Strategic Corporate Negotiations: A Framework for Win-Win Agreements [1st ed.] 978-3-030-15478-3;978-3-030-15479-0

Table of contents :
Front Matter ....Pages i-xv
A Theoretical Framework for Negotiation (Andrea Caputo)....Pages 1-28
Multilateral Negotiations (Andrea Caputo)....Pages 29-46
Contextualizing Negotiation in Strategy (Andrea Caputo)....Pages 47-63
Cooperation in the Automotive Industry Prior to the 2009 Fiat–Chrysler Agreement (Andrea Caputo)....Pages 65-82
Case Study: The Fiat–Chrysler Negotiation in 2009 (Andrea Caputo)....Pages 83-115
Conclusions (Andrea Caputo)....Pages 117-122

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Strategic Corporate Negotiations A Framework for Win-Win Agreements

Andrea Caputo

Strategic Corporate Negotiations

Andrea Caputo

Strategic Corporate Negotiations A Framework for Win-Win Agreements

Andrea Caputo University of Lincoln Lincoln, UK

ISBN 978-3-030-15478-3    ISBN 978-3-030-15479-0 (eBook) https://doi.org/10.1007/978-3-030-15479-0 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Pattern © Melisa Hasan This Palgrave Pivot imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To my family and to my friends, who always supported me.

Foreword

Written by Richard Cyert and James March in 1963, A Behavioral Theory of the Firm still represents, without doubt, a catalyst book in the study of how dominant coalitions take strategic decisions; in fact, since its publication, many strategic choices have started to be substantially considered as negotiated processes. On this basis, and especially because of the current hyper-complexity featuring our socio-economic system, understanding how strategic negotiations de facto happen, and how they could happen better, represents an important and lively area in the research on and practice of corporate decision-making. Win-lose and win-win scenarios, BATNAs, Reservation Prices, and third parties, but also heuristics, cognitive biases and the personality of who negotiates: in this exciting, constantly evolving, scientific context, this book written by Andrea Caputo (Lincoln Business School) contributes to the addressing of these simple, but meaningful, research questions: How can negotiations be currently conceived? How and why do they occur? How can the strategic negotiations be improved, in terms of results for all (not just some of) the parties involved? The reading of this book can be enjoyable for both scholars and practitioners. The former can find it useful because it constitutes an appropriate mix of theory and empirical evidence; this is also, thanks to the reported qualitative case study analysis, regarding the important negotiation that recently occurred between Fiat and Chrysler. The latter, at the same time, can find it valuable because it represents an easy-to-read, instructive, toolkit for enlarging the pie in many of the daily negotiations that happen in the corporate world at the top decision-making level. vii

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FOREWORD

Andrea has been the first graduate, then doctoral student, whom I have supervised at the University of Rome Tor Vergata; he has a passion for and interest in negotiations that started when he was a boy. I am so proud and happy that this passion, together with hard work and intellectual curiosity over time, has supported him in achieving international recognition in this field. Rome, Italy January 30, 2019

Gianpaolo Abatecola

Reference Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice Hall.

Preface

This work is intended as an attempt to answer the following questions, through a careful analysis of the literature and the study of a business case: How can strategic corporate negotiation support competitive advantage? What is the effect of the entry of third parties in a strategic corporate negotiation initially configured as bilateral? Can such entrance of third parties bring the strategic corporate negotiation from distributive to integrative? The book consists of six chapters. The first chapter, based on a review of the current literature on negotiation, provides the theoretical basis for the concept of negotiation. The concept of negotiation could be defined as a joint decision-making process, between two or more individual or collective actors, which identifies the features that characterize the negotiations and the fundamental elements of the negotiating structure: the parts, the subjects, and the interests. The second chapter reflects on the possibility of strategically manipulating the elements of the negotiating structure, deepening the theme of multilateral negotiations. The doctrine has identified three dimensions with respect to which multilateral negotiations differ from bilateral negotiations: scope, complexity, and heterogeneity. Multilateral negotiations therefore appear to be complex social interactions due to, on the one hand, the configuration of the preferences of several parties and, on the other hand, interpersonal dynamics that increase in complexity in line with the increase in the parties involved. Negotiators can benefit from amplitude, complexity, and heterogeneity. The existence of a negotiating configuration with several parties, often having different and mostly ix

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complementary interests, leads to the achievement of very satisfactory agreements. The third chapter investigates the relationship between strategy and negotiation, contextualizing the importance of negotiation for strategic success. The fourth chapter introduces the industry in which the business case is introduced: the automotive industry. This industry analysis is carried out starting from the elements of structural weakness in the sector. Strategic steps for crisis management are identified, deepening the theme of cross-­ sectoral cooperation. A theoretical analysis of this topic is provided, based on existing literature and historical analysis, investigating past cooperation agreements in the automotive sector. Once the reference context has been identified, the analysis of the business case is introduced in the fifth chapter, with an illustration of the methodology adopted and of the most relevant results achieved about the negotiation, and therefore the role of the third parties, between Fiat and Chrysler. From the experience of Fiat and Chrysler, it is possible to draw interesting research cues for the future, regarding the role played by third parties in negotiation, presented in the concluding sixth chapter. Lincoln, UK December 2018

Andrea Caputo

Contents

1 A Theoretical Framework for Negotiation  1 2 Multilateral Negotiations 29 3 Contextualizing Negotiation in Strategy 47 4 Cooperation in the Automotive Industry Prior to the 2009 Fiat–Chrysler Agreement 65 5 Case Study: The Fiat–Chrysler Negotiation in 2009  83 6 Conclusions117

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List of Figures

Fig. 1.1 Fig. 1.2 Fig. 1.3 Fig. 2.1

Composition of the negotiation process 11 Characters qualifying negotiations 11 Classification of negotiations’ typologies 26 Graphical representation of the RBC model, based on Weiss (1993)39 Fig. 2.2 Graphical representation of behaviors in the RBC model, based on Weiss (1993) 41 Fig. 2.3 Graphical representation of influencing conditions in the RBC model, based on Weiss (1993) 41 Fig. 3.1 A triangle-shaped framework of the essential characteristics of strategy50 Fig. 5.1 Negotiation tree by issue 107 Fig. 5.2 Negotiation tree by interests 109 Fig. 5.3 Graphical representation of interests and their influences (Caputo 2012)110 Fig. 5.4 Modification of the negotiating structure (Caputo 2012) 113 Fig. 6.1 A graphical application of the OMoN model to the Fiat–Chrysler case study 120

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List of Tables

Table 2.1 Table 2.2 Table 2.3 Table 4.1 Table 4.2 Table 5.1 Table 5.2 Table 5.3 Table 5.4

Example of a stakeholder map 36 Attribution of a percentage weight to the stakeholders 37 Utility matrix for the construction of a negotiation portfolio 37 The automotive industry in 2009 68 Strategic paths and ways of implementing the company in adaptation76 Chrysler sales in the ten years prior to 2009 94 Fiat–Chrysler negotiation main milestones 96 Preliminary agreement between Fiat and Chrysler 104 Stakeholder map of Fiat and Chrysler 105

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CHAPTER 1

A Theoretical Framework for Negotiation

Abstract  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. Keywords  Negotiation • Literature review • Theory

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 Author(s) 2019 A. Caputo, Strategic Corporate Negotiations, https://doi.org/10.1007/978-3-030-15479-0_1

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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

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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

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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.

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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

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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 particularly used for the development of a wide range of economic theories, ranging from the disciplined amends of the microeconomics to those of finance and business economics. Howard Raiffa, a very important scholar of trading theories, has played a prominent role since the beginning of his career in these fields, with particularly important contributions to game theory. The doctrine of behavioral decision theory, which has a descriptive orientation, is instead coming from mainly psychological studies, also with important uses in many disciplines related to the economy. Examples are the behavioral theories of consumers (as regards marketing) and also the theories about investors behavior in the financial markets (Shiller 2005).

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1.2.3   The Negotiation Theory and Other Theories on the Collectivity of Decision-Makers With reference to the theories focused on the collectivity of decision-­ makers, we will focus mainly on the theory of negotiation, as the subject of the book, and on game theory, as the theoretical foundation of the previous one, only marginally touching the others. One of the first approaches to decision-making processes characterized by a collective of decision-makers was, doubtless, game theory. Game theory, dating back to the work of von Neumann and Morgenstern of 1944, deals with the analysis of strategic interactions between decisions and between decision-makers (called players), endowed with absolute rationality and motivated by maximizing logic. Players have preferences differentiated from the outcomes and have a partial control of the situation, limited to their actions; they usually have a perfect knowledge of the situation, of the alternatives, and of the possible moves of the adversaries. Often the knowledge of the outcomes’ “values” and of the distribution of the probabilities of adversaries’ action is also assumed. The basic orientation is symmetrically normative (Raiffa et  al. 2002) because it identifies the “moves” that are excellent for all players, limited to a purely theoretical and abstract sphere, without any attempt to adapt to reality. Since the early 1960s, some scholars (Rapaport, Schelling, Walton, McKersie …) highlighted the fact that game theory did not seem a complete tool for the analysis of real decisions, especially for analysis of negotiations. According to Sebenius (1992), game theory had been particularly useful for understanding the functioning of repeated negotiations in highly structured situations. This provided important guidelines, principles, and hypotheses on the negotiation process, but at the same time, revealed its important limitations over time. Game theory, according to these scholars, seems to imply some limits in the negotiation field, which can be summarized in three points: (1) it provides too many balances; (2) it does not take into account limited rationality; (3) it does not take into account the information asymmetries and power relationships that trigger in situations. Therefore, its use in real negotiation situations seems limited. The other side of the coin was the psychological and sociological studies, but even these studies in the economic field seemed to impose limits due to the excessive size and particularization of the considered issues and scarcity of economic uses.

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Therefore, a third way was sought, the one of negotiation analysis, which took into account socio-psychological aspects, such as limited rationality and power relations, together with purely economic aspects. The first works in this regard can be considered two: the one of Fisher and Ury of 1981, closer to and influenced by the psychological and behavioral doctrine; and the one of Raiffa of 1982, closer to game theory and the mathematical-statistical disciplines. Later, many other works followed in the footsteps, including the 1986 work of Lax and Sebenius, which contributed to the creation of a strand in the managerial field. Initially, negotiation studies had developed mainly following personal experiences (Raiffa, Sebenius, Zartman) of scholars, in most cases, in political negotiations, such as the experience of Sebenius in the negotiations of the 1970s for the drafting of the law of the sea. Most of the aforementioned works were the result of in-depth studies and laboratory experiments carried out at Harvard University, within the Program On Negotiation (PON). The work by Raiffa (1982) is a summary of the laboratory and classroom results carried out during the university and post-graduate courses in the field of negotiations. It is surprising the creation of a real scientific laboratory to study, by combining psychology and statistics, the real behaviors during simulated negotiations. All this contributed, and is still contributing, to the construction of a theory of negotiations, of a prescriptive orientation, which develops a synthesis between “what is” and “what should be”. The developed theory of negotiations implies non-perfectly rational actors with emotional and cognitive limits, without a perfect and common knowledge of the situation, and therefore of the possible interests and behaviors of the counterpart, which do not pursue optimal solutions (Gatti 2008). It is no coincidence that the title of Raiffa’s work is “The art and science of negotiating”, admitting both the scientific component and the most strictly psychological and attitudinal component of “knowing how to negotiate”. It emerges that the theory is less quantitative and more qualitative, with a lower degree of mathematical formalization, which allows for greater practical utility and diffusion with respect to game theory. Furthermore, a new and important aspect is that negotiation theory takes into account the entry of facilitators (mediators or arbitrators) in the negotiation process. The study of such facilitators, often referred as external third parties, is not limited to the only investigation of their impact on the given negotiation, but rather provides operational suggestions and best practices for facilitators to do their role. Another fundamental characteristic, identified by Raiffa and colleagues, is the possibility of ­

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cooperating and forming coalitions (in the case of negotiations involving more than two parties). The reflection of Sebenius (1992) has a particular importance, which emphasizes some distinctive features of the theory of negotiations in relation to the limits of game theory. Three of these are worth emphasizing: • assumption of a “radical subjective perspective”: therefore, on the one hand, it is assumed that the evaluation of the probabilities about the events and the related outcomes is left to the parties and not to the configuration of the game; on the other, the subjective perceptions of the parties have a decisive importance; • assumption of the possibility that the parties “leave value on the table”: then the possibility of the existence of inefficient agreements is admitted; • focusing on the “zone of possible agreement”: with respect to the solution of the game, it is assumed that an area of possible positive agreement is needed to reach an agreement, admitting subjectivity in its assessment. Game theory, therefore, according to this approach, seems to be limited and insufficient in the negotiation field, also for what concerns the so-called cooperative games. In cooperative games, communication between the parties and the possibility of making binding and complete agreements is always admitted, assuming that once the agreement is reached, the parties will certainly respect it. Conversely, the possibility of a binding agreement is not permitted in non-cooperative games. In both cases, it is not presumed a collaborative spirit between the parties, an assumption that is explicitly made by the negotiation theory, which reflects reality. Moreover, in negotiation theory, the limit of the unreality of contractual completeness is exceeded, precisely taking into account the possibility of non-compliance with the agreements reached or renegotiation, with the consequent dynamics (Lax and Sebenius 1986; Raiffa 1982). Finally, negotiation theory always assumes the necessity, and not the possibility, of some form of communication and interaction of the parties. Negotiation theory is therefore configured as an overcoming of game theory, from which it draws its foundation, with a different underlying orientation adopted. Even if it is not the subject of this investigation, for the sake of completeness of the discussion, it is important to briefly quote the organizational

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theory of decisions and the behavioral game theory. The organizational theory of decisions has its roots in the behavioral theory of the company, whose main exponents are Simon, March, and Cyert. Also important are the contributions of Chester (1938) and the evolutionary theory of the company, which have greatly influenced all scholars of business economics, including the author. The basic orientation of the theory is common to that of the negotiation theory but puts the accent of its analysis on organizational behavior. Some fundamental aspects are reported, as recalled by Gatti (2008): (1) the ambiguity that pervades organizations; (2) the constant evolution of the organizational decision-making process; (3) incentives, sanctions, and the purpose of survival underlying the decision-making process and its results; (4) repetitive decisions that permeate the activity of numerous participants, especially at a lower level; (5) the pervasiveness of conflict in organizations, essentially conceived as political systems. From a systemic perspective, the organizational theory of decisions poses numerous insights into deepening regarding internal negotiations within the company, given its focus on the relationships and interactions of individuals. As for the theory of behavioral games, it attempts to merge the object of the investigation of game theory with the methods of experimental analysis of psychological matrix, assuming as hypothesis the limited ­rationality of the actors and a basic descriptive orientation, trying to make the traditional game theory closer to reality. Moreover, in the Italian management school of thoughts, there were numerous studies and theories that dealt with negotiation. Approaches are very interesting both in terms of commercial studies, with exponents such as Garrone, Caprara, and Zappa, and for the management doctrine, such as Ceccanti.

1.3   Characters Qualifying the Negotiation In this section, starting from the theoretical basis analyzed so far, we will proceed with the study of the characters that qualify a negotiation. To start, we report the definition of negotiation given by Gatti (2008) as a joint decision-making process that takes place between interdependent actors, who are defined parts of the negotiation; it is established between parties that reveal different preferences and, therefore, partially conflicting interests; it may conclude with an agreement between the parties; it implies a confrontation between the actors, with reciprocal ­

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c­ ommunication and exchange of material and immaterial resources; it has an opportunistic nature; it involves a creative research activity. As a process, the negotiation activity consists of qualifying characters, process steps, and process structure. It is considered of particular interest, for the purposes of this work, the deepening of every character of the negotiation and of the structures; as regards the phases, nevertheless, we will proceed synthetically (Fig. 1.1). In the diagram below, we divided, according to Gatti (2008), the characteristics that qualify the negotiations in terms of assumptions, methods, and nature of the negotiation process (Fig. 1.2). Characters qualifying negotiations

Negotiation phases

Negotiation structure

Fig. 1.1  Composition of the negotiation process Interdependence among the parts

Conditions

Conflict of interests Potential agreement

Characters qualifying negotiations

Ways

Communication and resources exchange Opportunism

Nature Creative research

Fig. 1.2  Characters qualifying negotiations

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1.3.1  The Conditions: Interdependence, Conflict of Interests, and Potential Agreement The conditions, interdependence between the parties, conflict of interests, and the potential of an agreement, are elements necessary but not sufficient to enable the negotiation process to take place. The lack of a condition affects the beginning of the negotiation and, therefore, its existence. 1.3.1.1 The Interdependence The first character reported by the definition emphasizes the existence of a relationship of interdependence between the parties. Thompson (1967) indicated that the interdependence related to the internal relations within a company can take three forms: • generic interdependence, a situation in which each component gives a discrete contribution to the whole, and each one is supported by the whole, consequently although without direct interaction, the result of each part is influenced by the performance of the other parts; • sequential interdependence, where direct and sequential interaction is necessary between the parties, the output of one is the input of the following and so on, so the action of each part is directly influenced by the upstream part and directly influences that downstream; • mutual interdependence, a situation in which the outputs of each part become the inputs of another, so there is both an accumulation and a serial aspect, and the peculiarity is the reciprocity of interdependence. Given this definition of the concept of interdependence in the negotiation real, the pursuit of objectives and the satisfaction of parties’ interests depends on, and is therefore conditioned by, at least in part, the behavior of one or more other parties, and vice versa. Strategically, every choice of an actor is influenced by the past and future choices of others, and in turn influences them. As a consequence, the negotiation outcome is strongly conditioned by this process of reciprocal conditioning. Interdependence therefore sets limits to the behavior of the actors. Numerous laboratory experiments, such as those carried out by Raiffa (1982), have questioned the desirability of having certain behaviors, whether they are positively or negatively judged by the parties, in relation to their effect on the other parts.

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But interdependence not only manifests itself and is nurtured in negotiation but represents, as already mentioned, a presupposition. This is because, following Ceccanti (1962), it should also be considered as communication. There could be no negotiating process between the parties if they did not communicate in some way; indeed, probably these would not even meet, or even consider negotiating something, not knowing what or with whom. For the purposes of this work, we cannot fail to note that interdependence and interaction between companies is a significant feature of the current socio-economic structure. In particular, as will be referred to below, companies need to cooperate with each other in order to respond to the competitive pressures that the processes of globalization have accentuated. The dynamics of negotiation and interdependence are therefore configured as the daily bread of companies and managers, more than in the past. The activity of companies as well as the one of institutions is increasingly conditioned by the context and behavior of the other actors. We are increasingly seeing the effects, both positive and negative, of widespread generic interdependence in and between markets, nations, and continents. 1.3.1.2 The Conflict of Interests The second assumption that qualifies a decision-making process as negotiation is the conflict between the interests of the parties involved. As will be seen in more detail in the paragraph on negotiating structures, the interests of the parties and their respective evaluations constitute one of the elements of the negotiating structure (Lewicki et al. 1992). The difference, however, between a generic decision-making process and a negotiation is not so much due to the configuration of the interests at stake, present in both cases, but rather concerns the evaluation that the parties have of the same issues and therefore the degree of contraposition (conflict) that is between the positions of the parties. Therefore, these interests do not have to be perfectly aligned or completely opposed (Rubin and Brown 1975). Since, in the first case, we would have a mere problem-­ solving activity, in the second, we would not have, as we shall see later, the requirement of the potential agreement, since there is no room for negotiation. On problem-solving activities, there is a theoretical dispute about whether or not it is a negotiation process. It is evident that for the definition of the negotiation process chosen in this work, it was not decided to

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configure them as such. However, we believe that problem solving is an important part (or tool) in the negotiation process. Gatti (2008) proposes a distinction between conflict as a situation and conflict as an activity. In the first case, we refer to the meaning of conflict of interests, understood as a divergence of views, and as such having a neutral perspective. In the second case, we mean the conflict as the activity of interaction, meeting, and comparison between parts of a relationship, and can have positive or negative connotations depending on the case. The concept of conflict meant in the present work is broad and neutral. Therefore, we do not propose evaluations regarding the positivity or negativity of the conflict, but rather the mere difference between the assessments of the interests at stake of the parties. We consider the objectives of the parties not completely aligned and not completely opposed. Conflict is an element that characterizes negotiations both as a situation and as an activity. The conflictual situation is configured as a prerequisite for negotiation, while the conflictual activity reveals itself as a moment of negotiation, placing itself at the base of the communication and carrying out of the negotiation process. 1.3.1.3 The Potential Agreement It has been said, therefore, that a certain level of conflict and divergence between the interests that cannot be completely opposed or convergent since it is necessary for the decision-making process to be qualified as negotiation. At this point, the third and last prerequisite of negotiation can therefore be introduced: the possibility of reaching an agreement. It is important to underline how in the theory is made reference not to the “need” to reach an agreement, rather to the “possibility” that it could be reached. Probably no negotiator would sit at the negotiating table knowing for sure that he could not reach an agreement. Therefore, an outcome of non-agreement is always conceivable, but there must be a probability assessment, although minimal, that the negotiation outcome leads to a satisfactory agreement. By satisfactory agreement, we mean an agreement that potentially meets the interests and objectives of the parties. The assumption of the potential agreement is strongly linked to those of interdependence between the parties and the conflict of interests. If understood in a virtuous sense, it is easy to imagine how the interdependence of the parties has the function of facilitating the identification of the potentiality of the agreement, just as a configuration of the interests that

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are not completely opposed, as already mentioned, represents a necessary condition because there is a potential agreement. From the previous statements emerges the need for a willingness to negotiate between the parties, a consequence of the triad of assumptions. Without the parties’ willingness to negotiate, it will be impossible for a negotiation process to begin or exist, in a way that would have a satisfactory outcome for the parties involved. 1.3.2  Negotiation Procedures: Communication and Exchange The fourth qualifying character of the negotiations concerns the field of methods of carrying out the negotiation and is configured as the activity of communication and exchange of resources and information. The communication and exchange of resources and information between the parties, as mentioned above, is a consequence of the interdependence between them and is necessary for the negotiation process to be carried out. The theme of communication, the one of resources and information exchange, has always been considered unique in the literature on negotiations. It could not be otherwise because the exchange to take place requires communication, and by communicating, even implicitly, we exchange information. Therefore, it is impossible to separate the two sides of the same coin. The negotiation process, in order to take place, not only requires communication and exchange of information and resources but is strongly influenced by them. In this regard, Rubin and Brown (1975) stated that the negotiators were highly influenced by the information they were able to obtain, which in turn influenced the other party with the information they intended to release. Thus, there is a mutual interdependence during the negotiation process due to this continuous exchange of information and, moreover, due to the methods of carrying out the communication process (Raiffa 1982). On this subject, Gulliver (1979) identified two processes that are simultaneously deployed during the communication and exchange process: 1. the cyclical process, which consists of the repeated exchange of information between the parties, with consequent reciprocal influence on their assessments, expectations, and objectives; 2. the development process meant as the progress of the negotiation toward its outcome.

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On the one hand, the parties will initially communicate and exchange information and resources needed for the conduct of the negotiation process. There are many examples in literature: the parties will need a place and the necessary equipment to negotiate; if a group of negotiators does not reside in the place of negotiations, they will have to proceed with their transportation and accommodation. The examples are innumerable and let us understand, as we will see with reference to the phases of negotiation, that a pre-negotiation will have to be carried out to establish the aspects of the actual negotiation. On the other hand, consequently, the parties will have to communicate and exchange resources also during the negotiation. This exchange can be directly linked to the object of the negotiation (e.g., transfers of resources to guarantee), or it may be tied to the needs of the negotiators to fulfill their role (e.g., the supply of meals, housing …). Deepening further the field of communication methods, Raiffa et  al. (2002) have basically identified three communication settings that the parties can put in place during the negotiation process. It is important to clarify that in the work, we will refer to the generic “the parties”, but we must not understand it from a perspective of behavior symmetry. Moreover, the parties can not only set the communication asymmetrically, but they can change it during negotiation, and it is not certain that the adopted approach is explicitly revealed. Studies on the strategic use of communication have produced some conflicting results and have revealed, over the years, that there is no better modus operandi. The appropriate style should be strategically adopted according to the situation. It is therefore important for the negotiators to have a complete mastery of techniques and theory. Full, Open, Truthful Exchange (FOTE) is the setting with which the parties decide to communicate in a sincere and fully transparent way, keeping no secrets from each other. It can be said that the parties adopt a fully cooperative behavior. In Partial, Open, Truthful Exchange (POTE), the parts are still sincere but adopt a partially transparent setting; the parties omit what they do not want to say but what they say is the truth. No Open Truthful Exchange (NOTE) implies that the parts interact in a completely false way. In this case, the parties adopt a non-cooperative behavior, trying to mislead the other party in order to obtain individual advantages. Of particular importance is the relation of cause and effect that the theory has identified between the role of the negotiator, both within the

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negotiation and within the part in the case of non-monolithic parts, and the communicative style adopted. In essence, it has been identified that the choice of communicative style is influenced not only by the characteristics of the person and the situation, but also by his role. The aspect of the role of the parties and of the personality of the negotiators will be discussed in greater detail later in the work. 1.3.3   Nature: Opportunism and Creative Research The third and last aspect of the features that characterize the negotiations concerns the nature of the same; in turn, this nature is distinguished by being opportunistic and aimed at the search for creativity. Undoubtedly, from the arguments presented on the concepts of conflict of interests and communication, it is clear how the negotiation is permeated in its development by the opportunistic behavior of the parties. Gatti (2008) defines opportunism, through an excellent metaphor, as the “compass of negotiation interaction”. As the concept of conflict of interests, opportunism should also be understood in a broad and neutral sense (meant as an entrepreneurial spirit) and therefore free from judgments about positivity and negativity. This is because all relationships between human beings are permeated by opportunism. In the same way, the behavior of companies, seen as systems of relationships between parties (Cafferata 2009), underpins the same opportunistic tension of the participants. Bearing this in mind, it is clear that the parties participate in a negotiation process according to a principle of convenience, following a logic of individual rationality. Depending on whether this rationality is configured as pure or reciprocal, there are behaviors aimed at pursuing satisfactory results for the part independently of the joint result, or, they are oriented toward the pursuit of jointly satisfactory results. In this regard, as will be focused later in the discussion of multilateral negotiations, it is illuminating the thinking of Raiffa, according to which, during the negotiations, links are triggered to even external factors/relationships to the specific object that guide the behavior of the parties—for example, the possibility of obtaining joint future benefits or linking with other businesses with the same party. Therefore, it is not said that the parties behave selfishly, rather they possess a tendency, even if an opportunistic way, to look for joint results. This allows the connection with the last of the characters of negotiations: creative research. The creative research activity of joint solutions

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underlies the whole negotiation process and differentiates it from other decision-making processes. In the negotiations, it has been said, the goal is to reach a potential satisfactory agreement jointly; to do this, it is necessary that the parties engage in the search for solutions in order to balance the different interests involved and bring positions closer together. Gulliver (1979) notes how negotiation qualifies itself through a dynamism of exploration and learning that leads to changes in interests, objectives, expectations, evaluations, and solutions.

1.4   Phases of the Negotiation Process Many scholars tried to identify the phases in which the negotiation process is concretely articulated. Some acted according to the type of negotiation, others through more generic ways. Given the vastness and breadth of the field of investigation, no exact route has been identified, rather a huge number of negotiation models have been reached to explain contingent situations. The usefulness highlighted by Lewicki and colleagues of a study and a model and phase approach is undoubted (1992). However, it is impossible to identify a univocal way. Therefore, the literature has proposed several models to which negotiators can refer to their work in order to do it better. One of the most complete models for phases seems to be the one identified by Gulliver (1979), which sees the articulation of the negotiation process in eight phases: . the search for the arena; 1 2. the definition of the agenda; 3. exploration of the field and clarification of negotiation issues; 4. approach of the details; 5. preparation of the final negotiation; 6. final negotiation; 7. formalization of the outcome of the negotiation; 8. implementation of the outcome of the negotiation. A more concise approach, in which four phases are identified, is that of Graham and Sano (1989): 1. general sounding; 2. specific information exchange;

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3. persuasion; 4. concessions and agreement. In both cases, the existence of a preliminary negotiation is recognized for the choice of the rules, the place and the object of the negotiation, followed then by the actual negotiation. It is important to specify that the setting up of a phase-based negotiation according to a model does not guarantee the possibility of reaching a satisfactory agreement, although it may facilitate it.

1.5   The Characteristic Magnitudes of Negotiations While dealing with a distributive, integrative negotiation, with one or more issues, dealt with by one or more parties, you will have to deal with the zone of possible agreement (ZOPA). The simplest case is constituted by a two-party distributive negotiation on one issue, and it can be represented with a bidirectional straight line (monetary axis). Ideally, on one side, there is the part that intends to minimize the outcome of the negotiation (buyer) and on the other is the one that wants to maximize it (seller). The ZOPA also represents the following quantities for each part: • The open request, that is, the value initially revealed to the other party for the start of negotiations. It is usually a much lower (high) value than the buyer’s (seller’s) target. As Raiffa (1982) pointed out, even if the point of agreement in this type of negotiations tends to stand around the average between the opening values, opening with an excessively low (high) value for a part can bring considerable disadvantages, for example, the indisposition of the other part or even the interruption of the negotiations. • The target price, that is, the value that ideally would be achieved by each party at the close of trading. • The reserve price, that is, the point above (or below) which the buyer (seller) wishes to abandon the negotiations. Each bargainer knows his or her reserve price but has only probabilistic information about the other party’s reserve price. Very often the parties have an imprecise feel for their own reserve price and make no formal attempt to assess the probability of the other party’s reserve price.

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• The point of possible agreement, that is, an abstract estimate of the probable point of agreement, for theoretical purposes. • The zone of possible agreement (ZOPA) represented between the reserve price of the buyer and that of the seller. So, if this is positive, there is a possibility between the parties to reach an agreement that is considered positive for both. For our purposes, it is useful to further specify the concept of reserve price. Introduced by Raiffa (1982), this concept has been repeatedly studied and often contrasted with the concept of resistance point (Blount-­White and Neale 1991). In both cases, however, we start from the same point to carry out the analysis: the concept of “best alternative to a negotiated agreement” (BATNA), introduced in the contents by Raiffa and then detailed in form by Fisher et al. (1981). According to these theories, the reserve price is determined by each party through an assessment of the contractual alternatives and the transaction costs associated with these and the failure to reach an agreement. Raiffa proposes a scientific evaluation by the parties based on rigorous calculations and probability distributions. The Blount-White and the Neale, on the other hand, introduce the psychological factor and a series of subjective evaluations on the preferences of the agreement or the alternative in the analysis of the parts. It seems useful to arrive at a synthesis that takes into account a rigorous analysis, psychological factors and, as regards the negotiations that affect the business world, environmental factors. In fact, we are increasingly witnessing negotiations strongly influenced by the context and by forces, apparently, external to the negotiating object. For example, think about the role of the institutions and the trade unions in the negotiations of company merger or closure of a production site. Gatti (2008) points out that, although the literature has so far focused on the concept of reserve price, in the real negotiations, the parties’ objective is a very important value. The focus on the objective, if not accompanied by the careful consideration of the reserve price, generates an anchoring effect to this dysfunctional value for the positive outcome of the negotiation. For a conscious part of this, it is therefore also useful to analyze and take into consideration the “zone of aspiration levels” of one’s own and of the other part, that is, the difference between the objectives of the parties.

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1.6   The Structure of a Negotiation By negotiation structure, we mean the set of components and relationships between components that underlie the negotiation as a joint decision-­ making process (Gatti 2008). One of the first and best moments in identifying the generic negotiating structure was that of Sebenius in his work in 1986: the author indicates four basic elements that can be found in every negotiating situation, be it the simplest or the most complex. • Interests, issues, and positions. By implying the existence of parties with a willingness to negotiate, the author makes a first distinction between the configuration of interests, the issues of negotiation, and the relative positions of the parties. The connection between the three elements is rarely simple; as we initially said the negotiations are permeated by the interdependence between the parties and therefore between their behaviors, thoughts, and positions. Therefore, we often find ourselves in situations of negotiating impasse due to convergent interests, but to positions that are considerably distant and divergent; often incompatible positions hide the same interests. So, the author proposes to the negotiators to deeply investigate their own configuration of interests together with that of the other party, avoiding to stay focused only on the initial positions and issues; the issues can be added or strategically removed in the course of the negotiation to meet the common interests of the parties. • Alternatives to negotiated agreement. People negotiate in order to satisfy the totality of their interests better through some jointly decided action than they could otherwise (Sebenius 1992). Sebenius, taking up Raiffa’s concept of the Best Alternative to a Negotiated Agreement, highlights how each part is during the negotiation and the evaluation phase of the reached agreement, making comparisons with its own best alternative. Therefore, the alternative turns out to be an internalized element of the negotiating structure and as such changes over time and influences the parties in their positions, issues, and interests. The author’s advice is to use scientific techniques for the objective evaluation of alternatives. It seems undoubted, remembering what has been said about the opportunistic nature of the parties’ negotiation behavior, that a better alternative achieves a lower “interest” in continuing the negotiation. It is therefore essential for the negotiators, especially for the “most interested” part (or without

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a “best alternative way”), to evaluate and know the respective alternatives and evaluations on the matter. • Creating and claiming value. Sebenius does not adhere to the distinction, which will be seen later, between distributive (fixed pie) or integrative (expandable pie) negotiations. His concept is not explicitly starting from the analysis of the negotiation itself but rather from the analysis of the behavior of the parties. In this context, a classification is carried out according to which the parties behave as value creators or as value claimants. So, it is the behavior of the parties that leads the negotiation on a distributive or integrative plan. Sebenius imagines a straight line with the two types of negotiators at the ends. Valuable creators tend to believe that the most effective negotiators should have sufficient inventiveness and collaborative spirit to reach an agreement that looks favorably preferable in relation to their respective external alternatives. They behave in a cooperative way, focusing on differences of interests, revealing information to the other party, and approaching the negotiation not as a clash but as a collaborative process. Communication and information exchange, when done properly, can help negotiators create value together. The impulse to create value, discovering mutual benefits, requires a certain ingenuity and mastery of a series of techniques and attitudes: techniques and attitudes aimed at facilitating that process of creative research implied by every negotiation. Fisher et al. (1981) are supporters of this line and take as an example the negotiations between Israel and Egypt for the Sinai border, solved thanks to the discovery of the true interests of the parties that were different and a creative solution that was satisfactory for both. Finally, value creators argue that common interests must be explored and cultivated with regard to the substance of the negotiation. To create value, we must find common advantages for each of the participants, where to create value means to enlarge the pie. On the other hand, the value advertisers are positioned: these tend to consider the search for common advantages to be of little use, considering that negotiation is a hard and ruthless bargaining (Lax and Sebenius 1986); their orientation is based on the concept of negotiating victory to the detriment of the other party, not admitting the possibility of a victory for both. The value advertisers adopt noncooperative behavior: they start from high demands, they give little by little, they exaggerate the value of the concessions made, they minimize those of others, they keep our information confidential, they try

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to mislead the opponent, and they adopt a hard and firm negotiation style on their positions and principles. The synthesis between the two “sides” is not simple, as it is easy to imagine and as the theory has amply illustrated: the ­negotiator is the victim of the dilemma whether to act as a creator of value or as a complainant. The dilemma of the negotiator is a version adapted to the negotiations of the very famous prisoner’s dilemma that is studied in game theory. Negotiators get the maximum common advantages in case they have both cooperative behaviors; they get mediocre agreements in case neither of them chooses to cooperate, while in case of asymmetric behaviors, the one who cooperates receives “less” than the mediocre agreement and the one who claims receives “more” than the good agreement. This happens because, on the one hand, the tactics to claim value can prevent its creation, and on the other hand, the attempts to create value can be damaged by the tactics that aim to claim it. In the tactical choices, the negotiator is led not to manifest openness and collaboration. The literature does not provide a solution to the dilemma: its existence is recognized but at the same time it is recognized that the distinction between creating and claiming is not so clear cut. Therefore, the knowledge of negotiation theories and tools, added to a good dose of art in knowing how to negotiate (Raiffa 1982), can limit and sometimes eliminate the negative effects of the dilemma. • Changing the game. The last element illustrated by Sebenius is the one concerning the possibility of changing the game during the negotiation, relevant to the evolution of the negotiation. The author points out that the elements presented so far are subject to change during the negotiation—change that, on the one hand, is implicit and natural in the evolution of the negotiations and, on the other hand, can be strategically driven by the parties. It is therefore possible to modify the issues in a strategic way both toward creating value and claiming value. In both cases, the strategic routes are not absolute and net but involve trade-offs on the effects. For example, joining questions to widen the zone of ​​possible agreement by exploiting the divergences of interests between the parties is undoubtedly a useful strategy to create value, but at the same time, can have negative implications, when it complicates the negotiating activity or destroys the possibility to resolve other issues. Symmetrically, the provision or separation of issues can simplify the negotiation process, but can entail complications for reaching agreements on other issues.

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The same can be said for strategies for claiming value, in addition to the issues the participants can change (this aspect will be examined later on, as the specific object of the work is precisely the effect of the entry of new parties in the negotiation between companies). Furthermore, it is possible to strategically manipulate interests: on the one hand, it is possible to put in place actions in order to evoke interests aiming to create a common value and, on the other hand, it is possible to avoid interests judged negative for reaching a satisfactory agreement for the parties. All these “moves” can also be used as a threat to the other party; for example, by linking new issues and new interests, you can anchor the outcome of one negotiation to another in which the other party has significant interests at stake. Even in this case, literature does not identify unique and excellent ways. Instead, all the possible strategies are defined, trying to create a culture for the negotiators so that they can use them in the necessary moment, putting them on guard of the possible unexpected and negative implications that they may have. Adhering to the setting of Gatti (2008), which makes a synthesis of the theories developed so far, a negotiating structure consists of three fundamental elements: • the parts involved; • the subjects, matters, or issues subject to negotiation; • the preferences and, therefore, the interests of the parties, which give rise to their positions. This approach allows the classification of negotiations according to the three elements. Number of parties involved. This classification distinguishes the two-­ party negotiations, bilateral or dyadic, from multi-party or multilateral negotiations (Raiffa 1982). The same distinction can be made for the single party. This, in fact, can be individual or collective, depending on whether to negotiate with either an individual or a group/organization; within it, the group/organization can be configured as homogeneous or not, and in the same way, monolithic or not, depending on whether the decisions taken in the negotiations have to be ratified or not. It is undoubted that the increase in the parts or their heterogeneity entails a complication of the negotiating dynamic, as will be seen in the next paragraph.

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Number of issues. This criterion distinguishes the negotiations according to the number of subjects, matters, or topics (issues) in question: it is therefore possible to distinguish the negotiations for a question from those for more questions (Raiffa 1982). Also, the increase in issues, as for the parties, is a complicating factor in the negotiation process; in the same way, however, the increase in the issues may involve bringing the parties closer together, widening the area of ​​possible agreement, and may lead the negotiations from distributive to supplementary. Therefore, even if it involves a complication of the negotiating dynamic, this can be counterbalanced by favorable dynamics to reach a better final agreement. In this regard, the literature identified three fundamental approaches to dealing with issues through the analysis of experiences in important negotiations: (a) “the one-text approach” used in the Camp David negotiations between Israel and Egypt in the 1970s (Raiffa 1982), and frequently used in multilateral negotiations, consisting in the drafting, often by a mediator, of an initial draft agreement that takes into account the interests of the parties, which is then submitted, in turn, to the revision of the parties, in a cyclic and continuous process in order to reach agreement; (b) “the question-­ by-­issue approach”, one of the first approaches used in reality and analyzed by literature, frequently used in the case of “simple” negotiations with monolithic parties and not too divergent interests (Raiffa 1982) consisting in tackling the issues in a sequential manner, gradually reaching agreements on one issue at a time; (c) “the package approach” is based on grouping the issues into homogeneous classes, then continuing with the negotiation package by package, in a sequential way, this approach can be used if the issues are easily grouped into classes; otherwise, the negotiation for the grouping could become an element of further complication. The configuration of the interests of the parties. On the basis of the classification criterion according to the configuration of the interests of the parties, it is possible to distinguish the negotiations in distributive or integrative terms. The former are also called win-lose or fixed pie, while the latter are called win-win or expandable pie (Pruitt 1981). Distributive negotiations are set up by the interests of the opposing parties and in conflict with the subject of the negotiation, which as we said earlier may be one or more issues. The main characteristic of these negotiations, widely used in the literature for educational purposes (game theory), is that the object of negotiation is not expandable. Consequently, negotiation is focused on the division, and distribution, of the benefits deriving from the subject negotiated. The negotiation, therefore, will take place through a

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series of concessions of the parties in order to get closer to a satisfactory point of agreement. Raiffa (1982), in his laboratory experiments, has identified how ­statistically the point of agreement falls back on the average of the values announced ​​ as first offered by the negotiators. However, other studies emphasize the values of reserve or resistance (Blount-White and Neale 1991). Vice versa, the additional negotiations have the characteristic of having a configuration of the interests of the parties that are not totally opposed and above all of having the object of expanding negotiation. Hence, there is a dual difference with respect to distributive negotiations. First it is concerning the interests of the parties, which often have different valuations of the subject or different and non-conflicting interests. Second is the nature of the subject of the negotiation, which, also thanks to the difference in parties’ views, is changing. It is undoubted that the possibility of reaching a better agreement for both parties is more probable in integrative negotiations than in distributive ones. In fact, the literature prescribes that negotiators seek to bring the negotiation from

Fig. 1.3  Classification of negotiations’ typologies

Number of parts involved

Number of issues

Configuration of interests

Bilateral negotiations Multilateral negotiations One-issue negotiations Multiple-issues negotiations Distributive negotiations Integrative negotiations

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distributive to integrative through ad hoc strategies, an issue that will be further explored in the work (Fig. 1.3). The aforementioned classification in the current world seems to have a value, albeit of great importance, merely theoretical. This is because, as seen in detail in this paragraph and in the final chapter in which the business case will be discussed, it is very difficult, in the economic field, to find real negotiation situations in which the parties involved are only two, the issue is only one, and negotiation is merely distributive. Often indirectly related parties (e.g., the role of trade unions in a merger or business acquisition case, or the role of institutions in the negotiations for the construction of a new production site, and so on) have the option, and the interest, to enter into negotiation and influence its outcome and trend. Or, through the so-called arithmetic of questions (Sebenius 1992), the addition or subtraction of questions often leads to negotiations on different levels from the initial ones, and the link to other questions, albeit external to the object, leads negotiations to be mostly integrative.

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Giudici, M. (2004). Relazioni industriali: relazioni sindacali, sistema contrattuale, tecniche negoziali, legge Biagi (Vol. 5). IPSOA. Graham, J., & Sano, Y. (1989). Smart Bargaining: Doing Business with the Japanese. New York: Harper Business. Gulliver, P.  H. (1979). Disputes and Negotiations: A Cross Cultural Perspective. New York: Academic Press. Lax, D. A., & Sebenius, J. K. (1986). The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain. New York: Macmillan. Lewicki, R. J., Weiss, S., & Lewin, D. (1992). Models of Conflict, Negotiation and Third Party Intervention: A Review and Synthesis. Journal of Organizational Behavior, 13(3), 209. Retrieved from http://proxygw.wrlc.org/ login?url=http://search.proquest.com/docview/224870043?acco untid=11243. Mariani, M. (2009). Decidere e Negoziare: Concetti e Strumenti per l’Azione Manageriale. Milano: Il sole 24 ore. Pruitt, D. G. (1981). Negotiation Behavior. New York: Academic Press. Raiffa, H. (1982). The Art and Science of Negotiation. Cambridge, MA: Harvard University Press. Raiffa, H., Richardson, J., & Metcalfe, D. (2002). Negotiation Analysis: The Science and Art of Collaborative Decision Making. Cambridge, MA: The Belknap Press of Harvard University Press. Rubin, J.  Z., & Brown, B.  R. (1975). The Social Psychology of Bargaining and Negotiation. New York: Academic Press. Rumiati, R., & Pietroni, D. (2001). La negoziazione. Milano: Raffaello Cortina Editore. Sebenius, J.  K. (1992). Negotiation Analysis: A Characterization and Review. Management Science, 38(1), 18–38. Retrieved from http://search.ebscohost. com/login.aspx?direct=true&db=eoah&AN=21189031&site=ehostlive&scope=site. Shiller, R. J. (2005). Irrational Exuberance (2nd ed.). Princeton, NJ: Princeton University Press. Simon, H. A. (1957). Administrative Behaviour. New York: Macmillan. Thompson, J. D. (1967). Organizations in Action. New York: McGraw-Hill. Zartman, I. W. (1977). Negotiation as a Joint Decision-Making Process. Journal of Conflict Resolution, 21(4), 619–638.

CHAPTER 2

Multilateral Negotiations

Abstract  This chapter continues the analysis of the literature on negotiation set out in the first chapter. What is the effect of a third-party entry in a negotiation initially configured as bilateral-distributive? Can the entry of third parties bring multilateral negotiation from distributive to integrative? In which way? To answer these questions, it is necessary to deepen the study of multilateral negotiations: we will start from the presentation of the thought of Sebenius (Negotiation Analysis: A Characterization and Review. Management Science, 38(1), 18–38, 1992) that identifies the possibility of modifying the number of parties as a strategic aspect of negotiation, then moving on to the theoretical discussion of multilateral negotiations, together with the presentation of some models and analysis tools useful for the negotiators who face them. Keywords  Multilateral negotiations • Multi-party • Literature review • Integrative agreements • Negotiation arithmetic

© The Author(s) 2019 A. Caputo, Strategic Corporate Negotiations, https://doi.org/10.1007/978-3-030-15479-0_2

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2.1   Changing the Negotiation Structure: Negotiation Arithmetic This paragraph traces the thought proposed by Sebenius (1992) concerning the “Negotiation Arithmetic” and specifically the possibility of modifying the negotiating structure, with reference to the parties, the motivations, and the effects of such strategic manipulations. Addressing this topic is necessary as the specific subject of the book is precisely the investigation of negotiating dynamics in which new parties enter the negotiation. For the specific discussion on multilateral negotiations, please see the next paragraph. As previously mentioned, Sebenius (1992) focused his attention on the possibility of changing the negotiating structure; compared to previous studies, a novelty factor was the consideration that the parties could change even during negotiation, not only internally, but also in terms of the number of participants. Therefore, the scholar has noted how often external parties, with interests related to the issue being negotiated, could enter a negotiation. It has already been said how changing the structure of the issues can bring benefits, meeting converging or complementary interests of the parties and making it possible to reach potentially more advantageous agreements for both parties. According to the Sebenius approach, the parties can enter or leave the negotiation in various ways: by a unilateral decision of an interested party, by a vote of the original parties, or through a unanimous agreement of the original parties. In the same way, participation in the negotiation can be explicit or tacit. The presence of an interested party may or may not be required to reach an agreement, but in any case, this could exert a significant influence on the conduct of the negotiations. Sometimes a party may be necessary to change the issues; some other times, the entry, or exit, of parties with collateral interests may have significant effects on the outcome of the negotiation. The cases can be innumerable; it must therefore be specified that Sebenius refers to parties that have direct or indirect interests in the matter. It is evident how the modification of the number of parts and of the issues, especially in the case of an increase in the number, intrinsically leads to complications in the negotiation process. In this regard, Sebenius (1992) states that the more parties (and issues), the higher the costs, the longer the time, and the greater the informational requirements for a

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negotiated settlement. Manipulation of the parties can alter these characteristics. Sebenius’ study identifies how positive the addition of parties to a negotiation can be when they have tangible interests, or they can substantially influence the negotiation: facilitating the entry of these parties can strengthen an existing coalition or contribute to forming one, thanks to a leverage effect due to links with new interests and issues. The exit of parties from negotiation, and vice versa, can take place for the opposite reasons: to reduce the complexity of the negotiation process, to reduce information costs, and to implement agreements shared by the majority of original participants. Consequently, the following conclusions can be drawn from Sebenius’ thinking: • changing the number of parties can alter the “Zone of possible agreement” compared to the original configuration; • it is not necessary that the parties have tangible interests with respect to the subject of the negotiation; sometimes they may have institutional reasons; • adding parties can reduce, or eliminate, the risk arising from the negotiation between the original parts or make the implementation of the agreement more “secure”; • the increase in the number of parties can modify the strategic aspects of the negotiation, improving or worsening the consequences of a missed agreement. Therefore, it is important to thoroughly analyze the environment surrounding the negotiation.

2.2   Multilateral Negotiations As mentioned above, negotiations can be classified according to the number of parties involved; this classification makes it possible to distinguish between bilateral, or dyadic, and multilateral, or multi-party negotiations. In order to identify the theoretical basis for the study of multilateral negotiations and to understand how the literature has so far answered the question of negotiating dynamics in multi-party cases, we will proceed with the analysis of the differences with the two-party ones, and then we will analyze the main theories. Since the arguments are believed to be

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closely interlinked, the effects on issues and interests during multilateral negotiations will also be analyzed in the paragraph. Most of the theories highlighted for bilateral negotiations are also applicable to multilateral negotiations. For this reason, we decided to deal in these two chapters of theoretical introduction first with the general aspects common to both types of negotiations and then those characteristics of multilateral negotiations. 2.2.1  Definition and Characteristics There’s a world of difference between two-party and many-party negotiations (Raiffa 1982). The dynamics that develop in two-party negotiations are totally different from those that develop in multi-party negotiations. The main difference with bilateral negotiations, of course, involves the greater number of unified and distinct parties involved—individuals, groups, or organizations. Multilateral negotiations are characterized by participation in the negotiation process of more than two parties. The theory recognizes the existence of a party according to not only the interests the party has in the negotiation, but mostly according to its status as participant in the negotiation, as recognized by the others. Mainly, the doctrine has identified three dimensions with respect to which multilateral negotiations differ from bilateral negotiations: amplitude, complexity, and heterogeneity. This analysis is attributable to Kramer (1991), who assumed that the differences between the two types of negotiations were first, in terms of their “size” (i.e., the number of parties involved in the negotiation process); second, in terms of their greater complexity; and third, in terms of the greater degree of social differentiation or heterogeneity between the parties involved in them. Regarding the size, multilateral negotiations are shared by several parties, each with its own configuration of interests and its position. Therefore, these negotiations often result in being more problematic; they are characterized by a greater breadth than bilateral negotiations, on terms of number of parties, complexity of the issues and interdependence of the interests. It is certain that having a greater number of parties at stake leads to negotiating dynamics at a higher level of complexity than in the case of only two parties; this complexity results to be a direct effect of the contemporaneity of the presence of amplitude and heterogeneity. Indeed, greater amplitude undoubtedly leads to greater heterogeneity as regards

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questions, interests, and parties, and this leads to a complication of negotiating dynamics. Complexity here is not seen as negative. In fact, the complexity of the dynamics of the negotiation process is not to be understood as the greatest difficulty in reaching a satisfactory agreement; rather, it must be understood in a neutral sense of the word, as mere procedural complexity. Through ad hoc techniques, as we have seen in the previous paragraphs, negotiators can benefit from amplitude, complexity, and heterogeneity. The existence of a negotiating configuration with several parties, which often have different, mostly complementary, interests can lead to the achievement of very satisfactory agreements. With regard to these complications and differences in negotiation dynamics, Gatti (2008) identifies three analysis plans: (1) the information/computation plan, (2) the procedural plan, and (3) the strategic/ relational plan. • Information/computational plan. In terms of multilateral negotiations, the timeframe for reaching the agreement is lengthening and its achievement is more laborious than in two-party negotiations. This is due to the greater volume of information to be acquired and assessed for the parties, as well as to the likely extension of the issues being negotiated. One of the most fundamental consequences of increasing the number of actors is that the negotiation situation tends to become less lucid, more complex, and therefore, in some respects, more demanding. First, as size increases, there will be more values, interests, and perceptions to be integrated or accommodated. This means that an actor will have to consider more interests when deciding on his moves, as well as that there are more moves and systems of interaction to be coordinated. Second, since there are more interests to consider, there will probably also be more uncertainty as to the interests and motives of some of the others and as to their perceptions of one’s own utilities (Lewicki et al. 2014). • Procedural plan. Relevance in multilateral negotiations is assumed by the processes of simplification and regulation of the interaction between the parties: for example, criteria and negotiating rules can be established explicitly, clearly, and coherently and in a stable manner (Gatti 2008). Therefore, the preliminary negotiations, called

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meta-negotiations, which define the negotiating rules in force during the negotiation process, assume importance; these rules should take into account the widest possible spectrum of cases, in order not to omit “holes” that may give room to negotiating impasse or removal of the parties. Otherwise, given the number of actors and issues, there could be situations of confusion regarding the interests of the parties, the manifestation of their will, and the partial results achieved or attainable. • Strategic/relational plan. Regarding the strategic/relational plan, the distinguishing feature of multilateral negotiations is the opportunity to form coalitions between parties and therefore, the possibility to reach an agreement with some of the parties involved in terms of obtainable relative advantages. Due to the characteristics of multilateral negotiations, the possibility of meeting the interests of the parties by widening the issues is also relevant. The connection with other negotiations can play a fundamental role in the formation process of coalitions (Raiffa 1982). 2.2.2  The Role of the Parties and the Conflict of Interests In multilateral negotiations, negotiators find themselves having to cooperate in order to reach a mutually acceptable agreement and, simultaneously, want to compete in meeting their individual interests—interests that can align with those of the other parties (Fisher et al. 1981; Polzer et al. 1998). Multilateral negotiations result, therefore, in complex social interactions due, on the one hand, to the configuration of the preferences of several parties, and on the other hand, to the interpersonal dynamics that increase in complexity in line with the increase in the number of the parties involved. It is evident that the role of the negotiating parties is crucial in multilateral negotiations. This is because the art and science of knowing how to negotiate is necessary (Raiffa 1982). The negotiating parties can be of many different kinds: a consumer advocacy group, an association, an environmental group, a trade union, a government, a company, a public body, a government agency. The literature has pointed out that one of the first needs of a negotiator involved in multi-party negotiations, as well as for two-party negotiations, is to know the issues that are being negotiated. It may happen that these are subject to connections with each other, or they are diametrically

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­ ifferent as it could also happen that they are not well specified. As previd ously mentioned, with an increase in the number of parties, the negotiation process is more complex in all its aspects. As a consequence of this, the first thing to understand is the negotiating situation in which we find ourselves (distributive or integrative) through the analysis of the interests at stake. At this point, it is useful to introduce the concept of negotiating power— power that is acquired from one party to another already with a correct and structured information-gathering activity. In negotiation, negotiating power derives from situations of asymmetry in the aspects of the negotiating structure: obviously, the party that has an advantage over the other deriving from these asymmetries acquires negotiating power. Thus, one party can have a negotiating advantage deriving from an information asymmetry due to the knowledge of the interests of the other party, for example. This can also have an advantage on the side of the issues, for example, a party that can exploit the link to new issues gains negotiating power. Think of the case of negotiations between a company in crisis and a bank, with the inclusion of the government as guarantor. The government certainly has negotiating power vis-à-vis the company. This introduces another aspect of acquiring the negotiating power deriving from the role of the party and therefore is intrinsic to it. It is clear that a chief executive officer (CEO) can have more negotiating power than any of his subordinates. Or, a government can have strong negotiating power in negotiations between the unions and a large company. In Italy, history has provided many examples of negotiation situations in which one party has been able to exploit a situation of bargaining power against others, thanks to the connection with new issues (think of the case of the government that decides to provide incentives to an industrial sector as a counterpart to avoid massive layoffs). In light of the above, a formal analysis of the parties involved is necessary, in order to identify their “negotiating power”, and therefore, the weight in the negotiation, not only of the actors but also of the so-called influencers. It is appropriate to remember how this work deals with company negotiations, and therefore makes references exclusively to the sphere of the business world. As we have already said, nowadays business negotiations increasingly have a broader value than in the past. If earlier the involved parties were two companies, nowadays a series of stakeholders, which were previously considered to be external to negotiations, are actively involved.

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2.2.3  Some Analysis Tools The stakeholder map is among the helpful tools to analyze the strategic importance of stakeholders in a given negotiation. The map is constructed by identifying all the stakeholders of a negotiation and evaluating their role and weight in light of the interests at stake and the contexts, both historical and cultural (Caputo 2012). Table 2.1 shows an example of the structure of the stakeholder map. The rows concern the various stakeholders analyzed and the columns identify the variables being analyzed: the interests of the stakeholders, their role in the negotiation, the observations in this regard, the priority. It is useful to specify two of the variables: the role and the priority. As far as the role is concerned, the distinction is usually made between the negotiating actor, attributable to the status of a party as defined above, and the influencer, that is, a party whose status is not recognized and who does not sit at the negotiating table, but who has a strong interest in these and a power of influence. As for the “priority” column, this relates to the assessment of the stakeholder’s weight and is a qualitative assessment of the priority of attention to be paid. A further method of evaluating the priorities is that of weight, consists in assigning a percentage weight to the various stakeholders, so as to obtain also the distance among them (Table 2.2). It is important to adopt appropriate structured techniques for the weight assessment of stakeholders in order to minimize the risk of distortions.

Table 2.1  Example of a stakeholder map Stakeholder

Interests

Role

Observations

Priorities

Company

Specific interest in trading

Negotiating agent

Events influencing the behavior of the part

Ordered

Trade unions Trade associations Government Shareholders Public opinion

Negotiation agent Influencer Influencing/ negotiating agent Influencer Influencer

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Table 2.2  Attribution of a percentage weight to the stakeholders Stakeholder

Peso (%)

Trade unions Trade associations Government Shareholders Public opinion

35 10 20 30 5

Table 2.3  Utility matrix for the construction of a negotiation portfolio Utility of A

High Low

Utility of B High

Low

Integrative area Distribution area

Distribution area Inefficient area

Two further methods to analyze the interests at stake in a negotiation are the construction of a negotiating portfolio and the cross-impact matrix. The negotiating portfolio is an instrument deriving from the works of Pruitt (1983). The tool was then subjected to numerous reviews by strategic management scholars; we report here the version given by ­ Mariani (2002). The utility matrix allows the parties to define the object of the negotiation according to the interests of each one in order to identify the areas of convergence and divergence (Table 2.3). The matrix shows the utility of each party categorized as high or low. The upper left quadrant identifies the convergence areas, while the lower left quadrant and the upper right one identify the divergence areas; finally, the lower right quadrant identifies the areas of inefficient convergence. This tool is obviously subject to hypothetical evaluations, but it can be very useful above all if used jointly with a cooperative perspective. In the case of several parties, the instrument can be used for pairs of parties or coalitions. The negotiating portfolio is a very flexible tool: it can be used to position both the issues to be discussed and the options for alternative agreements, both the specific interests and the role of the parties.

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2.2.4  The RBC Model At this point, it is interesting to present the prescriptive model, RBC, proposed by Weiss (1993). This model focuses its attention on the interaction between three key aspects of complex negotiations: the relationships between the parties (Relations), the behavior of the parties (Behaviors), and finally the influencing variables (Conditions). The model was mainly developed by the author for the study of international negotiations, analyzing mostly the cases of negotiations between companies of different nations or between companies and foreign institutions. International negotiations have been defined countless times in the literature. The definition proposed by Weiss based on the model is that of Walton and McKersie (1965), according to which international negotiations are defined as deliberate interactions of two or more social units (at least one of them a business entity), originating from different nations, that are attempting to define or redefine their interdependence in a business matter. The RBC model focuses on the relationships between the parties and, in particular, on the causal relationship between the three aspects of negotiations. This model allows to analyze the whole spectrum of negotiations, whether bilateral or multilateral, complex or simple. The dynamics of interdependence between relationships, behaviors, and conditions is as follows: external conditions influence the behavioral sphere of the parties, which in turn influence the relations between them. Therefore, there is a direct influence of the conditions on the parties’ behaviors, meant in the broad sense of the term, not only as mere behaviors, but as that cognitive and emotional spectrum that determines them. Furthermore, there is an indirect influence by external conditions on relations between the parties, and therefore on the negotiation process. Finally, there is a relationship of direct influence between the behaviors and the relationships between the parties. The following is a graphical representation of the model provided by Weiss for a bilateral negotiation (Fig. 2.1). The main components of the RBC model are the relations between the parties (relationships between primary parties); also in this case, the term relations is used with a neutral meaning, which the author himself defines as the space in between the parties. The model therefore recognizes the characteristics that describe the negotiations, which have been widely discussed previously.

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Conditions X

Behaviors of X

Relationships X-Y

Conditions XY

Relationships X-Y

Behaviors of Y

Conditions Y

Fig. 2.1  Graphical representation of the RBC model, based on Weiss (1993)

Some focal points of the analysis of the relationships in the model turn out to be: • the parties are appointed indirectly through relationships and behaviors; • three types of parts are identified: primary parties have interrelated goals and have become or plan to become engaged in direct talks, secondary parties have an indirect stake in the outcome but do not consider themselves directly involved, third-party neutrals (those who work between primary parties toward an agreement satisfactory to all) do not play a regular role; • the role of “levels and units” is highlighted: with reference to organizations, the model prescribes the accurate analysis of the roles of the parties, both in the negotiation and within the represented organization; • four types of relations are identified, three of which are the three types of parts: inter-organizational relations, intra-organizational relations, interpersonal relations, and cross-level relations. The second component of the model is constituted by the behavior of the parties (Behaviors of Primary Parties), defined as behaviors intended to influence the other parts. Also the meaning of this concept is neutral

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and includes cognitive domains such as perception, information processing and judgment; verbal styles; making substantive concessions; and general approaches such as integrative or “tough” (Weiss 1993). At this level, the focus shifts to each side of the “space in between”. Behaviors at the level of organizations, groups, and individuals are identified. For each level, six types of behavior are identified: • independent behaviors, undertaken by a party itself and relevant to the negotiation, but not communicated to the other primary party, for example planning; • horizontal behaviors, action directed at the counterpart, typically at the negotiation table; • internal behavior, activity within a party such as a negotiating team; • vertical behavior, a party’s communications with its superior or subordinate; • lateral behavior, non-vertical, negotiation-relevant actions directed at a party’s peers or colleagues; • external behavior, directed beyond the negotiation setting and the primary parties. The third and last component of the model are conditions (Conditions), defined as factors that stimulate, restrict, or, otherwise, modify the behavior of the parties and, consequently, the relationships (Fig.  2.2). These factors can be events, contextual facts, existing situations, or actions of non-primary parties. The term conditions reflects the active and influential role of these factors on the negotiation process. The model highlights four aspects: • Circumstances, that is, the physical and social aspects of each side of the negotiation, in other words, the structural context; • Capabilities, denoting the knowledge, skills, and resources that allow the parties to influence, through their behavior, the other party; • Culture, with reference to the spectrum of knowledge acquired by individuals, and therefore by organizations (Cafferata 2007), which allows the interpretation of facts and the direction of actions and behaviors; • Environmental factors (Environments), in the sense of those external elements (non-cultural) as resources, set of powers, political context, and finally, other organizations.

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Company X

41

Company Y Internal behaviors

Vertical / Lateral

Internal behaviors

Vertical /

Horizontal behaviors

Lateral

Behaviors

Behaviors

Comportamenti esterni

Fig. 2.2  Graphical representation of behaviors in the RBC model, based on Weiss (1993) Fig. 2.3  Graphical representation of influencing conditions in the RBC model, based on Weiss (1993)

Environments Cultures Capabilities

Circumstances

The parties, with respect to external conditions, are influenced but can also act, individually or in concert, to modify them (Fig. 2.3). The three factors mentioned above, besides being linked by the causal relationship, are interrelated by the last dimension of the model: the

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t­emporal vision (Time Periods). This dimension is necessary in order to incorporate, in a systemic view of the model, the previous experiences of the parties together with the concerns about the future, since these ones influence their behavior and relationships (Pruitt 1983).

2.3   The Coalition Phenomenon An important source of complexity in multilateral negotiations, recognized by all the literature on the subject, turns out to be the possibility for the parties to form coalitions in order to influence the negotiation outcome. Raiffa (1982) was the most prolific scholar in this regard and one of the first to identify this characteristic as a source of complexity and differentiation of multilateral negotiations compared to bilateral negotiations. Largely, the theory has defined a coalition as the will of two or more parties to agree cooperatively in order to obtain a mutually desired outcome, which satisfies the interests of the coalition rather than the individual interests of the group participants (Komorita and Kravitz 1983; Murninghan and Brass 1991; Polzer et al. 1998). Gatti (2008) defines the coalition as a group of individual or collective negotiating entities (groups and organizations) aimed at a purpose, which interact through an informal relational structure that requires decisions and concerted actions. This definition emphasizes the type of relationship between the parties that appears to be informal; this is in order to distinguish the phenomena of the coalitions from other more structured ones such as partnerships or joint ventures. As previously mentioned, this possibility of creating coalitions pertains to the strategic/relational plan of the negotiation process. In fact, the ­literature has identified the will to influence the negotiation process (and therefore its outcome) the main and fundamental motivation for the formation of coalitions; as a result of this, the coalition phenomenon is pervaded by tactics and strategies, applied both by the participants to influence the coalition and by the coalitions to influence the negotiation process. The literature on coalitions has identified various tactics that can be used to influence the negotiation process. We will not discuss these further as it is not the subject of the thesis. It is interesting, however, to note how the levers on which the coalitions can act are the same ones identified with regard to the single actors in a negotiation. The main ones are strategies to modify the configuration of interests, the parts at stake, and the issues being negotiated.

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With regard to the survival of the coalitions, the doctrine has been substantially divided into two strands of thought: some scholars, such as Murninghan and Brass (1991), noted how coalitions remain alive only until the original joint interest exist; others, like Polzer et al. (1998), have pointed out that a coalition that has come to form as a function of an original joint interest can also go beyond the fulfillment of such original interest. These scholars have focused their studies on the emotional and cognitive aspects of coalition formation, noting how the participants in a negotiation can develop personal and professional relationships that remain over time. In light of this, the coalition parties would remain the same even with respect to further issues or even with respect to new negotiations.

2.4   Theoretical Summary Through the analysis of the definitions given by scholars to the term negotiation, we have come to the conclusion that the literature has tried to build over time a definition that encloses in itself the widest range of characteristics. Unanimous is the qualification of negotiation as a joint decision-­making process and, therefore, the line of studies on negotiation is included among the broader studies on decision-making processes. Studies on negotiation are of a strongly interdisciplinary nature. Psychology, sociology, political science, legal sciences, anthropology, computer sciences, mathematics, statistics, economics, finance, and business economics have dealt with the issue, influencing each other. In the economic field, negotiation studies have taken their first steps through studies on game theory. According to some scholars, it has been limiting both to the assumptions and to the results; these scholars (Raiffa, Lax and Sebenius, Gulliver, Fisher and Ury, Weiss, Lewicki…) have arrived at the negotiation analysis (negotiation theory). This approach, of a prescriptive nature, constructs a synthesis between economic-mathematical and socio-psychological approaches, providing a theory that is closer to reality and easy to use and diffuse. This theory provides the definition of negotiation as a decision-making process having some qualifying characteristics: • interdependence between the parties; • conflict of interest; • potential agreement;

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• communication; • opportunism; • creative research. These characteristics are found in every theory, model, or example provided by the literature. One of the focal concepts of negotiation theory is that of zone of possible agreement (ZOPA): the theory assumes that a positive ZOPA is required for a potential agreement to exist; the construction values of the area, in the same way, influence both the negotiating dynamics and the negotiating outcome. Most of the theories and models, from Raiffa (1982) to Sebenius (1992), have as a focal point the prescription of behaviors that can enlarge, and sometimes create, the area of possible agreement. This can happen through the strategic manipulation of the elements of the negotiating structure. The negotiating structure consists of three fundamental elements: • the parties involved; • the subjects, matters, or issues object of the negotiation; • the preferences and, therefore, the interests of the parties, which give rise to their positions. By acting on these elements, negotiators may be able to enlarge the zone of ​​possible agreement or be able to reach more satisfactory agreements for all parties. This is the case of integrative negotiations, which qualify as such based on the fact that the interests of the parties are not totally opposed but sometimes complementary. The theory, however, has also recognized the possibility, thanks to the action of the parties, to bring a negotiation from distributive to integrative. This is because the two meanings seem to be seen more as results of the behavior of the parties rather than as intrinsic characteristics of the negotiating situation. Therefore, through a cooperative behavior, the parties can strategically modify their number, issues, and preferences, managing to improve the obtainable results. These actions are revealed as necessary in the case of multilateral negotiations. These negotiations differ from bilateral ones on the basis of three dimensions: amplitude, complexity, and heterogeneity. Consequently, greater attention is needed from the negotiators in the governance of the negotiation process.

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The theory, therefore, has developed models and analysis tools that allow the negotiators, first of all, to analyze the negotiating structure, in which they are located, and then to modify it in the best way to achieve satisfactory results for the parties. A very useful and complete model for the interpretation of the negotiation phenomena is Weiss’ RBC (1993). This model focuses attention on the interaction and interdependence between three key aspects of negotiations: relations between the parties (Relations), the behavior of the parties (Behaviors), and finally, the influencing variables (Conditions). It allows, therefore, to draw a map of the negotiation that takes into account not only who is sitting at the table, but also who could sit tomorrow and who waits outside the door. A systemic and extended vision allows for understanding the dynamics of negotiation and managing them ad hoc. A differentiating aspect of multilateral negotiations is the possibility of forming coalitions between the parties. Of particular interest is the reflection of Sebenius (1992) that unites the possibility of the entry of new parties with one of forming coalitions, not assuming a direct interest in the issue. This is an important reflection regarding the analysis of the reality of cases, in which institutions (from governments to trade unions) influence and sometimes take part in the negotiation between companies, although they may not have direct interests in the issue itself.

References Cafferata, R. (2007). Direzione aziendale e organizzazione. Aracne. http://books. google.it/books?id=Xt6TGQAACAAJ. Caputo, A. (2012). Integrative Agreements in Multilateral Negotiations: The Case of Fiat and Chrysler. International Journal of Business and Social Sciences, 3(12), 167–180. Fisher, R.  J., Ury, W., & Patton, B.  M. (1981). Getting to Yes: Negotiating Agreement without Giving In. Boston, MA: Houghton-Mifflin. Gatti, C. (2008). Le negoziazioni nel governo dell’impresa. Verso un modello di analisi. Padova: CEDAM. Komorita, S. S., & Kravitz, D. (1983). Coalition Formation: A Social Psychologica Approach. In P.  B. Paulus (Ed.), Basic Group Processes. New  York: Springer-Verlag. Kramer, R.  M. (1991). The More the Merrier? Social Psychological Aspects of Multiparty Negotiations in Organizations. In M. Bazerman, R. J. Lewicki, & B. H. Sheppard (Eds.), Research on Negotiation in Organizations: Handbook of Negotiation Research. Greenwich, CT: JAI Press.

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Lewicki, R. J., Saunders, D., & Barry, B. (2014). Negotiation (7th ed.). New York: McGraw-Hill. Mariani, M. (2002). Decidere e Negoziare: Concetti e Strumenti per l’Azione Manageriale. Milano: Il sole 24 ore. Murninghan, J. K., & Brass, D. (1991). Intraorganizational Coalitions. In R. J. Lewicki, B. H. Sheppard, & M. Bazerman (Eds.), Research on Negotiation in Organizations. Greenwich, CT: JAI Press. Polzer, J.  T., Mannix, E.  A., & Neale, M.  A. (1998). Interest Alignment and Coalitions in Multiparty Negotiation. Academy of Management Journal, 41(1), 42–54. Pruitt, D. G. (1983). Achieving Integrative Agreements. In M. H. Bazerman & R. J. Lewicki (Eds.), Negotiating in Organizations. Beverly Hills, CA: Sage. Raiffa, H. (1982). The Art and Science of Negotiation. Cambridge, MA: Harvard University Press. Sebenius, J.  K. (1992). Negotiation Analysis: A Characterization and Review. Management Science, 38(1), 18–38. Retrieved from http://search.ebscohost. com/login.aspx?direct=true&db=eoah&AN=21189031&site=ehostlive&scope=site. Walton, R. E., & McKersie, R. B. (1965). A Behavioral Theory of Labor Negotiations. Beverly Hills, CA: Sage Publications. Weiss, S. E. (1993). Analysis of Complex Negotiations in International Business: The RBC Perspective. Organization Science, 4(2), 269–300.

CHAPTER 3

Contextualizing Negotiation in Strategy

Abstract  This chapter provides a theoretical argumentation for the importance of negotiation as a strategic capability of a company in the process of achieving and sustaining a successful competitive advantage. The literature on negotiation and strategy is reviewed; also an interpretive framework, titled the strategy triangle, is presented to explain the characteristics of strategy-making in today’s competitive world. Keywords  Negotiation • Strategy • Competitive advantage • Organizational capabilities

3.1   Introduction Several schools of thought have made efforts over decades to investigate the dimensions of the strategy-making process and its implementation inside the organization and in its environment. The result is a world of different schools that analyze strategy at different levels and with different lenses (Mintzberg et  al. 1998). Whatever school of thought one might choose, it is quite established now how strategy is the result of multiple interactions both at micro and macro levels coming from the internal and external environments of the organization. Those interactions will ­influence both the strategy-making process, that is, the decision-making system underlying the development of the firm’s strategy, and the strategy © The Author(s) 2019 A. Caputo, Strategic Corporate Negotiations, https://doi.org/10.1007/978-3-030-15479-0_3

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implementation process, that is, the decision-making system underlying the strategic actions put in place by the organization and its members. A common process is embedded in both dimensions of strategy. That is negotiation. Negotiations are essential and fundamental for businesses. Improving negotiation skills, as well as increasing the ability to negotiate effectively, is crucial in the managerial, political, and business contexts. It is commonly acknowledged within the literature that negotiation is a process through which two or more parties could reach a needed joint decision while having different preferences (e.g., Fisher et al. 1981; Lax and Sebenius 1986; Lewicki et al. 2014; Pruitt 1981; Raiffa et al. 2002; Rubin and Brown 1975; Zartman 1977). Due to the interdependence, which reigns over and inside multi-actor decision processes (J.  D. Thompson 1967), negotiation outcomes are affected by all the decisions made by all the parties involved. It is quite straightforward how, whatever approach we take, the strategy-­ making process is permeated with a series of negotiations that surround the decisions taken. A negotiation process underlies board meetings where C-level managers take corporate strategic decisions. At the same time, the information brought to the board are the result of a negotiated process where managers strategically decide how to approach the board meetings. Similarly, if we look at any strategy textbook, almost any preparatory activity of analysis to support the strategy-making process can be associated with a negotiation. The same happens when we move the level of analysis to the implementation of strategy. Managers negotiate with each other on how the strategic implementation takes place; they also negotiate at the external of the organization to put the strategy in action, for example, with suppliers, customers, lobbying organizations, and all the stakeholders one can imagine. Given those almost obvious thoughts, everyone with managerial experience would agree that negotiation seems to be left quite aside from strategy literature. Michael Porter (1991) talks about bargaining powers, but more from an economic positioning perspective, and the following studies in this stream do not exactly explain how the firm set of negotiations are necessary to gain competitive position in the industry. The only school of thought that seems to address the importance of negotiation in strategy is the power school. In Mintzberg and colleagues’ Strategy Safari book, the chapter on power school is subtitled as “strategy formation as a process of negotiation” (1998). Despite this title, the power school addresses the importance of political actions in gaining power more than negotiation processes and systems involved.

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Although the importance and presence of negotiation processes in strategy is acknowledged somehow, this link has been overlooked by strategy scholars, and only recently some efforts in this direction have been taken. For example, the 1999 Harvard Business Review article by Ertel describes negotiation as a potential corporate capability and invites managers to move away from a situational approach to negotiation to a more strategic and integrated one (Ertel 1999). Similarly, Borbély and Caputo (2017) tried to answer to the question “how can an organization improve its negotiation skills?” by investigating how, and why, an organization’s negotiation capability should be developed. They present a four-level Organizational Model of Negotiation (OMoN), in which the individual level (I) concerns how people interact at the negotiation table; the linkages level (II) concerns how different negotiations impact one another; the infrastructure level (III) concerns how an organization may organize its negotiation functions; and finally, the capability level (IV) concerns how negotiation can be the source of a competitive advantage. In a similar vein, Caputo et  al. (2018) investigated the potentially reciprocal relationship between negotiation and strategy, through the analysis of the Ryanair case study. From a logical standpoint, negotiation and corporate strategy appear intertwined in two main ways. The strategic resources and positioning of the firm impact the way its agents will negotiate deals and resolve conflicts (Appelt and Higgins 2010; Bazerman et al. 1985; Bottom and Studt 1993; Neale and Bazerman 1985; Neale et al. 1987; Thompson and Loewenstein 1992). Conversely, in our flat and open world, aiming to implement a successful strategy, it requires negotiating a network of internal and external stakeholder relationships. A top management team’s negotiation abilities may significantly impact strategy design and implementation, and negotiation appears to play an important role in the relationship between intended and realized strategy (Mintzberg 1978; Walsh and Fahey 1986).

3.2   The Essential Characteristics of Strategy-Making Every organization has a strategy, or at least thinks it has one. Being a non-­ profit, a political, or institutional organization, a business, large or small, we are constantly reminded of how the need for a strategy is important. However, confusion lies in knowing what this strategy is. To understand what strategy is, it is important to discern the main and essential characteristics of a strategy (Hambrick and Fredrickson 2005). In doing so, we can

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rely on the extremely large amount of research and theorization that has happened around strategy in the last 60 years. As Fig. 3.1 shows, a strategy has eight essential characteristics:

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• Environments: Where are we operating? • Structures: How do we reach those environments? • Competitive advantage: How do we compete? • Deployment: What are our actions? What is our timing and successions of actions? • Balance: How are we obtaining economic balance? How are we obtaining financial balance? How are we obtaining organizational balance? • Value: Is our strategy delivering value? How are we delivering value? • Sustainability: How are we maintaining the delivery of value? • Responsibility: How are we fulfilling our social responsibility?

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Competitive Advantage

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Fig. 3.1  A triangle-shaped framework of the essential characteristics of strategy

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According to the systemic view of the firm (Golinelli 2000), these essential chrematistics, as parts of the given organization, are interdependent in their interactions and should be in equilibrium to ensure the success of the business activity. 3.2.1  Environments Among the most important decisions managers make of strategic importance are those related to where, in which markets, the business will be operating. A question strategy scholars have been asking for a long time: what business will we be in? (Drucker 1954). As Hambrick and Fredrickson (2005) pointed out in their seminar article on the strategy diamond, the answer to this question should not be a broad list of generalities that could apply to any company. Even if the importance of mission and vision statements are important parts of strategy, strategy-makers need to give meaning to those statements when defining the strategy of their company, preventing the words from becoming empty to the ears of insiders and outsiders to the organizations. When reflecting on environments, strategy-makers should be as specific as possible and focus their attention on elements such as product ranges, market segments, geographic areas, core technologies, operational activities, product design, manufacturing processes, selling processes, servicing, and distribution to make a non-exhaustive list. In choosing the environments where to compete, strategy-makers should also be careful in not falling into the trap of having their business to do everything (Porter 1996). As Michael Porter (1996: 3) stated, “Strategy requires you to make trade-offs in competing”, this is “to choose what not to do”, he further explains how “some competitive activities are incompatible; thus, gains in one area can be achieved only at the expense of another area.” 3.2.2  Structures Strategy-makers not only have to decide on where to compete, but also have to answer the question how we reach those environments. This is how we get where we want to be. For a company, it is not sufficient to decide to compete; for example, in the car industry in the United States, it will also need to decide how to achieve a market presence in that specific market. What can be the correct (efficient and effective) structure to put

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in place in order to achieve such an objective? As such, strategy-makers will have a plethora of available options: organic development, merger and acquisition (M&A), strategic alliances, network structures, and so on. The selection of environments is of fundamental importance, and so is the selection of the structure to put in place. As pointed out by Hambrick and Fredrickson (2005), such decisions should not be relegated as mere implementation details. The choice of structures is also very important in terms of the strategic aspects of the negotiations associated with it. For example, Jemison and Sitkin (1986), while studying the acquisition process as a determinant of acquisition activities and outcomes, argued the importance of the negotiating practices in the acquisition process, in particular with reference to the success of the operation. This is particularly true when thinking about the acceptance of the operation by the human resource. In fact, lack of transitional support may tend to result in dissatisfaction and low productivity (Jemison and Sitkin 1986). The same goes for the issue of information asymmetry, which is fundamental for corporate strategy, as well as negotiation. For example, information asymmetry is endemic to merger and acquisition negotiations (Dierickx and Koza 1991). During a negotiating process, information asymmetry always exists. It has been argued how having experience in negotiation will help in coping with information asymmetry (Dierickx and Koza 1991) and hence help achieve strategic objectives. A similar course of direction is found within the literature analyzing joint ventures. Joint venture negotiations differ from those of cross-­ cultural businesses because firm motivation, project longevity, and resource commitment are different in this case (Luo 1999; Luo and Shenkar 2002). Yet, a pattern in the organizations’ behavior is shown across different ­studies, in particular with reference to contract negotiations (Lee et  al. 1998; Luo 1999; Luo and Shenkar 2002). 3.2.3  Competitive Advantage With the world changing, and the strategy theories aligning for new contexts, competitive advantage has slowly moved from being the end of strategy to being one of the means to achieve strategic success. In the competitive advantage section of the strategy triangle, we can find all the studies and tools related to how a company competes and therefore seeks to achieve a competitive advantage (Porter 1980).

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Strategy-makers should specify not only where the firms compete and how to reach the markets, but also how the firm is expected to win the favor of the customers in such markets. Classically, a competitive advantage can be achieved either by differentiation or by best-cost strategies (Grant 2010); however, in a world that is growing in difficulties and opportunities, a competitive advantage is often achieved by a balanced mix of differentiation and cost strategies. In this vein, negotiation can act as a differentiator in enhancing the opportunity to develop and sustain a competitive advantage (Caputo et al. 2018). Although it is a common saying that “organizations do not negotiate, individuals do”, there appears to be definitely an imprinting on the organizational culture in negotiating (Sydow et al. 2009). Scholars in this stream of theory argue that a competitive advantage is possible to be achieved and sustained if the firm possesses, through development or acquisition, resources that are valuable, inimitable, rare, and non-substitutable, which allow the firm to implement valuecreating and non-easily duplicable strategies (Allred et al. 2011; Barney 1991; Nelson 1991; Peteraf 1993; Wernerfelt 1984). Teece et  al. (1997) have extended the Resourced Based View (RBV) theory with the element of dynamism. Most environments in which firms compete are dynamic in the sense that the industry structure evolves at different speeds and therefore the static approach of RBV does not explain how companies achieve a competitive advantage in those environments. The provided explanation recognizes the superiority of firms that possess dynamic capabilities, which allow them to “integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (Teece et al. 1997: 516). That is, a company that negotiates better than others can achieve a competitive advantage over them. 3.2.4  Deployment Having decided in which markets to compete, how to reach them, and how to acquire competitive advantages in those market is not sufficient to ensure that the company has a strategy. Strategy-makers should pay careful attention, once those three aspects are defined, to the path to put the strategic actions in place—that is, as defined by Hambrick and Fredrickson (2005), the speed and sequence of strategic moves in order to increase the probability of success of what normally is called a strategic plan.

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In fact, to minimize the risk of the plan’s actual deployment, it is important that managers provide detailed plans on how this will happen. Such plans need to be complemented together with the development of specific contingency plans, in order to mitigate a less satisfactory performance than expected, which, in some cases, could affect the success of the strategy. Deployment consists of three critical moments: sharing the contents of the plan with the entire company and its principal stakeholders; assigning responsibilities of action plans; and starting the production of critical key performance indicator scorecards (Kaplan and Norton 1998, 2001). In fact, a probability that the proper implementation of the plan will determine the expected positive performance, capable of supporting the company’s recovery, is closely related to organizational design (Paton and McCalman 2008). This should be consistent not only with the strategic direction of the company, but also mostly with all the single elements that make the specific organizational structure, the so-called organization design elements (Burton et  al. 2011; Child 2005), namely: the skills (people and skills); the work (tasks and job description); the organizational structure (organization chart); decision-making and delegation of authority (decision-making); the information and reporting system (information); and the system of remuneration based on results (rewarding system). 3.2.5  Economic, Financial, and Organizational Balance At the core of every strategy should be the harmony among the main ­elements that ensure the company’s survival in the long term. These are the economic balance, the financial balance, and the organizational balance (Cafferata 2009; Cavalieri and Franceschi 2010; Fazzi 1982; Golinelli 2000). The economic balance concerns the fact that every production, when it is placed on the market, should guarantee an influx of revenues in a way that allows the company to pay for all costs related to that production and generate sufficient profit. In the planning process, strategy-makers should provide detailed evidence that their intended actions will ensure economic balance for the company. In doing this, it will not be sufficient to merely list the reasons why customers will pay for the products, rather they will have to provide a sound economic logic that supports profit creation, in a way where profits are above the firm’s cost of capital (Hambrick and Fredrickson 2005).

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The financial balance reflects the company’s ability to cope with the flow of monetary outflows with its monetary inflows (Fazzi 1982). The concept of financial equilibrium is dynamic, as it derives from the comparison of two flows measured over time. It follows that it depends not only on the amount of revenues and expenditures but also on their frequency and terms of actual payment. In other words, the frequency of the former may not coincide with that of the latter, so that over a certain period of time the revenue flow differs from that of the outputs even if, for example, the revenues and costs from which they derive are equal. When a surplus of monetary outflows is generated, the recourse to external sources of financing (loans) may be necessary, while in the opposite case, excess liquidity is created. In the first hypothesis, which can also be physiological, when the balance of the period is restored with the use of credit, it is necessary to check that its burden does not alter the economic balance due to the increased financing costs. If the terms of realization and payment diverge beyond the limit allowed by the financial capacity of the company, it is necessary to intervene to shorten the collection times or increase payment times, paying attention in both cases to the repercussions on the economic balance of management. An excess of liquidity can also be a symptom of management asynchrony, when it exceeds the limits of maintaining adequate reserves to cope with sudden cash requirements. A strategy that does not take into consideration the financial repercussions of the proposed strategic choices is limping and may actually cause destruction of value, rather than its creation. The organizational balance is the premise for economic balance and financial balance (Cafferata 2009). The organizational balance arises from the balance between the perceived value of the individual contributions and incentives. Defined as such, the organizational balance is explicated by: • The existence of fluid and strong connections between the parties; • The cohesive and lasting relationships among the participants; • The adequacy of the relationship between the work task and the personality of the worker; • The synergistic interactions between parts and participants, and prevention of the dangers of falling rationality. The harmony between the parts and the participants is a manifestation of the organizational balance: it can be spontaneously generated or ­specifically designed. In the case that harmony is designed, as for every

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discretionary action of the enterprise, it involves a cost: time, structures, human resources, knowledge, financial resources, and so on. The centrality of the psychological environment and the identification of the individual in relation to the purpose of the organization one works for is fundamental: indeed, creating a motivating environment is expensive. 3.2.6   Value, Sustainability, and Responsibility Figure 3.1 shows at the edges of the strategy triangle the desired outputs that any strategy should deliver in the ideal situation of success. These are value, sustainability, and responsibility. In terms of value, which is intended as value creation, the action of a business should always be based on the creation of value for its shareholders, the stakeholders, and the community. Questions such as “is our strategy delivering value? How are we delivering value?” should be answered by the strategy-makers clearly and in detail. Creating value, however, regardless of the philosophical stance one adheres to about what is the meaning of value, which is not the aim of this text to unveil, cannot be seen as the only output of a strategy. The creation of value is a dynamic result, and as such, it has to be consistent in the long term. That is the sustainability of the strategic action. “How are we maintaining the delivery of value?” is the central question strategy-makers should answer on this realm. Creating value and doing it sustainably are also necessary but not sufficient conditions for the success of the strategic action. In a globalized and dynamic world, stakeholders are constantly reminded of the actions of companies; therefore, it is fundamental that the economic action, aimed at value creation, is developed through the conditions of responsibility. “How are we fulfilling our social responsibility?” is the key questions for the responsibility aspect of strategy that strategy-makers should answer?

3.3   Strategy-Making and Negotiation The link between strategy-making and negotiation is quite clear from a practical perspective; however, the strategic management literature has also investigated this link in several domains (e.g., Borbély and Caputo 2017; Caputo et al. 2018). The first stream of research looks at conflict within strategy-making teams, its determinants, and its consequences on strategy formulation

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(e.g., Amason and Schweiger 1997; Elbanna et al. 2011; Parayitam and Dooley 2011). These relate to the school of thought that considers strategy as a top-down phenomenon, with leaders defining strategy in formal settings, often behind closed doors. Such an approach has been questioned, early, through the idea that strategy may emerge from more diffuse practices and human interactions at all levels of the organization (Mintzberg 1978). Reading Mintzberg with the negotiation lens leads one to wonder to what extent dialogue, participation, and negotiation practices within an organization may impact strategy formulation, as well as strategy implementation. Within the strategy journals, many articles approach negotiation within some distinctive contexts, mostly collaborative forms of strategy such as mergers and acquisitions (Dierickx and Koza 1991; Jemison and Sitkin 1986; Walsh and Fahey 1986), joint ventures (Brouthers and Bamossy 1997; Lee et al. 1998; Luo 1999; Luo and Shenkar 2002; Yan and Gray 2001), strategic alliances, and outsourcing (Lippman and Rumelt 2003). Others focus on internal negotiations between the headquarter and subsidiaries (Dörrenbächer and Gammelgaard 2006), or external negotiations with governments (Weiss 1990). More recently, the importance of negotiation in the institutional setting has also been pointed out (Helfen and Sydow 2013; Helms et al. 2012). When it comes to the analysis of corporate behavior, most of the literature in strategy refers to the concept of bargaining power (Porter 1980). Although a lot has been said on bargaining power from an industrial economics perspective (e.g., Kim 1988; Michael 2000; Moatti et al. 2014), very limited research has been undertaken on how organizations negotiate, which is the focus of this chapter. This limited research mostly analyzed stakeholders’ behavior (Brouthers and Bamossy 1997) and institutional settings (Helfen and Sydow 2013; Helms et al. 2012). Jemison and Sitkin (1986), while studying the acquisition process as a determinant of acquisition activities and outcomes, argued the importance of negotiating practices in the acquisition process, in particular with reference to the success of the operation. This is particularly true when thinking about the acceptance of the operation by the human resource. In fact, a lack of transitional support may tend to result in dissatisfaction and low productivity (Jemison and Sitkin 1986). Moreover, research on acquisitions is still controversial regarding the reasons why well-designed acquisition processes fail (Jemison and Sitkin 1986). On this account, the strategic fit cannot be considered as the only variable; the process of negotiating the

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acquisition and integrating the target into the parent company should also be considered as one of the drivers of success (e.g., Dierickx and Koza 1991; Jemison and Sitkin 1986). The same goes for the issue of information asymmetry, which is fundamental for corporate strategy, as well as negotiation. For example, information asymmetry is endemic to merger and acquisition negotiations (Dierickx and Koza 1991). When negotiating, information asymmetry always exists. It has been argued how having experience in negotiation will help in coping with information asymmetry (Dierickx and Koza 1991), and hence help achieve strategic objectives. A similar course of direction is found within the literature analyzing joint ventures. Joint venture negotiations differ from those of cross-­ cultural businesses because firm motivation, project longevity, and resource commitment are different in this case (Luo 1999; Luo and Shenkar 2002). Yet, a pattern in the organizations’ behavior is shown across different studies, in particular with reference to contract negotiations (Lee et al. 1998; Luo 1999; Luo and Shenkar 2002). Recent works on institutional practices (Helfen and Sydow 2013; Helms et al. 2012) can help understand the dimensions of organizations’ behavior in negotiations. Helms et  al. (2012: 1120) points out how new practices sometimes arise “from the efforts of numerous and diverse organizations working together to negotiate a settlement on a new institutional arrangement (trade associations, for example, working to develop novel industry standards)”. Although it is a common saying that “organizations do not negotiate, individuals do”, there appears to be definitely an imprinting on the organizational culture in negotiating (Sydow et al. 2009). If we think about unions or institutional organizations, their negotiation strategies are pretty consistent despite the changes in the negotiating team, showing some form of institutional movement behind individual practices. An example can help in clarifying this issue. When the International Accounting Standards Board releases an accounting standard, national boards should align their national standards for companies not adopting International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS). In Italy, for example, the Italian Accounting Standard (OIC—Organismo Italiano di Contabilità) receives the IAS/IFRS and then initiates internal and external discussions on changing the national standards. This negotiation process takes place with different institutions: Chambers of Commerce, Ministries, Unions, Companies, Associations of Auditors, and similar. In this, as in many other examples, being part of an organization rather than

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another will affect the behavior of the negotiator. We can then say that there is an organization’s behavior, as the organization acts as an individual entity bringing issues and interests to the table (Helms et  al. 2012; Weiss 1990). The way strategy impacts negotiations is treated in very few sources. Pahl and Roth (1993) show how some key variables in strategy formation may impact conflict-proneness and negotiated relationships between headquarters and foreign subsidiaries. A recently published case study shows how an airline such as Ryanair in Europe may build its financial health not on its flying operations but on leveraging its market domination position in its negotiation with key stakeholders (Caputo et al. 2018). Similarly, other strategic decisions, and subsequent negotiations, are centralized and produce a structured and idiosyncratic way of negotiating in the organization. Quélin and Duhamel (2003) pointed out how 70% of the interviewed managers consider the outsourcing decision to be highly centralized. Moreover, while 51% of the managers reported clearly defined outsourcing policies, almost 80% of them stated how each opportunity was treated on a case-by-case basis (Quélin and Duhamel 2003). The study reported how the standard is constituted by complex outsourcing contracts, fixed at the corporate level, entailing a degree of local adaptation. Consequently, “framework contracts can help the business units to economize on transaction costs, such as those associated with finding suppliers and negotiating agreements, and can also provide a means to achieve consistency and control within the firm” (Quélin and Duhamel 2003: 657).

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Mintzberg, H., Ahlstrand, B., & Lampel, J.  (1998). Strategy Safari (Vol. 2). New York: Free Press. Moatti, V., Ren, C.  R., Anand, J., & Dussauge, P. (2014). Disentangling the Performance Effects of Efficiency and Bargaining Power in Horizontal Growth Strategies: An Empirical Investigation in the Global Retail Industry. Strategic Management Journal, 36(5), 745–757. https://doi.org/10.1002/smj.2244. Neale, M. A., & Bazerman, M. H. (1985). The Effects of Framing and Negotiator Overconfidence on Bargaining Behaviors and Outcomes. Academy of Management Journal, 28(1), 34. Retrieved from http://proxygw.wrlc.org/ login?url=http://search.proquest.com/docview/199800309?acco untid=11243. Neale, M.  A., Huber, V.  L., & Northcraft, G.  B. (1987). The Framing of Negotiations: Contextual Versus Task Frames. Organizational Behavior and Human Decision Processes, 39(2), 228. Retrieved from http://proxygw.wrlc. org/login?url=http://search.proquest.com/docview/223201933?acco untid=11243. Nelson, R. (1991). Why Do Firms Differ, and How Does It Matter? Strategic Management Journal, 12, 61–74. https://doi.org/10.2307/2486434. Pahl, J. M., & Roth, K. (1993). Managing the Headquarters-Foreign Subsidiary Relationship: The Roles of Strategy, Conflict, and Integration. International Journal of Conflict Management, 4(2), 139–165. Parayitam, S., & Dooley, R. S. (2011). Is Too Much Cognitive Conflict in Strategic Decision-Making Teams Too Bad? International Journal of Conflict Management, 22(4), 342–357. Paton, P.  R. A., & McCalman, J.  (2008). Change Management: A Guide to Effective Implementation. SAGE Publications. Retrieved from http://books. google.it/books?id=HA0FQOWx8ngC. Peteraf, M. A. (1993). The Cornerstone of Competitive Advantage: A Resource Based View. Strategic Management Journal, 14, 179–191. Porter, M. E. (1980). Competitive Strategy. New York: Free Press. Porter, M.  E. (1991). Towards a Dynamic Theory of Strategy. Strategic Management Journal, 12(S2), 95–117. Porter, M. E. (1996). What is Strategy? Harvard Business Review, 74(6), 61–78. https://doi.org/10.1098/rspb.2008.0355. Pruitt, D. G. (1981). Negotiation Behavior. New York: Academic Press. Quélin, B., & Duhamel, F. (2003). Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks. European Management Journal, 21(5), 647–661. Raiffa, H., Richardson, J., & Metcalfe, D. (2002). Negotiation Analysis: The Science and Art of Collaborative Decision Making. Cambridge, MA: The Belknap Press of Harvard University Press. Rubin, J.  Z., & Brown, B.  R. (1975). The Social Psychology of Bargaining and Negotiation. New York: Academic Press.

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Sydow, J., Schreyögg, G., & Koch, J. (2009). Organizational Path Dependence: Opening the Black Box. Academy of Management Review, 34(4), 689–709. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509–533. Thompson, J. D. (1967). Organizations in Action. New York: McGraw-Hill. Thompson, L., & Loewenstein, G. (1992). Egocentric Interpretations of Fairness and Interpersonal Conflict. Organizational Behavior and Human Decision Processes, 51(2), 176–197. Retrieved from http://proxygw.wrlc.org/ login?url=http://search.proquest.com/docview/223189247?acco untid=11243. Walsh, J.  P., & Fahey, L. (1986). The Role of Negotiated Belief Structures in Strategy Making. Journal of Management, 12(3), 325–338. Weiss, S. E. (1990). The Long Path to the IBM-Mexico Agreement: An Analysis of the Microcomputer Investment Negotiations, 1983–86. Journal of International Business Studies, 21, 565–596. Wernerfelt, B. (1984). A Resource-Based View of the Firm. Strategic Management Journal, 5(2), 171–180. Yan, A., & Gray, B. (2001). Antecedents and Effects of Parent Control in International Joint Ventures. Journal of Management Studies, 38(3), 393–416. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=eoa h&AN=9301317&site=ehost-live&scope=site. Zartman, I. W. (1977). Negotiation as a Joint Decision-Making Process. Journal of Conflict Resolution, 21(4), 619–638.

CHAPTER 4

Cooperation in the Automotive Industry Prior to the 2009 Fiat–Chrysler Agreement

Abstract  To contextualize the Fiat–Chrysler case study, it is important to analyze the automotive industry through the lenses of cooperation between companies. The chapter develops starting from the description of the automotive sector and continues through the analysis of structural problems that make it fragile in times of economic crisis, identifying the need for forms of cooperation between companies as a strategic lever for survival on the market. Therefore, from a theoretical point of view, cooperation is analyzed as a strategic path of the company in adapting to the external environment, then describing the recent cases of cooperation in the automotive sector. Keywords  Automotive sector • Fiat • Chrysler • Competition • Cooperation • Strategy

4.1   Introduction The automotive sector, consisting of the automotive industry and the so-­ called induced industry, has a strong impact on the economies of industrialized countries. From many years, the sector has been experiencing a situation of alternate crisis; this imposes challenges to original equipment manufacturers (OEMs) who put their own survival into play.

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Berger (2003) has identified how the economic situation of the global automotive industry is strongly influenced by seven elements: the concentration process that creates large OEMs with multi-brand, multi-segment, and multi-country capabilities; limited growth in demand in the three main markets (North America, Western Europe, Japan); the excess production capacity of the sector; sales policies and increasing costs for marketing activities; the increasing complexity of the products; the grouping of suppliers and insolvencies, which transform the supply structure from a pyramid to a network of specialized suppliers; the pressure from regulators about safety and emissions as well as the fuel economy, which will require OEMs to invest in the development of parallel technologies. The author identifies the main element in the concentration of companies. There are four factors that push toward this strategic choice to cope with the recent changes: • economies of scale and synergies (such as synergies within the Volkswagen group); • expansion of the market and of the product portfolio (e.g., purchase by Ford of Jaguar and Volvo); • creation of a global company (e.g., the merger between Daimler and Chrysler); • financial stability and access to technologies (e.g., the purchase of Nissan by Renault). Therefore, OEMs are faced with important challenges for the future. Fiat, the subject of the study of the business case in the next chapter, in recent years has radically changed its approach on both the market and the industrial side, relaunching new, innovative, and high-quality products, breaking the bond with General Motors (GM) which did not work as it should have.

4.2   Industry’s Characteristics and Analysis The definition of the boundaries of the automotive sector is often the subject of debate and confusion: some scholars consider the sector to be made up exclusively of motor vehicle manufacturers; others widen the sector to the so-called induced, that is, the automotive industry. As our focus is not on such debate, for the purposes of this work, we will consider the boundaries of the automotive sector such as those set by the ANFIA (Italian National Association of Automotive Industry).

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This approach also considers industry in the supply chain to belong to the sector; this view, in our opinion, turns out to be completed and more interesting, especially in the current context, since the consequences of a crisis, as well as a boom, have direct and indirect effects not only on the economy of car manufacturers but also on their induced. ANFIA divides the automotive sector as composed of nine groups, identified by types of final product: • Bus • Cars • Sport and special cars • Cars coachbuilders • Industrial vehicles coachbuilders • Components • Camper manufacturers • Tires • Trailers In this work, we will deal exclusively with the automotive sector, including cars and industrial vehicles, since, as previously mentioned, this chapter intends to contextualize the proposed business case, concerning the recent agreement reached between Fiat and Chrysler. 4.2.1  Sector Analysis The market characteristic of the automotive sector is highly competitive in terms of product quality, innovation, economic conditions, energy efficiency, reliability and safety, and assistance to consumers. The European car market is considered a mature market, that is, subject to recurrent crises because it is characterized by purchases of vehicle replacement and no longer as original equipment. The success of automotive companies therefore depends on the ability to maintain and increase the market shares in which they operate and to expand into new markets through innovative and high-quality products. In particular, it is important to develop and offer innovative and competitive products compared to the products of the main competitors in terms, among other things, of price, quality, and functionality. The timing of the exit of strategic models on the market is also fundamental for the structure of the market.

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Table 4.1  The automotive industry in 2009 Europe

Italy

Turnover

>710 bn €

Employees R&D Fiscal incomings Weight on the GDP

2.3 M (+10 M indirect) 20 bn € 360 bn € 3.50%

95 bn € of which: Manufacturers 41 mld € Components 46 mld € Other 8 mld € 275,000 (about 1 M indirect) 2/3 bn €/year 81.43 bn € 6.2% (11.4% in wider sector)

Source of data: ANFIA (2009)

The importance of the automotive sector in industrialized economies is beyond doubt: in Italy, the sector has over 3000 companies, making it the first private investor for research and development, and the first for tax revenue (Table 4.1). The 2008 was a difficult year for every sector of the world economy, especially for the automotive sector; the crisis, initially thought to be restricted to the financial system and to the American world, has instead turned its effects on the real economy at a global level, causing a significant and widespread deterioration of market conditions. There are unknown factors related to the evolution of the economic situation that, at this moment, nobody is able to fully evaluate, not even the most authoritative international organizations; these elements of uncertainty have been joined by a severe credit crunch, both toward consumers and businesses. 4.2.2  Historical and Structural Problems in the Automotive Sector The automotive sector, for some years now, suffers from a series of historical and structural problems. Because of these, cyclical economic crises have greater effects than other sectors (e.g., the petrol crises of the 1970s and 1980s, the structural crisis of the 1990s, and the global financial crisis of 2007 and beyond). The first major problem facing this sector is overcapacity: in no area of the world a minimum level of saturation has been reached such as to guarantee the profitability of the investment. The worldwide production

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capacity is about 94 million cars a year, at least 30 million more than what the market is able to absorb under normal conditions. About a third of this production capacity is installed in Europe, where the low level of capacity utilization is destined to decrease again due to the drop in the demand; the companies, Fiat above all, expect a reduction in the percentage of use of European production facilities from 75% to 65% in 2009. The second problem, directly connected to the first, is that of the delocalization of activities: for years we have witnessed, following the dynamics of labor costs, a strong push to delocalization of production. It is useful to specify that delocalization does not mean those processes of expansion of production abroad for foreign countries that respond to precise penetration strategies in foreign markets, often emerging countries, with the aim of differentiating outlets and consequently reducing risks of local crises. Rather, by delocalization we mean the process of “shifting” production to low-wage countries, with the aim of expanding production for the local market. This process of delocalization involves an increase in the excess of production capacity, already existing for years in the sector; overcapacity implies a strong pressure on vehicle performance margins, especially in a sector that operates near the break-even point. Some companies have responded to these pressures through further shifts in production in so-called low-cost countries; these actions can, however, be dangerous, as the depletion of internal production activities risks leading to a corresponding impoverishment of the country system, with significant effects on the demand. Reducing the level of domestic production also causes a contraction in the flow of exports and at the same time an increase in the flows of imports, causing a general worsening of the balance of the trade balance. An example has been in Great Britain since the eighties: it was a strategic choice by the country, which decided to renounce manufacturing and move all resources on services. The third problem of the sector is linked to the fact that often the aggregations between brands under one property have not given the expected results, although there has been a general trend of reduction in the number of existing brands. In Europe in 1964 the market had 58 brands: in 2009 there were still 22; yet the operations of union between several brands did not produce the expected benefits, giving rise to larger agglomerations with a chain of

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ever-longer brands. In most cases, acquisitions by other manufacturers, such as those made by General Motors and Ford, did not result in rationalizing the brand portfolio or enhancing their distinctive characteristics. In just 20 years, in Europe, the number of models offered by car companies has grown from 72 to over 200; numbers that testify the increase in complexity of the sector to the detriment of the need for simplification requested. A further complicating factor for sector operators arises from the growing number of rules regulating the circulation and production of motor vehicles. 4.2.3  The Industry’s 2007–2009 Crisis Because of the aforementioned historical and structural problems, the automotive sector is one of the worst hit by the global crisis: in 2008 the car market in Western Europe registered a decline of 8.4% compared to 2007. The trend was influenced by the marked reduction in demand in Italy (−13.4%), Spain (−28.1%), and Great Britain (−11.3%), while a lighter decline occurred in Germany (−1.8%) and France (−0.7%). Outside Western Europe, the sector’s interest markets showed an upward trend compared to the already positive one in 2007: in Poland the demand for cars increased by 9.4%, in Brazil registrations exceeded 10.6% the previous year, and in 2008 the strong growth recorded in the first half was partially offset by the drop recorded in recent months. Since 2009 we are witnessing a continuous decline in volumes in mature markets, in the BRIC countries (Brazil, Russia, India, China), and in developing countries. Sales in mature countries have fallen by between 25% and 35% depending on the country. In Italy, the first half of 2009 closed with a reduction in volumes of 11%, corresponding, however, to a reduction in value of over 15%, due to the replacement of large cars with small cars. The new regulation of CO2 emissions, together with changes in consumer preferences (also due to the high oil prices that have been witnessed in recent years), is leading to a reduction in the size of the cars: we are witnessing a change in the market shares occupied by vehicle classes; small/medium-sized cars are gaining market share in the face of a reduction in the market share of high-powered and SUV cars.

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The industrial and commercial vehicles sector is also undergoing a considerable reduction, of over 60%, on a global scale, after a decade of growth; this is ascribed by analysts to the financial crisis, which has led to a reduction in international trade and sales volumes. The structural problems of the car companies have been tested by the crisis. Just think that 24 factories have been closed in the United States in the last 12 months of 2008 alone. In other cases, the seriousness of the situation has attracted banks and institutions. We are seeing structural interventions in the European Union (EU) (France in the first place) as in the United States. These interventions are aimed, on the one hand, to recreate a healthy base on which to reconstruct the national car sector, on the other hand to provide a boost to domestic demand. 4.2.4  Governments’ Actions to Support the Automotive Industry In light of the strong crisis situation, and of the strategic importance of the auto sector, the governments of the industrialized countries have intervened (some more some less) to support the sector. Interventions, both on the demand side and on the supply side, have not been coordinated, and risk creating further complications for the market and for companies operating on an international scale. Therefore, the interventions in support of the automotive sector were of two types: • actions aimed at stimulating demand through various forms of incentives to consumers; • direct actions to directly support some manufacturers. The launch of the measures to support the demand is giving, and partly has already given some of the expected results: the first half of 2009, even if closed in negative, has seen a recovery in the last part of volumes and values. The incentive system seems to have effects on several fronts: in addition to stimulating weak demand, thanks to the reduction in consumer prices, these also affect the renewal of the circulating fleet, with significant ­advantages in terms of reducing CO2 emissions and consumption, and security improvement.

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In Europe, however, a common intervention strategy has been lacking, which has led some countries to support their national companies through “special” financing mechanisms, in order to avoid violations of EU regulations on state aid: in France, credit lines of around 7 billion have been granted for PSA Peugeot-Citroën and Renault; Sweden has granted EUR 2.6 billion in funding to Volvo and Saab; in Great Britain, the government has granted the state guarantee on investment loans and Germany is discussing a huge loan for Opel. Such interventions, uncoordinated and non-uniform, risk distorting the equilibrium of the market and the mechanism of competition, at the disadvantage of healthy companies compared to those with historical management problems. In this way, the natural and competitive selection of the competitive markets is avoided, which indeed would be necessary to restart after a crisis. However, it is true that these interventions have the primary objective of safeguarding employment and therefore social stability. 4.2.5  Conclusions: The Need to Cooperate In conclusion, the main problems affecting the global automotive sector can be traced back to two directions: an internal one and an external one. The problems arising from within the sector are mainly: • production overcapacity; • the problem of delocalization; • the problem of ineffective aggregations between brands. The problems attributable to an external director are: • excess regulation for circulation; • uncoordinated interventions by governments; • malfunctions in the financial markets. This series of typical problems of the sector makes it fragile to demand shocks and therefore there are more serious effects than in other sectors in times of crisis. In light of this, it is important for healthier companies to implement cooperation strategies with other producers, in order to achieve economies of scale that bring advantages both in terms of management and cost.

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Targeted agreements can be a quick and effective solution for sharing investments. It is a road that allows strong savings, for example, by pooling the same platform to produce more models of different brands, properly saturating the production facilities. Much can also be done in the field of engines, transmissions, and components. The companies, according to the Fiat CEO Sergio Marchionne, in order to generate profits, will have to settle on an annual production level of about 6 million cars. Specifically, the break-even point for a production platform is identified in 1 million cars produced per year. Therefore, the largest companies are looking for the right partners to build joint platforms capable of producing these levels of volumes.

4.3   Cooperation Agreements There are many definitions of strategic alliance in literature: Gulati (1998) defines a strategic alliance as a voluntary agreement between companies that can involve exchanges, sharing, joint development of products, technologies, or services, widely understood. These agreements can be made for a very wide range of motivations and objectives, they can take shape according to various governance structures, and they can be horizontal or vertical. The historical reasons for which a company decides to enter into a strategic alliance, that literature has identified, are (Kogut 1988): • reduction in costs, including transaction costs; • the continuous tension toward survival, and therefore to improve, or maintain, its position on the market (Cafferata 2009); • the need for learning of organizations. In general, Cafferata (2009) identifies three fundamental characteristics of cooperation: • the common goal among the participating companies to be reached; • the sharing of resources that are also different but complementary; • the duration of the management operations necessary to achieve the common objective. It is evident that at the basis of a form of cooperation there is an agreement (alliance or understanding) that contemplates the characteristics

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described above together with the methods of governance. This agreement can be based both on a strictly formal basis and on an informal basis. In both cases, the main variable is mutual trust, whose level greatly influences the choice of the internal governance mechanisms of the alliance (Gulati 1998). In addition, the doctrine has developed theories that want the social factor as the main aspect in the choice of partners and in the configuration of governance in a strategic alliance (Pellegrini et al. 2018). The network of social relations, formal and informal, that the company manages to develop during its existence is seen as the main tool for finding the right partner; research in this theoretical vein has pointed out that there is a correlation between the ability to create a social network of the company and the entry into successful alliances. The system of social relations through the transmission of information reduces information asymmetries and thus improves the chances of success of cooperative agreements (Gulati et al. 2000); moreover, studies show how the previous experiences of companies and the sector have a direct influence on cooperative agreements. Amburgey and Miner (1992) show that in a given market, the number of past cooperative agreements increases the likelihood of new agreements of the same kind in the future. The research also demonstrates how companies tend to maintain their strategic position by repeating agreements of the same type over time and with companies with which there were reports in the past. As for the formalization of the cooperation, this can be done through a simple contract (not equity cooperation), or through the exchange of shares or company shares, with the cooptation of directors. In the case of joint ventures (many in the car sector), these can be divided into corporate or contractual, depending on the type of agreement for the establishment of the new entity. 4.3.1   Cooperation Agreements as a Strategic Factor The business activity takes place under conditions of uncertainty deriving from insufficient knowledge of the future occurrence of the events of business and the environment. Companies operate their economic choices having little knowledge of the economic problem; this leads to the genesis of business risk, that is, the risk of not remunerating production factors, while keeping them firmly tied to their own economy (Cavalieri 2008).

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The business risk derives from an ineliminable contrast between the characteristics of the environment (tendential variability) and of the organizational and operational structures of the company (tendential rigidity and resistance to change). The risk of internal variability, generated by the difficulty of governing complex structures, contributes to the accentuation of the risk in a non-negligible way. Business risk therefore presents itself as a system of closely correlated and interdependent risks. The analysis of the degree of risk and the causes that determine it allows to put in place the most suitable actions to keep it at physiological levels. These actions can be directed to: • mitigate the overall degree of risk, acting on the causes that determine it, that is on the internal variability and on the rigidity of the company structures; • control the effects of the risk by transferring any negative manifestations in time and space. The first point is of fundamental importance, as these actions of confrontation assume strategic value, and mitigating the risks of incompatibility between the business structure and the environment, they favor the maintenance of the equilibrium conditions of the business system. The strategy, therefore, invests the dialectic enterprise-environment and can be defined as a coordinated set of actions that tend to achieve the maximum possible perspective compatibility between organizational, operational, and environment structures, where the company’s activities will have to take place (Cavalieri 2008). The resulting strategic behavior is largely conditioned by the underlying strategic orientation, that is, how the values, attitudes, and guiding ideas that constitute the identity of the company are present within the company. The adopted strategic behaviors allow the company to propose itself to the environment with its own entrepreneurial formula, that is, with a competitive system: structures and systems of relationships that make it possible to determine the strategic positioning of the company. An important tool for doing this is the model of the five competitive forces, also known as analysis of extended competition or analysis of the five forces (Porter 1985). The analysis of the five forces of Porter allows the company to get a complete picture of its competitive position, to make strategic decisions, and to establish the behaviors and attitudes to be

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adopted toward these forces. The model aims at identifying the forces (and to study their intensity and importance) that operate in the economic environment and, by their action, erode the long-term viability of companies. Such forces act with continuity and, if not properly monitored and faced, they lead to the loss of competitiveness. These forces are: • Direct competitors: subjects offering the same type of product on the market; • Suppliers: those from whom the company purchases raw materials and semi-finished products necessary to carry out the production process and which could decide to integrate downstream; • Customers: the recipients of the output produced by the company that could possibly decide to integrate upstream; • Potential new entrants: subjects that could enter the market in which the company operates; • Producers of substitutive goods: subjects who place on the market products other than those of the reference company, but who satisfy, in a different way, the same need of the customer/consumer. Therefore, the rational business systems choose a strategic path to achieve their objectives within a portfolio of options: grow, do not grow, to cooperate (Cafferata 2009) (Table 4.2). This model summarizes the strategic lines of action of the companies according to the paths they intend to undertake. It is not in the interest of this work to dwell on this topic; however, it is worth to be mentioned in order to contextualize the adoption of cooperation strategies implemented by companies. The yardstick for the classification of strategic paths is the dimensional development of the company and/or the increase in the market share. It is evident that a growth path has the objective of a dimensional development of the enterprise, while a path of non-growth involves a maintenance (a defense) of the current state. Table 4.2  Strategic paths and ways of implementing the company in adaptation Growing way

Not growing way

Cooperation way

Horizontal expansion Vertical integrations Production diversification Conglomeration

Keeping dimensions Entrance in company’s network

In network Out of network

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Cooperation, according to this approach, is alternative or complementary to growth and non-growth paths: a company may decide to cooperate to lay the foundations for future dimensional growth, or it may decide to cooperate with other companies as a necessity for survival. The strategic cooperative path can be undertaken, as shown in the Table 4.2, through a form of inter-company cooperation “without a network” (joint venturing). This form of cooperation can be made explicit either downstream, with distributors or final customers, or upstream, with suppliers, as sideways, with direct or indirect competitors. Alternatively, “networked” cooperation may emerge: with a large company, supplier of production orders or patents or information to produce (a leading company); with a large company that brings together multiple projects, and works, of different operators (coordinating company); with companies of a similar or smaller size, to create a complex good, or service (network without a leading company) (Cafferata 2009). In an increasingly complex market marked by strong competition, therefore, it is necessary to adopt new strategies in terms of collaboration with companies and institutions that characterize the environment, in which it operates: for years, companies and institutions in creating the foundations have moved in the field of competition rather than cooperation; it is therefore always difficult to be able to implement and share new strategies for collaboration with both new partners and “old enemies”. Collaboration and cooperation bring better communication and closer relationships between suppliers and customers, sharing part of the processes; for example, with the location of suppliers in the vicinity of the client company, greater contractual capacity, co-designing and coproduction, especially where it is not possible to obtain the innovations necessary to better meet the needs of the market, either due to lack of know-how or lack of the necessary funds. The aim is to organize a system of cooperative external relations, both vertical and horizontal, in order to access external resources and knowledge, which are complementary to the strengthening of competitive capacity over time.

4.4   Cooperative Agreements in the Automotive Industry Research carried out by scholars regarding cooperative alliances in the automotive sector has led to specific results for this sector, given the particular characteristics that influence its dynamics.

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Some researchers (Burgers et al. 1993) have identified how cooperation agreements between companies in the automotive sector are mainly used as means of reducing uncertainty, both in terms of demand and competition. Companies tend to focus on negotiations with many partners, not necessarily all resulting in alliance agreements. Research has identified a new dynamic beyond the traditional concept of cooperation, which was seen as a mean, on the one hand, for accessing new, broader knowledge, skills and resources, and on the other hand, to reduce competition in the sector. It has been seen that large companies prefer agreements with small companies. Generally, such agreements are stipulated in periods following a crisis in the sector or the companies involved. Other scholars have shown that the probability of an alliance between companies is based on the local density of alliances among the members of their strategic groups, rather than on the global density of alliances in the industry (Garcia-Pont and Nohria 2002). The companies seem to observe and then imitate the strategic behavior of those companies that occupy the same ­strategic market niche, rather than the behavior of companies in the sector. 4.4.1  Some Examples of Alliances in the Automotive Sector Until 2009 The alliances in the automotive are not a new phenomenon in the sector: yet in the past, many car manufacturers understood that the alliance was the right way to go in order to increase their strength on the market. It is therefore useful to review the main agreements reached, or to be reached. 4.4.1.1 PSA and Toyota A classic example is the one of the PSA, a French car manufacturer that brings together Peugeot and Citroën. The two brands merged in 1976, when Peugeot came to own 89.95% of the Citroën, which was about to fail. In recent years, the PSA has reached an industrial cooperation agreement with Toyota: this is the establishment of a joint venture for the construction of Toyota Aygo, Citroën C1, and Peugeot 107. These agreements prove to be conditioned by the high economic resources necessary to create a small car, and project it into a crowded and extremely competitive market, while guaranteeing maximum productivity at the factory where it is produced.

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4.4.1.2 The Alliance between Renault and Nissan From the very beginning, the Alliance has always been based on a premise of mutual trust and the pursuit of strategies for profitable growth, says Carlos Ghosn, President and CEO of Renault and Nissan. This alliance was founded in 1999 by a policy of reorganizing the group with the creation of platforms common to both brands. The agreement is reached through the exchange of shareholdings: Renault holds 44.4% share of Nissan and Nissan holds 15% share of Renault. Subsequently, the French company decided to acquire 51% of Dacia, in order to be able to compete in the Romanian car market. The Renault Group designs, manufactures, and sells passenger cars and light commercial vehicles all over the world. Present in 118 countries with 129,000 employees, the group markets its products under the Renault, Dacia, and Samsung brands. Nissan is present in the world’s major automotive markets with a full range of passenger cars, pickups, SUVs, and light commercial vehicles under the Nissan and Infiniti brands. Nissan has over 220,000 employees worldwide. The alliance produced a significant increase in profitability and market capitalization for both companies, from 1999 to the current negative economic situation. In terms of market capitalization, Renault’s result has more than tripled, rising from 8.4 to 27.6 billion euros. In 2007, the company was ranked sixth in the automotive sector, compared to the 11th position occupied in 1999. In the same period, the market capitalization of the Japanese House has quadrupled from 9 to 34.2 billion yen. In 2007, the company ranked fifth with respect to the tenth place achieved in 1999. The average operating profit for the period 1999–2009 increased significantly compared to the period between 1990 and 1999. The operating profit has increased five times for Renault and has increased eight times for Nissan. Renault’s initial liquidity contribution to Nissan was € 6.4 billion. Since then, Nissan has contributed over € 11 billion to Renault’s balance sheet results. Between the two companies, a significant exchange of liquids, capital, profits, and dividends has been established over the years. The main achievements for the alliance in these ten years of activity were: 1. Global sales increased from 4,989,709 units in 1999 to 6,090,304 in 2008.

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2. Renault-Nissan Purchasing Organization (RNPO) is the largest common organization of the alliance, authorized to negotiate on behalf of Renault and Nissan. As of April 1, 2009, joint purchasing activities account for 100% of alliance purchases, compared to an initial 30% in 2001. 3. Shared platforms and common spare parts are tools used by the alliance to make economies of scale, reducing development and production costs. The common platforms, or platforms B (used for Nissan Tiida/Versa and Renault Clio) and C (used for Renault Mégane/Scénic and Nissan Qashqai), represented over 50% of the vehicles sold by Renault and Nissan globally in the 2008. 4. To invest in the know-how of the power units of both partners (Renault for diesel and Nissan engines for petrol engines), the alliance has co-developed engines and transmissions. The alliance also implements an exchange of existing engines and gearboxes—for example, the 3.5-liter Nissan petrol unit was used for Renault Laguna and Renault’s 1.5 diesel engine for Nissan Qashqai. In total, eight engines are used in common. 5. Renault and Nissan cooperate in strategic fields of research and advanced engineering. The two car manufacturers have a common technological plan based on four pillars: Safety, Environment-CO2, Life on board, and Dynamic Performance. As far as zero-emission technologies are concerned, Renault and Nissan are focusing on electric vehicles: to date, about 20 agreements have been signed with governments and companies to launch the first electric vehicle in 2010 and to market a whole line on a large scale of electric vehicles in 2012. 6. Renault’s RPS (Renault Production System) system, used in all of the company’s plants, is largely inspired by the production system of the Japanese company, the Nissan Production Way. From its implementation, Renault’s productivity has improved by 15%. By leveraging the best practices of both companies, alliance partners have developed the AIMS (Alliance Common Process or Alliance Integrated Manufacturing System) system, which will initially be implemented in the greenfield plants of India (Chennai) and Morocco (Tangier). 7. Within the alliance, each company has the opportunity to benefit from the partner’s production capacity. Currently, Renault plants produce Nissan vehicles in Korea (Almera Classic) and Brazil

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(Livina), while Nissan assembles Renault models in South Africa (Sandero), Mexico (Clio), and Spain (Trafic). 8. Thanks to the geographical complementarity, Renault and Nissan cover the main markets of all the continents. The historic territories of Renault are Europe, North Africa, and South America; Nissan’s main markets are Japan, North America, Mexico, China, and the Middle East. Since 2005, Renault and Nissan have crossed new territories, like India, to expand their international presence. 9. The alliance has contributed to the expansion of product lines. Nissan has enriched its range of LCV in Europe by marking with its emblem the Renault products: Renault Kangoo/Nissan Kubistar, Renault Master/Nissan Interstar, and Renault Trafic/ Nissan Primastar. For its part, Renault has designed Koleos, which was then developed by the Japanese company using its advanced 4×4 Nissan technology. 10. As an industrial and economic player, the Renault-Nissan Alliance has a unique experience in multicultural management at all levels. Every year, over 30 teams made up of Renault and Nissan employees from different regions and with different roles work together to identify synergies and best practices. Thousands of people with a cross-cultural experience cooperate since the birth of the alliance. We are proud of the results achieved over the past 10 years, says Carlos Ghosn, and we look forward to getting the most out of our potential in the future. Making the most of our partnership within the Alliance, we will take further measures to deepen the synergies between Renault and Nissan that will contribute to the profitable growth of the two companies. 4.4.1.3 The Joint Venture between Fiat and Ford Get together to compete. The joint venture between Fiat and Ford was made to create, respectively, the 500 and the Ka. Thanks to this cooperation agreement, the two famous city cars saw light, and now compete on the market. To produce the new generation of the Ka in “tandem” with Fiat, Ford had to invest 200 million euros. If it had to face the challenge alone, the House of Detroit, perhaps, would not have been enough with 500–600 million. Only thanks to the joint venture, therefore, the two city cars can be born and go on the market at competitive prices to face the fierce competition.

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References Amburgey, T.  L., & Miner, A.  S. (1992). Strategic Momentum: The Effects of Repetitive, Positional, and Contextual Momentum on Merger Activity. Strategic Management Journal, 13, 335–348. Berger, R. (2003). In una Difficile Situazione Economica del Settore Automobilistico come Possono gli OEM Avere Successo? L’Industria, Nuova Serie, XXIV(3), 413–429. Burgers, W.  P., Hill, C.  W. L., & Chan Kim, W. (1993). A Theory of Global Strategic Alliances: The Case of the Global Auto Industry. Strategic Management Journal, 14, 419–432. Cafferata, R. (2009). Management in adattamento. Tra razionalità economica e imperfezione dei sistemi. Bologna: Il Mulino. Cavalieri, E. (2008). Il comportamento strategico d’impresa. Torino: G. Giappichelli Editore. Garcia-Pont, C., & Nohria, N. (2002). Local Versus Global Mimetism: The Dynamics of Alliance Formation in the Automobile Industry. Strategic Management Journal, 23(4), 307–321. Gulati, R. (1998). Alliances and Networks. Strategic Management Journal, 19(4), 292–317. Gulati, R., Nohria, N., & Zahee, A. (2000). Strategic Networks. Strategic Management Journal, 21(3), 203–215. Kogut, B. (1988). Joint Ventures: Theoretical and Empirical Perspectives. Strategic Management Journal, 9(4), 319–334. Pellegrini, M.  M., Caputo, A., & Matthews, L. (2018). Knowledge Transfer within Relationship Portfolios: The Creation of Knowledge Recombination Rents. Business Process Management Journal. https://doi.org/10.1108/ BPMJ-06-2017-0171. Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance (Vol. 43, p. 214). New York: Free Press.

CHAPTER 5

Case Study: The Fiat–Chrysler Negotiation in 2009

Abstract  This chapter intends to take up the theory proposed in the previous chapters through the analysis of a real business case: the agreement between Fiat and Chrysler in 2009. The chapter is structured in three parts. Initially, we will describe the working methodologies, and through a review of the main methods of study in the field of negotiations, we will explain the choice of the business case as a research tool. Then we will proceed with the presentation of the case, describing the parts and the situation before the negotiation. Thereafter, we will proceed to the analysis of the case according to the theoretical interpretation key provided in the first few chapters. Keywords  Fiat • Chrysler • Case study • Negotiation • Strategy • M&A

5.1   The Environmental Context of the Case Study The great crises have the capacity to accelerate latent changes, creating new conditions of equilibrium. The automotive sector has been in a ­structural crisis for a long time because of various reasons: production ­overcapacity, too dense and inefficient distribution networks, and the need to tackle substantial technological leaps. To these intrinsic weaknesses

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some external factors are added: the low-cost phenomenon, the control of emissions and the greater energy efficiency, the unsustainability of the current transport models, and the progressive shift of demand toward emerging markets. The downsizing phenomenon, dictated by the economic situation, accelerates a trend already in place both in Europe and the United States and linked to economic and social factors (the increasing polarization of income and the numerical reduction of the middle class), to environmental factors (smaller cars pollute less), and to the changing needs of city mobility. In the mature markets, the crisis is shifting further categories of consumers toward low-cost solutions. Moreover, even if at a reduced growth rate (due to the global crisis), the demand for cars in India and China continues to grow. The crisis makes consolidation in progress in the sector more urgent. The target of 6 million cars per player appears to be in line with the needs of greater economies of scale. The supply sector is already undergoing such a trend. However, the Fiat–Chrysler strategic alliance shows how the drivers of this consolidation do not stop economies of scale but entail additional objectives such as entering new markets (North America for Fiat) and technology transfer (skills in small cars, light and efficient vehicles supplied by Fiat to Chrysler). The commonality of platforms and components, together with the need to reduce costs, will increase (at least for some market segments) the perception of the car as a commodity, the main advantage of it being the ability to comfortably travel from point A to point B in a specified time compatible with traffic constraints and with increasingly stringent speed limits. The 2009 crisis, which put the sector under strong pressure, sets the scene for redefining the balance in the direction of greater consolidation, lower-cost cars, more efficient and less polluting cars, a less expensive distribution system, and an offer of services more in line with the needs of the final customer. To tackle the crisis, governments launch support programs for the sector aimed at securing capital for companies and supporting demand; in order for these measures not to be limited to an ephemeral increase in volumes but to promote real renewal, it is necessary to focus on the correct levers, providing incentives and financial support to foster new ­technologies, ensuring infrastructure consistent with a new model of use of transport, and avoiding protectionist tendencies.

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5.2   Methodology In order to analyze what was proposed by the theory regarding multilateral negotiations, we have chosen to use the case study method, analyzing the negotiation for the achievement of the agreement between Fiat and Chrysler. This choice was born both from the personal pleasure of being able to study a specific case concerning the automotive sector and from bibliographic research carried out on the methods of study for the negotiations to choose the most suitable one. Carnevale and De Dreu (2006), in their work “Methods of Negotiation Research”, present many methods of study used, up to now, in research in the field of negotiation. Reading this essay has allowed the author to choose with greater awareness the methodology with which to analyze multilateral negotiations and the role played by third parties. The methods used to date, through an appropriate simplification, can be traced back to the three approaches of study in the field of negotiation: normative, descriptive, and prescriptive. The main differences between the methodologies used can be found among those that base their roots in the normative approach and those that are based on the descriptive approach. The scholars adhering to a normative approach seem to prefer research methods that imply a strong use of statistical–mathematical analysis tools. On the other hand, the research that follows the descriptive approach seems to use more research tools belonging to disciplines related to sociology and psychology. As for research with a prescriptive objective, this seems to jointly and in a complementary manner use statistical–mathematical analysis techniques with other socio-psychological ones. The simplification necessary for the classification of the methodologies based on the theoretical reference aims is undoubted. There are numerous examples of contamination between theories and approaches. Historically, multilateral negotiation studies have used both statistical and sociological methodologies. A common factor, whether one method or another is used, and whatever the purpose, seems to be that the choice of method is made according to the specific context of analysis. For example, in the case of negotiation typologies repeated over time, the most used methodologies are those of a statistical nature. Given the novelty of the topic under investigation, and therefore the consequent scarcity of historical information from the quantitative point of view, we have immediately excluded the development of a statistical analysis; in the same way, we have decided to immediately exclude the use of research methods such as laboratory experiments, questionnaires, or

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field research, given the impossibility of developing them comprehensively at this time. The choice fell on the analysis of a concrete case of negotiation, through the chronological reconstruction of events, and then trying to interpret the evolution of the negotiation process and the role of the parties through the theoretical tools presented in the first few chapters of the book. The choice of the case study as a method of analysis was also dictated by the university experience gained so far. In fact, the case studies analyzed during the degree course are numerous. Regarding the subject matter of the case study, our attention fell on the ongoing negotiation between Fiat and Chrysler, and in particular on the role played by the third parties in the process of reaching the agreement. With reference to the information regarding the negotiation process in the presented case, the reference period taken into consideration runs from January 2009 to August 31, 2009. It is necessary to define a reference period to carry out the analysis of the case since the amount of information in this regard is updated every day. Therefore, it was decided to limit the analysis of the case to the period of actual negotiation between the two companies and the third parties. The main sources of information regarding the history of companies and the chronological dynamics of the negotiation process are news databases. As for the quantitative data concerning the companies and the automotive sector, the sources were mainly databases of economic data on the automotive industry sector and the companies’ official reports. The case analysis was developed according to the definition of negotiating structure proposed by Gatti (2008). Consequently, this will develop according to the three key concepts of the negotiating structure: the parties, the issues, and the interests. The analysis will therefore try to answer the proposed question in the case of the negotiation between Fiat and Chrysler; through the analytical tools and models presented in the first two chapters, the role and behavior of the parties, their interests and preferences, and how the third parties have influenced the dynamics of the negotiation process will be analyzed.

5.3   Presentation of the Case 5.3.1  Fiat in 2009 On July 11, 1899, at Palazzo Bricherasio, the deed of incorporation of the “Società Anomima Fabbrica Italiana Automobili Torino” was signed.

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There were 30 shareholders for a share capital of 800,000 lire. The members of the board of directors include Giovanni Agnelli, who emerges immediately thanks to a single dynamism, and assumes the position of managing director in 1902. The basic idea of its strategy is the overcoming of the artisan production system and the construction of a company capable of realizing large production volumes in series, such as Ford in the United States, taken as a reference model. The problem of the narrowness of the national market is immediately evident since the car in Italy is a luxury item (and this will remain until the economic miracle); for this reason, the company tries to position itself in foreign markets. For example, in 1908 the Fiat Automobile Co was born in the United States, and relations with France, Austria, the United Kingdom, and Australia were also developed for the export of production. In 1907, Fiat, which assumed this name in 1906, suffered a financial crisis from which the role of Giovanni Agnelli was finally strengthened. The outbreak of the First World War contributed powerfully to increasing production, as they were used for military purposes, and to expand the plants because the State assigned important orders to the Turin company (as an auxiliary company to the war effort): the number of workers increased from 4000 in 1914 to 40,000 in 1918. But the progressive establishment of Fiat can be attributed to the realization of vertical integration—progressively achieved upstream and downstream—from steel processing to distribution, thus reducing production costs. Furthermore, the company’s strategy is aimed at diversifying production and orientating itself to the most promising markets. In fact, in the Fiat factories not only cars for civil use are produced, but also industrial vehicles, marine engines, trucks, taxis, trams, and ball bearings. The design and construction of a new large plant is the result of Agnelli’s travels in America and technical missions. The 1915 Lingotto project is based on the model of the Ford plant of Highland Park and therefore on the introduction of the assembly line, on the linear organization of the production space, and on the sequential flow of the workings. After an initial period of difficult development, marked by several recapitalizations and changes in the composition of the share capital (not always in a peaceful manner but also in clamorous processes for the time), the ownership of the car company is taken almost entirely by Giovanni Agnelli, who remains at the head of the company until the end of the Second World War.

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Until 1966, when Gianni Agnelli became president, the company was in the hands of capable managers (including Prof. Vittorio Valletta) who knew how to make the company rise again after the war. They also started the strategy of acquiring other companies, such as Bianchi, transformed into Autobianchi (1955), Lancia (1964), O.M. (1967), Ferrari (40% ownership in 1969). More active in managerial management, in 1979 Fiat set up an autonomous structure called Fiat Auto S.p.A., where all the acquired brands (Fiat, Lancia, Autobianchi, Abarth) and those in participation (Ferrari) were merged. In 1983, the Alfa Romeo brand and in 1990 the Maserati brand were acquired. Then in 1988, with the death of Enzo Ferrari, Lingotto brought his participation of the house of Maranello to 90%, leaving the remaining shares to his son. Industrial vehicles (Fiat, OM, Lancia, Maginus, Unic, and Pegaso) had already been collected since 1974 under the Iveco brand. In 1985, the excellent personal relationships between the lawyer Gianni Agnelli and Henry Ford II led to the elaboration of a project of fusion between Fiat and Ford Europe, even if initially it was focused on initiatives of limited scope, based on the possibility of using common components. Later they thought of the launch of a program of industrial integration and reorganization of the two groups, which would be completed with the constitution of a new company on which to bring together the respective automotive activities. However, the Turin house stops the negotiation given the strong divergence between the parties in deciding who would control the constituted company. The management of Gianni Agnelli considerably increases the multinational and multisector vocation of the company, a vocation that had its roots in the industrial realities created by Fiat throughout Europe, already in the first 20 years of the century. Growth is relevant both in Italy and abroad, certainly helped by the so-called economic boom of the 1960s. Agnelli remains in office until his 75th birthday when he resigns as established by the statutory regulations. The position was taken first, in 1996, by the former managing director Cesare Romiti and then, in 1998, by Paolo Fresco, a Genoese executive who worked for General Electric in the United States for many years. The group’s crisis brings Umberto Agnelli to the presidency in 2003; after Umberto’s death it was the turn, in 2004, of Luca Cordero di Montezemolo, while the members of the family were on the board of directors.

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In the 1990s, there was an intense activity of divestments and acquisitions. Iveco buys the Enasa Pegaso, but it fails in the most important acquisition, of Volvo, which would have given life to a stronger industrial vehicle company. But it is in the field of agricultural machinery that the greatest effort is made, first with some small operations that strengthen the position of New Holland (already bought by Ford), and then in 1999 with the purchase of Case for $4.6 billion, thus creating a market leader in the world, albeit on extremely burdensome conditions, paying almost three times the current stock price. The year 2002 was the year of the industrial and financial crisis, aggravated with the CNH operation. The crisis derives from the reasoning behind the acquisitions of the second half of the 1990s: the investment in sectors with higher growth or at least with more stable profitability than the automotive, a sector which all the group’s moves in recent years tended to at least resize as a commitment. In June 2004, following the resignation of the Managing Director Giuseppe Morchio, Sergio Marchionne was nominated, ending up as the protagonist of the reorganization and re-launch of Fiat in recent years. The group’s activities and strategies originally aimed solely at the industrial production of vehicles. Over time and because of the changed market conditions and consolidated group structure, Fiat has gone toward diversification in many other sectors: the group currently has activities in a wide range of industry sectors and financial services. The automobile activities, equal to over 80% of total sales, consist of the following business lines: automotive (with the brands Fiat, Lancia, Alfa Romeo, Ferrari, and Maserati); machines for agriculture and construction (represented by CNH Global NV with the brands Case, New Holland, Steyr, and Kobelco); and industrial vehicles (with Iveco S.p.A. through the Iveco, Iveco Irisbus, Seddon Atkinson, and Iveco Magirus brands). The components are represented by the Magneti Marelli companies (for the modules and systems that make up the vehicle) and Teksid (for the metallurgical products); the activity of the Production Media and Systems business line is present with Comau S.p.A., producing industrial automation systems for the automotive sector. Other sectors include publishing services (La Stampa) and communication (Publikompass). The group can be defined as a diversified group in the automotive sector as it is present, through subsidiaries, along the entire production chain, and through its brands it covers all market segments. In fact, Fiat is characterized, in particular in the automotive sector, by the production of both

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mass models (Panda, Punto, etc.) and exclusive cars in limited series with a strong emotional charge (such as Ferrari and Maserati). The majority shareholder with a 30.5% stake is IFIL S.p.A., a financial company of the IFI group, a safe belonging to the Agnelli family. The composition of the board reflects the international vocation of the group’s activities and the partnerships implemented so far. For example, members include Tata exponents, an Indian automotive group with whom Fiat has a strategic alliance based on an exchange of holdings. An analysis of the composition of the board of directors makes it possible to note the presence of the phenomenon called in the literature “interlocking directorship” (Fattobene et  al. 2018): this phenomenon refers to the roles of directors, who hold the same office in other companies, often linked to each other by participation or partnership. Regarding the directors of the Fiat group: • Andrea Agnelli: director, IFI S.p.A. • Roland Berger: vice president, Wilhelm von Finck AG; advisor, Telecom Italia S.p.A.; chairman, Supervisory Board of Prime Office AG and WMP EuroCom AG; vice president, Supervisory Board of Live Holding AG; member, Supervisory Board of Schuler AG; senator, Entertainment AG and Fresenius SE. • Tiberto Brandolini D’Adda: president, Sequana S.A. and Ifil Investissements S.A.; general partner, Giovanni Agnelli & C. S.a.p.A.; deputy chairman, IFIL Investments S.p.A.; director, IFI S.p.A., Espirito Santo Financial Group, SGS S.A., and Vittoria Assicurazioni S.p.A. • René Carron: president, Crédit Agricole S.A. and Caisse Regional des Crédit Agricole des Savoie; vice president, Confédération Nationale de la Mutualité de la Coopération et du Crédit Agricoles; director, GDF-Suez S.A.; and member, Supervisory Board of Lagardere SCA. • Luca Cordero di Montezemolo: advisor, Poltrona Frau S.p.A., Tod’s S.p.A., and Pinault Printemps Redoute S.A; member, the International Advisory Board of Citi Inc. • John Elkann: deputy chairman and general partner, Giovanni Agnelli & C.  S.a.p.A.; chairman, IFI S.p.A. and IFIL Investments S.p.A.; director, RCS Mediagroup S.p.A. eGroup Banca Leonardo S.p.A.; and member, the Supervisory Board of Le Monde S.A.

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• Luca Garavoglia: chairman, Davide Campari Milano S.p.A.; director, Indesit Company S.p.A. • Gian Maria Gros-Pietro: chairman, Autostrade per l’Italia S.p.A., Atlantia S.p.A., and Perseo S.p.A.; director, Edison S.p.A. and Seat Pagine Gialle S.p.A. • Sergio Marchionne: chairman, SGS S.A.; non-executive vice chairman and senior independent director, UBS AG; director, Philip Morris International Inc. • Virgilio Marrone: chief executive officer and general manager, IFI S.p.A.; director, Old Town S.A.; member, the Management Board of Intesa Sanpaolo S.p.A. • Vittorio Mincato: president, Assonime; director, Parmalat S.p.A.; chairman, the Publishing House Neri Pozza S.p.A. • Pasquale Pistorio: honorary president, S.T.  Microelectronics N.V.; director, Brembo S.p.A. and Chartered Semiconductor Manufacturing Ltd. • Carlo Barel di Sant’Albano: chief executive officer, IFIL Investments S.p.A.; director, Juventus FC S.p.A., Sequana S.A., and Cushman & Wakefield; member, the Supervisory Board Intesa Sanpaolo S.p.A. • Ratan Tata: chairman, Hindustan Aeronautics Ltd., Antrix Corporation Ltd. and The Indian Hotels Company Ltd.; Director, Alcoa Inc. He also holds the position of chairman in the main companies of the Tata Group. • Mario Zibetti: advisor, Ersel Sim S.p.A. 5.3.1.1 Fiat Numbers In 2008 revenues, amounting to €59.4 billion, increased by 1.5% compared to 2007: the significant performance in the first nine months (+8.4%) was offset by the declines recorded by most sectors in the fourth quarter of the year (−17.2% compared to 2007). The result of ordinary operations of €3.4 billion increased by 4% (+€129 million): the increases achieved by agricultural machinery, ­industrial vehicles, and luxury cars more than offset the recorded drops from Fiat Group Automobiles, from components and construction machines. The group’s margin on revenues rose to 5.7% (5.5% in 2007): improvements resulting from efficiencies and prices offset the effect of the decline in volumes recorded in the fourth quarter.

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Net income was €1.7 billion (down 16.2% from 2007, up 15% on a homogeneous basis). Net industrial debt of €5.9 billion reflects a higher level of investments (+36% compared to 2007), combined with the absorption of working capital related to the decline in volumes in the fourth quarter. 5.3.2  Chrysler in 2009 Chrysler is one of the so-called three big Detroit, along with Ford and General Motors. The company was founded on the ruins deriving from the reorganization of Maxwell Motor Company by Walter P. Chrysler in 1925. Already in 1924, Walter P. Chrysler had launched a first car on the market with his own name, the Chrysler Six, designed by himself. The new company immediately implemented a policy of expansion that, since 1928, has led to the implementation of significant maneuvers, such as the foundation of the Plymouth and De Soto brands as well as the acquisition of the Dodge. In 1930, the New York office was inaugurated in a specially built building, the Chrysler Building. One of the main achievements of Chrysler was to have introduced for the first time in the car design process the first wind tunnel, to optimize the lines of the car according to aerodynamic penetration. The excessive focus on aerodynamics in the early 1930s was not understood by the market and, after numerous setbacks, Chrysler changed its strategic line from a market innovator to a competitive pursuer. Even after the Second World War, the production remained in line with the competition, without showing anything innovative. In the second half of the 1960s, Chrysler bought Rootes and Simca, both already owners of brands such as Talbot and Hillmna, and then founded Chrysler Europe. Since then, most of the cars produced by Simca, Talbot, Hillman, and other brands were labeled Chrysler for some markets, while for other markets, they maintained the original brand. The Simca brand prevailed among all these brands in terms of sales volumes, while others, like Hillman, remained a bit in the shadows. A sensational and also in some ways paradoxical fact was that Chrysler was one of the less successful brands in Europe. This fluctuating yield meant that Chrysler Europe soon found itself in great financial difficulties, to the point that in 1978 it was acquired by the PSA Group, and then gradually absorbed. Even in the United States, the situation was not the rosiest: already in the early 1970s, the oil crisis had cut off most of the production, and therefore many economic resources were dispersed. Moreover, the low

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sales volumes of the cars in the following years brought the company to the brink of bankruptcy. A talented manager, Lee Iacocca, saved the fate of Chrysler; with the introduction of new market strategies and new niche models, such as the introduction of the first minivans, Chrysler returned to great acclaim. In the 1980s, Chrysler acquired a 20% stake in Mitsubishi, strengthening itself in the low- and medium-low-range car segment. In addition, in 1987, Chrysler also bought AMC, a car manufacturer from which it took over the production of off-road vehicles. In fact, AMC owned Jeep, a historic brand known for decades for its dedication to purely off-road vehicles. In the same years, Chrysler also acquired the Italian Lamborghini, which was then sold years later to the Volkswagen group. In the early 1990s, Chrysler again tried to return to Europe, but this time with more success. In fact, its minivans and off-road vehicles were much more successful than its most conventional cars in the 1970s. In 1998, Chrysler merged with Daimler-Benz (which includes Mercedes-Benz) to form DaimlerChrysler AG.  This union, initially founded as a company managed on a par with both Chrysler and Daimler-­ Benz, ended up highlighting the predominance of the German company, which brought a lot of its components to different models produced later. In May 2007, DaimlerChrysler AG announced the sale of 80.1% of the Chrysler Group to the American company Ceberus Capital Management, deciding to maintain the remaining 19.9%. The new name of the group is Chrysler LLC, while “DaimlerChrysler” becomes Daimler AG.  After the announcement of the transfer to Cerberus, Chrysler LLC (or “The New Chrysler”) unveils the new logo and launched the new website with the variation of the previous Pentagonale logo. The Cerberus Group has appointed Robert Nardelli as chairman of the Board of Directors and CEO of the new Chrysler Group. The brands controlled by Chrysler are Chrysler Automobiles, Dodge, Jeep, Chrysler Financial (financial services company), Mopar (automotive components manufacturer), and Global Electric Motorcars. As can be seen from Table  5.1, the group’s sales figures had fallen sharply in the ten years previous to the agreement, a situation that had led Chrysler to the brink of bankruptcy in 2009. 5.3.3  Chrysler and Chapter 11 On April 30, 2009, at the request of the US Treasury, Chrysler requested to be admitted to the controlled administration procedure known as “Chapter 11”.

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Table 5.1  Chrysler sales in the ten years prior to 2009 Year

Sales USA

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

2,638,561 2,522,695 2,273,208 2,205,446 2,127,451 2,206,024 2,304,833 2,142,505 2,076,650 1,453,122

Variation % −4.4 −9.9 −3.0 −3.5 +3.7 +4.5 −7.0 −3.1 −30.0

Chapter 11 is a part of the United States bankruptcy law (Bankruptcy Code) that allows companies that use it to restructure following a serious financial disruption. Chapter 11 can be used both by companies, in a corporate or individual form, and by private citizens (in the United States, in fact, they are also subject to bankruptcy). The most prevalent use, however, is by companies. It is roughly equivalent to the controlled administration provided for in Italian legislation. This procedure is aimed at solving the company’s crisis through a reorganization plan and is very similar to the Italian preventive agreement. It is aimed, in fact, at satisfying creditors, but at the same time, at preserving the business of a company in crisis. During the procedure, (a) the debtor keeps possession of his assets and (b) creditors cannot attack such assets. The plan may have the most varied content, may provide for the full satisfaction of some creditors and partial of others (except the right of guaranteed creditors to be always fully satisfied, to the extent of the guarantee), and can divide the creditors themselves into classes. Once approved by the majority of creditors, the plan must be assessed by the court for the purposes of type approval. If no objections are raised, the court will only verify that the debtor is in good faith and that no mandatory rules have been violated. In the event of objections, the court must also ascertain that the plan is feasible and that it is suitable to satisfy ­creditors more than they would have received if the debtor had failed. The procedure ends with the approval of the plan by the judge, which provides for the distribution to the creditors of the economic value of the company.

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In the case of Chrysler, the reorganization plan envisaged the creation of a new company, called “NewCo”, with new shareholders (Fiat, the US government, trade unions, and some employee pension funds) that bought all the assets from the previous company in order to satisfy as many creditors as possible. In theory, this procedure allowed to obtain a greater income compared to the liquidation procedure of corporate assets, together with the guarantee of continuation of the company’s operations, thereby avoiding layoffs and closure of production facilities, and allowing the NewCo to equip itself with a new organizational structure that allows it to survive. 5.3.4  Sergio Marchionne Sergio Marchionne, born in Chieti on June 17, 1952, with Italian– Canadian citizenship, has been the CEO of Fiat since 2004 and is the author of his re-launch, through a careful reorganization of the group. Son of a Marshal of the Carabinieri, who emigrated to Canada as a young man, Sergio Marchionne is a lawyer and certified accountant; he graduated in law from the Osgoode Hall Law School of York University and obtained an MBA from the University of Windsor. Canada was the country where the manager also gained his first professional experiences, from 1983 to 1985, just as an accountant and tax expert at Deloitte Touche. From 1985 to 1988, Marchionne was group controller and then director of business development at the Lawson Mardon Group in Toronto; between 1989 and 1990, executive vice president of Glenex Industries; and then, until 1992, vice president for finance and chief financial officer at Acklands Limited. Moreover, in Toronto, between 1992 and 1994, he held the position of vice president for legal and corporate development, chief financial officer and secretary to the Lawson Group, which was acquired by Alusuisse Lonza in 1994. It is the Algroup of Zurich, Switzerland, where from 1994 to 2000 he was ­executive vice president for business development, chief financial officer, and then managing director. He then led the Lonza Group, which separated from Algroup, until 2002, when he was appointed CEO of the SGS Group of Geneva, a world leader in inspection, verification, and certification services, a strong group of 55,000 employees worldwide. The name of Sergio Marchionne, for the excellent management of the Swiss group and restoring it in just two years, is held in high esteem in international economic and financial circles.

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5.3.5  The Development of the Negotiation Process On January 20, 2009, Fiat and Chrysler jointly communicate the signing of a non-binding letter of intent for the creation of a global strategic alliance; the announcement comes after months of journalistic rumors about a possible alliance with Chrysler, and at a time when it was expected to start negotiations with the PSA group (Table 5.2). According to this first agreement, Fiat will provide Chrysler with licenses to use platforms for low-consumption vehicles, engines, transmissions, and components, which can be adapted to its needs and produced in its plants; the two companies will also have access to their respective distribution networks. According to the analysts of The Wall Street Journal, the agreement will offer the American house significant opportunities to contain costs estimated at $4 billion–$6 billion. As a consideration, the letter of intent provides that Fiat will receive an initial share of 35% of Chrysler (excluding Chrysler Financial) with an option to purchase an additional 20% after 12 months by paying a sum of $25 million and on condition of having improved the performance of the American manufacturer. Ten years ago, Daimler paid $36 billion for 100% of the US company. Then, the Italian company should occupy three of the seven seats on the Chrysler board of directors; in addition to the compensation in shares, Turin can in turn use the Chrysler plants to assemble its own models intended for the American market and the Chrysler network to distribute them. From the point of view of Fiat, the eventual completion of the agreement would mean being able to sell technologies costing large Table 5.2  Fiat–Chrysler negotiation main milestones January 20, 2009 January 25 February 17 March 5 April 25 April 30 May 7 May 31 June 10

Fiat and Chrysler joint press conference, intended as a possible alliance Fiat requires credit lines to banks Chrysler presents a restructuring plan to the US government with a request for a new loan Marchionne audition at the US government task force The Canadian trade union says yes The US government’s go-ahead for the agreement, appeal to Chapter 11 Bankruptcy Court of New York from the auction on the Chrysler assets The bankruptcy court approves the Fiat–Chrysler plan The Supreme Court gives its approval; Marchionne is appointed CEO of Chrysler Group LLC

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investments and accessing markets with great potential, bringing brands such as Alfa Romeo and Fiat 500 back to them. For CEO Sergio Marchionne, the agreement is “a fundamental step in the scenario of the sector, which is experiencing a phase of rapid change, and confirms the commitment and determination of Fiat and Chrysler to play an important role in this global process”. For Chrysler, the agreement with Fiat is an important part of the recovery plan to be presented to the Treasury, and is consistent with the terms and conditions of the loan already received at the beginning of the year (corporate restructuring and conversion of production to environmentally friendly vehicles). Chrysler’s top management can demonstrate to Washington that they have a partner, cheaper platforms, and engines suitable for the current market situation. In the days following the communication of the preliminary agreement reached with Chrysler’s top management, Fiat announced the opening of a credit line of about €5 billion through Italian and foreign banks, including UniCredit and IntesaSanpaolo. The amount requested by Fiat is very significant and therefore represents an important test not only for Lingotto but in general for the corporate credit market in a phase of high tension in the relations between banks and companies. In the United States, meanwhile, the Congressional polemics emerge on the agreement signed by Chrysler with Lingotto, in particular, on the fact that, as a result of the aid requested by Chrysler to the government, neither Fiat nor the current shareholder Cerberus will provide the company with new funds. Barack Obama’s staff, however, reassured that aid to producers will be conditioned by significant changes by companies, workers, and shareholders. Between February and March, the Chrysler summits meet with the expert task force fielded by the American administration: it is fundamental for the managers to understand how US government funding is essential to keep Chrysler on its feet, and without them the agreement with Fiat would be upstream. With the assembly lines stalled for months and the yards full, the turnover of Chrysler has almost stopped and the new funds are essential to allow it to survive. Equally necessary, however, is the agreement with Fiat; without a strong partner supplying technologies, platforms, and engines, Chrysler would be unlikely to launch a restructuring plan to meet the requirements of the US administration. The plan presented to the American administration provides from seven to nine models and six engines in common with Fiat, synergies on

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­ urchases and distribution, for a total potential savings of $7.4 billion over p eight years, compared to the five requested by the government to guarantee the continuity of operations. The platforms of the Turin group would be used in parallel for a series of new small Chrysler models. Chrysler underlines the geographic complementarity of the two companies and that between the product ranges, in addition to the fact that the sum of the two would allow entrance (with 4.5 million cars produced in 2007) in the top ten manufacturers in the world. To avoid criticism from the resurgent economic nationalism, according to which the transaction could result in a sell-off of Chrysler to the Italian company, the report relies on the benefits the alliance would bring to America, both generic, resulting from the strengthening of Chrysler, and specific, for example those related to the production of Fiat cars in the Chrysler plants in the United States with American workers. In early March, Sergio Marchionne, CEO of Fiat, went to Washington to illustrate the alliance between Fiat and Chrysler in the face of President Obama’s task force. Marchionne’s goal is to convince the representatives of the US government of the alliance’s usefulness as support for the survival of Chrysler, of which both Lingotto and the American company are convinced. At the end of the month, awaiting the decision of Obama’s staff on the restructuring plan of Chrysler, Robert Nardelli, CEO of Chrysler, informs through a press release that the synergies deriving from the agreement with Fiat have a value estimated between $8 billion and $10 billion. On March 31, a White House press release informs about the decision to grant the loans requested by General Motors and Chrysler, conditional on more drastic restructuring plans. The Obama staff, at this point, serve an ultimatum to Chrysler: 30  days to perfect the agreement with Fiat, otherwise there will be bankruptcy. In this case the operation will be managed through the procedure of Chapter 11, that is, through the creation of a Bad Company in which the company’s debts will be merged, the “healthy” part will instead be sold to Fiat through the establishment of a new company. The American government, however, does not like the first agreement between the two companies, signed in January. Obama’s staff want Fiat’s entry into Chrysler’s capital to take place more gradually than initially planned. Instead of immediately recognizing 35% in exchange for engines and platforms, Lingotto would have an initial share of 20%, which would then go hand in hand with the planned transfer of technology and in any case it

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would not rise above 49% until Chrysler has repaid all the funds received from the State. Obama and his staff have in fact defined the initial hypothesis of the agreement as unacceptable for several reasons, including the fact that Fiat could acquire the majority of Chrysler before the latter repaid all the aid received from the American taxpayer. Obama’s “rejection” of Chrysler’s attempt to survive as an independent company puts Fiat in a favorable negotiating position. In the days following the announcement, the CEO of Fiat, Sergio Marchionne, flies to Detroit together with Alfredo Altavilla, head of the FPT engine division and alliances. In addition to defining the final details of the agreement with Chrysler, the Fiat delegation also participates in negotiations with creditors and trade unions. The US Treasury is included in the negotiations with the creditor banks of Chrysler, which will guarantee the financial coverage of the repayment agreements that will be reached. Immediately it comes to a standstill, with the creditors refusing the offer of 15 cents per dollar in value of loans. The team that leads the negotiations, on the creditors’ side, is made up of the banks JP Morgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley, as well as the hedge fund Elliott Management. The plan presented by Chrysler to the Treasury estimates the recovery rate of loans in the event of liquidation between 11 and 43 cents per dollar, but Chrysler debts are traded on the market at 12 cents. Some of the creditors, however, believe they can get 70% or more if the company is liquidated and sold in pieces. It is, however, difficult to say how much value there really is in the individual pieces of the company, especially in this negative situation for the entire auto sector. In any case, the main banks have collateral on Chrysler’s assets, which they could rely on in case of Chapter 11; their consent is therefore essential to achieve a restructuring of the company, with or without books in court. In mid-April, while negotiations with unions and creditors are in stalemate, and Marchionne threatens to abandon the idea of an alliance with Chrysler if the concessions necessary to ensure the operation of the company are not made, announcing a plan B in the event of bankruptcy negotiations. A few days later the consortium of creditors (mostly banks) makes the counter- offer to the Treasury: the renunciation of 35% of the almost 7 billion credits, against the 85% requested by the Obama administration, as a precondition to start the process to save Chrysler. The counter-offer provides in detail the waiver of 2.4 billion loans on 6.9% in exchange for a

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minority stake of 35–40% of Chrysler. Not only that: the banks would also demand a capital commitment from Fiat, a hypothesis that Lingotto has always refused. On the trade unions front, the Canadian and US governments take the field, increasing pressure for further concessions on the hourly cost of work—the company requires a reduction of $19 per hour, while the unions offer $7; governments are committed to ensuring the recovery of health and social security claims in exchange for concessions to avert Chrysler’s bankruptcy. Meanwhile, creditor banks are opening the possibility of resuming negotiations, agreeing to reduce $6.9 billion in claims against Chrysler to $3.75 billion. The creditors have also renounced to ask that Fiat pay $1 billion in the operation but insist on a 40% stake in Chrysler shares. The Treasury for its part offers to maintain only 1.5 billion credits and a 5% share of the new car company. The last moves of the agreement are therefore being played. The government, meanwhile, is resorting to strong measures: JP Morgan, for example, one of the most demanding creditors, is likely to be in a position of conflict of interest because it is exposed to the government and creditor of Chrysler at the same time. For this reason the task force wanted to play in advance: they make it clear that there could be a sudden Chapter 11 orchestrated in such a way as to give the US government, in turn Chrysler’s creditor, top priority on debt with the danger to the banks of see theirs reset to zero. On April 25, the agreement between Chrysler and the Canadian auto trade union (CAW) is reached and it’s an important first step. The agreement provides for a benefit cut that will allow the company to save CAD240 million a year; CAW, Chrysler, and Fiat would create a trust for the management of health care similar to that under discussion with the United Auto Workers (UAW) in the United States. A few days later, the agreement with the CAW paves the way to reach the agreement with the UAW; the heart of the pact is the modalities agreed for the contribution of over $10 billion owed by the company to Veba, the fund of health care for pensioners and their families managed by the union. Chrysler has pledged to pay $4.59 billion to finance Veba. Cash payments will start with $300 million in 2010 and 2011, and higher installments in subsequent years up to $823 million between 2019 and 2023. But above all, Veba will receive a significant amount of shares, which will allow UAW to appoint a representative on the company’s board of directors.

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The union has also accepted cost cuts and changes to the employment contract aimed at reviving the competitiveness of the company compared to international rivals: in particular, the suspension of increases related to the cost of living, new limits in overtime (paid only after 40  hours per week), and the renouncement of vacation days, including Easter Monday in 2010 and 2011. The goal is to bring salaries and benefits in line with those of non-union workers in the US facilities of Japanese companies. The pact with Fiat, which is expected to bring an estimated $8 billion worth of technology, according to the union documents, should create 4000 unionized jobs in the United States. The open front remains, in the hours of April 30, when Obama’s ultimatum with creditors expires. However, a preliminary agreement has already been signed by the Treasury and the four most influential institutions—JP Morgan, Goldman Sachs, Morgan Stanley, and Citigroup, which together hold over 70% of Chrysler debt. The agreement provides for a reimbursement of approximately $2 billion in cash (compared to the $7 billion required) through, among other things, the sale of Chrysler Financial to Gmac, the leader in automotive financing. An agreement on the shareholding with the creditors has not yet been reached; for now the preliminary agreement is 55% to the unions, 20% to Fiat (with the possibility of rising to 35% in the coming years), and the remaining part to the government. The agreement will not be reached; the opposition of a dozen of Chrysler’s 46 creditors, representing less than 20% of the company’s debt, will vanish the possibility of not resorting to Chapter 11. For its part, the government, taking faith in ultimatums and threats on May 1, announces the start of the controlled administration procedure for Chrysler. Fiat will initially have 20% of the new Chrysler that will emerge from Chapter 11; that is, the so-called NewCo will be formed immediately, will acquire most of Chrysler’s assets (with the permission of the bankruptcy judge), and will change its name at the end of the procedure. On the nine members of the board of directors, Turin will be able to appoint three (one of which will be independent), which will rise to four after the quota has reached 35%; the increase will take place in phases of 5% to the achievement of predetermined objectives: respectively the obtaining of approvals to produce fire engines in the United States; the achievement of Chrysler’s sales targets outside the NAFTA area; and obtaining approvals for the first Chrysler model based on Fiat technology.

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Turin will also have the opportunity to rise again, with an option exercisable from January 2013 to June 2016, only when the debt to the US Treasury will have fallen below $3 billion; the 51% threshold can also be exceeded only when this debt has been fully repaid. On May 7, the New York bankruptcy court gives the green light to the auction of the Chrysler assets, and the demands of dissident creditors are dismissed. The offer of the new company with Fiat is valued at $2 billion, the amount that the government has pledged to pay to the creditors. Meanwhile, Fiat announces the financial partnership with IntesaSanpaolo, UniCredit, and Goldman Sachs, for financial advice and investment coverage that it will have to face in the coming years, launching a strong signal to the markets. On May 31, the court’s go-ahead for the rehabilitation plan arrives, but it is not over yet. Three Indiana pension funds, Chrysler bond holders, filed an appeal with the appeals court, which was rejected, and was re-­proposed to the Supreme Court. Meanwhile, Fiat said that if there are no developments by June 15, it will make use of the possibility of withdrawing from the agreement, as foreseen by the agreement; they will have to wait until June 10 for the definitive green light to sell the assets to the new company.

5.4   Case Analysis In order to frame the analysis of negotiation in the Fiat–Chrysler case, it is useful to start from the following questions: “What is the effect of the entrance of third parties in a negotiation, initially configured as bilateral distributive? Can the entrance of third parties bring multilateral negotiation created by distributive to integrative? In which way?” Therefore, the analysis will try to answer the proposed questions in the case of the negotiation between Fiat and Chrysler, and we will analyze, through the analysis tools and the models presented in the first two chapters, the role and behavior of the parties, their interests, and their preferences, and how third parties have influenced the dynamics of the negotiation process. 5.4.1   Synergies Deriving from the Agreement Chrysler, the third largest American automobile manufacturer, allows Fiat to enter the US market, which is worth around 10 million cars a year. The Detroit group, presented mainly in North America, has a market share in

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the United States of 12% and produces 2.1 million cars: added to the 2.2 million Fiat, the new group would have a mass close to the threshold of 5–6 million indicated by Sergio Marchionne, CEO of Fiat, to survive in the car world and justify the huge investments needed to develop new models. One of the main reasons for the failure of cooperation with Daimler was that the activities of Chrysler and the German group were by no means complementary, except in the off-road sector; however, there is complementarity with the Fiat range. The goal of the Italian company is to produce more cars on the same platforms for the European, American, and South American markets, thus increasing economies of scale. Chrysler has old models, lost $1.8 billion the previous year, and needs fuel-efficient engines, like the Fiat multi-engine developed by Fiat or the commonjet diesel engines of the multijet range. Fiat will also have access to the hybrid and electric technologies developed by Chrysler in recent years. A further synergy for Fiat is the completion of the product range thanks to the minivans and off-road vehicles produced by Chrysler; furthermore, the forecasts on the downsizing of the global car market are very promising for the sales of small, so-called European cars, also in the United States, a milestone segment for Fiat. Fiat and Chrysler will also be able to exploit their geographical complementarity, giving life to a car group present all over the world. The two companies will also benefit each other with their respective sales networks, which will allow Fiat to enter the US market and Chrysler to develop into the European market, releasing itself from strategies for the sole export of products. On the financial level, Fiat risks almost nothing: it provides technology and managerial energy. The money, $6 billion, is put up by the US government, one of the main actors in the negotiation process. 5.4.2  Analysis of the Negotiating Structure The analysis of the negotiation process in the Fiat–Chrysler case will be established following the definition of negotiating structure provided by Gatti (2008). By negotiating structure we mean the set of components and relationships between components that underlies the negotiation as a joint decision-making process. As we have already seen, according to this approach, a negotiating structure consists of three fundamental elements: • the parts involved;

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• the subjects, matters, or issues object to negotiation; • the preferences and therefore the interests of the parties, which give rise to their positions. As can be seen from the facts presented in the previous paragraph, the negotiating structure has undergone several changes in this case; changes occurred for various reasons and in various ways. In this regard, it is useful to refer to the thought of Sebenius (1992) presented in the first chapter of this work. 5.4.2.1 Parties The presented case begins, as we have seen, with a preliminary agreement. Initially, therefore, the negotiation, in reference to the number of parties, was configured as bilateral. The negotiating parties were Fiat on one side and Chrysler on the other. Table 5.3 shows the schematization of the preliminary agreement in the form of concessions of the parties. Initially, therefore, we have a classic bilateral negotiation between two companies, with a configuration of mainly distributive interests: it is a matter of dividing a pie and not enlarging it. However, it is clear how the situation in which Chrysler and its need to obtain funding from the government immediately change the structure of the negotiation: the agreement is not a point of arrival, but a starting point to negotiate the rescue of the company with the government and the social partners. Soon, therefore, those who are generally considered stakeholders, bearers of external interests, enter the negotiating dynamic. At this point it is interesting to build the map of stakeholders (Caputo 2012; Mariani 2002), highlighting the multiple roles of the negotiating actors and influencers of some stakeholders during the negotiation p ­ rocess; this comparison highlights the change in the negotiating structure, and the Table 5.3  Preliminary agreement between Fiat and Chrysler Fiat concessions

Chrysler concessions

Know-how and technologies Sales network in Europe €25 million for the next 20%

35% of the company Sales network and production sites in the United States Further 20% of the company

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change in the role of stakeholders, together with their identification. The two companies will be considered for the construction of the map, as all the stakeholders’ interests are considered. The “priority” column has been eliminated from the map, as it is not of interest to assign this score here. As can be seen from Table 5.4, some negotiating actors, like previous shareholders, have moved to the role of influencers during the course of Table 5.4  Stakeholder map of Fiat and Chrysler Stakeholder

Interests

Role

Remarks

Fiat

International expansion. Investing know-how and technology but not financial resources. Survival and overcoming the crisis.

Negotiating actor

Wants to reach six million vehicles produced

Negotiating actor

US government

Personal prestige. Preservation of jobs. Avoid damage to the US economy.

Influencer/ Negotiating actor

Previous shareholders

Avoid losing additional resources in Chrysler.

Trade unions

Maintaining jobs and contractual benefits acquired. Credit recovery of pension funds. Recover entire credit from Chrysler: $6 billion. National Economy.

Negotiating actor / Influencer Influencer / Negotiating actor

Obtained an initial loan in January. The additional $6 billion loan is subject to a satisfactory recovery plan. Will provide an additional $6 billion only if Chrysler proves to have an industry plan that will allow it to survive. It is essential to find an industrial partner. Marginal role.

Chrysler

Chrysler banks and creditors US Congress

Banks supporting Fiat US public opinion

Influencer / Negotiating actor Influencer

Invest in alliance.

Influencer

National Economy.

Influencer

Influenced by agreement reached by Ford. Willing to enter the capital.

They would like to avoid Chapter 11; they would prefer to sell broken Chrysler. They would like Fiat to undertake to restructure the Chrysler debt. Announce the financial coverage of the operation. Would leave Chrysler to fail.

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the negotiation process; at the same time, many influencers have become real negotiating actors. For example, Ceberus and Daimler, former shareholders of Chrysler, were acting as negotiating actors in the first configuration of the negotiating structure, while they later became influencers with a decidedly marginal role when the negotiating structure changed with the entry into negotiations of the government, trade unions, and creditors. 5.4.2.2 Issues As for the issues being traded, this is configured as a negotiation on several issues. Mainly the subjects under discussion follow the various interests at stake of the parties: • Transfer of know-how and technologies for the construction of environmentally friendly models in the United States • Preservation of jobs • Salary workers production facilities in North America • Chrysler debt repayment • Public funds to be transferred to Chrysler • Role of previous shareholders Given the available information, it was not possible to know what negotiation approach was adopted during the negotiations; it is possible, ­however, to break down the “macronegotiation” for the alliance between Fiat and Chrysler into various “micronegotiations” on individual issues. In the following diagram we have broken down, following the principle of local rationality (Cyert and March 1963), the entire negotiation process into four sub-negotiations, identifying the parties involved and the specific subject matter of negotiation; this division makes it possible to clearly read the negotiation process, especially in relation to parts and subjects (Fig. 5.1). This “tree of negotiations” allows us to understand how the negotiation process has gone through a series of sub-negotiations concerning specific subjects, parts, and interests. The methodology used for its construction has been one of decomposition of the complex problems typical of problem-solving techniques. This methodology, based on the principle of local rationality, provides for the decomposition of a complex problem into simpler problems linked to each other by causal relationships; by solving backward the simplified problems, the technique allows one to find a

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"Macronegoti ation" FiatChrysler alliance

Negotiation between Fiat and Chrysler on the recovery plan

Exchange of know-how and technologies with shares

Negotiation between FiatChrysler and USA Government (President Obama's Task force)

Possibility of recovery

Negotiation between FiatChrysler and Trade Unions

Chrysler shareholder structure Payables

Negotiations between USA and Chrysler's creditors

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Debt Rating

Hourly wage

Payables to pension funds

Fig. 5.1  Negotiation tree by issue

solution to the initial problem. In our case this technique was used for purposes of representation rather than solution. The scheme identifies, through the colored boxes, the various sub-­ negotiations, and, through the white boxes, the subjects covered by these negotiations. It can be understood how, for example, the negotiation between Fiat–Chrysler and the US government focuses on three fundamental subjects: the possibility of re-launching Chrysler, the structure of the shareholding in Chrysler, and the restructuring of the debt. From this last subject, however, a further sub-negotiation arises between the US government and Chrysler’s creditors about the assessment and restructuring of the debt. Through this scheme, it is clear how the success of the negotiation between Fiat–Chrysler and the US government was dependent on reaching an agreement with the creditors, in which the government was directly concerned. On the other hand, as regards the sub-negotiations between

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Fiat–Chrysler and the unions, these two were the main parties, while the US and Canadian governments played the role of influencers. 5.4.2.3 Interests The sub-division into several sub-negotiations allows us to simplify the analysis of the configuration of the parties’ interests. The macro-level negotiation structure, as already mentioned, has changed during the negotiation process, passing from a distributive configuration of interests to a supplementary one. To analyze this change in detail, the four sub-­ negotiations from the point of view of the configuration of interests will be analyzed. In this regard, a reclassification of the negotiation tree is presented on the basis of interests rather than matters. The structure of the sub-­ negotiations is maintained. In this case, the content of the boxes represents the interests of the parties rather than the issues being negotiated (Fig. 5.2). The formalization of interests by decomposing them into sub-­ negotiations makes it possible to obtain a summary map of the interests involved and, consequently, to understand how they have been influenced during the negotiation process. Figure 5.3 graphically represents the interests involved in the negotiation in relation to the main negotiating actors. Six main entities were identified: Fiat, Chrysler, the Fiat–Chrysler alliance considered jointly, the US government, the American and Canadian trade unions, and Chrysler’s creditors (banks and funds). In addition to the graphic representation of the parties’ interests, we tried to relate, through the arrows, those interests that in the course of the negotiation have come to influence each other, allowing the negotiating structure to change. In some cases these interdependencies have allowed for the achievement of satisfactory agreements; in others (as in the case of the debt) we have not reached an agreement but the breaking of the negotiations and the solution through a unilateral action. In the case of positive influence we used a two-way continuous line arrow, while in the case of totally divergent interests we used a dotted line. The first negotiation that is addressed is that between the nascent alliance and the American and Canadian trade unions. This negotiation sees opposing the interests of reducing/containing labour costs by Fiat–Chrysler, to make the industrial plan feasible, with those of the unions, which wanted to preserve the benefits gained by workers and the jobs. Negotiations include the governments of the two countries, which seek to influence the negotiating

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Negotiation between Fiat and Chrysler on the recovery plan

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F: International expansion, investment in know-how and technology but not financial resources C: Survival and recovery from the crisis C: Survival and recovery from the crisis

"Macronegotiatio n" FiatAllianceChrysler

Negotiation between FiatChrysler and Governo USA (President Obamas' Task force)

USA Gov: National economy, job retention, prestige, sustainability F: international expansion, control, no financial investment

Negotiation between the US Government and Chrysler creditors

Negotiation between FiatChrysler and Trade Unions

F-C: wage reduction, avoid cash repayments

USA Gov: 2 billion dollars, keep together with Fiat

Creditors: recovering entire credit (7 billion) or obtaining a shareholding

Trade unions: salary maintenance, recover credit

Fig. 5.2  Negotiation tree by interests

outcome in favor of reaching an agreement that safeguards jobs. The unions therefore give up a few days off and accept a reduction in salary, as required by Fiat–Chrysler, in exchange for shares, guaranteed in value by

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Fig. 5.3  Graphical representation of interests and their influences (Caputo 2012)

the State, to guarantee the repayment of social security debts. The achievement of this agreement was certainly also influenced by the achievement of the agreement between the unions and Ford concerning social security debts. The change in the negotiating structure through the connection between the issues, together with the external influence of previous ­agreements reached and the pressures of the governments, meant that the negotiation from distribution became a supplement. As for the negotiation of the debt consolidation of Chrysler, this was the most controversial sub-negotiation and that did not lead to the achievement of the agreement. In this negotiation, bilateral and pure distributive, which saw the government on the one hand and the creditors on the other, the zone of possible agreement remained negative until the

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close of the negotiation. The US government’s ultimatum and the threat to resort to Chapter 11 were useless: the parties after several concessions remained firm on distant positions. It should be noted that as far as this sub-negotiation is concerned, the interests were totally opposed, not only those directly involved in the subnegotiation, but also those influencing them. For example, the interest of the total recovery of credit toward Chrysler, if satisfied, would have had negative repercussions for the other sub-negotiations, affecting the possibility of an agreement between Fiat and Chrysler. The activation of the Chapter 11 procedure allowed the directly correlated negotiation to arrive at a satisfactory outcome for the parties. In fact, the negotiation between the Fiat–Chrysler alliance and the US government on the recovery plan ended with a satisfaction of the interests of the parties involved, in a full integration view. With regard to the negotiation between Fiat and Chrysler on the industrial re-launch plan, identifying the area of possible agreement and the configuration of interests is quite easy. As mentioned above, Chrysler was in a situation of latent corporate crisis, and its only chance of survival was the agreement with a strong partner in the industry. With this in mind, the letter of intent was announced in January, which started negotiations with all the other parties. From this point of view the negotiation is initially configured as a bilateral distribution: the purchase by Fiat of shares in Chrysler. The agreement, however, considering the Chrysler crisis and the peculiarities of Fiat, is satisfactory for both parties, and the way the shares are bought in exchange for a technology transfer shifts the outcome to the supplementary area. Traditionally, the deal should have been a transfer of financial resources to equity shares that would allow Chrysler to recover from the crisis. But the possibility for Chrysler to draw on public funds to restore its financial situation has given way to an agreement with Fiat based on technology transfer, which has never been questioned during the negotiation process. The final agreement was reached, as mentioned, thanks to the possibility of accessing the Chapter 11 procedure. This move allowed the government to resolve the dispute with the creditors. This agreement is obviously a summary of the agreements reached in the sub-negotiations.

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5.5   Discussion of the Findings Sebenius (1992), as mentioned earlier, focused his attention on the possibility of changing the negotiating structure. A factor of novelty compared to previous studies was the consideration that the parties could change even during negotiation, not only internally, but also in the number. Therefore, the scholar has noted how often external parties could enter the negotiations, but with interests related to the object of negotiation. Sebenius indicates, as we saw in the first chapter, four basic elements that can be found in every negotiating situation that can be strategically manipulated, despite the level of complexity: interests, issues, and positions; alternatives to the negotiated agreement; creating and claiming value; and changing the game. Right away it is easy to notice how the analysis of the company case has highlighted all these aspects. Adhering to the setting of Gatti (2008), our analysis took place following the three fundamental components of the negotiating structure: the parties involved; the subjects, issues, or matters of negotiation; and the preferences and therefore the interests of the parties, which give rise to their positions. This analysis allowed us to arrive at a series of results on the company case, which seem to confirm the current theory. It is evident how the modification of the number of parties and of the issues, especially in the case of an increase in the number, intrinsically leads to complications in the negotiation process. In this regard, Sebenius (1992) stated how the more parties (and issues), the higher the costs, the longer the time, and the greater the informational requirements for a negotiated settlement. Manipulation of the parties can alter these characteristics. So a greater number of parties at stake brings negotiation dynamics to a higher level of complexity than in the case of only two parts. The Fiat–Chrysler case seems to corroborate this theoretical hypothesis: thanks to the construction of the trading tree, it can be seen that the multilateral negotiation to reach the alliance agreement between Fiat and Chrysler is the result of a series of interdependent sub-negotiations. This greatly complicates the negotiation process, with the parties having to deal with multiple matters and interdependent interests. In Fig. 5.4, we try to synthesize and represent the supporting concept developed thanks to our analysis: how the entry of third parties in the negotiation has changed the structure and the outcome.

  CASE STUDY: THE FIAT–CHRYSLER NEGOTIATION IN 2009 

Fiat

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Fiat USA Government Multi-party integrative negotiation

Third parties entrance

Two-party distributive negotiation

Trade Unions Creditors Chrysler

Chrysler New issues and new links between issues

Changes within the negotiation structure

Claiming value

Creating value

Fig. 5.4  Modification of the negotiating structure (Caputo 2012)

The transition from a bilateral/distributive to a multilateral/integrative structure was only possible thanks to the entry of third parties in the negotiation, and thanks to the complementarities present between the interests of the various parties. These complementarities allowed for useful links between matters that otherwise would not have been possible in the case of bilateral negotiations. These links, thanks to the complementarity of the interests, have led the parties to have a “creating value” perspective, ­looking for a common solution that would be as satisfactory as possible for everyone. This includes, for example, the agreement reached with the trade unions, where a reduction in wages and vacation days allows the new company to reduce costs, and workers to keep their jobs. This agreement was made possible thanks to the intervention of the US government that guaranteeing the credits claimed by the pension funds allowed the new company to not have disbursements of money, but rather to deliver shares to the workers. In this way, the latter will be able to have greater control over the company’s activities, together with the guarantee of the recovery of the entire pension credit, which in the event of bankruptcy would probably have been nullified. The Sebenius study (1992) identifies how positive the addition of parties to the negotiation is if they have tangible interests or can substantially

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influence the negotiation. Promoting the entry of these parties can strengthen an existing coalition, contribute to forming one, thanks to a leverage effect due to links with new interests and issues. From the reading of the history of the Fiat–Chrysler case and from the analysis carried out, it is clear how crucial the role of the Obama administration has been: entering as a stakeholder, who traditionally played the role of influencer, and allowed to close the negotiations in a short time (think about the 30-day ultimatum) and reach a more satisfactory ­agreement for the parties. Despite this, the party did not have direct interests in the matters being negotiated, but rather indirect in the form of maintenance of employment and production: a relevant factor for the revival of the national economy. We can try to imagine, for example, the negotiation on the Chrysler debt without the intervention of the US administration: in this case, the agreement would not have taken place and the alliance would have been skipped, since the interest of the latter (the complete recovery of the debt) was totally in contrast to that of Fiat (not investing money but know-how in Chrysler). It is therefore easy to suppose that the negotiations would have been broken with the sale “in pieces” of the assets of Chrysler to meet the debts. We have seen in the two theoretical chapters how the change in the number of parts of a negotiation, with the entry of new parties bearing new interests and matters, can lead to the configuration of the negotiation from distributive to integrative. We can confirm this trend with regard to the Fiat–Chrysler case. In fact, the entry of the US government in negotiations with creditors and unions has played a decisive role, shifting the interest to a general level of national economy, from the particular of the individual actors. Thanks to this, negotiation, which would have been merely distributive, has evolved into a form of integrative negotiation. Consider, in addition to the case of negotiations with creditors, those with the unions: without the State guarantee on pension credits and without the restructuring plan of the company in alliance with Fiat, we can hardly imagine a solution to this dispute. In the absence of the national guarantee, labor price negotiations would probably have led to more expensive agreements for the company, such as to undermine the business plan. Likewise, without the alliance with Fiat, the unions would not have had the possibility to recover the pension credits, and the State would probably have had to bear the burden of repayment.

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References Caputo, A. (2012). Integrative Agreements in Multilateral Negotiations: The Case of Fiat and Chrysler. International Journal of Business and Social Sciences, 3(12), 167–180. Carnevale, P. J., & De Dreu, C. K. W. (2006). Methods of Negotiation Research (International Negotiation Series Volume II). Boston, MA: Martinus Nijhoff Publishers. Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Malden, MA: Blackwell. Fattobene, L., Caiffa, M., & Di Carlo, E. (2018). Interlocking Directorship Across Italian Listed Companies: Evidence from a Natural Experiment. Journal of Management and Governance, 22(2), 393–425. Gatti, C. (2008). Le negoziazioni nel governo dell’impresa. Verso un modello di analisi. Padova: CEDAM. Mariani, M. (2002). Decidere e Negoziare. Concetti e Strumenti per l’Azione Manageriale. Milano: Il Sole24Ore. Sebenius, J.  K. (1992). Negotiation Analysis: A Characterization and Review. Management Science, 38(1), 18–38.

CHAPTER 6

Conclusions

Abstract  This book advances the knowledge about the investigation of corporate strategic negotiations. In particular, it does so by positioning the literature about negotiation theory into the strategic management literature, explaining the importance of negotiation for competitive advantage. The case study of the negotiation in 2009 between Fiat and Chrysler is presented and analyzed to provide evidence of how strategic corporate negotiations are conducted. Keywords  Strategy • Negotiation • Fiat • Chrysler • Conclusion In this work, we tried to answer the following questions: How can strategic corporate negotiation support competitive advantage? What is the effect of the entry of third parties in a strategic corporate negotiation initially configured as bilateral? Can such entry of third parties bring the strategic corporate negotiation from distributive to integrative? To do this, we first tried to identify and explain the theoretical basis for the foundation of the work. Starting from the more general concept of negotiation, defined as a joint decision-making process between two or more actors, individual or collective, we tried to continue narrowing the field of study toward the specific topic of strategic multilateral negotiations and the role played by third parties. An investigation of the literature has become necessary and fundamental in order to identify the keys of reading useful to analyze the proposed © The Author(s) 2019 A. Caputo, Strategic Corporate Negotiations, https://doi.org/10.1007/978-3-030-15479-0_6

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business case. The choice of this case is in line with the recent development of a growing influence of third parties in business negotiations. We have walked through the field of study of negotiations and its plethora of definitions, coming from the incredible variety of backgrounds of negotiation scholars. Indeed, as negotiations are a fundamental aspect of human interactions, they have been investigated from multiple disciplines in the field of social sciences. From psychology to sociology, from economics to management, scholars have tried, and still try, to provide answers to help improve negotiations. Negotiations are also fundamental in business. To sell a product, one must negotiate. To buy a product, one must negotiate. Similarly, managers negotiate for the resources to allocate to their departments. Employees negotiate the tasks to perform and the conditions of their work on a daily basis. Worker unions, companies, and countries negotiate deals to support business. Through this in-depth reading of the theory in the field of negotiations, and specifically of what is called “Negotiation Analysis”, we have come to the identification of the fundamental elements of a negotiating structure: the parties involved; the subjects, issue, or matters object of negotiation; and finally, the preferences and interests of the parties, which give rise to their positions. The analysis was therefore carried out according to these three guidelines, integrated with the thought of Sebenius (1992); in fact, this author has given one of the major contributions to the subject through the study of the phenomena of strategic modification of the negotiating structure. The adaptation of the principle of local rationality (Cyert and March 1963), precisely of problem-solving techniques, was important. Thanks to this methodology, it has been possible to break down the multilateral and complex negotiations into more sub-negotiations. Through this decomposition, it was possible to analyze the negotiation process more easily and therefore identify the matters subject to negotiation and the interests of the parties, together with the links and complementarities developed between them. As examples show, negotiations are performed at the individual level, as there will always be a person at the table, or behind the computer, to negotiate with others. However, the fact that negotiations happen within the boundaries of organizations makes this activity not only bound to human interactions but also bound to organizational interactions. In the work I did with my friend and colleague Adrian Borbély (Borbély and Caputo 2017), since our first chat at the International Association for

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Conflict Management Annual Conference of 2014 in Leiden, Netherlands, we justify and develop the case for studying business negotiations from an organizational perspective. We developed the Organizational Model of Negotiation (OMoN), which consists of four negotiation levels: individual, linkages, infrastructure, and organizational capability. Its application to the Fiat–Chrysler case study can help to explain how the micro-, meso-, and macro levels of investigation of a real negotiation are interconnected and should be studied in a holistic way. The first level of the model is the individual. It relates to the behaviors expressed in negotiations by individual actors. This level concerns how people interact at the negotiation table and stems from the large body of research in organizational psychology deemed to investigate how people negotiate. Variables to take into consideration at this level are the characteristics of the negotiation, its performances, the processes and outcomes, satisfaction, and the ethics of the negotiators. For example, the understanding of the cognitive biases that can be expressed by negotiators at this level and the impact of the introduction of an external party to the negotiation are fundamental to this level of analysis (Caputo 2013, 2016). The second level of the model is linkages. This relates to the development of a system of negotiations within and among the organizations. As such, previous negotiations are considered to be the context for subsequent negotiations, creating a path-dependent evolution of how the organization negotiates. Variables to keep in consideration for this stage are the history of previous negotiations, the context of each negotiation, the situational awareness, and so on. In the case of Fiat–Chrysler, it is evident how the previous negotiations held by the US governments with banks and with Ford and GM severely impacted the negotiations, not only by framing the public opinion (creating urgency for action), but also by providing experience to the individual negotiators. Similarly, the investigation of the linkages between the interests of the parties and the different sub-­ negotiations showed us how the negotiations could be solved. The third level of the model is infrastructure. This relates to the development of the organizational infrastructure in support of the negotiations. In this case, we have the investigation of the systems of information exchange among parties, or the tactical use of the Chapter 11 procedure by the US government and the subsequent formalization of the new ownership structure of Chrysler, which allowed for the removal of those negative linkages that were preventing the solution of the impasse.

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The fourth level of the model is capability. It relates to the development of negotiation as a strategic resource. It is concerned with the strategic understanding of negotiation as a major source of competitive advantage. The systemic investigation of the Fiat–Chrysler negotiation has allowed us to show how strategic the macro aspect of negotiation is (Fig. 6.1). In the case of the alliance between Fiat and Chrysler, the analysis confirmed the previous theoretical assumptions regarding the change in the negotiation structure. The change in the number of parties and issues, especially in the case of an increase in the number, intrinsically leads to complications in the negotiation process. The transition from a bilateral/ distributive structure to a multilateral/integrative structure was only possible thanks to a leverage effect due to links with new interests and issues. Therefore, the entry of third parties in the negotiation is positive. Of significance is the conclusion that the entry of third parties, such as the American administration and the trade unions, has allowed links between issues, which were expanded thanks to the entry of such new parties. In turn, these links have helped the parties to discover

Ability to solve a negotiation from a systemic perspective, government of the issues and interests (e.g. removing Chrysler’s shareholder and creditors from the negotiation) Information exchange among parties, tactical use of the Chapter 11 procedure, formalization of the new ownership structure of Chrysler

IV. Organizational Capability The strategic contribution of negotiation to the organization III. Infrastructure Organizational infrastructure in support of negotiations

Networks of relationships among the interests of the parties involved in each sub-negotiation

II. Linkages How negotiations impact one another

Negotiation behavior of the parties involved (e.g. US Government negotiators, Fiat negotiators, Union negotiators etc.)

I. Individual Individual negotiations and negotiators' behavior

Fig. 6.1  A graphical application of the OMoN model to the Fiat–Chrysler case study

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c­ omplementarities between their own interests that have allowed for the achievement of a satisfactory negotiation outcome for the parties. It can be asserted that the role played by the American government was of central importance for the achievement of the negotiation outcome. Although not the subject of this work, we can hypothesize, without fear, that even in the implementation phase of the agreement, the government will have a central role as guarantor of the agreements. In light of the theoretical analysis of strategic corporate negotiations, and specifically the role of stakeholders in the negotiation process, and of the analysis of the Fiat–Chrysler case, some future theoretical implications can be identified. It would be of particular interest to deepen the role of the stakeholders, and more specifically of the institutions, in the negotiations between companies; developing a qualitative–quantitative analysis through appropriate statistical tools on this type of negotiations, in order to understand the relationship between the entry of stakeholders into the negotiation process and the outcome achieved. The work presented in this book contributes to revive the exhortation of Ertel (Ertel 1999) about studying business negotiation from an organizational perspective. This book also contributes to the growing body of knowledge in this direction, for example, by providing further evidence to those studies about the strategic role of negotiations (Caputo et al. 2018). In doing so, we contributed to debunk the prevalent assumption in the literature that organizations do not negotiate, only individuals do, which forms the basis of the extremely prolific body of research about individual behavior in negotiations. Although there will always be individuals at the negotiating tables, their negotiating behaviors are bounded by both their individual capability and the negotiation capability of their organization. Organizations can nurture their negotiation capability through several actions (e.g., training, knowledge management systems, and procedures)—the list remains to be made exhaustive. We believe this is fundamental for the survival of any organization and yet far from being acknowledged in the academic environment. A lot could be achieved by the integration of efforts from scholars and researchers in strategy and negotiation. The two fields have not yet been cross-fertilizing each other and this book hopes to contribute to this ­process. Too often, academics tend to treat constructs separately from each other, analyzing them through very narrow lenses that help simplification at disadvantage of real discovery.

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References Borbély, A., & Caputo, A. (2017). Approaching Negotiation at the Organizational Level. Negotiation and Conflict Management Research, 10(4), 306–323. https://doi.org/10.1111/ncmr.12106. Caputo, A. (2013). A Literature Review of Cognitive Biases in Negotiation Processes. International Journal of Conflict Management, 24(4), 274–398. https://doi.org/10.1108/IJCMA-08-2012-0064. Caputo, A. (2016). Overcoming Judgmental Biases in Negotiations: A Scenario-­ based Survey Analysis on Third Party Direct Intervention. Journal of Business Research, 69(10), 4304–4312. https://doi.org/10.1016/j.jbusres.2016.04.004. Caputo, A., Borbély, A., & Dabic, M. (2018). Building Theory on the Negotiation Capability of the Firm: Evidence from Ryanair. Journal of Knowledge Management. https://doi.org/10.1108/JKM-02-2018-0117 Cyert, R. M., & March, J. G. (1963). A Behavioral Theory of the Firm. Malden, MA: Blackwell. Ertel, D. (1999). Turning Negotiation into a Corporate Capability. Harvard Business Review, 77, 55–71. Sebenius, J.  K. (1992). Negotiation Analysis: A Characterization and Review. Management Science, 38(1), 18–38. Retrieved from http://search.ebscohost. com/login.aspx?direct=true&db=eoah&AN=21189031&site=ehostlive&scope=site.