Successful negotiationCaseStudyAnalysis

Case Study Analysis: Part A

“Successful negotiation is an art, not a science. The three most important concerns and elements in any negotiation are the relationship, the risk and the value. These concerns are the real decision criteria that underlie any business transaction” (Di Fran ces, 2005, para. 2). Capital Mortgage Insurance Corporation (CMI) was acquired by Northwest Equipment Corporation in 1978 and was a wholly owned subsidiary (Lewicki, Saunders, & Barry, 2005). Northwest Equipment Corporation acquired CMI when the parent company went into Chapter 11 bankruptcy. The company was developed to work with residential mortgage lenders in selling mortgage guaranty insurance policies throughout the United States.

The following paper will briefly describe the case at hand, what role social context will play in the negotiation process, and how the social relationship that Burr, Lehman, and Kupchak will affect the negotiation. The paper will end by describing the tangible and intangible benefits, cost, and risks associated with negotiating Corporate Transfer Services (CTS). Analyzing the case of Capital Mortgage Corporation will allow a reader to define how social relationships affect negotiations, and define the benefits, costs, and risks of the negotiation process.

Case Summary

CMI has an interest in broadening its financial services to strengthen the company. CMI primary goal is to be the leader in the financial services industry. CMI will have to stand against the current industry leader, Merrill Lynch, to take a large share of the market. CMI must acquireCTS at a reasonable price to achieve this goal.

CMI second goal is to keep the CTS key staff and maintain a good working relationship with the current owner of CTS, Elliot Burr. CMI wants to keep their relationship with Elliot Burr strong so that he will be willing to be flexible and collaborate with CMI throughout the long

negotiation process. Maintaining a good relationship with Elliot Burr is crucial because CMI needs to keep the current CTS employees in place to manage CTS functions and current business interests. Fostering a good, long-term relationship with Elliot Burr will help keep CTS’s current employees happy and the operation working smoothly. Other benefit would be that CTS has an excellent foothold in the corporate relocation business, immediate licensing and other legal documents in 38 states, Influence on Metro Net network, an experienced operations manager, and a clear increase in business for CMI.

If no agreement is reached, thebest alternative to a negotiated agreement(BATNA) of CMI would be: build a shuttle service to the company or seek a business similar to CTS. However, the first option would be a very expensive output and no other options for the second option today. For this reason, realize a successful negotiation is the preferred choice of CMI.

Social Context

Social context plays a large role in negotiations. After all, negotiation is defined as a social interaction that requires more than one person or party. The ability to acquire knowledge about others is an important part of negotiating. Whereas some negotiations involve an immediate exchange and quick resolution, and knowledge of a person’sneeds. A relationship can help construct building blocks making the outcome more satisfying for both parties. “Perception, cognition, and emotion are the basic building blocks of all social encounters, including negotiation, in the sense that our social actions are guided by how we perceive and analyze the other party, the situation, and our own interests and positions” (Lewicki, Saunders, & Barry, 2005, p. 132).

Perception is the way that one takes in information from their environment. This can be heavily influenced by experiences, other people’s input, and even their mood. In a negotiation,

perception can be powerful either positively or negatively. A potential problem is perceptual distortion, or errors in perception (stereotyping, the halo effect, selective perception and projection). The most common perceptual distortion is stereotyping, which occurs when a particular attribute is assigned to an individual who fits into a particular category or demographic. The halo effect occurs when people generalize based upon knowing just one characteristic of one person. Selective perception is taking an attribute of someone and uses it to confirm a preconceived notion and projection is the process of taking a personal attribute and disperses it among others. Each of these examples can be a very powerful influence on the negotiation process.

Whereas perception is the way information is taken in, cognition is how that information is processed. Framing is a key aspect of cognition in that “a frame is the subjective mechanism through which people evaluate and make sense out of situations, leading them to pursue or avoid subsequent actions” (Lewicki, Saunders, & Barry, 2005, p. 135).

Finally, emotion comes into play in negotiation as well. Mood and emotion can sometimes be confused but what differentiates the two are specificity, intensity, and duration. Mood states are less specific, less intense but last longer than emotion states, whereas emotion states are often directed more specifically and are more intense. Negotiations can lead to both positive and negative emotions, just as those emotions can have positive or negative outcomes on negotiations.

Relationships

Personal relationships and reputations will always be a part of the negotiation process. In this case, the personal relationship is very strong part of the current negotiation. Because of the history of the relationship between the parties, the threewill try to use their different styles to

influence the current negotiations. The three senior leaders of CTS, Elliott Burr, William Lehman, and Michael Kupchak are the best of friends, but they are very serious business partners who will use those different strengths and reputations to help grow their business. Their relationship and their reputation will also not only help the current negotiation but will also become part of any future negotiations between the parties.

“Reputation is a “perceptual identity, reflective of the combination of salient personal characteristicsand accomplishments, demonstrated behavior and intended images preservedover time, as observed directly and/or as reported from secondary sources”(Lewicki, Saunders, & Barry, 2005, p.286). Each of the three leaders has a reputation from theirown legacy. Each of their reputations has set the precedent for future negotiations and dealings with them.

These three leaders will be identified as interdependent. “Interdependent parties are characterized by interlocking goals—the parties need eachother in order to accomplish their objectives” (Lewicki, Saunders, & Barry, 2005, p. 9).The three work together to try to build a win-win relationship and transform any personal conflicts into a task-oriented goals that will hold the best interest of their company, CTS, in the forefront of any negotiation. Burr, Lehman, andKupchak always have agreed on a common goal and a shared vision that helps them with their company and will also allow them to remain focused on the future.

This group can also be classified as anequality matching relationship. “Equality matchingis a correspondence relationship in which people aredistinct but equal, as manifested in balanced reciprocity (or tit-for-tat revenge), equalshare distributions or identical contributions,

in-kind replacement compensation, andturn-taking”(Lewicki, Saunders, & Barry, 2005, p. 281). Burr, Lehman, and Kupchak see themselves in this type of relationship. Because they see each other as equal andseparate, but often interchangeable; each of three are expected to both

contribute equally. This type of process is often characterized as a turn taking and as evenlydistributed equality.

Negotiation Expectations

CMI is aware of CTS’s financial position; therefore, they seem to have negotiation power. CMI has focused on their relationship with Elliot Burr as well as the outcome of the acquisition. The intent was to agree on a price that is acceptable by the parent company of CMI. CMI can start out May 24th negotiations with CTS after considering a solid strategy that addresses the following point to CTS.

1. Reassuring the partners of CTS regarding their personal investment’s security.

2. Describing the ROE projectin g by Dolan made for MetroNet’s third-party equity committee meeting to CTS.

3. Taking CTS into confidence that CMI would turn them around.

CMI does not want to spend more than $600,000 along with the book value of CTS. Frank Randall indicated CTS’s worth i s around $625,000. C apital Mortgage Insurance’s parent company has approved a budget of nine million for the acquisition.

The priority of CTS is to strive as much as possible to sell CTS at a greater price. A secondary priority of CTS is to satisfy their concerns regarding their ownership stake after the acquisition has been completed. As they want to ensure their returns, which can only be possible, if they have a partial ownership in the new company.

The purpose of CMI purchasing CTS is to fulfill the MetroNet’s approved and proposed vision. Osgood has many concerns, whichinclude long-term viability and health of

MetroNet.Because of the uncertainties in the housing industries and monetary system, and Merrill Lynch’s vision had made the realtors reluctant and as per Randall’s views it was

sufficient for CMI to present a familiar and comforting alternative. CTS's heads were also as eager to be acquired by CMI as CMI was eager to acquire CTS. CTS’s current financial positionwas struggling and desperately looking for a buyer. As the owners of CTS had invested a great deal of money, therefore, they were expecting a return as it was the depletion of their resources (Doye, Love & Hyer, 2008).

Conclusion

Negotiation is very important to any organization in achieving their goals and objectives.Frank Randall, the president of NEC wants to build CMI into a more diverse financial service company. To build NEC, informal discussions have taken place with the principal stockholders of CTS and negotiations are in place, and an offer is in development. The relationship between Burr, Lehman, and Kupchak is a long-term professional one, so the best negotiation strategy is a collaborative one. The merger of the companies has many tangible and intangible benefits, which have been identified as well as the costs and risks for both companies.If the companies do combine and the merger does take place, this a win/win collaborative negotiation would be implemented.

References

Di Frances, J. (2005). Use the pros' negotiation strategies. Sell!ng, 12. Retrieved from EBSCO host.

Doye, D., Love, R. & Hyer, T. (2008). Negotiation Strategies. Oklahoma State University Publications.

Lewicki, R., Saunders, D., & Barry, B. (2005). Negotiation Fundamentals. Individual Differences. (5th ed.) McGraw-Hill

Lewicki, R., Saunders, D., Minton, J. & Barry, B. (2003). Negotiation: Readings, Exercises, and Cases: Readings, Exercises, and Cases. Ohio State University Publications.