When a team negotiates on behalf of an organization, it can often achieve more than an individual would thanks to the team’s cumulative knowledge and experience. Yet team negotiations can create new problems. Groupthink—the tendency to go along with the dominant point of view rather than challenging it—can promote simplistic decision making in teams. And ingroup bias can lead a team to distrust the other side’s team and be overly competitive.
In a new study, Guihyun Park of Singapore Management University and Richard P. DeShon of Michigan State University compared two different strategies aimed at promoting high-quality decision making in groups with the goal of reducing intergroup competition. They formed three-person groups of participants and arranged for each group to play six rounds of the classic “prisoner’s dilemma” economic game, in which groups must decide whether to compete or collaborate with each other. Because of decision-making errors, groups often fail to recognize that they could earn the most money in the game by collaborating rather than competing.
Groups were assigned to one of three decision-making conditions and negotiated with a group in the same condition. In the “structured discussion” condition, groups were given a decision-making worksheet designed to encourage them to consider the pros and cons of cooperating and competing before making a decision. In the “cooperative- leader discussion” condition, the most cooperative member was chosen (based on the member’s expressed willingness to cooperate with the other team rather than compete) to lead the group’s decision-making discussion. Groups in the control condition were not steered toward a particular decision-making strategy.
Groups that engaged in structured discussion were more likely to cooperate with other groups as compared to groups in the cooperative-leader and control conditions. “A high-quality decision-making process encouraged groups to remain open and flexible in the face of intergroup conflict, and they became more effective in preventing later competitive interactions,” write Park and DeShon. By contrast, groups led by a cooperative member started off cooperative but became more competitive after several rounds of the game, to their detriment.
The results suggest that it’s not sufficient for a group leader to promote cooperative goals in negotiation. Leaders need to actively encourage team members to think about and discuss the choices they face in depth.
Resource: “Effects of Group-Discussion Integrative Complexity on Intergroup Relations in a Social Dilemma,” by Guihyun Park and Richard P. DeShon. Organizational Behavior and Human Decision Processes, 2018.
Scaling back the urge to merge
Organizations considering a merger or acquisition are often cautioned that the majority of such deals fail to live up to expectations and, indeed, end up as money-losing ventures.
In fact, mergers and acquisitions (M&A) do create value on average, McKinsey partners Chris Bradley, Martin Hirt, and Sven Smit found in recent research reported in the Harvard Business Review. However, the size of the deal matters: Large, infrequent “bet the firm” deals frequently fail, while an ongoing series of smaller deals “delivers the real wins,” they write.
Analyzing publicly available information on the world’s 2,393 largest companies from 2010 to 2014, the research team found that when a company averages at least one M&A deal per year, with no single deal making up more than 30% of the company’s market capitalization, such deals create real value for the firm. To take one example, marketing giant WPP made a whopping 271 relatively small acquisitions during this four-year period—one every two weeks. The moves helped WPP grow profits and rocket to the top of its industry.
Based on these results, the authors say that corporate dealmakers would be wise to consider switching their strategy from pursuing the rare, splashy merger to negotiating a steady stream of smaller deals.
Resource: Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds, by Chris Bradley, Martin Hirt, and Sven Smit. Wiley, 2018.