Chapter 1

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 after dealings with that jerk of a boss."

"So why not propose a joint venture?" Tom queried.

"In fact," Les replied, "I suggested just that to Albert Laxel [a social acquaintance and senior VP at Ammetal]. I ran across him playing tennis last weekend and told him how sick I was of this whole miserable thing, how I wished they would just drop the suit and forget their new plant, which they'd end up regretting anyway., I finished by tossing out the idea of jointly commercializing my new process -- on the right terms, of course. He seemed sympathetic, especially about my old R&D boss, who's been on everyone's nerves for a while, who championed their newly announced alloy venture -- and who undoubtedly instigated the suit against me.

"Still, Albert dismissed my idea out of hand, saying something about how this episode must be taking a real toll on me. Otherwise, why would I make such an obvious bluff about discovering the new process -- which no one could take seriously, especially given my current fix, and how remote everyone, including me, had judged the odds of its working.

"The only way to convince Ammetal, would be to actually show them the new work -- which there's a snowball's chance in hell of my doing now, just so they could steal it, too. The irony of all this," Les continued, "is that we would both be better off if they didn't sink a ton of money into a useless plant and if I could do only what I want with the new process -- with no extraneous business stuff -- and yet still profit handsomely from it."

Tom thought for a moment, and then intoned professorially, "Well, Les, maybe it wouldn't be so hard to persuade them that you have the new process and that they should think again." With Les's full attention now, Tom continued, "Why not drop your current position and better their demand for 50% of your revenues? Why not just offer them a 60% royalty on your current operation? Or really shock them by offering even more?"

Les slowly put down his drink, figuring that Tom could not possibly have been listening. "Tom, that's crazy. It wouldn't convince them of anything about my new discovery -- low or high, a royalty settlement has nothing to do with it. And why on earth would I give up my only card, the even chance I have of winning the suit? If I win, they know I'll stay in the industry, and that they can't go ahead with their plans. Even if I only had my current process, two plants would lead to an oversupply situation. It's a very lucrative market, but the volume is not that great. That's why they've got to knock me out through the courts. I've heard of demanding unconditional surrender but never offering it."

"Les, I understand. But that's the whole point. The 60% royalty would indeed burn your bridges with your current operation. But the only way you could possibly make such an offer is to be sure that the new process worked. Unless you were suicidally inclined or nuts, you would not set up a situation in which the only route left for you -- commercializing the new process -- was a dead end. So, with a little thought, Ammetal's got to realize you're telling the truth and that they shouldn't plan to build a new plant. Of course, as you enter the final round of negotiations, you should bring in an agreement to that effect for them to sign, but that agreement should also commit them to a joint venture, where you get a very big piece of the action, once," Tom looked sly, "once they offer you your old boss's job. After all, he's been the bad guy in this from the start."

Les Winston had been caught in a simple version of a central dilemma of bargaining. Devising a joint venture to benefit both parties depended on his actually having the new process. Yet directly sharing this information would open him to gross exploitation. If Les did not really have the process and yet bluffed that he did, Ammetal would be deterred from going ahead with their plans -- if they believed him. Knowing this, they would suspect any such statement from him. Les had to find a way to make his assertion credible without becoming vulnerable in doing so.

Tom's analysis suggested the means safely to untangle a self-serving bluff from a truthful signal: a seeming concession that committed Les to an action that would make sense only if he actually had the process. And this illustrates one small piece of a much broader problem with which we will grapple throughout this book: negotiators must manage the inescapable tension between cooperative moves to create value for all and competitive moves to claim value for each.

Again and again, we will find this central tension, whether in this relatively simply negotiation "outside" Les's firm or in more complex and subtle negotiations "inside" organizations -- in which building trust and relationships as well as repeated dealings figure much more prominently than they did in the end game between Les and Ammetal.

Key Elements of Negotiation

Virtually everyone would concur that Les "bargained" or "negotiated" to settle the suit. (We use these two terms interchangeably.) Shortly after he had rejoined Ammetal as head of the new venture, Les said, understandably, that he was relieved to have "negotiation" behind him so he "could get on with his job." By "his job", he meant working out with the CEO next year's capital budget and just how many employees would be assigned to his new project. Les meant getting the engineering and production people committed to completing the design rapidly and convincing the sales force to promote the now-cheaper alloy aggressively, even though it was only one of many products they handled. He meant talking to the accounting department to reduce some of the overhead they were allocating to his project and to modify a transfer price they had proposed for semifinished metal he would need from another division. Not to mention working out the allocation of tasks among his project team or new arrangements with his slightly edgy former peers at the R&D lab, whose boss he had replaced. To us, these aspects of his job centrally involve negotiation.

Like Les, many people have much too limited a view of the negotiation process, thinking mainly of explicit, well-acknowledged examples such as merger contests or collective bargaining. Yet its key elements occur far more widely in and out of management. Consider interdependence, some perceived conflict, opportunistic potential, and the possibility of agreement -- four of the most important such elements of negotiation:

Interdependence When Joseph depends on Laura, he cannot achieve the results he wants as cheaply, as well, or at all without her help (if only by her not interfering). Usually, dependence among people in organizations is mutual. While the reasons for a subordinate's reliance on a boss are often obvious, superiors generally depend on subordinates as well. Reasons for this include valuable, hard-to-replace skills, specialized information, or relationships with other critical players. Think, for example, of the many ways that the chief executive depends on her long-time personal secretary. Or how the shop floor supervisor relies on the one technician who can fix a key, cranky machine. Or how a sales manager needs the field knowledge of his sales force. (In turn, of course, the sales people depend on his support at headquarters and with the production and delivery people.)

Mutual dependence implies limits to how much one party can do alone, or at what cost, or how desirably. Joint action may be preferable for everyone. This possibility makes interdependence a key element that defines negotiating situations.

Obviously, those who run public organizations must cope with complex interdependencies, often by negotiation. Think of a public manager's dealings with political superiors, other governmental units, media contacts, interest groups, legislative overseers and staffs, not to mention the civil servants and others who can help or impede the agency's work. While people in private firms have always depended on one another, however, many factors have combined in recent years to increase their interdependencies. It is worth touching on a few reasons for this.

Ten or twenty years ago, it was quite common for a manager to deal with a single product or service in a specific geographic area, and for the firm to concentrate mainly on that line of business. But the processes of making and distributing products or performing services are often more complex than they used to be, from the science and engineering involved to the logistics and new information technologies. These factors increase reliance on those with specialized skills.

Further, firms are often much larger than before, more diversified in products and markets, and increasingly international. More and more parts interrelate, depend on each other, and need to be harmonized. Businesses have traditionally had two-way dependencies with other parties such as customers, suppliers, banks, and unions. Yet an increased number of such parties have strong interests in the behavior of business and can greatly affect its success: Significant examples include organized consumer, community, and environmental groups and government regulators, along with the popular and business media.

Interdependence, therefore, is a fact of life for managers. And when dependent, the "powerful" and "weak" alike must take others into account when considering possible actions. The ability of one person to further his or her objectives depends, at least in part, on the choices or decisions that the others will make. The reliance of the parties -- superiors and subordinates alike -- on each other for the possibility of realizing joint gain, preserving working relationships, or minimally, avoiding interference, leads to some margin of liberty or irreducible discretion for each. And negotiation can influence how this discretion is exercised.

Some Perceived Conflict If neither of two parties can make a pie alone, their dependence by itself need not imply bargaining; there must be potential conflict over dividing the pie, or at least, different preferences over how to make it. A manufacturer's determination of how many small service vehicles to turn out in the fall illustrates a standard kind of conflict that produces negotiations inside the firm: the production department wants long, predictable runs of uniform models; sales wants fast turnaround, custom design, quick delivery, and deep parts inventories; the financial types want advance planning and minimal stocks.

Or consider the three-year-old firm that can now afford to hire one more senior scientist for its R&D unit. Should this person's field be advanced materials, where two key board members and the CEO -- also a respected scientist -- think the best new opportunity lies, or numerical controls, where the remarkably successful R&D head believes they need more depth? This process can involve much more than working out the "objectively best" choice; apart from their genuinely different beliefs about the right field, suppose that the CEO had his way on the last scientist they hired -- who worked out splendidly. Yet the R&D chief is weighing an offer at a competitor's firm and is known to want more autonomy for his unit. With reasons, preferences, and stakes in apparent conflict, some negotiation between these mutually dependent executives is virtually certain.

That this process could end with the CEO making a forceful "final" decision in no way takes away from the observation that they are negotiating. In fact, the CEO's command is equivalent to a take-it-or-leave-it offer in more familiar kinds of bargaining -- and it could be taken or left. If the CEO were in a "strong" position, the odds are that his order would stick. If not, the process might continue. Incidentally, an ultimatum from the R&D chief could also be understood as a similar "move" in his negotiation with the CEO.

Increased interdependence of diverse people virtually guarantees the potential for conflict. The interests and perceptions of people in different organizational units -- associated with different products, services, markets, programs, and functions -- naturally become identified with their units. And this is even more true for third parties and those in other organizations entirely. In the words of the old saying, "Where you stand depends on where you sit."

With an increasingly heterogeneous workforce, especially in terms of sex, ethnic background and age, perspectives will further diverge. More educated and professional workers come to expect and value their autonomy. All these factors exacerbate the potential conflicts that have always been present in organizations. The widely noted decline in people's acceptance of formal authority often leads them to express such conflicts more openly than before. And the general slowdown in world growth has intensified resource conflicts both for public and private organizations.

Some people resist the fact that conflict pervades organizations, judging it to be unhealthy or threatening. Recognizing conflicting interests can seem to legitimate differences in interest when a myth of pure shared interests might be more congenial to smooth management. Real conflicts will sometimes be diagnosed as "failures to communicate" or "personality problems." When similar problems repeatedly surface as different people pass through the same position, the diagnoses of "personality" or "communications" difficulties should be suspect. Uncomfortable as it may be to some, conflict is a fact of life in organizations. (Destructively handling it, however, need not be.)

Opportunistic Interaction Beyond dependence and conflict, the potential for each side to engage in opportunistic interaction -- less than fully open motives and methods, self-interested maneuvers -- is associated with bargaining situations. When two or more people try to influence each others' decisions through negotiation, they usually guard some information, move to stake out favorable positions, seek to mold perceptions and aspirations, and the like. This need not take the form of overt "gamemanship"; the facade may be highly cooperative or submissive to authority. All that is required is that people care about their own interests, some of which conflict with others', and pursue them by seeking to influence decisions, not cooperating fully, turning situations to their advantage, or even resisting outright.

Without any strategic maneuvering of this sort, with no subtle or blatant jockeying for advantage, the interaction might best be called pure "problem solving." Without interaction, merely clashes of interest, "war" may be a better description than "negotiation."

The Possibility of Agreement When interdependence, conflict, and the potential for opportunism are present, people can negotiate to arrive at a joint decision that is better than their unilateral alternatives. Their goal is to find out whether an agreement is advantageous. Agreements can take many forms, most familiarly, a contract, a treaty, a memo confirming the choice. But agreements can be much more subtle: a nod, a word of affirmation, silent adjustment to the terms informally worked out, or other forms of tacit accord. And quite often, agreements do not formally bind the parties, or not for long. Revision of contracts and understandings is almost as common as the negotiation that led to them in the first place.

Inspecting a management situation and finding these four elements should strongly suggest the possibility of negotiation. More precisely, we characterize negotiation as a process of potentially opportunistic interaction by which two or more parties, with some apparent conflict, seek to do better through jointly decided action than they could otherwise. The special logic we develop in later chapters is tailored to this kind of process, which is widespread in and around organizations.

Negotiation Is Central to the Manager's Job

Familiar negotiations readily display interdependence, conflict, and opportunistic interaction. So do many other management activities where some form of "agreement" is sought. In this section, we pick apart common dealings with subordinates, superiors, and those outside of the chain of command to see where these telltale factors are present -- and thus, where negotiation analysis can be profitable.

DEALING OUTSIDE THE CHAIN OF COMMAND: INDIRECT MANAGEMENT

Managers often find that their formal authority falls far short of their responsibilities and their success is dependent on the actions of others outside the chain of command. Though people in this predicament may yearn for more control, there is often no practical way to follow the textbook advance to match authority with responsibility. "Indirect management" is the name we give to this increasingly important phenomenon of concentrated responsibility but shared authority and resources. It calls for a very different approach from traditional line management.

Consider the job of a typical product manager in a firm such as General Foods. To ensure that nothing falls between the cracks and that all efforts are productively coordinated, this person has direct profit responsibility for a particular product line. However, she must depend on many others over whom she has little or no formal authority. The product may be manufactured in an entirely separate firm; advertising is carried out in a different division; the sales force is in another chain of command; and the distributors are likewise independent. To make matters worse, these other people deal with many individual products and lines.

So, without being a nuisance, how can the product manager ensure that a promotional campaign comes off as planned, that manufacturing overhead is fairly allocated to her line, that snags in one part of the chain do not paralyze efforts down the line? Handling these kinds of lateral relationships requires ongoing and often subtle forms of negotiation, with emphasis on building relationships, trust, and a sense of mutual obligation among the parties. This manager needs to work out and constantly renegotiate a chain of "agreements" that ultimately result in better sales.

Public managers have traditionally confronted indirect management situations. Take the case of Tom Sullivan, a regional official of the Department of Health, Education and Welfare (HEW). One day Sullivan received a directive from then-HEW Secretary Caspar Weinberger in Washington. In effect, Sullivan was ordered to expedite the inspections for fire safety of nursing homes in Massachusetts, where many of these homes were old, many-storied, made of wood, and scandalously underinspected. Federal funds supported many of these homes and could have been withdrawn absent inspection and fire-code compliance. But this would have "thrown many old people on the streets," given the acute shortage of any such facilities. Though several state agencies had to coordinate and actually carry out the inspections, Sullivan had no formal power over any of them. Further, the Massachusetts legislature was reluctant to approve money for additional inspectors required to meet the deadlines.

Sullivan was facing a classic indirect management situation. Long experience had taught him that a "hard approach," adverse publicity and withholding funds, would almost surely boomerang, with the feds taking intense press and congressional heat for being highhanded and insensitive. So he would have to arrange a "deal" across government boundaries that would cause these inspections to be carried out. For example, he might secure compliance in return for modifying federal standards to apply more directly to Massachusetts's situation as well as offering federal personnel and money. Such aid might, incidentally, further state goals apart from the inspections. Sullivan could also appeal to shared interests in protecting old people from fire while holding the (undesirable and non-too-credible) shutdown option as an alternative. If successful, he would have crafted a series of understandings to get the inspections under-way, arrived at through an overt and covert process of persuasion, inducement, and threat.

Indirect management is common when a firm procures an item or when a government official seeks to produce or procure a good or service through the actions of regional, state, local, or even private entities. More generally, it occurs with respect to those outside the chain of command -- peers, parallel organizational units, or other organizations -- whose cooperation is needed. In all such cases, the "usual" internal management tools and control systems are mainly out of reach. Nevertheless, the manager who has to produce indirectly is often strictly accountable for the results. With shared authority and resources but concentrated responsibility, in short, in an age of indirect management, effective negotiation with the other sharers is often the key to success.

DEALING WITH SUBORDINATES

Though less noticed than they deserve, indirect management situations represent the "easy" case for showing the importance of negotiation to the job of a manager. Once these situations are recognized, negotiation seems as inevitable as it is in collective bargaining or out-of-court settlements. The "hard" case, though, would seem to involve subordinates and others over whom one has direct authority.

For example, when a colleague of ours once wrote about the manager's "external" functions, his choice of words clearly suggested the importance of negotiation ("dealing with external units," "dealing with independent organizations," "dealing with the press and public" [emphasis supplied throughout]). Yet, when describing the management of "internal" operations, his language revealingly implied a much more unilateral function, where command, control, and systems hold sway ("organizing and staffing" in which "the manager establishes structure," "directing personnel and the personnel system," and "controlling performance"). So isn't it true that the possibilities of command and control inside the organization relegate negotiation to a peripheral role?

Commands Though many managers instinctively recognize the extent to which they negotiate with subordinates, others subscribe to a powerful belief in the omnipotence of authority -- what might be called the "British sea captain" view: "Do it or be flogged! Refuse again and be keel hauled!" If barking out orders were the essence of management, why bother discussing negotiation at all?

A good reason is the frequent ineffectiveness of command, even at the highest levels. Richard Neustadt, former White House aide and student of the American Presidency, published a widely influential analysis of presidential power. The most important ingredient, he argued, is not the President's ability to command, but instead his skill, will, and tenacity as a bargainer within and outside the Executive branch. In a famous passage on the limits of presidential orders, Neustadt referred to his former boss, Harry Truman:

In the early summer of 1952, before the heat of the campaign, President Truman used to contemplate the problems of the General-become-President should Eisenhower win the forthcoming election. "He'll sit here" Truman would remark (tapping his desk for emphasis), "and he'll say, 'Do this! Do that' and nothing will happen....Poor Ike"...Eisenhower evidently found it so.

While a manager's unquestioned right to fire a subordinate plays a role in negotiations, it may not yield desired results. Consider the example of Felix, the young protégé of Allen, the managing partner of a financial consulting firm. Over the last year, Felix violated normal procedures, including using employees from competing projects under dubious pretenses, to generate considerable business in a new area. The executive committee decided that the firm should not pursue this area any further and after brutal discussions with Allen, Felix resigned from the firm for "personal reasons." What was the role of negotiation here?

Allen feared that Felix, if fired, would take much business and many of the firm's brightest young people with him; in turn, Felix liked the security and camaraderie of the firm. To avoid this undesirable outcome, the pair negotiated intensely but unsuccessfully to find a mutually acceptable path for Felix back to the firm's traditional areas. If such a mutually acceptable path did in fact exist, executing the "else" of Allen's "do this or else" ultimatum represented a failure of negotiation. Of course, agreement is by no means always preferable to what is possible by going separate ways.

In short, even where formal authority for the final say is clearly lodged, much direct managerial action still involves negotiation. Initial proposals to do this or that elicit contrary preferences, arguments for reformulation, and mutual adjustment, but often also convergence to final agreed action. Think of organizing a sales campaign, working out who will have which responsibilities for an upcoming client meeting or interagency session, or the deliberations over a new facility's timing and location.

Interdependence, conflict, the existence of an irreducible degree of discretion and autonomy throughout organizations, the difficulties and costs of monitoring and enforcing orders, as well as the decentralized and far-flung presence of information needed even to formulate many commands have all led many organizational analysts to rank command as but one -- albeit important -- among numerous means for influencing others.

We do not mean to imply that sensible superiors do not tell workers what to do, or that command is generally an inefficient management tool. The real question is not "negotiation versus authority." A subordinate often goes along with an order because doing so is part of a larger bargain with the superior. For example, in return for other considerations, Joe may give Janet the right to direct him within the limits of an overarching agreement. Yet both the content of the commands and the limits themselves are often subject to tacit renegotiation.

More importantly, a serious direct order functions exactly the same as a take-it-or-leave-it offer in conventional negotiation: one party stakes a great deal of credibility on a "final" proposal, intending the other to accept it or forget any agreement. Of course, the final offer, just like a command, may succeed or fail. It is more likely to work (1) the more appealing it is in substance to the person on the receiving end; (2) the worse that person's other alternatives to going along, (3) the less it is taken as an affront, and (4) the more credible its "finality." Thus our later analysis of final offers in conventional negotiation will strongly bear on the effective use of command and authority in management.

In sum, three main reasons lead us to look at negotiation even where commands are a possible way of dealing with subordinates. First, management by edict can be ineffective, especially where interdependence is high. Second, even where useful, commands make up only a fraction of the manager's world. And, third, the formal exercise of authority itself is part and parcel of a larger negotiation.

Management Systems Beyond personal interactions with subordinates, managers devote much attention to an array of traditional administrative tools. These usually include systems to affect budgets, information, compensation, personnel, and the organization's structure.

Early managerial theories sought strategies to design and structure organizations for efficiency with respect to particular goals. Such early views and their later descendants conceived of organizations as rationally seeking to maximize specified values. In these conceptions, management consists of detailing a set of objectives, assigning responsibilities and performance standards, appropriately arranging incentives and sanctions, monitoring performance, and making internal adjustments to enhance the attainment of goals.16 The first such theories saw organizations almost as physical mechanisms; subsequent versions saw more complicated "systems" to be controlled. But central to such systems views is the potent, if inadequate, image of management as equivalent to "command and control," which we discussed in the last section.

Direct management systems try to set the rules for organizational interaction. Typically, however, they do not even pretend to eliminate the discretion that inevitably flows from the interdependence of the people in the organization. And considerable bargaining accompanies their design, implementation, and use.

Consider a situation that we will analyze in detail in Chapter Eight. A few years ago, a major chemical corporation, like many other companies and units of government, adopted a "zero-base" budgeting system. In our example, Chris Hubbard, the manager of one of the larger divisions, has just emerged from an unprecedented stormy meeting of his department heads who have been trying to arrive at overall budget rankings. Hubbard wants the final rankings to reflect his overall divisional strategy, but also to strengthen this new budget process and to enhance a sense of cooperation and teamwork. He would prefer the department heads to agree on a budget allocation rather than to impose one on them. But, however the result is reached, it will constitute the division head's opening "position" at the corporate budget meeting that will decide on overall allocation of financial resources.

How close does Hubbard come to managing by pure "system engineering?" Not very. In effect, he is negotiating for a preferred outcome -- on the budget, on how the new process is used, and on teamwork. As he seeks closure, Hubbard has many bargaining tools at his disposal: possibilities of exchange, options to alter material and psychological incentives, potential to link or separate other issues, techniques of persuasion, occasions to make shared interests salient, and potential to influence the very terms of discussion. In fact Hubbard's role as a negotiator closely resembles that of a mediator, but one with a strong interest in the content of any "agreement." It also comes close to that of an arbitrator who has the means of shaping or even imposing a settlement if the participants cannot.

With skill, Hubbard may be able to convert a situation that his subordinates perceive as "zero-sum" -- where one's budget seems to come only at the expense of another's -- into a more cooperative quest for the best divisional strategy for all. He is also engaged in tacit negotiation with his subordinates over the precedent of how seriously and constructively they will take this new budget process. But the interdependence, conflict, and possibilities for opportunism make a wide range of outcomes entirely possible.

More generally, studies of the actual workings of information, policy development, and budgeting systems reveal something far from the antiseptic, efficient image of internal command and control. After detailed observation, Joseph Bower concluded:

Perhaps the most striking process of resource allocation as described in this study, is the extent to which it is more complex than managers seem to believe....The systems created to control the process sometimes seemed irrelevant to the task. They were based on the fallacious premise that top management made important choices in the finance committee when it approved capital investment proposals. In contrast, we have found capital investment to be a process of study, bargaining, persuasion, and choice spread over many levels of the organization and over long periods of time.

In sum, conflict, dependence, and possibilities of opportunistic maneuvering again reveal bargaining to be an important part of the manager's inside job. Of course, to emphasize the bargaining is not to reduce the organization to a bucket crawling with crabs, each seeking to clamber onto the back of others. Rather, organizational structure and systems often strongly affect internal negotiations. By the same token, however, these systems are themselves the subject and results of negotiation.

The Cooperative Approach Many people instinctively reject the idea of the manager as commander or systems engineer and look toward a more cooperative view. During the 1930s, this orientation produced the human relations movement. From the 1950s through the early 1970s, this approach produced studies of leadership and participative management, along with methods of organizational development and change that stressed building interpersonal trust, openness, communications, and other strategies that assumed a natural congruence between the goals of individuals and organizations. The most recent version of this school takes cues from Japanese management and centers around the concept of "organizational culture" and efforts to change behavior in a manner that is consistent with the values and philosophies of the top executives in the organization.

In evaluating this tradition, it is crucial to realize that all these approaches rest on the assumption that, at bottom, "organizations are homogeneous units." Even though common values are important, these conceptions are incomplete since they tend to ignore or down-play widespread clashes of interest and perception in and around organizations. Along with varying degrees of autonomy and abilities to resist orders, recognition of conflict leads straight back to the key role of bargaining.

Beyond Pure Command, Systems, and Cooperation If reliance on command ignores interdependence and discretion and if a pure cooperative approach is blind to conflict, what view takes account of these important aspects of management?

Along with many others, we find it useful to look at organizations as arenas in which people with some different interests negotiate for status, effect on decisions, and relative advantage in the allocation of scarce resources. Thus a boss's formal position in the hierarchy is important but only one of many factors that affect the outcomes of this continuing contest. Others include specialized knowledge, a reputation for expertise, control of resources or information, alternatives available to the parties, and the ability to mobilize external support. Thus, how things turn out may only weakly relate to the preferences of who is "in command."

People converge to decisions by visible and hidden bargaining. This process does not require that the parties agree on common goals, not does it necessarily require that everyone concur in the outcome. It only requires that they adjust their behavior mutually if they have an interest in preserving a working relationship as a means of allocating resources and making joint decisions. By implication, management consists of influencing -- by a host of means not limited to direct orders, systems manipulation, or appeals to common goals -- a complex series of bargained decisions that reflect the preferences, interpretations, and resources of subordinates.

To some, the very idea of negotiation signals weakness. Indeed, the manager who negotiates allows others' interests to affect the outcome. As we see it, though, this is not "weak"; negotiation makes sense only when agreement promises joint improvement -- for superior as well as subordinate -- over what is possible by unilaterally imposed penalities, brute force, or other noncooperative options. And the boss's "final offer" (command) can certainly be very tough. We would not replace the visionary leader with the indecisive manager who cajoles and pleads. In our view, strong negotiation buoys leadership and vice versa.

DEALING WITH SUPERIORS

If our premise is right, that superiors inevitably negotiate with subordinates, then the reverse must also be true. Of course, a boss depends on those who work for him to perform needed tasks as well as for knowledge and expertise. And subordinates whose perceptions and interests may differ depend on their boss for resources, information, and backing. Hence, the ingredients for negotiation "up." (Of course, "subordinates" themselves are often middle managers.) Even entrepreneurs, who may have little apparent need for any dealings with "superiors," must often negotiate with potential financial backers over amounts of resources, sharing of rewards and risk, and the control others will exercise.

The importance of this kind of negotiation is especially obvious in public settings. Consider the case of attorney Irene Malik, recently appointed head of the Toxic Waste Division (TWD) of her state's Environmental Protection Department. The legislature created the TWD to oversee a new toxic waste cleanup law. Now Malik must chart a course through ill-defined legal and political terrain. Though the law provides formal authority, its wording allows a broad range of interpretations. For guidance, support, and resources, Malik must rely on her superiors in the Environmental Protection Department, the budget office, the governor, as well as the state legislature's finance and environmental committees. Little is more important to her mission than obtaining what she needs from these entities, yet each of them seems to tug in a different direction. In turn, of course, these "superior" bodies look to her for producing various results. Malik must carefully tend to these ongoing, linked negotiations if she is to succeed.

Even setting the strategy for a firm like General Motors or Volkswagen -- an activity normally thought to be the sole prerogative of the firm -- requires that top management negotiate with a variety of parties, including the board members who can grant necessary authority. In a provocative paper, Malcolm Salter argued that firms in politically salient industries like automobiles implicitly negotiate their strategies with state and federal political leaders, environmental, health, and safety officials, and in some instances with unions, key institutional shareholders, and other "stakeholders." And, when top management fears a takeover, the opinions of large shareholders and influential directors about the firm's direction typically have greater sway.

Managers at all levels have goals. Perhaps these come from personal visions, long experience, the workings of sophisticated analytic processes, readings of legislative intent, or consideration of historical precedent. But to go forward, the manager typically must deal with direct superiors and, perhaps, a variety of other "superior" bodies. Beyond formal authority, these groups can help with financial capital, personnel allocations, charters, licenses, information, positive publicity, quiet or visible backing, or, at least, agreements not to attack. Of course, each of these groups wants its purposes furthered. The manager offers the potential for this to happen. Hence their interdependence.

Yet the match of goals between the manager and these other entities is often imperfect. The necessary authority and resources are contested; the manager wants more with fewer strings while superiors prefer to give less with more strings. Also to be worked out -- tacitly or explicitly -- are a set of expectations, a measurement system, an unspoken set of "good conduct" provisions, as well as the eventualities under which the various understandings may be revised or revoked.

Generally, there is a considerable range of accommodation within which all sides would prefer to continue the relationship rather than pursue their ends elsewhere. In short, their mutual dependence implies a zone of possible agreement. Within this zone, there is conflict and maneuvering. The joint desirability of convergence to some point induces negotiation. Though critical, this kind of negotiation with superiors has traditionally received scant attention from students of management.

The picture that emerges from this discussion is of a manager constantly at the nexus of two evolving networks of agreement, constantly building, maintaining, and modifying them. One set of agreements concerns goals, authority, resources, and expectations; the other involves actual production. At a minimum, these two should be consistent; ideally, they will strongly reinforce each other.

Resistance to the Role of Negotiation

The last section illustrated the key role of negotiation in dealings outside the chain of command ("indirect management"), as well as with subordinates and superiors. Indeed, negotiation -- even over whether to negotiate explicity -- is inescapable in most managers' jobs. Though this seems evident to many, some people remains skeptical. Impressions that "real" management is mainly the exercise of unilateral control and authority seem as resistant as cockroaches.

Such resistance can come from too narrow a conception of negotiation: it is simply incongruous to imagine IBM's sleek headquarters as a bazaar teeming with white-collared hagglers. As this chapter has illustrated, we use "negotiation" much more expansively. It may be acknowledged and explicit or unacknowledged and tacit. The basis for agreement may be a conventional quid pro quo or it may include actions that further identical interests but that do not involve a material or psychic exchange. Along with more "standard" gambits are actions intended to persuade; to alter the issues, parties, alternatives to agreement, and evoked interests; as well as to learn and to transform perceptions of the situation. An agreement, if one results, may range in form from a legal document to an implicit understanding. Such a result may effectively and permanently bind the parties or it may be fragile and renegotiable. Public and private managers find themselves in all kinds of situations that require this process and closely related activities that are amenable to similar analysis (mediation, arbitration, changing the game, influencing decisions at some remove). The "manager as negotiator" is a shorthand reference to this complex of roles, not a claim that managers must constantly sit across tables from subordinates and others patiently trading proposals.

Some people unconsciously resist the idea of managerial negotiation since overt recognition of the widespread bargaining in organizations can strain systems of status and hierarchy. It can also legitimate the actual differences in the participants' goals. Thus, problems that really involve bargaining will often be organizationally defined as problems whose solution can be found technically or through more careful analysis in terms that mask the actual conflict.

Moreover, some standard images of good management leave little room for "inside" bargaining. To recognize its existence is inevitably to recognize some indeterminancy of outcomes as well as mutual dependence and conflict. Certainly, some tough managers will argue, effective command, control, or careful manipulation of subordinate routines should drive out these pathologies. And, the successful shaper of organizational culture achieves consensus on values, norms, and purposes; not conflict, opportunistically employed discretion, and unpredictability. Because the existence of bargaining seems to imply a failure of management when viewed through such common lenses, some may miss the existence and even virtues of manager-negotiators.

"Negotiation Abounds." Manager to Academic: "So What?"

At this point, one might be tempted to say "Yes, Virginia, there is important negotiation in organizations." Since many studies seem to stop at the triumphant discovery that this indeed is the case, one might next be tempted to say, not impolitely, "so what?"

This skeptical reaction has merit. Most academic studies tend toward careful, analytic description. And though bargaining has been widely studied outside organizations, with a few exceptions, systematic prescriptive approaches have remained underdeveloped.

Unfortunately, most popular negotiation handbooks are little better, falling mainly into two categories. First are those promising to show "How to get yours and most of theirs too" (e.g., arrive only by stretch limousine or helicopter; make your chair slightly higher than theirs; have them face a painfully bright light; start dealing with the real issues at midnight when they have a dawn plane). Other handbooks seek converts to the "win-win" religion and seem to assume that "meaningful communication" can unfailingly convert implacable enemies into one big happy family. And everywhere are the negotiation fortune cookies, containing solemn messages that tend to be obvious, useless, or wrong: "Timing is of the essence. It's all psychology. Be creative. Always keep communication lines open. Seek power. Use it shrewdly. Get the real facts."

A deeper and more useful approach to negotiation is needed. It must encompass more than parties formally exchanging offers to fashion a quid pro quo. It must allow for the subtlety of interests in shared purposes and intense concern with process as well as more tangible stakes. It must incorporate a shifting mix of cooperative and competitive elements. It must admit moves to change the "game" itself. It should be systematic and adapted to managerial considerations.

We approach this task in the spirit of decision analysis, highlighting negotiation characteristics capable of generalization across varied managerial situations. We seek to develop advice for a particular person without assuming strict rationality of all participants. The principles we set forth in the next several chapters apply most directly to negotiations aimed at reaching contracts or formal understandings. As we proceed, we will hint at more subtle applications that we treat directly later.

Our task, then, is to develop a special logic of negotiation, helpful both to practitioners and students of the process. We have designed this logic to be hospitable, not closed. Lessons from other approaches and from experience should only enhance its value.

Copyright © 1986 by David A. Lax and James K. Sebenius