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UWA Business School
A new case study featuring negotiations between two mining companies in Western Australia has shown that in the realities of business, negotiators should aim to be constructive rather than cooperative.

Professor Ray Fells, from The University of Western Australia Business School, has completed an analysis of negotiations between Karara Mining Ltd (KML) and Sinosteel Midwest Corporation Ltd (SMC), which took place in 2009.

The negotiations covered a range of areas, including the sale of leases, construction of a campsite, use of an airstrip, construction of a railway, and sharing of environmental data.

Professor Fells' analysis shows that while both companies were competitive in trying to maximise their gains from the negotiations, they also exhibited many indicators of cooperative negotiation: exchanging information, sympathising with the other's position and being assertive rather than aggressive.

Professor Fells said there were several critical factors in the success of the negotiations.

The first factor was the presence of strategic intent - understanding where the negotiation might fit within the broader aspirations of the parties. ‘It took someone, in this case two senior executives, to reframe the close proximity of their operations and lease holdings which normally would be a source of aggravation, into a potential for joint gain,' explained Professor Fells. ‘Once they were both prepared to take a chance on this, then the potential for future cooperation as a means of saving mine development costs became the clear rationale for there to be an agreement.'

Next, both parties took the necessary step of uncovering and explaining their respective interests and creating an issues list which established an agenda. By creating an issues list, the parties created clarity around their respective positions - what they wanted, and why.

As they exchanged more information it became clear that some issues provided opportunity for joint gain, while others were issues for longer-term cooperation. Despite this cooperation, each company was - in the end - concerned with bottom line impact. ‘Both parties knew that the ‘threat' of walking away meant going back to the competitive business as usual, and so such threats did not feature but demands were large, driven by the priority to save costs and/or prevent delays,' said Professor Fells.

Negotiators must also be careful not to let details of the agreement overshadow the essence of the deal. ‘Debate over whether to include an issue or not, or whether to accept or reject a form of words can very easily induce a win-lose orientation, particularly when there is a financial implication to the point being negotiated over,' warned Professor Fells.

Karara Mining Ltd and Sinosteel Midwest Corporation Ltd avoided this potential impasse due to the leadership of company executives re-asserting the deal's strategic intent over the details of the agreement.

‘The negotiators took firm positions on some of the issues because any agreement had to provide financial or time-saving benefits,' explained Professor Fells. ‘Taking more account of the broader strategic intent led to some relaxation on some of these positions. This suggests that had the negotiators given more weight to potential rather than actual cooperation they would have made more concessions earlier.'

But, Professor Fells reminds us, ‘Such an approach would have been welcomed by their companies, provided it was the other party that was making the concessions.

‘Negotiations are normally described as being either ‘competitive' - with the implication that they are poor negotiations - or ‘cooperative', which are to be preferred.  However, being cooperative often means making concessions which might well be ‘soft' rather than cooperative negotiating. One of the lessons from the case study is that even though the negotiators are genuinely cooperating in the sense of trying to achieve an agreement that benefits them both, the interactions between them appear competitive.

‘Rather than labelling what negotiators do as cooperative or competitive, it might be more appropriate to assess their actions - and your own - according to how constructive they are in moving the process towards (or away from) an agreeable outcome. Hence getting the hard issues and differences out on the table early - as in this negotiation - is constructive (in contrast to the usual cooperative advice to resolve the easy issues first leaving the hard ones until later).'

For the two mining companies, the negotiations proved invaluable in the longer term. ‘Importantly it was agreed that the senior executives and operational managers would meet every two months to review opportunities for mutually beneficial cooperation,' said Professor Fells. ‘Since the agreement was concluded the companies have continued to cooperate, not only through ongoing implementation of issues covered in the agreement but also in other areas.'

Case studies of actual negotiations are rare and Professor Fells acknowledges the assistance he was given by the people involved in these negotiations.

Currently, the majority of business negotiation research is conducted in the university environment using students. Professor Fells is hoping to balance this with more information about real-life negotiations and invites anyone who has been involved in a business-related negotiation to complete a new survey. Participating in the survey will contribute to our understanding of what occurs during negotiation and how we might negotiate more effectively.

The survey can be found at www.surveymonkey.com/s/bizneg .

Media references

Heather Merritt
Director, External Relations
UWA Business School
T: +618 6488 8171
M: 0419 950 027
E: [email protected]

Verity Chia
Communications Officer
UWA Business School
T: +618 6488 1346
E: [email protected]