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H1583
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1007’

 

LIBRARY
Michigan State
University

 

 

 

This is to certify that the
dissertation entitled

The Impact of Negotiation Strategy on Customer-
Suppiier Reiationships

presented by

Thomas S. Atkin

has been accepted towards fulfillment
of the requirements for

Ph.D. fidegreein Marketing_& Slippiy Chain

Management

Gary Ragatz

 

fl Major professor
Datek7/ 25/ 01 \ a i

MS U is an Affirmative Action/Equal Opportunity Institution 0- 12771

 

PLACE IN RETURN BOX to remove this checkout from your record.
To AVOID FINES return on or before date due.
MAY BE RECALLED with earlier due date if requested.

 

DATE DUE DATE DUE DATE DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6/01 chIRC/DcteDueprrp. 15

THE IMPACT OF NEGOTIATION STRATEGY ON
CUSTOMER-SUPPLIER RELATIONSHIPS

By

Thomas S. Atkin

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY
Department of Marketing and Supply Chain Management

2001

This research 5
relationships b
negotiation str;
as satisfaction.
the negotiatiOi

organizations.

The hipothesi
btos'een sup;
Students at a

simulation. A

Following pr:

Wire Used In
demonstrated
saiiSfann

the Me of re

ABSTRACT
THE IMPACT OF NEGOTIATION STRATEGY ON
CUSTOMER-SUPPLIER RELATIONSHIPS
By

Thomas S. Atkin

This research sets forth an investigation of the negotiation process and its impact on the
relationships between organizations. In particular, it seeks to examine the effects that
negotiation strategies such as coercion and contract formality have upon outcomes such
as satisfaction. A model of negotiation behavior is offered to better explain and predict
the negotiation process as it contributes to the establishment of relationships between

organizations.

The hypothesized model is also tested across a variety of relationship categories that exist
between suppliers and customers. Data were collected by surveying undergraduate
students at a large midwestem university while they participated in a negotiation

simulation. A total of 264 cases were used in the analysis.

Following preliminary data analysis, regression and structural equation modeling (SEM)
were used to assess construct validity and test the model’s hypotheses. Results
demonstrated that there is a significant negative effect of coercive negotiation strategy on
satisfaction. The results also show that the magnitude of this effect can vary according to

the type of relationship the parties have developed.

[am pleased ‘0 A

thank my fami
encouraging- rr
Chuck and his

oiiered help 2

At Michigan
made the ex
Torn Golds‘
and the Pin

Hutch also

{any i'It
he“ Co.
“fig

ACKNOWLEDGEMENTS

I am pleased to have an opportunity to thank those people who have been instrumental in
helping me to successfully attain this long-awaited goal. First and foremost, I would
thank my family and particularly my parents, Ken and Jane Atkin, for supporting me and
encouraging me throughout this process. Being able to exchange stories with my brother
Chuck and his wife Sandi has been invaluable. My sister Penny and brother David also

offered help and encouragement.

At Michigan State, I would like to thank my fine colleagues who shared the workload and
made the experience an enjoyable one. Early in the process, Professors Jim Eckert and
Tom Goldsby offered excellent advice. In addition, I would like to thank Rosanna Garcia
and the Pine Street Gang for teaming up with me at work and at play. My running buddy
Hutch also helped to relieve the stress as we logged mile after mile on the Red Cedar

trail.

I would also like to thank my dissertation committee members: Dr. Lloyd Rinehart, Dr.
Gary Ragatz, Dr. Ted Stank, and Dr. Tom Page. I must particularly thank Dr. Rinehart
who also served as my primary advisor throughout the program. His willingness to

devote his time to extensive discussions and provide feedback was truly exceptional.

Many individuals have been influential over the course of the dissertation process and
have contributed to its completion. The entire program has been a terrific challenge that

was enhanced by the support of these colleagues and friends.

iii

Chapter One

TABLE OF CONTENTS

Chapter One Executive Summary of The Dissertation

1.1
1.1.1
1.1.2
1.2
1.3
1.3.1
1.3.2
1.4
1.5

1.6
1.7

Introduction ............................................................................................... 1
The Research Objective ............................................................................ 3
The Organization of the Dissertation ........................................................ 5
The Research Questions ............................................................................ 7
The Conceptual Basis of the Model .......................................................... 8
A Brief Introduction to Customer-Supplier Relationships ....................... 8
The Political Economy Paradigm ............................................................. 9
The Model ............................................................................................... 12
Structuring Customer-Supplier Relationships ........................................ 14
Methods ................................................................................................... 1 5
Conclusion .............................................................................................. 17

Chapter Two Literature Review

2.1
2.2
2.2.1
2.2.2
2.3
2.3.1
2.3.2
2.3.3
2.4
2.4.1
2.4.2
2.4.3
2.4.4
2.4.5
2.4.6
2.5
2.5.1
2.5.2
2.5.3
2.6

Introduction ............................................................................................. 18
Background Information ......................................................................... 18
Model Overview ..................................................................................... 19
The Fit of This Dissertation into the State Of Supply Chain Mgrnt ....... 19
The Conceptual Basis of the Model ...................................................... 22
The Political Economy Paradigm (PEP) ................................................. 23
Negotiation .............................................................................................. 29
Integrating the PEP with Negotiation ..................................................... 31
The Constructs Presented by Stage of Negotiation ................................. 33
The Negotiation Environment ................................................................. 33
Negotiation Potential .............................................................................. 34
Negotiation Preparation .......................................................................... 36
Negotiation Implementation (Bargaining) .............................................. 39
Negotiation Outcome .............................................................................. 46
Building the Model ................................................................................. 49
Relationship Dynamics ........................................................................... 50
Trust ....................................................................................................... 52
Level of Interaction ................................................................................. 56
Commitment ........................................................................................... 60
Conclusion .............................................................................................. 64

Chapter Three Research Execution

3.1
3.2
3.2.1

Introduction ............................................................................................. 65
Research Design ...................................................................................... 66
General Issues ......................................................................................... 66

iv

H2 Smw
3.2.3 L'nit s
3,3 The S
3.4 Cons:
3.4.1 Dcpc.‘
3.4.2 Coop
3.4.3 Depc:
3.4.4 Lei'eij
3.4.5 Depc.
3.4.6 Cont:

3.4.7 Depc'
348 Sans:
3.4.9 Lcs'ci

3.4.10 C on:
3.5 Rela:
EtTet

3.6.2 Effe;

3'7 Data
1 Prelii
2 Sam;
3 Des:
-4 Meas
5 Cons
6 “in:
Cor-.c

w DJ Ll J P) b.) 'L’J

DJ
()0

OlaPter Four An

4'] Introt‘
4'1‘1 Cha:;
:2 Meas
'34, Data
'11 LED;
4'32 Molt;
j: Meas
A Cons
4'6 H~ ,,
462 Pan

36
47 3 POSl
Sum:

 

3.2.2
3.2.3
3.3
3.4
3.4.1
3.4.2
3.4.3
3.4.4
3.4.5
3.4.6
3.4.7
3.4.8
3.4.9
3.4.10
3.5
3.6
3.6.1
3.6.2
3.7
3.7.1
3.7.2
3.7.3
3.7.4
3.7.5
3.7.6
3.8

Sample ..................................................................................................... 67

Unit of Analysis ...................................................................................... 67
The Simulation Scenario ......................................................................... 68
Constructs and Hypotheses ..................................................................... 68
Dependence ............................................................................................. 69
Cooperative Orientation .......................................................................... 7O
Dependence and Cooperative Orientation .............................................. 71
Level of Coercion ................................................................................... 73
Dependence, Cooperative Orientation, and Level of Coercion .............. 75
Contract Formality .................................................................................. 77
Dependence, Cooperative Orientation, and Contract Formality ............. 78
Satisfaction .............................................................................................. 79
Level of Coercion and Satisfaction ......................................................... 79
Contract Formality and Satisfaction ....................................................... 81
Relationship Structure ............................................................................. 83
Supplemental Hypotheses ....................................................................... 90
Effect Size of Coercion on Satisfaction .................................................. 92
Effect Size of Contract Formality on Satisfaction .................................. 94
Data Analysis .......................................................................................... 96
Preliminary Analysis ............................................................................... 97
Sample Adequacy ................................................................................... 97
Descriptive Statistics ............................................................................... 97
Measurement Reliability ......................................................................... 98
Construct Validity ................................................................................... 98
Hypothesis Tests ................................................................................... 100
Conclusion ............................................................................................ 102

Chapter Four Analysis of Data

4.1
4.1.1
4.2
4.3
4.3.1
4.3.2
4.4
4.5
4.6
4.6.1
4.6.2

4.6.3
4.7

Introduction ............................................................................................ 103
Characteristics of the Sample ................................................................. 103
Measurement Validation ........................................................................ 106
Data Quality and Reliability of Constructs ............................................ 106
Univariate Descriptive ........................................................................... 107
Multivariate Normality .......................................................................... 109
Measurement Reliability ........................................................................ 110
Construct Validity .................................................................................. 115
Hypothesis Tests .................................................................................... 1 19
Part 1 Hypothesis Testing ...................................................................... 123
Part 2 Hypothesis Testing ...................................................................... 126
Post Hoc Analysis .................................................................................. 131
Summary ................................................................................................ 134

 

Chapter Five lmPl'

5'1 itttr‘ocz
t1 OVCIS
' 5.2.1 Them
5.2.2 Then:
5.2.3 Then .
5,1,4 Rela‘.
5.2.5 Add-.1

5.3 Diree
5.3.1 Limr.
5.32 Add.“
5.3.3 Logic

5.4 Cont:

5.5 Sumr

Appendices ........

Appendix A 5.
Appendix B 1

References ........

  

|'

 

 

 

Chapter Five Implications and Conclusions

5.1 Introduction ............................................................................................ 136
5.2 Overall Model Significance ................................................................... 136
5.2.1 Theme 1 ................................................................................................. 139
5.2.2 Theme 2 ................................................................................................. 140
5.2.3 Theme 3 ................................................................................................. 143
5.2.4 Relationship Dynamics ......................................................................... 148
5.2.5 Additional Applications of This Research ............................................ 148
5.3 Directions for Future Research ............................................................. 152
5.3.1 Limitations of Current Study ................................................................ 152
5.3.2 Additional Paths .................................................................................... 155
5.3.3 Logical Extensions ................................................................................ 157
5.4 Contributions ......................................................................................... 158
5.5 Summary ............................................................................................... 159
Appendices ............................................................................................................... 161
Appendix A Simulation Instructions .................................................................. 162
Appendix B The Full Survey Questionnaire ....................................................... 168
References ............................................................................................................... 176

vi

list olTables

Tahil
inh4l
TEh4l
ihh43
Tah44
Tak45
idh4o
Tuh47

Table 4.8

Table 4.9

RCiflllO-f
Descrip

\leasur

 

Correla‘
Fit Stat
C FA it
Tit Sta
Param
Base 3

Relat‘.

Table 4.10 H4al

Table 4'” Post

Table 4.12 Post

471518 413 P031

List of Tables

Table 3.1

Table 4.1

Table 4.2

Table 4.3

Table 4.4

Table 4.5

Table 4.6

Table 4.7

Table 4.8

Table 4.9

Table 4.10

Table 4.11

Table 4.12

Table 4.13

Relationship Type Scoring Scheme ............................................................ 87
Descriptive Statistics From CFA .............................................................. 109
Measurement Reliabilities ........................................................................ 111
Correlation Among Indicator Variables ................................................... 113
Fit Statistics for the Measurement Model ................................................. 116
CFA for the Measurement Model ............................................................. 117
Fit Statistics for the Full Model ................................................................ 121
Parameter Estimates for the Full Model ................................................... 122
Base Model Hypothesis Findings ............................................................. 126
Relationship Type Composition ............................................................... 127
H4a Beta Test ............................................................................................ 128
Post Hoe .................................................................................................... 132
Post Hoc .................................................................................................... 133
Post Hoc .................................................................................................... 134

vii

Lhtoiligures

hnmll
hgnell
E§m3l
Tare4l
Tgue42

Fight 5.1

TheBa

Thelnt

Thehl

Thehi

TheB

Confi:

List of Figures

Figure 1.1
Figure 2.1
Figure 3.1
Figure 4.1
Figure 4.2

Figure 5.1

The Base Model .......................................................................................... 13
The Integrated Base Model ........................................................................ 50
The Mohr and Nevin Matrix ....................................................................... 92
The Measurement Model .......................................................................... 114
The Base Model ........................................................................................ 120
Confirmed Findings .................................................................................. 138

viii

I. "I" 'zi' '

C HA?"

1.] lntroducti

Over the past
produce more
and in shone
shrinking tee
ftnther pres:
focused the:

inCl'Easing ;

Comma

museum-m
Purchased
M agnan j
approach.
producti \
“that fi 6

CHAPTER 1: EXECUTIVE SUMMARY OF THE DISSERTATION

1.1 Introduction

Over the past decade, global competitive pressures on manufacturers have forced them to
produce more technically advanced products at ever higher levels of quality, at lower cost
and in shorter lead times. The business environment continues to pressure firms through
shrinking technology and product life cycles, increasing demands from customers, and
further pressure from investors. To address these pressures, many manufacturers have
focused their in-house activities on their core competencies and have tended to outsource

increasing amounts of non-core products and services (Prahalad and Hamel 1990).

Corporate responses to this competitive environment have caused a dramatic increase in
outsourcing. Many manufacturers are spending 50% to 70% of cost of goods sold on
purchased items and these figures may soon balloon to 70% to 90% (F awcett and
Magnan 2000). Innovative managers worldwide are experimenting with a myriad of
approaches to make relationships with their business suppliers and customers more
productive and enduring (Cannon and Perreault 1999). This increased activity has
magnified customer’s dependence on suppliers and changed the ways these players
interact. Due to these factors, the study of customer-supplier relationships has been the
subject of many articles over the past several years (Achrol 1997; Johnson 1999; Brown
et a1. 2000; Houston and Johnson 2000). The issue of customer-supplier relationships

emerged from the purchasing function, whose role in corporate strategy iS rooted in part

indie field of math

deseleping and min

I
l
.4 distinct mos'cme'
relationships and ti
noted in the porch.
authors have noted
financial. and strate
(Mohr and Speltnta:
maintain successftt'
suppliers are impor

0r senice processe~

An emerging IOPI
maintenance of l
investigation into?
of the relationshi;
satisfaction or dis
astomer. Firms.
relationships in on
quality, adVanced 1'
a

a1" .
C

 

in the field of marketing (Dowlatshahi 1999). Marketing and purchasing both involve

developing and maintaining relationships with external firms.

A distinct movement away from traditional adversarial arms’ length customer-supplier
relationships and toward more cooperative interorganizational relationships has been
noted in the purchasing literature (Monczka et a1. 1993). In the channels literature,
authors have noted that closer customer-supplier relationships provide many technical,
financial, and strategic advantages over spot market transactions and vertical integration
(Mohr and Spekman 1994; Gulati 1995). Customers are engaged in a battle to form and
maintain successful relationships with the best suppliers (Meier et a1. 1998). These
suppliers are important because they provide a majority of inputs to a firm’s production

or service processes.

An emerging topic in the supply chain management area is the management and
maintenance of long-term relationships. A gap in the literature that warrants
investigation involves the impact of negotiation strategy on the subsequent development
of the relationship. The M by which transactions are negotiated can lead to
satisfaction or dissatisfaction with the relationship on the part of the supplier or the
customer. Firms are actively seeking to adopt programs that promise to develop closer
relationships in order to achieve lower product costs, reduced time-to-market, improved
quality, advanced technology, and improved service and delivery. One such relationship
management tool that warrants more attention is the negotiation process. Negotiation

also provides an excellent vantage point for examining interorganizational relationships

' ' . 4.
because its nch trat.
poser structures at:

i I
resolve conflicts. p...

The key question
development 01 1
management vieut‘
feeling satisfied a
Negotiation can be
benefit from the ct.
any negotiation is t
strategy used to so‘.
acooperatis'e rela‘.
over time, negott.
subsequent deselc;
may exhibit a gre;
Specific ini'estme:

negoiiail OTIS,

 

1.1.1 The R8893

The introdLlctiOn

Stated more {Om ;

 

 

because its rich tradition addresses important antecedent conditions, communication, and
power structures affecting exchange partners who must divide benefits and burdens,

resolve conflicts, plan, and exercise power (Dwyer et a1. 1987).

The key question is “How does the negotiation process impact the subsequent
development of the customer-supplier relationship?” From a supply chain
management viewpoint, a successful relationship strategy will result in both parties
feeling satisfied and thereby encouraged to engage in a long-term relationship.
Negotiation can be examined as a management mechanism that allows both parties to
benefit from the experience and move toward a stronger relationship. The outcome of
any negotiation is dependent both on the nature of the conflict problem and the type of
strategy used to solve that problem (Lewicki and Litterer 1985). Although the success of
a cooperative relationship depends largely on how the parties develop the relationship
over time, negotiation of the initial agreement is critical in setting the stage for
subsequent development of the exchange relationship (Rognes 1995). Furthermore, firms
may exhibit a greater willingness to engage in strategic initiatives involving transaction
specific investments and supplier development based on their experience during

negotiations.

1.1.1 The Research Objective

The introduction highlights the general question that this dissertation seeks to answer.

Stated more formally, the fundamental research objective of this dissertation is:

To gain a
and their
supplier I

degree of

The primary 803
within the area .
utilized all of ti
effects will be
relationships. I
supplier relatior
hspotheses per
investigate the
strategy develo
What Arndt has
Similar Veim IE

Pertaining to m

the Vendor lmc

In addition to

managers as a '

It may afiect 1}

To gain an understanding of the elements of the negotiation process
and their impact on the subsequent development of the customer-
supplier relationship, including the type of relationship established and

degree of satisfaction achieved.

The primary goal of this research is to contribute to cumulative knowledge generated
within the area of interorganizational relationships. None of the research to date has
utilized all of the constructs appearing in this model in this manner. In addition, the
effects will be examined in the context of the full spectrum of precisely defined
relationships. This dissertation will integrate recent research on the range of customer-
supplier relationships and their elements with a variety of negotiation strategies to create
hypotheses pertaining to the success of relationship building efforts. It will also
investigate the nature of the influence of negotiator predispositions on negotiation
strategy development. This will help answer the call that “more must be done to study
what Arrrdt has called contractual and structural negotiations” (Dwyer et a1. 1987). In a
similar vein, researchers have expressed a need to rectify the lack of empirical research
pertaining to how buyer purchasing performance is affected by the organizational form of

the vendor interface (Noordeweir et al. 1990).

In addition to the theoretical contribution, the model will be of use to relationship
managers as a tool to help decide what type of negotiation activity will be useful and how

it may affect the overall relationship. An example would be a supply chain manager who

would like to strengt‘

 

to analyze the curren
accomplish that goa.

to acutely work with

The current busines
relationships that at:
that there is a manag

The negotiation proc

 

relationships and pr

area

m Iherg-‘m:

“18 dissertation ;
the related \ite‘
hmfileses are
research are c

highlighted.

0447/6? 0,“, As

(tiff repr 6531115 ”If 1‘

would like to strengthen the bonds with a supplier. This theory would allow the manager
to analyze the current situation and to implement the appropriate negotiation strategy to
accomplish that goal. This research will provide a starting point for managers who wish

to actively work with suppliers in order to achieve beneficial outcomes.

The current business environment finds many firms engaged in business-to-business
relationships that are not being optimized from a supply chain perspective. This means
that there is a managerial need for guidance on how to best accomplish relationship goals.
The negotiation process model will contribute to deveIOping successful customer-supplier
relationships and provide a foundation for applicable managerial prescriptions in this

area.

1.1.2 The Organization of the Dissertation

The dissertation is built upon a foundation of existing theory. First, a general review of
the related literature is presented. Then, the research questions are discussed and
hypotheses are proposed. Next the research plan is outlined and then the results of the

research are considered. In the paragraphs below, the specific chapters are briefly

highlighted.

Chapter One. As this chapter continues, the specific research questions, and the model

that represents the proposed answers to those questions will be presented. An executive

summan' of the the

results will follow.

C lapter Two. The Z
for the relationship:

and the relevant cor:

Chapter Three. Th

attention is paid to
. I

theoretical argumer-

statistical eraluatio

Chnpter Four. Th:
that data Descrir
frequencies for the
data for the planne

ChdeEr F11" e. T

theoretical, as “‘

titration, and all

 

summary of the theory behind the model, the proposed research design, and the basic

results will follow.

Chapter Two. The literature that provided the background and direct theoretical support
for the relationships proposed in the model will be fully reviewed. The research model

and the relevant constructs will also be presented in this chapter.

Chapter Three. The plan used to execute the research is outlined in this chapter. Special
attention is paid to the measurement of each of the constructs presented in the model. A
theoretical argument will be built as the hypotheses are presented. Finally, the intended

statistical evaluations will be reviewed.

Chapter Four. This chapter reviews the collection of the data and the basic condition of
that data. Descriptive statistics will be presented for all interval variables as well as
frequencies for the categorical variables. Consideration is given to the adequacy of the
data for the planned theory test provided by establishing the reliability and validity of the

data This chapter also reports the results of the statistical analysis of the hypotheses.

Chapter Five. The final chapter considers the implications of the research. The
theoretical, as well as the managerial conclusions are reviewed. In addition, the

limitations and directions for future research are documented.

Wile“ the rear

context of excl

1.2 Thr Re“

There are two 5
focus IS 10 111“
how the impTCI
antecedents W1.
relationship and
these factors to

negotiation strate
negotiation is cc
negotiation imple

Ihunt of the disse

The second set 0

 
 
   

negotiation strate-

relune the explie

SUpply Chain m'

negOTTaTTOI] pro“.

When the reader has concluded reading this dissertation they should be left with a richer
understanding of the concept of the negotiation process and its influence within the

context of exchange relationships.

1.2 The Research Questions

There are two sets of research questions that this dissertation seeks to answer. The core
focus is to investigate the antecedents to the development of a negotiation strategy and
how the implementation of that strategy impacts the satisfaction of the parties. The
antecedents will include both the environment surrounding the customer-supplier
relationship and the predispositions of the relationship managers. Hypotheses will relate
these factors to the negotiating strategy embarked upon. Then the question of how the
negotiation strategy utilized affects the ultimate satisfaction that the parties gain fi'om the
negotiation is considered. Thus, both the antecedents and the consequences of the
negotiation implementation are investigated. This area of investigation forms the main

thrust of the dissertation and will be represented in the basic model.

The second set of questions focuses upon on the variation in the size of the effects of
negotiation strategy on satisfaction due to the type of relationship established. This will
require the explication of a typology of relationships and the presentation of a method for
establishing the relationship type based on the elements of that relationship. Successful
supply chain management requires the effective and efficient management of the

negotiation process in order to develop and maintain the type of relationship desired. An

explicit map 0f
of comparisons-
to the dynamic

interesting to int

13 The Concel

1.3.1 A Brief Tn

Researchers inte
behavioral orient;
beeome more rele
0f b‘~‘hr'i\'ioral rel;
considers this shit

Predicts that relat

T993)

 

 

explicit map of the elements of the relationships is a prerequisite for making these types
of comparisons. The analysis will then test whether the strategy implemented contributes
to the dynamic improvement of the relationship. This portion of the research will be

interesting to investigate but it is not fundamental to the basic model.

1.3 The Conceptual Basis of the Model

1.3.1 A Brief Introduction to Customer-Supplier Relationships

Researchers interested in the broad topic of marketing channels began to adapt a
behavioral orientation in the late 1960’s (i.e. Stern 1969). Since that time marketing has
become more relationship focused and the distribution channel has been viewed as a set
of behavioral relationships involving power, conflict and relational norms. Webster
considers this shift to be a fundamental change in marketing management and theory and
predicts that relationships will become a key strategic resource of the firm (Webster
1992). Several authors have found support for the concept that relationship maintenance
is a secure competitive strategy as well as a competence that successful firms need to
possess (Narus and Anderson 1986; Johnston and Lawrence 1988). Buyers and suppliers
have been identified as two of the five forces shaping the competitive nature of industry

(Porter 1980).

The Harvard Business Review brought the concept of relational exchange to the forefront

of business thought in the 1980’s. Academics had scarcely addressed this topic and were

trailing the l

’- .r
laciLSOnsiL

partnersh: p s

.fl‘hough th:
necessary to

interest. Tn:-
problem is the
if they were c
relationships

Cha'acterize th
rigor in come;
accumulated {L

11

1‘3'2 The Pol

A literature re

Interorganizatlo:

Economy Parad

trailing the practitioner journals in writing about relationships at that time. Barbara Bund
Jackson’s article served to focus interest on the creation and maintenance of relationships
when it appeared in the Harvard Business Review (Jackson 1985). Additional articles
sought to address strategic alliances (Bowersox 1990) and prescribe the steps to attain

partnership status (Kanter 1994).

Although the articles appearing in practitioner journals lacked the theoretical rigor
necessary to add to theory, they did establish relationships as an area of managerial
interest. They reflected the interests and practices occurring in the real world. One
problem is that the articles used vaguely defined terms such as partnership and alliance as
if they were consensus definitions. There is still a need to identify the specific forms of
relationships that exist between suppliers and customers and the attributes that
characterize these relationships (Rinehart et al. 2000). This is important because without
rigor in conceptual and definitional areas, it becomes impossible to develop meaningful,

accumulated theory (Hunt 1991).

1.3.2 The Political Economy Paradigm

A literature review will be presented covering the elements of negotiation and
interorganizational relationships as they relate to customer-supplier interactions. The
review will include theoretical background on Transaction Cost Analysis and the Political

Economy Paradigm in order to provide a foundation for examining the impact of

negotiation on u

appearing in the

In order to make
this dissertation

developed out of
to position this 4
progressed from

status that combi
3“ iImportant con
Perspectives Th.
include elements

The Political Eco

majorecon0mic 3
These forges are
Organizatimal D
members 0fthe d

Such as:

 

OHI

negotiation on interorganizational relationships. These paradigms provide the constructs

appearing in the model.

In order to make a contribution to the body of knowledge, we must first understand where
this dissertation fits in the progression of supply chain management theory as it has
developed out of channel research. A brief history of channel research will be presented
to position this dissertation in the flow of theory development. Channel research has
progressed from early economic based descriptive approaches to the current theory laden
status that combines economic and behavioral approaches. Stern and Reve (1980) made
an important contribution to the field when they integrated the economic and behavioral
perspectives. They proposed the Political Economy Paradigm as a fi'amework that would
include elements of both perspectives (Stern and Reve 1980). The Political Economy

Paradigm will form the conceptual basis of this dissertation.

The Political Economy approach views a social system as comprising interacting sets of
major economic and sociopolitical forces that affect collective behavior and performance.
These forces are examined together, not in isolation. The PEP falls within the
Organizational Dynamics School of marketing thought and focuses upon the needs of
members of the distribution channel (Sheth et al. 1988). This school addresses questions

such as:

o What is cooperation in an interorganizational system?

0 How does power affect the bargaining process?

10

Beyond these etil
endeavored to err
Coleman (1994).
categorical assem‘
sequential model
variables such as
relationship struct
Structure, in turn.

exchange.

In a similar vein
negotiations b€l\\
situational const

orientation, listeni
questions, initial

control). Furth

outcomes such a

 

model Presented -

 

to negotiation in?
,.
Attention will a.

Wtfic definitio

 

Beyond these efforts to clarify concepts such as power and cooperation, theorists have
endeavored to create general models of interorganizational relations. Robicheaux and
Coleman (1994), for instance helped to explicate the PEP by moving beyond the
categorical assemblage of variables to place ordered sets of clearly defined variables in a
sequential model. Their model of channel relationship structure asserted that PEP
variables such as dependence, cooperation and communication jointly determine the
relationship structure that is likely to emerge in a particular exchange relationship. This
structure, in turn, influences the degree of the various economic and polity outputs of the

exchange.

In a similar vein, Graham (1987) has offered a theory to explain the outcomes of
negotiations between representatives of buying and selling firms. He proposed that
situational constructs (power relationships) and bargainer characteristics (interpersonal
orientation, listening skills) influence the implementation of negotiation strategies (use of
questions, initial demands, procedural discipline, impression formation, and topical
control). F urtherrnore, the negotiation strategy implemented affects negotiation
outcomes such as economic rewards, satisfaction, and interpersonal attraction. The
model presented in this dissertation will follow that basic structure of antecedents leading

to negotiation interactions that lead to consequent outcomes.

Attention will also be devoted to recent research directed toward establishing more

specific definitions of each type of relationship and the characteristics possessed by each

11

(R‘nehart 61 3}

category.

1.4 The Mod

The componer
sequentially. l
customer-suppl
transaction con
and 4) outcome
become a too]

SUPP]! chain. on

Pre-uansacnonc
the enSUlng “EEC
Paradigm and h.

c1121111161 interact“

W15‘3”“? one ac:

  

“an action (Pfei'

The Cooperative

moguliation Slra‘

Orientallon of p

 

(Rinehart et al. 2000). This will allow a comparison of effects based upon relationship

category.

1.4 The Model

The components of the model essentially follow the negotiation process as it unfolds
sequentially. It begins with the nature of the negotiation potential inherent in the
customer-supplier situation. Negotiation is a process that includes several stages: 1) pre-
transaction conditions; 2) pre-interaction preparation; 3) interactions between the parties;
and 4) outcomes (Rinehart and Cadotte 1989). As a strategic endeavor, negotiation can
become a tool that the firm can use to help coordinate activities of other firms in the

supply chain, on whom the target firm may be dependent.

Pre-transaction conditions include elements of the environment that impact the nature of
the ensuing negotiations. Dependence plays an essential role in the Political Economy
Paradigm and has been found to be a major element contributing to understanding
channel interactions (Gundlach and Cadotte 1994). Dependence can be said to exist
whenever one actor does not control all of the conditions necessary for the achievement

of an action (Pfeffer and Salancik 1978).

The cooperative orientation of a negotiator is another factor that is determined before the

negotiation strategy is implemented. Perdue and Summers (1991) used the cooperative

orientation of purchasing agents as a construct in their study of negotiation strategies

12

(Perdue and
azent's level

suppliers 3 f.’

Next, the im
negotiation i

of contract ft

The final set
Will be meas
0f satisfactic
lead 10 a wi
On the othe
Perceived 3‘
[he relationS
hinder moral
makes Satisf
Oh 1987). '

party baged C

(AndEFSOn 8.1

(Perdue and Summers 1991). The cooperative orientation referred to the purchasing
agent’s level of concern for the supplier’s welfare and dedication to the goal of providing

suppliers a fair return.

Next, the implementation of the negotiation strategy takes place. Two elements of the
negotiation implementation will be measured: 1) the level of coercion; and 2) the degree

of contract formality.

The final section of the model evaluates the outcome of the negotiation. The outcome
will be measured as the degree of satisfaction with the transaction. Generally, high levels
of satisfaction have been found to have positive consequences for the relationship and
lead to a willingness to increase the amount of dependence existing in the relationship.
On the other hand, continued dissatisfaction with achieved rewards, along with the
perceived availability of a more desirable exchange partner, will lead to the dissolution of
the relationship (Frazier 1983a). Dissatisfaction with an exchange partner may also
hinder morale, impede cooperation, or precipitate litigation (Hunt and Nevin 1974). This
makes satisfaction 3 significant criterion for evaluating channel relationships (Dwyer and
Oh 1987). Satisfaction is defined as the overall approval of and affect toward another
party based on an appraisal of all aspects of firrn’s working relationship with another firm

(Anderson and Narus 1990).

13

Ba
Figure 1.1 The

Dependence

15 Structuring t

A Secondary purp
Vary depending 0
important ‘0 Won.-
for relevant 13160:
forms of inter org

I
as the atrn‘meS :
dimensional fray

belt

avioral Conce-

The]

 

Figure 1.1 The Base Model

Level of
Coercion
D d Cooperative Satisfaction
epen ence Orientation

Contract

 

Formality

 

1.5 Structuring Customer-Supplier Relationships

A secondary purpose of the dissertation is to examine how the effects in the model may
vary depending on the type of relationship established. In order to accomplish this, it is
important to work with a relationship classification system that can form the foundation
for relevant theory building and managerial action. It is necessary to identify specific
forms of interorganizational relationships that exist between buyers and suppliers as well
as the attributes that characterize the relationships. This dissertation will utilize a multi-
dimensional frarnework that differentiates relationships based on interorganizational

behavioral concepts at the personal and organizational levels (Rinehart et al. 2000).

The literature on relationship management focuses on the general constructs of trust

14

between the P
the parties to
1987; Frazier
de\'en 1994;
measuring th:
These relatior
l. .\'or
2. Adi
3. Cor
4. Spe
5. Par
6. Joii

7. All
1'6 Method

The hlpomeg
tea theory t1
Sluden‘rs at a
“buffed qug
propensity It
perceh'eo. I:

The conSth,

between the parties, the level of interaction between the parties, and the commitment of
the parties to the relationship as important attributes of the relationship (Dwyer et a1.
1987; Frazier et a1. 1988; Anderson and Narus 1990; Nishiguchi 1994; Ring and Van
deVen 1994; Handy 1995). Specific relationship types have been identified by
measuring the constructs of trust, interaction, and commitment (Rinehart et al. 2000).
These relationship types include the following:

1. Non-strategic

2. Administered

3. Contractual

4. Specialty Contract

5. Partnership

6. Joint Venture

7. Alliance

1.6 Methods

The hypotheses were tested in a simulated environment using students as a mechanism to
test theory that can be applied in the managerial community. Approximately 150
students at a large midwestem university participated in the study. The participants
answered questions prior to a negotiation simulation in order to obtain a baseline of their
propensity toward cooperating with the other party and the degree of dependence
perceived. Data was then collected after the negotiation strategy had been implemented.

The constructs to be measured at that time included the degree of coerciveness and the

15

level of formaliz:
made aware of 1
other groups in
relationship esta

between group c

Students are ex
dissertation is

knovs'ledge abor
A representativ
statistical gene

that are not Cen

The clilssroom
Variation. T
implementatio
more natUral

allows the var

18 tested in a

theory. The C:

level of formalization of contracts. Lastly, data was collected after the groups had been
made aware of the terms of their agreement relative to agreements established by the
other groups in order to assess the level of satisfaction. Data concerning the type of
relationship established was also be collected at that time in order to accomplish the

between group comparisons.

Students are excellent participants in the research because the main concern in this
dissertation is to provide theory development. The desire is to provide scientific
knowledge about events and relationships that occur in a variety of real-world situations.
A representative sample is not required because the goal is to allow a test of theory, not a
statistical generalization of the findings. Students are fairly homogeneous on variables

that are not central to this study.

The classroom setting provides an area that is relatively free of extraneous sources of
variation. This also allows the use of standardized procedures and treatment
implementation. Outside variables such as company policy can also be minimized so a
more natural response can be elicited. The controlled environment of the classroom
allows the variables to be tailored to the abstract theoretical constructs. Thus the theory
is tested in a situation where it is possible for the observed effects to contradict the

theory. The classroom setting will contribute to the internal validity of the research.

16

1.7 Concl

Negotiation
research w
maintain rr
important

environmen
connection
between fir

relationship:-

The PUrpose
cmtOmCI-Su]

' T0 er.

0 T035
To us

maint.

1.7 Conclusion

Negotiation activities need to be tailored to the nature of the business relationship. This
research will help managers determine how to interact with other firms in order to
maintain relationships over the long term. The negotiation process is especially
important for maintaining relationships and resolving conflict in a single source
environment that has removed the market mechanism from these dealings. Showing the
connection between negotiation activities and the type of relationship established
between firms will make a theoretical contribution to the area of interorganizational

relationships.

The purpose of this research is to utilize the negotiation process to better understand
customer-supplier relationships. The specific objectives are to:

0 To extend the theory of interorganizational relationships.

0 To assess the impact of negotiation strategy on relationship development.

0 To use the model to develop managerial guidelines that will enable customers to

maintain optimal relations with all suppliers.

l7

2.1 Introdu

Chapter Toto
literature rex‘i
l) A ret
form

2) A rev
relev

3) A revi:

areas
2.2 BackgrOI

The Objective-
ma-fketing and
examine the 1
Economy Par;
IWolOgy Will

necessary to L”-

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Chapter Two presents and synthesizes the research streams related to the study. This
literature review is laid out in three basic stages:
1) A review of the Political Economy Paradigm, which forms the conceptual
foundation of the model.
2) A review of the literature in the marketing, channels and procurement areas
relevant to the constructs found in the model.
3) A review of the relevant background in the marketing, channels and procurement

areas applicable to the categorization of customer-supplier relationships.

2.2 Background Information

The objectives of this section are to: 1) position the dissertation in the stream of
marketing and supply chain management knowledge that has evolved over the years; 2)
examine the literature central to the constructs of the model, including the Political
Economy Paradigm; and 3) examine the characteristics upon which a relationship
typology will be built. This chapter will provide the background information that is

necessary to understand the model’s constructs and their relationships.

18

2.2.1 Model Ore

In this chapter. t‘:

basically follows

 

 

structure utilized h
lead to negotiatior
listing of the com
the constructs is c
dependence and t
of coercion and
satisfaction. A5
pan} Will be per
relationship. T}

in the base mod.

2.2.1 Model Overview

In this chapter, the model presented in Chapter One is fully explicated. The model
basically follows the temporal sequence of the negotiation process and reflects the
structure utilized by Graham (1987). That structure consists of antecedent constructs that
lead to negotiation implementation, which in turn leads to consequent outcomes. A brief
listing of the components of the model follows in order to ensure that the positioning of
the constructs is clear. Key constructs preceding the negotiation implementation include
dependence and cooperativeness. Elements of the negotiation implementation are level
of coercion and contract formality. The outcome of the negotiation is captured as
satisfaction. As a follow on, a categorization of the relationship type achieved by the
party will be performed based on the levels of trust, interaction, and commitment in the
relationship. This will set the stage for between-groups comparisons of the effects found

in the base model based on the relationship category.

2.2.2 The Fit of This Dissertation into the State of Supply Chain Mgmt. Theory

In order to make a contribution to the body of knowledge, we must first understand where
this dissertation fits in the progression of supply chain management theory as it has
developed out of channel research. A brief history of channel research will help to
position this dissertation in the flow of theory development. Channel research has

progressed from early economic based descriptive approaches to the current theory laden

19

status that cor

history but to;

The Function:
research. Aft
identified the 1
described the

Alderson 1954
marketing won
marketing proc
a marketing c
ConSumerg. H‘.

Clmfitts quUa

This early rese
Economic Varia
length lBuekirn
apparent in [he (

  
 

 

A Shift in Pets i

status that combines economic and behavioral approaches. This will not be an exhaustive

history but topics will be introduced that will be expanded upon later.

The Functional and Institutional schools of thought provide the early roots of channel
research. After the turn of the last century, the early scholars in the emerging field
identified the functions performed by channels (Shaw 1912; Weld 1916; Ryan 1935) and
described the institutions that performed these functions (Weld 1916; Converse 1949;
Alderson 1954). In 1934, Ralph Breyer recognized that the greatest improvements in
marketing would be realized from coordinating the various institutions involved in the
marketing process (Breyer 1934). He tracked the costs of a product as it moved through
a marketing channel consisting of producers, brokers, wholesalers, retailers, and
consumers. He also recognized the negotiatory tasks of marketing in determining the

elements of quality, price, and quantity in a transaction.

This early research grew out of economics and retained an economic perspective.
Economic variables were utilized to predict channel characteristics such as channel
length (Bucklin 1965) and channel structure (Mallen 1973). This train of thought is still
apparent in the concepts of transaction cost theory (Williamson 1975; Williamson 1979).
These concepts have also been utilized by many recent researchers (e. g. Anderson and

Weitz, 1989).

A shift in perspective occurred during the 1960’s as scholars began to investigate the

behavioral components of channels. Variables such as conflict and cooperation were

20

Presented (31.1116
essays concernir
economic EH13].VS
of power on Chm

(Hunt and Nevin

A seminal cont:
integrated the 6
Economy Par ad
(Stern and Reve
combinations of
(1992) combine
1979) with the
demonstrate that

commit to transa

Most recently,
Charmel structL
corWentional cf
“Plush has
authority base.

domesticated rr

research bv

 

presented (Mallen 1963; Mallen 1967). A turning point was provided by Stem’s book of
essays concerning behavioral elements of channels (Stern 1969). This shift away fiom
economic analysis focused attention on key topics such as power and conflict. The effect
of power on channel control and structure was an early component of this line of research

(Hunt and Nevin 1974; Lusch and Brown 1982).

A seminal contribution to the field was made by Stern and Reve (1980) when they
integrated the economic and behavioral perspectives. They proposed the Political
Economy Paradigm as a framework that would include elements of both perspectives
(Stern and Reve 1980). This framework has opened the way for interesting and insightful
combinations of variables that broaden channel theory. For instance, Heide and John
(1992) combine the economic based concepts of transaction cost analysis (Williamson
1979) with the behavioral constructs of relational contracting (Macneil 1980) to
demonstrate that relational norms enable firms to overcome the fear of opporturrism and

commit to transaction specific assets.

Most recently, channel research has delved into illuminating the variety and type of
channel structures being utilized. The starting point was the identification of
conventional channels controlled through authoritative power structures. A recent
emphasis has focused upon non-hierarchical relationships that are characterized by non-
authority based norms of behavior. These are typified by Arndt’s concept of
domesticated markets (Amdt 1979) as well as more recent relationship oriented channels

research by Nevin (1995). Frazier and Antia (1995), however, stress that many actual

21

relationships are 1‘

 

l.
for future researc.

provide widely ap'

 

Thus, it has becor‘
relationship t)pes

business enviromi

 

not possess these
@0311 firm helps
muted to currer
0P6 0f relations
bCCOme evident
differemt). by ‘
will be used to
(Rineltan Ct a
deielouing at
dissenmm v

2‘3 The C.

PIQm’lnent

relationsm

relationships are becoming less relational in nature and consider this an important area
for firture research. A diversity of channel structures needs to be considered in order to

provide widely applicable theory, not just highly relational structures.

Thus, it has become more and more apparent that a diverse array of channel structures (or
relationship types) must be considered in order to accurately reflect the nature of the
business environment. Some relationships can be classified as relational while others do
not possess these attributes. The existence of a portfolio of relationships managed by a
given firm helps to cope with the variety of situations encountered. Attention will be
devoted to current research directed toward establishing more specific definitions of each
type of relationship based upon characteristics anchored in the channels literature. It has
become evident that the terms used to describe relationships are often interpreted quite
differently by each party to the negotiation. A recently developed classification system
will be used to determine the exact relationship characteristics implemented by each party
(Rinehart et a1. 2000). The full range of relationship types will then be reflected in
developing additional hypotheses about the effects found in the model. Thus, this
dissertation will fit into extant theory in channels and build upon current trends extending

the theory into the supply chain management arena.

2.3 The Conceptual Basis of the Model

Prominent among the theoretical frameworks utilized in analyzing interorganizational

relationships is the Political Economy Paradigm (Stern and Reve 1980). The

22

constructs 3W9”

discussion ofrt f.

23.1 The Polit

The Political Ec

major economic
1hese forces a
organizational 1
members of the
school relies pr

it Lakes an inte

and sellers are I

' What is

HOW dg

constructs appearing in the model are primarily drawn from this framework so a short

discussion of it follows.

2.3.1 The Political Economy Paradigm (PEP)

The Political Economy approach views a social system as comprising interacting sets of
major economic and sociopolitical forces that affect collective behavior and performance.
These forces are examined together, not in isolation. The PEP falls within the
organizational dynamics school of marketing thought and focuses upon the needs of
members of the distribution channel (Sheth et a1. 1988). The organizational dynamics
school relies primarily on the behavioral sciences rather than the economic sciences and
it takes an interactive perspective with respect to market transactions, in which buyers

and sellers are equally important. This school addresses questions such as:

o What is cooperation in an interorganizational system?

0 How does power affect the bargaining process?

Bringing socio-political factors into consideration allows theorists to move beyond the
constraints of economic theories. Stern asserted that while the literature on channels of
distribution had historically tended to emphasize economic interactions, the perspective
needed to be broadened to include social and behavioral variables in order to achieve a
more thorough understanding (Stern 1969). Early behavioral work by Mallen stressed

the interplay of conflict, control, and cooperation in channel member relations (Mallen

23

1963). Amdt n-

phenomena such '

 

(Arndt 1979). in s

  
  
 

being conducted .
companies comnt
by administrative
this gap by build:

POW. dependen

The PEP is a
sociopolitical co
from Social ex
6C0“Omics PYO‘
emphaSlZes the
ec0n0mic eke}
of [his {Kama

Reve 1980).

rnultiqmEra
N0 Ina-jol-

the intern;

polllica\

1963). Amdt noted that economic factors alone could not explain marketplace .
phenomena such as domesticated markets occurring within long-term relationships
(Amdt 1979). In such arrangements, transactions are planned and administered instead of
being conducted on an ad hoc basis. The transactions are moved inside a group of
companies committed to long-term cooperation. These transactions are usually handled
by administrative processes on the basis of negotiated rules of exchange. The PEP fills
this gap by building upon economic concepts to include the effects of constructs such as

power, dependence, cormnitrnent, conflict, and trust (Amdt 1983).

The PEP is a fairly general framework that incorporates major economic and
sociopolitical constructs into its analysis of marketing relationships. Constructs drawn
from social exchange theory, behavioral theory of the firm, and transaction cost
economics provide the conceptual bases for the PEP (Amdt 1981; Amdt 1983). It
emphasizes the interplay of power, the goals of the power wielders, and the productive
economic exchange systems. Stern and Reve were largely responsible for the popularity
of this framework by using it in their research on marketing channel dyads (Stern and

Reve 1980). A description of the elements contained in the PEP follows.

The basic premise of the framework is that complex socioeconomic interrelations involve
multi-lateral interactions as opposed to simple cause and effect mechanisms. There are
two major systems in the framework: 1) the internal political economy, which includes
the internal structuring and functioning of the distribution channel and ,2) the external

political economy, which is the environment surrounding a particular distribution

24

channel. The
(consisting of

internal polit)

The internal r
members. Tl
transactions ll
desired often
(TCA) provid
into the PEP 1
Product costs
(1975) Expand
and markets tc
(Costs of Funni
(tub markets a
hybrid {om O

Shategic Plant?

relationships (;

  
  

31131}!st Offer:

enema] Orgal“

channel. The internal political economy is further separated into an internal economy
(consisting of both internal economic structures and internal economic processes) and an

internal polity (consisting of internal polity structures and internal polity processes.

The internal economic structure includes the type of transactional form linking channel
members. These arrangements can range from independent firms engaged in market
transactions to complete vertical integration. The particular type of relationship that is
desired often depends upon economic factors. In this arena, Transaction Cost Analysis
(TCA) provided essential inspiration for the PEP and many of its tenets are integrated
into the PEP (Amdt 1983). TCA recognizes that transactions have costs in addition to
product costs and views the firm as a governance structure (Coase 1937). Williamson
(1975) expanded on this topic in his book “Markets and Hierarchies.” He views firms
and markets to be alternative governance structures that differ in their transaction costs
(costs of running the system) (Williamson 1975). TCA has moved beyond considering
only markets and hierarchies to include hybrid forms of interorganizational ties. These
hybrid forms of governance include long-term relationships, parmerships, and alliances

(Williamson 1996).

Strategic planning for the firm incorporates management of such interorganizational
relationships (Porter 1980; Frazier 1983a; Stern and El-Ansary 1993). Transaction cost
analysis offers a method of evaluating relative advantages of the different internal and

external organization forms for handling transactions. Transaction costs are economized

25

3b}. tive cat

Operating ;
The intern:
to determi
may be re
and Rev:
detenn’m
dominan
[ransacti

Oi man}

The in:
intema
that ex
Power
fifths.
[Al-1&1 ex
and 3
Comp}

"emu

by assigning transactions (which differ in their attributes) to governance structures (the

adaptive capacities and associated costs of which differ) in a differentiating way.

Operating alongside the internal economic structure of a channel are economic processes.
The internal economic processes refer to the nature of the decision mechanisms employed
to determine the terms of trade among the members. Agreement on the terms of trade
may be reached by routine procedures, by bargaining, or via centralized planning (Stern
and Reve 1980). They assert that the transactional form of the channel typically
determines the types of economic processes used by firms. Competitive mechanisms are
dominant in market transactions and centralized planning is dominant in hierarchical
transactions. For transactions that fall between the two structural extremes, the allocation

of many marketing activities is largely determined through bargaining among the parties.

The internal polity of the channel is also broken into structures and processes. The
internal polity structure is defined by the initial pattern of power/dependence relations
that exists among channel members. This is reflective of Emerson’s (1962) view of
power relationships as the inverse of the existing dependency relationships between
firms. There will always be some power existing in channels due to mutual dependencies
that exist among channel members, even though that power may be very low (El-Ansary
and Stern 1972). The limiting cases of dependence range fi'om minimal power to
completely centralized power. Because of the numerous marketing flows that tie channel

members together, the most common case is a mixed power situation where different

26

inns exercise co.

l9'6b).

 

The internal poli'.
characterize the
channel analysis .
level of c00perati

towards an objed

 

 

mutual benefit“ (

processes and is

The external cc
Channet Operate
marketing char
Emma] Polit}
OUISide me 1)
“3063mm.

through adapt

A b ‘ .
Tlef 0min

Ur

firms exercise control over different flows, functions, or marketing activities (Etgar

1976b)

The internal polity processes are described in terms of the dominant sentiments that
characterize the interactions between channel members. Two major dimensions in
channel analysis are cooperation and conflict. Channels cannot exist without a minimum
level of cooperation among the parties. Cooperation can be represented as “joint striving
towards an object, the process of coalescing with others for a good, goal, or value of
mutual benefit” (Stern 1971). Conflict is the other major dimension of the internal polity

processes and is characterized by mutual interference or blocking behavior.

The external economy and the external polity represent the environment in which the
channel operates. The external economy includes the economic task environment of the
marketing channel described by the nature of its vertical and horizontal markets. The
external polity concerns the distribution and use of power resources among factors
outside the particular channel such as competitors, regulatory agencies, and trade
associations. The external political economy influences the internal political economy

through adaptation and interaction processes.

A brief outline of the components described above and their related constructs follows:
1) The Internal Economy
a) Internal Economic Structure-

Transactional Form ....(i.e. Relationship Type - Market to
Hierarchy)

27

 

2) The 11‘.

a)

bi

3) The

4) The

Beyond these
economy the
reléltiOns. RC
moving bey.
Clfiarly (1e ft?
memclion

commumCa‘
merge in

ianUEnCes 1

exchange

~,S

b) Internal Economic Process-

Decision Mechanisms (i.e. Centralized Planning, Bargaining,
Market Transactions)

2) The Internal Polity
a) Internal Polity Structure-
Power/Dependence Relations
b) Internal Polity Processes-
Dominant Sentiments and Behaviors ....(i.e. Cooperation,
Coercion, Contract Formality)
3) The External Economy

4) The External Polity

Beyond these efforts to clarify concepts such as power and cooperation, political
economy theorists have endeavored to create general models of interorganizational
relations. Robicheaux and Coleman (1994), for instance, helped to explicate the PEP by
moving beyond the categorical assemblage of variables and placing ordered sets of
clearly defined variables in a sequential model. They asserted that the level and
interaction of antecedent conditions such as dependence, cooperation, and
communication strategy jointly determine the relationship structure that is likely to
emerge in a particular exchange relationship. That relationship structure, in turn,
influences the degree of the various economic and polity performance outputs of the

exchange, such as satisfaction.

28

 

The elements in ii

 
 
  
 

supply chain 111.:
increasingly repla
of interorganizat:
illuminate the dy.
long-term relatio
and personal attr;
development of ‘
focus to more

Umsactional ror

2.3.2 Negotia

XQEOIiation i
mark“ (Per
E One of “m
DOSTTTQQ Vi.
PTOblems i:
1n the put

seller 3313

The elements in the political economy framework are applicable in the purchasing and
supply chain management fields because competitive market dealings have been
increasingly replaced by vertical marketing systems. These systems rely on a high degree
of interorganizational coordination and long-term relationships. The PEP can help to
illuminate the dynamics of issues such as supplier deve10pment and the maintenance of
long-term relationships. In a long-term context, outcomes such as perceived satisfaction
and personal attraction become more important because they contribute to the ongoing
development of the relationship. The political economy framework helps to move the
focus to more dynamic constructs affecting the establishment and maintenance of

transactional routines with suppliers.

2.3.2 Negotiation

Negotiation is a firndamental phenomenon in interfirrn exchange behavior in industrial
markets (Perdue et a1. 1986). The negotiating strategy that a firm adopts can be viewed
as one of the competitive strategies that will enable the firm to maximize its competitive
position vis-a-vis its rivals (Porter 1985). It is a dyadic process aimed at solving
problems in a way that benefits all of the parties involved (Rinehart and Cadotte 1989).
In the purchasing area, it is the decision-making process through which a buyer and a

seller establish the terms of a purchasing agreement (Dobler et al. 1984).

The concept of negotiation presented here is very broad. While many people think of

negotiation as bargaining or the actual interaction between the parties, this dissertation

29

vievvs bargaining .

 

 

 

The negotiation p
assessment and s:

such as outcome e

“Negotiation is L

 

interaction of twc
of this interacti:
information and
‘he film‘s Obj ec
SlTalegies as W
satisfy the part‘
the Dam." 5 per
the 3§e6men

PCI‘CeptiOn m

Can also be

contirm'm2 s

fills perspe

mese Shaft
TEIK‘TQnSh-I

80‘:
s gum

ofrhe neg

views bargaining as only one stage of a larger negotiation process (Rinehart et a1. 1988).
The negotiation process also includes stages prior to bargaining, such as environment
assessment and strategy planning, as well as stages that take place after the bargaining

such as outcome evaluation. A more complete definition of negotiation follows:

“Negotiation is a management process involving the preparation for bargaining, the
interaction of two or more parties in a bargaining situation, and the resolution or outcome
of this interaction” (Rinehart et a1. 1988). Preparation includes the collection of
information and its use on the formulation of interactive strategies designed to achieve
the firrn’s objectives in a bargaining situation. Bargaining includes the execution of these
strategies as well as the “give and take” over individual issues that are necessary to
satisfy the parties. The outcome represents

the party’s perception of the agreement that has been fashioned. A positive perception of
the agreement may lead to additional business between the parties while a negative
perception may lead to the dissolution of the relationship. This definition of negotiation
can also be extended help explain long-term relationships by viewing them as a

continuing series of negotiations.

This perspective of the negotiation process asserts that the process consists of five stages.
These stages include 1) the environments surrounding the parties, 2) the nature of the
relationship and positioning of the parties, 3) the activities of preparation that each party
goes through outside of the interactions, 4) the bargaining activities, and 5) the outcomes

of the negotiation (Rinehart et a1. 1988).

30

Amdtl19'l9) ider.

 

 

 

structural. Trans
parties beyond

subcontracting art
time. Structural
committed interq

negotiations in ti

\‘vhile much of
and the custom
between the m
each other. ”n
lite research .
Process 10 Sh
n""S€<’irclter 1c

cOutcry

Amdt (1979) identified three different levels of negotiations: transactional, contract, and
structural. Transactional negotiations are of a tactical nature and do not commit the
parties beyond a particular order or transaction. Contract negotiations include
subcontracting and franchising and provide a framework for transactions over a period of
time. Structural negotiations apply to the form and intensity of long-term and deeply
committed interorganizational relationships (Amdt 1979). The broadened outlook on

negotiations in this dissertation reflects all three levels.

While much of the channels literature focuses on activity between a manufacturing firm
and the customer, the negotiation viewpoint allows us to also examine relationships
between the manufacturing firm and its suppliers as well as supplier’s relationships with
each other. This ability to look both upstream and downstream from the focal firm makes
the research very relevant to supply chain management. The use of the negotiation
process to shed light on the development of customer-supplier relationships allows the
researcher to investigate the wide array of situations appearing in the supply chain

context.

2.3.3 Integrating the PEP with Negotiation

The preceding sections give us the background needed to begin building a model that can

explain the outcomes expressed by the parties to a negotiation. In essence, the PEP

provides the constructs for the model and negotiation theory provides the basis for

31

 

ordering the cons‘.

founded on the co

levviclti and Lit‘
involves the povs
persons or an or.
do things that dir
strategy, especia

expected TCSuhS

Tm Polity sect;
Process, The
encountered by
from minimal
and imbalanc
dependenCe).

\lhar remain,
pro“ides the t
Outcontes of
Proposed lhar

(.
1merpers‘oltal

 

ordering the constructs. Both topics share commonalities, the largest being that both are

founded on the concept of power.

Lewicki and Litterer (1985) state that an important part of the negotiation process
involves the power relationship between the parties. Power is the ability to influence a
person’s or an organization’s behavior. Party A has power over party B if A can get B to
do things that directly benefit B. The use of power can be part of the party’s negotiating
strategy, especially if the act of persuasion during the process is not generating the

expected results (Lewicki and Litterer 1985).

The polity section of the PEP provides a rich context for the study of the negotiation
process. The PEP contends that power is reflected by the degree of dependence
encountered by the parties. The polity structure describes dependence patterns ranging
from minimal power (low dependence), through mixed power constellations of balanced
and imbalanced power (mutual dependence), to centralized power (unilateral
dependence). The process portion of the polity sector provides the notions of

cooperativeness, coercion, and formalization.

What remains is to position the constructs in a reasonable way. Negotiation theory
provides the basis for this positioning. Graham (1987) has offered a theory to explain the
outcomes of negotiations between representatives of buying and selling firms. He
proposed that situational constructs (power relationships) and bargainer characteristics

(interpersonal orientation, listening skills) influence the process of negotiation

32

' a 'on t '
mp‘unentatt

formation. and 10‘

 

2117.335 negotiatio

traction.

The model pres:
leading to nego
outcomes. In

components tha

    
  
   

Antecedem
Negotiatio‘
Negotiatic

Negonam

The following
and fully defi]

the mOdel.
2.4 The col]

24'] The \t

A

The enema]

 

implementation (use of questions, initial demands, procedural discipline, impression
formation, and topical control). Furthermore, the process of negotiation implementation

affects negotiation outcomes such as economic rewards, satisfaction, and interpersonal

attraction.

The model presented in this dissertation will follow that basic structure of antecedents
leading to negotiation implementation (bargaining) processes that lead to consequent
outcomes. In addition, it will further subdivide the antecedent stage into the three

components that appear before the bargaining process in the Rinehart et a1 (1988) model.

 

 

 

 

 

 

Antecedent ‘—’ Negotiation ‘—’ Consequent
NegotiationEnvironment Implementation Outcomes
Negotiation Potential (Bargaining)

Negotiation Preparation

 

 

 

 

 

 

The following sections will review work that has utilized the constructs found in the PEP

and fully define them. The constructs will be discussed in the order that they appear in

the model.

2.4 The Constructs Presented by Stage of Negotiation

2.4.1 The Negotiation Environment

The external environment addresses the elements over which the organization has little or

no control. They include the characteristics of competition in the market, the general

33

   
   
 

state of the econ
cultural character

as part ofthe ext.

2.4.2. Negotiatit

Firms enter negc.
The potential ft
a‘.~IY€etttent, '2.) t‘
party, 3‘) the co

the p0W€rdep<

Prior to engag
Positioning 0
be identified
and Day 191
relatmnship

illElI‘ relaIin

mutually. '1

state of the economy, legal and political requirements, technological applications, and
cultural characteristics that affect the negotiators. The PEP treated these characteristics

as part of the external political economy.

2.4.2 Negotiation Potential

Firms enter negotiations because there is a perceived opportunity for economic gain.
The potential for gain is affected by 1) the anticipated costs and benefits of an
agreement, 2) the ability of each party to deliver the resources required by the other
party, 3) the cooperative sentiment or commitment existing in the relationship, and 4)

the power/dependence of the organizations (Rinehart and Cadotte 1989).

Prior to engaging in the bargaining activities, the participants need to examine the relative
positioning of the parties in the relationship. The relative positioning of the parties can
be identified by assessing the extent of the conflict that exists in the relationship (Brown
and Day 1981) and assessing the amount of power or dependence that exists in the
relationship (Emerson 1962). It is critically important that the parties accurately measure
their relative positions and recognize the level of dependence that exists unilaterally and
mutually. The level of dependence can vary in response to the number of other parties
that they decide to negotiate with. In the purchasing field, it has been recognized that the
fewer sources that a firm deals with, the greater the amount of dependence in the
relationship (Newman 1989). A firm may artificially increase its level of dependence on

another firm by choosing to deal with only one or a few providers of a good or service

34

The issue that is
perceived by the

of the PEP and u

2.4.2.1 Depend

Dependence is
another firm in
attribute of the
There are two n
1939) The s
emphatsizes tha
film to the tapE
Stem 1972). n
coIlsidered to
emphaSiZed in

 

the “‘16 permr

lflhat SOUrCe

AnderSOn an,

 

 

The issue that is predominant at this stage of the negotiation is the level of dependence
perceived by the negotiators. This construct was drawn from the internal polity section

of the PEP and will be discussed in the following section.

2.4.2.1 Dependence

Dependence is defined as the firm’s need to maintain the channel relationship with
another firm in order to achieve desired goals (Frazier et a1. 1989). It is the primary
attribute of the internal polity structure dimension of the PEP (Stern and Reve 1980).
There are two main approaches to explain the basis of a finn’s dependence (Frazier et a].
1989). The sales and profit approach developed by El-Ansary and Stern (1972)
emphasizes that the greater the percentage of sales and profit contributed by the source
firm to the target firm, the greater the target’s dependence on the source (El-Ansary and
Stern 1972). In addition, the difficulty of replacing the source due to switching costs was
considered to contribute to dependence levels. These switching costs are also
emphasized in transaction cost analysis which views transaction specific investments to
be the source of switching costs that lead to dependencies. The second major approach,
the role performance approach, maintains that a firm will be more dependent on a source

if that source performs its role well and if there are few alternative sources.

Anderson and Narus (1990) moved beyond the idea of “simple dependence” (a finn’s

perceived dependence on a working relationship) to consider the use of “relative

35

    
   

dependence.” Th

between its own .

Gundlach and (.
dyndically. The

economic exchai

 

achievement of l
motivations, bel

into two dimens

The magnitude
existing in 1T1
Pffisented by
“Emmy i:
N()Ordewelr I
Supplier’s de

l

2.4.3 Negol

E «

aih “Egon.
preparation
partleS, the

Stralegles

dependence.” They viewed the firm’s relative dependence to be the perceived difference

between its own and its partner’s dependence on the working relationship.

Gundlach and Cadotte (1994) expanded upon that logic by looking at dependence
dyadically. They asserted that firms become interdependent as a result of engaging in
economic exchange to obtain resources that are out of their control, but necessary to the
achievement of their goals. Thus, the degree of interdependence affects each party’s
motivations, behaviors, and perceptions in the exchange. They broke interdependence

into two dimensions: magnitude and relative asymmetry (Gundlach and Cadotte 1994).

The magnitude of dependence is represented as the sum of dependence of both parties
existing in the relationship (Gundlach and Cadotte 1994). The second dimension
presented by Gundlach and Cadotte (1994) is asymmetry of dependence. Relative
asymmetry is defined as the comparative level of dependence in an exchange.
Noordeweir et a1 (1990) measured both the buyer’s dependence on a supplier and

supplier’s dependence on a buyer on a five-point scale (Noordeweir et al. 1990).

2.4.3 Negotiation Preparation

Each negotiator will go through some level of preparation during a negotiation. That

preparation includes the collection and synthesis of the information available to the

parties, the establishment of goals for the negotiation, and the development of the

strategies used during the bargaining.

36

Goals must be es'
organization mus
be classified inte
However, each
(Anderson and .\

issues to be disc

Smegies are rl:
include who sh.
the Strategies ,r
deveIOped 50 ll

lSSue at this 51;:

to CXhlbit Wile:
settled Upon £1l
nature and STZ'I

be Offered.

 

Goals must be established for the negotiation at two levels (Druckrnan 1973). First, each
organization must determine the desired nature of relationship. Those relationships can
be classified into transactional, relationship and ownership systems (Williamson 1975).
However, each of these types of relationships requires a different negotiation goal
(Anderson and Narus 1990). Second, goals must be established for each of the individual

issues to be discussed.

Strategies are then developed for the bargaining activities (Rubin 1983). Those strategies
include who should be involved, when and where bargaining should take place, and how
the strategies will be implemented during bargaining. Strategies must be explicitly
developed so that each bargaining session occurs without unexpected outcomes. A key
issue at this stage of the negotiation is to decide upon the proper level of c00perativeness
to exhibit when working with the other party. Afler a general negotiating style has been
settled upon, additional considerations may include the initial positions to be taken, the
nature and size of concessions to be offered, and the amount and kind of information to

be offered.

2.4.3.1 Cooperative Orientation

After an assessment of the situation, negotiators will address questions concerning their

preferred negotiating style. Personal and personality characteristics of the negotiators are

highly influential in the negotiation process because both the buying and selling activities

37

of organizations

may serve as 3 pr

In their compreb
that a key délet'
bzgainers. The
ones bargaining
19.5L One suc‘

the behaviors r:

 

Rm (1950) st;
Obixt‘lhe proct

In other “0sz

of organizations are performed by individuals who represent those organizations. They

may serve as a precursor to the eventual establishment of a certain type of relationship.

In their comprehensive review of negotiation prior to 1975, Rubin and Brown concluded
that a key determinant of negotiation outcomes is the motivational orientation of the
bargainers. They defined motivational orientation to be an attitudinal disposition toward
ones bargaining opponent, ranging from individualistic to cooperative (Rubin and Brown
1975). One such disposition is the cooperative orientation of a negotiator. This is one of
the behaviors represented in the internal polity process section of the PEP. Stern and
Reve (1980) stated that “cooperation can be represented as a joint striving towards an
object-the process of coalescing with others for a good, goal or value of mutual benefit.”
In other words, two parties working together in a joint fashion toward their respective

goals.

Perdue and Summers (1991) used the cooperative orientation of purchasing agents as a
construct in their study of negotiation strategies (Perdue and Summers 1991). The
cooperative orientation referred to the purchasing agent’s level of concern for the
supplier’s welfare and dedication to the goal of providing suppliers a fair return. This
concept also appears in Deutsch’s work where he describes it as the display of a positive

interest in the welfare of the other party as well as one’s own welfare (Deutsch 1973).

38

2.4.4 Net-30‘1““

Bargaining act“
The interaction
tlhchardson 19-
issue h." implet‘
their positions ‘
issue. The Pan
behaviors 0f 1h

. I
parties to iss.

agretfmfim.

Negotiating st;
self-centered
developed a t}
' Collabora‘
Competiti
Sharingc
Accomm

Avoidanr

 

2.4.4 Negotiation Implementation (Bargaining)

Bargaining activities comprise those events that occur when the parties are interacting.
The interaction includes position development, issue discussion, and finalization
(Richardson 1977). Bargaining is a circular process that the parties go through on each
issue by implementing an initial position on an issue, discussing the issue, modifying
their positions through concession activities, and coming to a final agreement on each
issue. The parties must address the environment in which the bargaining takes place, the
behaviors of the negotiators, the terminology used by the parties, and the reactions of the
parties to issues presented. Culmination of these activities results in unofficial

agreement.

Negotiating styles during the negotiation implementation phase range from an aggressive,
self-centered approach to a cooperative, relationship oriented approach. Thomas
developed a typology of five types of negotiation styles (Thomas 1976):

0 Collaborative-attempting to satisfy both parties completely.

0 Competitive-attempting to satisfy oneself completely at the other’s expense.

0 Sharing-compromising

o Accommodating-attempting to satisfy the other fully at the expense of oneself.

o Avoidant-withdrawing from the interaction.

39

 

Another early ty
bargaining tactic
structuring (Wal
focuses on mani]
closely to Thom
idcnllffi'ng and
style. Finally, tl
first two tactics

The most com
coliaborative s
3dV€TSarial cm
the parties' In
infomalion in

This Style is m

 

Perdue and S
St}’1e and thel
mattrial €031
buying finn’sl
formal planm

bu .
. thEIr fella;

  

Another early typology was provided by Walton and McKersie, who categorized the
bargaining tactics into distributive bargaining, integrative bargaining, and attitudinal
structuring (Walton and McKersie 1965). The distributive bargaining style primarily
focuses on manipulating and modifying the positions of the other party and corresponds
closely to Thomas’ notion of a competitive style. The integrative bargaining focuses on
identifying and searching for a problem solution that is similar to Thomas’ collaborative
style. Finally, the attitudinal structuring tactics fall somewhere in the middle between the
first two tactics and are aimed at influencing the opponent’s cognition through shifting

rewards and punishments.

The most commonly used style in negotiations between customers and suppliers is the
collaborative style, followed by the competitive style (Perdue et a1. 1986). In an
adversarial environment there will be a tendency to limit information exchange between
the parties. In a cooperative environment, however, the parties will more freely exchange
information in order to arrive at a mutually beneficial agreement (win-win outcome).

This style is more likely to result in a longer-term agreement (Heide and John 1990).

Perdue and Summers (1991) further investigated the relationships between bargaining
style and the six characteristics of the purchase context. These characteristics were
material cost sensitivity of the buying firm, supplier competition, uniqueness of the
buying firm’s specifications, buyer’s cooperative orientation, information possession, and
formal planning. The negotiating stance adopted by industrial buyers was characterized

by their reliance on either a problem solving style of bargaining or an aggressive style.

40

  

The problem soft
joint assessment
which negotiate
concessions fror
the contextual c'

negotiations.

Ganesan Worke.
negotiation str;
(Ganesan 1993
Of Purchasing
compromising,
Showed that th
V2“”th but
namely PaSSiv
Strategy is an
0pPOsite Parr
pershfisive ar

the negative

GarlCSan {O u?

 

The problem solving style is typified by a search for alternative courses of action and the
joint assessment of consequences. Aggressive bargaining is characterized as the extent to
which negotiators stand firm in their positions and use tactics designed to elicit
concessions from the other party. The results of the study demonstrated the abilities of
the contextual characteristics to predict the negotiation strategies in any particular set of

negotiations.

Ganesan worked with the same type of framework to investigate the relationship between
negotiation strategies and relative power, long-term orientation and issue importance
(Ganesan 1993). Research in buyer-supplier relationships showed that the vast majority
of purchasing agents surveyed utilized only the three styles of problem solving,
compromising, and aggressive (Day et a1. 1988). Ganesan’s (1993) results not only
showed that there were relationships between the strategies and the previously mentioned
variables but also indicated that there were two dimensions of aggressive strategy,
namely passive aggressive strategy and active aggressive strategy. An active aggressive
strategy is an active behavior potentially designed to deliver negative outcomes to the
opposite party, as opposed to the passive aggressive strategy that utilizes threats,
persuasive arguments, and punishment without the pre-designed intention to bring about
the negative outcome. Most firms are reluctant to use these aggressive tactics and

Ganesan found that they were typically reserved for only the most important issues.

41

  
  
 

hhile there are r
assessed in the

contract formali:
2.4.4.1 Level

Negotiation Sty
manner similar
influence strat.
Consequences
tactics such a
mechanisms
Nevin 1974}
The urge Of ‘
to make I
afiliVillCS.
mediate t}

Olapel-tutti s

Coercim.l 5

re “
tel-mt

While there are many attributes of negotiation implementation, two that can be accurately
assessed in the classroom simulation context are the level of coercion and degree of

contract formality. A discussion of these two attributes follows.

2.4.4.1 Level of Coercion

Negotiation styles used during the negotiation implementation stage can be viewed in a
manner similar to the influence strategies presented in the marketing literature. Coercive
influence strategies refer to “mechanisms for gaining target compliance through negative
consequences” (Gundlach and Cadotte 1994). Coercive strategies include the use of
tactics such as punishment, threats, and demands. Non-coercive strategies are defined as
mechanisms that reference or mediate positive consequences for compliance (Hunt and
Nevin 1974) and include rewards promises, recommendations, and information exchange.
The use of these strategies will have an impact on the ultimate willingness of the supplier
to make transaction specific investments and participate in supplier development
activities. Recent research seeks to show that such a governance perspective may
mediate the relationship between manufacturer relative dependence and distributor

opportunism (Anselmi and Marquardt 2000).

Coercion is an influence strategy based on the utilization of power. Research on power is
rooted in the bases of power classification proposed by French and Raven (French and
Raven 1959). These bases included reward power, coercive power, legitimate power,

referent power, and expert power. More recently, researchers have argued for a

42

distinction bent e.
Summers 1984;

different influet

 

 

promises, threats
differ in two res;

lhOSC that alter \

In 3 Similar VC
Concerning intrz
on Coerci‘.e inte
SOfi-COCT'Cl\.e st

(threats and let

The negotiati
common Chat
relationship-
which pm”
(Stern and

Channels Cl
dysfunQfiO

@QC‘S id‘

distinction between the possession of power and the actual use of that power (Frazier and
Summers 1984; Gaski 1984). Frazier and Summers (1984) go on to delineate six
different influence strategies: requests, information exchange, recommendations,
promises, threats and legalistic pleas. They suggest that these six influence strategies
differ in two respects: 1) those that are coercive versus those that are non-coercive and 2)

those that alter versus those that do not alter a target’s perceptions.

In a similar vein, strategies were broken into a three-way classification in a study
concerning intra-firm relationships (V enkatesh et al. 1995). They based their grouping
on coercive intensity: 1) non-coercive strategies (requests and information exchange), 2)
soft-coercive strategies (recommendations and promises), and 3) hard coercive strategies

(threats and legalistic pleas).

The negotiation strategies, styles, and tactics reviewed above conceptually share one
common characteristic: they range from an aggressive self-centered pole to a cooperative,
relationship-centered pole. The Political Economy Paradigm asserts that the way in
which power is used within a channel will clearly affect the sociopolitical processes
(Stern and Reve 1980). One of the original propositions posits that “in marketing
channels characterized by imbalanced power, the use of coercive power will produce a
dysfirnctional level of conflict. The level of coercion utilized is one of the behavior

aspects identified in the internal polity section of the PEP.

43

2.4.4.2

The P
intemz
hierari

throng

Mar
bila

L'ni

sta
co:

UP

Er

CC

2.4.4.2 Contract Formality

The PEP asserts that there are internal economic processes operating parallel to the
internal economic structure of a channel. Between the two extremes of markets and
hierarchies “lies a wide variety of structures in which the market mechanism is modified
through some kind of formal or informal contractual arrangements between the parties”
(Stern and Reve 1980). Contract formality is defined as the extent to which the
agreement was formal, explicit, and detailed rather than informal, vague, or loose (Mohr

et al. 1996).

Market-based transactions obtain performance through formalization. By contrast,
bilateral agreements rely on relational norms and participation to enhance performance.
Unilateral agreements rely both on formal controls and relational norms to obtain desired
levels of performance (Dahlstrom et al. 1996). Etgar goes beyond this to posit that the
stability of intrasystem relationships makes possible the development of specific
communicative language and standard communicative vehicles that facilitate and speed

up transmission of communication (Etgar 1976).

Economists and legal scholars have developed a stream of research exploring the use of
contractual arrangements to explain interorganizational relationships (Rindfleisch and
Heide 1997). According to Transaction Cost Analysis, 3 safeguarding problem arises
when a firm deploys specific assets and fears that its partner may act opportunistically to

exploit these investments. Recent work in TCA theory suggests that firms can safeguard

44

their specific as

pledges and bila“

Transaction cos
contract used in
negotiating writ
contractual pro

Gulati 1995).

 

The contract it
depending on '
mechanism by
face of the 1‘.
Partners See 1

ContraClU a1 S

their specific assets through a wide range of hybrid governance mechanisms such as

pledges and bilateral contracting (Williamson 1991; Williamson 1996).

Transaction cost theorists argue that anticipated transaction costs determine the type of
contract used in an alliance due to worries about opportunism. These include the costs of
negotiating written contingent contracts, monitoring contractual performance, enforcing
contractual promises, and addressing breaches of contractual promises (Joskow 1987;

Gulati 1995).

The contract used for an alliance will be closer to either the market or hierarchy extreme,
depending on the magnitude of the transaction costs (Gulati 1995). The contract is a
mechanism by which firms can protect themselves from a partner's opportunism. In the
face of the hazards associated with alliances, the contracts reflect the risks that the
partners see (Ring and Van de Ven 1992). Firms, to some degree, substitute trust for

contractual safeguards in their repeated alliances

The domain of formalization reflects the extent to which norms of a system are
formulated explicitly, responsibilities are specified, and emphasis is placed on written
contracts (Dwyer and Oh 1987). The formality of a contract reflects the degree to which
an agreement is subject to highly defined conditions. Contractual formality can be placed
on a continuum with a simple letter of intent at one extreme and a long complex legal
document at the other end (Bucklin and Sengupta 1993). If dependence is either very

high or very low, the party may prefer a contract in order protect itself. Contracts are

45

often used to res

ro-marlreting al‘;

The preference

the internal po‘r :

2.4.5 Negotiat

 

 

The last stage
0f the agreemt
from the pro
attained, Ope‘
Chen 3 Cor

hAnderSOD E

2.4.5.1 8‘.

Based or
and affe.

relatiQ“

“see

and t1

often used to restore balance to the relationship. Bucklin and Sengupta (1993) found that

co-marketing alliances prosper when they are relatively structured toward balance.

The preference for a certain degree of contract formality is a type of behavior found in

the internal polity process section of the PEP.

2.4.5 Negotiation Outcome

The last stage of the negotiation process, negotiation outcome, includes the interpretation
of the agreements made during bargaining stage and the assessment of the benefits gained
from the process. Those benefits include prices paid /revenues generated, service
attained, operating costs saved, value achieved and profits gained (Dommerrnuth 1976).
Given a comparison level, such outcomes can affect a channel member’s satisfaction

(Anderson and Narus 1984, 1990).

2.4.5.1 Satisfaction

Based on Anderson and Narus (1990), satisfaction is defined as the overall approval of

and affect toward another party based on an appraisal of all aspects of a firm’s working

relationship with another firm.

The outcome of any negotiation is dependent both on the nature of the conflict problem

and the type of strategy used to solve that problem (Lewicki and Litterer 1985). Channel

46

satisfaction refc
evaluation of t‘.‘

1990). One is

I
continue the It

relationship, \\ ‘1

i
roar). Expar.

partners and to

 

 

Frazier ttassa
satisfaction u
Hegotiation 5
bem‘een a S(

n6 EOTTKIlQn (1

Alternative!
”Operaticn
Significam
Generally.
and lead ‘

hand, Ce

re1at‘10n:

satisfaction refers to either the affective evaluation (Schul et al. 1985) or cognitive
evaluation of the characteristics of the relationship (Frazier 1983a; Mohr and Nevin
1990). One way to tap in to satisfaction is to assess the willingness of the party to
continue the relationship. A willingness to continue enables the expansion of the
relationship, which is one of necessary stages in relationship development (Dwyer et a1.
1987). Expansion refers to the continual increase in benefits obtained by exchange

partners and to their increasing interdependence.

Frazier (1983a) has framed the expansion process as a consequence of each party’s
satisfaction with the other’s role performance and it’s associated rewards. In a
negotiation simulation, Graham (1986) found statistically significant relationships
between a source’s problem solving approach and the target’s satisfaction with the

negotiation (Graham 1986).

Alternatively, dissatisfaction with an exchange partner may hinder morale, impede
cooperation, or precipitate litigation (Hunt and Nevin 1974). This makes satisfaction a
significant criterion for evaluating channel relationships (Dwyer and Oh 1987).
Generally, high levels of satisfaction will have positive consequences for the relationship
and lead to a willingness to increase the dependence on the relationship. On the other
hand, continued dissatisfaction with achieved rewards, along with the perceived
availability of a more desirable exchange partner, will lead to the dissolution of the

relationship (Frazier 1983a).

47

The negotiating
the ways in is
judgments conci|
1994). An int.
negotiation. corl
efficiency and c
their motivatit.
commitment s

established. C

such as the Shit

 

 

The Channels 1
Ski) {OllOWed
SIEp lm'Olt'eg
Satisfaction.

such as pert
Winn-3m to

a ClassrooIT

Satisfamc
AngtmOn
“k8 DErc,

manager

The negotiating process is central to managing interorganizational relationships because
the ways in which agents negotiate and execute a relationship strongly influence
judgments concerning how equitable and efficient the agreement is (Ring and Van deVen
1994). An interorganizational relationship is viewed as a repetitive sequence of
negotiation, commitment, and execution stages, each of which is assessed in terms of
efficiency and equity. In the bargaining stage the parties develop joint expectations about
their motivations and possible investments. The wills of the party meet in the
commitment stage as the terms and governance structure of the relationship are
established. Congruent expectations include areas such as common agreement on norms

such as the sharing of proprietary information (Ring and Van deVen 1994).

The channels literature suggests that channel outcomes consist of two steps, a qualitative
step followed by a quantitative step (Robicheaux and El-Ansary 1976-1977). The first
step involves the impact of channel conditions on qualitative outcomes such as
satisfaction. The second step links the qualitative outcome to a quantitative outcome
such as performance (Mohr and Nevin 1990). Thus, satisfaction can be an important
precursor to performance improvement. Performance improvement can’t be measured in

a classroom simulation, however, so satisfaction will be the outcome measured.

Satisfaction is the focal consequence of working partnerships in the model presented by
Anderson and Narus (1990). They contend that satisfaction is a close proxy for concepts
like perceived effectiveness and may be more predictive of firture actions by partner firm

managers. For instance, Gladstein found that satisfaction leads to the long—term

48

continuation of

appearing in the
2.4.6 Building

The preceding
elements have ‘
by Graham (1‘.
the model acc
Clements app;
and the coope-
“Curs. At thtl
their goals. A
Lastly, the 0

Satisfaction, l|

appearame it.

 

continuation of relationships (Gladstein 1984). Thus, satisfaction is the final construct

appearing in the model.

2.4.6 Building the Model

The preceding discussion has drawn elements fi'om the PEP and discussed how these
elements have been utilized in prior research. Based on the negotiation theory provided
by Graham (1987) and Rinehart et. al. (1988), these elements can now be positioned in
the model according to the order of their appearance in a negotiation process. The
elements appearing prior to negotiation implementation are the assessment of dependence
and the cooperative orientation of the negotiator. Next, the negotiation implementation
occurs. At this time the negotiators exert a certain level of coercion in order to achieve
their goals. A degree of contract formality is also sought in order to achieve those goals.
Lastly, the outcome of the negotiation is assessed, as reflected by the degree of
satisfaction. It can be seen that each construct is positioned according to the timing of its

appearance in the negotiation process.

49

Figure 2.1 The Integrated Base Model

   
 

  

Level of
Coercion

  
 
   

Cooperative Satisfaction

Orientation

   

 
 
 

 
 

Contract
F ormalitv

    

 

 

 

 

 

Antecedent to Negotiation Consequent to
Negotiation Implementation Negotiation
Implementation Implementation

 

 

 

 

 

 

This is the base model that reflects the tenets of the PEP as well as the theory of
negotiation presented by Graham. Specific hypotheses concerning the relationship of
these constructs to each other will be presented in Chapter Three. This base model
completes the first section of the literature review. The second section will expand upon
this model to investigate the potential interaction effect that the type of relationship may

have on the degree of satisfaction derived fi'om the negotiation.

2.5 Relationship Dynamics

The second portion of this dissertation concerns how the effects shown in the model may

vary according to the type of relationship established. For instance, if a party has

50

established an a‘
impact on its

establish a bast
literature on inl
conclusion of ti
hammwt

negotiation imp

Researchers 1]
behavioral orit
has become ”l
S‘310fbehavit
Proi'ided mu;
mempled to

“Change bV

relations in t?-

 

and behavio.’
Social Obli g;
ftpreSem at
(Noordewei:

mutuality. ir

 

established an administered relationship, then high levels of coercion may have a lesser
impact on its satisfaction than if the party has implemented an alliance. In order to
establish a basis for making these kinds of comparisons, it is necessary to review the
literature on interorganizational relationships and present a relationship typology. At the
conclusion of the negotiation, the participants will have formed some type of relationship.
It is posited that the type of relationship formed will moderate the effect of the

negotiation implementation on the degree of satisfaction derived.

Researchers interested in the broad topic of marketing channels began to adapt a
behavioral orientation in the late 1960’s (Brown et al. 1984). Since that time, marketing
has become more relationship focused and the distribution channel has been viewed as a
set of behavioral relationships involving power, conflict and relational norms. Macneil
provided much of the foundation in the area of relational norms (Macneil 1980). He
attempted to distinguish short-term orientations from long-term orientations in business
exchange by paying attention to important norms such as the willingness to continue

relations in the face of trouble.

Relational or social norms are defined to be patterns of accepted and expected sentiments
and behavior that are shared by members of an exchange system and have the force of
social obligation or pressure (Jackson 1966; Birenbaum and Sagarin 1976). Such norms
represent an overarching, complex construct composed of a number of elements
(Noordeweir et al. 1990). They have been operationalized in terms of solidarity,

mutuality, information exchange, flexibility, role integrity, and harmonization of conflict

51

(Macneil l9
Heide and Jr

and Achrol

To fully un
terms of elt
managemer.
interaction '
important a
and Narus

211.2000).

These thre.
literature 1
Customer-s
tlllOlOgy l
lilies, Tilt

2'5'1 This

Trust has

Pant Will

(Macneil 1980; Kaufinann and Stern 1988; Noordeweir et al. 1990; Boyle et al. 1991;
Heide and John 1992; Kaufrnann and Dant 1992; Kaufinann and Stern 1992; Gundlach

and Achrol 1993).

To fully understand supplier-customer relationships, they need to be characterized in
terms of elements that distinguish among them. Much of the literature on relationship
management focuses on the general constructs of trust between the parties, the level of
interaction between the parties, and the commitment of the parties to the relationship as
important attributes of the relationship (Dwyer et a1. 1987; Frazier et al. 1988; Anderson
and Narus 1990; Nishiguchi 1994; Ring and Van deVen 1994; Handy 1995; Rinehart et

al. 2000).

These three relational norms do not constitute an exhaustive set of norms found in the
literature but they are central and representative indicators of relationship structure in
customer-supplier relationships. These attributes will form the basis of the relationship
typology to be utilized in comparing effects found in the model between relationship
types. The attributes operate at both the personal level and at the organizational level, so

both aspects of each will be discussed below.

2.5.1 Trust

Trust has been defined as the belief that a party’s word or promise is reliable and that a

party will fulfill his/her obligations in an exchange relationship (Blau 1964; Schurr and

52

Ozanne1985‘).
relationships a
marketing thec
expense of (it
recognized tru
1986; Shapiro
underlying ele

and Narus 19d

 

Capabilities (i

aSPeCIS follov

2.5.1.1 Per!

The Study
organizing
bem'een ti
1991; “a
ali6cr-bas
Culturalfl
fimctigp
Emmet

\hmug,

Derfor

Ozanne 1985). Trust is a concept that is critical to the foundation of supplier-customer
relationships and has been identified as one of the central constructs in relationship
marketing theory (Morgan and Hunt 1994). The presence of trust can help to avoid the
expense of drafting comprehensive agreements for contingencies. Researchers have
recognized trust’s influence on coordination and control at both institutional (Zucker
1986; Shapiro 1987) and interpersonal levels of organizations (Granovetter 1985). The
underlying elements of trust have been segmented into personal characteristics (Anderson
and Narus 1990; Doney and Cannon 1997; Smith and Barclay 1997) and organizational
capabilities (Ring and Van deVen 1994; McAllister 1995). A brief review of those

aspects follows.
2.5.1.1 Personal Character

The study of supplier-customer relationships has shifted fiom a focus on the
organizational traits associated with relationships to a focus in which personal trust
between the parties has been acknowledged as an important ingredient (Heide and John
1992; Handy 1995). McAllister (1995) concluded that trust occurs in cognitive and
affect-based forms. Cognition based trust has its roots in reliable role performance,
cultural-ethnic similarity, and professional credentials, while the affect-based form is a
function of individual behavior and interaction frequency. Both forms were found to
enhance coordination by lowering administrative costs. Coordination is related to trust
through boundary definition, and reflects the set of tasks each party expects the other to

perform (Mohr and Spekman 1994). Trust has also emerged as an important component

53

       

of supplier'rna
beginning to

l

l

relationships t

Gulati (1995)

 

one’s exchan
I
Customers are
With each 0th
Parties bred
increase tru
CUStomer rt
10 make 21,

1994)_

of supplier/manufacturer relational exchange norms (Young et al. 1993), and firms are
beginning to acknowledge the importance of trust and coordination in cooperative

relationships (Pilling and Zhang 1992; Smith et al. 1995).

Gulati (1995) conceived of trust as “a type of expectation that alleviates the fear that
one’s exchange partner will act opportunistically”. He found that suppliers and
customers are less likely to use equity sharing agreements as they gain more experience
with each other through ongoing relationships. Moreover, greater familiarity between the
parties bred trust, which replaced legal relationships. Investments in activities that
increase trust can lead to significant increases in the quality and duration of supplier-
customer relationships, which firrther increases the likelihood that parties may be willing
to make greater investments in future transactions (Friedman 1991; Ring and Van deVen

1 994).

The idea of trust emerging from prior contact is based on the premise that through
ongoing interaction, firms learn about each other and develop trust around norms of
equity, or knowledge based trust (Shapiro et al. 1992). Interfirm trust is built as firms
repeatedly interact (Good 1988). The larger the number of prior alliances between the
two firms, the less likely are their subsequent alliances to be equity based. Taken
together, the results suggest that firms select contractual forms for their alliances on the
basis not only of the activities they include (i.e. research and development), but also the

existence and frequency of prior ties to a partner.

54

lnterorganizati
lieide 1994i
uncertainty ar.

dosnstream tr

 

and Hunt 199
Trust in a st
(Anderson an
and intends

1994; Doney

2.5.1.2 0r

Organizatic
the needs I
exPeClali Oi
expertiSe,

al. 1992).

TmSl at l

lmPIEmer

1990). 1:,

Interorganizational trust operates as a governance mechanism (Bradach and Eccles 1989;
Heide 1994) that mitigates opportunism in exchange contexts characterized by
uncertainty and dependence. In a distribution channels context, research has shown that a
downstream member that trusts its supplier exhibits higher levels of cooperation (Morgan
and Hunt 1994) and exerts more effort on behalf of a principle (Anderson et al. 1987).
Trust in a supplier also reduces conflict and enhances channel member satisfaction
(Anderson and Narus 1990). Finally, a firm that trusts its suppliers is more committed to
and intends to stay in the relationship (Anderson and Weitz 1989; Morgan and Hunt

1994; Doney and Cannon 1997).

2.5.1.2 Organizational Capability

Organizational level dimensions address the capability of the other organization to meet
the needs of the focal organization. In this sense, trust has been viewed as a belief or
expectation about an exchange partner’s trustworthiness that results fi'om the partner’s
expertise, reliability or intentionality (Blau 1964; Rotter 1967; Pruitt 1981; Moorrnan et

al. 1992).

Trust at this level implies that a firm has the resources available and is capable of
implementing those resources for the benefit of the relationship (Anderson and Narus
1990). For example, a firm’s assignment of specific assets to a relationship can affect the
other party’s interpretation of that firm’s willingness to pursue or continue the

relationship. Research suggests that asset specificity can play a major role in cultivating

55

trust between
deVen 1994).
. .l
uncertainty.
and Jemison
specificity am-

l

it seems p055

 

 

 

 

Which affects
situations ssh

Contracts dd
25.2 Lev e

COmmLmiC
and maria g
during the
time and

fOSleted l3:
Share SChf
clarificzm<

trust between the parties involved in supplier-customer relationships (Ring and Van
deVen 1994). Transaction-specific investments serve as safeguards under conditions of
uncertainty. This phenomenon has also been referred to as "bilateral hostages" (Borys
and Jemison 1989), and suggests that an important linkage exists between asset

specificity and trust.

It seems possible that the organization may well, in aggregate, have a style of behavior,
which affects trusting (Young and Wilkinson 1989). Trust is most likely to grow in
situations where it is given the option of growing naturally, i.e. where there are no written

contracts defining the terms of the relationship.

2.5.2 Level of Interaction

Communication among participating organizations is vital for both initiating interactions
and managing recurrent exchanges (Van de Ven 1976). It has become more important
during the last decade due to the requirements of management programs such as just-in-
time and lean manufacturing. O’Neal found that openness of communication was
fostered by the just-in-time environment (O'Neal 1989). Customers were more willing to
share schedules and plans in both the short term and the long term. In addition, early
clarification of expectations is critical. It is important to interact regularly in the early

stages of the relationship to establish the lines of communication (Ellrarn 1991).

56

lnfom
proact
etcha
511th
long
pant
info

pro

 

Information exchange has been defined as: “a bilateral expectation that parties will
proactively provide information useful to the partner” (Heide and John 1992); “the
exchange of atypical information, particularly long-term forecasting, proprietary, and
structural planning information” (Noordeweir et al. 1990); “the nature (i.e., proprietary,
long term forecasting, product design) and timeliness of information share by exchange
partners” (Anderson and Narus 1990; Pilling and Zhang 1992). In this dissertation,
information exchange is defined as a bilateral expectation that parties will proactively

provide information useful to the partner (Heide & John 1992).

Success in a supplier-customer relationship is partly based on how frequently the parties
interact concerning business activities and the volume of business transacted. At the
personal level, communication fiequency affects each party’s perception of the value
created by the other through time spent communicating with the other party. At the
organizational level, interaction frequency is characterized by the amount of business

transacted between the parties.

2.5.2.1 Communication Frequency

Communication and the sharing of information are fimdamental to most aspects of
supplier-customer relationships (Kapp and Barnett 1983; Mohr and Nevin 1990). Indeed,
it has been proposed that the exchange of information serves to "create" a necessary
environment for these relationships (Weick 1969; Pfeffer and Salancik 1978).

Information also provides cues as to what is considered organizationally important, and

57

provides details on what portions of the environment are monitored by the organization.
In order for the boundary spanner to react appropriately, the organization must have a
good theory of its own reality. Unless this perceived reality is disseminated to the

boundary spanner in a meaningful manner, the information has no utility.

Communication fi'equency captures the utility of this information exchange and is
deemed to be a key indicator of a relationship’s vitality (Handfield 1993b; Mohr and
Spekman 1994). Two important elements of communication between the boundary
spanners include information quality and information participation. Information quality
includes such aspects as the accuracy, timeliness, adequacy, and credibility of
information exchanged (Daft and Lengel 1986; Huber and Daft 1987). Information
participation refers to the extent to which the parties engage jointly in planning and goal
setting (Mohr and Spekman 1994). Macneil (1981) recognized the importance of honest
and open lines of communication for the continued grth of close ties between trading
partners (Macneil 1981). These two attributes are positively related in longer-term

relationships.

2.5.2.2 Business Volume

The frequency of interaction at the organizational level is based on the amount of
business transacted between the parties. Intensive two-way communication concerning
plans, programs, expectations, goal setting, and performance is critical for resolving

disputes and coordinating actions (Amdt 1979). For example, a customer that has a large

58

concenrrat
consumers
gran . eet
transactior

t. . t;
Lii’ Slap};

it is assu

concentration of retail stores generating greater volumes of product sold to ultimate
consumers can demand greater support in the form of more frequent deliveries and
guaranteed product availability from their suppliers. Therefore, the large volume of
transactions and resulting revenues reflects the influence that the customer can have over

the supplier.

It is assumed that the likelihood of a strong relationship between a manufacturer and
supplier increases over time if relational exchange norms emerge between parties that
cause positive outcomes such as guaranteed business volumes. Since contracts can help
establish and insure these relationship exchange norms, we expect that parties to a
supplier-customer agreement rely more readily on formal contracts to capitalize on their

market opportunities evolving from the relationship.

Firms can enhance the chances of alliance success by communicating the advantages of
such an alliance to suppliers and by giving information and assistance (Mohr and Nevin
1990). On the other hand, failure in the alliance building process can be due to the failure
to share information or failure to provide technical assistance. Their research found some
evidence, but not statistically significant, that large suppliers may be more difficult to
entice into forming an alliance. A relationship seems unlikely to form without a bilateral

communication of wants, issues, inputs, and priorities.

59

!~J
'JI

2.5.3 Commitment

The last of the three relational norms to be considered is commitment. Commitment has
been defined in the literature as “an implicit or explicit pledge of relational continuity
between exchange partners” (Dwyer et al. 1987); “a bilateral expectation that a high
value is placed on the relationship (Heide and John 1992); the degree to which the
preservation of the unique and continuing relationship is internalized by the exchange
partners as being important in and of itself” (Boyle et al. 1991); and “the extent to which
the involved parties view the exchange as being important in and of itself” (Kaufinann

and Stern 1988; Dant and Schul 1992).

Commitment is an essential ingredient for successful long-term relationships (Gundlach
et al. 1995). They argue that where credible commitments are jointly pledged, their
presence cultivates shared trust and the development of social norms which in turn work
to maintain the relationship. For instance, cooperation can be increased more readily by
increasing the extent of anticipated future interaction or frequency of contact (Heide and
Miner 1992). Extendedness of the relationship had a large and significant positive effect
on cooperative behavior. This means that expected future interaction in and of itself can
influence cooperative acts in the present. Firms only agree to enter such arrangements

when the expectation of future benefits is present (Dyer and Singh 1998).

60

2.5.3.1 Perceived Dependence

Commitment involves the perception of dependence that one party perceives that they
have on the other, and the amount of investment in time and resources that the
organization makes in the relationship (Gundlach et a1. 1995). Since being introduced
into the channels literature by Stern and his associates (El-Ansary and Stern 1972), based
on pioneering work by Emerson (Emerson 1962), the dependence construct has had a
reasonably prominent role in channels research (Etgar 1976; Frazier 1983a; Frazier et a1.

1989)

Dependence exists when one of the boundary spanners does not entirely control all of the
conditions necessary for achievement of a desired outcome performed by the other party
(Emerson 1962). Resource dependence theory specifies the conditions under which one
unit is able to obtain compliance with its demands when dependence between the parties
is present (Pfeffer and Salancik 1978). Three critical factors that affect the degree of
perceived dependence include the importance of the resource, the extent to which the
group has discretion over it, and the extent to which there are limited alternatives. For
instance, Provan and Skinner (1989) found that dealers of agriculture equipment were
less opportunistic when they depended on a primary supplier, whereas suppliers with
greater control over dealers' decisions exhibited greater opportunism (Provan and
Gassenheimer 1994). Also, Frazier, Gill, and Kale (1989) posit that boundary spanners

ofien employ a number of coercive influences on the other party under various conditions

61

of dependent
2.5.3.2 Or;

C ommitm er
the relation:
ttquipment,

resources, i

1998).

Supplier-ct

 

Dependeng
Strategic h
Spekman
characteri
SOmehO“.

The influ

 

l
by trans;

help eXp'l

to exPlo

 

of dependence, including threats, promises, and legalistic pleas.

2.5.3.2 Organizational Investment

Commitment to a relationship is most frequently demonstrated by allocating resources to
the relationship. These resources may include a manager’s time, money, facilities, or
equipment, etc. These types of resources are often referred to as “asset specific”
resources, in that they are directed specifically toward the other party (Dyer and Singh

1998)

Supplier-customer relationships are less likely to use equity-sharing agreements as they
gain more experience through on-going business with each other (Gulati 1995).
Dependence on a single supplier will be functional only if both companies perceive the
strategic benefits of such an arrangement, for example (Anderson and Narus 1990;
Spekman 1988). Research has shown that the specific pattern of dependence that
characterizes a relationship has implications for how it is organized. Both parties must be
somehow locked in (Heide 1994). To some extent, interdependence between the parties

has been viewed as an extension of equity sharing.

The influence of asset specificity on organizational relationships was originally described
by transaction cost theorists (Williamson 1979), and the concept was later extended to
help explain the formation of "clans" (Ouchi 1980). Theorists have only recently begun

to explore how the commitment of assets influences the nature of supplier-customer

62

relationships. Several studies have found a relationship between resource commitment
and the joint action or continuity between parties within supplier-customer relationships

(Heide and John 1990; Friedman 1991; Yoshino and Rangan 1995).

Credible commitments in the form of asset specific investments help to cultivate trust and
norms while constraining opportunism (Gundlach et a1. 1995). These authors warn,
however, that disproportionate commitments can result in conflict and dissatisfaction,

ultimately leading to opportunistic behaviors.

In his study of the evolution of Japanese keiretsu, Nishiguchi identified four types of
resources that are related to commitment in long term supplier-customer relationships:
physical resources (dies, molds, tooling), site specific resources (e. g. re-located facilities),
dedicated resources (additional investment in generalized production capacity) and
hmnan resources (customer-specific personnel) (Nishiguchi 1994). In contrasting
successfiil and unsuccessful supplier-customer agreements, Nishiguchi found that
successful relationships had greater levels of site asset specificity and three times as
much human asset specificity as their less successful counterparts. Another study found
that in successful relationships the parties invested substantially more in capital asset
requirements, dedicated equipment, and human resources (Dyer 1994). These results
suggest that longer-term relationships tend to be characterized by a willingness of both

parties to commit a variety of different assets to a set of future transactions.

63

The elements of trust, interaction and commitment will be used to differentiate the types
of relationships into which the parties can enter. The specific relationship types derived
from this analysis have been developed by Rinehart et a1 (2000) and will be discussed in

Chapter Three.

2.6 Conclusion

Chapter Two presented a review of the literature related to the current study. The review
examined previous research in the areas of interorganizational relationships and
negotiation. The specific constructs of the model were presented as well as the
conceptual foundation of the model. The attributes upon which a relationship typology
can be built were also discussed. A further explication of the model as well as the
research questions, hypotheses and methods used to fiilfill the study’s research objectives

will follow in Chapter Three.

64

3.1 lntro

This chaptw
for the ml
constructsl

between c

The highll
Participanl

Points in

Three Sta,
1) Befoi
PrftdiSpOE
2) After 2

3) A1Tier
known.

 

CHAPTER 3: RESEARCH EXECUTION

3.1 Introduction

This chapter reviews the research design that is intended to provide a sound theory test
for the model. The test includes consideration of the measurement of the model’s
constructs as well as statistical testing of the hypotheses concerning proposed effects

between constructs.

The highlight of the design is a classroom simulation of the negotiation process. The
participant’s perceptions of the characteristics of the process itself are assessed at three
points in time as the negotiation simulation progresses. The main statistical methods
used were correlation, multiple regression, and structural equation modeling. The results

were interpreted for their managerial and theoretical significance.

Three stages of information collection took place at the following times:

1) Before the beginning of negotiation preparation to assess the participants
predispositions and perceptions of the environment.

2) Afier the group preparation of a negotiation strategy and execution of that strategy.

3) After completion of the simulation when final results relative to the other groups are

known.

65

3.2 Resea

The follo

3.2.1 Ge]

 

A sequen
negotiatio
“'35 count
Each pan

A SlmUla
neEOtiari.
research
0f deten
(Dicksor
envimm
envimnr

(Achrol

 

 

”Sana.

 

3.2 Research Design

The following sections review the study design and provide the rationale for that design.

3.2.1 General Issues

A sequential survey design was employed to obtain data at successive stages of the
negotiation simulation corresponding to the stages presented in the model. The research
was conducted in connection with an undergraduate class at a major research university.
Each participant was asked to complete questionnaires that captured their perceptions at

critical points in time during the simulation.

A simulation such as this provides an excellent method to uncover the dynamics of the
negotiation process, especially individual-level elements. In the channels area, “past
research has not addressed individual-level characteristics in part because of the difficulty
of determining what individuals have a significant impact upon firm-level behaviors”
(Dickson and Weaver 1997). This difficulty can be overcome by utilizing the controlled
environment of the classroom. A classroom simulation also allows access to exchange
environments in a dyadic form, which is important for studying exchange behavior
(Achrol et a1. 1983). Behavioral simulations allow researchers to create interdependent

organizational units and study dyadic relationships under controlled circmnstances

66

(Gundlach

data will b
3.2.2 Sar

Approxin‘
assigned 1
Of groups
manufact
and can:

Appendii
3.23 [l

The Unit
question,
filled On
or had e ll

were inc

 

(Gundlach and Cadotte 1994). Although this dissertation utilized unit analysis, dyadic

data will be available for later analysis.

3.2.2 Sample

Approximately 150 participants were involved in the simulation. The participants were
assigned to groups of two to four members before the start of the simulation. Three types
of groups were established that corresponded to the functions of carriers, distributors, and
manufacturers. Each group was given a set of information to work with in setting goals
and carrying out the negotiation. An example of that information is presented in

Appendix A at the end of the dissertation.

3.2.3 Unit of Analysis

The unit of analysis in this research is the relationship. Participants were asked to answer
questions about each relationship they had forged with another party. Each participant
filled out a questionnaire conceming each relationship that they were preparing to enter
or had entered. Only relationships that existed through all three phases of data collection

were included. A total of 264 cases were ultimately identified.

67

3.3

'The
Eacl
acco
orga
nego:
nflafii
implit
“inch
nzezn

pricing

3.4 c.

TMssa
The cor
ECOl‘tom
COOpera
Laexo
It. tr,
(1984, 3

Stilton”;

3.3 The Simulation Scenario

The simulation replicates an emerging industry that produces a high-tech type product.
Each group is responsible for creating the necessary customer/supplier relationships to
accomplish their market objectives. The team is also responsible for making
organizational decisions that are independent in the context of each customer supplier
negotiation. Through internal discussion, each group must determine the type of
relationship to be achieved with each supplier or customer and consider the financial
implications of these relationships. Profit margin after taxes is the financial criteria upon
which performance is judged. Elements of the operating environment such as facility
size and workforce size have to be established as well as transaction elements such as

pricing and quality level. A copy of the scenario and instructions appear in Appendix A.

3.4 Constructs and Hypotheses

This section addresses the measurement of each construct incorporated into the model.
The constructs used are based primarily on those appearing in the original Political
Economy Paradigm presented by Stern and Reve (1980). Dependence and
c00perativeness are elements appearing in the internal polity section of the fi'amework.
Level of coercion and degree of formalization also appear in the internal polity section.
The treatment of satisfaction is based on the subsequent work of Anderson and Narus
(1984, 1990). The sequence of the appearance of the constructs in the model follows the

structure presented by Graham (1987).

68

A brief re
construct.
where pos
chapter. A

unit analy

The disc
logic thai
base mm
appearing

related tc

The gen

 

3.4.1 l3

Depend
l‘elaijon
market I

of depg

 

compez

 

A brief review of each construct is presented as well as a measurement history of that
construct. The final measures reflect that history and utilize previously tested elements
where possible. Tests of the quality of the measures utilized are addressed later in this
chapter. All of the scales are based upon the perceptions of the individual negotiator. A

unit analysis will be utilized.

The discussion of the constructs is followed by the development of the theory and/or
logic that supports applicable hypotheses. There are five structural hypotheses in the
base model. The relationships between the constructs were illustrated in Figure 1.1
appearing in Chapter One. These will be followed by two supplemental hypotheses

related to the moderator effect of relationship type.

The general research question is: What are the effects of environmental characteristics

and negotiation strategy on the party’s satisfaction with the negotiated agreement?

3.4.1 Dependence

Dependence has been defined to be the target finn’s need to maintain the channel
relationship with another firm in order to achieve desired goals (Frazier et al. 1989). The
market position of a party is an important environmental factor contributing to the level
of dependence. The number of buyers and sellers in the market determines the degree of

competitiveness in the marketplace and whether alternatives are available for a particular

69

product c
I

bear by (

firm deal

its level

providers

This (ll S:
both per-
importari

for exterl

The quc
(1990),

Appendl

 

 

. product or service. This also determines the amount of pressure that can be brought to
bear by one party on the other (Ghaury and Usinier 1996). The fewer sources a target
firm deals with, the greater the amount of dependence. A firm may artificially increase
its level of dependence on another firm by choosing to deal with only one or a few

providers of a good or service (Newman 1989).

This dissertation looks at only the focal party’s level of dependence. This is measured
both perceptually and on the basis of percentage of business. The volume of business is
important because minor relationships may not warrant either the time or effort required

for extensive interaction.

The questions on the scale were culled from articles by Noordeweir, John and Nevin
(1990), Heide (1994), and Gundlach, Achrol, and Mentzer (1995). The scale appears in

Appendix B.

3.4.2 Cooperative Orientation

The cooperative orientation of the participants indicates their willingness to work with
the other party in a cooperative fashion as opposed to an adversarial fashion. Stern and
Reve (1980) stated that “cooperation can be represented as a joint striving towards an
object-the process of coalescing with others for a good, goal or value of mutual benefit.”
In other words, two parties working together in a joint fashion toward their respective

goals.

70

 

Perdue and .
construct in
cooperative
supplier’s w
concept alsc

interest in t‘

The scale

3.4.3 B,

Researcp

the “EEO

Perdue and Summers (1991) used the cooperative orientation of purchasing agents as a
construct in their study of negotiation strategies (Perdue and Summers 1991). The
cooperative orientation referred to the purchasing agent’s level of concern for the
supplier’s welfare and dedication to the goal of providing suppliers a fair return. This
concept also appears in Deutsch’s work where he describes it as the display of a positive

interest in the welfare of the other party as well as one’s own welfare (Deutsch 1973).

The scale used to measure cooperative orientation is drawn fiom Perdue and Summers

(1991) and appears in Appendix B.

3.4.3 Dependence and Cooperative Orientation

Research Question: What is the impact of dependence on the cooperative orientation of

the negotiator?

The Political Economy Paradigm distinguishes between the political and economic
aspects of channel structure while emphasizing the importance of assessing the
interaction of these aspects. The internal polity component of this framework includes
the socio-political forces within the channel, such as the power/dependence balance,

cooperation, and conflict (Robicheaux and Coleman 1994).

71

Stern and Re

 

would be pn
power would
(1994) found
that it was

increased as

 

dependence.

Rinehan and

 

 

Significant cf
the negotiati.
the Opposite
Page 1992 ).
who establj
PartnershipS
the det. 610131

€Xhibit,

In general, ;
becomeS to
concepuJaliz

the COUmerI

Stern and Reve (1980) proposed that, in conditions of balanced power, an interaction
would be primarily cooperative. They posited that channels characterized by minimal
power would exhibit low levels of cooperation. In a simulation, Gundlach and Cadotte
(1994) found that a prepOnderance of the organizational units independently concluded
that it was wise to employ primarily relationship-building tactics. This tendency
increased as pairs of organizations intentionally developed higher levels of mutual

dependence.

Rinehart and Page (1992) found that the negotiator’s perception of dependence has a
significant effect on the amount of influence the other party is allowed to bring to bear on
the negotiation. They also found support for the importance of perceived dependence on
the opposite party as an antecedent of the negotiators influence strategy (Rinehart and
Page 1992). This effect is also supported by the findings of Anderson and Narus (1990)
who established dependence as the antecedent of influence in working channel
partnerships. Both of these studies suggest that the perception of dependence precedes
the development of the negotiator’s attitudes about the level of cooperative orientation to

exhibit.

In general, as the dependence of the target organization increases, the more motivated it
becomes to reach an agreement with the source firm. According to Emerson’s (1962)
conceptualization, the more the focal party depends on its counterpart, the more utility

the counterpart provides and the more difficult it would be to replace that party. In

72

 

general, com

cooperative b

Dependence

of small nun
dependence t
number of 01
Perception 01

relationship.

 

 

 

they Will not|

following h)1

Hypolhesis

Effect on co:

3'4'4 LeVel

Comm? st

TCferenCe Or

1994)' Ac

relationship

irtlluence to

general, competitive bargaining is more likely to occur with low dependence, while

cooperative bargaining is more likely with higher dependencies (Roering 1977).

Dependence is also a factor in Transaction Cost Analysis. Williamson’s (1975) concept
of small numbers bargaining based on dealing with fewer suppliers also contributes to
dependence due to concentrated input or output markets (Williamson 1975). Thus, the
number of other parties with which the focal party intends to negotiate will impact their
perception of dependence and then their predisposition to establish a certain type of
relationship. On the other hand, if the party does not sense a high level of dependence,
they will not feel a need to negotiate cooperatively. For all of the preceding reasons, the

following hypothesis is put forth:

Hypothesis 1: The perceived level of dependence will have a significant and positive

effect on cooperative orientation.

3.4.4 Level of Coercion

Coercive strategies are defined as “mechanisms for gaining target compliance that
reference or mediate negative consequences for non-compliance" (Gundlach and Cadotte
1994). According to Gundlach and Cadotte (1994), interactions in low magnitude
relationships can be quite competitive with participants employing coercive forms of
influence to obtain desired terms. On the other side of the coin, non-coercive strategies

will be used less oflen in these types of low magnitude situations.

73

 

Noncoercivt
positive cons
and Nevin 1‘

are less vola'.

Coercive 501
that they int

sources of p

 

the franchis
Nevin (1985
as the trainii
reward poo

qus'mg lO

Boyle, R01
interaction
“O“‘COerc
lEgal l sric

Summers

aggreSSiv

Non-coercive influence strategies are defined as mechanisms that reference or mediate
positive consequences for compliance, such as rewards and information exchange (Hunt
and Nevin 1974). These strategies are used in high magnitude relationships because they

are less volatile and contribute to strengthening the relationship.

Coercive sources of power can be differentiated from non-coercive sources of power in
that they involve potential punishment. Hunt and Nevin (1974) looked at the actual
sources of power in a franchise relationship, including features such as the right to sell
the franchise and the nature of the franchise agreement [Hunt, 1974 #332. Gaski and
Nevin (1985) took a similar approach as their study included non-coercive activities such
as the training of personnel, giving trade allowances, and providing ordering assistants as
reward power sources. The use of coercive power sources included actions such as

refusing to sell, delaying delivery and taking legal action (Gaski and Nevin 1985).

Boyle, Robicheaux, and Simpson (1992) investigated types of behaviors occurring during
interaction such as making recommendations and promising items, both of which are
non-coercive. Coercive behaviors were measured with scales referring to the use of
legalistic pleas and threats (Boyle et al. 1991). In the purchasing area, Perdue and
Summers (1991) developed scales measuring problem solving tactics as opposed to

aggressive bargaining tactics (Perdue and Summers 1991).

74

The scales
dissertation l
rewards an

mentioned IL

The scale us

W1 appears
3.4.5 pep,

The resean

0n the lCVe

There are
emperaifi
existing n
c00perari‘
before ih
consuuct,
bargaininl
considers

negotiatio

The scales used by Gundlach and Cadotte (1994) have the most relevance to this
dissertation because they were developed for classroom simulation. They also contrast
rewards and promises against threats and punishments similar to the previously

mentioned research.

The scale used for level of coercion has been adapted from Gundlach and Cadotte (1994)

and appears in Appendix B.

3.4.5 Dependence, Cooperative Orientation, and Level of Coercion

The research question is: What are the effects of dependence and cooperative orientation

on the level of coerciveness implemented in the negotiation strategy?

There are two schools of thought concerning the workings of characteristics such as
cooperative orientation. Graham (1986) viewed these types of elements to be pre-
existing negotiator characteristics. He asserts that both negotiator characteristics, such as
cooperative orientation, and situational constraints, such as dependence, are determined
before the negotiation process begins. Rubin and Brown (1985) utilize a similar
construct, called motivational orientation, to describe a bargainer’s attitude toward his
bargaining opponent, ranging from individualistic to cooperative. This school of thought
considers bargainer characteristics to be antecedents of the process related factors in a
negotiation. The power relationship (dependence) is treated as a situational constraint

and considered to be an antecedent along with the bargainer characteristics.

75

The second
characteristi
the eiTect of
firms. The .
intervening
institutional
a rational r
smiled (ml

factors of 4

found to be

This is an i
direct {elm

“hole 510]

 

 

Ofienlallon
Of the ICVQ

cmperatic

pOSitS th;

has been

The second way of looking at these interactions is to view the effect of negotiator
characteristics as a moderator, exemplified by Dickson and Weaver (1997). They studied
the effect of uncertainty in the environment on alliance use in a group of manufacturing
firms. The critical point is that they found a moderator effect of key manager orientation
intervening between uncertainty and alliance use. They base their model upon
institutional theory, which suggests that “alliance formation may not only come about as
a rational response to the environment, but may also be contingent upon taken-for-
granted orientations and cultural norms” (Dickson and Weaver 1997). The individual
factors of entrepreneurial orientation and individualistic/collectivistic tendencies were

found to be moderators of firm level strategic decisions.

This is an interesting contrast in the literature. Dickson and Weaver (1997) show that the
direct relationship between environmental conditions and alliance use does not tell the
whole story. Their results indicate a significant interaction due to key manager
orientations that intervenes between environmental perceptions and alliance use. We
agree with this assessment on the basis of temporal precedence. The negotiator is aware
of the level of dependence in a given situation and this leads him to offer a given level of

cooperation as the negotiation strategy is developed.

Following the temporal sequence of events in the negotiation process, this dissertation

posits that the cooperative orientation of the negotiator is established after dependence

has been assessed and that it will influence level of coercion present in the negotiation.

76

Hypothesis

and negat'w

3.4.6 Con

The seconl
formality.
Perceptior
agreerner
handshal

informa
spectrul
and ser

bfiim’ e

The

for“.

CO“«

Hypothesis 2: The cooperative orientation of the negotiator will have a significant

and negative effect on the level of coercion used in negotiation.

3.4.6 Contract Formality

The second aspect of negotiation strategy implementation to be measured is contract
formality. The formality of the contract is measured based upon the participant’s
perception of the degree of detail and formal contractual terms appearing in the final
agreement. The groups were given the option of concluding the negotiation based on a
handshake, a short form contract, or a long form contract. The handshake is the most
informal way to conclude the negotiation and also the least costly. At the other end of the
spectrum, the long form contract contains specific stipulations concerning the product
and service level required and it is the most expensive. The short form contract falls in

between the handshake and the long-form contract.

The domain of formalization reflects the extent to which norms of a system are
formulated explicitly, responsibilities are specified, and emphasis is placed on written
contracts (Dwyer and Oh 1987). The formality of a contract reflects the degree to which
an agreement is subject to highly defined conditions. Contractual formality can be placed
on a continurun with a simple letter of intent at one extreme and a long complex legal

document at the other end (Bucklin and Sengupta 1993).

77

 

The scale us
Nevin (199t

specific que

3.4.7 Depe

 

 

 

The researc

on the degrt

The Contrac
depending
meChanism
face of {ht
Partners pg
finns, 10

alliances.

andVand

FOllOWinE
1308115 tha
has been :

negotiatic

The scale used to measure contract formality is based upon the work of Mohr, Fisher, and
Nevin (1996) investigating collaborative communication in interfirm relationships. The

specific questions appear in Appendix B.
3.4.7 Dependence, Cooperative Orientation and Contract Formality

The research question is: What are the effects of dependence and cooperative orientation

on the degree of contract formality implemented in the negotiation strategy?

The contract used for an alliance will be closer to either the market or hierarchy extreme,
depending on the magnitude of the transaction costs (Gulati 1995). The contract is a
mechanism by which firms can protect themselves from a partner's opportunism. In the
face of the hazards associated with alliances, the contracts reflect the risks that the
partners perceive. Ring and Van de Ven developed a set of propositions asserting that
firms, to some degree, substitute trust for contractual safeguards in their repeated
alliances. They did not, however, provide empirical support for these propositions (Ring

and Van de Ven 1992; Ring and Van deVen 1994).

Following the temporal sequence of events in the negotiation process, this dissertation
posits that the cooperative orientation of the negotiator is established after dependence
has been assessed and that it will influence the degree of contract formality present in the

negotiation.

78

 

«ah—fl __ w

 

llypotbesi-

and negati

3.4.8 Sati.

Based on
approval 0
affective e'
the relatior

 

 

 

exPartsion

de‘fi 0pm e

The SCale
(1997). A

“995), an

negotiati‘

Hypothesis 3: The cooperative orientation of the negotiator will have a significant

and negative effect on the degree of contract formality used.

3.4.8 Satisfaction

Based on Anderson and Narus (1984, 1990), satisfaction is defined as the overall
approval of and affect toward another party. Channel satisfaction refers to either the
affective evaluation (Schul et al. 1985) or cognitive evaluation of the characteristics of
the relationship (Frazier 1983a; Mohr and Nevin 1990). One way to tap in to satisfaction
is to assess the willingness of the party to continue the relationship. This enables the
expansion of the relationship, which is one of necessary stages in relationship

development (Dwyer et a1. 1987).

The scale used to measure satisfaction was adapted from the work of Smith and Barclay

(1997), Anderson and Narus (1990), Gaski (1986), Kumar, Scheer and Steenkamp

(1995), and Brown, Lusch and Smith (1991). It appears in Appendix B.

3.4.9 Level of Coercion and Satisfaction

The research question is: What is the effect of the level of coercion implemented in the

negotiation on the negotiator’s satisfaction with the negotiation?

79

Channel p-
power resr
informatior
whereas th

1992). .

Mohr. Fis
Communjc;

Collaborat

 

addition rd
Coercive c:

AddlllOn;
and Ne‘v’i:
negative

amolint

coercion

Channel power base research has consistently demonstrated that the use of coercive
power results in more negative target attitudes than the use of expert, referent or
information power. The threat or use of punishment has a negative effect on satisfaction,
whereas the provision of assistances is related positively to satisfaction (Scheer and Stern

1992)

Mohr, Fisher, and Nevin (1986) presented results indicating that collaborative
communication differentially affects outcomes under various types of governance.
Collaborative communication lists non-coercive content as one of its key elements (in
addition to frequency, bi-directionality and formality) (Mohr and Nevin 1990). Non-
coercive content refers to the use of influence strategies based on information sharing, in
which compliance is not mediated by the other party. Satisfaction, as reflected by the
dealer’s evaluation of the characteristics of the relationship, was one of the outcomes

measured by this research (Mohr et al. 1996).

Additional support for the general effect of coercion on satisfaction is provided by Gaski
and Nevin (1985). They found that the exercise of coercive power sources has a stronger
negative effect on satisfaction than the mere presence of coercive power (Gaski and

Nevin 1985).

Coercion is measured from the viewpoint of the focal party. This also suggests the total
amount of coercion existing in the negotiation. When one party establishes the use of

coercion in a conflict situation, the other party is likely to respond in kind, which will

80

intensify the conflict rather than resolving (Stern and Gonnan 1969). In a similar vein,
Thomas concluded that the behavior of the other party is to some degree a result of the
behavior of one’s own party (Thomas et al. 1972). Extending this logic, cooperative
behavior tends to elicit cooperative behavior and coercive behavior tends to elicit

coercive behavior.

Further support is provided by Frazier and Summer’s (1986) findings that manufacturer’s
use of coercive strategies related positively to the dealer’s use of coercive strategies and
manufacturer’s use of non-coercive strategies related positively to dealer’s use of non-

coercive strategies (Frazier and Summers 1986).
For the more dependent party, tolerance over coercion derives from the receipt of
important resources (Frazier et a1. 1989), a lack of alternatives, lower status, or a greater

interest in sustaining the relationship (Anderson and Narus 1990). Thus the following

hypothesis is proposed:

Hypothesis 4: The level of coercion implemented in the negotiation will have a

significant and negative effect on the degree of satisfaction.

3.4.10 Level of Contract Formality and Satisfaction

The research question is: What is the effect of the degree of contract formality

implemented in the negotiation on the negotiator’s satisfaction with the negotiation?

81

 

The role 0
with resp
affords (
formalize
environrr
discussec

behavior

Rindfleis
mechani:
355611 th;
is Uncle;
fOurld th
tends to
Conflict
i“Veslig

IElation:

fOr f0”

.8111},ane

The role of formal and informal agreements has become of interest to alliance researchers
with respect to the level of loyalty, cooperation, trust, and success that the agreement
affords (Lassar and Zinn 1995; Frankel et a1. 1996). Exogenous safeguards and
formalized contracts are favored over exclusive reliance on trust in uncertain
environments (Ring and Van deVen 1994). The benefits of a written contract were
discussed by Bucklin and Sengupta in terms of designing desired patterns of partner

behavior and extracting penalties from failure to perform (Bucklin and Sengupta 1993).

Rindfleisch and Heide ( 1997) assert that the specific effects of different governance
mechanisms have not been well documented by previous research. For instance, they
assert that hard contractual provisions may serve as effective checks on opportunism but
is unclear what other effects this mechanism may have. Young and Wilkinson (1989)
found that a high level of formality in a contractual relationship (i.e. written contract)
tends to produce more conflict than an unwritten contract (Young and Wilkinson 1989).
Conflict, a major contributor to dissatisfaction, was apparent in all relationships
investigated where there was a written contract controlling the major aspects of the

relationship.

Ring and Van de Ven (1992) proposed that informal contracts would serve as a substitute
for formal contracts when trust is exhibited (Ring and Van de Ven 1992). Both
manufacturers and materials suppliers ranked written contracts as low contributors to

alliance success with a neutral mean response. Indicators of informal contracts such as

82

trust were viewed to be stronger contributors to alliance success. Case studies have
provided evidence that formal written contracts can potentially hinder alliance practice

(Frankel et al. 1996).

This leads to the following hypothesis:

Hypothesis 5: The level of contract formality will have a significant and negative

effect on satisfaction.

3.5 Relationship Structure

As a follow on to the basic model, the effects of coercion and contract formality on
satisfaction are also interpreted in light of the relationship actually embarked upon by the
parties. Aggregate data may not be meaningful in the basic model because the effects
may operate differently depending on the type of relationship entered into. For instance,
if the parties are engaged in a specialty contract, the size of the impact of contract
formality on satisfaction may be smaller than if the parties are engaged in an alliance. In
order to get a clear picture of the effects, each relationship will be classified according to
the relationship types described in the following section. The model will then be
analyzed to compare the effects between categories. The relationship categories are
determined based on a cluster analysis reflecting the three criteria presented in the
literature review. Due to the nature of the typology, the categories do not fit on to a

continuum and the relationships will be treated as a categorical variable.

83

The factors that distinguish customer-supplier relationships have traditionally been
modeled as a framework or continuum that compares and contrasts various types of
interorganizational behavior (Gundlach and Murphy 1993). Transaction Cost Analysis
conceptualizes relationships along a market to relationalismto hierarchy continuum
(Williamson 1985). Heide (1994) developed a typology characterized by three ideal

relationship forms: market, unilateral/hierarchical, and bilateral.

In a similar fashion, Gundlach and Murphy (1993) present a framework of relationships
based upon the polar archetypes of discrete and relational exchange. Market government
situations rely on market forces and typically entail single, short-term exchange events.
These relationships are often characterized by traditional purchasing practices such as
arm’s length contracting and low levels of information exchange. In contrast, relational
exchange involves transactions where the market forces do not play such a central role.
Emphasis is placed upon purposeful cooperation as parties form a mutually agreed upon
governance structure. These relationships can be governed either by informal agreements

or more formal contractually centered agreements.

Cannon and Perreault (1999) treated relationship type as a categorical variable in their
presentation of a relationship typology (Cannon and Perreault 1999). Their review of
relationship typologies showed that prior conceptualizations had been based on the
assumption that lower order factors are all highly correlated and can be combined to form

an underlying relationship continuum that is unidimensional (i.e. Williamson’s (1975)

84

market versus hierarchy). They modeled buyer-seller relationships as a simultaneous
combination of six relationship connectors (dimensions that reflect the behaviors and
expectations of behaviors in a particular buyer-seller relationship). This
multidimensional conceptualization meant that the relationship types could be identified

as clusters but not as points on a continuum.

The relationship fiamework utilized here attempts to add to the work of Cannon and
Perreault (1999) and provide a finer grain classification system based on behaviors.
Establishment of definitional parameters for commonly used relationship terms is of
importance for both practitioners and academics. This dissertation uses a more recent
relationship classification schema developed by Rinehart et a1 (2000). It is based on
elements commonly found in the relationship literature, including the general constructs
of trust between the parties, the level of interaction between the parties, and the
commitment of the parties to the relationship. Each relationship reported by a participant
was assessed based upon the participant’s perception of the level of trust between the
parties, the level of interaction between the parties, and the degree of commitment of the
parties to the relationship. Each of these traits was measured based on a scale requesting
responses from 1 to 7. The scores on each trait used to assign the relationship type
appear in Table 3.1. These scores are based on prior work by Rinehart et. al.(2000) that
utilized data collected from active relationship managers participating in relationship
management seminars and Executive MBA programs to establish the classification

framework.

85

While the dissertation obtained responses from undergraduate students, it was felt best to
utilize the previously established scoring framework to assign the proper relationship
type. Those results were derived from a cluster analysis conducted based upon
responses provided for best, average and worst supplier-customer relationships according
to the professionals. This assured an adequate range of responses to maximize its
theoretical contribution to the discipline and to reduce bias stemming from examining
only good relationships. The seven-cluster solution was tested using discriminant
analysis and was found to offer statistically significant distinct groups. These findings
indicate that relationship differences do exist based on the dimensions of trust, interaction
and commitment. A follow-up Delphi study secured management interpretation of the
correct terms that should be applied to the relationships generated by the original
analysis. The establishment of these terms enhances the existing theory of business—to-
business relationships by testing portions of existing theory in a more integrated manner.
A brief description of each relationship type and its key elements is presented in the

following section.

86

Table 3.1 Relationship Type Scoring Scheme

 

 

 

 

 

 

 

 

Relationship Type Trust Information Share Commitment
Non-Strategic <= 4 <= 4 <= 7
Administered <= 7 > 4 > 4
Contractual 4.0 to 5.5 3.0 to 5.5 3.0 to 4.0
Specialty Contract > 4 <= 4 <= 4
Partnership > 4 <= 4 > 4
Joint Venture <= 4 > 4 > 4
Alliance > 4 > 4 > 4

 

 

 

 

 

Non-Strategic Transactions. This was the most basic cluster and related very closely to
market transactions as outlined in the marketing channels literature. They reflect the
reality of economic based transactions where one or both parties feel little obligation to
the other, ofien due to the existence of alternate sources of supply. These situations
accounted for 16% of the relationships. Non-strategic transactions reflected low scores
on the three elements of trust, interaction, and commitment. A good example of this type
of relationship would be between a purchasing manager and a supplier of easily obtained

MRO items.

Administered Relationship. These situations place a stronger emphasis on managing the

relationship through non-formalized influence strategies. Some level of investment in the

relationship is required to maintain the transaction flows. The scores attained are low in

87

 

the trust area while the scores are above the median on information sharing and
commitment. They comprised 12% of total relationships. An example would be the
relationship between a retailer and a distributor that assists the retailer with product

merchandising.

Contractual Relationship. A broad range of activities is covered by these relationships
that rank the highest in business volume. The need for formalized control over business
activity is reflected in the contractual nature of the agreement. A formal contract reduces
the need for direct communication between boundary-spanners. Contractual relationships
are characterized by mid-range scores on all three elements and constituted 15% of the

relationships. A franchise agreement would exemplify this type.

Specialty Contract Relationship. These are contracts for unique products or services.
They rely on one-to-one interactions in addition to a reliance on trust based upon the
capability of the supplier to perform the needed activity. Specialty contract relationships
are high in trust, but reflect low levels of information sharing and commitment. They are

the smallest segment in this research, comprising 4% of the relationships.

Partnership. This type of relationship tends to rate high on the trust factor and high on
commitment, but below the median on business volume. They may or may not utilize the
formalized control of a contract. Partnerships spanned a wide range of product-oriented

transactions. They are typified by a supplier who provides a critical component to a

88

customer and delivers it on a weekly basis. 25% of the relationships were labeled

partnerships.

Joint Venture. Some form of financial investment is generally associated with a joint
venture. The perception of dependence by one party on the other is typically great in a
joint venture. They are high in commitment and information sharing but low in trust.

Only 6% of the relationships were joint ventures.

Alliance. Alliance relationships score highly on all three of the behaviors measured.
They are differentiated from joint ventures by the greater level of trust existing in
alliances instead of monetary investment. Alliances possess the highest levels of trust,
interaction frequency, and commitment. They comprise 22% of the relationships in this

study and firms generally reserve them for the most important items.

This research on relationship types only partially supports the continuum perspective
appearing in the marketing channels literature. Non-strategic transactions, contractual
relations, and strategic alliances represent a progression from limited trust, limited
interaction frequency, and limited commitment to significant amounts of each between
the parties. The other four relationship types, however, have properties that do not fit on
the continuum. In essence, 48% of the relationships that are managed between suppliers
and customers have properties that do not fit on a continuum. For that reason, the

relationships established in the simulation will be treated as a categorical variable. The

89

effects of coercion on satisfaction and contract formality on satisfaction found in the

model will be analyzed on a category-by-category basis.

3.6 Supplemental Hypotheses

As a follow on to the results gained from the basic model, the regression coefficients of
coercion and contract formality on satisfaction will be interpreted in light of the
relationship actually embarked upon by the parties. This may be more useful than
aggregate data because the regression coefficients found in the model may vary in size
depending on the type of relationship into which the groups enter. In order to get a clear
picture of this interaction, each relationship will be classified according to the
relationship typology presented above and the regression coefficients will be analyzed to
compare the effect sizes between relationship categories. The relationship categories are
determined based on the previously discussed cluster analysis reflecting the attributes of
trust, interaction, and commitment. Hypotheses concerning the variation of the effects

will be developed below.

Very little research has been done that relates to these types of propositions and empirical
research on channel communication is sparse. The work of Mohr and Nevin (1990) was
directed toward understanding communication strategies and offers guidance in this area.
They developed a contingency theory in which the level of channel outcomes obtained
(i.e. satisfaction) is contingent upon an interaction between communication strategy and

given channel conditions (i.e. relationship type). They worked from the premise that

90

communication in relational channel structures differs from communication in market
channel structures. Relational structures, as defined by Macneil ( 1980), involve joint
planning, a long-term orientation, and high interdependence while market (discrete)
exchanges occur on an ad hoc basis, have a short-term orientation, and low

interdependence.

More specifically, communication in relational channel structures has a higher frequency
and exhibits more bi-directional flows, informal modes and indirect context
(collaborative communication). On the other hand, communication in market channel
structures has lower frequency and more unidirectional flows, formal modes, and direct
context (autonomous communication). In situations where channel members are
provided the necessary and expected communication for the existing channel conditions,
members will experience enhanced outcomes such as satisfaction. Thus, a match has to
occur between the type of relationship and the communication strategy in order to
generate enhanced outcomes. Mohr and Nevin ( 1990) posit that collaborative
communication strategies lead to enhanced outcomes in relational structures while

autonomous communication strategies lead to enhanced outcomes with market structures.

The same type of match has to occur between the negotiation strategy implemented and
the relationship type embarked upon. The facets of negotiation strategy utilized in the
model, level of coercion and degree of contract formality, are very similar to the facets of
communication strategy outlined by Mohr and Nevin (1990). The next sections will

develop hypotheses concerning the interaction effect of relationship type on satisfaction.

91

The following table indicates the cells where enhanced outcomes were found in that

study and form the logical basis for the hypotheses to follow.

Figure 3.1 The Mohr and Nevin Matrix

 

Communication Strategy

 

 

 

 

Channel Conditions Collaborative Autonomous
A. B.
Relational Structures Enhanced Outcomes
C. D.
Market Structures Enhanced Outcomes

 

 

 

3.6.1 Effect Size of Coercion on Satisfaction

Earlier in this chapter, a negative effect of coercion on satisfaction was hypothesized.

This overall effect, however, may vary according to the type of relationship entered.

Bach relationship reported on by the participants will be placed in a category based on the

attributes of trust, interaction frequency, and commitment. The key attribute in this

instance is interaction fi'equency because coercion is a low interaction frequency strategy.

92

 

It is proposed that the effect size (Beta) of coercion on satisfaction as represented by the

regression coefficient will vary based on the relationship type.

Channel members in relational structures such as alliances interact more frequently
because they need to share more information in order to coordinate more closely (Mohr
and Nevin 1990). Conversely, members of market channels are commonly more
independent and require lower frequency of communication. In the context of this
dissertation, coercion reflects a low frequency strategy that requires very little
communication. It is very efficient and requires less effort and resources than non-
coercive techniques. The use of coercion in an alliance would constitute a mismatch
because alliances typically require a high level of interaction. The use of coercion in
non-strategic transactions, on the other hand, would generate enhanced outcomes (or a
less negative effect) because it constitutes a match between negotiation strategies and the
needs and expectations of the parties. Coercion is a low interaction frequency strategy,
so it will have its least negative effect in a non-strategic transaction situation. Alliances
rank highest in interaction frequency, however, so the negative effect will be greater. In
other words, the negative impact of coercion on satisfaction will be greater in alliances

than in non-strategic transactions.

Thus, it is posited that satisfaction is a function of coercion and the interaction of

coercion and relationship type. The main effect of coercion on satisfaction is represented

by the regression coefficient.

93

 

Relationship
Type

1 .

 

 

 

 

 

Coercion Satisfaction

 

 

 

 

 

 

Hypothesis 4a: Given that support is found for H4 (the level of coercion
implemented in the negotiation will have a significant and negative effect on the
degree of satisfaction), the size of the regression coefficients will be significantly
different amongst the relationship categories. For example, the size of the
regression coefficient for Non-Strategic Transactions will be significantly smaller

than the size of the regression coefficient for Alliances.

3.6.2 Effect Size of Contract Formality on Satisfaction

A similar interaction is postulated concerning the negative effect of contract formality on

satisfaction that was hypothesized earlier. Again, this overall effect may vary according

to the type of relationship entered. The key attribute in this instance is trust because a

high degree of contract formality is often utilized when there is lack of trust between the

94

parties. Ring and Van de Ven (1992) asserted that informal contracts would serve as a
substitute for formal contracts when trust is exhibited. It is proposed here that the effect
size (Beta) of contract formality on satisfaction as represented by the regression

coefficient will vary based on the relationship type.

Channel members in relational structures such as alliances tend to rely on more informal
modes of communication because their tighter, more intimate linkages allow for more
informal interactions (Mohr and Nevin 1990). Conversely, members of market channels
are commonly less tightly linked and tend to use more formal modes of communication.
In the context of this dissertation, contract formality reflects a formalized style of
communication. Again, in situations where channel members are provided the necessary
and expected communication for channel conditions, members will experience enhanced

outcomes.

A high degree of contract formality in an alliance would constitute a mismatch because
alliances typically require less formality due to their more intimate ties that are often
based on a high degree of trust. The use formal contracts in non-strategic transactions, on
the other hand, would generate enhanced outcomes (or a less negative effect) because
they constitutes a match between negotiation strategy and the needs and expectations of
the parties. Contract formality takes place in the absence of trust so it will have its least
negative effect in a non-strategic transaction situation because they rank low on the trust
attribute. Groups in relationships that are low on trust will feel a greater need to rely on

the formality of the contract itself. Alliances rank highest in trust, however, so the

95

negative effect will be greater. The negative impact of contract formality on satisfaction

will be greater in alliances than in non—strategic transactions.

 

 

 

 

 

 

 

Relationship
Type
Contract 1 a Satisfaction

F ormality

 

 

 

 

 

 

Hypothesis 5a: Given that support is found for H5 (the level of contract formality
will have a significant and negative effect on satisfaction), the size of the regression
coefficients will be significantly different amongst the relationship categories. For
example, the size of the regression coefficient for Non-Strategic Transactions will be

significantly smaller than the size of the regression coefficient for Alliances.

3.7 Data Analysis

A multi-step approach to data analysis will be adopted in this dissertation. A preliminary

analysis will examine the qualities of the data and measurement sufficiency. This will be

followed by a description of the methods to be used in testing the study’s hypotheses.

96

3.7.] Preliminary Analysis

Prior to examining the research questions and testing the hypotheses, the adequacy of the
sample, descriptive statistics for all variables, measurement reliability and construct
validity will be assessed. Each of these assessments receives treatment in the sections

below.
3.7.2 Sample Adequacy

The size of the sample has a direct impact on the appropriateness and the statistical power
of multiple regression analysis. The number of cases in this simulation totaled up to 264.
According to Cohen and Cohen (1983), this will be sufficient to provide the
recommended power level of .80 while detecting r values as small as .20 at a significance
level of .05. The significance level of .05 will apply to the full sample as well as each

segment of the sample for multiple group analysis.

3.7.3 Descriptive Statistics

Descriptive statistics include means, standard deviations, score ranges and measures of
kurtosis for all continuous variables. Frequencies will be presented for the relationship
types because they are categorical variables. Assessments of univariate and multivariate

normality will also be included to insure the proper estimation technique is utilized.

97

3.7.4 Measurement Reliability

Reliability refers to the consistency, precision, and repeatability of a measuring
instrument (Kerlinger 1986; Kline 1998). An instrument becomes precise by minimizing
the amount of error in measurement. The content of a measure should not be so
heterogeneous that it introduces inconsistency in subjects’ responses. The most common
estimate of reliability is to calculate the internal consistency, or correlation among
measurement items. The most prevalent method of measuring reliability is Cronbach’s
alpha (1951). Construct measurements that exceed a level of .70 for the Cronbach’s
alpha are commonly thought to be acceptable due to high internal consistency (Nunnally
1978). The measurement model will be purified by dropping items with low item-

construct correlations and coefficient alphas will be recalculated.

3.7.5 Construct Validity

The assessment of construct validity is a more thorough evaluation of a construct’s
operationalization than measurement reliability. The basic question is “Are we
measuring what we think we are measuring?” (Kerlinger 1986). Construct validity
concerns whether an indicator actually measures the construct the researcher believes it

does.

98

Peter (1981) emphasizes that construct validity should be assessed by examining its traits.
Construct traits include internal consistency (discussed above in reliability section),

convergence, and discriminability (Peter 1981).

Convergence means “evidence from different sources gathered in different ways all
indicates the same or similar meaning of the construct (Kerlinger 1986 p 421). In order
to have convergent validity, the construct should mean the same thing to different people
in different places. A set of indicators presumed to measure the same construct shows
convergent validity if their intercorrelations are at least moderate in magnitude. When
factor loadings demonstrate that measurement items load significantly on their latent
variables, one has support for convergent validity. Anderson suggests using the
Confirmatory Factor Analysis (CFA) approach to assess the convergent validity

(Anderson 1987).

Discriminant validity refers to the distinctiveness of the factors measured by different sets
of indicators. Variables that are conceptualized differently should be empirically
differentiable. Discriminant validity is supported when a variable does not correlate with
another from which it should differ (Peter 1981). One test of the discriminant validity of
two latent variables is whether the causal path coefficient relating them is significantly
less than one (Bumkrant and Page 1982). If it is less than one, then discriminant validity

is demonstrated.

99

When support for all three traits (reliability, convergent validity, and discriminant
validity) is apparent, one has support for the unidimensionality of the construct
(Anderson and Gerbing 1982). It is imperative that issues of measurement soundness be
resolved prior to testing the hypotheses measurement issues represent the foundation of

any empirical study.

3.7.6 Hypothesis Tests

Consistent with the manner in which the hypotheses have been presented, this section on
hypothesis testing will consist of two parts. In Part 1, several different techniques are
used to assess H1 through H5 concerning the basic model. To test the proposed model of
antecedents and consequences of negotiation strategy implementation, correlation

analysis, multiple regression, and structural equation modeling will be employed.

Correlation analysis simply assesses the relationship between two variables without
controlling for the effects of other variables. It is particularly useful in exploring
relationships that were not hypothesized. Multiple regression analysis is a more
sophisticated technique that evaluates the impact of several variables on a given
dependent variable. In contrast to simple correlation analysis, all other variables included
in the model are controlled for when examining the relationships between the dependent
and any one variable. Given the present form of the hypotheses, regression analysis is an
appropriate method to test the direction and strength of the links in the basic model. All

of the constructs are represented by interval data and the sample size, as discussed above,

100

is acceptable for regression. These analyses will take place as each stage of the
simulation is completed. Lastly, the path model in its entirety will be estimated by using

structural equation modeling.

A second set of tests will also be addressed. These are not fundamental to the basic
model but could reveal additional interesting information. Each relationship will be
categorized into one of the seven relationship types established by Rinehart et a1 (2000)
according to the results of the relationship scale. The regression coefficients relating
coercion to satisfaction and contract formality to satisfaction will then be compared
between groups based on relationship type. Individual regressions will be run using
samples consisting of the cases from each relationship type and a regression coefficient
will be calculated for each relationship type. The regression coefficients will then be
compared using their standard errors and confidence intervals (Cohen and Cohen 1983,p.
109). This method determines whether the two independent (i.e. coming from different
samples) regression coefficients are equal by utilizing their respective standard errors.
Two supplementary hypotheses have been posited that can be tested by this method. This
analysis is appropriate for inquiries of model or parameter stability across settings and
samples. The number of cases falling into each category, however, will not be known
until the simulation is completed so issues of statistical power will be addressed at that

time.

101

3.8 Conclusion

This chapter provided an overview of the research design and method of the study. The
framework of the negotiation simulation and the gathering of the data were discussed. A
discussion of the research questions and hypotheses was followed by an outline of the
preliminary analysis hypothesis testing. Specific measurement scales are listed in

Appendix B.

102

CHAPTER 4: ANALYSIS OF DATA

This chapter presents the results of the research. The first section discusses the
preliminary analyses that assess the sample characteristics and measurement validation.
This discussion is followed by tests of the hypotheses. Each research question is

presented with its associated hypotheses.

4.1 Introduction

A multi-step approach to data analysis is adopted in this research. First, the descriptive
statistics for all scale items are calculated and potential non-normality problems are
assessed. Second, the reliability of the constructs pertaining to dependence,
c00perativeness, coerciveness, contract formality, and satisfaction are evaluated and the
measurement model is purified. Third, tests of the research hypotheses are conducted

through correlation analysis, regression analysis, and path analysis.

Two basic questions are answered in this chapter:

1) Were the proposed constructs measured validly?

2) Were the hypotheses supported by the data?

4.1.1 Characteristics of the Sample

This section examines characteristics of the sample. As prescribed in Chapter Three,

surveys were distributed to students at a large midwestem university. The information

103

was collected at three points in time during the negotiation in order to uncover the

dynamics of the negotiation process:

1) Before the beginning of negotiation preparation to assess the participants
predispositions and perceptions of the environment.

2) After the group preparation of a negotiation strategy and execution of that strategy.

3) After completion of the simulation when final results relative to the other groups are

known.

The participants were able to enter negotiations with another group at time 1 or time 2
and were allowed to discontinue after time 1 or time 2. Some participants started to work
with another party but broke off discussions before negotiations were concluded and
others initiated negotiations later in the simulation. The purpose of the research was to
look into the behaviors of the participants throughout the course of the negotiation so the
analyses of the hypotheses were performed only on cases including participation in all
phases of the simulation (i.e. timel, time 2, and time 3). This resulted in a total of 264

cases that can be followed from beginning to end.

There is some concern that this subset of cases may bias the results of the study. Those
who carried out the negotiation to the end may have a different set of characteristics than
those who dropped out early or those who entered discussions late. For instance, those
who felt they were extremely dependent on the other party might have been inclined to

drop out early. In order to analyze this type of possibility, the cases were segmented into

104

groups based on the extent of their participation in the simulation. T-tests were then
performed to see if there were any differences in the characteristics of these groups. The

groups were broken out as follows:

 

1 Present at time 1 only

 

2 Present at time 1 and 2 only

 

3 Present at time 1, 2, and 3

 

4 Present at time 2 only

 

5 Present at time 2 and 3 only

 

 

 

 

T-test comparisons of means were then performed on for the constructs that were
available at the time each group was still involved in the negotiation. The only pair that
showed a significant difference on any construct was the mean on dependence between
group 2 and group 3. The remainder of the t-tests indicated that there was very little
difference in the characteristics found in each subsample so it is concluded that the extent
of negotiation is not a source of bias. The means on the applicable constructs appear in

the following table.

105

 

 

 

 

 

 

GROUP SIZE DEP COOP COERCE FORM SAT
N=736
1 167 4.04 3.68 NA NA NA
2 88 4.24 3.70 3.15 4.51 NA
3 278 3.91 3.59 3.02 4.37 4.50
4 39 NA NA 3.15 4.37 NA
5 164 NA NA 3.14 4.56 4.46

 

 

 

 

 

 

 

 

 

4.2 Measurement Validation

As discussed in Chapter Three, assessments of the measurement model and satisfaction
with its soundness precede any tests of hypotheses. Critical among the assessments of
measurement model soundness are evaluations of measurement reliability and construct
validity. This section reports the measurement qualities of the data set for the negotiation
simulation across the firll sample of 264 cases. Each case represents a relationship

entered into by a participant and reflects that participant’s perceptions. The participants

were seniors at a major midwestem university.

4.3 Data Quality and Reliability of Constructs

To assess data quality, the means, standard deviations, kurtosis, and skewness of each
item were computed. These were obtained fi'om a Confirmatory Factor Analysis utilizing

EQS software. An overview of the univariate and multivariate characteristics of the data

106

serve as a prelude to an assessment of the measurement scales’ reliability and validity.
The key concern with the data was its conformity to a normal distribution for both
univariate and multivariate cases. This is of concern because the choice of estimation
method in both the measurement model and the path model could be influenced by these
evaluations. The estimation technique of first choice, Maximum Likelihood (ML), is
sensitive to violations of normality so this evaluation is needed. The assumption is that

multivariate normality is desired and this requires univariate normality.

4.3.1 Univariate Descriptives

The descriptive statistics reported by the Confirmatory Factor Analysis include the mean,
standard deviation, range (minimum and maximum values), skewness, and kurtosis.
Table 4.1 below reports the descriptive statistics for each of the study’s 17 measurement

items.

In the first column the variable names for each item are listed. The specific wording of
each variable appears in Table 4.2. The second column contains the means from the
seven point scales used to measure the respondent’s perceptions. Column three displays
the standard deviations associated with each variable while columns four and five show
the range of responses for each item. Skewness and kurtosis of each item are shown in

columns six and seven.

The table illustrates that the variables are normal with means of approximately 4.00

(across the seven-point scales) and low values for skewness and kurtosis. Univariate

107

normality was supported in each instance with no extreme cases of kurtosis (over 3) or
skewness (over 7) (Kline 1998). The largest kurtosis value was -—1.0943, which is well
below the recommended cutoff of 3.0. The largest skewness value was -0.77 82, which is
safely below the cutoff of 7.0. The skewness and kurtosis of the items provide no
indication that the variables used in this research are distributed non-normally, so an
assessment of multivariate normality can proceed. Univariate normality is a necessary,

but not sufficient, condition of multivariate normality (West et al. 1994).

108

Table 4.1 Descriptive Statistics From CFA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item Mean Std. Dev. Min. Max. Skewness Kurtosis
PDEPIR 4.55 1.29 7 -0.0419 -0.2540
PDEPZR 4.13 1.31 7 -0.2186 0.0966
PDEP3R 3.75 1.37 7 0.2523 -0.5261
PCOOP6 3.77 1.25 7 -0.4439 0.3199
PCOOP7 3.51 1.38 7 -0.2957 -0.6223
PCOOP9 3.41 1.40 7 0.0415 -0.2655
PCRC2 3.30 1.38 7 0.1925 -0.4971
PCRC4 2.80 1.47 7 0.4520 -0.8169
PCRCS 3.42 1 .44 7 -0. 1220 -0.9044
PCRC6 2.62 1.44 7 0.5135 -0.5851
PFORMIR 4.18 1.63 7 -0.0744 -0.7708
PFORMZR 4.32 1 .44 7 -0.2436 -0.4041
PFORM3R 4.56 1.70 7 -0.4458 -0.6507
PFORM4R 4.47 1.63 7 -0.2315 -0.6830
PSATZR 4.96 1.51 7 0.7058 0.3081
PSAT3 4.81 1.52 7 -0.6972 -0.0219
PSATS 4.39 1.39 7 -0.2744 0.1004

 

 

 

 

 

 

 

 

 

4.3.2 Multivariate Normality

The Mardia coefficient is a measure of multivariate normality (Mardia 1970; Mardia
1974) that is calculated by Bentler’s EQS software (Bentler 1997). While there is no
exact definition of what is too large, the obtained value of 41.1407 with a normalized
estimate of 13.15 is considered acceptable. The model was run again using the Robust
method and the results were consistent with those of the maximum likelihood method.

The CFI improved slightly, from 0.941 to 0.956 so the model was not greatly affected by

109

non-normality. Therefore, the data is suitable for the use of the maximum likelihood

method of estimation for model fit.

4.4 Measurement Reliability

As stated in Chapter Three, reliability refers to the “accuracy or precision of a measuring
instrument” (Kerlinger 1986). Reliability as demonstrated by internal consistency
essentially asks: “ Are these measurement items measuring the same thing?” Each
construct appearing in the model was measured by multiple items in the questionnaire.

Table 4.2 presents the Cronbach’s alpha coefficients as estimates of reliability.

Systematic tests were undertaken to refine and validate the scales. The item-to—total
correlation for each of the items in the proposed scales was examined following the
suggestions of Churchill (Churchill 1979) and Gerbing and Anderson (Gerbing and
Anderson 1988). Low correlations were eliminated if they did not contribute to the
construct’s explanation or provide additional insight into the domain of interest. To
assess the reliability of the constructs, a coefficient alpha was computed for each
construct (Cronbach 1951). After purifying the measurement model by dropping items
with low item-to-construct correlations, all recalculated coefficient alphas were found to
be adequate. The five constructs in the model that utilize multi-item scales in their
measurement have Cronbach alphas ranging in value from 0.7150 to 0.7690 — all above
Nunnally’s commonly cited cutoff of 0.70 (Nunnally 1978). These constructs
demonstrate reliability as a result of their high levels of internal consistency. Table 4.2

presents Cronbach alpha coefficients as estimates of reliability as well as the item-to-

110

construct correlations. The alpha for trust is also included because, although it is not part
of the model, it was used in the determination of relationship type. The single item
measures of information sharing and commitment were also used only to determine

relationship type and reflect the nature of the latent variable to a substantial degree.

TABLE 4.2 MEASUREMENT RELIABILITIES

 

 

 

 

 

REF. CONSTRUCT AND SCALE Item-to- Alpha
Total
Corr.
DEPENDENCE
0.8034
PDEPlR How dependent are you on this supplier/customer for 0.663
this product/service?
PDEPZR If the other party were no longer available as a
channel participant, what effect would this have on 0.760
your business?
PDEP3R How difficult would it be to replace the other party
with another supplier/customer? 0.732
COOPERATIVENESS
0.7325
PCOOP6 I can’t afford to worry about other party’s profits if 0.701
my firm is to remain competitive in its own markets.
PCOOP7 I look out for my firm; other firms have to look out 0.635
for themselves.
PCOOP9 My job is to obtain the lowest possible total cost to 0.626
my firm whether or not the other party will be able to
make a profit on the deal.
COERCION
0.7392

PCRC2 How often did your team twist the other party’s arm 0.520
in order to obtain their agreement on an issue?
PCRC4 How often did your team threaten to give competitors 0.578
preference over the other party in negotiations?
PCRCS In order to get the other party to agree on an issue, 0.575
how often did your team demand that they comply on
that issue?

PCRC6 In order to get the other party to agree on an issue, 0.571
how often did your team indicate that your personal
relationship would worsen if they did not comply on
that issue?

 

 

 

 

111

 

 

PFORMIR

PFORMZR

PF ORM4R

PF ORM4R

CONTRACT FORMALITY

The terms of our relationship have been written down
in detail.

Our expectations of the other party have been
communicated in great detail.

In coordinating our activities with the other party,
formal contractual terms have been developed.

The terms of our relationship with the other party
have been explicitly verbalized and discussed.

0.699

0.728

0.671

0.564

0.8289

 

PSAT2R

PSAT3

PSATS

SATISFACTION

Our firm’s working relationship with this party has
been an unhappy one.

The other party is a good company to do business
with.

This relationship meets or exceeds our expectations.

0.682

0.711

0.634

0.7595

 

RELATIONSHIP ASSESSMENT MEASURES

 

PRELI

PREL2

PREL4

TRUST

The other party did not mislead us during the
discussions in this negotiation.

I am confident the other party did not take advantage
of us in this negotiation.

The other party was flexible when considering the
range of solutions necessary to come to a mutual
agreement.

0.819

0.852

0.706

0.8668

 

PREL6

INFORMATION SHARING

Please indicate HOW MUCH INFORMATION you
shared with the other party during the duration of this
agreement.

NONE

NONE

 

 

PREL8

 

COMMITMENT

We need this relationship with the other party to
accomplish our organizational objectives.

 

NONE

 

NONE

 

112

 

Table 4.3 Correlations Amorg Indicator Variables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEPl DEP2 DEP3 COP6 COP7 COP9 CRC2 CRC4 CRC5
DEP] -
DEP2 .562“I -
DEP3 .526” .642" -
COOP6 -.024 -.003 .024 -
COOP7 -.l77*"' -.102 -.043 .513“I -
COOP9 -.081 -.027 .040 .502“l .427“ -
CRC2 .001 .040 -.027 -.134"' -.048 -.058 -
CRC4 -.009 -.003 -.098 -.l64*"' -.072 -.105* .405" -
CRC5 .152“ .117“ .003 -.078 .025 -.094 .406" .418” -
CRC6 .150" .078 .105* -.168** -.085 -.095 .372" .445“ .440"
FORMI -.034 .012 -.035 .125“ .091 -.019 -.027 -.102* -.021
FORM2 -.O7l -.055 -.011 .204" .140" .068 -.035 -.111* .031
FORM3 .005 .070 .010 .243” .107* -.009 -.042 -.095 -.027
FORM4 -.062 .016 -.023 .086 -.032 -.078 .030 -.070 -.077
SAT2 .075 .047 .063 -.089 -.088 .027 -.134"' -.l44*"' -.200"”"
SAT3 .097 -.043 .076 -.145" -.005 .000 -.105 -.078 -.099
SAT5 -.003 -.005 .022 -.206"”“ -.173** -.l44 -.025 -.028 -.128*
CRC6 FM 1 FM2 F M3 F M4 SAT2 SAT3 SAT5
DEPl
DEP2
DEP3
COOP6
COOP7
COOP9
CRC2
CRC4
CRC5
CRC6 -
FORMI .011 -
FORMZ .003 .645“I -
FORM3 -.040 .588“ .590“ -
FORM4 -.092 .477“ .527" .489" -
SAT2 -.216"'* .044 .032 .042 .095 -
SAT3 -.126"‘ -.041 .136" .016 .003 .559" -
SAT5 -.102* .011 .053 .030 .074 .472” .506" -

 

 

 

 

 

 

 

 

 

 

113

 

Figure 4.1 THE MEASUREMENT MODEL

 

DEPl

 

 

 

DEP2

 

DEP3

 

 

 

 

  
   

  

S

COOPERATIVENES

 

CRC2

 

 

CRC4

COERCION

 

 

 

 

   
   

CRC5

 

 

CRC6

 

CONTRACT
FORMALITY

  

 

COP6

COP7

COP9

 

FRMl

FRM2

 

FRM3

FRM4

 

 

 

 

 

 

 

 

SAT2

 

 

 

 

 

 

 

SATISFACTION

 

SAT3

 

 

 

114

 

 

 

SAT5

 

 

 

 

 

 

 

4.5 Construct Validity

Whereas reliability assesses the precision in measurement, validity asks whether we are
measuring what we think we are measuring (Kerlinger 1986). Construct validity is the
extent to which a set of items properly represents the concept under study. A thorough
evaluation of the measurement model’s construct validity was performed using
Confirmatory Factor Analysis (CFA) as suggested by Anderson (Anderson 1987). The
measurement model tested appears in Appendix 3. Table 4.3 presents zero-order
correlations among indicator variables as a preliminary assessment of construct validity.
It should be mentioned that PSAT2R is potentially a problem measure because it

correlates very highly with all four measures of coercion.

The primary outputs of the CFA are the assessments of measurement model fit. The
traditional chi-square test indicates how well the model-implied covariance matches the
covariances found among the measured variables in the sample data (Hayduk 1987;
Bollen 1989). Given the sensitivity of the chi-square estimate to biases such as model
complexity and sample size, researchers have developed an array of complementary
goodness-of-fit assumptions (Hu and Bentler 1994). Values exceeding 0.90 are generally
considered acceptable for these indices (Bagozzi and Yi 1988). According to Bentler, the
CPI should be the index of choice (Bentler 1990). Table 4.4 reports the fit statistics for
the measurement model applied to the fill] sample of respondents who replied to the

sequence of three surveys.

115

TABLE 4.4 Fit Statistics for the Measurement Model

 

 

 

 

 

 

 

 

 

 

 

ML ESTIMATE N=264

CHI—SQUARE 177.01 p<.001
NORMED CHI-SQUARE 1.63 (df = 109)
BBNFI 0.877

BBNNFI 0.935

CFI 0.948

Bollen (IF I) 0.949

RMSEA 0.049

90% Confidence Interval of 0.035 to 0.061
RMSEA

 

 

 

The maximum likelihood estimation procedure demonstrates acceptable fit according to
the array of fit indices. The normed chi-square estimate of 1.63 meets the 2:1 ratio for
parsimonious fit. Acceptable fits are also suggested by across three fit indices (BBNNFI,
CFI, IF 1), given values exceeding the 0.90 standard. Most importantly, the CPI of 0.948
is comfortably above the cutoff. Additionally, the root mean squared error of
approximation (RMSEA) falls below 0.05 and thus is considered acceptable (Hair et al.

1998). All of these results indicate good model fit.

Further analysis of the CF A provides assessment of convergent and discriminant
validities. By definition, convergent validity indicates that “evidence from different
sources gathered in different ways all indicates the same or similar meaning of the
construct” (Kerlinger 1986). Primary assessments of convergent validity include an
overview of the CFA factor loadings (larnbdas) and modification indices. Table 4.5
reports the standardized factor loadings and t-values for the measurement model. The

parameter column in the table refers to the factor loading of the measurement item to its

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respective factor. The magnitude of the loadings and the associated t-values indicate that
the items load heavily on their hypothesized factors given that they are all significant at

0.05 level of significance and possess t-values exceeding 1.96.

Table 4.5 Confirmatory Factor Analysis for Measurement Model

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARAMETER FACTOR t-Value STD.
LOADINGS LAMDA
PDEPlR 0.877 11.322 0.679
PDEP2R 1.080 13.889 0.828
PDEP3R 1.061 12.961 0.774
PCOOP6 1.071 12.584 0.813
PCOOP7 0.842 9.310 0.640
PCOOP9 0.830 9.038 0.623
PCRC2 0.812 9.024 0.596
PCRC4 0.957 10.078 0.660
PCRCS 0.940 10.1 1 1 0.655
PCRC6 0.973 10.462 0.668
PFORMIR 1.275 13.868 0.781
PFORMZR 1.177 14.865 0.819
PF ORM3R 1.264 13.031 0.742
PFORM4R 1.034 10.629 0.634
PSATZR 1.113 11.641 0.739
PSAT3 1.143 11.888 0.762
PSAT5 0.917 10.448 0.648

 

 

The Lagrange Multiplier (LM) Test, a modification index, was then used to identify
potential improvements in model fit resulting from measurement respecification, or the
reassignment of items to factors. The LM test showed that the model could be improved

through respecification but none of these changes could be supported nomologically.

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The suggested changes either moved backward in time or ran counter to a priori
characterizations of the construct. Thus, the preponderance of significant loadings and
rational assessments of modification indices provide considerable support for convergent

validity.

Discriminant validity refers to the differentiation among constructs that may be similar
(Kerlinger 1986). Support for discriminant validity can be found by examining the
correlations among independent variables. It must be determined whether the confidence
interval (+/- 2 Std. Errors) around the correlation (phi) between the construct factors
includes one. Discriminant validity among the constructs is supported if one is not
contained in the confidence interval (Anderson and Gerbing 1988). None of the

confidence intervals in these data contain one, so discriminant validity is supported.

Content validity is the assessment of the correspondence of the variables to be used in a
srunmated scale and its conceptual definition (Hair et al. 1998). It is demonstrated in
Structural Equation Modeling by the standardized solution (standardized larndas). All
factors load at 0.592 or above (as shown in Table 4.5) which safely exceeds the minimum

recommended value of 0.500 so content validity is supported.

A final estimation of validity is nomological validity. Nomological validity assesses
how well the summated scale makes accurate predictions of other concepts in the
theoretically based model (Hair et al. 1998). To a large extent, nomological validity is a

judgment call (Kerlinger 1986). A11 constructs have been established in the literature and

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a review of the correlations between the constructs shows basic support for the

nomological validity of the model.

Given a sound overall assessment of the measurement model, the testing of the

hypotheses can now be performed.

4.6 Hypothesis Tests

This section presents the results of primary interest in the study. As previously discussed,
correlation analysis, multiple regression, and path analysis will be used to evaluate the
hypotheses. Each research question is restated below with its accompanying hypotheses
and results. To review briefly, the first set of research questions (H1 thru H5) trace the
antecedents and consequences of the negotiation strategies and is based primarily on the
Political Economy Paradigm (PEP). The second set of research questions (H4a and H5a)
compare the effect sizes of negotiation strategies on satisfaction in the context of the type

of relationship established. This section proceeds by examining each hypothesis in detail.

The proposed model appears again in Figure 4.2. A structural equation modeling
approach will be used to assess the model’s overall goodness of fit using the same criteria
outlined above in the CFA. While the CFA focused on the measurement model, this
analysis focuses on the full model — a combination of the measurement and structural
models. The structural model refers to the hypothesized relationships among latent
constructs. These relationships are represented by hypotheses H1 through H5. The

hypotheses indicate the anticipated presence and direction of effects associated with the

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various model relationships. In order to support each hypothesis, the full model must
first demonstrate acceptable goodness of fit per the criteria above. Given acceptable
model fit, the parameter estimates (gamma or beta regression weights) attached to the
paths of hypothesized relationships must have the anticipated sign (positive or negative)
and be significantly different from zero (as indicated by a t-value greater than 1.96 at an

alpha level of 0.05.

Figure 4.2 The Base Model

 

Level of
Coercion
Satisfaction

   
 

  
 

   

Cooperative
Orientation

 
 

      

Contract
Formality

    

The model proposed in Figure 4.2 obtained the goodness-of-fit statistics reported in Table
4.6 below. These statistics are based on the maximum likelihood estimation method.
The normed chi-square is 1.68, showing a parsimonious fit. The BBNNFI, CF I, and IFI
all exceed the recommended level of .90, which demonstrates acceptable fit. Again, the

CFI is the most important measure and it stands at .941. Given this preponderance of

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evidence, the model seems to fit the data soundly and suggests that one may continue by
examining the model paths that represent the hypotheses. Each hypothesis will be

examined in order.

Table 4-6 Fit Statistics for the Full Model

 

 

 

 

 

 

 

 

 

 

 

 

 

MEASURE ML ESTIMATE
CHI-SQUARE 191.044 p<.001
NORMED CHI-SQUARE 1.680 (df = 147)
BBNFI 0.868

BBNNFI 0.930

CF I 0.941

Bollen (IF I) 0.942

RMSEA 0.051

90% Confidence Interval of 0.038 to 0.063
RMSEA

 

Table 4.7 below presents the results of the full model analysis. The left side of the table
reports the factor loadings of the measurement model while the right side illustrates the
gamma and beta regression weights attached to the model’s hypothesized paths. T-values
over 1.96 are significant. Please refer to the measurement model (Figure 4.1) above for

an illustration of which factors these variables load on.

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Table 4.7 Parameter Estimates for the Full Model

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEASUREMENT MODEL STRUCTURAL MODEL
PARAMETER srn. T- PARAMETER srn. T-VALUE
EST. VALUE EST.

PDEPlR ---a ma F2-F1 -0059 -0.658
DEP-COOP

PDEP2R 1.239 9.859 F3-F2 -0.167 -2453
COOP-CRC

PDEP3R 1.213 9.921 F4-F2 0.263 2.676
COOP-FORM

PCOOP6 ---a ---a F5-F3 -0327 -2.818
CRC-SAT

PCOOP7 0.868 7.519 F5-F4 0.045 0.688
FORM-SAT

PCOOP9 0.857 7.447

PCRC2 ---a ---a

PCRC4 1.184 7.254

PCRCS 1.150 7.226

PCRC6 1.178 7.294

PFORMIR ---a ma

PFORMZR 0.920 12.388

PFORM3R 0.989 11.512

PFORM4R 0.808 9.789

PSATZR ---a ---a

PSAT3 1.036 8.598

PSAT5 0.804 8.380

 

 

 

 

 

 

 

 

a-values for these parameters are not available since they were fixed for sealing purposes.

In Part 1, the testing of the proposed model of antecedents and consequences of

negotiation strategy implementation (H1 thru H5) is accomplished by correlation

122

analysis, multiple regression and path analysis. Decisions to support or refute the
hypotheses in Part 1 will be based on the applicable combination of analyses. In Part 2, a
regression technique is used to evaluate the differences in effect sizes found in groups

based upon relationship types.

4.6.1 Hypothesis Testing—Part 1

Hypothesis 1: The perceived level of dependence will have a significant and positive

effect on cooperative orientation.

It is hypothesized that, consistent with Stern and Reve’s (1980) Political Economy
Paradigm, the more dependent a group is on the other party, the more they will desire to
act cooperatively. Correlation analysis found a negative (-.064) but not significant (p=.
150) relationship between dependence and cooperativeness. The path analysis provided
an estimate of -0.059 for the F1-F2 parameters and a t-value of -0.658, which fails to
provide support for this hypothesis. The t-value does not exceed the t-critical value of

1.96 to demonstrate significance at an alpha level of 0.05.

Hypothesis 2: The cooperative orientation of the negotiator will have a significant

and negative effect on the level of coercion used in negotiation.

This assertion is again based on the PEP, especially the work of Graham (1987)

demonstrating that elements such as c00perativeness are established before the

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negotiation begins and will have an impact on negotiation strategy. Following the
temporal sequence of events in the negotiation process, this dissertation posits that the
cooperative orientation of the negotiator is established after dependence has been
assessed and that it will influence the level of coercion present in the negotiation. This
assertion was borne out by the regression analysis (R = -0.146 and a p=0.001). Thus the

hypothesis is supported.

The path analysis confirms the negative direction of the F2-F 3 relationship (-0.167) and it
does exhibit a significant t-value (-2.543). The data support the assertion that negotiators
possessing a higher degree of c00perativeness will tend to avoid coercive type

negotiation strategies.

Hypothesis 3: The cooperative orientation of the negotiator will have a significant

and negative effect on the degree of contract formality used.

This assertion is also based on the PEP and the work of Graham demonstrating that
elements such as c00perativeness are established before the negotiation begins and will
have an impact on negotiation strategy. Following the temporal sequence of events in the
negotiation process it was posited that the cooperative orientation of the negotiator is
established after dependence has been assessed and that it will influence degree of
contract formality required by the parties. Correlation analysis reveals a significant (r
=0.110, p=0.05) but positive relationship between c00perativeness and contract formality.

The path analysis confirms the positive direction of the F2-F4 relationship (+0.263) with

124

a significant t-value (2.676). The c00perativeness of the party did not lead to a lesser
degree of formality in the contract as hypothesized. Thus, the hypothesis was not

supported.

Hypothesis 4: The level of coercion implemented in the negotiation will have a

significant and negative effect on the degree of satisfaction.

Channel power base research has consistently demonstrated that the use of coercive
power results in more negative target attitudes than the use of expert, referent or
information power. Regression analysis yielded a negative (0-.189) and significant (p=.

001) relationship between coercion and satisfaction.

Path analysis confirmed this with a beta of -0.327 and a t-value of —2.8l8. This supports

the contention that the use of coercion will have a negative effect on satisfaction.

Hypothesis 5: The level of contract formality will have a significant and negative

effect on satisfaction.

As suggested by the PEP, bureaucratic control strategies such as formalization often
create negative sentiments in channels. This hypothesis was not supported by regression
analysis. The direction was the opposite of the hypothesis (+0.079) and not significant
(p=. 120). Similarly, path analysis showed no significance with a beta of 0.045 and a t-

value of 0.688.

125

Table 4-8 Base Model Hypothesis Findings

 

 

 

 

 

 

 

HYPOTHESIS MODEL PATH FINDINGS

H1 DEP-COOP Not supported---non-significant relationship
H2 COOP-COERCE Supported

H3 COOP-CTFORM Not supported-«inverse relationship

H4 COERCE-SAT Supported

H5 CTFORM-SAT Not supported---non-significant relationship

 

 

 

4.6.2 Hypothesis Testing «Part 2

In Part 2, the effects of coercion and contract formality on satisfaction are investigated in

light of the relationship ultimately embarked upon by the parties. The purpose is to see if

the effect size varies depending on the type of relationship entered into. Each case was

classified according to the relationship criteria presented in Chapter 3. Table 4-9 presents

the percentage of cases that fell into each relationship category. These percentages are

compared to percentages obtained in previous research (column 3) using professional

participants (Rinehart et. al., 2000). It can be seen that the percentage of cases in each

category generally follows the pattern found in the previous data.

126

 

TABLE 4.9 RELATIONSHIP TYPE COMPOSITION

 

 

 

 

 

 

 

 

 

RELATIONSHIP TYPE % OF CASES PREVIOUS %

Alliance 22% 16%
Joint Venture 6% 12%
Partnership 25% 12%
Specialty Contract 11% 6%
Contractual 8% 18%
Administered 14% 14%
Non-Strategic Transaction 18% 16%

 

 

 

 

Hypothesis 4a: Given that support is found for H4 (the level of coercion
implemented in the negotiation will have a significant and negative effect on the
degree of satisfaction), the size of the regression coefficients will be significantly
different among the relationship categories. For example, the size of the regression
coefficient for Non-Strategic Transactions will be significantly smaller than the size

of the regression coefficient for Alliances.

As previously discussed, the hypothesized significant relationship between coercion and
satisfaction was confirmed. Further analysis investigated the question of whether size of
the effect varies according to the type of relationship developed. The data were sorted
according to the type of relationship established, based upon the criteria presented in
Chapter 3. A separate regression was run on the cases applicable to each relationship
type. The betas obtained for each relationship type were compared to see if the beta for

non-strategic transactions, for instance, was significantly different from the beta for

127

alliances. Table 4.10 presents the beta, significance, and standard error found for each

relationship type.

TABLE 4.10 H4a BETA TEST (COERCION TO SATISFACTION)

 

 

 

 

 

 

 

 

 

 

RELATIONSHIP N BETA SIG B STD. SIG. Z SCORE
TYPE (P=) ERR. DIFF.

0 OVERALL 264 -0. 1 86 .002

1 CONTRACTUAL 39 +0.268 .124 .144 .091 CT vs PT 2.45

CT vs AL 2.11

2 SPECIALTY CT 10 +0.154 .571 .132 .222

3 JOINT VENTURE 17 +0.104 .733 .098 .281

4 ADMINISTERED 31 +0.104 .568 .108 .188

5 NON-STRATEGIC 43 -0.084 .594 -.075 . 140

6 ALLIANCE 59 -0. 184 .168 -.122 .087

7 PARTNERSHIP 65 -0.240 .059 -. 143 .074

 

 

 

 

 

 

 

 

 

 

The betas found within relationships were then tested to see if they were significantly
different. This test is found on page 111 of Cohen and Cohen where they assert “It is
possible to test the null hypothesis that two independent B’s (i.e. coming from different
samples, 1 and 2) are equal by utilizing their respective standard errors. . ..The test for the
difference in standardized partial betas proceeds in exactly the same way” (Cohen and
Cohen 1983). The difference between the two betas is divided by the square root of the
sum of the squared standard errors of each. This results in a z score that is referenced to
the normal curve table to obtain the probability. A z score of 1.96 or above constitutes
support for the hypothesis that there is a difference between two betas. The significant 2
scores are shown in the far right column of Table 4.10 along with the groups that showed

differing effectsizes. These subsamples were derived by dividing a larger sample

128

according to classification on relationship type. These can still be considered
independent samples because the overall sample was randomly selected. Dependent
samples are most commonly seen when each sample has the same subjects but the

measurements for the two samples occur at different times (i.e. repeated measures).

The pairs that showed a significant difference in effect size were: a) contractual when
compared to partnerships and b) contractual when compared to alliances. An analysis of
the confidence intervals of the betas for these pairs confirms that the betas are indeed
different. Although the confidence intervals for these pairs do show some overlap, it is
clear that estimate of the beta for the contractual group lies above the upper limit of the
confidence intervals for both partnerships and administered relationships. The beta for
the contractual group is +.144 while the upper bound for alliances is +.053 and the upper
bound for partnerships is +.005. The 95% confidence intervals for the pairs that had

significant 2 scores appear below.

 

 

 

 

 

Category B Lower Upper
Bound Bound
Contractual +.144 -.041 +.329
Alliance -. 122 -.297 +.053
Partnership -.143 -.291 +.005

 

 

 

 

 

The rationale for this hypothesis is that in situations where channel members are provided

the necessary and expected information communication for the existing channel

129

conditions, members are predicted to experience enhanced outcomes (Mohr and Nevin
1990). The use of coercion in an alliance or a partnership is not the expected form of
communication, so it was predicted to have a negative effect on satisfaction. The more
cooperative nature of a partnership or an alliance typically calls for a more collaborative
style of communication. When a coercive style is used instead of the expected
collaborative style a decrease in satisfaction may be expected. Contractual relationships,
however, had a beta that was shown to be different from the betas for alliances and
partnerships. These are interesting results because they indicate that a negotiation
strategy such as coercion may have a more negative effect on satisfaction in the context
of some types of relationships, particularly those that require a high degree of

coordination and information sharing.

Since both tests indicated a significant difference in the betas among category pairs, H4a

is confirmed.

Hypothesis 5a: Given that support is found for H5 (the level of contract formality
will have a significant and negative effect on satisfaction), the size of the regression
coefficients will be significantly different amongst the relationship categories. For
example, the size of the regression coefficient for N on-Strategic Transactions will be

significantly smaller than the size of the regression coefficient for Alliances.

130

The hypothesized relationship between contract formality and satisfaction was not
significant. Thus, the hypothesis was not supported and further analysis was not

performed.

4.6.3 Post Hoc Analysis

A post hoc analysis was performed on the regression data using the relationship category
subsamples to ascertain if the effect sizes occurring earlier in the model varied in a
fashion similar to that seen in the previous section. While conclusions cannot be drawn

from this analysis, it may provide a fruitfirl avenue for future research.

In the earliest stage of the model, Hypothesis 1 asserted that there would be a positive
relationship between dependence and cooperative orientation. Although the effect was
not significant when using the whole sample, some differences in effect size did appear
when broken out by relationship category. The effect of dependence on cooperative
orientation was negative and significant for alliance type relationships. The beta for
alliances was different was different from the betas for both non-strategic and contractual

relationships. The results are shown in Table 4.12.

131

TABLE 4.11 POST HOC (DEPENDENCE TO COOPERATIVE ORIENTATION)

 

 

 

 

 

 

 

 

 

RELATIONSHIP N BETA SIG B STD. SIG. Z
TYPE Q=) ERR. DIFF. SCORE
OVERALL 264 -.064 .150

1 NON-STRATEGIC 43 +0.231 .068 .257 .169

2 CONTRACTUAL 39 +0.172 .148 .129 .122

3 SPECIALTY 10 -.038 .459 .060 .569
CONTRACT

4 ADMINISTERED 31 -.091 .313 -.105 .213

5 PARTNERSHIP 65 —. 141 .131 -. 140 .124

6 JOINT VENTURE 17 -.l42 .294 -.l37 .247

7 ALLIANCE 59 -.264 .022 -.251 .122 AL vs NS 2.42

AL vs CT 2.19

 

 

 

 

 

 

 

 

 

 

 

Hypothesis 2 posited a negative effect of cooperative orientation upon the level of
coercion used in the negotiation. This hypothesis was supported but, again, a further
breakdown provides interesting information. Alliances showed an especially strong
negative effect between the two factors. The beta for alliances was -.416, which is
significant and also proved to be different from the beta for contractual relationships
(+.072). This differentiation continued through the last stage of the model where
alliances and contractual relationships also showed different betas in the coercion to
satisfaction analysis. A potential explanation is that those who intended to form an

alliance early inn the negotiation process avoided the use of coercive strategies.

132

TABLE 4.12 POST HOC (COOPERATIVE ORIENTATION TO COERCION)

 

 

 

 

 

 

 

 

 

RELATIONSHIP N BETA SIG B STD. SIG. Z
TYPE (P=) ERR. DIFF. SCORE
OVERALL 264 -. 146 .009

1 CONTRACTUAL 39 +072 .332 .107 .244

2 ADMINISTERED 31 -.016 .467 -.019 .224

3 PARTNERSHIP 65 -.071 .288 -.095 .169

4 NON-STRATEGIC 43 -.152 .1 l6 -. 162 .165

5 JOINT VENTURE 17 -.308 .115 -.414 .330

6 ALLIANCE 59 -.416 .001 -.530 .153 AL vs CT 2.21

7 SPECIALTY 10 -.503 .069 -.645 .392
CONTRACT

 

 

 

 

 

 

 

 

 

 

 

Hypothesis 3 established a positive and significant relationship between cooperative
orientation and contract formality. Further analysis by category shows that the effect in
the contractual relationships (-.241) is different from the effect in both alliances (+.204)

and partnerships (+.196). The results are shown in Table 4.13.
It is interesting to note that alliance type relationships have consistently been the polar

opposite of contractual relationships as far as differences in effects among the

relationship categories.

133

TABLE 4.13 POST HOC (COOP. ORIENT. TO CONTRACT FORMALITY)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RELATIONSHIP N BETA SIG B STD. SIG. Z
TYPE (P=) ERR. DIFF. SCORE
OVERALL 264 +. 1 10 .009

l SPECIALTY 10 +609 .031 1.277 .589
CONTRACT

2 ALLIANCE 59 +204 .061 +290 .184

3 PARTNERSHIP 65 +. 196 .059 +31 1 .196

4 NON-STRATEGIC 43 +095 .272 +. 103 . 167

5 ADMINISTERED 3 1 -.003 .494 -.005 .33 1

6 JOINT VENTURE 17 -.006 .491 -.013 .462

7 CONTRACTUAL 39 -.241 .070 -.522 .346 CT vs AL 2.07

CT vs PT 2.09
4.7 Summary

This chapter presented the results of the research. The chapter began by examining the
characteristics of the sample. A review of the sample characteristics found the sample

size to be adequate in number for analytical power.

The chapter then examined descriptive statistics of the measured variables. A review of
the means, skewness and kurtosis indicated that the variables are normally distributed.
The preliminary data analysis continued by assessing the construct’s reliability,
convergent validity, and discriminant validity. It was concluded that the constructs in the

model exhibited sound reliability and validity characteristics.

Hypothesis testing proceeded by analyzing the results of correlation analysis, multiple
regression and path analysis. Two of the five hypotheses in the base model were
supported with effects that were significant and in the hypothesized direction. The

supported paths were from c00perativeness to coercion and from coercion to satisfaction.

134

The path from cooperativeness to contract formality was significant but in the opposite

direction of the hypothesis.

Attention then turned toward the analysis of the effect sizes to see if relationship type
moderated the beta between coercion and satisfaction. It was found that there was a

difference between the betas of several of the relationship types.
In sum, support was found for several key aspects of the model posited in this

dissertation. The theoretical and managerial implications of these findings will be

discussed in Chapter Five.

135

CHAPTER 5: IMPLICATIONS AND CONCLUSIONS

5.1 Introduction

Conclusions from this research offer a number of important insights into issues that are of
significant managerial as well as theoretical interest. First, the findings help delineate
negotiation strategy for both the academic community and practitioners in terms of
environmental antecedents and potential consequences of negotiation strategy. Second,
the cooperative orientation of the negotiator was shown to be a driver of negotiation
strategy . Third, an important link between negotiation strategy and satisfaction with the
negotiation outcome was substantiated. And finally, the outcome implications of

negotiation strategy are further refined based on relationship type.

This chapter reviews the implications of the data analysis and presents the contributions
of the research. In the following sections, three major themes and the associated
substantive conclusions are discussed from two perspectives: managerial and theoretical.
Each theme addresses issues first raised in Chapter 1. The document concludes with a

review of limitations of the study and directions for firture research.

5.2 Overall Model Significance

The first objective of this study is to gain an understanding of the operation of the
negotiation process and how it can impact the subsequent development of the customer-

supplier relationship. The Political Economy Paradigm (Stern and Reve 1980) provided

136

the guidance for the development of a model from which the hypotheses were postulated.
The theoretical model was built and tested regarding the relationships among
environmental factors, personal characteristics, negotiation strategies, and outcomes as
they pertain to customer-supplier relationships (Rinehart and Page 1992). Figure 5—1
presents a summary of the findings revealed from testing the hypotheses set forth in the
base model. Only relationships found to be significant and in agreement with the
hypothesis have been included in the diagram. From the pattern of significant

relationships, three major themes are identified and discussed.

In addition, the outcomes stemming from a particular negotiation strategy are modeled
based on the type of relationship established. Recent research has placed greater
emphasis on exploring the behavioral elements of differing interfirm relationships (Ring
and Van de Ven 1992; Heide 1994). This line of research is furthered as the relationship
typology utilized in this dissertation is based on behaviors occurring during the course ”of

a negotiation.

137

Figure 5.] Confirmed Findings

 

Relationship Type
Contractual to Partnership“
Contractual to Alliance“

Satisfaction

 

 

 

 
   
 

  
  
   

Level of
Coercion

      

Cooperative
Orientation

 

 

-.167* -.327*

 

 

 

 

 

 

138

5.2.1 Theme One:

Elements of the environment, including personal characteristics, do have an impact

on the negotiation strategy implemented.

This portion of the research linked the antecedents of negotiation strategy to the
implementation of elements of that strategy. Hypothesis 2 addressed the question of
“What are the effects of dependence and cooperative orientation on the level of coercion
implemented in the negotiation strategy”. Coercive strategies are defined as
“mechanisms for gaining target compliance that reference or mediate negative
consequences for non-compliance" (Gundlach and Cadotte 1994). It was found that
cooperativeness has a significant negative effect on the level of coercion used in the
negotiation. Graham viewed elements such as cooperativeness to be pre-existing
negotiator characteristics (Graham 1986). He asserts that negotiator characteristics, such
as cooperative orientation, are determined before the negotiation process begins. These
are not just personality orientations, however, because negotiation strategies adopted by
bargainers are shaped by a variety of factors in addition to stable personal traits (Putnam
and Wilson 1982). The results of this dissertation provide additional support for the
Political Economy Paradigm, which would have predicted such a negative relationship

between cooperativeness and coercion.

The managerial implication of this finding is that the atmosphere maintained in a

department can have an effect on the negotiation strategies used. A group that stresses a

139

cooperative attitude will tend to use less coercion in their negotiations. For instance,
purchasing departments at major retailers that are short-term oriented tend to resolve
conflicts with vendors by using aggressive strategies (Ganesan 1993). Frank’s Nursery
and Kmart are examples at opposite ends of the spectrum of aggressive versus problem-
solving negotiation strategies. Frank’s promoted a corporate orientation that promoted
the use of aggressive negotiation strategies such as coercion. Relationships in the Frank’s
supply chain tended to be tempestuous and short-lived based on the author’s personal
experience. The corporate culture at Kmart, however, encouraged more of a problem-
solving orientation that refrained from using active aggressive strategies such as coercion,

based on the author’s personal observations.

As the following sections point out, aggressive strategies using high levels of coercion
can ultimately have a negative effect on the relationship, as measured by the satisfaction
derived from a transaction. As firms continue to outsource a larger percentage of their
needs, the impact of such outcomes is heightened. Therefore, it is important that buyers
and relationship managers understand how best to accomplish their relationship goals.

The findings in this study help to achieve that understanding.

5.2.2 Theme Two:

The level of coercion utilized can have an impact upon the degree of satisfaction

obtained from the negotiation.

The general question here is “How does the negotiation process impact the subsequent

development of the relationship?” From a supply chain management viewpoint, a

140

successful relationship strategy will result in both parties feeling satisfied and thereby
encouraged to continue working with each other. Hypothesis 4 addresses the general
question of what are the consequences of utilizing a particular negotiation strategy
(coercion) on the future of the relationship. This link has implications that pertain to
managers representing both customers and suppliers. It is an important question for
practitioners because companies are increasingly striving to develop closer, more
cooperative relationships with key suppliers and key customers (Monczka et a1. 1998).
They are seeking to adopt a higher level of cooperation and maintain trading relationships
over a longer period of time (Spekman 1988). Innovative managers worldwide are
experimenting with a myriad of approaches to make relationships with their business
suppliers and customers more productive and enduring (Cannon and Perreault 1999). As
firms strive to develop and maintain these high trust relationships, it is critical to know
exactly what kind of effect that the implementation of strategies such as coercion will

have on a relationship.

The use of power has to be a part of a finn’s negotiation strategy. As firms pursue
longer-term agreements they still need to exert some form of control. For instance,
automakers have recently been requesting 5% annual decreases in price from suppliers.
This means that the relationship becomes an ongoing negotiation as continuous
improvements are sought in pricing as well as performance. Different sources of power
can have varying short and long-term effects on a negotiation and on a relationship. The
decision to use coercive power is most likely related to the power holder’s perception of

the willingness of the other party to comply (Monczka et. al. 1998). The repeated use of

141

this power can have damaging effects on the longer-term relationship between parties.
Thus, the extant knowledge is that coercion has a negative effect on a relationship and

that general effect has been empirically confirmed in this dissertation.

The findings of this study, however, go beyond just this general effect. What we have
learned here is that the effect of coercion can vary depending on the relationship type.
This means that managers must be flexible in their approach to negotiation. Negotiation
strategies will have to be adapted to fit the relationship circumstances encountered. If an
alliance with the other party is what makes sense in a given set of circumstances, then a
coercive strategy should not be utilized. On the other hand, if a non-strategic relationship
is what makes sense, then a coercive strategy may be effective. Specific tactics must also
be flexible within the context an individual negotiation. A tactic used in the discussion of
one issue in a negotiation may or may not be successful when another issue is being

discussed.

In the theoretical domain, Frazier has framed the expansion process of a relationship as a
consequence of each party’s satisfaction with the other’s role performance and it’s
associated rewards airazier 1983a). Similarly, Ganesan maintains that “each negotiation
episode is one of a sequence of episodes that constitute the relationship between the
retailer and vendor. The outcomes from a specific negotiation involve not only the
agreement and related consequences such as total concessions and profits, but also
residual emotions such as satisfaction or fi'ustration with the outcome” (Ganesan 1993).

He was able to conclude that a retailer’s use of a problem-solving strategy is positively

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related to satisfaction but could not support his assertion that aggressive strategies are
negatively related to satisfaction. The results of this dissertation provide some additional
support for the contention that satisfaction is diminished by the use of coercive strategies.
The amount of variance explained (R squared = 0.04), however, is rather small so it is
necessary to go one step further and see if this effect has been masked by other variables.
The work of Mohr and Nevin (1990) on the expected and effective mode of
communication for a given type of relationship offers explanatory potential. The
following section explores the possibility of an interaction effect that relationship type

may have with the effect of coercion on satisfaction.

5.2.3 Theme Three:

The impact of coercion on satisfaction varies depending on the type of relationship.

Hypothesis 4a stipulates that, given the significant and negative effect of coercion on
satisfaction, the size of the regression coefficients will be significantly different among
the relationship categories. Although there was an overall negative effect when using
all of the cases, it was found that the size of the effect was significantly different in two
instances when the cases were split out by relationship type. When coercion is used, both
partnerships and alliances show a more negative effect on satisfaction than found in
contractual relationships. This may well be the most important finding of the
dissertation. It helps to clarify and provide more detail to the effects found in the base

model and gives the research a more strategic orientation.

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A major contribution of the dissertation is the demonstration that negotiation strategy is
not a “one size fits all” concept. Different strategies may work better or worse depending
on the relational circumstances. A useful starting point for managers handling a
transaction or a relationship would be to determine what type of relationship is desirable.
They can then design their negotiation strategy to fit these circumstances by utilizing
methods that are expected and effective. For instance, if an alliance were the desired
relationship, coercion would not be an acceptable negotiation strategy. There is also a
prescriptive aspect of the findings because they can be used as the foundation upon which

recommendations concerning negotiation strategies for given situations can be based.

A portfolio of relationships is available to managers, so it is beneficial to remember that a
highly collaborative relationship, such as an alliance or a partnership is not always the
goal. The subcontracting of an unimportant assembly operation, for example, may be
most effectively handled by a contractual relationship on terms dictated by the buyer.
This is a case where coercion may not have a negative impact because it is an expected
and effective means of communication. The point is that the negotiation strategy can be
tailored to the demands of a particular set of circumstances. From a managerial
standpoint, it becomes evident that a strategy that has a negative impact in one type of
relationship can have a more positive impact in another type of relationship. It depends
on the type of relationship that makes sense in a given set of circumstances and what the
expectations are in that type of relationship. Table 4-10 in Chapter Four revealed the

difference of effect sizes when the cases were split out by relationship type.

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While the study demonstrated findings of importance to managers and policymakers,
fellow researchers will benefit fi'om the findings as well. The importance of power in
understanding customer supplier relationships was recently addressed in a special issue of
The Journal of Supply Chain Management (Spring 2001) was devoted to the power
perspective in procurement and supply management. Cox argued that there can be no
“best practice” based on any one way to conduct customer-supplier relationships (Cox
2001). The findings of this dissertation help to provide some empirical support for that
perspective. Both buyers and sellers need to make apprOpriate choices about how they
conduct themselves in exchange relationships. Effective choices about relationships can
only be made when power structures within these complex sets of extended relationships
are understood. The relationship management approaches that are effective within one
regime may not be appropriate in another. “Rather than focusing on the development of
one approach, as appears to have been the case with partnering or alliancing in recent
years, it is essential for practitioners and academics alike to understand the full range of
relationship management choices available and to choose wisely among them (Cox

2001).”

This dissertation helps to fill that gap in the literature by bringing to light the mechanisms
operating in several relationship types that have not garnered much attention lately.
Contractual, non-strategic, and administered relationships have not received the attention
that has been given to alliances and partnerships. This is an oversight, however, because
an estimated 48% of all business relationships would be considered non-collaborative

(Rinehart et al. 2000). Many firms now establish a portfolio of relationship strategies

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based on market criteria and product importance. Alliances and partnerships would
exemplify collaborative strategies that entail the parties adopting a high level of
purposeful cooperation to maintain a trading relationship over time. It is useful to know
how negotiation strategies such as coercion operate in each type of relationship in order
to maintain efficiency and effectiveness while working with a wide range of

relationships.

The work of Mohr and Nevin (1990) was directed toward understanding communication
strategies in a variety of channel circumstances and served as the basis for Hypothesis 43.
They developed a contingency theory in which the level of channel outcome obtained
(i.e. satisfaction) is contingent upon an interaction between communication strategy and
given channel conditions (i.e. relationship type). They worked from the premise that
communication in relational (collaborative) channel structures differs fi'om
communication in market channel structures. This train of thought was supported by the
findings of Hypothesis 4a - the data support the hypothesis that the effect of coercion on

satisfaction does vary by relationship type.

A low interaction frequency negotiating strategy such as coercion is expected and
effective in some types of relationships or channel structures so it could have a different
impact upon satisfaction in certain situations. Major retailers often work with hundreds
of suppliers and thousands of items each day. Efficiency in communicating the necessary
information to conclude the transactions is necessary, so taking a strong leadership

position and even dictating requirements is often an expected mode of interaction.

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Insisting that a vendor improve its information processing capability or utilize particular
software programs would be two examples of actions that may be required of vendors in
order to continue selling to that retailer. This is coercive in nature because the loss of
business is implied. Because it is expected and efficient in these channel conditions,
however, the potential negative effect on satisfaction of such coercion is not as great as it
would be if the parties were engaged in an alliance where such coercion constitutes a

mismatch.

A similar situation appears when examining the impact of contract formality upon
satisfaction. Although the effect was not significant when considering all cases, the
impact could be seen to vary when the sample was split according to relationship type, as
shown in Table 4-11. Parties that entered into contractual relationships tended to show
dissatisfaction with these arrangements, while those in administered relationships showed

less dissatisfaction.

The results in this section of the dissertation also lend support to Cox’s (2001) assertion
that collaboration is not always the only choice available for managing suppliers and it is
not always the best choice. The effect of the use of coercive mechanisms in contractual
relationships was significantly different than the effect its use in both partnerships and
alliances. A more thorough understanding of the power structure in a relationship and its
impact on negotiation strategy and negotiation outcomes can lead to more effective and

efficient means of managing relationships.

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5.2.4 Relationship Dynamics

Another benefit to theory stemming from this work is that it provides exposure for a new
categorization of relationship types (Rinehart et al. 2000). The criteria for defining
relationships in this dissertation are based upon behaviors occuning during the
interaction between the parties. This provides a convenient method for categorizing these
relationships and further refines the relationship framework proposed by Cannon and
Perreault (2000). In addition to being based upon behaviors identified during the
negotiation, this new categorization is further supported by a follow-up Delphi study that
secured management interpretation of the correct terms that should be applied to the
relationships generated by the original analysis. The establishment of these terms
enhances the existing theory of business-to-business relationships by testing portions of

existing theory in a more integrated manner.

5.2.5 Additional Applications of This Research

This research has ramifications in several additional areas. In the purchasing discipline,
negotiation plays an important role in supply management. Buyers need to be able to
identify other’s negotiating styles and recognize their own style in order to conduct
effective discussions and manage relationships. It is also important that they understand
cultural differences when preparing for and conducting negotiations. This will also have

an impact on post-negotiation measurement and subsequent negotiations on issues that

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arise such as continuous performance improvement. The negotiation strategies and
behavioral elements identified in this dissertation will help managers to recognize these

styles.

When awarding business it is often necessary to evaluate the potential of a supplier to
form a collaborative relationship such as an alliance and to identify barriers that may
exist to the formation of this type of relationship. Suppliers need to be evaluated for
relationship fit at the same time that capability and performance potential are assessed.
For example, NAPM offers several seminars on supplier relations that address key
supplier management skills such as: how to be a good customer, how to communicate
requirements, and how to manage ongoing relationships. This dissertation contributes in
this area by identifying strategies that can be used to maintain a competent supply base.
The study has examined two prominent negotiation strategy choices available to
relationship managers, coercion and contract formality. Other choices would also include

concession behavior, supplier development efforts and supplier integration.

Suppliers achieve excellence when they work with excellent customers. Supplier
development remains in the hands of the purchaser’s procurement and quality
departments. The Association for Manufacturing Excellence surveyed suppliers to
determine what characteristics they use to describe a “Best Customer.” The negotiation
and award process were among the characteristics named by these suppliers (Moody

1992).

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The current trend in purchasing recommends moving beyond transactional relationships
in the development of strategic supply fulfillment. The question needs to be asked: What
are my real objectives? Can they be achieved by a less collaborative type of relationship?
The research lends support to the idea that tactics such as coercion can be very effective
if that is what makes sense in a particular supply chain or a particular relationship. It may
not be necessary to go to the time and expense of forming alliances if less time

consuming methods are feasible.

In the strategy arena, one way of assessing what kind of supply strategy to embark upon
for an item is to balance the value of the component against the supply risk for that item.

A common decision matrix is shown below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High
Strategic Leverage
Value to
Buyer
Acquisition Multiple
Low
Few 1 Many ‘

 

 

 

 

 

 

 

 

Number of Capable Suppliers

 

 

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A quick glance at this matrix reveals that the objectives sought from a supplier
relationship can be assessed based upon the value of the item and the number of capable
suppliers available. It is argued here that different negotiating and relationship
management tactics are called for depending on which quadrant the items fall into. Only
items in the strategic quadrant really require highly collaborative relationships such as
alliances and partnerships. Other quadrants such as leverage and acquisition may be
acceptably handled in non-strategic or administered relationships. In these instances, the
use of a coercive negotiation strategy may be functional. The research presented here
lends support to such a viewpoint as we find the impact of coercion on satisfaction varied
according to relationship type. Reviewing negotiation strategies, then, can be performed
in association with a portfolio analysis of sourcing approaches. This could help to reduce
the time and effort required to manage relationships, particularly for routine or low value
purchases. In an effort to minimize acquisition costs more coercive and more formalized
(even automated) methods may be used. The forces of the market will be allowed to
work their magic at setting prices and service levels rather than the effort put into

negotiation.

A substantial portion of negotiation activity takes place within the context of ongoing
relationships. An example of this would be the activities related to supplier
development, which is a bilateral effort by buying and supplying organizations to jointly

improve the supplier’s performance and capabilities. Supplier development efforts are

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categorized as reactive, proactive, and integrative. These types of efforts take place after
the initial negotiation with a supplier but are part of the ongoing dynamics of the
customer-supplier relationship. How are these efforts best accomplished? The use of
coercion in a supplier deve10pment situation can be exemplified by the actions of a major
national retailer as it strove to improve its supplier’s capabilities by requiring them to
institute electronic data interchange (EDI). The tone of this effort was decidedly coercive
as the loss of future business was clearly implied. “Your company must transmit your
invoices using accurate data from our Purchase Order” and “It is our intention to convert
all vendors from the proprietary format to industry standards by the end of 1992” were
comments appearing in the EDI proposal. While rewards in the form of decreased costs
were promised, the main point was that suppliers who did not achieve EDI capability
would no longer be suppliers. It was a condition of doing business in the future. The
contention of this dissertation is that this type of relationship management is acceptable
under certain channel conditions, such as a channel led by a dominant retailer where such

communications are efficient and effective.

Other examples of negotiations that take place in the context of ongoing relationships
would include having suppliers develop the capability to provide bar codes, advance
shipping notification, and participate in vendor managed inventory. Scorecard programs
that measure and rank vendors also carry the implied threat of the loss of business for
under performing suppliers. In fact, supplier development programs are often instituted
in conjunction with supplier rationalization efforts that reduce the number of suppliers.

The performance of laggard suppliers needs to be improved but the buying firm needs to

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maintain efficiency in its purchasing operations. These efforts are important to achieve
goals in the areas of quality, delivery and customer service. If it appears that the supplier
does not have the potential to improve its performance, then it will ultimately have to be

cut from the supply base.

5.3 Directions for Future Research

Directions for future research can be derived from three different sources. First, they can
be derived from limitations realized from the design and execution of the current study.
Second, they can be generated from the study of additional relationships or paths
included in the study, but not hypothesized. Finally, they can be logical extensions of the

completed research.

5.3.1 Limitations of Current Study

First, while the present study requested that participants answer many of the questions
during a specific time frame, the research is not longitudinal because only one transaction
was investigated. Thus, there is no way to determine the effects on outcomes that occur
at a later point in time. Future research should consider adapting a longitudinal design to
assess the effects after a series of transactions have occurred. A longitudinal study would
involve measuring the same parameter at two or more points in time (Agresti and Finlay

1997)

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Second, it should be mentioned that for the model to be representative of the antecedents
and consequences of negotiation strategy, the following sequential ordering was assumed
to exist: environment assessment, strategy development, relationship development, and
satisfaction. Although this sequence is a classic one, other sequences are not implausible.
For instance, relationship structure could influence perceptions of the environment.

Without longitudinal data, this type of possibility cannot be ruled out.

Third, the sample size of this study is moderate. After the cases were split out by
relationship type, the specialty contract and joint venture categories contained too few
cases to interpret the results. Future research may direct more resources to data
collection in order to assure all categories are adequately represented. This would allow
for the use of structural equation modeling to examine the effects taking place within the

relationship categories.

Despite the generally affirrnative findings in select areas and the sound execution of the
research, the work is limited by a lack of generalizability. While the controlled
environment of the classroom allows the variables to be tailored to the abstract theoretical
constructs, the use of student subjects participating in an in-class simulation does not
allow generalization of the results to practitioners. The elements of the simulation could
not exactly duplicate situations encountered in the business world and students do not
have the background that professionals possess. It is interesting to note, however, that
many of the behaviors present in the real world are evidenced in this simulation, such as

misleading the other party and having difficulty working with some participants. The

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types of relationships established also appeared in generally the same ratios as found in

studies conducted using active relationship managers as participants.

5.3.2 Additional Paths

Several paths, in addition to the ones studied in this dissertation, are viable avenues for

firture research.

Although it was not hypothesized, there is considerable evidence of a direct link between
cooperative orientation and satisfaction. A revision of the structural equation model
suggested that adding a direct path between these constructs (in addition to the indirect
paths) improved the fit of the model. This would serve to reinforce the assertion of
Graham (1986) that cooperative orientation is a pre-existing negotiator characteristic that
is determined before the negotiation begins. The hypotheses in this dissertation asserted
that cooperative orientation only affects satisfaction through the mechanisms of
negotiation strategy. It is possible, however, that a high level of cooperative orientation
leads directly to levels of satisfaction. Even more interesting, what is the interaction of
relationship category with cooperative orientation and satisfaction? If a person with a
high cooperative orientation is conducting a negotiation in a non-collaborative situation
such as an administered relationship or specialty contract, will their perspective of the

outcome be more negative than if they were operating in an alliance?

Second, the moderating effect of relationship type was only examined as it impacted

satisfaction. A similar type of effect may become apparent at an earlier phase in the

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model. The same analysis used in the dissertation could be employed to see if
negotiation strategy, perception of dependence, and cooperative orientation vary
according to the type of relationship deve10ped. Additional tests concerning the median
levels of perceived dependence, cooperativeness, coercion, and contract formality

existing within each relationship type would also reveal interesting information.

Third, interesting sub-sample analyses based on the key variables could provide greater
insights into the relationships unveiled in this study so far. Comparisons between the
effects found in the first and second round of negotiations could be made. This might
demonstrate differences based on the experience that participants gained in the first
round. This could not be accomplished in this simulation because the teams were
reformed after the first round and were positioned in different functional areas. Paired
sample analysis would then be possible to see if expectations, strategies, and satisfaction
differ between the two rounds. This type of longitudinal study would also be valuable

with professional participants to see how strategies vary over time.

The data could also be broken out by business category. In this simulation, teams were
assigned the fimctions of manufacturer, carrier, or distributor. Each type of function
possesses different types of power that may lead it to react differently to the various
elements of the simulation. It would be interesting to examine whether certain
negotiation strategies or relationship types tend to appeal to certain functional categories.
Again, these types of differences may be more apparent if practitioner subjects are

studied.

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Fourth, the difference in the size of the effect of contract formality on satisfaction across
relationship types presents another opportunity for future research. This trail could not be
followed here because the effect was not significant when all cases were considered. A
preliminary review, however, shows that there may be a basis for asserting that this effect
does vary by relationship type. The effect size of contract formality on satisfaction was
significantly different for contractual relationships when compared to administered

relationships.

5.3.3 Logical Extensions

First, substantial gains in the generalizability of the results of the model would be gained
by gathering data fi'om practitioners. A similar negotiation simulation with practitioners
as participants would provide a more realistic context for the model. Practitioners would
be able to draw upon their greater experience and training to provide realistic reactions to
the situations. This would be especially true when participants evaluate the level of
dependence existing on a customer-supplier relationship. Practitioners would have a
much better perspective on the relative positions of the parties at the beginning of the

negotiation.

Second, the present study only examined the behaviors of one side of the negotiating pair.

Analyzing the data on a dyadic basis would enable a more thorough exposition of the

negotiation process as it develops. It would also allow a comparison, for instance, of

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each side’s assessment of the relationship type to see if they are in agreement.

Perceptions of dependence, coercion and cooperativeness could also be compared.

5.4 Contributions

Relatively little study has been done of when or under what circumstances partnerships
and alliances are n_ot a good approach to a supplier relationship and when some other
approach might be more appropriate. Proponents of partnerships and alliances indicate
that the traditional purchasing approach of competitive bidding and short-term
contracting no longer satisfies the requirements of competitive markets, but this may not
be true in all cases. While there is an increasing body of research relative to the
development and benefits of cooperative buyer supplier relationships, much of the extant
literature is anecdotal and case study based. This study fills a gap by providing
empirical analysis of using various negotiating strategies in a variety of relationship

conditions.

The findings of this study have positive implications for purchasing decision makers. For
the practitioner, the research results offer a deeper understanding of the complex issues
faced in managing a successful supply chain. The findings provide direction on targeting
specific negotiation strategies that will work in various situations. Managers can be made
aware of the complementarities among situational conditions and factor them into their

action plans. Finally, by examining definite relationships between negotiation strategies

158

and outcomes, this research provides managers with valuable insights on leveraging

supply chain strategies for gains in targeted performance areas.

The analyses contained in this research are also valuable academically because they link
specific negotiation strategies with the achievement of satisfactory outcomes. In
addition, measurement scales are provided to evaluate the type of relationship achieved
on the basis of level of trust, information sharing and commitment existing between the
parties. The findings also suggest the above factors may be used to predict the
satisfaction derived from a particular customer supplier relationship within the supply-

chain.
5.5 Summary

This chapter reviewed the managerial and theoretical contributions, limitations, and
directions for future research. In Part 1 of this dissertation, a base model that
simultaneously and rigorously examined the antecedents and consequences of negotiation
strategy was developed and tested. In Part 2, effects found in the base model were

analyzed after the sample had been split out by relationship type.

The purpose of this research was to provide an intermediate step in understanding the
complex relationship between negotiation strategy and negotiation outcomes in the
context of specific types of relationships. The research proposed and executed in this

dissertation contributes to the theory and application of negotiation strategy. This was

159

achieved by conceptually and methodologically integrating several core concepts of the
Political Economy Paradigm and negotiation theory. This research should help fill a void
in both academic research on customer-supplier relationships and managerial application

of negotiation strategies.

This research can be positioned under the general rubric of supply-chain based
competitive strategies, and more specifically, as an investigation of the influence of
negotiation strategy on satisfaction in the customer-supplier relationship. A conceptual
framework of negotiation strategy, its dimensionality, measurement, antecedents and
outcomes is proposed and tested. The exploration of relationship specific interaction

addresses a gap in the supply chain literature.

The study addresses a gap in the sourcing literature by explicating the role of an

unexplored moderator, i.e. the type of relationship in which the parties are engaged. The

choice of structural equation modeling enhances the rigor and validity of the analysis.

160

Appendices

161

Appendix A

Simulation Instructions

162

Personal Information and Communications Systems
Negotiation Simulation - Introductory Instructions

This simulation replicates an emerging industry that Integrates personal
computers and personal communications systems (i.e., walkman radios)
Into “all the time” information management systems. In this simulation,
your team will play one of three roles, distributor of these systems in one
of 12 market areas throughout the United States, one of up to four
manufacturers of these systems that produces and sells these products to
the distributors, or one of three carriers that provide transportation service
between the manufacturers and distributors.

One of your key objectives is to create the necessary supplier I customer
relationships to accomplish your market objectives. Therefore, you and
your team of between two and four persons will have to determine the type
of relationships that you would like to achieve with your suppliers or
customers. In addition, you will have to consider the financial implications
of your relationships. The fundamental financial objective will be firm
performance, which is measured through a “Firm Profit Margin (After
Taxes)” assessment.

Each team will be responsible for making two types of organizational
decisions that are independent from each supplier I customer negotiation.
First, each team will be responsible for designing an operating
environment that will meet their organizational objectives. Those operating
environment decisions will include operating facility sizes and technology
capabilities; facility workforce size and skill; and customer transportation
and delivery service strategies (distributor decision). Second, firms will be
responsible for making decisions that affect their transaction and
relationship management capabilities. Those decisions include: distributor
market prices of those systems sold to the retail level (Consumer Reports
indicates that retailers such as Circuit City, Best Buy, Office Max, and
Staples are selling these systems to ultimate consumers at an average
price of $1,200, and it is believed that their average mark-up on these
products is approximately 50%); and the number, experience, skill level,
and technology capabilities of boundary spanners in the organization. All
decisions are to be within the range described on each decision area on the
spreadsheet. For example, if transportation service levels are identified as
having 5 levels that are identified as 1 — 5, then responses must remain within
that range. Inputs of 6 or greater will not be acceptable within simulation rules.

In addition, each team ls responsible for making decisions associated with
each supplier or customer negotiation that they pursue. Those decisions
will include: identification of the other party to the negotiation; your team’s
starting price, minimum or maximum price strategy, and final negotiated

163

price; the product quality level offered by the manufacturer (manufacturing
teams will have this level assigned at the beginning of the simulation (3 =
high quality and 1 = low quality); volume of business conducted between
the parties; length or term of the agreement reached between the parties;
characteristic of the agreement or contract used; transportation costs and
service levels; shipping terms and ownership of goods in transit; and
promotional investments by the parties (manufacturers and distributors).
In addition, negotiations between carriers and either manufacturers or
distributors will include inputs concerning location of the origins and
destinations of the movements, the distances of each movement, and the
service levels provided by the transportation company under the terms of
the agreement. In addition, each carrier shipment can hold 1,000 units of
product; each unit is packaged in a box that is 12” X 10” X 18”; and each
box (unit) weighs 20 lbs.

Each organization will have a different set of operating constraints to work
within. For example, some firms will have higher facility construction and
maintenance costs than others (ranging between $150 - $400 per square
foot). Facility wages may range between $20 I hour and $30 I hour.
Boundary spanning salaries may vary between $25,000 I year and $40,000 I
year. Legal costs can also range between $300,000 and $12,000,000 per
year. Finally, organizations will have varying levels of organizational
administrative costs to cover. The administrative costs range between 8%
and 12% of total cost to the firm.

In addition, recent research conducted by an independent consulting
company found that typical firms in this industry (both supplier and
customer firms) have found that facility sizes of firms normally require
approximately one square foot of storage/production space for every ten
units sold each year. In addition, it has been found that the typical
boundary spanner can be responsible for approximately 20,000 units of
transactions in a year.

To fully understand the characteristics of the outcomes from each
negotiation, you are asked to respond to the questions that begin at cell
C49. Cells C49, C50, C51, 052 are for you to input your project code
number (assigned by the instructor). In cell D49 your team needs to
indicate how may people have been assigned to your team (if an individual
withdraws from the project and does not participate in the question
responses below, you should change this response appropriately).

All of the following questions fall Into several categories. The first
category of questions are those that ask your general perceptions about
supplier I customer relationships. Those questions include Question BK1
- 8K6 (starting at Cell B56). Notice that your project code number
automatically comes up, and you will be able to easily identify your

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response line/row by color (either orange, green, blue, or red). Your
responses for these general response questions will be input on the same
row in Column L. To insure security of your responses, please hide each row
that you respond in after you have completed your response(s). The hide
procedure is completed by blocking the row that you just responded in, then
following the hide process using (FORMAT/ROW/HIDE). You should respond
to these questions as soon as you have had an opportunity to review the
spreadsheet.

The second category of questions pertains to interpretations made jointly
by the members of your team concerning your strategies developed during
preparation for each bargaining session. These question response cells
are identified by shades of blue, pink and yellow in the response cells.
Those cells can be found in columns N, O, P, Q, R, S, X, Y, Z, AA, or AB.
The specific questions in this category include P1 - P10 (P8 requires an
integrated team decision to assign roles for each team member). These
questions start on Row 200 of the spreadsheet.

The third category of questions includes your individual interpretations of
each strategy that your team has developed for each negotiation. Again,
your responses to these questions are color coded as orange, green, blue,
or red. Again, the cells that you respond in are in columns N, O, P, Q, R, S,
T, X, Y, Z, AA, or AB. The specific questions in this category include P11 -
P19, which directly follow the questions identified in the previous
paragraph.

Your responses to the questions will provide you with additional elements
of consideration as you are involved in negotiations with the other parties
(including access to some diagnostic calculations that can assist you in
development and Implementation of your negotiation strategies), and an
improved understanding of the negotiation process that you experienced
during this simulation. Those diagnostics can be found in columns AE —
AT. The diagnostics include the following: aggregated information
concerning your interpretations of the personal influence elements of the
negotiation (Row 4), assessment of operational power I dependence
elements of the negotiation (Row 32), calculations of the anticipated
negotiation strategies that you are considering (Row 35), a suggested
discussion order for the issues that you may discuss with the other party
based on your decision factors (Row 41), and decision structure inputs for
assessing the value of different suppliers or customers that you are
considering (Row 50 - Row 384). If you are unfamiliar with these supplier!
customer evaluation techniques, ask the instructor for clarification.

Finally, each team has the option of three agreement I contract types. The

most basic type of agreement is a letter of agreement between the parties.
Each team can find pre-developed letters of agreement on the spreadsheet

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starting at row 500 (8500). For those teams that feel they need greater
specificity in their agreements, they can purchase either a short form
contract or a long form contract from the instructor. Those teams that
choose to use either the long or short form contract, may use the
agreement form from the spreadsheet as an appendix to the contract to
provide specificity for the elements negotiated. Manufacturers and
distributors will find that they each will have an agreement form generated
for their negotiated outcomes. Therefore, they will only have to use one of
the forms from either spreadsheet. However, the agreement forms
generated for negotiations with carrier organizations can only be printed
from the carrier spreadsheet.

166

Personal lnforrnation and Communications Systems
Negotiation Simulation — Final Instructions

Prior to turning in your completed agreements, please respond to the
questions that address your bargaining activities. Those questions fall into
two categories.

The first category of questions pertains to interpretations made jointly by
the members of your team concerning the actual implementation of the
strategies implemented during the bargaining sessions. These question
response cells are identified by shades of blue, pink and yellow In the
response cells. Those cells can be found in columns N, O, P, Q, R, S, T, X,
Y, Z, AA, or AB. These questions should be answered immediately after
you have submitted your agreements or contracts to the instructor. The
specific questions in this category include B1 - B4, BT, B9, B10 (B5
requires an integrated team decision to assign roles for each team
member). These questions start in Row 1000 of the spreadsheet.

The second category of questions includes your individual interpretations
of each negotiation that your team was involved in during this case. Again,
your responses to these questions are color coded as orange, green, blue,
or red. Again, the cells that you respond in are in columns N, O, P, Q, R, S,
T, X, Y, Z, AA, or AB. The specific questions in this category include B6, BB,
B11 — B33.

Once each member of your team has completed the bargaining questions,

please turn in your disk. Each of your agreements or contracts should be
printed in advance and signed by all members of both teams.

167

Appendix B

The Full Survey Questionnaire

168

Negotiation Project - Supplemental Questions #1

Name Team #

Team Name
Section #

Other Party #
Project # Other Party Name

Please respond to the following questions based upon your interpretation of the elements
that contributed to setting up the negotiation.

Totally Not at All
Dependent Dependent
1. How dependent are you on this 1 2 3 4 5 6 7
supplier/customer for this
product/service?
Disastrous No
Effect Effect

2. If the other party were no longer 1 2 3 4 5 6 7
available as a channel participant,
what effect would this have on your
business?

Very Not Very
Difficult Difficult
3. How difficult would it be to replace 1 2 3 4 5 6 7
the other party with another
supplier/customer?

4. What percentage of your total need
for this item/service is provided by %
this supplier/customer?

169

Negotiation Project — Supplemental Questions #1

Strongly Strongly
Agree Disagree
If you decided to stop dealing with this
supplier/customer, there are many 1 2 3 4 5 6 7
competitive suppliers/customers for this
item/service.
Strongly Strongly
Agree Disagree
I can’t afford to worry about other 1 2 3 4 5 6 7

party’s profits if my firm is to remain
competitive in its own markets.

I look out for my firm; other firms have 1 2 3 4 5 6 7
to look out for themselves.

I try to consider the other party’s point 1 2 3 4 5 6 7
of view and the impact that any

proposed contract would have on its

profitability.

My job is to obtain the lowest possible 1 2 3 4 5 6 7
total cost to my firm whether or not the

other party will be able to make a profit

on the deal.

I try to make certain that other parties 1 2 3 4 5 6 7

make a reasonable return on my firm’s
business.

170

Negotiation Project - Supplemental Questions #2

Name Team #

Team Name
Section #

Other Party #
Project # Other Party Name

Please answer the following questions based upon your interpretation of how the
negotiation progressed.

Never Extremely
Often
1. How often did your team offer to give 1 2 3 4 5 6 7
favors, rewards, or benefits to the other
party?
2. How often did your team twist the other 1 2 3 4 5 6 7
party’s arm in order to obtain their
agreement on an issue?
3. How often did your team indicate to the 1 2 3 4 5 6 7

other party that they would gain your respect
or approval if they complied on an issue?

4. How often did your team threaten to give 1 2 3 4 5 6 7
competitors preference over the other party
in negotiations?

5. In order to get the other party to agree on an 1 2 3 4 5 6 7
issue, how often did your team demand that
they comply on that issue?

6. In order to get the other party to agree on an 1 2 3 4 5 6 7
issue, how often did your team indicate that
your personal relationship would worsen if
they did not comply on that issue?

171

Strongly Strongly
Agree Disagree

The terms of our relationship have been 1 2 3 4 5 6 7
written down in detail.

._.
N
D.)
J;
U”:
C\
\1

Our expectations of the other party have
been communicated in great detail.

In coordinating our activities with the other
party, formal contractual terms have been 1 2 3 4 5 6 7
developed.

The terms of our relationship with the other
party have been explicitly verbalized and 1 2 3 4 5 6 7
discussed.

The nature of the contract that was
developed would best be described as long
and detailed.

p—I
N
U)
A
U:
0\
\l

172

Negotiation Project — Supplemental Questions #3

Name Team #

Team Name
Section #

Other Party #
Project # Other Party Name

Please respond to the following questions based upon your interpretation of the
relationship created with the other party.

Strongly Strongly
Disagree Agree

1. The other party did not mislead us during 1 2 3 4 5 6 7
the discussions in this negotiation.

2. I am confident the other party did not take 1 2 3 4 5 6 7
advantage of us in this negotiation.

3. If an important decision needed to be made, 1 2 3 4 5 6 7
I am willing to rely on the other party to
make a mutually beneficial decision without
my input.

4. The other party was flexible when 1 2 3 4 5 6 7
considering the range of solutions necessary
to come to a mutual agreement.

5. The other party’s operational capabilities 1 2 3 4 5 6 7
were a key factor in our decision to
negotiate this agreement.

Very Little Significant
Information Information
6. Please indicate HOW MUCH I 2 3 4 5 6 7

INFORMATION you shared with the other
party during the duration of this agreement.

173

Less than with More than
any other party with any
other party

Please identify (using a rank order) THE 1 2 3 4 5 6 7
RELATIVE LEVEL OF INFORMATION

THAT YOU SHARED with each of the

other parties (1=the team that you would

share the least information with, 2=the team

that you would share somewhat more

information with etc.).

Strongly Strongly
Disagree Agree
We need this relationship with the other 1 2 3 4 5 6 7
party to accomplish our organizational
objectives.
Not at all Very
Tempted Tempted

If midway through this agreement,
someone offered you a better deal (over the 1 2 3 4 5 6 7
short term), how tempted would you be to
pursue the new deal at the expense of the
current relationship?
Strongly Strongly
Disagree Agree

If the other party came to us and proposed 1 2 3 4 5 6 7
that both parties invest in a new facility and

equipment that would increase OUR

operating costs by 10%, we would still

consider pursuing the opportunity.

174

 

11.

12.

13.

14.

15.

Some aspects of our working relationship

could be better.

Our firm’s working relationship with this

party has been an unhappy one.

The other party is a good company to do

business with.

Considering the roles and responsibilities

of each party, how fair are your firm’s

outcomes and earnings?

This relationship meets or exceeds our

expectations.

175

Strongly
Disagree

1 2

Strongly
Disagree

1 2

Strongly

Agree

6 7
6 7
6 7
Unfair

6 7
Strongly
Agree

6 7

References

176

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