QUESTION
The Paper topic should focus on an actual, specific, “real world” negotiation/conflict/ transaction/case based on a professional or personal context – Negotiating a partnership in a company including the GM role. The parties on these negotiations are myself and current business owner. The Paper's analysis should reflect and directly apply the Course Concepts. Incorporation of negotiation terms/concepts/terminology/buzzwords can and should be included when useful and appropriate. Must apply the course concepts, pls check below section.
The research to reflect your personal interest, experience or passion. With your topic, try to narrow the relevant "negotiation points/issues" and parties to three or less to place a "border" around your topic and Paper analysis.
STRUCTURE:
Introduction (facts); (ii) Analysis (application of course concepts); (iii) Recommendations (suggestions on how to reach a more optimal negotiated process/outcome); and (iv) Conclusion.
Referencing
Footnotes are recommended for sourcing, including the course readings, lectures, experiential games, and/or simulation cases.
SOLUTION
NEGOTIATING A PARTNERSHIP IN A COMPANY INCLUDING THE GM ROLE
INTRODUCTION
This paper examines a negotiation I had with Mr. Jones, the current owner of M/s Future Logistics Limited. The negotiation revolves around a business partnership between my start-up, Exex Software Solutions, and General Manager (“GM”) role in the new partnership structure. My interest in this negotiation stems from my passion for entrepreneurship and my desire to collaborate with a business owner to create a successful joint venture.
A Brief Background
In 2009, Mike Jones established M/s Future Logistics Limited (“FLL”), a company incorporated under the laws of Australia. With a tagline of “Small Ideas, Big Revolutions,” the FLL is a leading logistics company with a well-established reputation and customer base.
Exex Software Solutions (“Exex”) is my start-up, which has developed a new software platform for managing logistics in the transportation industry. Exex has recently raised seed funding and has a team of 12. Being the founder of Exex, I am interested in partnering with FLL, and FLL agreed to negotiate on the possibilities of a new partnership business with Exex.
Key Issues for Negotiation
Parties to Negotiation
In the negotiation proceedings, FLL was represented by Mr. Jones, the current owner of FLL, and I represented Exex.
Negotiation Process
The negotiation process involved multiple rounds of meetings to discuss the partnership agreement’s various terms. The first round of negotiations was focused on discussing the potentiality of a partnership agreement between FLL and Exex. We both agreed that a joint venture could be a mutually beneficial arrangement and meet the current market demands. In the second round, a preliminary product roadmap was developed to assess the specific collaboration areas and discuss each company’s respective roles and responsibilities. In the later phases, more technical aspects, such as the partnership details, the intellectual property rights, the profit-sharing model, and timelines for developing the joint project, were discussed. Both parties aligned the discussions with the company’s overall strategy and objectives.
Negotiating the role of GM was a difficult task during the final stages because both companies were reluctant to give up such a powerful and potentially lucrative role. Exex believed that they should have the GM role as they have developed the technology and deeply understand the prevailing market. Furthermore, the continued development of the software is a determining factor in the joint venture’s success, and Exex was fully capable of doing so.
Mr. Jones insisted that since FLL has a wider range of expertise in the logistics industry and a vast customer base, he should retain the role of GM in the partnership to create a long-lasting customer relationship. Mr. Jones also contended that a significant level of capital investment in the partnership business should entitle him to have a decisive role in the company’s management. This also raised the issue of the level of investment from FLL in the partnership venture. Initially, Mr. Jones agreed to bring in 70% of the capital; he later retracted and reduced the investment level to 55% without compromising the GM role.
Outcome of Negotiation
The negotiation was concluded successfully by both parties reaching an agreement where FLL and Exex would share 50% of the capital investment, and the CEO of Exex would be appointed as the new GM.
ANALYSIS
Early Stages: Cooperative and Integrative Blue Zone
The earlier stages of negotiations with Mr. Jones were in the blue zone. Both parties prioritised the possibilities of forming a partnership business by understanding each other’s common and conflicting interests.[1] The discussions at this zone focused on setting up and developing a relationship with mutual respect, trust, and commitment to finalise the feasibility and effectiveness of the proposed partnership business. In this regard, both parties shared their common and conflicting interests to find a practical way forward.
Common Interests
The traits of blue zone negotiations were also identified during the initial discussions regarding the qualifications, post-qualification experience, and leadership qualities required for the prospective GM of the partnership venture. We discussed our expectations for the role of GM, as well as compensation and other incentives, which were found to be co-extensive.
[1] MLS Negotiations ONLINE (SlideDeck with Culture Tech).
Conflicting Interests
The parties adopted various questioning techniques to remove any uncertainties. This helped both parties identify conflicting interests. Furthermore, we agreed to work collectively and collaboratively to ensure these conflicts were addressed and resolved amicably. As a result, as many will agree, questioning is a critical success factor when reaching an agreement on the best outcome.[2]
Thus, the cooperative and integrative bargaining in the initial phase of our negotiation helped us lay the foundation for a successful working relationship for our partnership business. It catalysed the process of building trust and mutual understanding between the parties.
BATNA/WATNA
The Best Alternative to a Negotiated Agreement (BATNA) and the Worst Alternative to a Negotiated Agreement (WATNA) are essential negotiation techniques for a more informed and realistic discussion. BATNA is defined as the standard against which any proposed agreement should be measured.[3] It suggests the negotiator should not agree to a worse resolution than their BATNA.[4]
The potential BATNAs for Exex in the negotiations relating to GM’ role included the following:
Similarly, WATNA also plays a crucial role in accepting an offer to minimise the losses due to losing the deal. Therefore, WATNA for Exex includes the following:
[2] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
[3] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating an Agreement Without Giving In (Penguin Books, 2nd ed, 1991).
[4] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
The alternatives discussed above aided Exex in determining our negotiating power to say NO to an unfavourable proposal. Mr. Jones was compelled to offer a 70% capital investment by retaining the GM’s role due to the availability of another potential investor. Considering the worst alternatives, Exex was agreeable to this offer. However, Jones backed out of the deal and offered 50% investment without compromising the GM’s role, which Exex found unacceptable given our bargaining power. Finally, Mr. Jones was forced to relinquish the GM’s role to vouch for Exex’s partnership.
7 Elements of Negotiation
[5] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
[6] Katie Shonk, 'What is Negotiation' (13 October 2022) Hardvard Law School, accessible at https://www.pon.harvard.edu/daily/negotiation-skills-daily/what-is-negotiation/.
[7] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating an Agreement Without Giving In (Penguin Books, 2nd ed, 1991).
Last Phases: Competitive and Distributive Red Zone
The parties were unable to agree on the role of the GM in the later stages, and the negotiation entered a competitive Red Zone involving various negotiation games such as the Prisoner’s Dilemma, the Dominant Strategy, Tit-for-tat, the Mutually Assured Destruction, and ZOPA.
Prisoner’s Dilemma (PD)
Prisoner’s dilemma is an uncooperative situation[9] in which parties acting in their own self-interest do not produce the best outcome.[10] In the present case, Mr. Jones was reluctant to give up GM’s role or to increase their investment level. Exex also couldn’t agree to such a low deal as we had already incurred huge costs for the software development and GM’s role was our primary agenda while looking for a potential investor to maintain a balanced position in the new venture. Then, due to a lack of facts and not knowing how FLL would respond, it was a guessing game for Exex.
Dominant Strategy (DS)
[8] M. Hemold et al. (eds.), Successful International Negotiations, Management for Professionals (Springer Nature Switzerland AG, 2020).
[9] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
[10] M. Hemold et al. (eds.), Successful International Negotiations, Management for Professionals (Springer Nature Switzerland AG, 2020).
In negotiation game theory, dominant strategy is the situation in which one party has a greater advantage than another based on the strategy employed. FLL’s strategy was to acquire the software at a lower cost. Exex’s strategy was to ask for optimal investment in the capital and the GM’s role in the new venture. This was to maintain a balanced power parity in the partnership business. Compared to FLL, Exex had more control over the outcome of this game as we were hesitant to accept the offer of 50% investment without compromising the GM’s role.
Tit-for-Tat (TFT)
The tit-for-tat strategy, also known as “reciprocal bargaining,” is an attempt by negotiation parties to remove personality from bargaining behaviour and respond to the opposing party in reciprocation.[11] Robert Axelrod argues that it will promote cooperation and provide protection against the non-cooperating party.[12] In the negotiations with Mr. Jones, Exex let him move first with a plausible final deal and waited for the same. Exex moved positively by accepting the offer after Mr. Jones made a positive move by giving up the GM’s role in exchange for a 50% investment plan. Thus, we were able to reinforce the cooperation between the parties.
Mutually Assured Destruction (MAD)
Mutually Assured Destruction is a stage in which both parties cannot cooperate and refrain from talking. This may lead to a rapidly deteriorating situation where the parties fail to conclude a partnership agreement. Thus, the result is the mutually agreed-upon destruction of a business partnership opportunity for both parties. For example, suppose both parties had refrained from further talks when Mr. Jones retracted from the initial offer of 70% of capital investment from FLL with its GM. In that case, there might have been mutually assured destruction for both parties.
Zone of Possible Agreement (ZOPA)
The Zone of Possible Agreement is one of the zones in negotiations where both parties identify a common goal to reach a potential agreement in which some of each other’s ideas are incorporated.[13] t is the overlap of one party’s range of options with others. One of the parties must make an opening offer to start the Zone of Possible Agreement process.[14] In the present case, the Zone of Possible Agreement relevant for Exex was between 50% and 70% investment, while FLL’s Zone of Possible Agreement was between 40% and 60% investment in the partnership. Knowing this range of bargaining zones aided us in pressuring FLL to agree to a favourable partnership deal.
[11] Ralph A. Johnson, Negotiation Basics, Concepts, Skills, and Exercises (Pearson Education, 2nd ed, 2015).
[12] Robert Axelrod, The Evolution of Cooperation (Basic Books, 1984).
[13] Marcela Merino, 'Understanding Zopa: The Zone of Possible Agreement' (14 September 2017) Business Insights Blog, Harvard Business School Online, https://online.hbs.edu/blog/post/understanding-zopa.
[14] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
Respectful Problem-solving Zone
In respectful problem-solving zone, the parties cooperate successfully to find a solution to the issue at hand. The negotiators speak professionally, listen actively, and make efforts to understand each other’s interests and concerns. Exex and FLL maintained the respectful problem-solving zone mainly during the discussions regarding the responsibilities, qualities, and compensation of the GM.
Aggressive Problem-solving Zone
The aggressive problem-solving zone is the opposite of respectful problem-solving zone. In this zone, the negotiation is styled as assertive and confrontational, in which the parties employ strategies like intimidation, threats, and ultimatums in order to obtain their objectives. The goal of the negotiators in this zone is to achieve their own objectives at the expense of the other side, rather than establish a relationship with them. In the present context, aggressive problem-solving zone negotiation strategy was employed when Exex and FLL made adamant demands for the role of GM with little consideration for the interests or concerns of each other.
Insult Zone
A point that is perceived as so egregious, derogatory, or offensive that it triggers a party to walk out.[15] In this zone, one or both parties become emotionally heated and start insulting or criticising one another directly. The negotiators could use abusive language, belittle one another, or participate in actions that could sour the relationship and make it challenging to come to an agreement. In the present context, it was an insult zone when Mr. Jones started making comments about the personal lives of the team members while negotiating for the GM’s role. However, Exex tried to reconcile and warned that launching personal attacks rather than focusing on the pertinent points would not help reach an amicable partnership.
[15] MLS Negotiations ONLINE (SlideDeck with Culture Tech).
Negotiation nudges
The theory of nudges developed by Richard Thaler and Cass Sunstein belongs to the psychological aspects of negotiation.[16] The nudge theory proposes that people have the ability to become “choice architects,” leading others to make favourable decisions through creativity.[17] The following nudges were used in the negotiations with FLL:
The above nudges encouraged FLL to consider Exex as a fair option for investment and the best fit for the role of GM. Therefore, nudging is truly an art of choice in architecture. This technique can create a positive and collaborative environment that pushes the other party to make concessions favourable to the nudging negotiator.
Deal-making Negotiations
The negotiation between FLL and Exex was a deal-making negotiation as both parties focused on reaching a mutually beneficial partnership agreement. It involved a rapid exchange of offers and counteroffers. The ultimate goal of the negotiation process was to maximise the value of the partnership deal and minimise the associated risks and costs.
[16] Thaler, R. H., & Sunstein, C. R. Nudge: Improving decisions about health, wealth, and happiness. Yale University Press (2008).
[17] Ibid.
Fairness
Fairness is an important intangible in selecting a solution in the negotiation process.[18] As per Lewicki, Barry, and Saunders, three common criteria can be applied to determine a fair outcome.[19] Firstly, it must give equal outcomes to each side. Secondly, the outcome must be more or less based on equity, i.e., the contributing party should be paid more. Third, a fair outcome is one that meets the needs. In this case, the final result of 50%-50% share and Exex having GM’s role ensured FLL’s equal stake in the partnership and Exex having an innovative team in its GM’s role, thus ensuring the three criteria of equality, equity, and necessity.
Information dynamics
Both parties in the negotiation strived to be transparent about their interests, needs, limitations, and weaknesses. It entailed the disclosure of FLL and Exex’s financial information as well as the sharing of market research, data on market trends, customer demographics, software development costs, and so on. This informational dynamic helped both parties build a long-lasting relationship based on mutual trust and collaboration, which resulted in a mutually beneficial partnership agreement.
Negotiation styles
Exex was a start-up company negotiating with FLL, a large logistics company. Therefore, adopting a negotiation style incorporating different power dynamics was prudent. The first approach was to follow a collaborative negotiation style where we worked through the negotiation process as a problem-solving process, although it required a huge number of resources. Subsequently, taking advantage of our unique software and expertise, Exex adopted the role of a competitor who enjoyed a winning game by dominating the negotiation process at certain points. Later, Exex resorted to compromising to close a fair partnership deal. Thus, a combination of different styles led to the successful negotiation between FLL and Exex.
[18 Lewicki, R. J., Barry, B., & Saunders, D. M. Negotiation: Readings, Exercises, and Cases (McGraw-Hill Higher Education, 6th ed, 2010).
[19] Ibid.
[20] Magee, J. C., Galinsky, A. D., & Gruenfeld, D. H. (2007). Power, propensity to negotiate, and moving first in competitive interactions. Personality and Social Psychology Bulletin, 33(12) https://doi.org/10.1177/0146167206294413.
Negotiation power
As per Galinsky and Magee, there are three sources of power in negotiation: BATNA, role power, and psychological power.[20] Lewicki, Barry, and Saunders also argue that each side’s BATNA is a major factor in deciding the negotiation power. [21] Nonetheless, FLL had more bargaining power in this case due to its greater financial resources, brand value, and market power. On the other hand, Exex’s bargaining power was based on its unique software, which attracted FLL and helped it acquire a competitive advantage in the logistics market. Moreover, Exex’s innovative potential to significantly impact the market and disrupt the industry gave it further bargaining power.
Anchoring
The tendency to make estimates biased toward the initial values is known as the phenomenon of anchoring.[22] FLL assumed that Exex’s team would not be capable of leading the partnership venture in the role of GM. Such a false assumption without evaluating the potential of Exex led to serious consequences at a later stage. If Exex or FLL had failed to recognise the value Exex could bring to the partnership as the venture’s general manager, Exex could have been in a weaker position in the long run.
Effective communication
The Mehrabian formula of communication is as follows: [23]
Total liking is 7% Verbal Liking + 38% Vocal Liking + 55% Facial Liking
Therefore, effective communication requires non-verbal factors such as facial expressions, eye movements, gaze, posture and body orientation, hand gestures, walking style, and vocal cues, pitch, volume, and tone.[24] Furthermore, active listening, verbal fluency, identifying interests, wants, and value systems on the other side, and culture are important factors affecting negotiation communication.[25]
Exex adopted the GRIT IPA strategy in the negotiations:
[21] Lewicki, R. J., Barry, B., & Saunders, D. M. Negotiation: Readings, Exercises, and Cases (McGraw-Hill Higher Education, 6th ed, 2010).
[22] Tversky A, Kahneman D, 'Judgment Under Uncertainty: Heuristics and Biases' (1974) 185 Science 1124.
[23] Albert Mehrabian, Silent Messages: Implicit Communication of Emotions and Attitudes (Wadsworth, 2nd ed 1981).
[24] MLS Negotiations ONLINE (SlideDeck with Culture Tech).
[25] Ibid.
Ethics
Fairness, equity, and honesty are some of the ethical values expected in a negotiation. However, power and opportunity can lead to unethical behaviour.[27] In the present case, both parties endeavoured to maintain ethical behaviour by respecting each other’s opinions, allowing each party to express their interests, agreeing to keep the contents of the negotiation confidential, committing to a mutually beneficial outcome, etc.
Actual Negotiated Process/Outcome vs Optimal Negotiated Process/Outcome
The real negotiated process that has taken place between two parties is referred to as the actual negotiated process/outcome. It covers actual plans, agreements, and strategies employed to arrive at an end result. Exex and FLL outlined their demands and expectations for the partnership business and the role of the GM. After debating various alternatives and potential concessions, ultimately the parties concluded a 50% investment with the CEO of Exex having the GM’s role.
On the other hand, the best possible negotiation scenario and agreement between the parties is referred to as the optimal negotiated process/outcome. It is the end result that could have been reached if the negotiation process had been more effective. It considers all the potential variables and results. If Exex and FLL could have engaged in a more open and collaborative negotiation process where they actively listened to each other’s needs and concerns, the outcome could have been more mutually beneficial and sustainable in the long run. For example, if Exex had considered the interests of FLL to lead the firm based on their vast customer relationships, a shared or rotating GM role could have been proposed while retaining a higher investment from FLL.
[26] Charles Osgood, An Alternative to War or Surrender (University of Illinois Press, 1962).
[27] ‘What are Ethics in Negotiation?,’ Program on Negotiation: Harvard Law School, https://www.pon.harvard.edu/tag/ethics-in-negotiation/.
RECOMMENDATIONS
1. An effective first offer for a productive negotiation:
The first offer has an anchoring effect on the negotiation.[28] If Exex had placed its first offer without waiting for FLL to come up with its offer, the conflict could have been minimised. In determining the success of a negotiation, the first offer plays a major role as it lays the foundation for effective negotiation based on the parties’ true interests.
2. Explore more BATNAs:
Exex should have broadened its BATNA and brainstormed to offer more alternative solutions. For instance, a proposal for a shared GM role could have been an option that might have earned more investment from FLL. In the shared GM role, Exex could have taken on the responsibility of technological advancement and FLL, the marketing responsibilities. “Walk-away” is not BATNA.[29]
3. Interest-based bargaining rather than position-based bargaining
It is irrelevant to argue over positions[30]. It endangers relationships. On the other hand, focusing on the underlying interests that lead to such positions results in wise agreements.[31]
4. Focus on the impact on the customers:
While negotiating a partnership business, the focus should be given to the impact of the new venture on the customers. This will assist in identifying shared interests between the parties.
5. Use of Technology:
Negotiations do not always necessitate physical presence. More effective use of technology, i.e., using video chats, screensharing, digital mirroring, etc., is a benchmark strategy for deal making negotiations. It will reduce the time and cost of the negotiation process.
CONCLUSION
Negotiation is the most effective method for reaching a mutually beneficial deal. However, if the parties negotiating do not have equal bargaining power, the negotiation outcome can be biased in favour of the powerful player. Furthermore, suppose the parties’ disagreements result in a deadlock. In that case, it is advisable to seek the assistance of a mediator or conciliator who can act as a neutral negotiator and identify common interests in order to suggest effective alternative solutions. Moreover, a major drawback for negotiation is when parties delay reaching a binding agreement and one of the parties retracts or deviates from the offer. Due to the lack of bindingness of the negotiation process, the parties must make written agreements as soon as they reach a fair and equitable deal.
[28] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
[29] Andrea Cordell, The Negotiation Handbook, (Routledge, 2nd ed, 2019).
[30] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating an Agreement Without Giving In (Penguin Books, 2nd ed, 1991).
[31] Ibid.
Nonetheless, negotiation is essential for deals ranging from daily needs to complex commercial or non-commercial collaborations. Negotiation is the fundamental means of gaining the things someone needs from others. Everyone engages in negotiations regularly, even without knowing to do so. However, to excel as a negotiator, one must excel in principled negotiation, which separates the people from the problem, focuses on interest than positions, explores mutually beneficial options, and insists on using objective criteria.[32]
[32] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating an Agreement Without Giving In (Penguin Books, 2nd ed, 1991).