify the primary conflict-handling intentions. Two dimensions—cooperativeness and assertiveness. Five conflict-handling intentions can be identified: competing (assertive and uncooperative), collaborating (assertive and cooperative), avoiding (unassertive and uncooperative), accommodating (unassertive and cooperative), and compromising (midrange on both assertiveness and cooperativeness).

Stage IV: Behavior—The behavior stage includes the statements, actions, and reactions made by the conflicting parties. These conflict behaviors are usually overt attempts to implement each party’s intentions. Exhibit 15–3 provides a way of visualizing conflict behavior. Exhibit 15–4 lists the major resolution and stimulation techniques that allow managers to control conflict levels.

Stage V: Outcomes—Outcomes may be functional in that the conflict results in an improvement in the group’s performance, or dysfunctional in that it hinders group performance. Conflict is constructive when it improves the quality of decisions, stimulates creativity and innovation, etc. Dysfunctional outcomes—uncontrolled opposition breeds discontent, which acts to dissolve common ties, and eventually leads to the destruction of the group. Among the more undesirable consequences are a retarding of communication, reductions in group cohesiveness, and subordination of group goals to the primacy of infighting between members.

4. What is negotiation?

Answer: Negotiation is a process in which two or more parties exchange goods or services and attempt to agree on the exchange rate for them

5. What are the differences between distributive and integrative bargaining?

Answer: Distributive Bargaining is negotiation that seeks to divide up a fixed amount of resources; a win-lose situation. Integrative Bargaining is negotiation that seeks one or more settlements that can create a win-win solution. Exhibit 15-5 shows that these approaches to bargaining differ in their goal and motivation, focus, interests, information sharing and duration of relationship.

6. What are the five steps in the negotiation process?

Answer: Exhibit 15-7 shows a model of the negotiation process. It includes the preparation and planning, definition of ground rules, clarification and justification, bargaining and problem solving, and closure and implementation.

7. How do the individual differences of personality and gender influence negotiations?

Answer: Personality and gender can both influence negotiations. Personality traits like extroverts and agreeable people are weaker at distributive negotiation. In contrast, disagreeable introverts are best at this type of negotiation. Intelligence is also a weak indicator of bargaining. Effectiveness. With gender, men and women negotiate the same way, but may experience different outcomes. Women and men take on gender stereotypes in negotiations such as tender and tough. In addition, women are less likely to negotiate.



8. What are the roles and functions of third-party negotiations?

Answer: There are four basic third-party roles: — Mediator -A neutral third party who facilitates a negotiated solution by using reasoning, persuasion, and suggestions for alternatives– Arbitrator - A third party to a negotiation who has the authority to dictate an agreement.– Conciliator - A trusted third party who provides an informal communication link between

the negotiator and the opponent– Consultant - An impartial third party, skilled in conflict management, who attempts to

facilitate creative problem solving through communication and analysis

9. How does culture influence negotiations?

Answer: Negotiating styles vary across national cultures. Some like the Japanese negotiate indirectly. American negotiators are more likely than Japanese bargainers to make a first offer. North Americans use facts to persuade, Arabs use emotion, and Russians used asserted ideals

Brazilians say “no” more often than Americans or Japanese. One study looked at verbal and nonverbal negotiation tactics exhibited by North Americans, Japanese and Brazilians. Japanese on average said “No” five times for the nine times the North Americans did, while the Brazilians said “no” 83 times. The Japanese displayed more than five periods of silence lasting longer than ten seconds during the 30-minute sessions. North Americans averaged 3.5 such periods. The Japanese and North Americans interrupted their opponent about the same number of times and the Brazilians interrupted 2.5 to 3X more than their North American counterparts. Finally, the Japanese and the North Americans had no physical contact with their opponents during negotiations except for handshaking.

Experiential ExerciseA NEGOTIATION ROLE PLAY

This role play is designed to help you develop your negotiating skills. The class is to break into pairs. One person will play the role of Alex, the department supervisor. The other person will play C. J., Alex’s boss. Both participants should read The Situation, The Negotiation, and then their role only.

Purpose

This role play is designed to help students develop their negotiating skills.

Time

Up to 1 hour.

Instructions

1. Break the class into pairs. Identify one person as Alex and one person as C.J. One person will play the role of Alex, the department supervisor. The other person will play C.J., Alex’s boss. It is easier to manage if all the student pairs sit facing the same way, so you can

designate one side as C.J. and one side as Alex. It will help you keep students’ roles straight during the discussion.

2. Have students read only their portion of the role play.


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3. Students should take 15 minutes to think through the facts in this exercise and to prepare a strategy.

4. They then have up to 15 minutes to conduct negotiation. 5. When negotiation is complete, the class will compare the various strategies used and pair

outcomes.

The Situation Alex and C.J. work for Nike in Portland, Oregon. Alex supervises a research laboratory. C.J. is the manager of research and development. Alex and C.J. are former college runners who have worked for Nike for more than six years. C.J. has been Alex’s boss for 2 years. One of Alex’s employees has greatly impressed Alex. This employee is Lisa Roland. Lisa was hired 11 months ago. She is 24 years old and holds a master’s degree in mechanical engineering. Her entry-level salary was $47,500 a year. She was told by Alex that, in accordance with corporation policy, she would receive an initial performance evaluation at 6 months and a comprehensive review after 1 year. Based on her performance record, Lisa was told she could expect a salary adjustment at the time of the 1-year evaluation.

Alex’s evaluation of Lisa after 6 months was very positive. Alex commented on the long hours Lisa was putting in, her cooperative spirit, the fact that others in the lab enjoyed working with her, and that she was making an immediate positive impact on the project she had been assigned. Now that Lisa’s first anniversary is coming up, Alex has again reviewed Lisa’s performance. Alex thinks Lisa may be the best new person the R&D group has ever hired. After only a year, Alex has ranked Lisa as the number-three performer in a department of 11.

Salaries in the department vary greatly. Alex, for instance, has a basic salary of $76,000, plus eligibility for a bonus that might add another $7,000 to $12,000 a year. The salary range of the 11 department members is $38,400 to $66,350. The lowest salary is a recent hire with a bachelor’s degree in physics. The two people that Alex has rated above Lisa earn base salaries of $59,200 and $66,350. They’re both 27 years old and have been at Nike for three and four years, respectively. The median salary in Alex’s department is $54,960.

Alex’s Role You want to give Lisa a big raise. While she’s young, she has proven to be an excellent addition to the department. You don’t want to lose her. More importantly, she knows in general what other people in the department are earning and she thinks she is underpaid. The company typically gives 1-year raises of 5 percent, although 10 percent is not unusual, and 20 to 30 percent increases have been approved on occasion. You‘d like to get Lisa as large an increase as C. J. will approve.

C.J.’s Role All your supervisors typically try to squeeze you for as much money as they can for their people. You understand this because you did the same thing when you were a supervisor, but your boss wants to keep a lid on costs. He wants you to keep raises for recent hires generally in the 5-to-8 percent range. In fact, he has sent a memo to all managers and supervisors saying this. He also said that managers will be evaluated on their ability to maintain budgetary control. However, your boss is also concerned with equity and paying people what they’re worth. You feel assured that he will support any salary recommendation you make, as long as it can be justified. Your goal, consistent with cost reduction, is to keep salary increases as low as possible.

The Negotiation Alex has a meeting scheduled with C.J. to discuss Lisa’s performance review and salary adjustment. Take a couple of minutes to think through the facts in this exercise and to prepare a strategy. Then you have up to 15 minutes to conduct your negotiation. When your negotiation is complete, the class will compare the various strategies used and pair outcomes.

Teaching Notes:

1. The process for running the exercise is self-explanatory.



2. Consider assigning some pairs a distributive strategy and some an integrative strategy. This will permit a comparison of results for discussion.

3. Consider your gender mix in the pairs, if you want to include a discussion of male/female negotiating strategies.

4. For the sake of time, this exercise can also be conducted as a “fish bowl” using only one pair of students and having the rest of the class observe.

Ethical DilemmaIS IT UNETHICAL TO LIE, DECEIVE, OR COLLUDE DURING NEGOTIATIONS?

In Chapter 11, we addressed lying in the context of communication. Here we return to the topic of lying but specifically as it relates to negotiation. We think this issue is important because, for many people, there is no such thing as lying when it comes to negotiating.

It’s been said that the whole notion of negotiation is built on ethical quicksand: To succeed, you must deceive. Is this true? Apparently, a lot of people think so. For instance, one study found that 28 percent of negotiators lied about at least one issue during negotiations, while another study found that 100 percent of negotiators either failed to reveal a problem or actively lied about it during negotiations if they were not directly asked about the issue. Why do you think these numbers are so high? The research on negotiation provides numerous examples of lying giving the negotiator a strategic advantage.4

We can probably agree that bald-faced lies during negotiation are wrong. At least most ethicists would probably agree. The universal dilemma surrounds the little lies: The omissions, evasions, and concealments that are often necessary to best an opponent.

During negotiations, when is a lie a lie? Is exaggerating benefits, downplaying negatives, ignoring flaws, or saying “I don’t know” when in reality you do considered lying? Is declaring “this is my final offer and nonnegotiable” (even when you’re posturing) a lie? Is pretending to bend over backward to make meaningful concessions lying? Rather than being considered unethical, the use of these “lies” is considered by many as an indicator that a negotiator is strong, smart, and savvy.

Or consider the issue of colluding, as when two bidders agree not to bid against one another in a (concealed) effort to keep the bids down. In some cases, such collusion is illegal, but even when it isn’t illegal, is it ethical?

1. When are deception, evasiveness, or collusion out of bounds?

Answer: when they cross the legal boundaries. The goal is to win-win at the end and retain an ongoing relationship in most instances.

2. Can such tactics be legal and still be unethical

Answer: Yes, there are many situations where things are unethical but not illegal. The law cannot cover every instance, nor should it attempt to.

3. Is it naive to be completely honest and bare your soul during negotiations?

Answer: Yes, barely your soul or being naïve will probably not have a good result. You can be a good negotiator without being unethical or deceptive. Timing is important.

4. Are the rules of negotiations unique? Is any tactic that will improve your chance of winning acceptable?

Answer: Yes, negotiation is a skill that needs to be learned and honed. The rules are somewhat unique but you need to negotiate with integrity. No, many tactics are not acceptable. The ground rules should be set upfront.

Source: Based on R. Cohen, “Bad Bidness,” New York Times Magazine, September 2, 2006, p. 22; M. E. Schweitzer, “Deception in Negotiations,” in S. J. Hoch and H. C. Kunreuther (eds.), Wharton on


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Making Decisions (New York: Wiley, 2001), pp. 187–200; and M. Diener, “Fair Enough,” Entrepreneur, January 2002, pp. 100–102.

Class Exercise

Lead a discussion, or break the students into groups to discuss the questions raised in the last paragraph of the dilemma. Ask them to apply these questions to various situations. Do they come up with different outcomes depending on the scenario? Why or why not?

Suggested Discussion:

The issues raised in the Ethical Dilemma, focus on negotiations and deceptive practices. To enhance the discussion, the instructor may wish to provide students with two models of negotiations—distributive and integrative. The former model assumes limited resources in fixed amounts and falls into the category of zero-sum activities (in order for one party to gain, the other must lose); the integrative approach is thoroughly discussed in the book Getting To Yes. Here the assumption is that negotiations are principled affairs that are based on establishing goals, not engaging in deceptive practices. Other areas for discussion should focus on relationships between the parties (and whether or not those relationships are on-going). One topic to explore could be using deceptive practices in negotiating with individuals with whom you have an on-going relationship. Ask students what may happen to issues of trust and cooperation?

Suggested Scenarios:

1. Negotiate your salary and benefits package for a job you have just been offered with a new employer. The employer would like to know what you were compensated in your last job.

2. Negotiate with a vendor who will do extensive renovations of the company headquarters over the next year. You are on a very tight budget and if you come in under budget, you will be a “hero” and receive a promotion and bonus.

3. Negotiate a divorce. Your retirement and the savings for your children’s education are at stake. You suspect your to-be ex-spouse will fritter it away.

4. Negotiate the sale of your house. You are in deep debt and need to maximize the selling price to come out “unscathed.” You are moving into a very small apartment to save money once the sale is complete.

Case Incident 1

DAVID OUT-NEGOTIATING GOLIATH: APOTEX AND BRISTOL-MYERS SQUIBB

Peter Dolan survived many crises in his five-year tenure as CEO of drug giant Bristol-Myers Squibb. There were a corporate accounting scandal, allegations of insider trading, FBI raids of his office, and a stock price that dropped 60 percent during his tenure. But in the end, what may have done Dolan in was his negotiation performance against the head of Apotex, a Canadian drug company founded by Dr. Barry Sherman.

At its peak, Plavix—a drug to prevent heart attacks—was Bristol-Myers’s best-selling drug and accounted for a staggering one-third of its profits. So when Apotex developed a generic Plavix knockoff, Dolan sought to negotiate an agreement that would pay Apotex in exchange for a delayed launch of Apotex’s generic competitor. Dolan sent one of his closest lieutenants, Andrew Bodnar, to negotiate with Sherman. Bodnar and Sherman developed a good rapport, and at several points in their negotiations asked their attorneys to leave them alone. At one key point in the negotiations, Bodnar flew to Toronto alone, without Bristol-Myers’s attorneys, as a “gesture of goodwill. The thinking was that the negotiations



would be more effective this way.”As Dolan, Bodnar, and Bristol-Myers became increasingly concerned with reaching an agreement

with Sherman and Apotex, they developed a blind spot. Privately, Sherman was betting that the Federal Trade Commission (FTC) wouldn’t approve the noncompete agreement the two parties were negotiating, and his goal in the negotiation was to extract an agreement from Bristol-Myers that would position Apotex favorably should the FTC reject the deal. Indeed, he nonchalantly inserted a clause in the deal that would require Bristol-Myers to pay Apotex $60 million if the FTC rejected the deal. “I thought the FTC would turn it down, but I didn’t let on that I did,” Sherman said. “They seemed blind to it.”

In the meantime, Apotex covertly began shipping its generic equivalent, and it quickly became the best-selling generic drug ever. Thus, Sherman also managed to launch the generic equivalent without Bristol-Myers’s even considering the possibility that he would do so while still engaged in negotiations.

“It looks like a much smaller generic private company completely outmaneuvered two of the giants of the pharmaceutical industry,” said Gbola Amusa, European pharmaceutical analyst for Sanford C. Bernstein & Company. “It’s not clear how or why that happened. The reaction from investors and analysts has ranged from shock to outright anger.” Within a few months, Dolan was out at Bristol-Myers.

Questions

1. What principles of distributive negotiation did Sherman use to gain his advantage?

Answer: His goal was to get as much of the pie as possible. He was not looking for a long-term relationship and as such, he was in a win/lose mode. Their interests were opposed and he did not share information.

2. Do you think Sherman behaved ethically? Why or why not?

Answer: No, he did not bargain in good faith and he was deceptive in his tactics. He hedged his bets and planned to win regardless of the FTC ruling.

3. What does this incident tell you about the role of deception in negotiation?

Answer: Deception can be used, however, unethical it is not illegal. In this case, he and his company prospered due to his deceptive techniques.

Source: Based on J. Carreyrou and J. S. Lublin, “How Bristol-Myers Fumbled Defense of $4 Billion Drug,” Wall Street Journal, September 2, 2006, pp. A1, A7; and S. Saul, “Marketers of Plavix Outfoxed on a Deal,” New York Times, August 9, 2006

Case Incident 2NEGOTIATION PUTS HOCKEY IN THE PENALTY BOX

Not every negotiation ends on a good note. Just ask National Hockey League (N.H.L.) Commissioner Gary Bettman, who, on February 16, 2005, cancelled all of the games remaining in the season following a 5-month lockout by the owners. Though professional sports such as hockey and baseball have had close calls with losing an entire season, Bettman’s decision was a first: The whole schedule was lost. Said Bettman, “This is a sad, regrettable day.”

On the other side of the dispute, Bob Goodenow, executive director of the N.H.L. Player’s Association, similarly regretted the impasse. He said, “Yes, we apologize to the fans.” Though the repercussions to the league and its players are obvious, canceling the season also had ramifications on a broader level, including lost revenues for local businesses and N.H.L. game merchandise sales.

So, why did Bettman cancel the season? The primary issue was a salary cap, but Goodenow said, “The players never asked for more money. They didn’t want to be locked out. Gary owes the apology. He started the lockout. We’ve done an awful lot to try to get to a fair resolution.” According to


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reports, negotiations began when the league attempted to lower the average salary from $1.8 million per year to $1.3 million per year—a 28 percent decrease. The league’s reason? Although the N.H.L.’s total revenue had reached $2.1 billion a year, players were paid 75 percent of this revenue. According to the league, this high percentage kept the league from being profitable and directly contributed to the league’s loss of $479 million over the past two seasons. The player’s union then countered with an offer to reduce salaries by 24 percent rather than the 28 percent the league wanted. Bettman then tried an alternative solution: to persuade the union to accept a salary percentage of no more than 55 percent of league revenues. Instead of reducing pay to an average level, this proposal would link players’ pay to the leagues’ revenues, which could fluctuate up or down. The league’s players opposed both ideas until Bettman and the N.H.L. team owners offered a salary cap that did not link payroll and revenue. At this point, negotiations looked promising.

However, neither party could agree on an amount. The owners offered a cap of $40 million per team and then increased it to $42.5 million. But the players wanted a cap of $52 million per team and then lowered their proposal to $49 million. Although the dollar difference in this round of negotiations amounted to only 6.5 million, neither side could agree, negotiations stopped, and the season was cancelled.

Said Goodenow, “Gary gave us a final offer, a take-it-or-leave-it offer. We made a counterproposal and events ground to a halt.” A reporter asked both sides whether they would have accepted a compromise of around $45 million per team. Such a compromise may have saved the season. Bettman stated, “If they wanted $45 million, I’m not saying we would have gone there, but they sure should have told us.” Goodenow, however, wouldn’t speculate: “The what-ifs aren’t for real.”

So how did the two sides eventually get the players back on the ice? They agreed to a 6-year deal that set a salary cap of $39 million per team for the 2005–2006 season (remember the players wanted a cap of $49 million). Many players were unhappy with the terms of the deal but felt that fighting the salary cap was a waste of time that did nothing but alienate the fans. Many players spoke out against Goodenow, arguing that he put the players in a no-win situation. Less than a week after the lockout ended, Goodenow resigned as executive director of the N.H.L. Player’s Association. He denied that his resignation was in response to the players’ complaints. The lack of an agreement in the N.H.L. negotiations was a loss to everyone—the league and businesses connected to the league, the owners, the players, and, of course, the fans.

Questions

1. How would you characterize the N.H.L. negotiation—as distributive or integrative? From what perspective (distributive or integrative) did the parties approach the negotiation? How might this approach have affected the outcome?

Answer: It is clearly distributive, adversarial where both parties viewed the situation as a zero-sum activity. Neither party was willing to move from their “final positions.” Nor did either party “trust” the other.

2. What factors do you believe led to the lack of a settlement in the N.H. L. negotiations? How might you have handled the negotiation if you were a representative of the league? Of the player’s union?

Answer: This question calls for students to speculate as to what they may have done if they were in the situation. This would be an interesting class exercise by having some students take the role of management and other the players association.

3. Negotiating parties are often reluctant to reveal their BATNA (best alternative to a negotiated agreement) to the opposing party. Do you believe that parties in the N.H.L. negotiation were aware of each other’s BATNA? How might this knowledge have affected the negotiation?

Answer: It was clear that neither party understood (or particularly cared) what the other’s alternatives (or walk away positions) were. Given the lack of maturity of the parties and their mutual distrust, there was very little room for effective and integrative bargaining.



4. It appears that a point of compromise (a $45 million per team salary cap, for example) may have existed. What steps could both parties have taken to reach this point of compromise?

Answer: Both parties would have had to demonstrate “good faith” in their dealings with the other. Given the hostility and the volatile climate, this was virtually impossible in the environment where the negotiations (or lack thereof) took place.

Source: Based on J. Lapointe, and R. Westhead, “League Cancels Hockey Season in Labor Battle,” The New York Times, February 17, 2005, p. A.1.

Instructor’s Choice

Negotiating with the National Labor Relations Board

Power struggles often end up as negotiation and bargaining scenarios. One place to trace historic negotiations between management and labor is the National Labor Relations Board Web site (see www.nlrb.gov). Go to the Web site and link to Case Summaries found under the News Room menu. Choose a famous case, summarize the conflict, describe the negotiation issues, and summarize the eventual outcome of the case. Once you have done this, indicate the form of conflict present and how the negotiation process helped to resolve the conflict.

Instructor Discussion

The NLRB Web site has several famous cases documented and filed. It is interesting that the NLRB often changes its political stance on issues as members often change as new governmental administrations are brought into power. For this reason, the viewer can see that some issues are re-visited. It is useful to present a contemporary case to illustrate the negotiation process. Since the Web site is updated frequently, the instructor can choose a case that has just been heard or one that is more classical in nature. Based on the way the case is presented on the Web site, the instructor could present the case without revealing the ruling and have the students try to determine what the eventual ruling (and justifying reasons) was.


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EXPLORING OB TOPICS ON THE

WORLD WIDE WEB

Search Engines are our navigational tools to explore the WWW. Some commonly used search engines are:

www.goto.com www.google.com www.excite.comwww.lycos.com www.hotbot.com www.looksmart.com

1. Let’s start out with a laugh. Go to dispair.com and see what their commentary is for dysfunction. Point to: http://www.despair.com/demotivators/dysfunction.html. While you are there feel free to look at some of the other posters that “spoof” traditional motivational posters found on the walls of businesses and schools. Enjoy!

2. How do you handle conflict when it arises? Seven guidelines for handling conflict can be found at: http://www.mediate.com/articles/jordan2.cfm. Think of a conflict you are involved in or have been involved in recently. How could you have applied these guidelines to that situation? Is there room for improvement in your conflict management skills? Write a short reflection paper (or a paragraph or two) on one of the guidelines and how you plan to use it in future conflicts.

3. If you have never been involved in labor negotiations it can be a challenging task—especially if you lack experience in the process. Preparation is key. Every manager should have an understanding of the process. Learn more at: http://www.mediate.com/articles/lynnK.cfm. Are there lessons in this article that could be applied to any negotiation process—for example, buying a car, negotiating a contract with a vendor, etc.? Think of a circumstance where you might find yourself explaining a negotiation process to a friend and the skills necessary to be successful. (Use the article for ideas.) Write out the scenario and skills and bring it to class.

4. Negotiating with other cultures requires an understanding of the culture and the individuals with whom you are negotiating. Point to: http://www.mediate.com/articles/lauchli.cfm to learn more about negotiation and dispute resolution with the Chinese. As the book has discussed, the Chinese are a collectivist culture different in many ways from Americans. Write two or three things of interest you learned from reading this article and bring it to class.

5. Read the article by Stella Ting-Toomey titled “Intercultural Conflict Management: A Mindful Approach” at: http://www.personal.anderson.ucla.edu/richard.goodman/c4web/Mindful.htm. Write a short synopsis of the three major points of the paper. What is the most interesting or intriguing idea put forth in the paper? Do you agree or disagree with her assessments? Bring your written work to class for further discussion.

6. The University of Colorado offers a great deal of information regarding conflict management on their website. One page provides abstracts of selected readings on transformative conflict resolution. Some readings are more global in nature—others are geared to the organization.

2 G. Ku, A. D. Galinsky, and J. K. Murnighan, “Starting Low but Ending High: A Reversal of the Anchoring Effect in Auctions,” Journal of Personality and Social Psychology 90 (June 2006), pp. 975–986.3 Q. Reade, “Workplace Conflict Is Time-consuming Problem for Business,” PersonnelToday.com, September 30, 2004, <URL>www.personneltoday.co.uk</URL>.4 K. O’Connor and P. Carnevale, “A Nasty but Effective Negotiation Strategy: Misrepresentation of a Common-Value Issue,” Personality and Social Psychology Bulletin, May 1997, pp. 504–515.


http://www.personal.anderson.ucla.edu/richard.goodman/c4web/Mindful.htm

http://www.mediate.com/articles/lauchli.cfm

http://www.mediate.com/articles/lynnK.cfm

http://www.mediate.com/articles/jordan2.cfm

http://www.despair.com/demotivators/dysfunction.html

http://www.looksmart.com/

http://www.hotbot.com/

http://www.lycos.com/

http://www.excite.com/

http://www.google.com/

http://www.goto.com/


Point to: http://www.colorado.edu/conflict/transform/abslist.htm and select three abstracts of interest to you. Print them off and bring them to class. Prepare a short presentation on what you learned from articles. Be prepared to talk about them before the class or in small groups.


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http://www.colorado.edu/conflict/transform/abslist.htm

OB -Chapter 14 - Case 1

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