Negotiation: The Art of Conflict Resolution - Principles of Management

Conflict is a fact of organizational life. Conflict is a situation that arises when one party perceives that its interests are being opposed or negatively influenced by another party. Exercising power and influence within an organization can bring a manager into conflict with other managers who perceive their own goals to be negatively impacted by the action the manager is advocating. Conflicts often arise because resources are limited in organizations, and different people, teams, or units have different views about how scarce resources should be used.

Employee preferences for higher pay can conflict with the CEO’s desire to reduce costs and boost profits. The wish of the marketing department to spend more on advertising and promotion can conflict with the desire of manufacturing to increase capital investments in new plants and equipment. The desire of a product development team to spend more on accelerating development can conflict with the desire of another team to keep its project on track.

Conflicts can also arise between a firm and other organizations with which it interacts. A firm can find itself in conflict with suppliers and customers over prices and delivery terms, with the government over appropriate regulations, and with labor unions over employment conditions.

Managers spend a lot of time resolving conflicts. They do this through negotiation, which is an interpersonal decision-making process by which two or more parties try to reach an agreement over an issue that is being disputed, such as the allocation of scarce resources.

For example, through negotiation a marketing department may agree to reduce its request for marketing spending this year, thereby enabling the manufacturing department to purchase new equipment, with the understanding that marketing spending will be increased in the following year. Similarly, through negotiation a firm and its suppliers may agree on pricing terms and delivery schedules.

Negotiation in Marketing

Negotiating is a way of life for managers. They negotiate with suppliers and customers over prices, with peers over the allocation of shared resources and about cooperative efforts, with their superiors for access to scarce resources such as capital, and with subordinates to assign employees to tasks. How do they do this?


One way of thinking about negotiations is called the bargaining zone model, shown in Figure below. This linear diagram illustrates a win–lose situation: One side’s gain will be the other’s loss. However, the bargaining zone model can also be applied to situations in which both sides potentially gain from the negotiations. In win–win situations the negotiation revolves around the allocation of gains from the deal being negotiated.

As illustrated in the bargaining zone model, the parties typically establish three main negotiating points. The initial offer point is the opening offer to the other party. The target point is the manager’s realistic goal or expectation for a final agreement. The resistance point is the point beyond which the manager will make no further concessions.

The parties begin negotiations by describing their initial offer points for each item on the agenda. In most cases the participants know that this is only a starting point that will change as both sides offer concessions. In win–lose situations neither the target nor the resistance point is revealed to the other party. However, people try to discover the other side’s resistance point because this knowledge helps them determine how much they can gain without breaking off negotiations.

Put differently, they try to identify an area of potential agreement. When the parties have a win–win orientation, on the other hand, the objective is to find a creative solution that keeps everyone close to their initial offer points. They hope to find an arrangement by which each side loses relatively little value on some issues and gains significantly more on other issues.

Bargaining Zone Model of Negotiation

Bargaining Zone Model of Negotiation


The effectiveness of negotiating depends on the situation, the relative power the parties bring to the negotiating table, and the behaviors of the negotiators. By getting the situation right, accumulating and using power, and engaging in the right behaviors, managers can increase the probability that they will come out of a negotiation with a deal that is close to their target point.

Situational Factors Four of the most important situational factors are location, physical setting, time, and audience. First, it is easier to negotiate on your own turf because you are familiar with the negotiating environment and can maintain comfortable routines. Moreover, there is no need to cope with travel-related stress or depend on others for resources during the negotiation. Of course you can’t walk out of negotiations easily at your own location, but this is usually a minor issue.

Considering the strategic benefits of home turf, many negotiators agree to neutral territory. Telephones, videoconferences, and other forms of information technology potentially avoid territorial issues, but skilled negotiators usually prefer the media richness of face-to-face meetings.

The physical distance between the parties and formality of the setting can influence their orientation toward each other and the disputed issues. So can the seating arrangements. People who sit face-to-face are more likely to develop a win–lose orientation toward the conflict situation.

In contrast, some negotiation groups deliberately intersperse participants around a table to convey a win–win orientation. Others arrange the seating so that both parties face a whiteboard, reflecting the notion that both parties face the same problem or issue.

The more time people invest in negotiations, the stronger their commitment becomes to reaching an agreement. However, the more time put into negotiations, the stronger the tendency to make unwarranted concessions so that the negotiations do not fail. Deadlines may be useful to the extent that they motivate the parties to complete negotiations. However, time pressures are usually a liability in negotiations.

One problem is that deadlines give the parties less time to exchange information or present flexible offers. Negotiators under time pressure also process information less effectively, so they have less creative ability to discover a win–win solution to the conflict. There is also anecdotal evidence that negotiators make excessive concessions and soften their demands more than they should as a deadline approaches.

Finally, most negotiators have audiences—anyone with a stake in the negotiation outcomes, such as executives, other team members, or the public. Negotiators tend to act differently when their audience observes the negotiation or has detailed information about the process, compared to situations in which the audience sees only the end results.

When the audience has direct surveillance over the proceedings, negotiators tend to be more competitive, less willing to make concessions, and more likely to engage in political tactics against the other party. This “hard-line” behavior shows the audience that the negotiator is working for their interests. With their audience watching, negotiators also have more interest in saving face.

Power and Negotiation The relative distribution of power is an important factor in negotiation. When managers from Wal-Mart and Procter & Gamble sit down to negotiate the price that Wal-Mart will pay for disposable diapers, they are not working as equals.

Wal-Mart has more power because it does not need to stock P&G diapers—it can instead sell products from rival companies. P&G, on the other hand, needs Wal-Mart because the company is the largest retailer in the United States, and not selling through Wal-Mart would undoubtedly hurt P&G.

P&G is more dependent on Wal-Mart than Wal-Mart is on P&G, so Wal-Mart has more power and hence has the upper hand in negotiations.

The relative power that two parties bring to the negotiating table has long been recognized as an important predictor of the outcome of a negotiation. In general, the more power you have, the better you will do in negotiation. Recognizing this, parties to a negotiation often pursue tactics designed to increase their power relative to that of the other party. For example, to increase his power when negotiating with his boss for a pay raise, a manager might seek a job offer from another organization.

Because the manager is less dependent on his organization for employment, he can drive a harder bargain. Increasing your options going into a negotiation, and thereby being less dependent on the outcome of the issue under negotiation, is a classic tactic for increasing negotiating power. Other tactics include trying to gain information advantage over the other party, using experts to increase power, or building a coalition of allies that support a negotiating position.

The perception of power can be just as important as actual power in negotiations, so a skilled negotiator might try to create the perception that she has more power than is actually the case. A negotiator can bluff, for example, by threatening action that will damage the other party unless the other party agrees to the negotiator’s demands.

If the other party believes the bluff, this increases the power of the bluffer to drive a hard bargain. Thus in a salary negotiation a manager might threaten to look for another job unless her employer agrees to certain terms. This may be a bluff, but if the employer believes the threat to be credible, the perceived power of the manager has increased.

Behavioral Factors Managers can adopt a number of different behaviors in negotiations to increase their probability of success. First, research has consistently reported that people have more favorable negotiation results when they prepare for the negotiation and set goals. In particular, negotiators should carefully think through their initial offer, target, and resistance points. They also need to consider alternative strategies in case the negotiation fails.

Second, it is important to gather as much information as possible about what the other party wants from the negotiation—to develop an understanding of their goals and likely negotiating tactics. Managers should spend time listening closely to the other party and asking for details.

One way to improve the information-gathering process is to have a team of people participate in negotiations. With more people involved in the process, some people can specialize in listening to the negotiation and trying to understand the other party, while others actively participate in the bargaining process. Asian companies tend to have large negotiation teams for this purpose. With more information about the opponent’s interests and needs, negotiators are better able to discover low-cost concessions or proposals that will satisfy the other side.

Third, skilled negotiators communicate in a way that maintains effective relationships between the parties. Specifically, they minimize socioemotional conflict by focusing on issues rather than people. Effective negotiators also avoid irritating statements such as “I think you’ll agree that this is a generous offer.” Effective negotiators are often masters of persuasion. They structure the content of their message so that it is not merely understood but also accepted by others.

Finally, effective negotiators understand the tactical value of making concessions.

Concessions are important because they

  1. enable the parties to move toward the area of potential agreement,
  2. symbolize each party’s motivation to bargain in good faith, and
  3. tell the other party about the relative importance of the negotiating items.

How many concessions should you make? This varies with the other party’s expectations and the level of trust between you. For instance, many Chinese negotiators are wary of people who change their position during the early stages of negotiations. Similarly, some writers warn that Russian negotiators tend to view concessions as a sign of weakness rather than a sign of trust.

Generally the best strategy is to be moderately tough and give just enough concessions to communicate sincerity and motivation to resolve the conflict. Being too tough can undermine relations between the parties; giving too many concessions implies weakness and encourages the other party to push harder for a favorable deal.

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