negotiation plan

Abstract

The Knowledge Workers’ Strike details the struggle between a video game development company (Detonation) and its union labor force (Software Engineers Guild – SEG).  SEG has been working without a contract for three months and negotiations between the two sides have come to a standstill.  Detonation is a large video gaming producing company in California and over half of its employees belong to SEG.  Detonation wants to keep its more economical profit sharing system and is refusing to give any concessions at the bargaining table due to internal issues.

The very competitive video game industry has been bogged down by the recent bad economic conditions.  Competitors have laid-off major portions of their labor force.  SEG is pushing for higher pay, a revenue sharing system and inquiring about new Internet jurisdiction.  The three main problems leading to these issues are the impending recession, the internal conflict within both parties, and the threat of the SEG strike.

 

There are several key players on both sides who are worth mentioning. On the Detonation side, Carol Lee is the lead manager and primary negotiator and Emilio is Detonation’s current CEO.  Emilio is ruthless and stubborn; he does not plan to negotiate with SEG and doesn’t believe that SEG can afford to strike.  He is trying to hold off on Internet jurisdiction so the work can be outsourced in order to reduce costs.  Carol Lee is more empathetic.  She tries to convince Emilio to improve Detonation’s offer as she better understands the magnitude of the situation, which includes a majority of their workforce.

 

With SEG, the primary stakeholder is the IT leader and programming savant, Tetsui. He is accompanied by Dan, SEG’s lead negotiator.  Tetsui is the prodigy of the company; he is years beyond any other programmer. Currently, he is leading a very important project, Couch Ninjas 2.  Unbeknownst to Detonation, if a deal does not get struck soon, he has decided to leave the company, start his own firm and poach some of Detonations’ employees.  Dan recently became SEG’s lead negotiator and has a solid grasp on the situation.  He knows what his team wants and what they will be willing to accept.

 

The videogame industry has also taken some hits as a result of the recession and Detonation’s top competitor recently laid off 10% of its employees. Up to this point, the industry has prevailed and been recession proof; in up and down conditions the industry has prospered.  This is the first time video game companies have had real hardship.  The last few decades have been all growth for this industry. However, it is now stagnating, which requires even more emphasis on the new Internet platform.  

 

To settle these problems both sides will have to make concessions.  The best outcome is for both sides to reach an agreement on the new contract to the keep the SEG employees working at Detonation. In order to meet both parties’ best interests, the sides will agree to a raise structure at 3% in year one, 4% in year two and 5% in year three. The raise will be retroactive to the end of the last contract.  A severance package will be offered to those SEG members who voluntarily leave the firm.  The profit sharing plan will replace the former system with a few minor tweaks.  Last, SEG will get jurisdiction over the new Internet platform.  Again, both sides will have to give and take, but this action plan should be to the liking of both sides; a “win-win,” or integrative negotiation (Harvard Business School Publishing, 2003, pg 4).


 

Symptom Identification, Problem Statements & Analysis


From a broader perspective, the problem is conflicting objectives between Detonation and the SEG.  However, looking at the situation more closely, each entity is confronting a set of its own problems.  SEG and Detonation are dealing with the prospects of a recession; a first for the industry.  In addition to these problems, each side of the argument is confronting dysfunctional conflict internally among members with differing perspectives of how the negotiation should be handled.  Finally, a problem shared by both sides is the threat of a strike which would be devastating to organizational and individual financial well-being.

Problem 1: Recession


Detonation’s Issues

·         Declining Sales (underpaid)

·         Competitive Market

·         Industry Peer Cut 10%   

SEG’s Issues

  • Financial Concerns
  • Fear of Losing Jobs
  • Career Longevity

According to the article, the recession was clearly contributing to the financial concerns for Detonation and SEG members.  This is illustrated when the case goes on to say “[second quarter reports] provided hard evidence… the economy was hurting the… recession-proof video game” industry.  In addition, this concern was relayed in the discussion concerning an industry competitor cutting 10% of its workforce.  Given the competitive nature of the industry and the strategic objectives of the company, the recession sets the stage for even greater difficulty to prosper.  From the SEG perspective, employees were confronted with demanding expectations, inadequate pay, with shortened career longevity as a result of the stress.  The prospect of a recession exacerbates these issues and sets the stage for the problems they are confronting; contributing to a heightened emotional element.     

Problem 2: Dysfunctional Internal Conflict


Detonation’s Issues

·         Emilio (positional) vs Carol (value)     

·         Pro-Union vs Non-Union Employees     

·         Emilio Leadership      

SEG’s Issues           

·         Hardliners vs Pragmatist

·         Tetsui’s Own Company Threat

·         Overworked (No work-life balance)


 

Existing internal conflict among members of both sides is further complicating the ability to come to a compromise.  With Detonation, Emilio is staunchly positional whereas Carol is interested in creating value; offering concessions that may satisfy the other side of the table, while taking into consideration business interests.  Emilio’s leadership approach also contributes to the problem as he prefers to hide.  From the SEG perspective, internal conflict exists between the hardliners (again positional) and the pragmatists that were content with the previous offer.   The SEG also holds an important bargaining chip that it is choosing not to disclose in hopes of negotiating better compensation; Tetsui is considering leaving the company to pursue his own venture, taking a group of employees with him.  Being the premier coder at Detonation, they may be inclined to make an agreement to cater to him as a result of his profitability potential, and SEG knows this.       

Problem 3: Threat of Strike

Detonation’s Issues

·         Delay Strategic Objectives

·         Loss of Productive Output     

·         Bad Publicity

SEG’s Issues

  • Delay Employment Opportunity
  • Loss of Productive Income
  • Loss of Creative Output

The threat of a strike will impose a no win situation in the short-term, and further devastate not only the employees, but corporate objectives and profitability.  This is a problem for both sides.  With slumping sales, Detonation can’t afford to delay product roll-outs and the negative publicity of a strike could sway fans away from their product offering.  This is particularly important if they are promoting a marketing campaign to build upon their Internet position at the same time news of the strike breaks out.  From the SEG, a strike would be unwise given internal dissention, and it would be counterproductive to their members, which is of particular concern given the economy.  A strike will bar employees from earning wages, as well as contribute to a loss of creative output which could be completely jeopardized if an agreement is never made and Detonation maintains rights.

SEG’s demand for higher wages is positional; they are being irrational in their request because despite seeing declining revenues, they are standing strong on their position for a 5% increase.  In response to a request to come back to the table, Dan states “not my call” and when offered 2%, he says “members won’t accept it.” Conversation seems stuck on pay, and they are not digging deeper to the issues at hand that may facilitate a more content workforce.  They need to create value, show a willingness to broaden their expectations so that both sides can benefit.


 

Problem Analysis, Identification & Evaluation of Alternatives


1.      Provide the 5% raise. We know that they can keep their employees and also distribute a 5% raise, but it will cause a financial strain on the company. This is essentially giving the union workers the pay increase they want to keep them as employees. This would be a very distributive negotiation, based on the Distributive vs. Integrative Theory from Types of Negotiation: Many Paths to a Deal. Detonation will see this as a “zero-sum;” losing because the SEG is winning. (Harvard Business School Publishing, 2003, pg 4)

2.                  Continue with a profit sharing model and provide no bonuses. No jurisdiction over projects involving internet gaming with any budgets.  This is another example of a distributive negotiation, yet it favors Detonation. SEG will see the decision as losing and will most likely cause even more dissent and frustration.

3.                  Provide a severance package. Offering a severance package to employees who voluntarily leave after the negotiation will allow employees who are no longer happy with the company to leave. The package will pay 3 months of their base salary.  There will be less retaliation because they are making the choice to leave and being compensated for it. There will be less bad publicity because Detonation will not be firing their employees and this will allow them to avoid bad publicity. This aligns with the theory of “saving face” which works to save and protect the company's reputation by acting in a consistent and fair manner. (Fisher and Ury, 1981, pg 30)

4.                  Fire CEO and replace with a leader who is better suited to represent the company.  Emilio does not display the desirable attributes of a leader.  He does not respect or care for his employees, he is too concerned with the bottom line.  His management style is contributing unnecessary tension between the levels.  Detonation needs an innovative, fast moving leader who better understands their workforce.

5.                  Profit sharing replaces revenue sharing. The profit sharing will be based upon experience, productivity, and meeting deadlines.  Hopefully this “bonus” of sorts will be seen as a gift, which will motivate employees. Ideally they will work harder to produce high quality and successful games and meet deadlines. The theory of reciprocity should hold true, furthering the connection of the employees and the company. (Cialdini, 2001, pg 5)

6.                  Bring in a mediator to lead to a solution. This will allow the company to “save face,” avoiding bad publicity. Mediation also helps to remove tension between the two parties. The mediator would act as a facilitator to create value by providing an outside look and opinion the parties may have overlooked. It also allows for the option to caucus during a negotiation. Bringing in a mediator will prevent intent vs. impact situation by creating an opportunity to facilitate communications so bad intentions may be eliminated. (Stone, Patton, and Heen, 1999, pg 49)

7.                  Give the employees jurisdiction over games being produced for Internet market. The potential Internet market provides an opportunity for Detonation to allow their current employees, who want to work on these projects, the ability to do so. This will create more vacancies in their current staff which can be filled at a cheaper cost; to include outsourcing.  


 

Recommended Course of Action & Implementation Plan


The solution that we’ve created, to best fit the conflict, is a combination of solutions listed above. First, we will offer employees a three year contract that provides a 3% pay increase. The increase will go up 1% each year until the contract is expired. This will allow Detonation to remain profitable in the current poor economic condition and afford higher pay when the economy recovers.  We acknowledge that the initial proposal of 5% would cause a strain on the financial viability of the company. Both sides will make concessions on this point, SEG lowers from 5% each year, but gets the raise retroactive.  Detonation will increase their raise structure from 2%, 4%, 5%, but will give in to the back pay.  Both sides giving-in and making concessions shows reciprocity.  


 

Detonation will provide a severance package for any union member who wants to leave.  This will allow Detonation to hire or outsource work at a lower cost, while allowing those exiting compensation for their work and time to find a new job.  This should help Detonation “save face.” It will maintain a positive reputation.  Those exiting will do so on their own terms and receive a payout.  The severance package will be on the table for one month, during this time SEG members will have to stay with company or take the payout.  This will lead to less negative word of mouth and provide the opportunity for re-hiring in the future.

Both sides will agree to keep the profit sharing plan with some adjustments.  The pay structure percentage will vary depending on several factors, such as experience, productivity and meeting deadlines.  Detonation becomes more profitable with higher production and bringing games to the market on time.  They will in turn be compensating the employees who helped deliver the increased profits.  On the other hand, if the employees do not meet deadlines, or decrease productivity, their share of the profits will suffer.  

Internet jurisdiction will be given to the SEG as they desire.  If the Internet platform is as profitable as it is touted to be then Detonation should want some of its best people working on it. Additionally, to reduce costs, they can hire or outsource to fill positions being given up by current employees pursuing the Internet workload.  This is a win/win for both sides.

When the negotiation is initiated, it is extremely important for Detonation to be as transparent as they can with the sales and profitability of the company with SEG. By doing this, they will be able to create value with their approach of the three part solution in the new contract. It is in their best interest to communicate with SEG how valuable they are to the company and if they remain loyal to Detonation, they will be rewarded when the recession subsides and profitability increases. In turn, SEG must relay how their employees and creative abilities are irreplaceable to the viability of Detonation. They can do so by mentioning Tetsui.  


 

Relevant Framework


The following are theoretical lenses that we used in order to better understand the case and the issues that were at hand.

1. Distributive (zero sum (one’s loss is another’s gain)) vs. Integrative (win win situation for both parties) (Types of Negotiation: Many Paths to a Deal, PG 4, 2003)

 

2. Reciprocity Principle of Persuasive People- “Give what you want to receive” (Cialdini, Harnessing the Science of Persuasion, 2001, PG 5), Detonation could use this principle as a way to build value for their side of the negotiation. Not all companies give their employees bonuses, especially in a recession.

 

3. Intent vs Impact- “Assuming them of bad intentions creates defensiveness” (Difficult Conversations, 1999, PG 49). This is important to incorporate for both parties. Detonation is trying to stay financially afloat, while SEG is trying to obtain fair pay for work. One way to achieve this could be for both parties to try to remain as transparent as possible. If the demands of SEG are unfeasible for Detonation to meet, they need to fully explain why. If Detonation is not providing a deserving wage to their employees, they need to be held accountable by SEG.  

 

4. Saving Face Theory (Getting to Yes, pg 30) Save and protect your reputation by acting in a consistent and fair manner.

 

5. BATNA- Four Key Concepts: The Starting Point (pg 3) Harvard Business School Publishing Corporation


 

Negotiation Plan


  

Are you representing an individual or an org.?

SEG

Detonation

Interests of each party in rank order all  from most to least important (use points to determine your interest if appropriate)

Agree to new contract

Pay raise

Revenue sharing

Get internet jurisdiction

Save money

Agree to contract

Profit sharing

Outsource internet programming

BATNA - Best alternative to a negotiated agreement. Include points and name your alternative. (What you will do if you don’t do this deal)

Tetsui starts his own new company and brings his pick of SEG members

Hire or outsource at cheaper cost, however lose valuable people

Reservation value - the worst you are willing to accept in order to do the deal. (Must be more valuable than your BATNA)

A smaller raise

Better revenue sharing terms

5% raise

Give internet jurisdiction

Other Facts - anything else you know you want to remember during the negotiation.

Current recession, job market not good

Have been without contract for a few months

Competitor laid off 10% of workforce

Possible Target Solutions  

Must be more valuable than reservation.

(List two targets including your pts & totals if available)

Ladder raise system

Higher budget internet projects

Give in to retroactive 5% raise

Provide internet jurisdiction

Starting Position

Must be more valuable than target

5% raise

Revenue sharing

Internet jurisdiction

Better benefits

2% raise

Profit sharing

Do not give internet jurisdiction

Estimated ZOPA

(Zone of Potential Agreement)

3%, 4%, 5% raises over 3 years.  Give internet jurisdiction.  Better the profit sharing terms


 

Works Referenced

 

Cialdini, R. B. (2001). Harnessing the Science of Persuasion. Harvard Business Publishing, 5.

 

Fisher, R., Ury, W., & Patton, B. (1981). Getting to Yes: Negotiating agreement without giving in. New York, NY: Penguin Books, 30.

 

Harnessing the Science of Persuasion. (2003). Harvard Business Publishing, 4.

 

Stone, D., Patton, B., & Heen, S. (1999). Difficult conversations: How to discuss what matters most. New York, NY: Viking, 49.