Group Experiential Exercise 3 - Conflicts in Mergers and Acquisitions

Dream Together, Work Together,

Fight Together, Grow Together!!!

What is Mergers and Acquisitions (M&As)?

The terms mergers and acquisitions (M&As) are habitually used together, and sometimes interchangeably, but they have different meaning.

Acquisition happens when one firm has bought another and there is a transfer of ownership.  Merger happens when one firm consolidates or combines with another; the firms are usually of relatively equal size and influence that fuse together to form one new bigger firm.

Conflict Resolution Perspective

Unavoidable Conflicts from M&As?

The reasons why conflicts are almost unavoidable from M&As?  Just look at the reasons for the moves: synergies, cost savings, increasing shareholder values…; also the managerial self-interest, hubris...  Rarely M&As focus on your whole person development, your balance of work and life, nor even a brighter promised future!  These are the reasons and these are the sources for all possible conflicts to surface. “If the first day of the merger is a big party, on day two, the cleanup begins” (Welch, 2005).  We will even contend conflicts sow at the moment the two sides start imagining and conversing on the subject.

But how?  If M&As give chances for businesses grow at speeds faster than organic growths, everybody should be happy.  No, the shareholders finally might be; the original incumbents at the two firms might not.  M&As mean changes, and changes bring about panics and insecurities; the ultimate fears are job losses and individuals’ financial tsunamis.  If the incumbents are competent or lucky enough with greater job challenges or adventures rendered, they quickly realize that compensations are at the expenses of their physical or mental health!

Hence the incumbents resume to fright and fight (or flight finally).  They have to compete for any opportunities that can afford and any resources that can reallocate in the new setups, hoping to secure their positions.  They have to uphold their small circles of benefits or otherwise they will be robbed of.  And very often, additional streams of unobvious and obscure conflicting currents flow underneath: values, beliefs, cultures… these are the other important elements that provide the reasons for even more complicated conflicts scenarios.

The Chrysler Case

Some sequential examples of Chrysler may elaborate more.

In 1987, Iacocca, CEO of Chrysler at that time, used US$1.1 billion to acquire Amercian Motors.  The acquisition claimed to offer several benefits, like a profitable Renault assembly plant in Canada and nearly 1500 dealerships spread across North America.  The burden, however, was the infamous subcompact punch lines as the AMC Gremlin and Pacer.  It was clearly Iacocca’s managerial self-interest (or hubris) to own the ascendant Jeep Brand that underscored the real desire for the acquisition move.  Today, the popular Grand Cherokee model remains a Chrysler staple.

In 1998, German automaker Daimler-Benz purchased Chrysler for US$36 billion.  But the merger turned out to be titanic.  Cultural differences immediately caused rifts and conflicts between the two firms at various scopes and levels.  Daimler supplied luxury brands for affluent customers, hardly appreciated the price-conscious US automaker.  Worried that sharing Mercedes components would undermine its brand, Daimler broke its parts-sharing agreement with Chrysler.

In 2001, just when the DaimlerChrysler were still struggling to assimilate, Chrysler investor KirK Kerkorian sued DaimlerChrysler for billions based on the argument that the marriage of Daimler with Chrysler in 1998 was actually an acquisition by Daimler and not a merger.  What Kerkorian’s interest was that an acquisition would result in much more money being paid to Chrysler shareholders, including Kerkorian.  Conceptual or perceived conflicts can happen to any stakeholders even at investors’ level.

In 2007, with shareholders calling Chrysler an “affliction”, Daimler decided to pay Cerberus Capital Management US$650 million to let go Chrysler.

Resolving M&As Conflicts?

So how conflicts from M&As be resolved?

Be realistic at the first hand will help to set the scene and to manage the expectations.  Not all conflicts are resolvable, nor they should be, the story of DaimlerChrysler has already told much.

To categorize conflicts into task, process and relational will be simple but helpful ways to start with.  Useful means to work out resolutions include revisiting and repainting the missions, objectives, structures and systems for the new setups, and then do lots of communications.

A model for conflict management further gives detail reference for managing the conflict process.  It starts with an analysis on the potential oppositions or incompatibilities, whether they are of communication, structure or personal variables.  It follows with a cognitive recognition of the conflicting situations and then outlining the handling intentions (with reference to the Thomas-Kilmann Conflict Mode Instrument).  Supposedly any intentions decisions are functions of assertiveness and competition: your interest, the others’ interest, or a balance of both.  Various considerations give various intentions decisions: competing, collaborating, avoiding, accommodating or compromising.  The process sees the overt conflicting behaviors which are either functional or dysfunctional and that conclusively lead to increased or decreased group performance respectively.

Given this deeply ingrained concept, there are usual tendencies to consider collaborations are the best, or at least we have to avoid competing.  The former is considered as win-win, and the latter is considered as win-lose. However, the story of DaimlerChrysler just overthrows the concept.

Why?

C. Brooklyn Derr in the article “Managing Organizational Conflict” suggests that there are situations when we have to consider the cost and feasibility issues of successful conflict management implementation.

He gives three practical and workable methods to tackle the realistic constraints and complexities: collaboration, bargaining and power play.

Obviously, the DaimlerChrysler story tells that when collaboration or bargaining has failed to work out the M&As intentions, power play can be or should be the resolution: Daimler finally broke its parts-sharing agreement and let go Chrysler.

Power play is a win-lose approach and it emphasizes the strategic objective to coping with and using conflicts to better one’s power position.  Man (Daimler) is viewed to act primarily for self-interest; informal or unstated contracts are even more practical types of settlements.  Power play is especially practical in situations when power inequalities are the situations (like in the DaimlerChrysler case).  Though there may be ineffective use of energy, it is useful when efficiency is more important to consider at the scenario (to let go Chrysler).  C. Brooklyn Derr highlights the vulnerable nature for collaboration and claims that some incumbents are better trained to compete than to collaborate.

Wrap-up

To simply wrap up for this session, conflicts are unavoidable for M&As. To achieve M&As objectives on synergies, cost savings, increasing shareholder values; or managerial self-interest and hubris, conflicts may or may not be resolved. The ultimate ground is that when the conflicting behaviors are functional and lead to increased group performance, then they should be accepted.

Organizational Culture Perspective

What is Organizational Culture?

Organizational culture is a communicatively constructed, historically based system of assumptions, values, and interpretive frameworks that guide and constrain organizational members as they perform their organizational roles and confront the challenges of their environment (Lane as cited in Frank’s lecture note, 2012).  This based system is a set of key characteristics that the organization values.

Seven Primary Characteristics of Organizational Culture

1.       Innovation and risk taking - The degree to which employees are encouraged to be innovative and take risks;

2.       Attention in detail – The degree to which employees are expected to exhibit precision, analysis and attention to detail;

3.       Outcome orientation – The degree to which management emphasis on outcomes rather than skills and processes for achieving those outcomes;

4.       People orientation – The degree to which management focuses on people rather than outcomes in the organization’

5.       Team orientation – The degree to which employees are encouraged to perform work as a team rather than individuals;

6.       Aggressiveness – The degree to which people are aggressive and competitive rather than easygoing; and

7.       Stability – The degree to which organizational activities prefer to maintain status quo in contrast to growth.

Strong culture with a clear set of characteristics can enhance organizational commitment and increase the consistency of employee behavior.  Conversely, it will become barriers to M&As and cannot achieve business and financial synergies in the organization.

Three Stages of Socialization

No matter the expected synergies will be achieved or not in the merging or acquiring company, the merged or acquired employees are not fully oriented in new organizational culture.  As those employees have their own old beliefs, customs and behaviors, they are most likely to disturb the merging or acquiring organizational culture.  The merging or acquiring company therefore wants to help such employees to adapt to its culture.  This adaption process is called socialization.  In general, there are 3 stages of socialization that are pre-arrival, encounter and role management in merger and acquisition.

Stages of Socialization Model

         In the post-merger or acquisition, both companies are classified at the Encounter Stage.  To anchor the merging or acquiring organizational culture into the merged or acquired company, they have to check the merged or acquired employee expectations about their jobs, colleagues, bosses and their organization to see whether both cultures are matching.  Otherwise, the merged or acquired employees should undergo socialization to replace them with acceptable values and beliefs.

If the socialization process is completed, new members will feel comfortable with their roles and responsibilites.  In this stage of role management, they have internalized the norms of the merging or acquiring company and their work group.  What are the final outcome after socialization?  They will enjoy their working life and continously stay to work at the merging or acquiring company.  Otherwise, they will choose to leave.

AOL vs Time Warner Case

Robbins & Judge (2010) mentioned that the 2001 $183 billion merger between America Online (AOL) and Time Warner was the largest in corporate history.  The merger was considered a disaster as the stock had fallen 90%.  Culture clash is one of the problems for AOL and Time Warner.  Someone commented that “In some ways the merger of AOL and Time Warner looked like the marriage of a teenager to a middle-aged banker.  The cultures were very different.  There were open collars and jeans at AOL.  Time Warner was more buttoned-down.”

Wrap-up

When the merged or acquired company is well established with its dominant culture, it is difficult for merging or acquiring company to anchor its culture into such company after M&As.  Usually, both companies are resistant to change especially company culture are strong.  To change the culture and resolve organizational culture clash, it may take much more time in measurement of years, not weeks or months.

It looks like a marriage between Japanese man and Indian woman.  There is big cultural difference between these two countries.  We can say that the expectations towards family needs are different due to their own values and beliefs.  It will become barriers to achieve a happy family life without the consistency of couple behavior.

          To resolve cultural conflict, they should undergo socialization that is to devote themselves and adapt to the new environment.  Otherwise, a happy family life cannot easily be achieved.

Knowledge Management

What is Knowledge Management?

The phrase of knowledge management seems to strange to us; however, it is not a new concept at all. Knowledge, as an important resource for sustainable competitive advantage, is more and more paid attention by individuals or organizations (Bock & Kim, 2002).  Knowledge management is a process to enable people to develop a set of practices to create, capture, share and use knowledge to advance organizational goals. In the other words, knowledge management comprises a range of strategies and practices used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences.  Such insights and experiences comprise knowledge, either embedded in organizations or in individuals as processes or practices.  All in all, knowledge management is to create and share new knowledge and to ensure the right people get the right knowledge in the right place at the right time (APQC, 2003; O’Dell & Grayson, 1998).

There are two types of it, explicit and tacit (Choo, 1995) is the most frequently used and well-known classification.  Explicit knowledge is formal and systematic and can be easily communicated and shared with others (Nonaka, 1996).  Examples include manuals, books, databases, and intranets.  In contrast, tacit knowledge is a kind of knowledge which is highly personal, hard to formalize and thus difficult to communicate to others: it is deeply rooted in action (Nonaka, 1996).  Examples include individuals’ action, experience, ideals, and value (Williams, 2006).

Barriers to M&As

Most of failures of mergers and acquisitions are related to the conflicts or clashes of the culture, strategy.  Sometimes, we image that the biggest clash or conflict regarding the knowledge management and M&As is the problem of misunderstanding and lack of enough knowledge sharing during the process of M&As; however, the concepts of knowledge management should be penetrated to all the aspects of M&As.

TCL vs Alcatel Case

At the beginning of 2000s, most of the mobile devices vendors in China faced the continuous losses because of destructive competition. In order to develop international markets and acquire more advanced technologies, as a leading Chinese electronics company, TCL decided to acquire the mobile phone portfolio from an international magnate, Alcatel.  After decided the acquired target, TCL commenced the negotiation with Alcatel and the new venture, TAMP was established in the end of 2004.  However, TAMP kept losing since establishment, and announced the failure of M&As only after 18 months.  Knowledge lacking and misunderstanding was one of the main problems for TCL and Alcatel.

Links between Knowledge Management and M&As

In order to overcome barriers, it is important to use knowledge management properly, which is an essential measure to deal with the conflict during the respective stages of the M&As.  Since knowledge management has four categories that include knowledge acquisition and creation, knowledge capture and storage, knowledge dissemination and transfer, and knowledge application.  In different stages of the mergers and acquisitions, the different categories of knowledge management have different importance and weight.

Stage 1: Premerger and Acquisition

In the premerger and acquisition stage, the organization begins to select the proper and possible target for merging and acquiring, so that the research on the organization and people issues is considered essential as they strongly influence the success of mergers and acquisitions.  During this stage, if the merging target is wrong selected, the result of merger and acquisition would be almost failed because of the potential culture conflict and management clash.  Therefore, the knowledge acquisition and creation category is much more important than others in this stage (Pimpimon, 2009).  Usually, a mature organization which has adequate experiences in mergers and acquisitions will pay much attention and money on the knowledge acquiring by hiring professional consultants, such as Morgan Stanley or Golden Sachs to make sure the new organization could acquire the most profits and benefits to the organization after M&As.

Stage 2: Due Diligence

In the stage of due diligence, the organization investigates and confirms the deal with the target organization.  In this stage, the organization mainly identifies the issue that could take risks for the deal of merger and acquisition.  Due diligence stage is vital to help build up a well-designed organizational structure, business process and the need for systematic and redesign, and whether the corporate culture can be suited (Horwitz et al., 2002).  Therefore, the knowledge capture and storage would be more important than other categories to the organization in this stage (Pimpimon, 2009).

Stage 3: Integration

The stage of integration should be the most important stage amongst all the stages of mergers and acquisitions, in that it is the systematic planned change process of combining available resources, core business processes, people, cultural values, and technology for the new entity (Giffin, 2002; Hitt et.al, 2001; Hitt & Pisano, 2004; Schmidt, 2002).  The integration stage is a vital factor to determine the success of mergers and acquisitions.  Therefore, the focus is on knowledge dissemination and transfer rather than any other categories in this stage (Pimpimon, 2009).  In order to acquire better result of integrating, the knowledge distribution, transfer, and sharing in proper format are highly needed, in that they are the key to avoid the conflicts from multi-factors.

Stage 4: Post-merger and Acquisition

The post-merger and acquisition stage actually is the stage of ongoing process of developing organization productivity, work processes, and individual performance (Hitt & Pisano, 2004; Javidan et al., 2004; Waight, 2004).  In this stage, the organization focuses more on the knowledge application process (Pimpimon, 2009), which is the well integration of two sets of cultural values, norms, philosophy, management style, assets, and human capital at the end of the process.

Appreciative Inquiry Perspective

Appreciative Inquiry is an effective instrument to help employees dealing with transitions that happened in M&As. These transitions include resolving conflicts, the differences in organizational cultures, and resolving grief issues.  Appreciative Inquiry is a technique that helps quickly identify the best parts of two organizations in the times of M&As.  It connects both organizations to a common point, the Positive Core.  Focus on the positive core helps increasing favorable exchange, and mutually promotes relationships which are imperative in the sensitive stage right after M&As.

St. Paul’s Federal Bank vs Charter One Bank Case

When Charter One took over St. Paul Federal Bank in 1999, the acquisition purpose was reselling the company at good profit in the future.  Charter One never concerned with St. Paul’s Bank’s corporate culture and its long established family oriented atmosphere.  Meetings and discussions were strictly on commercial issues and giving directions of how to accomplish new tasks.  Employees at St. Paul Federal Bank were complaining that they were being looked down on in the post-acquisition meetings.  Charter One told the St. Paul staffs that the acquisition occurred was because their poor job performances in running the bank.

In addition, there is absolutely no indication that Charter One is interested to use any talents of St. Paul’s Federal.  The layoff process was obviously coming and all sense of stability was lost.  Employees who entitled to higher compensation levels were all at risks.  Although downsizing is supposed to make an organization more cost efficient, no one is taking the long term effect on the employees into consideration.  The productivity after acquisition is actually remains stagnant or deteriorates.

In oppose to the ‘life-giving’ approach of Appreciative Inquiry, Charter One’s acquisition’s concern is how to destroy everything from the past.  No discussion were made on how the two companies should work together to create a new emergent better culture.  Charter One wanted to create a new identity solely for themselves without any involvement from St. Paul’s Federal.  Because of Charter One’s lack of focus on the people, conflicts arose immediately between the two groups.  It became very difficult for St Paul’s employees to do their jobs and they don’t feel good staying in the company.  The transition was difficult especially the former employees of St. Paul Federal who has worked for the company for many years, already treating the company as if it’s part of their family.  Not knowing how to go through the transition, many employees left over the year or two following the acquisition.

        

         In this example of acquisition, Charter One Bank should practice Appreciative Inquiry to provide employees opportunities to properly work through the transition. Staffs experienced the sense of insecurity, loss of stability and negativity associated with the uncertain future.  Feelings of loss and depressed, shock and anger are common emotional responses of employees as a result of M&As.  The post-merger organization is in need for a supportive culture for its new future.

Practicing Appreciative Inquiry helps to nurture a more positive and stable psychological environment for the St. Paul’s Federal Bank employees through positive discussions and optimistic visions.  Appreciative Inquiry provides space for people also to deal with stress associated with the M&As.   Finally, another implication of Appreciative Inquiry is the idea of continuity, to maintain what is best in the organization. Many talented staffs have been working for St. Federal for a decade.  Asking employees to describe their ‘personal best experience’ in St. Paul’s Federal, could discover a full spectrum of talents and inspirations.  Retaining talents also serve the benefits of maintaining good productivity.  It is also of utmost importance to bringing what is best into the future.

Pixar vs Disney Case

Another acquisition example which exemplified Appreciative Inquiry principles comes from the case of Disney and Pixar.  The acquisition happened in 2006 when Disney took over Pixar.  Compared to the aforementioned example, this acquisition brings a positive revolution in change.

The rules and policy of the newly formed Disney Pixar exemplified the Appreciative Inquiry’s Positive Principle.  This positive principle based on the belief that when we feel positive, we are more likely to act in a positive way too.  To ensure Pixar staffs maintain a positive outlook for the company’s future, both companies deliberate plan and create a stable organizational culture.  The acquisition doesn’t make Pixar lose its identity like St. Paul’s Federal Bank.  After the acquisition took place in 2006, the company ensured Pixar remains a separate entity and its name ‘Pixar’ remains intact, so “Disney Pixar” becomes their joint identity, a co-created product.   Pixar’s studio will remain in its current Emeryville, California location with the ‘Pixar’ sign.  Not only does Pixar maintain its identity, Pixar’s own creative director has the authority to approve films for Disney-Pixar studios, the merged entity.

Bringing the best of the past to the future is an important rule of practicing Appreciative Inquiry.  Retaining the best part of Pixar’s culture to nurture its creativity is particularly crucial after the acquisition.  Pixar always has their unique way of nurturing the creative brains.  For example, Pixar always provide enough time and space for their creative story tellers.  Pixar doesn’t want their creative story tellers thinking about how to make money or their money making executives thinking about how to tell a story.  Therefore Pixar have an implicit management rule that executives won’t join story meetings.  After the acquisition, this management practice still remain unchanged, and Disney also voluntarily held back forcing its culture upon Pixar.

Appreciative Inquiry’s Constructionist principles’ emphasis on the importance of communication is shown when Pixar’s staffs are allowed to participate and voice their opinions in the new system.  Pixar was asked to propose a list of guidelines for the rules and policy of the newly formed Disney Pixar that would help protecting their ‘creative culture.’ These included HR policies remain unchanged which allows Pixar employees to keep their health benefits, and not having to sign employment contracts with Disney.  Also Pixar was allowed to keep their email system, and Pixar executives did not have to work shifts at Walt Disney World.

Lastly, M&As’ success is not automatically generated.  At the core of a successful acquisition there must be a common unity.  Appreciative Inquiry connects both organizations to a common point, the Positive Core.  These two cases have demonstrated that managers must pay important attention to the acquisition integration process, especially all human aspects related to transformations followed by acquisition are of highest importance.  When everyone is invited to participate in the transformation, enthusiastic energy is released.  The level of personal commitment is enhanced in all levels of the new organization.  Therefore Appreciative Inquiry in M&As help transforming both companies into a stronger and better company.

Conclusion

It is a general tendency to perceive that conflicts from M&As are unavoidable.  In this way, we tempt to look for them, identify them as problems and struggle to resolve them with various means. However then, conflicts are natural with M&As, some are actually unresolvable, or they should not be either.  To capitalize on conflicts and to safeguard productive performance may be the ultimate resolution we can consider.

Same applied to organizational culture.  We tempt to force the two entities to fuse together and to put on a brand new culture for the new setup.  We are reluctant to appreciate that the two entities have their own distinctiveness.  But the reality is that it takes time and space for the merged entity to massage and to distill a new culture from previous characteristics.  Organizational culture can be developed, but never be forced to merge.

M&As give rise to lots of successful and unsuccessful attempts during the courses.  It is constructive to apply knowledge management concepts and skills and to record the findings.  Systematized and documented knowledge provides tremendous resources to facilitate any learning and development purposes that provide intelligence on M&As practices, pluses or minuses.

Above all, newer attempt on appreciative inquiry helps us to shift to a new paradigm when looking into conflicts.  Instead of seeing conflicts as problems and negatively managing them, applying appreciative inquiry measures may be the true direction to goals.  Focusing on the dreams, the best scenarios, and positively encourage and empower incumbents to walk through the course.  Appreciate inquiry, in this manner, acts as a powerful mean to resolve even deep rooted conflicts, as in the subconscious level of human nature, they are being pampered.

It’s my place, please...

Wordless…

References

Carpenter, M. A. & Sanders, W. G. (2009). Strategic management: A dynamic perspective concepts and cases. New Jersey: Pearson Education, Inc.

Catmull, E. (2008).  How Pixar fosters collective creativity.  Harvard Business Review 86(9), 64-72.

Cooperrider , D. L., & Whitney, D. (2005).  Appreciative inquiry: A positive revolution in change.  San Francisco: Berrett-Koehler Publishers, Inc.

Derr, C. (1978). Managing organizational conflict: Collaboration, bargaining, and power approaches. California Management Review Winter. Pp. 76-82.

Farsam, F. (2011).  The Secret of Successful Acquisitions. Frankfurt: Campus Verlag.

Gwynee, P. (2002). Does e-mail escalate conflict? MIT Sloan Management Review.

Haley, J. & Sidky, M. (2010).  Making Disney Pixar into a learning organization.  Retrieved from the World Wide Web: http://wbiconpro.com/2.Sidky-USA.pdf

Hansen, M., Nohria, N. & Tierney, T. (1999). What’s your strategy for managing knowledge. Harvard Business Review.

Kasper, H., Haltmeyer, B. (2002). Knowledge management and organizational learning in MNC’s. Vienna University of Economics and Business Administration. Published online by http://epub.wu-wien.ac.at.

Kongpichayanond, P. (3 June, 2009). Knowledge management for sustained competitive advantage in mergers and acquisitions. Advances in Developing Human Resources, Vol. II, No. 375-387

Kuo, F.Y. (2012). Cross-cultural communication and engineering a collaborative culture in a globalized world. Lecture notes.

Mohibullah (2009). Impact of culture on mergers and acquisitions: A theoretical framework. International Review of Business, 5(1), 255-64.

Robbins, S.P. & Judge, T.A. (2010). Essentials of organizational behavior. New Jersey: Pearson Education, Inc.

Top 10 Chrysler Moments (2012), In Time.com. Retrieved April 14, 2012 from

http://www.time.com/time/specials/packages/article/0,28804,1894731_1894734_1894714,00.html

Watkins, J., Mohr, B., & Kelly R. (2011).  Appreciative Inquiry: Change at the speed of imagination.  San Francisco, CA: Pfeiffer.

Group Experiential Exercise 2: Arriving at a Win-Win Negotiation Outcome

Part One – The Story

How My Right Turn Turns to Be Right

n       a successful win-win negotiation story on my position and remuneration package

n       a process approach for solving problems

Hi, I am Mr Amenie Jr.

Look at me, I am now the Director of Sales and Marketing of Modern Tool Manufacturer.

This is my superior, Ms Yip Lau, she is now the Vice President of Modern Tool Holdings Limited.

I am going to uncover the story behind my successful negotiation leading to my current position and remuneration package.

It all happened 18 months ago, when at that time, I was the Marketing Manager heading the Marketing Division, and my superior was the Assistant General Manager of the company...

Scene 1

I jumped abruptly from my seat and moved hurriedly to the office of my superior, Ms Yip Lau.

I determined I had to fight back my “big money” and stopped to be a fool anymore.

I was furious at being kept in the dark.

The immediate issue was that I was not distributed the bonus.

The issue triggered negative emotions inside me: I was irritated, overwhelmed by a feeling of being mistreated and a sense of management injustice and inequity.

Being left out of the loop for management information, I felt indignant and violated.

But just several steps my hand would reach the lock, I stopped there.

My mind drifted back to a scene three years ago, when I asked for a big jump associated with my promotion.  The attempt failed.

Scenes of my succeeding trials to raise salary continued to emerge, they were all same but unsuccessful.

It emphasized and reminded me once again how sophisticated my superior was.  She was such a skilled negotiator that every time she was able to maneuver conversations around and put my requests futile.

I was lucky to make my move on hold.

I turned right and returned back to my seat.

I decided this time I have to extra well prepared for my negotiation.

Scene 2

This was a typical scene in the past of how I jumped into the office of my superior asking for a raise in my salary…

Scene 3

I decided I have to extra well prepared for my new round of negotiation with my superior.  Thinking about the insufficiencies of my previous attempts, I decided to adopt a process approach to solve the problems.

Step 1: Define The Problem

I went through the following thinking before I fixed and defined my problem statement.

What was the problem?

The immediate issue was that I was not distributed the bonus.

That had opened the can of worms: 

n   My pay was already HKD5000 less than the rest of the unit heads;

n   I was promoted to this position without big jump on my salary, even though I “rescued” the unit at a time of company crisis;

n   I had tried several attempts to request for salary raise but the management never seriously looked into my case;

n   I being the unit head of the Marketing Division but I was always out of the loop for important information and decision makings;

n   I doubted if the management recognized and appreciated my capabilities and loyalty: I hold an MBA from a leading school of management and I devoted my profession in this company since my graduation;

n   What was more, I had been dedicating my extra working hours to building up effective networks in the industry and in fact I earned high reputation and representation…

Whose problem was it?

Of course the management owned the problem! My superior, the Administration…

But, should I own part of the problem?

(Yes, of course, and how to appreciate this point in the new round of negotiation?)

Where did it happen?

Physically at the office.

But again, it also happened in my mind (perception of the problems), and from my heart (feeling and emotion generated from the problems)?!

(Yes, I had to deal with my baggage!)

When did the problem occur?

On the day when the company distributed bonus to everyone on the payroll.

No, might be the problem was ingrained the first time when I failed to obtain a big jump on the salary associated with my promotion to Unit Head.

How serious was the problem?

The problem escalated to become a complex issue to me now.  It became mixed questions of my value to the company, my motivation to my profession and my loyalty to the company.  What was more, it challenged myself whether I would let go my baggage and negotiate to win this time; and whether I would consider necessary to repair broken trust with work associates, especially my superior.

So, here I fixed my problem statement:

“A recognition of my present and projection of my future value to the organization and industry.”

The problem statement would help to set the tone and boundary for the negotiation coming.

Step 2: Collect Data

Having fixed my problem statement, I started to collect relevant and supporting data:

n    Current operations of the Marketing Division;

•  Roles and responsibilities
•  Reporting line internally and externally
•  Performance support and review mechanism
•  Information supply

n    Accomplishments of the Marketing Division for the past three years;

n    Performance and training records of the team for the past three years;

n    A review on the current company practice on compensation and benefits;

n    A review on the current industry benchmarks on compensation and benefits, with regards to related industry and job functions;

n    A report on coming two-year economic and industry projections;

n    A proposed two-year development plan for the Marketing Division in relation to the organization.

Step 3: Analyze The Problem

Using the Rich Pictures as the tool, I further thought about the underlying issues of the problem.

 

Step 4: Generate Ideas

Borrowed the idea from Hale (2007) that there were 15 ‘families’ of interventions gathered in six different groups, I attempted to unbundle and re-bundle both parties’ (mine and my superier’s) issues and brainstormed ideas on multiples of them in preparing for the negotiation meetings.

Finally I came up with the following multiples of issue:-

(Measures to response to the unpaid bonus – a perceived breach of employment contract)

n          Immediate release of my bonus;

n          Compensated the unpaid amount as special allowance bundled to my salary;

(Measures to response to the HKD5000 salary gap against other Unit Heads – a perceived management inequity)

n       Immediate increase of my salary by 8.5% to reduce half of the gap to HKD2500.

n       Connected other benefits to my salary of equal gap value: additional paid holidays, travel allowance per year, medical coverage to include dental services, free body check-up per year;

(Measures to response to my future development potentialities at the company)

n       Personal development plan: tailor-made development plan for career development purpose, full payment on selected learning and development activities, overseas plant attachments, study mission, internal and external trainer opportunities;

n       Reconfirmation on the loop of management for information and decision making purposes;

n       A proposed two-year development plan, focused on new business development, and perfection of organizational policy and practices.

n       To lead a task force for the above motive.

(Measures to response to my future development potentialities in the industry)

n       Supported the committee services of the external marketing association by giving a 2 days official leave per month.

n       Supported external training services rendered to the marketing association with trainer fee received at an amount not exceeding an agreeable level per month.

Step 5: Select Solutions

I decided to present all the above identified issue mix to the negotiation meetings.

Scene 4

I called the superior to address the issue and would like to arrange an appointment for the purpose. Several time slots were finally fixed.  Major meetings were arranged during the office hours at her office.  But I also arranged lunch appointments especially on Fridays or Saturdays.

Scene 5

I sent out relevant information by emails, hard copies in sealed file holders. They were further followed with phone calls to ensure proper receipts of them, and as repeated reminders on the subject issue.

Scene 6

This was one of the typical successful negotiation meetings with my superior.

 

The package deal on my negotiation subject finally fixed after the last round of negotiation meeting!  The whole process of this successful attempt lasted for 5 months!

Go to the reflection pages to know more about my preparation and tactics for this attempt!

Step 6: Implement Solutions

With the successful negotiation, agreed measures were announced and acted upon accordingly.

Step 7: Evaluate Effectiveness

The effectiveness of the win-win negotiation was based on the amount of raise and other terms and conditions agreed upon between me and the superior.

Needless to elaborate further, our new titles already explained everything.

Part Two – The Reflections

Reflection 1 – Why Those Attempts in The Past Always Failed?

The past attempts to raise salary were always unsuccessful because:

Emotional instead of rational responses

I dropped into my superior’s office usually at impulse and with emotion.  Almost all of the drop-ins were triggered by the salary increment announcements that often were of nominal.  I focused on the monetary bargaining.  I distrusted my superior.

Lack of preparation

Due to my impulsive moves, I was usually empty-head and empty-hand to the meetings. I did not figure out a plan (like a BANTA) nor consider any applicable tactics to wrestle with my superior.  The meetings were paralyzed when I failed to provide concrete and convincing data as the ground for discussions.  The illusion of transparency occurred when I thought that I was revealing more than necessary information but actually my superior had limited information about me.  And often, my superior could not give me full attention at the meetings.

Tactics mistakes

I was lately to appreciate that win-win was not compromise, nor even split, satisfactions or building relationship. Hence I made the following mental and tactics mistakes.

n       I believed that my interests like the chances for personal development were incompatible with the company, when in fact, they could be compatible. (False Conflict)

n       I surrendered and agreed too early with the ‘nominal nature’ of salary raise when there were actually chances that I could ask for more. (Premature Concessions)

n       I perceived that my superior’s interests were completely opposed to my own. She might be concerned with equality in sharing resources while I concerned more on equity. But actually there might be trade-off. (Fixed Pie Perception)

n       I made the mental mistake to avoid conflict with my superior and urged to compromise. But perhaps my superior already anticipated a second offer when she presented me the first one. (Compromise)

n       Instead of focusing on the right information (e.g. finding common interest), I focused on how to cooperate with my superior. I was too ‘cooperative’ to reveal my BATNA to my superior! (Adopting a cooperative orientation)

n       I assumed to focus on establishing a long –term relationship with my superior would ensure win-win outcome. (Focusing on a long term relationship)

n       I assumed if extended time was given on negotiation, all possible gains would be captured automatically. I did not pay attention to better negotiation strategies. (Delays/taking extra time to negotiate)

n       I focused on fairness and my needs, but was unawared of my value projection to the company. (Incorrect focus)

Overlook the social styles & relation

I was too focused on the subject and neglected the social styles of the two parties.  I did not work out a proper response when communicating with my superior who was typically an “eagle”: driving, strong-willed and determined, looking for efficiency and practicality.  That explained why she swayed almost every meeting.  Mindless to nurture effective relation before gave little or no lubrication to the meetings.

Reflection 2 – Why The Final Attempt Finally Worked?

Preparation!

I had devoted plenty of time to go through the problem solving exercise. I supported myself and provided my superior systematic and relevant information. I gave enough patience for the processing time. But most importantly, I did lots of research and mental preparation plus experiential exercises to wrestle on the workable tactics for the negotiation meetings. And I learnt and capitalized from previous mistakes.

Set the compass right

The problem statement set out the tone and boundary for what I was running for. It acted as my compass along the process.

“A recognition of my present and projection of my future value to the organization and industry.”

Right mindset

Now that I realized in order to run for win-win negotiation I had to capitalize on every resource and to leverage all creative opportunities. The outcomes would focus integrative instead of distributive.

To assess the potential of the negotiation situations, I further asked and confirmed myself the following questions:

n       The negotiation did contain more than one issue;

n       The negotiation could bring in other issues;

n       The negotiation could make side deals;

n       Parties did have different preferences across negotiation issues.

And that concluded me that I had to cultivate on the differences between two parties (me and the superior) in order to make trade-offs and joint gains possible.

Capitalize on the differences

Areas for possible trade-offs and joint gains from differences were exploited and evaluated.

n      Differences in valuation

Both parties stressed personal value to business development. I was more interested to demonstrate via marketing activities. My superior was more concerned to actualize via achievements on organizational goals and perfection on organizational resources. I then proposed an agreement to start up a development project to perfect the Marketing Division and at same time to enhance the business development capacities and capabilities of the organization.

n      Differences in expectation and risk attitudes

My superior (with a loss-frame) would consider the development plan uncertain and risky under the current economic condition. I (with a gain-frame) would expect the project be properly managed under my leadership, and that it was beneficial as it would pave way and secure solid ground for future business when the economic condition returned to robust. I then proposed the company only to maintain nominal budget to kick off the project; but when it turned out to be effective to bring into more revenue, more resources should be solicited and profit sharing should be guaranteed.

n      Differences in capabilities

I considered such differences in capabilities, endowments and skills between me and the superior and among colleagues would foster team collaboration to accomplish the development plan. I proposed to nominate members to project team. I further proposed my trainer role in order to develop myself and to exploit more talents in prepare for the coming organizational development.

Perspective taking

By taking the perspective of my superior, I attempted to see the problem through her eyes. This enhanced my problem solving abilities. I was moved to look at problems at organizational level. Even though a more balanced view on the position of the Marketing Division in relate to other income generating departments was reviewed, I realized I had more resources to claim. That came up my idea on the development project.

Unbundle the issues, make package deals, multiple offers

When my superior perceive herself as having more choices, she might be more likely to comply with my request. The idea of “overcome concession aversion” applied here when I thought of a few proposals and made package deals that might satisfy the differing interests of me and my superior.

So recapped what I had brainstormed during the problem solving process, I decided to present the package deals in the following manner:-

Package A: 1+3+5+6

Package B: 2+3+5+6+7

Package C: 3+5+6+7+8+9

Package D: 3+4+5+6+9+10

Actually I was using tactics to reduce the choices of my superior.
For Package A, she would reject most likely as the package only focused on my self benefits.
For Package D, it challenged the boundary of her and most likely again she would not bear the risk.
There remained the Package B and the Package C. The major difference between them was on the organizational development project. It would be my stake or gamble to be responsible for it because I proposed to lead the task force. My superior would obviously see the potential benefits of the project but definitely she would be reluctant to take the stake.
The packaged deals proposed served to emphasize my strong will to narrow the salary gap with other unit heads and be connected with the management loop. While my aspirations to develop myself in the organization and industry were the utmost valuable to me in the long term.

The successful deal: Package C!

It maximized the projected benefits and value of both parties in the long term.

Using psychology

The data collected and tabled at the meeting showcased my talents and values to the company. While I understood manager was fungible, I highlighted the potential hidden cost of losing a valuable staff or even future business loss.

“Negotiators are more likely to gain support for their proposals if they are stated in terms of what the other side stand to lose if the proposal is rejected than if they are stated in terms of what the other side stands to gain by accepting.”

I also emphasized my effective networks and reputation in the industry but that was for the business and image benefits of the company.

“Negotiators who are perceived to have many alternatives will be considered more attractive negotiation partners.”

Enhance participation

I sought out to engage more on the relation side this time. I appreciated the busy schedules of my superior. For the whole negotiation process, I fixed appointments with intervals between so that she had plenty of time to digest and response on my issues and offers. I even arranged lunch appointments or tea receptions so that discussions sometimes were more informal. Schmoozing and self-disclosure enhanced our understanding and made us feel more connected, and that paved way to rebuild my trust to her. I also asked questions on my superior’s interests and priorities, and at the same time I also revealed my career aspirations. The process was more of participative and constructive now.

Trust

Remembered that when I analyzed the problem, one of the aspect it challenged me was whether I would let go my baggage and negotiate to win this time; and whether I would consider necessary to repair broken trust with my superior.

In achieving this, I emphasized myself that successful negotiation was not just about money or value, other considerations such as trust, security, happiness and peace of mind were also crucial to me and that I cared about.

So first of all, I had to throw away the baggage.  Previous unsuccessful attempts to raise my salary breached the deterrence-based trust between me and my superior and that provoked my reverse psychology.  I perceived that my superior was controlling my behavior or intervening my rewards, and I was reducing my intrinsic motivation.

I repaired the broken trust by taking a new perspective to separate people from the problem; I learned, unlearned and relearned to build trust.

n       transformed potential personal conflict into task conflict;

n       explored creative integrative agreement and put thoughts on those ‘underpaid’ conditions;

n       used active listening and be assertive;

n       found a shared problem or shared a common vision;

n       respect personality and social styles, celebrate the differences;

n       afterall, have faith, have hope and have love!

Conclusion

The effectiveness of the win-win negotiation is based on the amount of raise and other terms and conditions agreed upon between me and the superior.

To me it would be to get as favorable a deal as possible; to my superior, it would be to provide a deal which does not disturb the existing remuneration packages for the staff in the same position given their experience and age.

However, when the problem shifted to “value” instead of “monetary”, or when it included bundles of “tangible” with “intangible”, or considerations on “long term” versus “short term”…the perspectives to think on and formulas to fix with the problem would be so different.

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References

Boss, R. (1977) Trust and managerial problem solving revisited. Group and organizational studies. Harvard Business Review, 3(3), 331-342.

Hopkins, B. (2009). Cultural differences and improving performance: How values and beliefs influence organizational performance. Gower Publishing Company.

Malhotra, D., & Bazerman, M. (2008). Psychological influence in negotiation: An introduction long overdue. Journal of Management, 34(3). doi:10.1177/0149206308316060

Northouse, N. (2010). Leadership: theory and practice. United States of America: SAGE Publications, Inc.

Thompson, L. (2009). Establishing trust and building a relationship. The mind and heart of the negotiator, Pearson Prentice Hall.

Thompson, L. (2009). Win-win negotiation: Expanding the pie. The mind and heart of the negotiator, Pearson Prentice Hall.

Wertheim, E. (2007). Negotiations and resolving conflicts: An overview (pp.33). Ft. Leavenworth, KS: The US Army Command and General Staff College.

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Extension

Responding to classmates’ comments on our Blog

52118626_dewong’s comment on Feb 23, 2012

52159589Feb 27, 2012 08:48 AM

52358806 Kenneth KwongFeb 26, 2012 10:36 AM

52280285 AU-YEUNG PhilipFeb 26, 2012 08:37 PM

50556599 Ho Chun Wai, Matthew @ BeehiveFeb 27, 2012 06:55 AM

52557414 (MAK SM)Feb 24, 2012 11:16 PM

Thank you for those feedbacks rendered to our blog exercises.

Some of the responses highlighted the importance of ‘Trust’ and that we also agreed with it. Trust is sometimes hardly to build but easily to break. It is not only meaningful but also necessary for employers and employees to make trust as an important element along the negotiation process: it indulges the emotional side of both parties and adds chances for mutual beneficial agreements.

Our story showcased some ways to build (or to re-build) trust:-

1.   Flattery – Genuine and sincere flatteries are sometimes powerful. Usual employers will like to receive appreciations and admirations from their employees.  Employees may consider their duties to show respect and gratitude to their superiors and to construct an environment for favorable negotiation process.

2.   More Exposure – Take care of the soft sides of human interactions before formal negotiations. Casual lunches, tea gatherings, phone conversations are little things but when you can capitalize, it will significantly lubricate any negotiation conversations.

3.   Cognitive Route – Be flexible to adjust and to prepare the right way to interact: you may take a cognitive route for task-oriented targets or an affective route for people-oriented targets.

Our story also showcased some strategies to negotiate for what are really demanded:-

4.   Illusions – some false intentions are there to eliminate the choices instead. Ideas that violate laws, rule and regulations, policies, procedures, practices etc. are more often discarded then fought for. Using this tactics, it will help to guide the negotiation to the real intended outcomes.

5.   Employers’ perspectives – win-win really matters, help your employers to help you. The abilities to deliver promises for future value projections usually give powerful base to negotiate. Previous tenacity during crisis further give powerful references to the employers.

6.   Problem solving approach – to collect sufficient information and to perform detailed analysis help to make win-win negotiation more approachable. This is especially helpful when negotiations are paralyzed with previous failures. Learning from failed negotiations help to pave way for successful negotiation and to rebuild one’s self-confidence. When the negotiators are willing to pursue positive approaches instead of digging in the fault finding processes, they may be more available to look into their genuine demands or purposes for the negotiations and that they are more willing or prepared to make trade-offs in order to obtain life happiness and social well-being.