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The Impacts Of Culture On Negotiation & Contract Outcomes

July 7, 2010

Research has consistently shown the importance of cultural understanding to the results achieved from trading relationships. Perhaps best known is the work of Hofstede, but this has been augmented by many other academics and in recent times has been a particular focus in the world of project management, as well as related studies by IACCM.

Contracts are a representation of culture. They reflect not only our ‘domicile’ through the selection of language and jurisdiction, but also our attitudes to risk, our levels of trust, the extent to which we focus on detail (the ‘what’ versus the ‘how’). In that sense, they reflect not only the culture of the business environment in which we operate, but also of each specific company or organization.

For this reason, contracts – and the approach to their negotiation – should act as a key indicator of compatiblity between the contracting parties. For example, organizations that seek to impose their rules and procedures without extensive dialogue and explanation are unlikely to be collaborative partners.

Successful relationships can emerge along a wide spectrum of collaboration levels, from fully integrated to fully subservient. But in all cases, it requires both parties to be willing to operate in ways that reduce the risk of failure or misunderstanding. For example, can the relationship succeed if the terms and conditions are entirely one-sided? The answer is yes, but only if the weaker party finds ways to build a relationship around them. On the other hand, a balanced contract does not in itself guarantee success, if for example the culture of one or both parties is to find fault, rather than work to mutually agreed solutions.

There is innate understanding in many experienced contract managers and negotiators that we can use the contracting process to better understand the other side, to identify and evaluate the differences in culture and the impact this may have on performance.  Yet these indicators are rarely acknowledged or used as a more formal basis of decision-making.

As organizations increasingly depend on strategic relationships, and as more of these cross not only business boundaries, but also geographies, perhaps it is time to develop a structured ‘cultural alignment scorecard’ and to use this in identifying the likelihood that a lack of cultural empathy and understanding will undermine the success of a relationship.

One Comment
  1. Another great post. I heartily recommend the Hofstede book. Look especially at “Uncertainty Avoidance” and consider that a contract is an uncertainty avoidance tool. It’s widely seem as the primary uncertainty avoidance tool in the US, Canada, and northern Europe. But there are other tools that do the same thing and are more attune to other cultures. Strong personal relationships are one such tool.

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