Strategic Corporate Negotiations
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Strategic Corporate Negotiations

A Framework for Win-Win Agreements

Andrea Caputo

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eBook - ePub

Strategic Corporate Negotiations

A Framework for Win-Win Agreements

Andrea Caputo

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About This Book

Exploring the concept of win-win agreements, this book analyses how they pose an important challenge for entrepreneurs, managers and advisors involved in complex negotiations among firms. Providing an overview and discussion of existing literature, the author further develops a theoretical framework for analysing corporate negotiations, and illustrates how this can be implemented in real-life situations. This book presents an empirical case study from the automotive industry and analyses the negotiation between Fiat Chrysler in 2009, offering practical strategies for those involved in corporate negotiations. Presenting how win-win agreements can improve competitive advantage, this book will be an invaluable read for practitioners and scholars alike.

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© The Author(s) 2019
Andrea CaputoStrategic Corporate Negotiations
Begin Abstract

1. A Theoretical Framework for Negotiation

Andrea Caputo1
University of Lincoln, Lincoln, UK
Andrea Caputo


The Latin word negotium is the negation of otium and originally meant the nonexistence of leisure. Since ancient times, the term brought with it the recognition of an activity, and more properly of a work activity. There are many theories that have been studying the phenomenon of negotiations, and this chapter aims to provide an appropriate summary of those theories to serve a theoretical framework for the book. First, an attempt was made to provide an overview of the meaning of negotiation provided by the literature, and then review the main disciplinary areas approached to the study of negotiations, until reaching the theory of negotiations, to which the work refers to. Once the disciplinary fields of study and reference have been identified, starting from the general characteristics of the negotiations, the field has been narrowed down to the specific subject of the book, thus arriving at multilateral negotiations.


NegotiationLiterature reviewTheory
End Abstract

1.1 The Term “Negotiation”

The Latin word negotium is the negation of otium and originally meant the nonexistence of leisure. Since ancient times, therefore, the term brought with it the recognition of an activity, and more properly of a work activity.
The main definitions proposed by the literature are quite different among them. They qualify for a more or less broad conceptualization and the accentuation of certain characteristics to the detriment of others.
Garrone (1914), in La Scienza (The Science), debuted in this regard: “Conceived and decided a deal, it is necessary to establish relationships, or conduct negotiations, either verbally or in writing, with one or more people, to possibly arrive at conclusion of it. Depending on the case, the negotiations will be made with suppliers, customers, ship-owners, etc., and will embrace proposals, counter-proposals, observations, discussions, orders, confirmations.”
Ceccanti (1962) identified the methods of negotiation as “the characteristics of the series of behaviors that precedes the birth of a relationship, and which are directly relevant to this effect” with a view to achieving a commercial exchange.
Rubin and Brown (1975) define negotiation as the process whereby two or more parties attempt to settle what they must give and take, or perform and receive in a transaction between them.
Zartman (1977) defines it as a joint decision-making process between two or more parties in order to combine conflicting positions in a single decision.
Gulliver (1979) introduces in his definition the novelty of the concept of interdependence between the parties. In fact, negotiation includes a set of social processes leading to interdependent joint decision-making by negotiators through their dynamic interaction with the another. For the author, negotiations are such a dynamic process of exploration in which change is inherent: changes in each party’s assessment of its requirements, in its expectations of what is possible, preferable, and acceptable. Analysis of negotiation is necessarily the analysis of process and change within the ineluctable interdependence of the negotiating parties.
Pruitt (1981) and Raiffa (1982) put the emphasis not only on qualification as a joint decision-making process between several interdependent parts, but rather on the differences between the interests of the parties and the resulting conflict between opposing positions.
Lax and Sebenius (1986), examining the previous literature, consider negotiation as a process of potentially opportunistic interaction by two or more parties.
In recent years, some Italian scholars have attempted to provide a definition of negotiation that includes as many features as possible.
Rumiati and Pietroni (2001) write that negotiation is a process of interaction between two or more parties in which one tries to establish what each one should give and receive in a reciprocal transaction aimed at reaching a mutually beneficial agreement. Negotiation is therefore a way of resolving possible divergences of interest when each of the parties has to and is willing to give something of value to the other.
In contrast, Giudici (2004) focuses on negotiation process as a complex phenomenon which includes psychological, behavioral, sociological, and economic elements. This approach is characterized by the presence of divergent interests. It consists of those interrelations between the individuals aimed at changing the initial situation of expectations, contractual power relations, availability to mediation, and objectives.
Mariani (2009), in a practice-oriented book, explained how negotiation presents a system for making collective decisions and takes the form of a process that, in case of success, results in a joint decision, taken by two or more actors at the same time. Negotiation is a process that involves two or more parties, characterized by different interests and preferences but linked by at least one common problem that they undertake to resolve satisfactorily. Those parties rely exclusively on their own bargaining power and on the one deriving from their interactions, by exchanging material or immaterial resources in order to reach an agreement.
And finally, Gatti (2008), qualifying the negotiation both as a way to make joint decisions between several parties and as a process, defines it as a joint decision-making process, between two or more individual or collective actors.
Considering the above, it is clear that the literature has tried to build over time a definition that contains the widest spectrum of characteristics. Although some theories exposed the possibility of negotiation even with one individual, therefore within itself. However, this type of negotiations are not the focus of interest for this book. Therefore, most definitions have been reported concerning the theories of economic and organizational negotiations.
At this point, it is necessary to explore the field of the subjects that have approached the study of negotiations and, therefore, the theories that have been developed.

1.2 Theories about Negotiations

The different approaches to the study of negotiations are varied and diverse, both as regards the disciplinary fields and the developed theories. This is because negotiations are an object of investigation and research which is interesting for many disciplines. Among the disciplines that deal with the study of negotiations, there are, for example, psychology, sociology, political science, legal sciences, anthropology, computer sciences, mathematics, statistics, economics, and business economics.
Due to the variety and interdependence of the disciplines that study negotiations, it is easy to qualify its study as a field with a strongly interdisciplinary nature (Gatti 2008). The nature of negotiations touches aspects of human behavior; therefore, its study cannot be separated from such variety of disciplines fundamental to the understanding of human behaviors and interactions. In this regard, it is therefore obvious that economics studies draw from other disciplines, which in turn have influenced each other.
Yet, in 1927, Zappa recognized the importance and inevitability of the interdisciplinary nature of business economic studies, not only concerning the aspects of the organization more directly related to the dynamics of human behavior, but also those related to the business economy and microeconomics.
Such microeconomics, statistics, and mathematics are the first steps of the study on economic negotiations, with various models of game theory. As seen from the various definitions above, a negotiation activity is recognized by everybody as a particular decision-making process. The related studies, therefore, are placed in the broader context of studies on decision-making processes.
Drawing on the studies carried out by Raiffa et al. (2002), Gatti (2008) presented a synoptic framework concerning the various theories pertaining to the field of decision-making studies. According to this framework, the studies on decision-making processes are divided into two macro areas, which are identified from the number of decision-makers involved: theories of individual decision-makers and studies exploring collective decision-makers. In turn these two macro areas are divided according to the different theories that have been developed.
The framework also shows the distinction based on the basic orientation adopted: normative, descriptive, and prescriptive. Finally, the main disciplines that contributed to the formation of the aforementioned theories are reported.
Such classification, displayed in a schematic and synthetic way, allows us to have a first glance in the context of studies in the field of negotiation and how several theories have contributed to the development of the others.

1.2.1 Normative, Descriptive, and Prescriptive Approaches to Study Negotiations

Before going on to briefly describe the details of the main theories on negotiation, it is useful to explain the main approaches adopted to study the phenomenon.
Over the years, within the scientific community, there has been a debate on which orientation should prevail for the study of decision-making processes. The three contenders were the normative, the descriptive, and the prescriptive orientations.
The first, the normative, is based on some classical economic concepts such as objective or absolute rationality and concepts of maximization and optimization. It studies how an idealized human being, therefore perfectly rational (according to the utilitarian logic capable of attributing a preference value for each state of reality and ordering these values to always choose the absolutely best configuration) and perfectly informed (on their own alternatives and consequences), should act in making its decisions. It is assumed that individuals act in conditions of perfect knowledge and according to a logic of profit maximization; this is known to be purely ideal and absolutely unreal. The expression, widespread in the Anglo-Saxon literature, which sums up the principles of this orientation is “how decisions should be made”.
In contrast, the second approach concerns the descriptive orientation and wants to describe the real behavior of individuals. Hence the Anglo-Saxon expression “how decisions are made” or “how real people decide”. It is therefore studied how individuals make decisions in a satisfactory logic deriving from their own limited rationality. Such concepts, introduced and initially developed by Simon (1957), are clearly opposed to the maximizing logic and absolute rationality. The concepts of Simon have given life to the behavioral approach, adopted by many scholars (e.g., Cyert and March 1963, and the organizational theory of decisions) in order to study the actual behavior of individuals, and therefore of organizations, and how they take their decisions.
According to Simon, the capacities of the human mind in understanding and solving complex problems are far inferior to the magnitude and complexity of the problems; therefore, it is impossible to have a perfectly rational objective behavior or even a good approximation of it. Without the possibility to maximize, however, the man seeks a sufficiently good solution. Simon defines, in contrast to the perfectly rational economic man, his man as the administrative man, who tries to satisfy, that is, to choose a satisfactory course of action, good enough. The administrative man recognizes that the world he perceives is a model, drastically simplified, of the infinite and always reborn confusion that constitutes the real world.
Finally, as for the prescriptive orientation, it is focused on providing indications on how individuals could decide better than they do (Gatti 2008) and therefore “how decisions could be made better”. The aim of this orientation is to seek a theory that is useful to individuals who are limited to rational (real), through pragmatic advice calibrated on the characteristics of the decision-makers and the problems that are gradually being addressed. This consultancy activity must act as a synthesis between the descriptive and the normative approach with the aim of being concretely useful, by identifying rules of rational behavior that can be translated into real behaviors. Bell et al. (1988) underlined how the three orientations should not be considered as alternative but as complementary in order to grasp and exploit the possibilities of interaction.

1.2.2 Theories on Individual Decision-Makers

As stated previously, the present work is not intended to analyze the disciplinary field that has approached the study of individual decision-making processes. However, it is particularly necessary to identify which are the main disciplines on this field. The two main doctrines that have analyzed the individual perspective of decision-making processes are decision theory (or decision analysis) and behavioral decision theory.
The first one, of normative orientation, has a purely mathematical and statistical configuration (since 1700–1800 with the studies of Bernoulli, Bayes, and Laplace) and has been...

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