Maximizing Stakeholder Value Through Negotiation Research

1. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

2. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective Breakout Session: 912 Ward Dumigan, Manager – Subcontracts BAE SYSTEMSPlatform Solutions Sector Date April 28, 2004 Time 2:45PM – 3:45PM NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

3. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective • Introduction • Overview of Current Negotiation Research Aspects • Review of Selected Research Papers • Conclusions • Q&A NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

4. Introduction • Negotiation is one of the most common and constructive ways of dealing with social conflict • A decision making process in which two parties communicate to resolve their divergent interests • Most of us negotiate on a regular basis • Examples : Spouses, children, bosses • Research growth impressive during the last decade • Nearly exponential growth of research on negotiation since the 1950s • Numerous generalizations, main trends, traditions and paradigms of negotiation have been brought to light NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

5. Introduction • Negotiators tend to evaluate the quality of their own performances and make judgments about their outcomes • Use various reference points to judge the quality of a potential negotiated outcome. • Reserve price • Target price • First offers made/received • Information availability NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

6. Introduction • Emotions are inherent to negotiation (social conflict) and can affect perceived quality • Negative behaviors/emotions can undermine a negotiator’s effectiveness and quality of outcome. • Negotiation research and theory can not overlook human emotional experience. • The previous decade has witnessed an increasing interest in the interpersonal effects of emotions. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

7. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective • Overview of Current Negotiation Research Aspects NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

8. Overview of Current Negotiation Research Aspects • Description of the basis or aspects on which negotiation research is founded. • For the contract professional, understanding the state of research in negotiation can • Provide a context to understand the meaning and implication, of findings, knowledge and discoveries, made by academia. • Recognize weaknesses or gaps in what has been learned/derived NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

9. Overview of Current Negotiation Research Aspects Negotiations Research Aspects • Focus - Primarily buyer/seller. • Mostly on dyadic (two-way) and some studies on team or multi-party • “real world” typically consist of groups • No “essential contributions” identified to date • Laying a sound conceptual foundation in highly controlled settings • Creating a perpetual spiral of knowledge through the continuous and mutual exchange of real-life findings NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

10. Overview of Current Negotiation Research Aspects • Continuing to specialize towards understanding negotiator behavior, interpersonal emotion • Field-studies remain at about two percent • Typical for newer research areas • Most of the research in negotiation has been conducted in the United States • Geographic diversity & Internationalization is growing • Different cultures and research traditions must question assumptions NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

11. Overview of Current Negotiation Research Aspects • Lack of seasoned managerial subjects • Business students • Knowledge may be best suited to training of inexperienced or junior negotiators • Understanding negotiator behavior, requires experienced negotiators as participants • Differences, if any, are unknown • Research Journals Listing NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

12. Overview of Current Negotiation Research Aspects Research Journals Listing NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

13. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective • Review of Selected Research Papers NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

14. Review of Selected Research Papers BEST FOOT FORWARD OR WAITING GAME: FIRST MOVER EFFECTS IN A DISTRIBUTIVE NEGOTIATION(March 2002) John M. Oesch, & Glen Whyte - Rotman School of Management U. of Toronto • Findings • Moving first is beneficial in a price (distributive) negotiation for the seller, when market information present • Moving first is very risky in a price negotiation for the seller , where no market information exists • First offers “anchor” opponents to a price that favors the first mover. • First offers that fall outside the bargaining zone, gives opponent the advantage. • Negotiators who maintain their own target position rather than focus on their opponent’s offer are more successful • Overall final value was governed most often by the opening offer. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

15. Review of Selected Research Papers BEST FOOT FORWARD OR WAITING GAME: FIRST MOVER EFFECTS IN A DISTRIBUTIVE NEGOTIATION(March 2002) John M. Oesch, & Glen Whyte - Rotman School of Management U. of Toronto • Definitions • Reservation price - price above or below which a deal cannot be completed • Bargaining zone - space between a buyer’s reservation price and a seller’s reservation price NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

16. Review of Selected Research Papers “DO I NEED TO BE A TOUGH NEGOTIATOR ALL THE TIME?”THE RELATIONSHIP BETWEEN NEGOTIATORS AND THE CONCESSION TIMING EFFECT(August 2002) Seungwoo Kwon, Graduate School of Industrial Administration Carnegie Mellon University • Findings • Motive (cooperative vs. individualistic) is an underlying mechanism of relationships among negotiators and can influence negotiation. • The agreed-upon price was the same in either two conditions: • Where the other party is considered cooperative, concession timing did not matter • Immediate concession-making strategy is as effective as a gradual or delayed concession-making strategy • Where the other party is considered individualistic, gradual concessions were more satisfying and more credible • High levels of satisfaction with the outcome • High quality and value of the object NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

17. Review of Selected Research Papers “FIRST OFFERS IN NEGOTIATIONS: DETERMINANTS AND EFFECTS(May 2003) John OeschRotman School of Management University of Toronto Adam GalinskyKellogg Graduate School of Management Northwestern University • Findings • Negotiators with better alternatives (greater power) are more likely to make a first offer in a negotiation. • Negotiators the perceive that the other side has an information advantage, rarely make a first offer. • When information is scarce, (judgments are made under uncertainty) negotiators are more likely to be susceptible to anchoring • The effect of first offers can be eliminated by focusing on information that was inconsistent with the implications of the opponent’s first offer. • Perceived power of offeror affects the extremity of first offers. • Negotiators who focus on their target prices tend to make more extreme first offers. • Achieving the target will depend on the power of available alternatives NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

18. Negotiation Conflict Reaction Anxiety Anger Fear of Loss Or Harm Frustration Resentment Transference What might happen? What has happened? Result Impasse Sub optimal outcome Failure to Implement Review of Selected Research Papers MANAGING ANXIETY IN NEGOTIATED DECISION-MAKING (January 2002) Leonard GreenhalghAmos Tuck School of Business Administration Dartmouth College NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

19. Review of Selected Research Papers MANAGING ANXIETY IN NEGOTIATED DECISION-MAKING (January 2002) Leonard GreenhalghAmos Tuck School of Business Administration Dartmouth College • Recognizing Anxiety Sources • For Relationship-oriented negotiators (Integrative Bargaining) – • Fear of Loss Or Harm to Relationship • “What might happen to our… Interdependence, Cooperation, Mutuality?” • For Transaction-oriented negotiators (Distributive Bargaining) - • Fear of Loss Or Harm to Self-esteem or Image • “What might I lose, … Independence, Competition, Individualism?” NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

20. Review of Selected Research Papers MANAGING ANXIETY IN NEGOTIATED DECISION-MAKING(January 2002) Leonard GreenhalghAmos Tuck School of Business Administration Dartmouth College Anxiety Management in Negotiations Prevention Alleviation • Build Trust & Rapport Early • Make exploitation “Unthinkable” • Seek to be understood • Continue the relationship after the deal • Acknowledge it others, sensitively • “Express don’t Suppress” your own • Get a “Reality check” from peers (assessment/support) NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

21. Review of Selected Research Papers NEGOTIATOR CONFIDENCE: THE IMPACT OF SELF-EFFICACY ON TACTICS AND OUTCOMES(May 2003) Brandon A. Sullivan, University of Minnesota Kathleen M. O’Connor and Ethan Burris, Johnson Graduate School of Management Cornell University NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

22. Review of Selected Research Papers NEGOTIATOR CONFIDENCE: THE IMPACT OF SELF-EFFICACY ON TACTICS AND OUTCOMES (May 2003) Brandon A. Sullivan, University of Minnesota Kathleen M. O’Connor and Ethan Burris, Johnson Graduate School of Management Cornell University • Negotiators’ sense of confidence with respect to particular strategies plays a critical role in determining which strategies they will pursue at the opening of negotiations. • Self-efficacy level in complex multi-issue negotiation (both integrative and distributive elements) does not directly relate to negotiation performance • In shaping the quality of deals, either negotiator’s level of self-efficacy is unlikely to directly influence outcomes. • Even when the task calls for certain behaviors to maximize outcomes, negotiators still follow norms of reciprocity. For instance, even at the cost of higher profits in a distributive negotiation, negotiators tend to reciprocate cooperative behavior. • Negotiators’ choice of tactics increasingly will be responsive to the tactics that have come before. The impact of self-efficacy will then diminish during the middle and final phases of negotiation. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

23. Review of Selected Research Papers NEGOTIATOR CONFIDENCE: THE IMPACT OF SELF-EFFICACY ON TACTICS AND OUTCOMES(May 2003) Brandon A. Sullivan, University of Minnesota Kathleen M. O’Connor and Ethan Burris, Johnson Graduate School of Management Cornell University Task-incongruent Tactics • Distributive tactics when the task has integrative potential miss opportunities to achieve low-cost gains. • Integrative tactics when a negotiation lacks integrative potential squanders time and effort. • Exclusive reliance on task-incongruent tactics rather than more task-appropriate tactics • Not likely to yield profitable deals • Creates less value than. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

24. Better Cooperatively motivated Range of Outcomes Consistent Behavior Spiral of Trust Consistent Behavior Individualistically motivated Worse Review of Selected Research Papers SPIRALS OF TRUST: IDENTIFYING THE FACTORS THAT SHAPE AND SUSTAIN TRUST IN NEGOTIATION(March 2002) Mara Olekalns, Melbourne Business School Feyona Lau and Philip L. Smith, University of Melbourne NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

25. Review of Selected Research Papers SPIRALS OF TRUST: IDENTIFYING THE FACTORS THAT SHAPE AND SUSTAIN TRUST IN NEGOTIATION(March 2002) Mara Olekalns, Melbourne Business School Feyona Lau and Philip L. Smith, University of Melbourne NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

26. Review of Selected Research Papers THE INTERPERSONAL EFFECTS OF EMOTIONS IN NEGOTIATIONS: A MOTIVATED INFORMATION PROCESSING APPROACH(February 13, 2003) Gerben Van Kleef and Carsten K. W. de Dreu, University of Amsterdam Antony S. R. Manstead, University of Cambridge • Negotiators only react to the opponent's emotion in a strategic way when motivated to reflect on the implications of the other's emotion. • Effects of emotions are contingent upon the negotiator’s motivation to actively think about the implications of the opponent's emotions. • Tactical use of emotions - Emotional deception as a strategic ploy depends on whether the target is motivated to think about the consequences of the other's emotions for his or her own goal attainment. • Computer-mediated negotiations, a setting that will likely most influenced by these findings. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

27. Review of Selected Research Papers THE INTERPERSONAL EFFECTS OF EMOTIONS IN NEGOTIATIONS: A MOTIVATED INFORMATION PROCESSING APPROACH(February 13, 2003) Gerben Van Kleef and Carsten K. W. de Dreu, University of Amsterdam Antony S. R. Manstead, University of Cambridge • Individuals can process information in one of two models: • Quick, effortless, and heuristic way • Effortful, deliberate, and systematic manner • The motivation to chose one or the other is termed: • Need for Cognitive Closure (NCC) – High or Low  NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

28. Review of Selected Research Papers THE INTERPERSONAL EFFECTS OF EMOTIONS IN NEGOTIATIONS: A MOTIVATED INFORMATION PROCESSING APPROACH(February 13, 2003) Gerben Van Kleef and Carsten K. W. de Dreu, University of Amsterdam Antony S. R. Manstead, University of Cambridge NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

29. Review of Selected Research Papers THE INTERPERSONAL EFFECTS OF EMOTIONS IN NEGOTIATIONS: A MOTIVATED INFORMATION PROCESSING APPROACH(February 13, 2003) Gerben Van Kleef and Carsten K. W. de Dreu, University of Amsterdam Antony S. R. Manstead, University of Cambridge NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

30. Masculine Feminine Analytical Assertive Competitive Dominant Forceful Individualistic Willing to take a stand Sensitive to needs of others Compassionate Soft-spoken Yielding Understanding Sympathetic Review of Selected Research Papers WHEN DOES GENDER MATTER IN NEGOTIATION?(August 2002) Hannah Riley, John F. Kennedy School of Government, Harvard University Kathleen L. McGinn, Graduate School of Business Administration, Harvard University Decades of research produced an assortment of seemingly contradictory findings whether female negotiators would be more cooperative and less self-interested than their male. Social behavior is the product of the individual in interaction with the situation. Findings mirror conclusions from daily experience: Men do not consistently act one way and women another Sometimes gender matters, and sometimes it does not. A contingency approach may better predict when it does matter. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

31. Review of Selected Research Papers WHEN DOES GENDER MATTER IN NEGOTIATION? (August 2002) Hannah Riley, John F. Kennedy School of Government, Harvard University Kathleen L. McGinn, Graduate School of Business Administration, Harvard University Structured Situation Ambiguous Situation Mutually obvious transactions Mutual recognition of distribution point Issues are well defined to both parties Parties are known Value of Options /Alternatives known by all Competitive Single issue Agent Role Cooperative Multiple issues Communal Role Masculine • Behaviors • Competencies • Scripts Feminine • Behaviors • Competencies • Scripts Gender has no Effect NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

32. Review of Selected Research Papers MYOPIC PREDICTION, SELF-DESTRUCTIVE SECRECY, AND THE UNEXPECTED BENEFITS OF REVEALING FINAL DEADLINES IN NEGOTIATION(April 2003) Don A. Moore, Carnegie Mellon University & Australian Graduate School of Management • Choosing to reveal a deadline or time costs in negotiation should depend on what will happen if one does. • The selection of an effective course of action depends on the ability to predict its consequences. • Time pressures (2) • Cost of delay - costs that firm pays for the passage of time • Time discounting (Special case) - the value of the negotiating surplus drops to zero. This point represents a final deadline, after which no deal is viable. • Evidence shows that when negotiators face differing time pressures, the resulting agreement tends to favor the party under less pressure. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

33. Review of Selected Research Papers MYOPIC PREDICTION, SELF-DESTRUCTIVE SECRECY, AND THE UNEXPECTED BENEFITS OF REVEALING FINAL DEADLINES IN NEGOTIATION(April 2003) Don A. Moore, Carnegie Mellon University & Australian Graduate School of Management Findings Deadlines • Buyer and Seller in the same negotiation predicted that revelation of the final deadline would hurt them (failed to imagine that situational constraints would influence others). • Negotiators who had final deadlines benefited from their opponents' knowledge of their time pressure. • Buyers expected shorter negotiations, were less demanding, and came to agreements that were more favorable to the sellers than when buyers did not know about deadlines NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

34. Review of Selected Research Papers MYOPIC PREDICTION, SELF-DESTRUCTIVE SECRECY, AND THE UNEXPECTED BENEFITS OF REVEALING FINAL DEADLINES IN NEGOTIATION(April 2003) Don A. Moore, Carnegie Mellon University & Australian Graduate School of Management Findings Time Costs • Negotiators saddled with time costs were able to obtain higher prices when their time costs were secret • Yet did not increase their payoffs. • Negotiations went longer and they incurred more in time costs than buyers   • Opponents who were aware of the negotiators time costs • Were willing to agree more quickly, in return for a better price • Shift to integrative tradeoff and opponent benefits (negotiator vulnerable). •  For integrative/cooperative agreements, given the presence of a deadline, revealing it is unlikely to inhibit and may even enhance the achievement of integrative gains. Strategies that limit one's flexibility are most effective when others know about them. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

35. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective • Conclusions/Discussions What does it all mean? • Check against your “reality” • Develop assessment tools • Provide junior negotiator with training tips • Nuggets of Truth can be found • “READ MORE ABOUT IT” NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

36. Meta-analysis of Current Negotiation Research: Contract Professional’s Perspective • Q & A NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”