Unit 2: Managing Business Negotiations
In this unit, we explore negotiating in an organizational context. Examples of these discussions include sales negotiations, engaging with vendors and suppliers, settling labor union contracts, and negotiating business mergers. As you navigate the unit, consider how you would negotiate as the underdog in business-to-business transactions. Transformational negotiations go beyond solving a certain problem or issue; they help build alliances. In these negotiations, your counterpart is a partner rather than an adversary. Engaging in a collaborative effort to build a long-term strategic partnership can solidify organizational alliances.
Completing this unit should take you approximately 5 hours.
Upon successful completion of this unit, you will be able to:
- describe and give examples of effective sales negotiations;
- compare approaches for negotiating with suppliers;
- summarize the history of labor negotiations in the United States;
- describe the role negotiation plays in mergers and acquisitions;
- compare the roles of principles and agents during business negotiations;
- identify the advantages and disadvantages of multiparty negotiations; and
- explain the effect of timing and the "six power tactics" in negotiations.
2.1: Sales Negotiations
Sales generally include buyers and sellers. Each side wants something from the other, whether that means a lower or higher price, access to a certain commodity, a higher salary, or health benefits. The market can be physical or virtual (online). Timing (environment, social, political, financial) is often the most determinant element in whether a sale occurs.
Read this section, where many concepts discussed in this course come to life. For example, a successful close is based on preparing to meet the opportunities. Preparation requires planning, which involves strategy. Selling is like building a house: everything comes together if the foundation is poured correctly. The steps to closing a complex sale (more than $100,000) – discover, diagnose, design, and deliver – resemble the negotiating phases we discussed. Every document, phone call, email, and meeting is part of the sale until the closing papers are signed. Be sure to answer the questions at the end of the section.
This text describes Robert Cialdini's six principles of persuasion. Robert Cialdini (1945– ), an American social psychologist, specializes in non-manipulative ways to negotiate or persuade. In this excerpt, Cialdini says there is no correct way to persuade or negotiate, but the principles are core areas to start.
2.2: Negotiating with Suppliers
Weather conditions, politics, conflicts, and wars among states or countries frequently impact inventories and the availability of raw materials. Negotiating with suppliers means staying abreast of local, state, national, regional, and global conditions and instabilities. These factors can affect availability, transportation, safety issues, hiring decisions, merger and acquisition opportunities, and profits.
The Covid-19 pandemic in 2020 exposed how quickly supplies, inventories, and supply chain routes can change, disappear, or become cost prohibitive. Businesses that warehoused their supplies locally were prepared, but many were left to the whims of their suppliers.
Read this article on creating sustainable agreements with suppliers built on cooperation and collaboration. The philosophy of "maximizing profit at any cost" is no longer appropriate for a world of finite resources, increasing consumer power, and supplier importance.
2.3: Labor Negotiations
The U.S. labor movement was at its height during the 1940s and 1950s. In 1955, the AFL (American Federation of Labor) merged with the CIO (Congress of Industrial Organizations). Union membership began to decline in 1947 when Congress authorized changes to the National Labor Relations Act, decreasing labor bargaining power via the Wagner Act. During the 1970s, union membership peaked at 21 million, but by 2022 membership will be 14.3 million, according to the U.S. Bureau of Labor Statistics.
In the past, labor negotiations have followed nearly every new industry, such as the steel industry of the late 1890s, factory workers in the 1930s, and public and private sector employees during the 1970s and 1980s. In 2020, the Covid-19 pandemic exposed poor working conditions in several industries and large companies. Low unemployment rates and greater demand for workers have emboldened employees to organize to demand better pay, benefits, hours, and a share in profits, such as local hospitals, Amazon, Starbucks, and Trader Joe's.
Read this article on collective bargaining, a topic we will explore again in Unit 3. In the United States, the National Labor Relations Act of 1953 covers most collective agreements in the private sector. What are some illegal actions according to this Act? How would you describe arbitration? Pay close attention to the discussion on collective agreement. For unionized businesses, employees, business leaders, lawyers, and other stakeholders use the collective agreement as a baseline for their negotiation.
2.4: Mergers and Acquisitions
For most businesses, the goal of a merger or acquisition (M&A) is to increase profit or market share. The merger can be among companies that are the same or different sizes. Negotiation teams include attorneys skilled in mergers or acquisitions, bankers, retired managers or directors, former owners, outside experts, and consultants. The process can last days, weeks, months, or years. For example, in 2000, Time Warner and AOL (America Online) merged in a deal costing $182 billion dollars.
As you read this text, pay close attention to the section on investment bankers since it discusses the economic changes the business will experience and what it will report to shareholders and customers.
In October 2018, Sears, Roebuck and Co. officially filed for Chapter 11 bankruptcy. Review this case study – a slide presentation – to learn about selling points Sears experienced, such as real estate, operations, top brands, leadership, liquidity, and catalysts. In 2022, profits helped Sears emerge from bankruptcy. Sears was once the world's largest retailer, with nearly 3,500 Sears and Kmart stores. In February 2023, 17 full-line Sears stores, Sears Grand, Sears Appliance & Mattress, and Sears HomeLife stores remain. In 2020, Covid-19 breathed new life into its real estate when many sites became vaccine centers.
2.5: Principals and Agents
An agent is a person who is authorized to act for or in place of another. The principal authorizes the agent to act on their behalf. For example, you can think of the principal as a business owner who hires a lawyer (agent) to attend all meetings and negotiate the little details using their expertise in the field of business. The agent is subordinate to the principal (their employer). But the principal is the ultimate "lead" negotiator (although they may not attend all of the meetings or have the expertise) because the business owner is ultimately responsible. In other words, the principal makes the final legal decisions when they sign the final contract, not the agent.
Countless articles have been written about conflicts between principals and agents, such as when the agent acts on their own behalf rather than that of the principal. You can probably think of several scandals in the news that resulted when these relationships fell apart due to a loss of trust or public disclosure.
This chapter discusses several types of agents and principles and the agent/principal relationship. Pay close attention to the discussion on the duties of agents and principals. For example, the agent has a fiduciary duty to the principal.
Read this chapter on the agent's fiduciary and general duty to the principal and the principal's duty to the agent (contract and tort). This section explores what the demise of a relationship between a third party, principal, and agent means in the legal sphere. Pay attention to the chart (Figure 39.1) on types of authority and the discussion on implied authority.
2.6: Multi-Party Negotiations
Business negotiations have changed during the past decade, often due to the global nature of business and long international supply chains. A single set of processes toward a single goal has become a complex web of deals, talks, and stakeholder debate. Multi-party negotiations have become commonplace as business leaders study their industries and create business alliances to improve their odds of successful negotiations.
Review these course notes, which summarize the advantages and disadvantages of coalitions and the challenges of multi-party negotiations. For example, complexities are informational, procedural, and social during multi-party negotiations. Pay attention to the definition and characteristics of a coalition and the decisions, processes, and procedures of multi-party negotiations. The notes emphasize that the social aspect of groups and parties can help or hinder the outcome.
2.7: Timing and Sources of Power
Timing is a critical component of many negotiations. Talks are often upended when parties move too quickly or slowly. We can trace timing mistakes to eager employees who want to be the first to announce a new initiative or indifferent supervisors who fail to follow through on their plans. Knowing how and when to move in a negotiation is a team effort. Turns and wrong moves are accompanied by poor communication, vague strategies, and mistrust.
Read this text on the six power tactics (legitimate, referent, expert, reward, coercive, and informational) that leaders have to persuade or push others to action. Power is upward and downward. Some high-level positions are symbolic and have little to no power. Likewise, people in seemingly lower-level positions may have more power than those with more duties and higher pay. Power tactics – behavioral, rational, and structural – are attributes businesses use to solidify power internally and externally.
Unit 2 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.