Case Study #2: Pacific Oil Company

PROC 5840: Pacific Oil Case Study
30 Sep 2013

Abstract

This paper assesses a negotiation between Pacific Oil Company, a seller of vinyl chloride monomer (VCM), and Reliant Chemical Company, a buyer of VCM. Each negotiation team’s strengths and weaknesses will be assessed. The Pacific Oil strengths included their negotiation team and the strength of the VCM market. Their weaknesses included poor organizational control, managerial decision making, and their failure to recognize the changing interests of Reliant Chemical and selection of a negotiation strategy.

Reliant Chemical strengths were assessed as a strong organizational relationship and management decision making. It recognized, resolved and or reconciled the changing interests of Pacific Oil, derived the best approach for the negotiation, determined the relationship with the other negotiator(s), and selected the appropriate strategy and tactics. Reliant Chemical had one assessed weakness, which was its possible vulnerability to effective counter tactics. The paper concluded by providing a recommendation to close the negotiation with Reliant Chemical on more favorable terms to Pacific Oil.

Introduction The Pacific Oil Company negotiation filled with examples of how people (Corporations, Management and Negotiator(s)) should prepare, interact and react during a negotiation. The negotiation for Pacific Oil had numerous challenges during the negotiation with Reliant Chemical. Those challenges will be assessed and discussed in this paper. Specifically, the paper will focus on the negotiation team perspectives, organizational structure of both companies, followed by their respective strengths and weaknesses, culminating in a recommended course of action for Pacific Oil to obtain a more equitable conclusion to the negotiation. Problems Pacific Oil faced during the renegotiation with Reliant Chemical Company. One of the most obvious challenges the Pacific Oil Company negotiation team faced was they viewed the whole endeavor as a “renegotiation” and NOT a negotiation, which resulted in a lack of preparation. Pacific Oil negotiated the first vinyl chloride monomer (VCM) contract with Reliant Chemical in 1979. Pacific Oil renegotiated the contract for a second time in February 1982. The contract renegotiation in 1982 was led by, Jean Fontaine. (Lewicki, Saunders and Barry 2010) To better understand Pacific Oil’s challenges, their previous contract negotiations need to be assessed as well as Reliant Chemical’s transformation. The Pacific Oil negotiation conducted in 1979, was a fairly standard contract for the industry and negotiated by each company’s European offices, who then reported back to their respective corporate headquarters in the U.S. (Lewicki et al. 2010) The success of the negotiation demonstrated the strategic importance of good communication from the negotiation team all the way up to their respective corporate offices. It appeared to be a collaborative (Win-Win) strategy for both companies based on the fact that both companies spoke very highly of their relationship and the outcome of the negotiation was considered to be equally important to both companies. The 1982 negotiation was a repeat of the 1979 negotiation and was again viewed as a success by both companies. (Lewicki et al. 2010) In December of 1984, during a Pacific Oil end of year review meeting, it was briefed that the market projections for VCM were going to change in favor of Reliant Chemical and other VCM buyers. It was at this meeting that Fontaine had decided to make an effort to re-sign all major VCM buyers to protect Pacific Oil from the projected market changes. The Pacific Oil negotiation strategy was to resign their buyers to avoid the increase in VCM supply, which was projected to occur between Sep 1986-July 1987 (20-30 Months). That was not a negotiation strategy, but a course of action. Pacific Oil also discussed entering into the polyvinyl chloride (PVC) manufacturing and distribution business. A decision to enter into the PVC business would position Pacific Oil in the VCM market as a buyer and put them in direct competition with Reliant Chemical. This pending decision was announced at the meeting, which meant it would eventually become public knowledge. To avoid complicating the negotiation a corporate decision concerning PVC needed to be made as quickly as possible. If a decision was not made quickly, then Pacific Oil would be perceived as “competitor” during the upcoming negotiations. This set the stage for the “Changes in Perspective” detailed in the case study. It was now inevitable the two companies would experience a change strategy. Due primarily to market projections, however, Pacific Oil’s pending decision to enter the PVC/VCM market as a buyer also contributed . Regardless of the underlying potential for change, each team attempted to get the best deal for their respective companies and should have anticipated challenges during the upcoming negotiation. (Lewicki et al. 2010)

Strength and weaknesses of the Pacific Oil renegotiation team strategy with the Reliant Chemical negotiation team.
Strengths

1. Renegotiating Team Cohesion and experience

As noted in the case study, Jean Fontaine had been appointed Pacific Oil European Vice President sixteen months earlier and had been with Pacific Oil for a total of eleven years. He had a reputation as a strong, rising player in Pacific’s European operations. He also had experience negotiating the previous VCM contract with Reliant Chemical. Paul Gaudin, who was the junior member of the team, had only recently been appointed the European VCM marketing manager. (Lewicki et al. 2010)

2. Pacific Oil Company’s position in the VCM market as well as their business relationship with Reliant Chemical Company was strong. Fontaine and Gaudin actually formulated what they believed was a negotiation strategy as a result of the “Changed Perspective” that they received during the meeting in December 1984. They both realized an over supplied VCM market meant they needed to make a concerted effort to re-sign all of their major VCM customers in advance of the projections. They also realized Reliant Chemical would pursue a more favorable VCM price on the contract. Pacific Oil’s pending decision to enter the VCM market as a competitor, should have also weighed heavily on Fontaine and Gaudin’s preparation for their renegotiation with Reliant Chemical. As a result of the changing interests, whether a market projection or a change in relationship, Fontaine and Gaudin should have prepared for a more detailed and aggressive renegotiation with Reliant Chemical to ensure they obtained the best deal possible for Pacific Oil. (Lewicki et al. 2010)
Weaknesses
1. Pacific Oil exercised poor organizational control between their U.S. based corporate headquarters and their European operations as well as poor decision making by the negotiation team. The case study characterization of the organizational relationships for both companies and the readings, “Managerial Decision Making” highlight challenges for Pacific Oil. (Lewicki et al. 2010) The case study described the previous contract negotiations, as “fairly standard one for the industry and that the contract was negotiated by Reliant’s purchasing managers in Europe, and the senior marketing managers of Pacific Oil’s European offices. Each of these individuals reported to the vice presidents in charge of their companies’ European offices, who in turn reported back to their respective corporate headquarters in the States.” (Lewicki et al. 2010) However, in 1985 Pacific Oil had shifted to a balanced functional matrix organization. This meant reporting organizations relationships were determined by business areas and regional operating divisions. (Lewicki et al. 2010) The matrix organization is designed to work best in the management of “large projects”, drawing its employees from different functional areas and disciplines for assignment to a team. This is accomplished without removing the employees from their respective positions. Employees report on their day-to-day performance to the project manager (Jean Fontaine) whose authority flows horizontally across corporate or departmental boundaries (Warren Meredith and Frank Kelsey). They also continue to report on their overall performance to the head of their department (Stan Saunders) whose authority flows vertically within his department. This aspect of the organization is hierarchical and is the only remnant of the previous Pacific Oil negotiations with Reliant Chemical. A balanced functional matrix organizational relationship requires the development of new support mechanisms, organizational culture and behavior patterns. The balanced functional matrix organization is the most difficult system to maintain and control because of the delicate task of the sharing of power. (Matrix structure 2013) This fundamentally changed the Pacific Oil “hierarchal” organizational relationship that had existed in the previous negotiations. It was obvious that Fontaine struggled with his communication and reporting responsibilities to both Meredith and Saunders. To highlight the changes in organizational relationships, the case study had a dedicated section concerning Frank Kelsey the Pacific Oil Strategic Planning Manager. This section pointed out Kelsey’s frustrations and challenges with his position and or relationship between Meredith and Fontaine. Kelsey had a background in chemistry and a wealth of experience in marketing, planning as well as research and development. Kelsey reported to the corporate Vice President of Marketing, Warren Meredith, and had an advisory or functional role to Fontaine. Fontaine as the VP for European operations reported directly to Stan Saunders, head of European operations. However, he also had a primary functional relationship with Warren Meredith. When Meredith had become concerned about the negotiation with Reliant Chemical he asked Kelsey to review the situation. Then when Fontaine asked Meredith for approval to give Reliant Chemical both the “favored nations” and “meet completion” clauses, Meredith recommended against it. Fontaine obviously disagreed, because several days later Saunders called Meredith and expressed his trust and confidence in Fontaine’s judgment and approved the granting of the clauses. This was a power sharing challenge as a result of Pacific Oil’s balanced functional matrix organizational structure. Saunders had the power to make decisions but had not been kept abreast of the status of the negotiation. Ultimately, it was Fontaine’s responsibility to keep Saunders apprised of the negotiations. Regardless, the balanced functional relationship that Meredith (Kelsey) shared with Fontaine (Saunders), excluded Meredith and Kelsey from making a management decision. (Lewicki et al. 2010) The second challenge, as noted in “Managerial Decision Making” and the decision making processes of the two cognitive systems that influence decision making. System 1 is characterized as fast, automatic, effortless and often an emotional process. This suggests the system relies on habit and is difficult to break. In contrast, system 2 is characterized as slow, controlled and requires effort, is rule-governed, and flexible. This suggests system 2 is a more “rational” decision making process. (Lewicki et al. 2010) Since negotiations are a decision-making process involving people that do not have the same desires and or preferences, the goal of a negotiation is not to simply reach an agreement. The goal of negotiations is to reach a good agreement. System 1 is clearly the system the Pacific Oil renegotiation team utilized for the majority of the negotiation. System 2 should have dominated Pacific Oil’s preparation for the negotiation and supported any System 1 decisions that may have come up. (Lewicki et al. 2010) 2. Pacific Oil Company negotiation teams “hidden assumptions” associated with Reliant Chemical. The biggest challenge that faced the Pacific Oil Company negotiation team was the perception of the negotiation as a “renegotiation”. Fontaine and Gaudin knew the market was going to change and Reliant Chemical would probably be negotiating for more favorable terms. Therefore, Fontaine and Gaudin correctly assumed Reliant Chemical would seek an adjustment to the “price” formula. Fontaine and Gaudin could have simply validated their assumption by asking additional questions, or utilizing hypothetical situations, “What if…” This is tactic called, “probing/testing”, which could have validated their “price” assumption. However, there “lack of preparation” and “over confidence” negated any use of tactics to ascertain Reliant’s intent and contributed significantly to Pacific Oil’s defensive position. (Lewicki, Saunders and Barry 2010)

3. Pacific Oil renegotiation teams’ failure to recognize, resolve and or reconcile the changing interests of Reliant Chemical before selecting the best approach for the Reliant Chemical renegotiation. “In resolving a dispute, the parties must focus their attention on one or more basic factors. They may seek to (1) reconcile their underlying interests…..” Interests underlie people’s positions—the tangible items they say they want.” It states further, “That reconciling interests are not easy. It involves probing for deep-seated concerns, devising creative solutions, and making trade-offs and concessions where interests are opposed.” The Pacific Oil negotiation team knew Reliant Chemical interests were going to change and failed to reconcile those interests. (Lewicki et al. 2010) 4. Pacific Oil Company negotiation teams’ failure to determine the relationship with the Reliant Chemical team negotiator(s) and the selection of a strategy. Selecting a strategy is a fundamental necessity in any negotiation. Unfortunately, Pacific Oil ignored basic negotiating fundamentals, which set the negotiation team up for a string of strategic errors. The five strategies, avoiding (lose-lose), accommodating (lose-win), competitive (win-lose), collaborative (win-win) and compromising (split the difference) depend upon two basic concerns: the relationship with the other negotiator and the outcome of the negotiation. Both Pacific Oil and Reliant Chemical had previously enjoyed a collaborative relationship. If Pacific Oil had prepared for the upcoming negotiation and reconciled Reliant Chemical’s interests, they would have assessed a shift in the relationship. In fact, based on available information, the appropriate assumption for the upcoming negotiation would have been a compromising or accommodating strategy for Pacific Oil and perhaps a more aggressive compromising strategy for Reliant Chemical. (Lewicki et al. 2010)

5. Pacific Oil negotiation teams’ failure to prepare for the Reliant Chemical negotiation based on the “changed perspective” in the market. It is easy to understand why the Pacific Oil negotiation team failed to prepare based on Pacific Oil’s “hidden assumption” of the renegotiation, i.e., being focused on a “price” formula. However, the Pacific Oil negotiation team should have taken a more systematic approach to their preparation for the negotiation. Negotiations: Readings, Exercises and Cases, Section 1.4, The Negotiation Checklist is a perfect example of a systematic approach to preparing for a negotiation. What are the issues? How important is each issue to you? What is your best alternative to a negotiated agreement (BATNA)? What is the other side’s BATNA? What is the other side’s resistance point, if any? What is your target? What deadlines exist? Establish a timeline, agenda and have set meeting locations for negotiations. What are the future consequences of each strategy, tactic, or action you are considering and the reaction you might have on their actions? What do you know of the other party’s styles and tactics? What are the limits to the other party’s authority? Just to name a few. Pacific Oil’s lack of preparation drove them to a defensive negotiating position relative to Reliant Chemical. (Lewicki et al. 2010)

6. Pacific Oil negotiation team framed the negotiation thru loss aversion, over confidence and escalation of commitment, which allowed the Reliant Chemical to strengthen their negotiating position. Pacific Oil demonstrated a decision making biases, which involves what is called framing. Pacific Oil framed the negotiation through a bias of, “overconfidence”, “loss aversion” and “escalation of commitment”. The Pacific Oil negotiation team had a “hidden assumption” of a “renegotiation”, which naturally progressed into a bias of “overconfidence”. The “loss aversion” bias developed as Pacific Oil began to perceive the negotiation going backwards, or losing ground. Unfortunately, due to the lack of an overall strategy, avoiding the “loss aversion” bias would have been nearly impossible; however, being aware of its existence could have helped Pacific Oil make better decisions. For example, Fontaine and Gaudin had framed the negotiation around securing a contract in advance of the projected market changes in supply. In their rush to renegotiate, their “over confidence” coupled with their “loss aversion” as the negotiation continued to be prolonged by Reliant Chemical culminated in an “escalation commitment”. Again Pacific Oil’s failure to prepare drove them to an untenable defensive position. (Lewicki et al. 2010)

7. Pacific Oil negotiation team had anticipated a change in Reliant Chemical’s strategy, but failed to counter with the appropriate bargaining tactics, moves and techniques. Negotiation: Readings, Exercises and Cases specifically described the “Ten Hard-Bargaining Tactics” for negotiation teams to be on the lookout for during negotiations. The Reliant Chemical negotiating team (Zinnser and Hauptmann) utilized a minimum of four out of the ten tactics against Pacific Oil. These tactics seemed to continually keep the Pacific Oil team off balance. In fact, Pacific Oil was astonished by Reliant Chemical’s positions and never realized that their positions were actually tactics. Pacific Oil failed to recognize the overall Reliant course of action was incorporate numerous tactics and techniques to gain concessions from Pacific Oil. Reliant Chemical utilized the tactic of salami or “incrementalism”, which is the art of taking the negotiation and dividing it up into increments or slices. This tactic is especially useful in negotiations that can be divided up into negotiable elements, i.e., a contract. (Lewicki et al. 2010) The VCM contract negotiable elements were: price, quantity, product quality, contract duration, delivery point and credit terms. This coupled with Pacific Oil’s “overconfidence” and “escalation of commitment” would prove to be a very effective use of the “salami” tactic. Pacific Oil was completely unaware of Reliant Chemical’s use of the tactic. (Lewicki et al. 2010) For example, there were six separate uses of the “salami” tactic beginning in March 1985, when Pacific Oil’s negotiating team met with the Reliant negotiating team to discuss the VCM “price” formula. This was followed up in May 1985, when Reliant Chemical negotiator, Hauptmann, met with Pacific Oil negotiator, Gaudin, to discuss commitment to a “contract” renewal. Then again in August 1985, Reliant Chemical negotiator, Hauptmann, met with Pacific Oil negotiator, Gaudin, to accept to a three year “contract” renewal. Then again in September 1985, Reliant Chemical negotiator, Hauptmann, met with Pacific Oil’s negotiator’s, Fontaine and Gaudin, and negotiated minimum “quantity” requirements. And again in November 1985, Reliant Chemical negotiator, Hauptmann, again met with Pacific Oil negotiator, Gaudin, and agreed to a minimum “quantity” requirement. Then finally, as a “fait accompli”, in Febrarary 1986, Reliant Chemical negotiator, Hauptmann, presented two clauses that he said both he and Zinnser had formulated. Because the tactic fit so well into the negotiable elements of the contract, Pacific Oil was unaware of the tactic and never countered with a restorative move during the negotiation. Another tactic that Pacific Oil failed to counter was the use of “forbearance”, sometimes referred to as “waiting in haste”. This strategy is not utilized by those who are in a hurry to close a negotiation; in fact, this strategy has a tendency to provoke frustration and anger in an opponent who is in a hurry, i.e., Pacific Oil. In the Pacific Oil negotiation, each physical meeting was consistently spaced two to three months apart. This had the effect of dragging the negotiation out to allow Reliant Chemical to extract as much information as possible, while validating assumptions and magnifying the effects of their tactics. (Lewicki et al. 2010) From the onset of negotiation in December 1984, and each successive meeting, February 1985, March 1985, May 1985, August 1985, September 1985, November 1985, December 1985, January 1986, February 1986 effectively delayed the negotiations to maximize the tactics being employed by Reliant and the framing elements effecting Pacific Oil, i.e, “over confidence”, “loss aversion” and “escalation commitment”. Reliant Chemical utilized “surprise” effectively on four different occasions. The intent was to make their negotiating position less predictable, so Pacific Oil was less confident in their assumptions and or demands. Therefore, each time Reliant Chemical brought up items for discussion beyond Pacific Oil’s “hidden assumption” of “price” it seemed to throw the Pacific Oil team off balance, which contributed significantly to the lack of restorative moves/turns by Pacific Oil. (Lewicki et al. 2010) The first example of the use of “surprise” was in March 1985, Pacific Oil’s negotiating team met with the Reliant Chemical negotiating team to discuss the contract VCM “price” formula. Reliant proposed a rather elaborate method for adjusting the coefficients of the formula factors. Pacific Oil was able to work thru the formula changes but it was an “exception” to the normal process. The next meeting in September 1985, Reliant Chemical negotiator, Hauptmann, met with both Pacific Oil’s negotiator’s Fontaine and Gaudin, and negotiated the minimum “quantity” requirements. Fontaine and Gaudin were “surprised” by the conservative VCM projections that Reliant Chemical was utilizing. In December 1985, Pacific Oil’s negotiating team met again with Reliant negotiating team to discuss how the delivery pipeline was being metered. This too caught Pacific Oil by surprise, especially since they had no indication that there was even a problem with the pipeline. The final use of “surprise” was in February 1986, when Reliant Chemical negotiator, Hauptmann, presented two clauses for consideration and was definitely an exception to the normal negotiation process. Once again the Pacific Oil team was caught off guard. Reliant Chemical also utilized a common tactic called, “probing/testing”. It is a tactic designed to gain information and leverage their position during negotiations. It can also be used to validate “assumptions” and setup appropriate follow on tactics or moves. In December 1985, Reliant Chemical negotiator, Zinnser, stated that they had become concerned about the way the Pacific Oil delivery pipeline was being metered. According to Reliant Chemical, a preliminary inspection had raised concerns they were paying for VCM they were not receiving. Although there was no evidence to support Zinnser’s claims, he refused to address any other negotiation items until this concern was resolved. Reliant Chemical’s probe/test of the metering concerns was an outstanding use of the tactic. It had an element of “surprise”, but was intended to validate the assumption of Pacific Oil’s “escalation of commitment”. Ultimately, it also set up the follow on move of the “fait accompli” with the “favored nations” and “meet competition” clauses. (Lewicki et al. 2010) Pacific Oil also failed to notice Reliant Chemical’s use of the tactic of an “agent of limited authority”. This allowed the Reliant Chemical team members to claim to be an agent of lesser authority during negotiations, which meant they did not have the authority to make a decision without their principal’s concurrence. This effectively allowed Reliant Chemical time to gather additional information before formulating a decision while continuing to employ other tactics such as “forbearance” and “surprise”. Reliant Chemical utilized this tactic on numerous occasions to delay decisions to enhance their tactics and support their overall strategy. (Lewicki et al. 2010) Examples include the December 1984 meeting when Pacific Oil negotiator, Gaudin, had contacted and then met with Reliant Chemical negotiator, Hauptmann, concerning a contract extension beyond December 1987. Hauptmann responded by saying, “that he would consider the offer but needed to consult with “other people” in Brussels as well as senior executives at corporate headquarters in Chicago.” This was the first use of “limited authority” and may have seemed reasonable at the onset of negotiations, but it set a precedent for Reliant Chemical. In September 1985, Reliant Chemical negotiator, Hauptmann, met with both Pacific Oil’s negotiator’s, Fontaine and Gaudin, and negotiated aggressively concerning the conservative projections that Reliant Chemical had applied to the minimum quantity requirements. Hauptmann again departed the meeting stating the he needed to consult with Zinnser and others in Brussels and the states. This effectively delayed a decision and enhanced Reliant Chemical’s overall strategy. And finally, in January 1986, Reliant Chemical negotiator, Hauptmann, said “that as far as he was concerned, all issues had been settled; however, he thought Zinnser might have one or two issues to raise.” Again utilizing the “agent of limited authority” to set up a negotiation within a negotiation. The final tactic utilized by Reliant Chemical was a tactic called a “fait accompli”. This tactic is normally considered a risky move, however, within the context of Reliant Chemical’s overall strategy and the predictable decision making of Pacific Oil it made sense. A “fait accompli” forced Pacific Oil to act on the request. Reliant Chemical had executed their overall strategy consistently thru out the negotiation and even validated their assumptions with the VCM pipeline “probe/test”, which set up their “fait accompli”. The “fait accompli” was executed during the Feb 1986, Reliant Chemical negotiator, Hauptmann, presented the two clauses, the first of which was the “favored nations” clause that Hauptmann argued was to protect Reliant Chemical. The second was the “meet competition” clause, which he argued was advantageous to Pacific Oil. Hauptmann also suggested that if Pacific Oil did not agree to the clauses then perhaps they were not as interested in a long-term relationship as they had been advocating. (Lewicki et al. 2010)

Strength and weaknesses of Reliant Chemical negotiation team strategy with Pacific Oil.
Strengths

1. Reliant Chemical has strong organizational relationship within its European operations with direct management oversight thru to its corporate headquarters. The organizational relationships for Reliant Chemical and Pacific Oil for the negotiating teams that participated in the 1979 and 1982 contract negotiations, was described as a “fairly standard contract and negotiation for the industry. The contracts were negotiated by Reliant’s purchasing managers in Europe, headquartered in Brussels, and the senior marketing managers of Pacific Oil’s European offices, located in Paris. Each of these individuals reported to the vice presidents in charge of their companies’ European offices, who in turn reported back to their respective corporate headquarters in the States.” There was a single line of communication and management oversight was consistent. This was ensured because all three levels of management decision making was hierarchal and consistent thru the strategic (corporate), operational (European operations) and tactical (negotiation team)) to ensure the company goals and objectives were consistent. (Lewicki et al. 2010)

2. Reliant Chemical negotiation team recognized, resolved and or reconciled the changing interests of Pacific Oil Company before selecting the best approach for the Reliant Chemical negotiation. “In resolving a dispute, the parties must focus their attention on one or more of the basic factors. They may seek to (1) reconcile their underlying interests…..” It involves probing, for deep-seated concerns, devising creative solutions, and making trade-offs and concessions where interests are opposed.” Reliant Chemical negotiation team (Zinnser and Hauptmann) reconciled their interests and it was reflected in the execution of their strategic and tactical courses of action. (Lewicki et al. 2010)

3. Reliant Chemical negotiation team determined the relationship with the other negotiator(s) and the outcome of the negotiation itself, and selected a strategy and tactics prior to going into the negotiation with Pacific Oil Company. Selecting a strategy is a fundamental necessity for any negotiating team. The five strategies, avoiding (lose-lose), accommodating (lose-win), competitive (win-lose), collaborative (win-win) and compromising (split the difference) depend upon two basic concerns: the relationship with the other negotiator and the outcome of the negotiation itself. Reliant Chemical and Pacific Oil enjoyed a collaborative relationship, but the market had favored Pacific Oil in the past negotiations. Reliant Chemical negotiation team, Zinnser and Hauptmann, reconciled Pacific Oil’s interests and then assessed their relationship with the that of the opposing negotiator as well as the outcome of the negotiation. Reliant Chemical had stated that they had a collaborative relationship with Pacific Oil; however, their assessment had shifted to an aggressive compromising strategy. (Lewicki et al. 2010)

4. Reliant Chemical negotiation team demonstrated that they had prepared for the negotiation, by maintaining a consistent strategy thru the validation of assumptions and a repetitive series of tactical decisions. The Reliant Chemical negotiating team strategy and tactics represents their primary strength in the negotiation with Pacific Oil. Their selected tactics are discussed in detail as part of Pacific Oil’s weakness to recognize and counter Reliant Chemical’s tactics. (See Pacific Oil Weakness number 7, Pg 11)

Weaknesses
1. Reliant Chemical gains were obtained from their use of negotiation strategy and tactics and NOT entirely as a result of the “Changed Perspective” in the market, which means they could be vulnerable to “Restorative Moves and Turns”. Based on Pacific Oil’s renegotiation team’s performance it is unlikely their overall position will change and Reliant Chemical’s position is relatively secure. (Lewicki et al. 2010)

What negotiation action(s) should Pacific Oil take to resolve the case? The Pacific Oil negotiation team lead, Jean Fontaine, needs to immediately implement changes in his communications with Pacific Oil management (Balanced Functional Matrix organizational) to ensure the negotiation is more favorable to Pacific Oil and protect his position in the company for the remainder of the Reliant Chemical negotiation. The Pacific Oil negotiation team also needs to make several strategic move(s) to restore the balance or equity in the negotiations. This is to address the obvious advantage that Reliant Chemical negotiation team has obtained in the last thirteen months of negotiations. The original contract expiration is December 1987 and Pacific Oil has twenty two months to secure a more favorable contract extension with the Reliant Chemical negotiation team. Twenty two months shouldn’t be required based on the new strategy but it is important to note they have time. (Lewicki et al. 2010)

Pacific Oil management structure (balanced functional matrix organizational issues) and the proposed closing negotiation strategy First, Fontaine should call Frank Kelsey to propose a closing negotiation strategy and management decision process. The proposal should include the following: Pacific Oil will continue with a positive collaborative strategy towards Reliant Chemical. However, Pacific Oil should be prepared to utilize any of the following strategies: competitive, compromising, accommodating and or avoiding when dealing with individual contract items to ensure negotiations with Reliant Chemical conclude with Pacific Oil in a more equitable position. Pacific Oil should initiate a “strategic move” to reposition its negotiation team. This strategic move will be to request a formal closing negotiation with Reliant Chemical. Since this hadn’t occurred in previous negotiations, if Reliant Chemical questions the reason for the formal closing, Pacific Oil should state since the company reorganization in 1985, corporate headquarters requires a formal closing negotiation on all contracts. This tactic will allow Pacific Oil to introduce an arbitrator/mediator (Kelsey or a third party, if Reliant Chemical objects) into the negotiation process. This is a “restorative turn” to ensure the Pacific Oil negotiation lead maintains a credible role in the negotiation and Kelsey adds to the strength of the team. The “restorative turn” may put Reliant Chemical on the defensive; therefore “participative turns” will also be critical to ensure Reliant Chemical continues to view itself as a partner. The will allow Pacific Oil the ability to structure and control the closing negotiations by selecting a time, location, duration and setting an agenda, etc., while allowing Pacific Oil to regroup and establish a BATNA, Resistant Point, Target and other neglected elements their negotiating position. (Lewicki et al. 2010) Formal closing negotiations will allow Pacific Oil negotiating team (Kelsey, Fontaine and Gaudin) to utilize a wider range of tactics. These tactics will allow Pacific Oil to revisit issues and continue to negotiate more favorable terms. One technique would be to “summarize” the issues and emphasize selected concessions that Pacific Oil had agreed to. Linkage of these concessions can be very helpful in leveraging concessions from Reliant Chemical. Closing individual issues and or the entire contract by “splitting the difference” can also be utilized. (Lewicki et al. 2010) To ensure the Reliant Chemical negotiation team does not become too defensive, Pacific Oil should also use a number of channels of persuasion. Pacific Oil should rely on the following persuasions to further its goals and objectives. The first is, Channel #1: Interest Based Persuasion should be utilized to ensure Pacific Oil addresses Reliant Chemical’s underlying needs. Second, Channel #4 Rationality should be applied when trying to influence Reliant Chemical’s attitudes, beliefs or actions and offer reasons and or evidence to justify a proposal on its merits. And finally, Pacific Oil should continue to focus on the collaborative relationship with Reliant Chemical. Therefore, Channel #6 Relationships to stress the use of similarity, liking, rapport, and reciprocity to maintain open doors as part of an idea-selling strategy is necessary. (Lewicki et al. 2010) Second, if Frank Kelsey concurs, then call or meet with Stan Saunders to brief him on the change in strategy and tactics. Stan Saunders should not be opposed to the changes, since he is already on record with Warren Meredith that he trusts Fontaine’s judgment in doing what’s right for Pacific Oil. Also, have Frank Kelsey call Warren Meredith to brief him on the change in strategy. Third, if Stan Saunders and Warren Meredith concur, then arrange a teleconference with Frank Kelsey, Warren Meredith and Stan Saunders to establish a new method of reporting for the Pacific Oil negotiation team with Frank Kelsey acting as a mediator/arbitrator, or a third party. Set up mandatory conference calls prior to and after each negotiation session to ensure both Warren Meredith and Stan Saunders are aware of the negotiation team progress. Also, at the February 1986 meeting, Fontaine had deferred the “favored nations” and “meet competition” clauses to confer with corporate headquarters. Fontaine should instruct Gaudin to inform Reliant Chemical that he was requested to travel to Pacific Oil corporate headquarters to discuss the formal contract closing negotiation process. Gaudin should frame the reason for Fontaine’s travel to corporate as a result of the recent restructuring of the Pacific Oil organization to reflect a matrix organization and that he anticipates:
a. Formal closing negotiations with corporate representation (Probably Frank Kelsey, Corporate Strategic Planning). b. The reorganization and formal closing negotiations, although never conducted before, is consistent with the public reorganization of Pacific Oil to a matrix based organization.
Although this will certainly be a “surprise” to Reliant Chemical it probably won’t be challenged and sets up the introduction of the formal closing negotiation process and an arbitrator/mediator (Frank Kelsey’s involvement). Strategically, that should give the Pacific Oil negotiation team several weeks to continue to refine their new strategy and tactics proposed by Fontaine during the teleconference. (Lewicki et al. 2010)

Conclusion The number of variables associated with the Pacific Oil and Reliant Chemical negotiation was as diverse as most human interactions. As a result, negotiation preparation and subsequent communication of a strategy, tactics/techniques cannot be understated. The Pacific Oil case study allowed for an in depth look at the fundamentals of negotiation from the basis of determining the “interests” of the other side, to assessing and determining your own. Once the “interests” were determined then the appropriate strategy, tactics/techniques should have been selected to obtain those respective goals and objectives. The actual negotiation between Pacific Oil and Reliant Chemical was a reflection of each negotiator’s knowledge of the other interests, and how well you knew your own interests, punctuated with tactics (moves and turns) as well as techniques. All required to accomplish your individual strategy “course of action” to obtain your goals and objectives. (Lewicki et al. 2010) References

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