Crisis Management in Business And Industry PDF

Ch01: Crisis Management in Business And Industry Dr. Abdulmalek Hazbar  Meaning of crisis: Crisis refers to sudden unplanned events which causes major disturbances in the organization. According to BARTON: "A crisis is any event that can seriously harm the people, reputation or f...

Ch01: Crisis Management in Business And Industry Dr. Abdulmalek Hazbar  Meaning of crisis: Crisis refers to sudden unplanned events which causes major disturbances in the organization. According to BARTON: "A crisis is any event that can seriously harm the people, reputation or financial condition of an organization". ❑ Nature of Crisis ❑ Sudden event ❑ Short notice ❑ Triggers fear ❑ Serious consequences ❑ Lack of information ❑ Quick response needed ❑ Unpredictable ❑ TYPES OF CRISIS ❑ Physical Damage Crisis:- A crisis which is characterized the physical damage of the individual, organization or the society. ❑ Causes of Physical damage: 1. Natural crisis: Every business is vulnerable to natural disaster These includes things such as, floods & earthquakes. Although disasters are and control. mostly unpredictable, beyond our responsibility. 2. Earthquake: Earthquake is a sudden release of energy in the earth crust, that creates a waves. Such as volcanic activity, landslides, mining, nuclear test. 3. Drought: Drought is a period were abnormal low rainfall, leading to a shortage of water supply. 4. Floods: An overflow of a large amount of water beyond its normal limits. ❑ Non-Physical Damage: ❑ Non-physical damage crisis means crisis reflected by no physical damage of the individual, organization or society. Product Issues Crisis: This type of crisis is a potential crisis for the company, because the product may fail in-spite of appropriate research and development techniques are followed. Economic Crisis: This type of crisis occurs when an organization experiences a cash problem. ❑ Human Resources Crisis: It usually involves lower-level workers. It take a variety of form. Such as, strikes, sexual harassment, discrimination and workplace violence. ❑ Crisis of Organizational Miss-deeds: Crisis of Deception: Organization face crisis of deception, because management make fake promises and wrong commitment to the customer. Crisis of Management Misconduct: Organization face crisis of miss-conduct, when management indulges in illegal activity. ❑ Stages of Crisis: 1. Pre- crisis stage 2. The Acute - crisis stage 3. The Post crisis stage. ❑ PRE-CRISIS STAGE: It is stage which has a opportunity to turn negative situation into a positive one. Here someone are discovering a critical situation and bring it to the attention of their superior officer. ❑ Solutions: ✓ When superior officers known that condition they don't want to show outside of organization. ❑ THE ACUTE - CRISIS STAGE: A crisis becomes visible out sides of the organization. ❑ Solutions: ✓ Take charge of the situation quickly. ✓ Take necessary action to fix the problem. ❑ THE POST - CRISIS STAGE: This is the stage which is process about the recoup their losses or evaluating the organization changes made in organization. ❑ Solution: ✓ Recoup any losses evaluate the organization performance during the crisis. ❑ CONSEQUENCES OF CRISIS: 1. Poor capital 2. Loss of assets 3. Infrastructure destruction 4. Threatened stakeholders 5. Damaged reputation 6. Lack of cash flow 7. others. FINANCIAL CRISIS: ❑ Meaning: The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. ❑ CONSEQUENCES OF FINANCIAL CRISIS: 1. Complementarities in financial markets. 2. Leverage. 3. Asset-liability mismatch. 4. Uncertainty and herd behavior. 5. Regulatory failures. 6. Contagion (udwa). 7. Recessionary effects. WHAT IS CRISIS MANAGEMENT?? ❑ Meaning: It is a process by which an organization deals with a major event that threatens to harm the organization, its stakeholders, or the general community. The study of crisis management originated with the large scale industrial and environmental disasters in the 1980s Purpose crisis management: ▪ Prevention ▪ Survival ▪ Successful outcome ❑ OBJECTIVE OF CRISIS MANAGEMENT: 1. To identify the potential crisis. 2. To be well prepared for crisis. 3. To determine the risk. 4. To understand the consequences of crisis. 5. To minimize the potential impact of crisis. 6. To analyze the probability of crisis. ❑ ELEMENTS OF CRISIS MANAGEMENT: 1. Understanding. 2. Crisis Management Planning. 3. Contingency Planning. 4. Business Continuity Planning. 5. Inequality. 6. Social Media. 7. Role of Apologies. 8. Structural Functional Systems. ❑ CRISIS COMMUNICATION: ❑ The effort taken by a company to communicate with the public and stockholders when an unexpected event occurs that could have a negative impact on the company's reputation. ❑ Crisis communication team involves: ▪ CEO. ▪ Head public relations. ▪ Vice presidents, Managers of key departments. ▪ Safety or Security officer. ▪ Company lawyers. ❑ STEPS IN CRISIS COMMUNICATION: 1. Anticipate crisis. 2. Identify crisis communications team. 3. Identify spokesperson. 4. Spokesperson training. 5. Establish systems. 6. Identify stakeholders. 7. Develop holding statement. 8. Assess the crisis situation. 9. Finalize and adapt key messages. 10. Post crisis analysis. ❑ STRATEGIES FOR MANAGING CRISIS: 1. Determine the crisis. 2. See the big picture. 3. Gather relevant team. 4. Set timeline. 5. Develop procedural manual. 6. Seek external experts. 7. Speak to media. 8. Fine tune of communication. 9. Protect reputation.  Ch02: Business Continuity Management Dr. Abdulmalek Hazbar WHAT IS BUSINESS CONTINUITY MANAGEMENT  BCM Framework ❑ a structure that will design, develop, implement and maintain infrastructures, resources, processes, policies and strategies to respond, recover, resume, restore and normalize the mission critical operations of an organization in an effective manner. ❑ Business Continuity Management: Why do you need it? ❑ Why is BCP Needed? Good Corporate Governance Safeguarding assets and liabilities, stakeholder interests Business Requirements (Local / International) BNM, SC, SOX, Basel, ISO17799 Requirement by Business Partner and/or Customer. ❑ Business Requirements ❑ It is foreseeable that in the near future, the resiliency or continuity capability of an organization will be a yardstick in doing business. ❑ We have seen with the implementation of Sarbanes Oxley Act in the US, many local players who are supplies or business partners were required to show BC plans  Business Continuity Management How is it different from Disaster Recovery Planning  Definition - BCP ❑ BUSINESS CONTINUITY PLANNING ❑ (BCP): Process of developing advance arrangements and procedures that enable an organization to respond to an event in such a manner that critical business functions continue with planned levels of interruption or essential change. ❑ SIMILAR TERMS: Contingency Planning, Disaster Recovery Planning.  Definition - DRP ❑ DISASTER RECOVERY PLANNING ❑ (DRP): The technological aspect of business continuity planning. ❑ The advance planning and preparations that are necessary to minimize loss and ensure continuity of the critical business functions of an organization in the event of disaster. ❑ SIMILAR TERMS: Contingency Planning; Business Resumption Planning; Corporate Contingency Planning; Business Interruption Planning; Disaster Preparedness.. Business Continuity Management Who should be involved  Selection Guidelines Members of the BCM recovery team should be on a voluntary basis Members of the BCM recovery team must be experienced and knowledgeable in operations matters Elderly or sickly people (hypertension, weak heart, high blood pressure, obese, etc) should not be selected as team members. Business Continuity Management How Do I Start  Note The process of developing the plans, either for Business Continuity Plans or for Disaster Recovery Plans, is the same. The difference is only in the scope of work and area to be covered. A disaster recovery plan must provide for the 'End Users' needs  Module 1 - Initiate the Project ❑ It is crucial that a BC Project is started in a proper manner to ensure that it is completed in a timely and effective manner. ❑ This stage involves study, discussions, analysis leading to the deliverable - The Project Charter ❑ In addition, there will be: Awareness sessions. Kickoff meeting.  Module 2 - Risk Assessment ❑ The purpose of this module is to identify the operational vulnerabilities of an organization. ❑ The outcome of this module is a Risk Assessment report which provides a priority listing of vulnerabilities and a set of recommendations to prevent / mitigate it.  Module 3 - Business Impact Analysis ❑ BIA determines impact (financial & non- financial) in the event business is disrupted for a significant period of time. (The BIA process is somewhat independent from the Risk Assessment process) ❑ The Business Impact Analysis deliverable includes a listing of critical business functions and their: Recovery Time Objectives, Recovery Point Objectives Minimum operating resources Internal and External Dependences  Module 4 - Develop BC Strategies ❑ This modules provides the BC planners with a high-level specification of the plans. ❑ In this module, high level BC Policies and Procedures are documented ❑ This module gets its input from the previous BIA process  Module 5 - Establish Alternate Facility ❑ In the event the primary business premises is destroyed or severely damaged, critical business functions need to operate at an alternate facility. ❑ This facility may be complete or partially setup with furniture, fittings and equipment. ❑ This facility may be owned or rented from a commercial entity.  Module 6 - Plan Development ❑ Using the information from Module 4 & 5, action steps which describe "what needs to be done", "when to do it" and "how to do it" are documented. ❑ Each team within the business continuity structure will have a recovery plan.  Module 7 - Education & Training ❑ In this module, the respective players in the organization's business continuity plan will be given the appropriate education on the principles of business continuity planning as well as training in the use of the recovery plans developed in the previous module.  Module 8 - Scenario Testing ❑ Testing is a mechanism used to verify the completeness of the recovery plan. ❑ It also provides an avenue for team members and management to practice their recovery activities ❑ The goals and complexity of testing should increase over time.  Module 9 - Plan Maintenance ❑ The business continuity plan is a 'LIVING DOCUMENT' ❑ Keeping it "current" is a major task which takes effort and support from senior management ❑ It is necessary to implement a Maintenance Program.  Take Away Points ❑ BCM is a process and not a project. ❑ The initial development of a BC Plan is a tedious and time-consuming activity. It needs to be given adequate attention to be successful (i.e. workable) ❑ Like Risk Management, the responsibility for BCM rest on everyone's shoulder and not just the BCM Manager. ❑ BIA is an important process within BCM and must be conducted on a regular basis.  Take Away Points (con't) ❑ Top Management support and participation is required. ❑ An annual budget should be allocated for the running & maintenance of the BCM program ❑ Testing must be religiously conducted in a manner that encourages improvement and preparedness. ❑ A maintenance program must be implemented to ensure adequacy and completeness of the BCM elements. Stages of Crisis & Crisis Management Objectives Describe stages of crisis process Identify key principles of crisis intervention Discussion of classic Tylenol poisonings case Apply stage management approach to team case  The “stage” approach: Segmenting complex processes Stages refer to relatively distinctive segments of a more complex or lengthy process Stages are differentiated by identifying the beginning or end of some important event, reaction, or process Stages enable the user to communicate clearly about change over time, adapt interventions to what is needed at each stage, & monitor progress across stages. Stages also imply development from one stage to another; this enables changing outcomes at a later stage by intervening at an earlier one  Stages of Crisis Management Like most human events, crises can be described in terms of stages, or relatively identifiable sequences of events and reactions. Stages enable planners to monitor risks, progress, target stakeholders, and take strategic action appropriate to the stage. Fink’s Crisis Lifecycle Prodromal(cuati Crisis breakout Chronic Resolution on) Triggering event with Lingering Crisis no longer a Risk cues that resulting damage effects of crisis concern to potential crisis can stakeholders emerge Mitroff’s Five Stages of Crisis Management Signal Probing & Damage Recovery Learning detection prevention containment Return to Review & critique Warning signs & Search risk Keep from normal CM efforts for efforts to prevent factors & reduce spreading to operations asap improvements potential for uncontaminated damage areas Jack Welch’s CEO of GE Denial Containment Shame Mon- Blood on the Crisis Fixed Avoiding or Keep quiet or gering Self Floor Life goes on, minimizing buck-passing defense, blame Somebody pays prevent future & credit crises The long view…  Ecomap of Stakeholders: Who is affected? An “ecomap” or ecological map of stakeholders can help to identify all involved parties in the crisis. Concentric circles are used to set parameters on Primary Effect primary or direct stakeholder involved, secondary or “spillover” effected, and tertiary or very indirect affected. These help prioritize response to them and ensure that no one is Secondary (Vicarious) Effect left out of consdieration. Tertiary Effect  Crisis Stage Worksheet Prodromal Crisis Consequences Learning & Recovery Stage Characteristics What stakeholders need What should be done Regardless of the crisis model used, crisis management involves four strategic considerations, or the “Four C’s.” All plans should include at least these aspects.  Classic Crisis Case: J&J’s 1982 Tylenol Tampering In this presentation you will cover: stages of the crisis key considerations for intervention constructing an ecomap description of the case impact of the case on the industry Case Overview what was learned When the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four C’s quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders Four responsibilities: To the customers To the employees To the communities they serve To the stockholders  Tylenol Case Analysis Background In the mid 1950’s Tylenol became a needed and popular substitute for aspirin for such conditions as flu and chicken pox, since aspirin was related to Reyes Syndrome (liver degeneration, brain edema, 20-30% fatality) Large market: 100 million users, 19% of corp profits, 13% of year to sales growth, 37% market share of painkillers, outselling other top analgesics combined J&J was one of the “Best 100” companies to work for Tylenol became a product trusted by physicians and families alike Numerous other Tylenol products were developed for an active market J&J strong “family” corporate culture Tylenol Case The Crisis Begins… September 1982 Extra Strength Tylenol bottles of at least 6 pharmacies and food stores were opened, & capsules were filled with cyanide (10,000 x fatal dose) Media reporter asked PR Asst. Dir Andrews about poisoned Tylenol– then it hit the news! 7 people died in the Chicago area CEO James Burke refers to the Credo, alerts to the danger, & assigns team to discover the source Formed 7-member strategy team Stop the killings Reasons for the killings Provide protection & assistance to people …and snowballs! Police drove through streets with loudspeaker warnings Chicago hospital received >700 calls in one day Immediate stories in major magazines and newspapers Over 100,000 separate news stories ran in US papers Hundreds of hours of national and local TV coverage >90% of Americans had heard of the Chicago deaths Widest coverage since Kennedy assassination & Viet Nam Copycat tampering– 270 reported incidents (36 true) Tylenol, killer or cure? -- Washington Post J&J stock fell 7 points Market share dropped from 37% of pain-reliever market to 7%; from $400 million in annual revenue to $70  Initial Response– Phase 1 Crisis response Immediate alert to consumers not to use any type Tylenol product or resume use until extent determined Live TV satellite feed of press conferences; media exposure via 60 Minutes, Donahue, etc. 800# Hotline for customers (30,000 calls in Oct-Nov) Toll-free phone for news organizations; pre-taped messages and updated statements for distribution Strict production, different lot $, & crisis only in Chicago indicated post-production tampering Withdrew bottles from Chicago area; ordered recall of >31 million bottles nationally at a cost of >$100 million (against FDA & FBI) It temporarily ceased all production of capsules High public profile and repeated reassurance by Burke Working relationship with law enforcement agencies Notification of health professionals nationwide & FDA Initial Response—Phase 2, PR Rebound Five-Point Plan 1. Replaced them with tamper-resistant caplets (triple safety seal within 6 months) 2. Incentives: free replacement of caplets for capsules, special coupons ($2.50 off) easily obtained 3. New pricing program: discounts up to 25% 4. New advertising program: national 1 minute commercial, News & talk shows, 5. New presentations by 2250 sales personnel made to medical stakeholders positive press articles regarding J&J, products, & safety indications of regaining market share held up as positive example of ethics & responsibility 450,000 e-mail messages  Strategies Most public recovery strategies incorporate the following five components: Forgiveness: win forgiveness from stakeholders and create acceptance for the crisis Sympathy: portray organization as unfair victim of attack by outside persons; willing to accept losses Remediation: offer compensation for victims and families (counseling & financial assistance) Rectification: take action to reduce recurrence (triple sealed & increased random inspection) Effective leadership: clear, visible, consistent role-modeled message from beginning by CEO  Employee Response Strong family-oriented culture, “we care about our employees” Open and current communication with employees; 4 video programs on the unfolding process Emphasizing plant workers were innocent CEO speech in a week to employees, “We’re coming back” (wearing buttons) Idle employees given tasks to keep involved & reduce rumoring and boredom Indications of market recovery bolster spirits Congruence and consistency in demonstrating the Credo  Consequences– Lessons learned J&J showed that they were not willing to risk public safety even at excessive cost J&J could be trusted all the way to the top– they lived their Credo & having a functional credo worked J&J set a new standard for protection thereby requiring competitors to expensively follow suit J&J was viewed as a co-victim of the crime Stakeholder involvement and relationships is essential One must anticipate and prepared for crises; expect the unexpected Cynicism: Be aware that 75% of people don’t believe companies take responsibility for crises or tell the truth “No matter what you do in the beginning, in the end you will have to tell the truth” React fast, openly and decisively 1983 Tylenol Bill by Congress made malicious tampering of consumer products a federal offense 1989 federal legislation to make consumer products tamper resistant (learning cont’d) Report your own bad news– don’t wait for reporters to root it out Speak with one voice Gather facts and disseminate from one info center Be accessible to the media so they won’t go to other sources Target communications to those most affected by the crisis, and can affect the media If you can’t discuss something, explain why Provide evidence for your statements Record events via video and documents so you can later present your side of the story  “Déjà vu all over again” In 1982 FDA estimated 270 product tampering cases. Following the Tylenol crisis, several other tamperings plagued other companies. Impact could have been reduced by learning from J&J’s experience. Copycat tamperings: Lipton Cup-A-Soup (1986) Exedrin (1986) Tylenol again (1986) Sudafed (1991) Goody's Headache Powder (1992) The Tylenol comeback (and how they did it) The Toyota Recall When it’s material for the cartoon strips, you KNOW it’s serious… “Too slow of a response…” Although speculation of cover up of electronic defects has waned, there is much criticism about Toyotas crisis response Overreaction by the U.S. media, a shift in the business environment, the American political mood at the time, and Japan’s response to global economic problems likely contributed to the furor Series of recalls created initial doubt: January 2009 recall of seatbelts & exhaust system problems; August 2009 recalls due to faulty window switches The reputation for high quality was further damaged by a lack of early statements on recalls, delays in notifying customers whether they owned at-risk cars, and failure to scrutinize driver complaints and seriousness of risks Toyota should have reacted much sooner: in 2007 when there were Tundra pickup complaints, or as early as 2004 when the Natl. Highway Safety Administration investigated acceleration of the Lexis ES and Camry Although findings showed there was no electronic defect, sticking accelerator, floor mat accelerator interference and sticking pedals were founded  What did Toyota do: Halt production. Halt sales. Find the problem. Fix it. Recall vehicles. Fix them. “The gas pedal issue in question affects eight of Toyota's top selling models: RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra, and Sequoia. It doesn't affect the Prius, other hybrid models, Yaris, or Sienna. It also does not affect Lexus or Scion models. They sell roughly 2 million vehicles per year in the United States. A halt of production of only one month could mean the loss of roughly 100,000 sales—or, assuming an average profit of $3,000 per vehicle, roughly $300 million. Each month. “  Stages of Toyota’s Response Prodromal Crisis Response Learnings Shift in Toyota’s initial $2 billion recall halt production and Establish and attend emphasis on growth and the loss of 17% issue recalls across to early warning & boosting profit of share value; the board of RAV4, indicators rather than subsequent recall of Corolla, Matrix, Monitor mainstream maintaining quality millions of cars Avalon, Camry, as well as social Complaints as early Quality reputation Highlander, Tundra media for opinions as 2004 severely damaged and Sequoia React quickly when a Expansion of the Decrease in Admission of the crisis breaks workforce without consumer intention to problem has been Create & support 100% adoption of the buy Toyota half-hearted and open culture with 2- Toyota culture Total recall cost could reluctant, it has failed way communication Culture emphasizing surpass $5 billion to apologize to quality so that Sales and reputation victims and families, anything less is decline across many and communicate shameful & countries what it will do to embarrassing, regain control leading to denying, Delayed replies to minimizing and online posts and mitigating problems complaints Hierarchical structure Congressional & lack of upward committee found communication misleading statements about repairs  Some conclusions Stages are a useful way to describe, monitor and facilitate movement toward resolution & learning Early warning systems can significantly help reduce risk and enable more effective response Information about stages continues to be available as the crisis unfolds– use multiple sources of information Organizational culture operates on how the organization responds– evaluate it as part of risk assessment When a crisis occurs, be active, honest, take the initiative Whenever possible, develop good relationships with stakeholders before a crisis occurs END  Ch04: Creating a Crisis Communication Plan Dr. Abdulmalek Hazbar  By definition... ❑ A crisis is an unexpected and detrimental situation or event. ❑ Primary objectives: respond quickly, efficiently, effectively, and in a premeditated way ❑Tell it ALL ❑Tell it FAST ❑Tell the TRUTH  Effective Strategies ❑ Maintain connectivity ❑ Be readily accessible to the news media ❑ Show empathy for the people involved ❑ Streamline communication processes  Effective Strategies ❑ Maintain information security ❑ Ensure uninterrupted audit trails ❑ Support multi-channel communications ❑ Remove dependencies on paper-based processes  How They Work... ❑ Two-fold: Preparation, Response ❑ To prepare: detailed Crisis Communication Plan More likely to respond quickly Take immediate steps to control message Successfully regain public's trust ❑ Insurance policy for the long-term health of your organization 1. Crisis Communication Team 2. Internal Communication Plan 3. During a Communication Crisis 4. Press Conference 5. Blogging 6. After a Communication Crisis  1. Crisis Communication Team 1. CEO 2. Head of Public Relations 3. Vice Presidents, Managers of key departments 4. Safety or Security Officer 5. Company lawyers  2. Internal Communication Plan ❑ Media Strategy ✓ People remember what they hear first and last ✓ Designate an official spokesperson ✓ Technical experts → engineer, financial expert ✓ Press releases ✓ Practice media questions, interview scenarios ❑ List of potential witnesses ✓ Fact sheets and other documents insurance info engineering,  3. During a Communication Crisis 1. Ensure safety of all involved 2. Internal statements to all employees 3. Determine when to go public → "Tell it all; tell it fast" 4. Send out press release covering who, what, when, where of the crisis  4. Press Conference 1. Media's job to report latest info available 2. Hand out fact sheets and previous press releases 3. From the victim's perspective...respond in a way that is sensitive to their needs 4. Never comment or speculate when facts aren't yet clear  5. Blogging ❑ Several advantages over traditional media: 1. Immediate 2. Near real-time coverage 3. Humanize your organization 4. Public can make comments & ask questions  6. After a Communication Crisis 1. Compensate victims. Act quickly to provide restitution. 2. Make a bold commitment to ensure errors will never happen again. 3. Go public with self-assessment.  Retaining Brand Loyalty ❑ Step back and think about your customers: Consider how the crisis may be affecting them and what kind of resolution they'll expect. ❑ Own It: Admit your mistakes right away. Proactivity is essential. Answer questions before they are asked. Admit to the problem ❑ Apologize, apologize, apologize...and listen: Give an honest, simple, sincere apology. Be prepared to listen and listen well.  Retaining Brand Loyalty ❑ Do the right thing: Fix it – fast Make sure customers know you're fixing it, how you're fixing it, and when you'll show them tangible evidence. ❑ Move On: Once resolved, let it go and move on. It's crucial to thank and reward loyal customers. ❑ Rebuild your brand's image: Look for opportunities - locally, regionally, nationally.  Negotiation Section 01: Negotiation Fundamentals Chapter 01: The Nature of Negotiation  Overview Everyone negotiates, nearly on a daily basis. Negotiations occur for several reasons. People fail to negotiate To agree on how to share or divide a limited because they resource. do not To create something new that neither party recognize they could do on their own. are in a To resolve a problem or dispute between the negotiation parties. situation. 2  Style and Approach Negotiation: is decision making in which two or more parties talk in an effort to resolve their opposing interests. Bargaining describes the competitive win–lose situation. Negotiation refers to win–win situations. Many people assume the “heart of negotiation” is the give- and-take process used to reach an agreement. The most important factors occur before the negotiation or shape the context around the negotiation. The author’s insights are drawn from three sources. Personal experience, the media, and research. 3  Characteristics of a Negotiation Situation Involves two or more parties, individuals, groups, or organizations. Tangible factors There is a conflict of needs; parties include the search for a solution. price or the terms of the Parties think they can get a better deal agreement. by negotiating. Intangibles are A give-and-take is expected. underlying Parties prefer to negotiate and search psychological for an agreement. motivators, Successful negotiation manages such as the tangibles and resolves intangibles. need to “win.” 4  Interdependence Most relationships can be characterized in one of three ways: independent, dependent, or interdependent. Independent parties are able to meet their own needs without the help and assistance of others. Dependent parties must rely on others for what they need, subject to the provider’s whims and idiosyncrasies. Interdependent parties are characterized by interlocking goals. Interdependent parties need and influence each other with a mix of convergent and conflicting goals. 5  Types of Interdependence Affect Outcomes Goal interdependence, and the structure of the situation in which people negotiate, shapes negotiation processes and outcomes. A zero-sum or a distributive situation is a competitive situation where there is only one winner. A non-zero-sum or integrative situation is a mutual-gains situation where goals are linked to achieve a mutual gain. 6  Alternatives Shape Interdependence Evaluating interdependence depends heavily on the desirability of the alternatives to working together. A negotiator’s BATNA is their Best Alternative to a Negotiated Agreement. A negotiator must understand both their own BATNA and the other party’s BATNA. The value of a BATNA is relative to the possible settlements currently available. A BATNA may offer independence from, dependence on, or interdependence with someone else. Every possible interdependency has an alternative; negotiators can always walk away. 7  Mutual Adjustment As parties influence each other, they engage in mutual adjustment, causing changes to occur during negotiation. Effective negotiators understand how people will adjust and readjust and how negotiations twist and turn. The best strategy is grounded in the assumption that the more you know about the other party, the better. 8  Mutual Adjustment and Concession Making Negotiations often begin with statements of opening positions. When one party alters their position based on the other party’s suggestion to do so, a concession has been made. Concessions constrain the bargaining range. The bargaining range is the range of possible agreements between the two parties’ minimally acceptable settlements. 9  Two Dilemmas in Mutual Adjustment Dilemma of honesty—concerns how much of the truth to tell the other party. Dilemma of trust—concerns how much negotiators should believe what the other party tells them. Give-and-take Two negotiation tactics create trust. is essential to Outcome perceptions can be shaped by joint problem managing how the receiver views the solving in most proposed result. interdependent Process perceptions are enhanced through relationships. fairness and reciprocity in proposals and concessions. 10  Value Claiming and Value Creation The purpose of distributive bargaining is to claim value. To claim the reward or gain the largest piece of the pie. The purpose of integrative negotiation is to create value. To find a way for all parties to meet their goals. Most negotiations combine claiming and creating value. Negotiators must know when to use which approach. They must be versatile and competent with both tactics. Often see problems as more competitive than they are. Coordination of interdependence has the potential for synergy. 11  Creating Value through Differences Value is created in numerous ways, and the heart of the process lies in exploiting differences between negotiators. Value is created Differences in interests. by exploiting Differences in judgments about the common future. interests, but Differences in risk tolerance. differences can also create Differences in time preference. value. 12  Conflict Interdependent relationships have the potential for conflict. Conflict is a sharp disagreement of interests, ideas, and so on. When interdependent people perceive incompatible goals and interference from the other, conflict results. There are four levels of commonly identified conflict. Intrapersonal conflict occurs within an individual. Interpersonal conflict occurs between individuals. Intragroup conflict is conflict within a group. Intergroup conflict is conflict between groups. 13  Functions and Dysfunctions of Conflict Raises awareness. Win–lose goals require competitive processes. Brings change/adaptation. Misperception, bias, and Strengthens relationships emotionality may increase. and boosts morale. Productive communication Promotes self-awareness. decreases. Enhances personal Blurred central issues. development. Rigid commitments. Encourages psychological development. Magnified differences. Can be stimulating and fun. Escalation of the conflict. 14  Factors When Managing Conflict Difficult to Resolve Easy to Resolve Issue is a matter of principle. Divisible issues. Large stakes, big Small stakes, little consequences. consequences. A zero-sum situation. A positive-sum situation. A single interaction. A long-term relationship. No neutral third-party Trusted, powerful third parties available. available. Unbalanced conflict progress. Balanced conflict progress. 15  Figure 1.3: The Dual Concerns Model Access the text alternative for slide images. Source: Dean G. Pruitt, Jeffrey Z. Rubin, and Sung H. Kim, Social Conflict: Escalation, Stalemate, and Settlement, 2nd ed. (New York, NY: The McGraw Hill Companies, 1994). 16  Effective Conflict Management Individuals in conflict have two levels of concern: Concern about your own outcomes. Concern about the other’s outcomes. Dual concerns model’s five conflict management strategies. Contending is used for trivial issues, not complex issues. Yielding is helpful if you were wrong, not with important issues. Inaction is appropriate for cooling off, not to avoid a decision. Problem solving is for complex situations, not for simple issues. Compromise when power is equal or the problem is very complex. 17  Negotiation Chapter 02: Strategy and Tactics of Distributive Bargaining  The Distributive Bargaining Situation The target point is a negotiator’s optimal goal. The resistance point is a negotiator’s bottom line. The asking price is the initial price set by the seller. Both parties should set their starting, target, and resistance points before beginning a negotiation. The spreads between the resistance points (bargaining range, settlement range, or zone of potential agreement) are very important. When the buyer’s resistance point is above the seller’s, there is a positive bargaining range. Negotiations with a negative bargaining range are likely to stalemate. 2 The Role of Alternatives to a Negotiated Agreement Negotiators need to consider what they will do if they do not reach agreement with the other party. They need to know their BATNA and WATNA. Negotiators with a strong BATNA have more power and should be able to achieve more of their goals. Alternatives are important as they give negotiators power to walk away from any negotiation. Good bargainers try to improve their alternatives while negotiations are under way. Strong BATNAs can influence how a negotiation unfolds. 3  Settlement Point The fundamental process of distributive bargaining is to reach a settlement within a positive bargaining range. Both parties know they will One factor likely settle for less than affecting agreement their target point. satisfaction is They hope the agreement whether the parties will see will be better than their each other resistance point. again. 4  Bargaining Mix The package of issues for negotiation is the bargaining mix. Each item in the mix has its own starting, target, and resistance points. Some items are of obvious importance to both parties; others are important only to one party. As the bargaining mix gets larger, there is more opportunity for trade-offs. Bundling issues in the bargaining mix can yield better outcomes than negotiating issues one at a time. 5  Discovering the Other Party’s Resistance Point The more you can learn about the other party, the more likely you will be to strike a favorable agreement. At the same time, you do not want the other party to have certain information about you. Alternatively, you may want the other party to have certain information. Each side wants to obtain some information and to conceal other information. As a result, communication can become complex. 6  Influencing the Other Party’s Resistance Point A significant factor in shaping the other person’s understanding of what is possible is the other’s understanding of your own situation. Weaken the other’s resistance point. Reduce the other party’s estimate of your cost of delay or impasse. Take care when trying to Increase the other party’s estimate of their influence the own cost of delay or impasse. other party’s Reduce the other party’s perception of the resistance value of an issue. point. Increase the other party’s perception that you value an issue. 7  Tactical Tasks Within the fundamental strategies of distributive bargaining, there are four important tactical tasks. Assess the other party’s target, resistance point, and cost of terminating negotiations. Manage the other party’s impression of the negotiator’s target, resistance point, and cost of terminating negotiations. Modify the other party’s perception of their own target, resistance point, and cost of terminating negotiations. Manipulate the actual costs of delaying or terminating negotiations. 8 Assess the Other Party’s Target, Resistance Point, and Costs of Terminating Negotiations Indirect Assessment Direct Assessment Observations. The other party does not Consult readily available usually reveal accurate and documents and publications. precise information. Online discussion When at the limit or in need of groups. a quick settlement, the other party may explain clearly. Speak to experts. Methods of getting direct Indirect measures may information are complex. reflect the other’s reality. 9 Manage the Other Party’s Impressions of Your Target, Resistance Point, and Cost of Terminating Negotiations Screening Activities Direct Action The simplest way is to say as Use selective presentation. little as possible. Explain or interpret known Concealment is the most facts. general screening activity. Justify your positions and Another approach is calculated desired outcomes. incompetence. Display emotional reactions. Or channel all communication Lengthy, detailed presentation through a team spokesperson. of a point or position coveys Present many items for importance. negotiation, only a few of which are important to you. 10