January 30, 2013
Does "let's do lunch" optimize negotiation outcomes?
According to some new research posted on the Harvard Busines Review blog, the answer is "yes."
Across cultures, dining together is a common part of the process of reaching negotiated agreements. In Russia and Japan, important business dealings are conducted almost exclusively while dining and drinking and in the U.S., many negotiations begin with "Let's do lunch." But are business deals actually improved when people discuss important matters over a meal?
To explore this question, I conducted two experiments. The first compared negotiations that took place over a meal in restaurants to negotiations in conference rooms, without any food to eat. In the second, negotiations were conducted with or without a meal in a business conference room. In the experiments, 132 MBA students negotiated a complex joint venture agreement between two companies. In the simulation, a provisional deal is in place, but a variety of terms must still be considered and agreed upon to maximize profits for their companies. The negotiators must determine how to handle each term of the deal. As is typical in many negotiations, in order to maximize their profits, the negotiators must share information and work together with the other side to learn where the most value can be created.
The greatest possible profits were created by the parties who were able to discern the other side's preferences and then work collectively to discover the profit maximizing outcomes for the joint venture, rather than merely considering their own company's profits. In the simulation, this can only be accomplished when the negotiators make trade-offs and then compensate each other from the net gains to the joint venture. The maximum value that can be created jointly for both companies is $75 million. Deals can be struck at lower combined values, down to as low as $38 million. To explore how eating together affected negotiation outcomes, I considered the total value created by both companies.
The students who ate together while negotiating — either at a restaurant or over food brought into a business conference room — created significantly increased profits compared to those who negotiated without dining. (Individuals who negotiated in restaurants created 12% greater profits and those who negotiated over food in a conference room created 11% greater profits.) This suggests that eating while deciding important matters offers profitable, measurable benefits through mutually productive discussions.
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I expected that both sharing a meal and collaborating on an activity would increase trust between the participants — and perhaps that the cultural history attached to eating together would increase trust more than sharing other activities — but when I surveyed participants in both studies, the trust levels they reported did not increase.
Why else might eating together improve the outcome of negotiations? There may be biological factors at work. When the negotiators in my first two studies ate, they immediately increased their glucose levels. Research has shown that the consumption of glucose enhances complex brain activities, bolstering self-control and regulating prejudice and aggressive behaviors. Other research
has shown that unconscious mimicking behaviors of others leads to increased pro-social behaviors; when individuals eat together they enact the same movements. This unconscious mimicking of each other may induce positive feelings towards both the other party and the matter under discussion.
Continue reading here.
January 30, 2013 | Permalink