Monday, January 1, 2007

Managing the Process

Van Bolton, Global Corporation’s new CEO, had expected things to go quite differently. Bolton had recently announced Glob- al Airways’ intent to acquire Regional Air, a small East Coast car- rier, for $100 million in cash. To his surprise, the resulting bitter dispute with Global’s pilots’ union had already cost Global over $70 million in lost revenues and saddled the union with a $10 mil- lion fine that threatened to bankrupt it. Bolton had expected a more favorable reaction from the pi- lots’ union, in that the takeover would boost traffic on Global’s East Coast routes, thus preserving jobs. It would also expand the union’s membership base. The company’s eighty-five hundred pi- lots were represented by the Airline Pilots’ Union (APU), an in- house union. Regional Air’s three hundred pilots belonged to the rival International Pilots’ Society (IPS), the far larger union that represented pilots at most other U.S. airlines. Now they would be- come members of the APU. Even before the acquisition, Global’s relations with its pilots had been badly strained. Throughout the 1980s and 1990s, Bolton’s predecessor had sought to reduce labor costs sharply. During a down- turn, the former CEO had successfully imposed a two-tier wage system that sharply lowered the pay of newly hired pilots and pro- voked rifts within the union. Later, he had furloughed over six hun- dred pilots for two years, costing them both lost wages and service 72time for calculating pensions and other benefits. This history of conflict had radicalized Global’s pilots, and the union leaders who came to power in the mid-1990s had campaigned on a platform of "no more givebacks." Bolton had been CEO for less than a year, but he had been with Global for close to twenty years. He had a reputation for toughness and attention to detail. The pilots under- standably viewed him and his management team with distrust. When Bolton announced the Regional Air acquisition, union president Stuart Adams, a former air force fighter pilot and ag- gressive defender of union rights, fired off a letter of protest, de- manding a meeting to discuss how the smaller airline would be integrated into Global. The APU leader feared that Global would operate Regional as a separate low-cost carrier, using lower-paid pilots. But Bolton pushed the deal through without reaching agree- ment with Adams over how to merge Regional into the larger com- pany. Adams’s second letter of protest, distributed to the union’s membership, asserted that management’s handling of the acqui- sition was in violation of the collective bargaining agreement’s stipulation that "all flying done for Global must be done by Global pilots" and demanded full and immediate integration of Regional. Bolton shot back, "During our last round of negotiations, APU never proposed that we abandon the established practice of main- taining an acquired carrier as a separate entity while a transition agreement is negotiated, a practice that has taken place at Global and is common in the industry." Adams pointed out that "a senior Regional captain flying a 150-seat MD-80 earns less than a Global captain flying a 55-seat regional jet. That would be a terrible precedent, to allow that to continue." Global captains earned $150,000, Regional pilots rough- ly half of that. Invoking the earlier negotiations that had produced the two-tier wage structure, Adams expressed alarm "that the Re- gional Air acquisition could well represent another effort by man- agement to establish a two-tier wage scale at Global Airlines." Adams demanded that Regional pilots start at the bottom of the APU seniority list but receive immediate raises to match MANAGING THE PROCESS 73 Global’s wage scales. The additional cost to Global was estimated at $50 million. A spokesman for the Regional pilots protested, "We should not have all our years of service ripped away from us. Many of us are in the last years of our career here, and we should- n’t be treated as new hires." Knowledgeable observers pointed out that the dispute actually had little to do with Global’s acquisition of Regional. The real is- sues appeared to be the integrity of the APU contract and Global’s strategy in a consolidating industry. One senior Global executive was on record as having said, "It’s about control. The pilots want to be right there in the decision of whether we buy another com- pany or not." Global’s pilots were prohibited by federal labor law from strik- ing over the Regional Air dispute. But soon after the acquisition was announced, the pilots refused to work overtime and began call- ing in sick. At the peak of the ensuing ten-day sick-out, Global cancelled over 50 percent of its flights. The cost to the airline was estimated at over $70 million. Global’s management immediately sought an injunction in U.S. district court. The judge issued a tem- porary restraining order to end the sick-out, comparing the pilots’ response to "killing a gnat with a sledgehammer." But the union refused to back down. On the eighth day of the sick-out, the court found the union in contempt and imposed a $5 million fine. The sick-out ended, but the dispute remained unresolved. The judge then ordered the APU to pay Global $10 million in damages, more than the union’s total assets. Adams and other union officers were also found per- sonally liable. The union appealed unsuccessfully. If the APU was forced to pay, Bolton knew, it would bankrupt the union. Destruction of the in-house union could, in turn, trig- ger a move by Global’s pilots to the industry-wide International Pilots’ Society (IPS), increasing the larger union’s clout. This was not a desirable outcome. Meanwhile, Bolton understood, dissatis- faction with APU leadership was growing within the union, es- pecially among more radical pilots who saw no reason to end the 74 BREAKTHROUGH BUSINESS NEGOTIATION sick-out. Adams could be difficult, but Bolton preferred dealing with him to the probable alternatives. Further complicating matters, Global was facing other issues in its negotiations with the APU. The pilots’ contract was due to expire in a year, and the union was pressing management for a stipulation that its members fly all jets with more than fifty seats, including those increasingly being flown by Global Focus, the company’s lower-cost commuter subsidiary, which was not union- ized. (Both Global Airways and Global Focus were wholly owned subsidiaries of Global Corporation.) How should Global’s CEO Bolton approach negotiations with the APU’s President Adams over the integration of Regional Air? DIAGNOSING THE SITUATION First, take a few minutes to apply some of the principles you have already encountered to this negotiation. Examine the situation with Global’s interests in mind, but devote equal attention to an- alyzing the union’s point of view, interests, and circumstances. Begin by sketching out the parties and linked system of ne- gotiations, answering the following questions: 1. Have past negotiations between the company and the union created important precedents? Are the current negotiations being carried out in the shadow of future ones? Are concur- rent sets of negotiations linked? 2. Give some thought to negotiations within the company and the union. What are the key dynamics there? What barriers and opportunities do they present? MANAGING THE PROCESS 75 3. Think about the rules of the game. What sets of rules influ- ence these negotiations? How might Bolton use the rules to his advantage? 4. Define the issues. What are the existing and potential issues in the dispute between Global and the APU? How might issues be linked or delinked? 5. Assess each party’s interests and BATNA. What do the managers and union leaders really care about, and what are their alternatives in the event of no agreement? 6. Think about potential bases for agreement. How might Bolton and Adams bridge key differences? What might a potential deal look like? 7. Based on this assessment, what are the key barriers and opportunities facing Bolton? SHAPING THE STRUCTURE Think about how Bolton could shape the structure of the negoti- ation. Should he try to bring in other parties, such as a federal me- diator? If so, who, how, and when? Should he try to broaden the originally agreed agenda, perhaps by proposing to Adams that they link the Regional acquisition to the issue of who will fly Regional jets? Or should he try to narrow the agenda? How should he try to frame the situation? With whom should he meet, and in what se- quence? Take a few minutes to fill out the following table. 76 BREAKTHROUGH BUSINESS NEGOTIATION
MANAGING THE PROCESS The next task before going to the negotiating table is to think through how Bolton should manage the face-to-face negotiations. Managing the process is the third major element of the break- through negotiation framework. Whoever controls the process powerfully influences the substance and outcomes of negotiations. This is especially true in complex situations that allow one to take advantage of the fog of negotiation—that is, the atmosphere of MANAGING THE PROCESS 77 Shaping the Structure Possible Approaches Changing the players BATNA building Setting the agenda Framing Controlling the flow of information Sequencing Setting up action- forcing eventscomplexity, ambiguity, and uncertainty that characterizes most real-world negotiations. Managing the at-the-table process requires, first and foremost, understanding the core dynamics of the negotiation process. To fully understand a process as complex as the negotiation that Tay- lor and Adams are engaged in, we have to examine it from several complementary points of view. First, it helps to recognize the se- quence of stages through which this negotiation proceeds. It is also productive to deepen this macro-look with a more micro- examination of the turbulent minute-by-minute interactions among the participants. At the same time, we can benefit from an attentive look at the evolution of the negotiators’ internal men- tal states as the process proceeds. These perspectives represent pro- gressive levels of resolution. We have chosen to call them the macro-flow lens, the micro-interaction lens, and the mental pro- cess lens. Each lens provides a distinct perspective on an impor- tant dimension of negotiation. Together, they provide negotiators with the complete view of negotiation dynamics necessary to ef- fectively manage the process. The Macro-Flow Lens As William Zartman and Maureen Berman pointed out, virtually any negotiation—whether it involves dispute resolution or deal making—passes through distinct phases as it progresses from ini- tiation to agreement or impasse. 1 During the diagnostic phase, ne- gotiators evaluate the circumstances and opportunity and decide whether to go to the table. This is the juncture that Bolton and Adams are at right now. If they decide to negotiate, they will move on to the formula stage and begin to grope for the basic framework, or formula, for a deal. If they find a promising formula, they will move on to the detailed-bargaining stage and shift to hard bar- gaining over details. If agreement eludes them, they may cycle back and search for a better formula. Or they may break off nego- tiations, triggering a new round of escalation in their dispute. The 78 BREAKTHROUGH BUSINESS NEGOTIATION characteristic features of each phase are summarized in the table at the bottom of the page. Tailoring Your Posture to the Phase. Different phases call for different negotiating postures. The diagnostic phase is the time to establish (or repair) relationships. Van Bolton would be well ad- vised to work on Global’s relationship with the union by involv- ing third parties or carefully crafting his negotiating team or by reaching out personally to the union’s leaders. The formula phase is the time to cast a wide net in pursuit of ways to create value and bridge differences. If he gets to the table with Adams, Bolton should use his analysis of potential agree- ments to put forward a promising formula, perhaps broadening the agenda to permit more trades to be made. The detailed-bargaining phase is the time to hammer out the minutiae—calling for persistence, a steady eye on the goal, and a strong stomach. Whatever relationship capital you can amass in the diagnostic and formula phases will be spent when the going gets tough in the detailed-bargaining phase. Matching People to the Phase. Different phases of negotiation often involve different people. When should Van Bolton get per- sonally involved, and when should he put the negotiations in the MANAGING THE PROCESS 79 Phases in the Flow of Negotiation Diagnostic phase The parties weigh the merits of negotiation and its alternatives, gather information (learn) in support of this objective, and engage in exploratory prenegotiation dialogue. Formula phase The parties seek the basic formula: the core set of principles and trades that will serve as an overarching framework for agreement. Detailed-bargaining The parties bargain over specific terms. phase hands of subordinates? In merger and acquisition negotiations, the CEOs of the buyer and seller organizations typically meet at the start to agree that a deal makes sense and again at the end to make final concessions and bless the deal. In between their bookend ap- pearances, subordinates and investment bankers work out the basic formula while lawyers hammer out tax and warranty considera- tions and draft the agreement. Similarly, diplomats hammer out the details of agreements initiated and concluded by national lead- ers. Bolton should probably plan to meet with Stuart Adams to launch the process, set the agenda, and agree on goals and ground rules. Most of the hard bargaining will be delegated to knowledg- eable subordinates, and Bolton and Adams can reconvene at the end to seal the deal. PRACTICAL APPLICATION : IDENTIFYING THE STAGES Think about the various types of negotiations you engage in: • What stages do they usually go through? • What are the characteristic challenges of each stage? • How do you alter your approach from one stage to the next? • Who is usually involved at each stage, and what roles do they play? The Micro-Interaction Lens Viewed through the macro-flow lens, negotiations can seem to flow smoothly from phase to phase. We may occasionally wish this were the whole story, but if it were, negotiation would be a less compelling pursuit. Viewed at a higher level of resolution, we can see that negotiations consist of a complex sequence of micro- interactions as the parties share information, table offers, and make concessions. These micro-interactions are profoundly nonlinear in nature, and small actions may have disproportionate impacts. 2 80 BREAKTHROUGH BUSINESS NEGOTIATION Suppose Van Bolton makes Adams a specific offer to end the dispute. Will his offer provoke (1) clarifying questions, (2) a con- cession by the union, or (3) outrage and a breakdown in the talks? It depends on the two men’s relationship, the prior history of the process, the stakes, and the offer’s content and formulation. Adams’s response is not fully predictable, but Bolton can exercise some control over it by building rapport with Adams, laying the groundwork for his arguments, and framing the offer. Adams in turn enjoys some control over his response: he may decide to sup- press his annoyance, for instance, or fake outrage. But forces be- yond his control, such as his own emotions or internal politics within the union, may constrict his ability to manage the process. To grasp how this micro-oriented take on the process comple- ments the macro-oriented overview, think about the flow of a river. We can predict fairly accurately how much water will flow from one point to another over a long period, but flow on a given day is much harder to predict. From a distance, the river appears smooth- flowing, but up close even the gentlest stream reveals eddies and whirlpools. Both perspectives accurately describe the river, and the macro-flow and micro-interaction views both illuminate the dynamics of negotiation. Although unquestionably challenging to manage, order is ap- parent in the seeming chaos of micro-interactions among nego- tiators. Specifically, negotiations exhibit characteristic nonlinear patterns that can be shaped if the negotiator is aware of them and prepared to exploit them. Each of these micro-level dynamics can contribute to the creation of either vicious and virtuous cycles. Sensitivity to Early Interactions. How a negotiation begins tinges everything thereafter. Initial impressions, based on limited infor- mation, persist and are resistant to change, and no relationship buffer exists yet to smooth over early rough spots. If Bolton builds mutual respect and rapport with Adams up front, the likelihood of agreement increases; by the same token, bad blood at the start can poison all that follows. Similarly, promptly taking charge of MANAGING THE PROCESS 81 the agenda and shaping the other side’s views of what is at stake makes it easier to create and claim value later. Negotiating representatives should therefore be chosen with great care, because human chemistry and sensitivity to social norms matter. Every negotiation should be thought of as a casting call. What kind of person would best manage this relationship? Demon- strations of sensitivity to cultural and social norms can powerfully affect initial impressions. If the union has a history of poor rela- tionships with the vice president of labor relations, for example, Bolton might be well advised to lead early interactions himself, rather than reinforce a nonproductive dynamic. Irreversibilities. Negotiators often walk through doors that lock behind them. Once a conflict has begun to fester, as in the Global- APU case, attitudes harden. And once you have made a conces- sion, attempts to take it back may poison relationships and damage your reputation. Actions that undermine trust are particularly likely to provoke irreversible changes in peoples’ attitudes toward each other. As the old adage puts it, "Once bitten, twice shy." Irreversibility has its uses, though. If Global can persuade the union to make a small commitment to flexibility, such as about the timing of integrating Regional, it may be possible to leverage it into a more substantial commitment. This is an example of the strategy of entanglement—moving people through a series of small, irreversible commitments to do something they wouldn’t have done in a single leap. 3 Tipping Points. When a negotiation reaches a threshold, or "tip- ping point," even small, incremental moves result in very large shifts. 4 In escalating conflicts like this one, seemingly minor provo- cations may trigger a downhill slide into all-out war. If two nations are close to war, for example, even a small skirmish can trigger a broader conflict. At the same time, negotiators sometimes reach thresholds where incremental effort moves their relationship into a new, much more positive dynamic. 82 BREAKTHROUGH BUSINESS NEGOTIATION Bolton needs to recognize the approach of tipping points be- yond which new sets of rules will apply. Has the other side been pushed to the point where they will no longer react rationally to threats or inducements? Are they close to feeling forced to adopt desperate means? Is it time to call for a break to let things cool off? Such strategies for pulling back from such thresholds belong in every negotiator’s toolbox. So does awareness of your own emo- tional thresholds and coping mechanisms to avoid being pushed over the edge. Bolton should be very careful when raising issues that are hot buttons for the other side, such as "making the pilots whole" for the lost time during furlough or the question of who will fly Global’s growing fleet of small regional jets. Vicious and Virtuous Cycles. Once a pattern of interaction gets established, it readily becomes self-reinforcing. The result may be either a virtuous cycle that builds momentum toward a desirable outcome or a vicious cycle that spirals into breakdown. If Adams feels threatened, he may adopt defensive tactics that trigger sim- ilar responses from Bolton. On the other hand, a productive work- ing relationship can function as a psychological buffer during the inevitable tough times. It is instructive to approach micro-interactions with an eye to creating virtuous cycles—positive feedback loops that move the process in promising directions—and avoiding vicious cycles. Are Bolton’s actions contributing to building momentum toward or away from agreement? How can he prevent undesirable momen- tum? How can he get Adams headed in the direction he wants? It is far easier to prevent negative feedback loops than to break them once they get established. Path Dependence. The specific path or sequence that negotia- tors choose matters a great deal. This point pertains to both the starting point you choose (sensitivity to early interactions) and irreversibility (once you have started down a path, you can’t go back). Some paths build momentum and create virtuous cycles. MANAGING THE PROCESS 83 Effective preparation on the part of all sides, for example, con- tributes to mutual confidence, which promotes judicious infor- mation sharing. Other paths undermine progress and initiate vicious cycles. Poor preparation on the part of any participants cre- ates a sense of vulnerability that may lead to defensiveness and compensatory toughness. This is likely to provoke matching re- sponses from counterparts, impeding communication and rein- forcing positional bargaining. A negotiator should therefore develop a sequencing plan, de- tailing in what order to talk to others and the sequence in which issues will be raised. A central sequencing question for Bolton is whether to seek federal mediation early, and hence appear con- ciliatory to outside audiences, or wait to see what happens in ini- tial negotiations with the union. Even the most skilled negotiator’s ability to influence the course of events has limits. But you need to hone the ability to recognize and use nonlinearities to build momentum in desired directions by, for example, establishing a constructive tone early, encourag- ing incremental moves in productive directions, and engineering action-forcing events. PRACTICAL APPLICATION : MANAGING MICRO - INTERACTIONS Think about a recent negotiation that didn’t go well: • Did your actions contribute to the creation of vicious cycles? • Did early interactions have a big impact? • Were irreversibilities a factor? • In retrospect, did thresholds get crossed that you should have pulled back from? • If you had it to do over, would you choose a different sequence of actions? 84 BREAKTHROUGH BUSINESS NEGOTIATION
The Mental Process Lens Finally, the negotiators themselves will unavoidably leave their im- prints on the negotiation. What goes on inside their heads—their mental models, motivational drives, aspirations, and emotions—is likely to shape the proceedings and the outcome, often in a decisive way. It is worthwhile to look closely at how negotiators’ mental processes evolve in parallel with the flow of events and interactions. MANAGING THE PROCESS 85 Effective Learning Judicious Information Sharing Matching Responses Confidence Inadequate Learning Compensatory Toughness Making Responses Feeling of Vulnerability A virtuous cycle: Effective preparation on the part of both teams leads to mutual confidence, which promotes judicious information-sharing and matching responses. A vicious cycle: Poor preparation on the part of one negotiating team creates a sense of vulnerability that leads them to engage in compensatory toughness. This provokes matching responses from their counterparts, which impedes communication and reinforces positional bargaining. Vicious and Virtuous Cycles
Mental Models. Like all of us, negotiators perceive new ex- periences using established interpretive frameworks, or mental models. 5 Mental models mediate between our observations and experiences and our interpretation of them, enabling us to make sense of a novel situation. They embody our beliefs about cause and effect, others’ intentions, and the lessons of history. 6 How are Adams’s and Bolton’s mental models likely to differ? What for- mative experiences have shaped their perceptions of what is and isn’t desirable? How are they likely to view each other and make attributions about each other’s intentions? What implications do these differences have for their negotiation? Without mental models, we would have to figure out every new situation from scratch. But embedded mental models also pro- mote rigidity and block learning in new situations. What will hap- pen, for example, if Bolton and Adams consistently approach their negotiation with zero-sum mind-sets? The frameworks that negotiators use to interpret reality are often so deeply embedded in their psyches that they are unaware of their biases. As a result, they may overlook information that is inconsistent with cher- ished truths—a process known as selective perception. Conversely, people tend to seek evidence that confirms their biases: if union members expect hostility from management, they may devalue conciliatory gestures as tricks or traps—a bias known as reactive devaluation. 7 Suppose Bolton offers a concession on making the furloughed pilots whole. Will the pilots see it as conciliatory or a sign of weakness? Motivational Drives. Negotiators are often driven by inner psy- chological needs or motivational drives. Because Bolton is a new CEO, still operating in the shadow of his predecessor, he may feel he can’t afford a reputation for weakness toward unions. And what about Adams? How deeply does he care about maintaining con- trol of the union? About winning the engagement with Bolton? When assessing your counterparts’ motivational drives (and your own), you should think in terms of the following motivations. All 86 BREAKTHROUGH BUSINESS NEGOTIATION are likely to be present to some degree, but which are dominant? What are the implications for how you need to manage the process? Maintaining control: In order to feel competent, do they need to feel in control of the process and not controlled by others? Exercising power: Do they need to "win" or to dominate their counterparts, and perhaps to demonstrate to others that they are doing so? Preserving reputation: Are they preoccupied with maintaining a reputation as effective (perhaps "tough") negotiators? Being consistent: Do they care about maintaining consistency (or appearing to) with prior commitments or statements of principle? 8 Maintaining relationships: Do they care about preserving relationships and being liked? Bolton and Adams both appear to have high needs for power, so we shouldn’t be surprised if they become embroiled in an es- calating quest for dominance. Alternatively, though, if one of them taps into the other’s motivational drives, it can prove to be a po- tent source of advantage. Getting a potential ally with a high need for consistency to make a public commitment of support, for ex- ample, may create a potent block to backsliding. Offering a coun- terpart who is protective of his reputation a face-saving way to back down can help avoid impasse. Can Bolton help Adams to back away gracefully from his demand for immediate integration of Regional into Global and to save face? What would represent a "win" for Adams? Aspirations. Negotiators approach the table with goals in mind. These aspirations typically take two forms: "red lines" that can’t MANAGING THE PROCESS 87 be crossed without creating psychological havoc, and outcomes that would generate delight. What are Bolton’s red lines in this dispute? What are Adams’s? Because our minds tend to operate in relative rather than ab- solute terms, the process of setting goals is inherently subjective. Negotiators often measure success in terms of an initial reference point: Will I experience a gain or a loss relative to where I am to- day? Most people fight harder to avoid loss than they do to cap- ture an equivalent gain. So Bolton should try to figure out what reference points Adams uses in setting goals. What is Adams try- ing to achieve? Is he really seeking immediate integration of Re- gional Air into Global, or would some incremental process be acceptable? Pinpointing how Adams sets goals will also equip Bolton to shape Adams’s reference points, perhaps by means of an- choring tactics or threats. 9 The solidity of the other side’s commitment to its goals mat- ters too. Negotiators who set their sights high tend to do better than those with lower aspirations. 10 However, unrealistic expec- tations function as a barrier to agreement. Negotiators who com- mit to specific goals sometimes pursue them doggedly long after it has become clear that their objectives are unrealistic. If Adams promises his constituents never to compromise, he may find him- self in a box of his own making. If no agreement results when a mu- tually beneficial agreement was possible, the negotiators may have fallen prey to overcommitment. The main antidotes to overcommitment are skillful learning, flexibility, and the capacity to craft face-saving compromises. Is there a formula that would allow the parties to back away from this dispute gracefully? As we have seen, you can’t hope to have full information at the outset; you must learn and unlearn at the table. As you learn about the bargaining range and others’ interests, you can adjust your aspirations accordingly. But there’s no escaping the fundamental tension between com- mitment and flexibility. This tension arises because both sides try to shape their counterparts’ perceptions in such a way as to deflate 88 BREAKTHROUGH BUSINESS NEGOTIATION their aspirations. Techniques like anchoring are explicitly designed to shape perceptions of the bargaining range. This means that learning and goal setting take place under conditions of adver- sity and uncertainty. Do I have to accept less than I aspire to, or has my counterpart successfully shaped my perceptions? Am I com- mitted or overcommitted? Emotions. Emotions, real and feigned, enter into most negoti- ations. A timely display of anger, for example, can demonstrate resolve so long as it is employed infrequently. At the same time, escalating disagreements and the emotions they engender can crowd out rational assessments. Emotions are certainly running high in the Global Airlines case. What can Bolton do to moder- ate them? Emotions have predictable life cycles, and they also produce residues that persist and complicate the negotiation process. 11 Over the course of a negotiation, participants typically experience cycles of optimism and discouragement. Optimism builds as the process moves in favorable directions; discouragement sets in when nego- tiations bog down and tough choices have to be made. But opti- mism is not necessarily an unalloyed good, nor does discouragement presage failure. Overconfidence can contribute to impasse, and dis- couragement often stimulates a useful reassessment of goals and al- ternatives. Intense anger often flares in negotiation. Real damage may have been done (lives may even have been lost) or a norm may have been violated (the other side could have withdrawn a concession). But negotiators are also subject to inner turmoil, and hence anger, because of their motivational drives. A sense of loss of control, for example, could trigger defensive reactions in nego- tiators like Adams who have a strong need for control. Feelings of shame can also trigger anger. Once strong emotions are triggered, they dissipate slowly. The psychological and hormonal effects of anger can’t simply be turned off; the result may be temporary inability to think rationally about MANAGING THE PROCESS 89 the costs and benefits of your own actions. Time must pass before you settle down and become open to reflection and persuasion. Skilled negotiators track their own and their counterparts’ emo- tional temperatures in order to assess when to push, when to back away, and when to let things cool off. Care must also be taken not to let emotions irreversibly color negotiators’ attitudes toward each other. A sense of betrayal or per- sonal insult can infect the process and contribute to a vicious cycle. As Roger Fisher and William Ury note in Getting to Yes, the ideal stance is to "separate the people from the problem." Bolton should try to focus the negotiations on the substantive issues and adopt a problem-solving attitude. He should resist getting caught up in power games or personal attacks, even if Adams provokes him. PRACTICAL APPLICATION : SHAPING MENTAL PROCESSES Think of a counterpart with whom you recently negotiated: • What role did his or her mental models play in shaping the process? Did your mental models differ, and if so how? • What were her or his most important motivational drives, and how did they influence the negotiation? Based on what you know now, what would you have done differently? • What role did aspirations play in your interactions? Was your counterpart undercommitted or overcommitted to a position? • What role did emotions play in your negotiations? In retrospect, would you have managed the emotional dynamics differently? PLANNING STRATEGY The point of examining the negotiation process at these three dif- ferent degrees of resolution is to equip you to manage at-the-table interactions more productively. If agreement is your objective, the 90 BREAKTHROUGH BUSINESS NEGOTIATION fundamental goals at the table are twofold: (1) to learn about your counterpart’s interests, alternatives, and bottom lines and (2) to shape your counterpart’s perceptions of what is attainable in order to gain a favorable agreement within the bargaining range. In other words, Bolton’s agenda should be to learn about Adams’s in- terests and walk-aways and to shape Adams’s perceptions of what is acceptable. As we will see, efforts to learn and to shape percep- tions inevitably come into conflict; that’s what makes face-to-face negotiation so compelling. In planning what to do at the table, Bolton and his team should think through (1) what they want to learn from the union side, (2) what changes they want to bring about in the other side’s per- ceptions, and (3) what strategies they will use. Bolton should also try to anticipate what Adams will try to find out and how Adams will try to shape his perceptions. Learning As you hypothesize about your counterparts’ interests, think about how you will test your hypotheses at the table. You can learn a lot from strategic questioning and active listening. Bolton should draw up an initial list of questions for Adams and then keep probing. What really concerns Adams about this merger? A useful tactic is to ask the same question in different ways and triangulate the re- sponses. Bolton could ask Adams, "What are the most important things you need to get to walk away happy?" and "How important is the issue of making your furloughed people whole?" and "Why is rapid integration of Regional so important to you?" These are all ways of getting at Adams’s interests and trade-offs among is- sues. Are his responses consistent or inconsistent? Bolton should also feed back what he hears to test his comprehension, demon- strate that he is listening, and explore seeming inconsistencies: "So if I understand you correctly, you need X. But earlier you men- tioned that Y is important. Have I got it right?" Your counterparts also inevitably reveal their interests in in- direct ways. Each offer they make conveys information about what MANAGING THE PROCESS 91 they want (or want you to think they want). Their concessions also convey information: big concessions signal more to give; small concessions signal resistance, real or feigned. You can learn by making offers of your own as well. One ap- proach is to propose multiple package deals—ideally, deals whose distinctions you are indifferent about—to find out which the other side prefers. If they respond truthfully, you will learn something about their preferences across the issues. Keep in mind that they too will learn something from your offers. Shaping Perceptions Shaping your counterparts’ perceptions of the bargaining range is partly about framing and reframing; it’s also a matter of sharing in- formation in such a way as to influence their perceptions of inter- ests and walk-aways, both theirs and yours. Bolton’s perception-shaping goals are to convince Adams that: • The positions he is taking cannot lead to agreement. • Creative agreements can meet both sides’ needs if Adams is willing to be more flexible. • He can back away honorably from his public commitment to immediate integration. The arsenal with which negotiators shape their counterparts’ perceptions at the table consists largely of a handful of classic tech- niques of persuasion: • Anchoring. Your initial position strongly influences the other side’s perception of the bargaining range. An offer that is high (or low) but not so extreme that it triggers a breakdown of negotiations or dismissal of the offer can anchor your counterparts’ perceptions in a favorable way. In response to Adams’s demand for immediate integration of Regional, Bolton could try to anchor high. 92 BREAKTHROUGH BUSINESS NEGOTIATION • Patterns of concessions. Substantial early concessions followed by progressively smaller concessions signals increasing resistance. This tactic can be used to shape the other side’s perception of your walk-away position. Having anchored high, Bolton could make a series of concessions that end with a final offer that meets his aspi- rations. • Threats. Threats are promises to do harm, typically used to shape others’ perceptions of the consequences of no agreement. Threats have to be credible to be effective. Even if credible, they can provoke irrational resistance and escalation. Bolton could threaten to continue to expand the use of regional jets by Global Focus. • Warnings. Warnings are milder than threats and hence less likely to trigger escalation. 12 Instead of saying "If you do that, I will punish you," a warning says, "If you do that, bad things [not caused by me] will happen to you." Bolton could stress the financial im- pact of any agreement on Global’s ability to remain competitive in the industry. • Commitments. Commitments are self-imposed costs. Nego- tiators commit to a course of action (perhaps by putting their rep- utations or credibility at stake) to convince their counterparts that their hands are tied. The risk, as we have seen, is overcommitment and impasse. Overcommitted negotiators stand firm long after it has become apparent that their objectives are unachievable. Bolton could make a final offer, stressing that his board of directors would never approve anything more. • Action-forcing events. Deadlines, meetings, and other key events can be invoked to move the process forward. Bolton could establish a deadline for agreement, beyond which he will simply proceed with his own plan to integrate the airlines. 13 Managing Fundamental Tensions As Bolton seeks to manage the process, he will confront some built- in tensions. These tensions arise because he and Adams each have private information that the other doesn’t possess and because both MANAGING THE PROCESS 93 will try to claim value. As a result, both of them will share and withhold information strategically to try to shape each other’s per- ceptions. This maneuvering vastly complicates the learning process. Suppose Bolton and Adams were engaged in a purely distrib- utive negotiation over pay increases for the Regional pilots. Then suppose that Adams had somehow learned the maximum that Bolton was willing to offer, while Bolton remained in the dark about the minimum Adams would accept. Adams would enjoy a huge tactical advantage: he would be in a position to shape Bolton’s perceptions using offers and counteroffers, but would himself be immune to Bolton’s perception-shaping efforts. Adams could peg his initial offer high enough to anchor Bolton’s perceptions with- out causing negotiations to break down, followed by a series of concessions, and then a commitment to a "final offer" he knows is marginally acceptable to Bolton and highly attractive to the union. Clearly, information is power in the sense that it allows you to shape the other side’s perception of the bargaining range. Now suppose instead that Bolton and Adams are both uncer- tain about each other’s walk-aways. Bolton is hobbled in his ef- forts to learn about the union’s bottom line because he doesn’t know the extent to which Adams is trying to manipulate his per- ceptions. The greater his uncertainty about Adams’s interests and alternatives, the more he needs to learn—but the more he is vul- nerable to having his own perceptions manipulated. 14 The same is true for Adams. This conundrum is known as the learning-shaping dilemma. In integrative negotiations, a similar dilemma arises: your ef- forts to learn about the other side’s interests and trade-offs in order to create value conflict with your efforts to shape their perceptions in order to claim value. If Bolton is to propose mutually beneficial trades, he needs to learn about Adams’s true interests and trade- offs and judiciously share information about his own. But if Bolton is truthful about his own interests, he will be vulnerable to the union leader’s value-claiming tactics. And if he conceals or mis- represents his own interests and the other side responds in kind, 94 BREAKTHROUGH BUSINESS NEGOTIATION the potential for joint gains dissolves. Bolton is thus confronting what David Lax and Jim Sebenius have termed the negotiator’s dilemma. 15 (See the table below.) If he shares information about what he really needs in order to create value, he risks having Adams claim value from him. But if he misleads Adams about his true interests, he risks not identifying opportunities to made trades and create value. Tailoring Tactics to Type of Negotiation Bolton’s tactics for managing the process ought to be tailored to the nature of the negotiation. Any negotiation can be positioned on a spectrum ranging from purely distributive to purely cooper- ative (joint problem solving in which incentives are perfectly aligned). If the negotiation is truly distributive, Bolton has little to gain by being open about his interests; the key is to be adept at shap- ing the other side’s perceptions and claiming value. If, on the other hand, both sides’ interests are largely congruent, little is lost by sharing information and jointly exploring options to create value. MANAGING THE PROCESS 95 The Negotiator’s Dilemma Goal Activity Create value Claim value Learning Share information about Gather accurate your interests to find information about the opportunities to create other side’s walk-aways. value. Use anchoring and commitment tactics to claim value. Shaping Reframe the negotiations Mislead your counterparts perceptions to emphasize value- about your priorities to creation possibilities. claim value in trades. Integrative negotiations, with their mix of value creating and value claiming, occupy the middle ground. It is in the integrative arena that the negotiator’s dilemma is most problematic. To manage the negotiator’s dilemma, Bolton ought to think hard about what information he reveals. He should neither share his walk-away position nor specify his exact trade-offs among issues. But he could tell Adams that he is more reluctant to pay retroactive wages than he is to give the pilots furloughed in the 1990s pension credit for the furlough period. This revelation could set the stage for a mutually beneficial trade. The central point is that information sharing should be reciprocal, not one-way. It is wisest to proceed incrementally—sharing some information, see- ing what you find out in exchange, and rigorously testing it for plausibility. PRACTICAL APPLICATION : LEARNING AND SHAPING PERCEPTIONS Think about a negotiation in which you are engaged right now: • What are the most important things you need to learn at the table? How will you go about learning them? What would your counterparts most like to learn about you? 96 BREAKTHROUGH BUSINESS NEGOTIATION More Value Creating More Value Claiming Purely Distributive Negotiation Integrative Negotiation Pure Joint Problem-solving The Negotiator’s Dilemma The Competition-Cooperation Spectrum • How has the other side tried to shape your perceptions about the bargaining range? How successful have you been at shaping their perceptions so far? • Are there ways you can better manage the tension between creating and claiming value in this negotiation? BUILDING MOMENTUM Having diagnosed the situation and strategized about learning and shaping perceptions, the next step is to devise a tactical plan. The rough road map shown here outlines how you want the interac- tion with your counterpart to proceed. It blocks out your approach to building momentum toward your desired outcomes. How should Bolton approach learning about and shaping the perceptions of Adams and his team? First, he should recognize that he can neither fully control the process nor anticipate all possible contingencies. The best he can do is to get the negotiation off to a good start and concentrate on moving it in favorable directions. He should try to anticipate and plan for the union leadership’s re- actions, but beyond that he has to be flexible and adapt to devel- opments. As a first cut at a process plan, Bolton might think in terms of the rough sequence of activities illustrated in the accompanying figure. • Task 1: Building the relationship. Bolton should begin by working on the strained relationship with Adams and the APU leadership. Otherwise, the negative feelings generated by their previous encounters will continue to poison the proceedings. He needs to build up some relationship capital; he might need it to spend if the going gets tough later on. Bolton could, for example, raise Adams’s strained relationship with his predecessor and say that he hopes that he and Adams will be able to work together more productively. MANAGING THE PROCESS 97 • Task 2: Negotiating the process. Bolton shouldn’t expect to jump directly into the substance of the dispute; this is a common mistake that inexperienced negotiators make. Instead, he should spend some time negotiating the process with Adams. Agreeing on an agenda also offers an opportunity to shape the union lead- ership’s expectations about what will be accomplished. He might say, for example, "I think we should concentrate on exploring whether there is a basis for going forward" and "We won’t be mak- ing any specific offers today. I want to see if we can identify some creative options for addressing our concerns." • Task 3: Changing the frame. Bolton is now in a position to begin to reframe the negotiation, prodding Adams and his col- leagues to embrace a more integrative view of the possibilities. He might start by saying that there will be no basis for agreement if they continue down the same road. Then he could highlight po- tential joint gains by saying, "It seems to me that our needs for flex- ibility in integration and preservation of the scope clause in the contract [which gives union pilots the exclusive right to fly all Global Airways’s aircraft] need not be incompatible." Bolton could then work to transform Adams’s perception of his interests by deftly informing Adams of his openness to sepa- rate negotiations on the timing and terms of payment of the dam- age award the court imposed on the union. He might also broaden the agenda to include issues like pension credit for the pilots’ fur- lough period. • Task 4: Testing hypotheses. Bolton could then move on to finding out as much as possible about the interests that underlie the union’s position. His earlier analysis of Adams’s interests 98 BREAKTHROUGH BUSINESS NEGOTIATION Building the relationship Negotiating the process Changing the frame Testing hypotheses Finding the formula Creating a sense of urgency Process Planning yielded hypotheses that have to be tested and validated at the table. He should ponder carefully which information he needs most and how to elicit it. He might begin by asking, "What are your biggest concerns about the Regional acquisition?" and then practice active listening, carefully summarizing what he hears both to show that he understands and to test his comprehension. • Task 5: Finding the formula. The stage is now set for Bolton to move from the diagnostic phase to the formula phase and to begin to explore potential trades with Adams. These trades will jointly constitute the formula for the deal—the overarching frame- work for agreement. Once a promising formula has been identi- fied, management and the union can move on to hard bargaining over the details. Drawing on his prior analysis, Bolton could introduce multi- ple potential trades. For instance, he could suggest the following as potential bases for a deal: • Partial compensation to Regional pilots for the interval since Global took over • Partial credits to furloughed pilots for pensions and benefits • Impartial arbitration of the effective date of takeover • Follow-on negotiation of a "fair process" for consultation on integration of future acquisitions, perhaps with the help of a mediator • An extended payment schedule for the damage award if the union does not engage in further sick-outs • Task 6: Creating a sense of urgency. The final step is to create a sense of urgency. Movement toward (or away from) agreement tends to be turbulent, with periods of deadlock or inaction punc- tuated by bursts of progress. Negotiators for Global and the APU may make initial progress, but they will inevitably arrive at diffi- cult choices, such as whether to make concessions that will disap- point internal constituencies or whether to cross psychologically MANAGING THE PROCESS 99 important red lines. Negotiations may stall until accumulating costs become intolerable, or an action-forcing event like a deadline com- pels the participants to make concessions or break off negotiations. If some or all of the parties decide to improve the terms on offer, accumulated tensions get released, and momentum builds toward agreement. Managing the flow of negotiations is like influencing the flow of a river. You may seek to advance your interests by damming the flow in places, letting it loose in others, and channeling it in de- sired directions. The flow toward agreement can be dammed by purposefully engineering impasses; tension can be released and channeled by proposing a new formula or face-saving compromise. In the process, the more patient and creative negotiator may be able to create and claim substantial value. If Bolton believes that the union incurs substantial costs for delay (because of the lawsuit) and is unwilling to negotiate in a more integrative manner, it may be worth delaying the process to let pressure build. On the other hand, if the dispute over Re- gional Air is a time-consuming distraction for a management team that is grappling with serious strategic challenges, it may be worth- while to propose an attractive formula for settling the dispute. PRACTICAL APPLICATION : BUILDING MOMENTUM Think further about a current negotiation: • Did you spend time up front on the relationship? • Did you negotiate the process? • Were you able to shape or change the frame favorably? • Did you test hypotheses about the other side’s interests and learn effectively? • Did you work to identify a promising formula? • Were you successful at instilling a sense of urgency in the other side? 100 BREAKTHROUGH BUSINESS NEGOTIATION
PUTTING IT ALL TOGETHER Managing the process calls for awareness of the multiple levels at which negotiations unfold. Your negotiations will recapitulate pre- dictable stages, but those stages will be filled with turbulent micro- interactions, and the participants’ mental processes may twist and turn dramatically. Armed with that understanding, you can begin to craft strategies to learn and to shape perceptions and a tactical plan to manage interactions and build momentum. Bolton reached agreement with Adams on the integration of Regional Airlines. Bolton devoted significant time to wide- ranging discussions with Adams about the future of the airline and somewhat improved the relationship. "Stuart and I came to see each other as reliable partners," Bolton recalled, "even though there was no love lost between us." Bolton also postponed nego- tiations over payment of the union fine to avoid creating the ap- pearance of linkage. At the same time, he indicated to Adams his "openness to negotiating a long-term payment plan." Bolton then unblocked negotiations by offering to submit the effective date of takeover to impartial arbitration, an offer the union leader accepted. By setting that potentially toxic issue aside, Bolton and Adams were able to focus on the issues of wages and senior- ity. Their eventual agreement extended the Global pay scale to the Regional pilots and gave full seniority credit to the oldest Regional pilots and partial credit to the younger ones. The issue of pension credit for time on furlough was deferred until contract negotiations, with the understanding that management would seriously consider offering partial credit. Several months later, Bolton offered Adams an extended payment schedule for the damage award, with the im- plicit understanding that the union would not engage in further sick-outs. The union accepted, and Bolton avoided the crisis that bankrupting the union might have precipitated. MANAGING THE PROCESS 101

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