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The Manager as Negotiator: Bargaining for Cooperation and Competitive Gainby David A Lax
The Manager as Negotiator
Negotiating is a way of life for managers, whether renting office space, coaxing a scarce part from another division, building support for a new marketing plan, or working out next year's budget. In these situations and thousands like them, some interests conflict. People disagree. And they negotiate to find a form of joint action that seems better to each than the alternatives.
Despite its importance, the negotiation process is often misunderstood and badly carried out. Inferior agreements result, if not endless bickering, needless deadlock, or spiraling conflict. In this book, we diagnose the causes of these problems, show how they infect negotiations, and point the way to superior outcomes.
Virtually everyone accepts the importance of bargaining to sell a building, resolve a toxic waste dispute, acquire a small exploration company, or handle like situations. Yet negotiation goes well beyond such encounters and their most familiar images: smoke-filled rooms, firm proposals, urgent calls to headquarters, midnight deadlines, and binding contracts. Though far less recognized, much the same process is involved when managers deal with their superiors, boards of directors, even legislators. Managers negotiate with those whom they cannot command but whose cooperation is vital, including peers and others outside the chain of command or beyond the organization itself. Managers even negotiate with subordinates who often have their own interests, understandings, sources of support, and areas of discretion.
In a static world, agreements once made generally endure. Yet change calls on organizations to adapt. And rapid changes call for new arrangements to be envisioned, negotiated, and renegotiated among those who know the situation best and will have to work with the results.
Certainly negotiation is a useful skill for important occasions, but it also lies at the core of the manager's job. Managers negotiate not only to win contracts, but also to guide enterprises in the face of change. Our task in this book is to show why this is so and how it can be done better.
Thus we develop a special logic for negotiators, useful inside the organization and out. It is an ambitious agenda, one that we now introduce by describing a manager's continuing efforts to settle a lawsuit. Once we discuss the dilemma that trapped Les Winston in his negotiation with an "outside" party, we focus back "inside" the organization. There, the negotiations that occupy managers' lives run up against versions of the same dilemma.
Les Winston's Dilemma
Metallurgist Les Winston was sharing a drink with his old friend Tom, a noted analyst of negotiations. Les described his ongoing ordeal trying to settle a suit brought against him by the Ammetal Corp., his former employer. If Ammetal won in court, Les's two-year-old company would be forced down from its high-flying course into bankruptcy. And their latest settlement demand — for half of his firm's revenues during the next ten years — seemed ruinous. Concerned, Tom pressed for details.
Les had joined Ammetal just after graduate school and had happily worked in their labs and testing facilities for the next nine years. Happily, that is, until he had a strong hunch that a new process might reduce production costs for an important specialty alloy, whose market Ammetal now dominated. While his boss had not forbidden him to work on this process, he had given Les no resources for it and had loaded him down with other tasks. Still, Les had devoted all his spare time to following up his hunch at home. Soon he was convinced that he had solved the problem and excitedly showed his results to his boss — who again seemed unimpressed, dismissing Les's work as "inconclusive." In fact he urged Les to forget the whole thing since, in his judgment, the only improvement worth making required a radically different process that no one, including Les, thought had better than a one-in-thirty chance of ever working.
That did it. Though Les really liked his colleagues and most of his job at Ammetal, especially the research, he quit to start his own firm, scraping together capital from relatives and borrowing heavily from one large backer. Eighteen months later, the modest plant that he had adapted for his process had more orders than it could handle. Best of all, Les was absolutely certain that he had just cracked the secret of the radically different process, which could, with several months of development, slash current production costs by more than half. Though he currently enjoyed about a 20 percent cost advantage over Ammetal, this new knowledge should eventually permit him to push his former employer completely out of the market.
So he was stunned to read an announcement one morning that Ammetal planned to build a large plant that obviously would use the process currently in place in his plant. (It was nearly impossible to protect such processes by patent; secrecy was the only hope.) Les was further dismayed that same day to learn that Ammetal had filed suit to enjoin him from further using his process. They alleged that he had violated his employment contract with them, improperly using results from his work in the Ammetal labs. When his lawyer examined his old contract and gave him only a fifty-fifty chance of a successful defense, Les's spirits sagged. It did not cheer him at all that his lawyer argued — and had also heard informally from an old partner who worked in Ammetal's legal department — that the other side could expect no more than even odds of winning a case like this.
Five months into this discouraging episode, Les had decided that some form of negotiated settlement could protect him against the chance of losing the case, avoid further legal costs, lessen his anxiety, and free him to spend his time helping his business to grow. He had initially offered Ammetal a 3 percent royalty for the next three years, and had gradually raised his offer to 15 percent during the next five years. (This was about equal to the highest royalty rate in the industry for an analogous, but friendly, licensing agreement.) But Ammetal was miles away, insisting at first on 60 percent indefinitely, and now, on a "rock-bottom final" demand of 50% for the next decade. There they had deadlocked, with the trial only a week hence.
With an air of resignation, Les finished his recitation and said to Tom, "So, that is how we stand, and all I can see is doing my damndest to increase the odds of winning that suit. Otherwise,..."his voice trailed off as he rolled his eyes back and sliced across his neck with his forefinger. "Except, of course, that I'll eventually recover, pick up the pieces, put together a new organization, and blow them out of the water when I get the new process going. It might even be fun, watching them write off their big new plant, which will suddenly become obsolete. But what a price for revenge!"
Tom registered all this, then leaned forward and asked Les to describe what he would really like to come out of it. A bit taken aback, Les thought and replied, slowly, "Well, I would really like to be left alone to continue with the current process, until the new one is perfected. That, however, will take some months and I'd need to raise a lot of money. Actually, Tom," he continued meditatively, "it may sound a little strange after all Ammetal has done, but I would most enjoy working on this new process with my good friends in the lab there — and not have to worry about all the financing and logistics and administrative headaches of running my own show. Ammetal's manufacturing and distribution networks are first class once they've got a good product. Of course, I don't want to give up the money, quite a fortune really, that would come from doing it myself. Also, freedom feels very good, especially aft
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