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On-Line Negotiation: An Evolution of e-Commerce


Lee Buddress, Ph.D., C.P.M.
Lee Buddress, Ph.D., C.P.M., Portland State University, Portland, OR 9707, 503/725-4769,
Alan Raedels, Ph.D., C.P.M.
Alan Raedels, Ph.D., C.P.M., Portland State University, Portland, OR 9707, 503/725-4769,
Michael Smith, Ph.D.
Michael Smith, Ph.D., Western Carolina University, Cullowhee, NC 28723, 882/227-3697,

86th Annual International Conference Proceedings - 2001 

Abstract. The seller and the buyer enter the conference room from opposite doors. They shake hands and exchange pleasantries. Meanwhile, they each set up their own laptops which are then connected with a cord found lying on the table. Booting up their computers, they then invoke their own negotiation software. With a nod of their heads, they simultaneously hit 'enter'. The two computers then begin to negotiate. The two people then leave the room to attend to other matters. Returning half an hour later, the two look to their respective computer screens to view the negotiation results. Nodding their heads in satisfaction, they pick up their computers, shake hands again and depart for their workplaces.

Sound far-fetched? Perhaps not. Technology has enabled us to realize changes in supply and logistics operations not even conceived a decade ago. Today, we have software to tell us where to locate our facilities and how to route our trucks. We can use other software to analyze suppliers' bids and track supplier performance. Why is it not reasonable to imagine a time when the artificial intelligence negotiation software we have today will evolve to the capability described above? As we progress further into the age of electronic commerce, we unquestionably rely on technology to an ever-greater extent.

Two questions emerge. What form will business relationships take in the future, and how will the increased reliance on technology impact that most fundamental of all relationships in supply and logistics, the one between buyer and supplier. Studies have examined the essential characteristics of establishment and maintenance of these relationships. Those founded solely on written communication tended to founder. Those that included written and telephone communication are sustainable, but the best relationships are those that go beyond other forms of communication to include face-to-face meetings. What happens when, in our increased reliance on electronic forms of transmittal, we communicate with suppliers almost entirely in writing?

Introduction. As organizations rush to adopt electronic commerce, several outcomes may become apparent. First, after decades during which purchasing professionals were trained to focus on total cost of ownership rather than purchase price, electronic marketplaces are springing up touting global market reach and enhanced product availability. At the same time, the supplier selection criteria tend to revert toward a primary emphasis on price.

A second consequence may be significantly increased supplier qualification and evaluation difficulties. Rather than visiting a supplier in our region, we may instead do a web search, then send the supplier an e-mail. Alternately, we may post a requirement and invite suppliers to submit proposals. With the global scope of the Internet, we may discover a potential supplier half a world away. Understanding that supplier's true capabilities, capacity and financial stability becomes vastly more difficult. It is not necessary to have a warehouse, a factory or even more than one employee to have a spectacular website. In one instance, a buyer, trying to determine ownership of a website, traced through several other websites to ultimately find that the firm was entirely different from its appearance on the first website. In another situation, an on-line jeweler employs no one and owns no merchandise. He takes pictures of others' merchandise, displays the pictures on his impressive website, and sells what he doesn't have.

Another impact is increased reliance on written communication. Studies have compared the establishment and maintenance of business relationships based on forms of communication. Those founded solely on written communication tend to founder. Those that include written and telephone communication are sustainable, but the best relationships are those that go beyond other forms of communication to involve face-to-face meetings. Will the increased use of e-mail and other computer-based forms of written communication cause buyer-supplier relationships to deteriorate? That is a central issue under discussion. In addition, the authors intend to explore the differences between negotiation conducted face-to-face and that conducted using e-commerce tools.

Similarities and Differences. Any negotiation, regardless of how or where it is conducted, has a series of fundamentals that don't change. Kellar discusses what he calls the Ten Biggest Negotiating Crimes. They are:

  1. Inadequate Planning Time
  2. Weak Information Gathering
  3. Failing to Negotiate Internally First
  4. A Rigid Mindset
  5. Giving Concessions Too Early
  6. Responding Too Quickly to Each Demand
  7. Not Calling Time-out
  8. Not Putting Yourself in the Other's Shoes
  9. Letting Egos Interfere
  10. Inattentive Follow-through(1)

Most would agree that none of these change in response to a different negotiation methodology. Similarly, having high aspirations, and the value of a rehearsal are likely to maintain their importance regardless of how the negotiation is conducted. Overwhelming the other side in technical jargon or vocabulary will be detrimental, as will judgmental or negative commentary, regardless of format. There are some fundamental differences, however.

Written communication is different from the same message delivered verbally. Think about all of the messages we convey, not just in the words of what we say, but how we say them. Our tone of voice may be hard or flat, soft, cheerful, loud or strident and insistent. In response to a statement we might say, "Oh, right." Our tone might signal enthusiastic agreement or sarcastic disagreement, yet the written words are the same.

The way we speak isn't the way we write. For example, think about the differences between writing a letter to a friend and telling the person the same information over the phone. In written communication, there is no sense of timing, as in delivering the punchline to a joke. It is easy to sense the urgency in someone's voice, but more difficult to convey that gravity in writing. How do all of the jargon and slang words we routinely use in conversation look in print? Run-on sentences are hardly noticeable when spoken, but are obvious in writing.

Setting aside these differences in communication, are there differences in the negotiation process itself, comparing electronic to face-to-face encounters? Perhaps there are several. Key elements of the negotiation process include goal or target-setting, strategy and concession planning.

While the goal-setting process may be similar, planning for location and setting are now unnecessary. Situational considerations such as gender, age, personality type and cultural background of the negotiators are now obscured, though no less important. Similarly, negotiation team composition is often a major issue in planning for face-to-face bargaining. It is common practice to match personnel by job title and technical proficiency. In on-line negotiation, neither the composition nor the technical know-how are immediately apparent.

Drawbacks. As noted above, written communication skills are paramount. Specific misunderstandings in e-mail negotiation can lead to a downward spiral of mistrust and eventual impasse.(2) Comparing e-mail negotiation to those involving aural and visual interaction, one study found that misunderstandings escalate because of a lack of trust under e-mail methods.(3) Trust is a key determinant of success in both the negotiation process and in the ongoing relationship that results from the negotiation. Much of the time, trust evolves from the knowledge and understanding of the other party that comes from face-to-face encounters.

In face-to-face communication, one party can easily discern from facial expressions and shifts in body positioning, the reaction of the other party to a stated position, or even a misinterpretation. Immediate steps can be taken to remedy any misunderstandings or to provide further explanation or support for a negotiation position. When communication takes place in written form, these remedies may not be available. Further, there is obvious increased reliance on written communication skills at a time when all of the authors note a continuing deterioration in those skills in the classroom.

A carelessly drafted e-mail may damage a buyer-supplier relationship without the sender even being aware of the impact on the receiver. One such situation involved a buyer who needed a prompt response to an e-mail, so he drafted the entire message in capital letters to signify urgency. The foreign supplier interpreted the message as insulting and an attempt at intimidation. The supplier perceived the capitalized e-mail to be the equivalent of shouting. Needless to say, the transaction did not proceed smoothly. All of us have received e-mail containing spelling and grammatical errors. The unfavorable impression reflects not only on the sender, but the organization as well.

Advantages. In the face of all of the above differences and difficulties, there are positive outcomes to electronic negotiation, as well. For example, in a labor negotiation, it was reported that electronic communication helped to focus on the issues separately from personalities.(4) This is invaluable in any negotiation, but difficult to attain. Even in classroom negotiation exercises, the authors frequently observe students becoming irate over something someone done by the other side. It is surprising how easy it is to find oneself personally antagonized.

E-mail negotiations have the advantage that they allow as much time between messages as is needed to calculate outcome values or consider counteroffers.(5) Since the process of typing -and hopefully proofreading - a message takes more time than a verbal response, it provides an opportunity to avoid the snap responses we sometimes verbally make that we wish we could take back.

One of the rules for all types of negotiation is to properly record each item of agreement. E-mail negotiation seems to satisfy that requirement, since it is always written. However, it is critical to follow two practices: resend a copy of the received message with your reply, and always make a copy to yourself at every 'send'.

Additional Issues. It seems that the key to the establishment of the rapport between the two sides so essential to agreement is the emotional and personal content of the communication, not the rational or contractual aspect. Where interactions occur between groups who know very little about each other, building rapport and positive feeling between the negotiators increases chances of agreement.(6)

Groups using electronic communication tools may be more productive at brainstorming exercises than face-to-face meetings.(7) The advantage, here, is focus. Avoiding the personal chatter and divergence from the topic is a face-to-face difficulty that is overcome electronically. Similarly, in many meetings, dominant personalities tend to take over the discussion. While electronic tools may not eliminate this, they tend to mitigate the problem.

Conclusions. Personal contact and relationships are still important. In determining reasons for limiting further use of the Internet, five percent of the respondents to one survey noted that they still valued personal contact too much.(8) While IBM uses Web-based tools to communicate with its suppliers, it depends on personal contact between its senior management and the leaders of its key suppliers to build and maintain the strong relationships on which it depends.(9) As the TV commercial says, "Our customers love our salespeople. How do you bottle that?" All of this leaves unanswered one question: Are outcomes likely to be different between existing relationships now utilizing e-negotiation, and new ones established electronically? All of us in Supply and Logistics Management will be interested to watch the answer develop.

  1. Kellar. Sales Negotiation Skills That Sell. Chicago: Amacom, 1997, 17-20.
  2. Moore, Kurtzberg and Thompson. "Long and Short Routes to Success in Electronically Mediated Negotiation: Group Affiliations and Good Vibrations" Organizational Behavior and Human Decision Processes, 77.1 (1999), 22-43.
  3. Carnevale and Probst. "Conflict on the Internet" In Culture of the Internet, S. Kiesler, Ed., Mahwah, NJ: Erlbaum, 1997.
  4. Carmel, Herniter and Nunamaker. "Labor-management contract negotiations in an electronic meeting room: A case study." Group Decision and Negotiation, 2 (1993), 27-60.
  5. Ibid.
  6. Ibid.
  7. Gallupe, Bastianutti and Cooper. "Unblocking Brainstorms." Journal of Applied Psychology, 76 (1991), 137-142.
  8. Teich, H. Wallenius and J. Wallenius. "World-Wide-Web technology in support of negotiation and communication." International Journal of Technology Management, 17.1 (1999) 223-239.
  9. Latamore, G. B. "Get Personal." APICS-The Performance Advantage. October, 2000, 30-35.

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