Negotiation

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What Is Negotiation?

Negotiation is a strategic discussion between multiple parties, usually resolving issues or persuading one another to reach a favorable agreement.

Often, negotiation is used as part of a business transaction. Negotiating can help all parties reach a compromise. Ideally, this compromise leaves all parties satisfied with the final deal, but in some cases, negotiating may only leave one party at an advantage.

Depending on the contract or issue at hand, a negotiation can lead to mutual benefit or minimize damages to multiple parties.

Contract negotiation aims to reach an agreement rooted in mutual trust and best interest. Therefore, the final result should provide a collective positive outcome.

While one party may leave with a significant advantage, the other may still benefit through conflict resolution.

This article provides a detailed breakdown of negotiation and how the negotiating process works.

5 Stages of the Negotiation Process

Step 1. Issue Identification and Preparation

Before entering a discussion, all parties must agree upon the relevant negotiating topics. For example, in a business proposal, you should be clear about what advantage you pose and how the other parties can benefit from accepting your offer.

The issues at hand should be specified when resolving conflict, including their impacts, implications, and limitations.

If you enter a dialogue in hopes of compromise, you must also be able to recognize the other parties’ perspectives. Without openness and mutual understanding, building trust or reaching a resolution is challenging.

To prepare, compile a list of relevant facts and details about your topic. This should include:

  • All relevant parties and their level of involvement.
  • The issue(s) at hand and desired alternative outcomes.
  • An understanding of each parties’ own advantages and disadvantages, i.e., what they stand to gain or lose through compromise.
  • Any relevant policies, rules, or laws that can support your position.
  • A clear outline to delineate the conversation and prevent arguments.

The preparation stage is also when arranging an appropriate meeting point and time for all parties. If there is a contract involved, all documentation should be prepared ahead of time.

Additionally, you may wish to consult with a business lawyer and have them arrange a negotiation time.

Formal discussions for business transactions are more apt for large-scale organizations. However, small businesses are more likely to hold discussions internally and generally without legal supervision.

However, you may still decide to have a lawyer review an investment or service contract before your meeting.

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Step 2. Start Discussion on Neutral Ground

Everyone involved in a business transaction or other type of negotiation has a similar goal: to benefit the most and reduce any liability or damage.

Before stating your own argument, begin the discussion by establishing mutual trust. There are three critical communication skills to utilize during this process:

  • Asking clear questions.
  • Listening attentively to learn, not respond.
  • Clarifying and summarizing what’s been heard.

Equality is integral to a fruitful discussion and desirable outcome. Although you may not reach the compromise you desire, it will be impossible to find any resolution if any party is overly defensive or aggressive about their stance.

Step 3. Express Your Goals

You may enter the dialogue with a quid pro quo mentality: the intention to do something for the other party in exchange for a favor.

In this case, you must also be fully aware of and prepared to respond to any potential concessions. Concessions occur by asking one or more participating parties to cease a certain behavior. This is often seen in political negotiations, though it is also frequent in business.

To help reach a favorable outcome as quickly as possible, goals should be clearly expressed at the start of the conversation. Dialogue should not center around the legitimacy of any desired result.

Instead, it should focus on why the said outcome is favorable and what measures can be taken on both sides to resolve.

Step 4. Strive for a Mutually Beneficial Outcome

No party should be negotiating entirely for themselves. Instead, the goal is to reach a positive outcome for everyone. However, the extent of benefits may vary depending on the situation.

However, though a win-win solution may not happen in every case, all negotiating discussions can lead to peace and mutual agreement.

As seen with negotiations between business lawyers, all parties must be willing to listen, understand, and compromise. While multiple parties may have their own goals, they should all share the desire to reach a positive outcome.

To learn more about negotiation skills, you can review this article.

Types of Negotiation

There are several types of negotiation, all of which serve their own purpose depending on the circumstances. All involve some form of strategic discussion, but while some may intend to persuade, others seek to find a compromise or resolve issues.

Below are the two main types of negotiations that you might encounter.

Type 1. Distributive Negotiation

Distributive negotiation involves concessions and conflict resolution. This discussion centers around resolving a problem, such as the final price in a real estate contract or greater benefits from a business proposal.

In this type of discussion, both parties enter with a fixed desired outcome that they know will not be the final result. So, instead, they bargain for the most favorable alternative and, if the discussion succeeds, settle on a mutually beneficial arrangement.

Type 2. Integrative Negotiation

Interrogative or interest-based negotiations leverage advantage by respecting each party’s desire for a different outcome. Rather than settle on a specific outcome, this form of strategic discussion helps expand the potential of outcomes for all parties.

While there may be some concessions, they are more likely to adopt a quid pro quo structure that ultimately benefits each party through a series of trade-offs.

4 Most Important Elements of Negotiation

Before entering a discussion, you should know the four key elements of any successful negotiation.

Element 1. Trust

All negotiating parties must have mutual trust. Otherwise, there is little hope for a successful outcome. While trust may not exist immediately, it can be built by offering different advantages and trade-offs for a shared arrangement.

Element 2. Understanding

Every party has to understand the other’s vantage point. Rather than argue the rightness or wrongness of an argument, parties must recognize that each one has its own reasoning. Through listening, respectful dialogue can lead to greater understanding between all parties.

Element 3. Open-mindedness

No matter what you hope to achieve, you must enter a conversation with an open mind. Willingness to consider alternatives and even make some sacrifices can lead to the healthiest compromise for everyone involved.

Element 4. Scope

A narrow scope can limit opportunities for resolution. Conversely, with a larger scope, the negotiating parties may achieve even more excellent outcomes with a larger scope than they initially anticipated.

Negotiation Examples

These examples can help showcase the different types of negotiation and how employing understanding and mutual trust can help reach desirable outcomes.

Example 1. A Real Estate Contract

A homeowner wishes to sell their property for $500,000 and net a profit of $150,000 after paying all the respective costs. They receive an offer for $450,000, but they are not willing to settle for that price. Instead, they propose an alternative price to the buyer for $480,000, which receives a counter-offer of $470,000.

Ultimately, both parties agree to meet in the middle of their offers. As a result, the homeowner sells their property for a final cost of $475,000.

Example 2. A Business Transaction

Using an investment contract and service contract, a business decides to expand its supply chain and find a new manufacturer for its products.

They meet with several potential suppliers who offer different price points and advantages.

Through negotiation, the business successfully manages to acquire two new suppliers. The first will provide double the initial supplier’s inventory for 10% less.

The second will provide a more significant discount for a marginally smaller output, ultimately bridging the gap between suppliers.

The business can expand its inventory, save money and provide more goods to its customers without increasing operational expenses.

This article provides even further detailed examples of negotiation strategy.

Tips To Develop Negotiation Skills

Developing negotiation skills takes time, but it does get easier with practice. So before you enter any dialogue, these tips can help you improve your communication skills.

  • Practice clearly stating your arguments, speaking with facts and details over emotion.
  • Learn how to listen to others and ask specific follow-up questions.
  • Take turns in real-life conversations, noticing when you are more likely to talk over someone or put your opinion before theirs.
  • Build confidence in your arguments, but recognize that your ideal outcome will not always happen.
  • Be open-minded, and accept reasoning with others to reach alternative solutions.

This article can teach you more about negotiating, including what to do when your efforts do not pay off.

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