«3 Chapter Distributive Bargaining T he negotiation model known today as distributive bargaining was first identified by R. E. Walton and R. B. ...»
Inexperienced negotiators may be hesitant to set the opening offer higher or lower just to create a desirable midpoint, for fear of offending the other party. A critical novice mistake! The best strategy is to allow for adequate negotiating room between the two initial positions by proposing an opening offer that both anchors your position and provides an acceptable midpoint. However, prepare a logical argument to give your offer credibility, or else it may be ignored by the other side and thus does not function as an anchor. A strong defense of the initial offer can achieve two objectives: (1) it convinces the other party that the offer has merit, and (2) it begins to call into question the credibility of the other party’s opening offer. In fact the other party may begin to question its own position and thus be more willing to move toward your opening offer.11 If you must give the first opening offer, or choose to do so for strategic reasons, then you should choose the most extreme offer that you can logically defend and carefully gauge the reaction. If the other side quickly makes is own opening offer—either very close to yours or extremely far from yours—be ready to walk away and reassess the situation. If their opening offer is very close to yours, then ask yourself if you set your offer too conservatively. If their offer is extremely far from yours, then it may be difficult to reach an acceptable midpoint.
In general, there are four major types of norms that might influence a negotiator’s behavior: (1) relational norms, (2) fairness norms, (3) reciprocity norms, and (4) good faith bargaining. Table 3.1 provides a summary of each norm and the basis upon which a negotiator will use it to develop or react to a proposal.
Relational Norm In a negotiation situation the parties may be involved in a strictly win-lose relationship, as described earlier in this chapter. They are concerned only with maximizing their outcomes. However, in many real-world situations the parties often have a communal relationship—they are family, friends, neighbors, or may have a continuing business or organizational connection. Organizational cultures, like national cultures, can produce shared ideas and practices—causing negotiators to seek the maintenance of long-term positive relationships even as they seek to maximize their outcomes when negotiating. This desire is referred to as a relational norm and can easily cause tension between the desire to maximize outcomes and the desire to maintain a positive relationship.
Research on relational motives and norms indicates that, when present in a negotiation situation, such norms can cause negotiators to overlook maximum outcomes in favor of suboptimal or less efficient trades that are viewed as providing a more satisfying relationship. Perhaps the most extreme application of relational norms occur in romantic relationships among “negotiators” whose concern for the relationship far exceeds the desire to achieve maximum exchange outcomes.
O. Henry’s classic 1905 story “The Gift of the Magi” describes the extreme romantic relational situation in which a young couple each sacrifice their most prized possession, only to receive in return something that has no practical value.12 O. Henry, however, might argue that the couple made the wisest possible relational exchange (see Figure 3.4).
Why are relational norms important? Too often people, especially novice negotiators, view a negotiation situation in a purely exchange mode or one-time interaction, 64 Chapter 3 Distributive Bargaining Figure 3.4 Lesson from “The Gift of the Magi” In a story by O. Henry, one Christmas Eve a young couple who are very much in love, but also very poor, each seek to buy a present for the other. They have no money, but each has a prized possession: Jim, the husband, has a gold watch handed down from his grandfather, and Della, the wife, has beautiful, long flowing hair. Jim decides to sell his watch to buy Della a set of tortoise-shell combs for her hair, which she had long desired. On the same day, Della has her hair cut and sells it to buy Jim a chain for his watch.
That evening the two lovers exchange gifts and realize the irony of their actions. The two had sacrificed for each other their greatest treasure. O. Henry ends the story by advising readers: “But in a last word to the wise of these days let it be said that of all who give gifts these two were of the wisest.” Why were they “the wisest”? Some might call the couple’s exchange foolish since both gave up their most prized possession for no good reason. But in terms of their relationship, their exchange was, as O. Henry noted, “the wisest” because each had made the ultimate sacrifice for the other, and thus their relationship became far stronger than if they had exchanged ordinary gifts.
Source: Adapted from O. Henry, “The Gift of the Magi,” 1905.
without regard for the future relationship between the parties. Therefore their objective is to win at all costs, to maximize the gain in a purely distributive bargaining context. This one-time “car-buying” situation may indeed be valid in many negotiation situations, but in many other situations it is not a valid assessment because the parties have a future relationship, at least to some extent. Organizational examples of relational norms include the common ones between managers, suppliers, co-workers, and vendors. Two major organizational developments in the past 20 years have contributed to the increased importance of relationships in negotiations: First, “flatter organizations”—those with fewer levels between president and the entry level— have become more common. Within flatter organizations, employees are given greater decision-making autonomy, and thus are increasingly empowered to negotiate with others within the organization. Second, organizations have become more inclined to develop partnerships with suppliers and other outside organizations, and therefore are more inclined to maintain long-term relationships. Due to these developments both within and between organizations, relational norms are more important today than in the past, primarily for three reasons:13
1. Future negotiations with the same party are often anticipated, and therefore negotiators will seek to avoid harming the future relationship between the parties (see Box 3.2). Thus the relational norm effectively moderates the exchange relationship.
2. People from other organizations expect negotiated “favors” to be repaid at a later date.
3. Trust is critical to a long-term relationship, so agreements must include less nitpicking, fewer what-ifs or contingency clauses. A higher level of trust is expected.
How can you avoid harming a future relationship with the other party by appearing to be greedy in a current deal? Alternatively, can you give up too much in the current negotiation for the sake of preserving a positive long-term relationship?
Negotiating expert Danny Ertel provides three useful tips for negotiating exchange issues for maximum gain while also not harming future relationships.
The first tip is to clearly separate the issues of “the deal” from the issues of “the relationship.” A strong relationship is built largely on trust, and thus the parties when negotiating will share information freely—and therefore can mutually identify issues that might harm the relationship. However sometimes negotiators pay too much attention to the relationship, and therefore give away too much in the deal.
On the other hand, if they push for the best possible deal they may jeopardize their side’s ability to do business with the other party in the future. Ertel recommends
that at the start of a negotiation the parties categorize the issues, for example:
1. Price and volume discounts
2. Service and maintenance agreements
3. Equipment replacement due to obsolesce
4. Termination clause
5. Delivery specifics Relationship Issues
1. Specific mutual long-term goals
2. Individual personal interests (CEO, officers, and so forth)
3. Specific areas for future collaboration
4. Mutual desire to maintain trust and respect, open communication A second useful tip for maintaining a positive relationship during negotiations is to continually ask for feedback from the other party: “Is everything happening as you expected?” or “Did this agreement include all the points of interest to your company?” The third suggestion is to negotiate using FOTE (see Chapter 2)—full, open, truthful exchange of issues, information, and positions. Total communication can improve the level of trust and therefore help build a positive relationship.
Source: Adapted from Danny Ertel, “Turning Negotiation into a Corporate Capability,” Harvard Business Review 77 (May–June 1999). Used by permission.
maintain an appearance of consistency and fairness in both words and deeds.
Psychologists call this need to appear reasonable “the consistency principle.” Negotiations of all types provide situations in which people seek consistency due to the high level of uncertainty. The use of a norm to provide consistency in a bargaining 66 Chapter 3 Distributive Bargaining situation can give a negotiator what Shell calls “normative leverage.” Negotiators who correctly anticipate the other party’s norm and therefore frame their proposal within that context can gain an advantage.14 Negotiation researchers have concluded that the fairness norm may be the most commonly employed norm. It includes four major variations: (1) the equality norm, which negotiators often call the “50-50” or “split-the-difference” (which certainly sounds fair since both sides gain an equal amount, but is really fair only if the initial offers were equally fair to both parties, which is highly unlikely); (2) the equity norm, or a split based on the proportional input of the parties; (3) the need norm, which can be a powerful social norm; and (4) the norm of maintaining the status quo, which keeps all significant issues in their current state. Figure 3.5 provides an example of how the fairness norm works.
To illustrate the first three of these fairness norms, consider three adult children who must decide how to divide the estate of their parents. Only three items of value remain. The most valuable of these is a new Mercedes-Benz; the other two items are a set of dining room furniture and a kitchen table and chairs. One child proposes they sell the items and split the proceeds 33-33-33, thus utilizing the equality norm. A second child notes that she provided the majority of the care for the parents over the last several months, and thus she believes she has earned the Mercedes. She is utilizing the equity norm. The third child explains how her car has more than 200,000 miles and is constantly in the shop, and therefore she could really use a new car. Therefore she is utilizing the need norm.
A fourth fairness norm employed by some negotiators and arbitrators is maintaining the status quo.15 Many labor contracts, for example, leave most current provisions unchanged, although a few key ones are negotiated. It’s not always assumed that the status quo is fair, but if things were accepted and used once, then they may work again. And sometimes it’s easier not to change something than to try to reach an agreement on a new proposal.
In the employer–employee relationship, what is commonly termed the equity principle is actually just the fairness norm—in this case, the equity norm variation— at work. The equity norm is based on the work of J. Stacey Adams,16 who found that employees compare the ratio of their own organizational outcomes/inputs to the perceived ratios of other employees’ outcomes/inputs—where outcomes include pay, recognition, bonuses, and so forth, and inputs include factors such as work effort, hours, and ideas. If employees perceive the ratios to be roughly equal, then they experience job satisfaction. However, if they perceive the ratios to be unequal, then they feel unfairly treated by the employer and will usually attempt to balance the ratios by seeking an increase in the outcomes received or, more likely, reducing their inputs or work effort, or even looking for another job. Thus the employee equity norm is quite similar to the fairness norm in a negotiation situation, except that the other party is the employer. Both are generally based on one of the cornerstones of Western culture—fair treatment. Religious, political, and labor organizations have often worked hard to achieve equity or fairness in our society. Issues such as gay marriage or discrimination based on race, religion, or age are often framed in terms of fairness or equity.
It is important to note that the common use of fairness norms in negotiations should not be confused with what is the “right,” “best,” or “fairest” solution. A fairness
Chapter 3 Distributive BargainingFigure 3.5 Fairness Norm Example Individuals in our society, when faced with a distributive decision as discussed in this chapter, often apply the “fairness norm.” This can be demonstrated easily with a group of individuals of almost any age from 8 to 80. The following exercise usually utilizes a group of 24 or more. It often leads to a lively conversation of the participants’ definition of fairness and the norms they apply in bargaining.
Exercise 1 Begin by choosing something of minimum value that can be easily divided into two parts, such as Snickers candy bars. Divide the participants into two groups (group A and group B) of equal size, and if possible locate the groups in separate rooms. In each room ask everyone to select a partner. Distribute a Snickers bar and a knife to one volunteer from each pair and provide this instruction: “Divide the Snickers into two parts of any size. Keep one part for yourself and give the other to your partner, but don’t eat them until I tell you.” Then inspect each pair of divided bars and determine how many are approximately of equal size, and how many were divided into one part larger than the other.