Why Building Relationships Is Crucial in Every Negotiation

Negotiation has been the subject of economic studies for decades, and researchers offer various theories regarding the effectiveness of specific negotiation strategies for reaching the desired outcome. Many studies have focused on the financial results of negotiation when determining the success of a negotiation, but modern research incorporates psychological perspectives to understand how individuals interpret the negotiation process and how these interpretations affect the effectiveness of the negotiation. In a recent study published in the Oxford Handbook of Economic Conflict Resolution, researchers from the Sloan School of Management within the Massachusetts Institute of Technology considered how relationships impact negotiators’ decision-making and what roles these relationships serve in negotiations.

In this study, researchers argue that relationships between negotiating partners serve negotiations in three different ways—decision utility, experienced utility, and diagnostic utility.

  • Decision Utility

The concept of decision utility states that relationships affect negotiating behavior by changing the preferences of both parties regarding the outcome of the negotiation. Decision utility suggests that the choices and decisions people make during a negotiation reflect their utility for achieving specific outcomes. The relationship between the parties is one factor that influences how the negotiation is conducted to achieve these outcomes. Negotiating partners who share a positive relationship are more likely to sacrifice economic gains to preserve respect and maintain the quality of the business relationship.

While this can have negative short-term consequences for individual deals, it encourages reciprocity in the future and tends to be associated with better outcomes over time. Studies have shown that negotiators who anticipate working together again are more likely to make concessions and more willing to share valuable information during later negotiations. This supports a strong business relationship and allows both parties to achieve better outcomes. Additionally, positive relationships that instill trust and offer higher satisfaction levels can enhance your reputation, increase your bargaining power, generate more alternatives, and prompt the other party to seek subsequent negotiations.

  • Experienced Utility

In contrast with decision utility’s focus on the desirability of a specific outcome, experienced utility involves the likeability of negotiation partners during the exchange itself. It concerns the degree of pleasure or pain that may be experienced in the negotiation. Negotiators can take things personally, become offended or upset, and experience other negative emotions that may be intensified based on their relationship. This means that both positive and negative emotions offer intrinsic value to the negotiation aside from their influence on objective outcomes.

Negotiators can acquire positively experienced utility by interacting with negotiating partners with whom they share positive and close relationships. Such relationships tend to result in more cooperation and flexibility, more open discussions about specific interests and priorities, positive interpretations of the other party’s actions, and less conflict, allowing them to reach favorable outcomes more quickly. Negative experienced utility involves contentious, disruptive, or dishonest tactics more common in a poor business relationship or the absence of a relationship. Negotiators who view the other party critically are more likely to approach negotiations with a competitive strategy and engage in defensive, rigid tactics that lead to worse outcomes.

  • Diagnostic Utility

According to diagnostic utility, negotiators are motivated to reinforce their identity during the discussion by treating their negotiating partner in a specific way. They make decisions that signal to the other party that they possess a strong character or beneficial personal attributes. Negotiators want to demonstrate to others that they offer honesty, respect, fairness, cooperation, and other positive traits, so they behave in certain ways that they find consistent with these traits. They may be willing to prioritize certain relationships or take specific actions that sacrifice financial gain to support their identity and strengthen their reputation. However, this willingness depends mainly on the relationship between both parties and any social ties they might have.

To learn more about these three different relationships and other aspects of negotiation consider  offering negotiation training within your organization today.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.