This is part of the “virtual book club” discussing readings for the symposium at the University of Missouri on October 7: Moving Negotiation Theory from the Tower of Babel Toward a World of Mutual Understanding.
Adrian Borbély begins by describing the publications he suggested.
Adrian: This is to comment on my inclusion of three documents in the symposium’s reading’s list: Danny Ertel’s 1999 Harvard Business Review piece, my Ryanair case, and the book chapter I wrote with Andrea Caputo on the organization as a negotiator. The latter two are included to solicit reactions to questions I currently investigate, together with Andrea Caputo, and use in my teachings.
An important part of research on negotiation is concerned with negotiation as an individual skill, playing in a dyadic (or more complex) interpersonal setting. Many researchers are pushing this logic so far that their results are based solely on interactions produced in the artificial setting of a lab, as if the context in which people negotiate did not matter that much.
Such a methodological bias, among others, has led people to ignore the following question: how do managers and CEOs make their teams and companies collectively better at achieving results in negotiation?
Danny Ertel was apparently the first one to raise the question, followed by Hal Movius & Larry Susskind in their 2009 book, Built to Win: Creating a World-Class Negotiating Organization. The latter wrote that “organizations that look past negotiation as a core capability do so at their own peril.” What this means is that there are sources of competitive advantage for companies that invest in their overall ability to negotiate smartly beyond training their individual negotiators, and there is potential trouble for those that do not.
By digging deeper, Andrea and I are focusing on two ideas.
First, certain organizations have developed a “signature way of negotiating.” Ryanair appears to be a perfect example. This Irish ultra-low cost airline succeeds to apply its hard bargaining approach to negotiation to most, if not all, its stakeholders, including the airports they land at and the aircraft manufacturers, despite the latters’ sheer power on the market. Using their own market domination, Ryanair proves able to capture most of the deals’ financial value, while fulfilling its counterparts’ interests just enough to get them onboard. How does this company (or other organization) manage to spread an approach to negotiation to be applied by different people in different settings?
Second, there seem to be management levers that can be activated to boost negotiation performance. Among best practices, one can think of: (1) a smart incentive structure for negotiators (which requires a hard thought about the negotiators’ key performance indicators); (2) classification of negotiation settings to trigger different negotiation approaches; (3) creation of a negotiation knowledge lab to share good practices and good (and bad) examples of negotiation; and (4) institution of negotiation mentoring programs. It is worth noting that even if salespeople have such programs, other negotiators within the company, such as lawyers and/or managers, generally do not. Here, this is about applying management techniques to different negotiation activities across the organization.
Placing these publications in the reading list is therefore a call for comments and advice as to the viability and interest of those questions to negotiation scholars. I look forward to your feedback and an interesting conversation on the topic.
John: Adrian, thanks for your contributions to the symposium reading list. I think that your piece with Andrea Caputo, The Organization as Negotiator, provides a great general summary of your ideas as well as your Ryanair case study and the Ertel article. As the title suggests, you focus on organizations as entities that negotiate. I want to highlight the following passage from your conclusion.
“[H]ow do we ensure that negotiation serves its role in fulfilling the organization’s strategy and reaching its objectives? . . .
“Whether we follow Henry Mintzberg (1978) with his idea of “emerging strategy”, or we approach strategy formulation as a top-down phenomenon, strategy needs to be diffused within and around the organization, in part through negotiation among different actors and stakeholders. One may therefore hypothesize that, across the board, the efficiency of such negotiations will positively impact the success of the strategy, and therefore the organization’s performance. If we postulate that organizations that negotiate better perform better, can we justify this with empirical data? This will require us to use the existing performance indicators for strategy (or create new ones) and build the appropriate key performance indicators for negotiation. It will also mandate a careful look for (possibly numerous) exogenous factors that may mediate the relationship between negotiation and strategy. . . .
“A systematic map of different organizational practices regarding negotiation may enable us to isolate best practices. Some structuring efforts may work, others may not and some may only work in certain circumstances. . . .
“A structured approach to negotiation practices does not have to follow the organization chart. Often, the cases showcased by the different sources talk about purchasing, sales, human resources, or strategy formulation. Beyond helping specific functions of the firm negotiate better, can a structured approach to negotiation help all functions of the firm to achieve better results? We conclude that the coherence of negotiation practices across the various functions of the firm (one is tempted to use here the word “negotiation culture”) may have a significant impact on overall performance.”
Your interest in businesses’ strategic use of dispute resolution overlaps with mine in the study I did with Peter Benner, Why and How Businesses Use Planned Early Dispute Resolution. We wrote:
“[U]sing a [planned early dispute resolution] PEDR system should be a “no-brainer” for businesses that regularly litigate . . . . This study illustrates that key stakeholders have their own interests, which often are satisfied by continuing with the status quo of [litigation-as-usual] LAU rather than switching to a PEDR system. The C-Suite often does not want to “get into the weeds” of managing litigation. Inside counsel and middle-level employees may feel that they currently handle disputes effectively and they may resent efforts to reduce their autonomy. Outside counsel may worry about interference with their professional responsibility to produce the best legal results and their ability to generate substantial revenue that generally flows from LAU. Although general counsel have the formal authority to direct inside and outside counsel to use PEDR processes, they may not do so for various reasons such as their temperament, background, training, or reading of internal business priorities. Even if they implement a PEDR system, the system is unlikely to be as effective as possible if key stakeholders resist.”
You and I (and probably most of us in the DR world) would love to see organizations be (what we think would be) smarter about their use of negotiation and other forms of DR. Some organizations have what we would consider an enlightened approach. Others, like Ryanair, have a ruthless hardball approach to negotiation. And probably most organizations have no strategic approach – they are laissez faire.
You refer to “factors that may mediate the relationship between negotiation and strategy.” What factors do you think are most significant in organizations’ approach to negotiation strategy (or lack thereof)?
Adrian: Thank you, John. From my perspective, some companies indeed have sectorial processes to address negotiation from a systematic perspective. Lots of salespeople act under “sales management” (e.g., hiring, incentive, and career systems linked to their sales performance). For lawyers, PEDR, when used systematically, may play a similar role. It remains that lots of companies and sectors of organizational life (e.g., human resources, team management and, let’s face it, lots of lawyers) do not have such a well-constructed, global approach to their negotiation activity.
To answer your question, I think that there are two major factors that prevent organizations from negotiating more effectively.
The first factor would have to do with two aspects of awareness. Many people are not aware that there possibly is an issue with current negotiation practices. (How many dispute resolution professionals have heard the traditional “we do not need your services, we know how to negotiate”?). In addition, people may not be aware that solutions do exist through systemic action. The highest spheres of an organization may consider that negotiation is a natural phenomenon, that people do their best, and that nothing can be done to make things better. Clear key performance indicators, sensible reporting mechanisms, and appropriate HR policies do exist, but they are rarely applied to negotiation and dispute resolution activities.
The second factor is the willingness to act, whether it originates from the bottom up, or from the strategic instances of the organization. Like any change effort, issues with current practices need to be identified and appropriate change needs to be applied. This requires specific competencies that bridge negotiation with organizational consulting.
This requires us, scholars and practitioners, to develop a clear case to support the gains to be expected from such change efforts. Ertel’s article offers some case studies. Andrea and I are also working on assembling evidence to convince companies of the need to invest in smart, systemic negotiation practices. But much remains to be done.
Thanks for your comment, Erin.
I think that Adrian’s and my characterizations of Ryanair’s negotiation strategy are quite consistent. According to Adrian’s study, Ryanair has a strategy of consistently taking virtually all of the cooperative surplus from negotiation, leaving the counterparts with as little as possible. This is a systematic strategy that they use with various stakeholders including airplane manufacturers, airports, employees, and customers. It seems that Ryanair has no concern about the counterparts’ interests or maintaining relationships based on anything other than sheer dependence.
Technically, there is nothing wrong with this strategy assuming that Ryanair complies with legal and ethical requirements (although they have apparently violated some laws). Ryanair not only doesn’t care about “bad publicity” but it finds that it paradoxically leads to more business, so its “colorful” CEO actively seeks publicity. Moreover, developing a reputation as a hard bargainer may discourage people in later negotiations with Ryanair from trying very hard because they doubt they would succeed.
When a dominant company in a market exercises its power like this, it is quite different than run-of-the-mill negotiations where each party seeks to maximize its results but can’t consistently impose its will like Ryanair.
I agree with you, Erin, that positional negotiation is a legitimate approach that is commonly used in many types of disputes. This often produces reasonable results, especially in smaller and medium-sized disputes and where one party does not have overwhelming power over the other. Positional negotiation often leads to a sub-optimal process and outcome, but is an appropriate option in many cases.
When powerful actors like Ryanair systematically employ this negotiation strategy, however, there can be a significant social cost of bad will when people feel ripped off. They agree to deal with Ryanair because they feel they have no other choice. I think it is bad for communities when a lot of people feel this way about major economic actors.
As Adrian suggests, I think this strategy is risky for Ryanair over the long term. They may be able to maximize their profits in the short run, but if their market conditions change and they need good will from various stakeholders, they may find that stakeholders will gladly abandon them (and perhaps relish in retaliating) if they can.
It will be interesting to see if Ryanair can sustain this strategy over the next 5, 10, or 20 years. I wouldn’t be surprised if the major stockholders cash out at some point leaving others with little to show for their transactions with Ryanair. Indeed, I wonder if it eventually will go bankrupt and leave creditors with major losses.
Does this general pattern sound familiar?
Unfortunately, we can’t post some publications like Adrian’s study due to copyright restrictions. But we would be happy to share them with you (or others) individually.
Well Erin makes a great point here.
When I do the Ryanair case with my students, I often stop at the ethics question and ask whether they would characterize the negotiations with regional airports and Boeing as mostly integrative or distributive. Students usually start with a blatant “easy, hardball distributive”, until one small voice hesitantly says “huh… integrative?”. This proves that the answer is all but simple.
Yes, on the money, Ryanair is playing “ruthless hardball”, which syncs with their cost-killing strategy. But their approach lets their counterparts with a lot of non-financial value (e.g. contracts at difficult times for Boeing, political and indirect financial gains for airport operators). So at the end, it is a win-win (until Ryanair crosses the ethics line and starts renegotiating existing deals).
The extent of each party’s win depends on one’s view over his/her own interests, and the viewpoint one takes as an observer. For example, Beauvais airport (80 kms North of Paris) went from nothing to being the 10th most frequented French airport (experiencing a 1000% increase in 15 years!!!), all because of Ryanair. So sure, they make nothing on landing fees but overall, the deal has brought them lots of value over time.
Personally, with time, I have grown increasingly uneasy with the notion of value creation and the distinction between integrative and distributive…
It’s interesting, John, that you characterize the Ryanair approach as “ruthless hardball” while Adrian describes it as ” Ryanair proves able to capture most of the deals’ financial value, while fulfilling its counterparts’ interests just enough to get them onboard.” That sounds like a (Big) Win – (Little) Win to me, which preserves the relationship enough that businesses continue to do business with Ryanair.
The “ruthless hardball” framing reflects a criticism I sometimes see of interest-based negotiation styles, that they encourage people (or organizations) to be too nice and thus fail to capture value. I find myself considering this a lot when I teach my students and have them run simulations. Sometimes elements of an exercise are purely distributive and I don’t want them developing a mind-set that they should simply split things down the middle for the best results. In the real world, they have duties to their clients. I’m sure many of us have approached students who failed to capture value in an exercise and said, “What would your company think about your leaving X on the table?”
All of which is to say that there is a time and place for hard bargaining, and that sometimes it isn’t ruthless, it’s smart, and it still maintains the relationship.
Andre,
Thank you for sparking such an interesting conversation. I think the situation is very similar here with the exception of those lawyers who have had more training in negotiation. From what I can see with lawyers who work in the criminal justice system (both prosecutors and defense lawyers) there is very little time spent analyzing what worked and what didn’t in the plea negotiation process. The analysis tends to be more outcome focused (was it a “good deal” or not). I think one reason that this happens is that so few lawyers have training in negotiation so they don’t know how to approach such an analysis other than by focusing on the outcome.
Thank you Cynthia for adding to this conversation.
Let me add some clarification.
Firstly, my work on negotiation at the organizational level does not mean that negotiation training should be abandoned… au contraire. Negotiation and conflict management are overlooked in the training of lawyers (I, myself, have had 6 years of law training in France, that included only 21 hours on negotiation); this is true to other professionals (e.g. rarely do business schools have compulsory negotiation training for future managers), despite the fact that negotiation will be a crucial part of the activity of everyone working in an organization of any kind.
Ertel, Movius & Susskind and us claim that negotiation training will not suffice if people’s negotiation performance goes ignored, unsupervised and no effort is made for continuous enhancement. This fully applies to French lawyers, who tend to treat each plea or negotiation as a unique occurrence, rarely with as little as a feedback look, or some form of evaluation against key performance indicators. Is it the same in the USA?
It is fascinating how commonly negotiation is not treated as a field deserving of training and expertise. I am sure we have all heard folks in business, government, and non-governmental work explain how they don’t need help negotiating because think they already know everything they need to know. Often these same folks will confidently declare something like, “well, some people are just born to be good negotiators.”
In the context of the criminal justice system, both defense lawyers and prosecutors spend far more time on trial training, and relatively little on learning how to negotiate. This is despite the fact that well over 90% of criminal convictions are due to plea bargaining. An interesting empirical study on how little negotiation training defense lawyers get is Jenny Roberts & Ronald F. Wright, Training for Bargaining, 57 Wm & Mary L. Rev 1445 (2016). You can download the article here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2651396
I wonder if this will change when we have more graduates going into criminal practice (and other fields) who have taken negotiation courses.