Before you make that next big deal — to buy a car, hire new staff, or acquire a company — you'd better brush up on your ballroom skills. In business today, negotiating is more like an intricate dance than a cold transaction, according to HBS associate professor Kathleen L. Valley, who teaches in the Negotiation, Organizations & Markets (NOM) unit. Valley's research focuses on how negotiations can be significantly affected by how well the parties know and trust one another and by the medium they use to communicate — in person, by phone, by e-mail, or in writing.

In her spring reunion session, "It Takes Two: Improvisations in Negotiations," Valley told alumni that successful negotiations result from a solid understanding of the individuals involved as well as of the process through which the interactions evolve. "At HBS," she noted, "we teach negotiation in the required curriculum to provide a critical set of analytical and procedural skills." Along with grasping the basics in making a deal — the issues, priorities, similarities, and differences — Valley says it is crucial to consider with whom you are negotiating. "It makes a difference if I'm going to negotiate with Amy or with Bill, because I know Bill is friendly and open, and I know Amy is tough," she said. "If I know that, I can adjust my strategy and expectations. You can't do the dance alone — it's like a waltz. You need to consider the other person before you can negotiate effectively."

Negotiation skills have become vital at all levels of the organization. Valley explained that in addition to the negotiations around a transaction — the exchange of goods or services — the flattening of organizations means people must negotiate the terms of their actions with multiple parties, instead of taking orders from the top. Disputes often arise in the course of determining how the work of an organization should be accomplished, and these disputes must now be negotiated without the old fallback to rules and hierarchy. "We also have multiple organizations doing tasks that used to be handled by a single organization," Valley noted. "This means negotiating separate contracts for who will do what, at what price, and for how long. Negotiation has become the way we do business."

In her research, Valley found that the communication medium used in a negotiation has an impact on the outcome, particularly when the parties involved do not know one another. "Profit can be much higher for both parties when negotiating face-to-face, because vital information is shared," she said. Trust and understanding are much less likely to be found when communicating in writing or on the phone. "Over the telephone," said Valley, "we see buyers getting suckered. This is called the 'winner's curse.' You won the company, but you lost money."

The problem is that sometimes business has to be done by e-mail or phone. To achieve a positive outcome without the inconvenience of assembling all negotiators in one room, Valley points to personal relationships as the key. She discovered, across a number of studies, that if the parties know one another or have any positive past relationship at all, then the medium (phone, writing, or face to face) makes no difference to the outcome of the deal. If the negotiators are strangers, however, the medium makes a huge difference. Trust and openness are established more easily when the parties know one another or can see each other; these qualities are unlikely to be present in telephone or e-mail communications between strangers.

Valley believes that successful negotiations require the parties to improvise as they go along, reacting to each other's responses and actions. "The way the negotiation starts will drive the interaction throughout," she said. "If the parties are in sync with one another, the interaction evolves in a predictable way, once those initial steps have been taken."

Valley concluded, "I can't teach you a best strategy for negotiation. But I can teach you how to react to the other party: how to recognize what they're doing, how to think about the impact of that action on your outcome, and how to make a transition if that improvisation doesn't fit your preferred outcome."

— Margie Kelley

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