Business Negotiations: Why Does Process Matter?

By — on / Business Negotiations

Adapted from “Have You Negotiated How You’ll Negotiate?” by Robert C. Bordone and Gillien S. Todd for the September 2005 issue of the Negotiation newsletter.

Negotiating the right process for your negotiation is well worth the time and effort, for two important reasons.

First, process drives substance.

Imagine what might have happened if the pharmaceutical company and the biotech firm had agreed up front to resolve the royalty issue rather than simply exchanging their best arguments before splitting the difference.

The biotech firm may have wanted to use the negotiated outcome to set a precedent for a much larger licensing agreement that was occurring simultaneously. A process that unearthed these interests might have yielded an agreement that lowered the royalty rate for year one – a play for the pharmaceutical company – and raised it in year two, thereby providing the necessary resources for the biotech firm’s next round of research.

Decisions about who is invited to the table, how issues will be discussed and linked to form value-creating trades, and linked to form value-creating trades, and how to make and extract commitments will have a tremendous effect on a negotiation’s outcome.

Negotiating process options and choices before discussing substantive issues is therefore central to crafting deals that last.

Second, a fair process increases legitimacy and satisfaction.

In a myriad of contexts, cultures, and bargaining environments, researchers E. Allan Lind of Duke University and Tom Tyler of New York University, and others have shown that a person’s perception of the fairness of a process used in negotiation influences not only the satisfaction with the substantive outcome but also the willingness to abide by it.

Moreover, according to such procedural justice research, the more parties believe that a process was arrived at fairly and jointly, the more likely they will be to consider it legitimate and to partake in negotiations with the same parties in the future.

Related Article: Have You Negotiated How You’ll Negotiate?

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