The Bargaining Processes.
Exploring the Complexity Using System Dynamics Modeling.
Angel MENA-NIETO
Adolfo CRESPO-MARQUEZ,
Grupo de Investigacién "Organizacién Industrial"
Escuela Superior de Ingenieros de Sevilla. Spain
Mena@uhu.es ; Adolfo@pluto.us.es
Abstract
Bargaining is becoming a very suitable alternative for making decisions in companies and
other organizations. This is the reason why many authors speak about the arriving of "bargaining
age" to describe increasing use of this process in the present. In a business context, modeling
bargaining is an extremely complex task, because it requires the identification of the variables
influencing this process, many of them soft and difficult to formalize. This paper synthesizes some
of the outcomes of our research during four years. One of them is a model called BARGAIN I,
which describes and gives an explanation to the impact of bargaining in business results using
System Dynamics.
1. Introduction
From diverse perspectives, have been proposed several theories and models for describing
bargaining processes (Pruitt, 81; Bacharach & Lawler, 81; Fisher y Ury, 81; Fisher & Brown, 88).
Concerning System approach and from a business perspective, was Dunlop (1958) the first in
using it, to analyze labor relationship. Later, among others, have been Abell (1975), Kochan &
Wheeler (1975), Strauss (1978), Walker (1978), Kochan (1980) y Greenhalgh (1987), who have
provided a conceptual wide frame to analyse collective bargaining. However, the main
characteristic of all these models is neither formalize mathematically their analysis, nor describe
dynamics aspects of the process.
2. The model BARGAIN I
In order to build the model, a company dedicated to develop industrial projects was
selected, within this company the following sub-models were identified: productive-commercial,
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financial, human resources and bargaining. This paper shows a very high-level description of the
model, which contains originally around 400 variables & parameters. How to share the value
added in the company, and the identification of the key points for a bargaining process, are the
main issues addressed in this paper.
The bargaining process that takes place between workers & management of a company is
link to the process of distribution of the value added that the company has generated. Considering
the proposal for the “Value Added Statement” of a company (Bons6n, Escobar & Martin, 95), the
net value added generated increases according to the annual income for the delivered services,
while decreases due to the annual expenses in procurements, external services, depreciation
endowments, and other tributes. This value added will be later distributed in order to pay the
labour expenses (extrinsic rewards) and to recompense the external funds (according to their
corresponding interest rates). The remaining amount will be the utility(in case it would be positive)
Equilibrium Degree
+
Bargaining Effi-
ciency Degres
+ +
Power Historical Negotiation
revious Period Difference Factor Skills
Added Value
Figure A: Overview of model structure
obtained by the company, utility that will be later distributed among stockholders (dividends),
Treasury Department (taxes), or will be retained as accumulated retained earning.
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Concerning the identification of the key factors influencing a bargaining process, a variable
called "bargaining efficiency degree" has been defined. This variable depends on four factors. The
first one is called "organizational equilibrium disturbance degree" and retains, from the previous
bargaining process, the dissatisfaction of the company management & workers. The second
measures the “negotiating skills” of the workers and firm representatives. The third, is a historical
factor, showing the influence of the last bargainings. Finally, the variable power difference between
the parts (Bacharach y Lawler, 1981) is used.
Figure A shows briefly how the model works. Initially, a certain level of rewards will exist
in the company, leading to a particular level of workers motivation. This level of motivation,
according to the organizational equilibrium theory (March & Simon, 69), depends on the existing
relationship among the worker received rewards, his contribution to the organization, and his
possible subjective feeling of injustice (by comparison). The worker level of motivation will be
then translated into performance improvements (Thietar, 77) and therefore, in benefits for the
production process. If this improvement in production is totally accepted by the market, sales will
rise so as the value added generated by the company. Comparing the value added, with the one
obtained for the last fiscal period, an incremental value can be obtained. This increase, when
positive supposed, must be distributed among three agents: external capital funds (payment of
interest), firm’s results, and rewards for labor force. These rewards will create another, or the
same, level of motivation, closing the cycle (positive feedback loop).
On the other hand, those rewards for the workers, as well as dividends and reserves for the
company, will cause satisfaction levels both of them. Those satisfaction levels, compared with
desired ones, will produce discrepancies. The sum of those discrepancies has been defined as the
“organizational equilibrium disturbance degree". This variable plus "negotiating skills", "power
difference" and "historical factor", will cause a certain “bargaining efficiency degree". The higher
efficiency degree, the greater labor expenses, reducing the profits of the company (negative
feedback loop).
3. Conclusions
Bargaining, considered as a decision making system in the companies and other
organizations, will continue growing during the next years. Present and future managers of those
organizations will need a better understanding about bargaining, and the distribution of generated
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value added, processes. The model BARGAIN I proves that System Dynamics is a very suitable
methodology to describe and study those phenomenon’s. SD reveals relations among variables,
feedback loops, and shows how the bargaining process works. The model BARGAIN I can be
easily used for training, but also allows a more concrete utilization for the quantitative and
qualitative study of the impact of bargaining in business outcomes.
4. References
ABELL, P. (1975): Organisations as Bargaining and Influence Systems. Heinemann, Londres.
BACHARACH S. B. y LAWLER E. J. (1981): Bargaining: Power, Tactics and Outcomes.
Jossey-Bass. San Francisco.
BONSON, E., ESCOBAR, T. y MARTIN, P. (1995): "Una propuesta de Estado de Valor
Afiadido". Comunicacién presentada al V Congreso Nacional de Economia. Las Palmas.
DUNLOP, J. T. (1958): Industrial Relations Systems. Holt Dryden, New York.
FISHER, R. y URY, W. (1981): Getting to Yes. Negotiating agreement without giving in.
Houghton Mifflin Company, Boston.
FISHER, R. y BROWN, S. (1988): Getting together. Building a relationship that get to Yes.
Houghton Mifflin Company. Boston.
GREENHALGH, L. (1987): Interpersonal conflicts in organizations. En COOPER, C. L. y
ROBERTSON, |. T. (Eds.): International Review of Industrial and Organizational
Psychology. Wiley, New York.
KOCHAN, T. (1980): Collective Bargaining and organizational behavior research. En STAW,
B. y CUMMINGS, L. (Eds): Research in organizational behavior. JAI Press, Greenwich.
KOCHAN, T. y WHEELER, H. N. (1975): "Municipal Collective Bargaining: A model and
analysis of bargaining outcomes". Industrial Relations and Labor Relations Review, vol29.
MARCH, G. y SIMON, H. A. (1969): Teoria de la organizacion. Ariel, Barcelona.
PRUITT, D. G. (1981): Negotiation behavior. Academic Press, New York.
STRAUSS, A. (1978): Negotiation. Varieties, contexts, processes and social order. Jossey-Bass,
Londres.
THIETAR, R-A. (1977): "La dynamique de 'homme au travail; une nouvelle approche par
Yanalyse de systemes”. Editions d’ Organisation, Paris.
WALKER, P. (1979): Between Capital and Labor.,Louth End, Boston.
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