Negotiation is the process by which two or more parties attempt to reach an agreement. While the definition may be simple, the process is often complex. How parties approach a negotiation depends on their differences, their goals and their desire to resolve an issue. Past experiences, personal biases and individual temperaments also come into play.
Some people treat all business negotiations as purely competitive. This approach falters when negotiations involve ongoing business relationships. Effective negotiators distinguish negotiations by type and apply appropriate strategies in each case. [Learn how to negotiate software license agreements.]
Types of negotiations
Modern theories about negotiation have roots in multiple disciplines, including behavioral psychology, conflict management, economics, law, international relations, labor relations and mathematics. Most experts divide negotiations into two broad types: distributive or integrative.
Distributive negotiation gets its name from the idea of dividing a “fixed pie” and involves a set amount of resources divided across multiple parties. The more one gets, the less there is for others, creating winners and losers. Such negotiations are described as adversarial, bargaining, competitive, transactional, zero-sum or win-lose. Compromises can often leave all parties dissatisfied, as in across-the-board budget cuts, yielding lose-lose outcomes deemed fairer than having one side win.
Distributive negotiation is typically less complex than integrative negotiation because only one issue is at stake. With this type of negotiation, relationships aren’t typically a big priority. It is important, therefore, to approach distributive negotiation knowing precisely what you want and need from the situation and what the business relationship means to you. This kind of negotiation is a great choice over integrative negotiation when resources are limited.
Integrative negotiation gets its name from the idea of working together to maximize the goals of each party. It involves the use of a problem-solving technique to increase the assets that are to be divided between the parties in question. Such negotiations are described as collaborative, transformative or win-win. Negotiators “expand the pie” by including nonmonetary tradeoffs and benefits.
The relationship between integrative negotiators is a top priority, and this is reflected in the open and constructive communication style. Integrative negotiation is possible when the parties involved have mutual interests and issues, and negotiators have the authority to make trade-offs. For instance, negotiating an employment agreement, salary, benefits and start date are often points that employers and employees do together.
Did you know? Mary Parker Follett, a social worker and pioneering theorist of organizational behavior, proposed constructive conflict resolution, which integrates the desires of both parties. She told a story about two sisters who wanted the same orange and cut it in half (a distributive approach). However, one wanted only the juice to drink and threw out the peel, while the other only needed the peel for baking a cake and discarded the pulp. Had they shared their true goals, each could have gained more.
How to win a negotiation
A win-win situation is effective, as it likely leads to a long-lasting and successful business relationship. While these situations can be difficult to generate, there are strategies that you can use to help increase the likelihood of a win-win situation:
- Make multiple offers. Rather than making one offer at a time, consider making multiple offers to better understand what you can get out of the negotiation. This will also demonstrate your flexibility and willingness to compromise.
- Pursue a contingent agreement. If both parties are unable to reach an agreement, consider pursuing a contingent agreement that leads to a compromise on both sides.
- Consider a post-settlement settlement. Before signing your agreement after a negotiation, consider a post-settlement settlement to ensure both parties are getting the most out of the agreement. Ask your counterparty whether they’re satisfied with the agreement and if there is anything that might make it better for both parties. This might lead to an even stronger deal than before.
Some negotiations do not lend themselves to win-win solutions. In single transactions, where the parties have no prior relationship and no expectation of one afterward, each side strives for maximum gain without concern for the other’s outcome.
Consider haggling over the price of a car or house. With other buyers and sellers plentiful, each side may have an alternate deal in mind and walk away, rather than make concessions beyond that point. In their 1981 book Getting to Yes, Roger Fisher and William Ury coined the acronym BATNA, which stands for best alternative to a negotiated agreement, to describe this option.
To drive a hard bargain, experts recommend these steps:
- Know your BATNA. Identifying alternatives in advance improves your leverage by clarifying at what point you should accept a deal or walk away.
- Gain an information advantage. Reveal as little as possible about your position, while getting as much information as possible from your counterpart. Divulging preferences, needs, motives or urgency weakens your bargaining position.
- Don’t make the first offer. The first offer tends to become an “anchor” around which further negotiations revolve. Allowing the other party to make the first offer reveals their position and informs your negotiating stance.
- Reveal alternatives. Sharing this information strengthens your position by reminding the other party that you may walk away from the negotiation.
- Make reasonable concessions. Avoid scuttling a good agreement by trying for too much, especially if the offer is significantly better than your BATNA.
Collaborating with partners
Many businesses hire subcontractors, form alliances or create partnerships, and virtually all desire ongoing relationships with suppliers and customers. Negotiated outcomes viewed as inequitable by either side threaten these relationships. Finding new customers or partners is costly.
Negotiations tied to ongoing relationships tend to involve multiple issues beyond setting a price, so discussions become wide-ranging. Integrative negotiation turns the distributive process on its head. Scholars Richard E. Walton and Robert B. McKersie, in their seminal 1965 book, A Behavioral Theory of Labor Negotiations, called the two processes “antithetical.”
To achieve a collaborative win-win agreement, follow these steps:
- Establish trust. Trust is a prerequisite for disclosures that expose vulnerabilities. Each side needs confidence the other is acting in good faith (principled negotiation). Distributive tactics, like bluffing, intimidation, delays or exaggerated emotions, poison discussions.
- Share information. Exchange as much information as possible. Fuller disclosure helps each side understand the other’s needs, motives and areas of common ground.
- Focus on interests, not positions. Separate interests from positions by asking why to uncover underlying reasons for a particular demand.
- Solve problems jointly. Shift the focus from extracting concessions to solving problems. Trade less important issues for more important ones. Adjust a monetary figure in exchange for other benefits, such as a longer contract, larger territory or quicker payments.
Some theorists believe that all negotiations can be integrative. Others contend that the distributive and integrative approaches can be blended. Business negotiators must understand both. In today’s environment of greater transparency, specialization and outsourcing, learning to negotiate win-win outcomes is essential for sustainable, long-term business relationships.
Tip: Prepare for negotiations by researching the other party. During negotiation, don’t rush the process, get overly emotional, or accept a bad deal just to have a deal.
What not to do in a negotiation
Don’t make assumptions.
As in life, never assume in negotiations. When you go into a negotiation, you should know more than just the facts and numbers, such as the decision-maker and the other party’s needs, values, fears and goals. Preparedness is incredibly important and will help you to navigate the negotiation more easily. Doing diligent research and asking pertinent questions will also help to prevent you from making assumptions in the first place.
While you shouldn’t make assumptions, you can use your counterparty’s assumptions against them in a negotiation.
Don’t force or rush the process.
The best negotiations take time to resolve, so it’s important to get comfortable with the back-and-forth nature of the process. Taking your time with a negotiation is the best way to make sure it runs smoothly. It’s important to pace yourself as if you’re running a marathon. Take the time to establish a relationship with the other party. Build in pauses, as this will allow each party the opportunity to regain perspective and remove any undue emotions that may have arisen as a result of the negotiations.
Don’t allow emotions to cloud judgment.
It can be easy for our emotions to get the better of us during negotiations, especially when there is a personal element to them. Try not to get overly emotional, as it will negatively affect your productivity and can potentially lead to arguments between you and your counterparty.
When you feel attacked and defensive, turn those moments into opportunities to receive feedback on your performance. Be aware of your triggers, learn how to pull back when you feel your emotions are escalating and understand that your counterparty can use your emotions against you in negotiation.
Don’t accept just any deal.
Don’t accept a bad deal just to get a deal. Walking away from a deal is and should always be an option.
To help manage your expectations, ask yourself what success will look like for you and at what point would you feel comfortable walking away from a deal. Make sure you define and understand what constitutes a good deal for you. If you get stuck in a negotiation, rather than settling for a bad deal, look closely at what you can do for or to the other side to reignite conversation.
Eric Frazier contributed to the writing and reporting in this article.