Larry R. Smeltzer
Larry R. Smeltzer, Professor, Arizona State University, Tempe, AZ 85287-3706, 602/965-6824.
Extensive attention is given to partnership development between suppliers and purchasers. At the same time, much has been said about win-win negotiations. However, some basic human tendencies and dysfunctional aspects of negotiations mean that win-win negotiations do not necessarily lead to successful partnerships. The human tendencies and dysfunctional aspects of negotiations are reviewed. The rational for a distinct, collaborative problem solving approach to partnership development is then presented.
INTRODUCTION. Can an experienced, successful negotiator move from a mental set of negotiations to collaborative problem solving? Can a person who has years of experience looking at a supplier as an opponent begin to look at a supplier as a ally or partner? Can an experienced purchasing manager concurrently perceive one supplier as an opponent while appreciating another supplier as a collaborative problem solver or partner?
The preceding questions are not simple but possible answers are presented in the following discussion. But first, the importance of these questions is reviewed.
BACKGROUND ON NEGOTIATIONS AND PARTNERSHIP DEVELOPMENT. Many purchasing professionals see negotiation as an integral part of the profession. In all likelihood, most purchasing professionals have read a book on negotiation and taken at least one class on the topic. The term "win-win" is almost synonymous with negotiation. In their purchasing textbook, Leenders, Fearon and England state, "As the status of the purchasing function in well-managed companies has increased in importance, a more professional attitude has developed in the people responsible for the operation of the function ..... negotiation is a prime example of this developing professionalism."
Much of the discussion and writing on negotiation uses such terms as opponents, adversaries or even enemies. When discussing negotiation tactics, we hear about ways to "Get the upper hand," "Take advantage of opponents weaknesses," "How to gain a power position," "Use compromise to your advantage," and we talk about lowballing, highballing, face-saving, decoying, and so forth.
These terms are all used at the same time that we use the term win-win negotiations. In fact, take a careful look at the articles and books written about win-win negotiations and a latent theme emerges: make it appear the "adversary" has also won so that you can be the ultimate winner. Development of added value or synergy is not important; rather, it is important for both parties to believe they have won.
The attitude toward negotiation is important for negotiation professionals today because much emphasis is now being placed on partnerships or alliances also. As Lorange and Ross (1992) state, strategic alliances are becoming increasingly important in today's intensified competitive international business setting. The question that emerges is, "Are purchasing managers' attitudes toward negotiation consistent with that of building a strategic alliance?"
A popular word these days is seamless. In the purchasing context this implies that a relationship exists between independent buying and supplying organizations in which the two collaborate and cooperate for their joint competitive advantage. In a study sponsored by the Center for Advanced Purchasing Studies, Hendrick and Ellram (1993) conclude that in a strategic supplier partnership, a sincere intent for a commitment to a long-term relationship exists. Spekman (1988) believes that strategic alliances are long term relationships that require long term relations with a high level of cooperation. Shapiro (1985) maintains that partnerships are a conduit for innovation that requires a close relationship between supplier and buyer. Landeros and Monzcka (1989) state that an attribute of partnerships is a credible commitment between the buying and selling firm.
On the surface, words such as adversary, opponent or enemy would seem to be inconsistent with building strategic alliances. A purchasing manager can not be thinking about adversarial tactics while building a long lasting, innovative and cooperative relationship. The following discussion reviews some of the innate problems with negotiation that prevents development of strategic alliances.
DYSFUNCTIONS OF THE NEGOTIATION PROCESS. A number of biases indigenous to the negotiation process may make it difficult for experienced negotiators to effectively build partnerships. The following discussion is divided into two types of dysfunctions: human tendencies and negotiation processes.
HUMAN TENDENCY ONE: FRAMING. Assuming that a person's behavior has a purpose, an individual enters most human interactions as if there is a potential gain or loss. Accordingly, business people enter negotiation with either a positive or negative frame. That is, they perceive the situation as one in which they have the potential for either a gain or a loss. Research has consistently shown that individuals are risk-averse when confronting potential gains and risk-seeking when confronting potential losses. If a purchasing manager enters a relationship with either a positive or negative frame, they may be less inclined to develop partnerships. They are looking for advantages rather than collaborative outcomes.
HUMAN TENDENCY TWO: ANCHORING. Studies have found that people estimate potential outcome values for ambiguous interactions by starting from an initial anchor value (Huber and Neale, 1986). This initial value influences the entire subsequent negotiation by limiting potential gains or losses. This is why agreements are more strongly influenced by initial offers than by subsequent concessions. Partnerships require problem solving in ambiguous situations. Accordingly, it may not be possible to develop innovative outcomes because anchors have been developed.
HUMAN TENDENCY THREE: AVAILABILITY OF INFORMATION. People rely on information that is more easily recalled; furthermore, these easily recalled events will appear more numerous than events of equal frequency whose instances are less easily recalled. As a result, negotiators are prone to over-estimate unlikely events. For instance, if a person had witnessed or experienced a major automobile accident, the perceived probability of such an event reoccurring is much greater than if the person had only read about the accident in the newspaper. Likewise, a person who had participated in many negotiations with "adversaries" or "opponents" would expect an adversarial climate in subsequent negotiations. They would not expect a collaborative problem solving climate to prevail with a supplier after numerous confrontations.
HUMAN TENDENCY FOUR: SEEKING CONFIRMATORY EVIDENCE. We all attempt to find evidence that supports our beliefs or past practices. At the same time, we ignore information that disconfirms our beliefs. This makes it convenient for us to continue to do what has been successful in the past. If negotiators have been successful in the past using tactics appropriate for adversarial relationships, they will continue to use these adversarial strategies. They will seek information that supports this approach. This confirmatory tendency is what makes any change difficult and is the basis for the adage, "We must learn to forget." It is also the basis for much of the current emphasis on reeningeering.
HUMAN TENDENCY FIVE: OVERCONFIDENCE IN CORRECTNESS OF ANSWERS. In contemporary society, we place much emphasis on rearing children so that they will be confident or have high self-esteem. But a well established research finding is that adults have a tendency to be overconfident in the correctness of their answers when asked to respond to questions of moderate to extreme difficulty (Einhorn and Hogarth, 1978). Unfortunately, when a person's knowledge of a question decreases, the person does not correspondingly decrease his or her level of confidence. Taking this a step further, research indicates that in third party negotiations, each side is optimistic that the neutral third party will adjudicate in its favor. As a result of this research, it may be generalized that parties too frequently enter negotiations with the attitude that they will accomplish their desired results; hence, cooperative problem solving is not required due to their high level of confidence.
These five human tendencies indicate why it may be difficult for an effective negotiator to be effective at developing collaborative, innovative, supplier-purchaser relationships. The following three dysfunctional aspects of typical negotiations also work against experienced negotiators moving to collaborative problem solving that subsequently leads to partnerships.
NEGOTIATION DYSFUNCTION ONE: THE FIXED PIE. A careful review of the materials on win-win negotiation tactics reveals that too often the underlying assumption is that a pie exists. Of course this pie must be equally divided so that all parties win. The entire concept of compromise is based on the fixed pie concept. We must give away part of the pie to assure we can keep our part of it. Interesting research indicates that even when negotiators approach the interaction with a win-win philosophy, upon reaching a settlement, they still believe that they won more than their opponent. In other words, they gave up less than their opponent (Thompson, 1990). Highly related to the fixed pie phenomenon is the incompatibility bias. This bias states that the reason parties must compromise is because their desired outcomes are incompatible--they both want the same parts of the pie.
The fixed pie concept and incompatibility bias are deeply ingrained social values in the United States. Americans are an intensely competitive lot that fill sports stadiums to see their team win. The nature of competition is that it is incompatible for both sides to win. During the past decade the National Football League Denver Broncos and Buffalo Bills have been referred to as losers because they have both lost several Super Bowls. Little mention is made that both teams are winners.
NEGOTIATION DYSFUNCTION TWO: ESCALATION OF CONFLICT. Negotiators tend to nonrationally escalate commitment to previous decisions. Individuals who make an initial decision before the negotiations commit significant psychic resources to this decision. This is only logical because extensive emphasis is put on negotiation planning. But as strange as it may seem, planning commits negotiators to a position. This commitment is highly related to the human tendencies listed earlier. In particular: (1) once negotiators make an initial commitment to a course of action, they are more likely to notice information that supports their initial evaluation, (2) new information will be evaluated in such a way that it justifies the existing position and (3) negotiators frequently make decisions to justify earlier decisions.
Escalation is related to cognitive balance. People cannot hold two opposing beliefs at the same time. Add this to the competitive context of negotiation and it is easy to see why escalation to a position occurs.
NEGOTIATION DYSFUNCTION THREE: REACTIVE DEVALUATION. Reactive devaluation is the tendency for negotiators to devalue each other's concessions simply because it is the adversary who offered the concession. Three possible explanations exist for reactive devaluation. First, it is possible to conclude that an opponent places less value on what is being given up than on what can be gained in exchange. Second, specific concessions increase the negotiator's aspirations. Third, the concession is likely to be evaluated negatively because it was offered by a negative source--the opponent.
EXPERIENCED NEGOTIATORS' PERCEPTIONS OF THEIR ABILITY TO NEGOTIATE AND DEVELOP PARTNERSHIPS. In a number of interviews with experienced negotiators, I asked if they believed it was possible for experienced negotiators to concurrently negotiate with some individuals while developing partnerships with others. In other words, were they flexible in their approach with suppliers. I also asked if partnership development was a continuation of negotiation or a significantly different process. The unanimous response was that a good negotiator should be able to use a win-win approach to develop partnerships. The only difference between negotiation and partnership development was the level of trust. Unfortunately, during these interviews, the term opponents or comparable words were frequently used. Also, frequent reference was made to manipulative tactics. My conclusion was that the experienced purchasing managers were operating from the human tendencies and negotiation dysfunctions listed here. Or stated differently, they were not approaching partnerships in the spirit of collaborative problem solving necessary for innovative relationships.
My conclusion is that partnerships cannot be seen as an extension of negotiation because of the human tendencies and dysfunctions of negotiations. A different mental set is required to offset the dysfunctional aspects of negotiations. Negotiation is obviously necessary in many situations; however, a different orientation is necessary for true partnerships to develop.
RECOMMENDATIONS. The most important recommendation is for purchasing managers to recognize that certain human tendencies and negotiation dysfunctions work against negotiation becoming collaborative problem solving. It is important to recognize these limitations when negotiating and to stress them when training less senior purchasing professionals. For instance, the first two human tendencies listed earlier are framing and anchoring. These tendencies can be mollified by approaching an interaction as a collaborative problem solving situation rather than strictly a negotiation. This will change the frame during the interaction.
Enter an interaction with the mental set of collaborative problem solving and partnership formation. This mental set will help offset the third human tendency, availability of information, and the fourth tendency, seeking confirmatory information. Much is said about listening when negotiating; however, it is difficult to listen to new information when selectively perceiving information or seeking to confirm previous impressions.
Potentially valuable suggestions are also provided with the research that has been conducted on overconfidence. One suggestion is to provide feedback to people about their judgements and a second is to ask people to explain why their judgements might be wrong. But either of these would be difficult in a competitive environment. Again, the importance of differentiating between negotiation and partnership development is important.
Many purchasing managers who are experienced at negotiation contend that partnership development is a natural extension of negotiation. However, I believe that it is important to differentiate between the two processes. Many human tendencies and negotiation dysfunctions work against the development of a partner. But when purchasing managers understand the potential dysfunctions and differentiate between collaborative problem solving and negotiations, their probability of increasing innovative collaborative outcomes will be much higher.
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Hendrick, Thomas F. and Lisa M. Ellram, Strategic Supplier Partnering: An International Study. Tempe, AZ: Center for Advanced Purchasing Studies, 1993.
Huber, V.L. and M.A. Neale. "Effects of Cognitive Heuristics and Goals on Negotiation Performance and Subsequent Goal Setting." Organizational Behavior and Human Decision Processes. 38 (1986): 342-65.
Landeros, Robert and Robert M. Monzcka. "Cooperative Buyer-Seller Relationships and a Firm's Competitive Posture." Journal of Purchasing and Materials Management 25.3 (1989): 9-18.
Leenders, Michael R., Harold E. Fearon, and Wilbur B. England. Purchasing and Materials Management, l0th Edition. Homewood, IL: Irwin, 1993.
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Spekman, R.E. "Strategic supplier Selection: Understanding Long-Term Buyers Relationships." Business Horizons 31.4 (1988): 75-81.
Thompson, L.L. "Negotiation: Empirical Evidence and Theoretical Issues." Psychological Bulletin 108 (1990): 515-32.