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Negotiation in Management Decision Making Essay

Having been approached by The Director of the Cowley Council Council (CCC) regarding an industrial dispute with their refuse collectors, a report has been prepared to give insight into the field of negotiation and aid the council in their talks with the refuse collectors. The dispute is primarily concerned with CCC’s plans to change working practices but there are also a number of other issues regarding pay, shift patterns and recent cuts in the training budget and expenses.

The refuse collectors are threatening to go on strike if their demands are not met, an action that the council would undoubtedly like to avoid. According to Rubin and Brown (1975), negotiation refers to a process in which individuals work together to formulate agreements regarding an issue or issues in dispute. An agreement will only occur if the offers made are accepted by both of the parties (Neale & Northcraft 1991) and should lead to order and stability, foster social harmony, increase feelings of self-efficacy, reduce the probability of future conflict, and stimulate economic prosperity (Rubin et al 1994).

Getting the negotiation game right is ever important for managers “as the global economy expands, as the service sector grows, as corporate restructuring continues and as employees continue to be concerned with managing their own careers” (Neale and Bazerman 1992: 3). The initial stages of the report will cover theory and research on the decision-analytic approach to negotiation and discuss its relevance and potential use for CCC regarding its dispute with the Cowley refuse collectors.

I will then identify potential biases and pitfalls that can act as barriers to effective negotiation that CCC should try to avoid. Finally I will conclude and outline suggested proposals for CCC to consider with the aim of assisting and improving their negotiations with the refuse collectors. The decision-analytic approach to decision making is a more pragmatic alternative to the dominant psychological and economic perspectives, which contain a number of limitations.

The individual-attribute literature fails to measure dispositions adequately, the situational literature does not consider the importance of the negotiator’s perceptions in interpreting situational characteristics (Neale and Bazerman 1991: 20) and the game theory unrealistically assumes “impeccably rational, supersmart people” (Raiffa 1982, 2001). What differentiates the decision-analytic approach is its focus on “how erring folks like you and me actually behave” rather than on how we would behave if we were “smarter, thought harder, were more consistent, were all knowing” (Raiffa, 1982: 21).

Previous psychological and economic approaches have focused on describing how people make decisions or prescribing how to improve decision making. However, “very little interaction has occurred between the descriptive and prescriptive camps” (Neale and Bazerman 1991: 20), and it is Raiffa’s (1982) avocation of an “asymmetrical” prescriptive/descriptive relationship that makes the decision-analytic approach stand out, “creating a prescriptive need to descriptively understand how negotiators actually make decisions” (Bazerman et al 2001).

Many scholars hold the view that the prescriptions gained from this model are more valuable than those offered by more traditional approaches (Lax and Sebenius 1986). Raiffa’s framework for approaching effective negotiations distinguishes three sets of information, a combination of which determines the structure of the negotiation game: each parties alternative to a negotiated agreement, each parties set of interests, and the relative importance of each parties interests.

“To develop agreement, people need to get a good understanding of their own preferences and priorities, to communicate those to their counterpart, and to integrate information about other’s preferences and priorities into their own understanding of the problem at hand” (De Dreu et al 2000). Before CCC enter into any negotiations with the refuse collectors, it is imperative to determine a Best Alternative To a Negotiated Agreement (BATNA), “the standard against which any proposed agreement should be measured” (Fisher, and Ury 1981).

Negotiations can be greatly improved by identifying a BATNA and “carefully evaluating the negotiated agreement against that alternative” (Ertel 1999). This helps negotiators fix a reservation point, a lower bound, which is crucial to monitor throughout the negotiation. Agreements that provide more value than the BATNA are preferred over impasse; likewise any agreements that provide less than the BATNA should be rejected.

A potential BATNA for CCC would be to look into other refuse collection companies opening up the possibility of privatisation. The privatisation of refuse collection is a serious consideration in many areas of the UK and a “major debating point for the city council” (Birmingham Mail 2013) in Birmingham. Waste Concern, a private refuse collection company, claims that 17% of council tax goes towards refuse collection and that privatisation would lead to a cheaper, more frequent collection service, and a more efficient recycling system (edieWaste 2010).

If CCC values the current refuse collectors, despite the current dispute, and they are reluctant to consider such an ultimatum, they could consider a more strategic change by introducing the proposed changes incrementally, or by altering the amount of changes being made. It is crucial for negotiators to understand each party’s key interests and how they align (Reardon 2005 : 28).

Fisher and Ury (1981) emphasize the importance of the distinction between a parties’ position, and their interests, with a position being the stated requirement that a party demands from the other side, whist an interest is the underlying desire of the negotiator and the motives for their position. It can however be difficult to understand ones interests and those of the other party. CCC’s primary interests are increasing productivity and decreasing costs, whilst the refuse collectors’ interests are concerned with their financial rewards.

It is however important to try and understand all of the parties’ interests. The Personnel Director may be under pressure to cut costs in order to stick to a budget so her personal interests may have more focus on performing her job in order to maintain it. The interests of the refuse collectors also concern HR aspects such as, work life balance and training and development. These interests are motives behind the position of their threat of strike, and further scrutiny may offer CCC potential areas to focus on during negotiation.

Focussing on deeper interests can provide a more reasonable bargaining platform and a creative and practical solution to a negotiation. Once the interests of each party have been established, it is important for negotiators to try and value the relative importance of each party’s interests. This then allows the parties to effectively trade-off less important issues to gain more important issues. If CCC can establish that, for example, the refuse collectors desire a better work life balance as well as sufficient financial benefits, there may be potential for a medium ground to be reached offering a certain amount of each.

The importance of interests often comes down to economic factors, thus job security is frequent consideration. In this instance the job security of the refuse collectors is at risk as there is a chance of redundancies if they do not cooperate. This information provides “the building blocks for thinking analytically about a negotiation” (Bazerman and Moore 2009:154) and prepares the parties for the two primary tasks of negotiation: creating and claiming value (Lax and Sebenius 1986). It is crucial for negotiators to establish the reservation points of both parties.

That is the worst possible outcome they will accept before a negotiation is impasse. With both reservation points established, a positive bargaining zone is created, which allows negotiators to “aim for a resolution that is barely acceptable to the other party” (Bazerman and Moore 2009: 156) by getting as close to their reservation point as possible. It is however, also vital for both parties to try and cooperate in creating value in the negotiation, as there is often “opportunity to considerably enlarge the pie before cutting it into shares for each side to enjoy” (Raiffa 2002: 91).

Lax and Sebenius (1986) stress that differences must be seen as opportunities, as opposed to barriers, that can be explored to find the most efficient solution rather than just ‘satisficing’ (Simon 1956). According to Schmidt and Tannenbaum (1960) “differences can help to increase the range and variety of alternatives suggested” and even potentially “enrich ones own goals, ideas, and methods. ”

So CCC must capitalise on the differences in the party preferences (Pruitt 1983) by evaluating the position of the refuse collectors, and looking into finer detail at the interests behind these positions, before attempting to develop “novel alternatives” through “creative problem solving” (Neale and Bazerman 1991: 24). Negotiation then depends fundamentally on parties’ ability to trade issues against each other (Froman & Cohen 1970) and “place demands and formulate concessions to foster agreements that meet their own goals, while avoiding that the counterpart leaves the situation” (De Dreu et al 2000). CCC could for example offer certain alternative benefits to the refuse collectors if the changes are implemented.

Perhaps an investment in more efficient equipment and machinery would be appealing. There are certain tools that negotiators can use in order to aid their efforts in collecting information and subsequently increase the probability of creating value. It is certainly the case that deception is often used in negotiation (Schweitzer 1997) and can be an effective strategy for increasing one’s own outcomes (O’Connor and Carnevale 1997). However in this instance, both parties must also note that building trust and initiating a “free flow of information is critical to finding and integrative agreement” (Johns and Saks 2011)).

In heated negotiations this is far easier said than done, as neither side wants to give away too much information on their stance on particular issues. However, CCC is in the position to try and create a trustworthy relationship in order to improve their informational position. The director could inform the refuse collectors of the councils’ pressures and financial limitations that are the driving factor behind the need to change the working practices and make cuts. If no suitable solution is agreed upon, then there may have to be redundancies, as the council cannot overspend.

Another tactic could be to strategically disclose some information. As behaviours in negotiation are often reciprocated (Lewicki and Litterer 1985), this may prompt the refuse collectors to open up and start revealing information which may facilitate the negotiation process. CCC must also ask a lot of questions to increase the chances of ascertaining critical information. According to Bazerman and Moore (2009: 162) “asking questions and listening actively are the keys to collecting important new information from the other side” but it also important for negotiators to remember that information can be gained from what is not said, as well as what is said.

An alternative to trading issues would be for CCC to arrange some kind of contingency contract to verify weather their plans to change working practices is fair or weather it is being rightly disputed by the refuse collectors. CCC could assess a weeks worth of collection rounds and together with the refuse collectors, formulate weekly targets in terms of time and productivity. A weeks trial on this type of contingency contract could easily establish weather CCC’s planned changes are justifiable or not.

There are a number of ways in which contingent contracts can benefit the outcomes to negotiations as outlined by Bazerman and Gillespie (1999). Firstly organising the implementation of a contingency contract can identify bluffs by insincere parties. This will aid CCC initially with regard to their uncertainties over issues such as the number of staff needed on each collection round, shift patterns and pay. Contingency contracts are also a useful tool in incentivising performance. It may provide more motivation for the refuse collectors to start working at or above the levels specified in the contract.

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