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Playing hardball in a negotiation may help attain better deals in some situations, but often results in damaged relationships. Should you care? The standard view of negotiations and most negotiation advice leaves relationships out of the equation. It ignores the fact that value is created throughout the life of a business relationship, not only at the negotiating table. For example, if your negotiation counterpart feels strong-armed or upset with you, they may come away from the deal never wanting to see you again. Or, worse, their resentment could develop into a spiteful determination to harm you after an agreement has been reached—such as by slacking off on the job or leaving work earlier.
, an assistant professor of management at George Mason University’s School of Business, shows the economic implications of negotiators’ relationships, and how these economic implications affect how people negotiate. Her recent paper in (co-authored with Maurice Schweitzer at the Wharton School of the University of Pennsylvania) introduces the construct “ERRO” (the Economic Relevance of negotiators’ Relational Outcomes) to shed light on when negotiators should consider their future relationships.
In an online essay for underscores the importance of post-negotiation behavior, to identify when you should negotiate aggressively—and when you should not.", Hart and Schweitzer summarize their research that “
“ERRO reflects the extent to which a negotiator’s relational outcomes impact their counterpart’s post-negotiation behavior in a way that ultimately impact their final economic outcome,” the researchers write.
The laboratory experiments conducted for this paper were among the first to include a post-negotiation stage (see also ). The dual-phase structure enabled the researchers to distinguish high-ERRO contexts (in which damaging relationships to ensure short-term negotiation wins could harm your bottom line) from low-ERRO contexts (in which relationships are less economically significant).
For example, participants in one of the experiments played the role of a boss, negotiating salary with a new sales employee. The bosses’ payoff would depend on either the employee’s effort (reflecting a high-ERRO context), or on luck (reflecting a low-ERRO context). Participants not only rated their relationship with the employee as more important in the high-ERRO context, but also chose to negotiate less aggressively in the high-ERRO context than in the low-ERRO context—sometimes leaving money on the table in favor of building better relationships. This “softer” strategy paid off: Employees exerted much less effort for bosses who were aggressive. In the experiments, participants’ payoffs were dependent on their decisions. In real life, these decisions would have meaningful consequences for employee productivity, and thus economic outcomes for the company.
“Our research shows that in high ERRO contexts, better economic outcomes require better relationships. That is, in high ERRO contexts, the best way to obtain high economic value is to build a great relationship with your counterpart,” Hart and Schweitzer write.
In , the researchers describe the main implications of their research for negotiators.
The first step, they write, is to figure out whether you’re in a high-ERRO or low-ERRO context. To accomplish this, ask yourself how economically important it is that your counterpart walks away from this encounter with high morale. “Would [developing a great relationship] improve the value of the outcome you receive? If instead, you had developed a poor relationship with your counterpart, would that diminish the value you receive?”
The next step is to tailor the strategies you use to your assessment of ERRO. In a low-ERRO context, aggressive tactics may work fine, because they are less likely to detract from the desired outcome. In high-ERRO contexts, collaborative tactics, relationship-building and even bending a little on some key demands may generate more value in the end—while competitive tactics may harm the relationship and, in turn, the economic outcome.
When you negotiate, you should also remember that the same situation could be low-ERRO for you and high-ERRO for the counterpart(s), or vice versa. Think of a relationship with a service provider such as a dry cleaner or auto mechanic. You might want to establish a warm relationship with them, in hopes that they’ll take special care of your delicate possessions. This is even more crucial when it comes to housekeepers, caterers, and babysitters. But if the provider’s own economic outcome does not depend on their relationship with you (e.g., if you’ve agreed to a fixed price), they might view exchanges with you as a low-ERRO context. In this case, they may negotiate more assertively and not value the relationship themselves.
Assessing ERRO accurately for both yourself and those you negotiate with will help you figure out whether you should be fighting a battle or forging an alliance, and even whether you choose to negotiate at all.