Negotiation is the process by which two or more parties attempt to reach an agreement. The definition is simple, but the process can be complex.
How parties approach a negotiation depends on their differences, their goals, and their desire to reach a resolution. Past experiences, personal biases, and individual temperaments also come into play.
Learning how to get our way begins early. Children negotiate with parents, siblings, caregivers, teachers, and peers. Most young people learn that no single approach works with everyone. Schoolyard bullying rarely works at home. The sweet approach that wins over your grandma falls flat with your big brother.
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Despite intuitively adapting their negotiating style in social settings, some people treat all business negotiations as purely competitive, attempting to win at all costs. This approach falters when negotiations involve ongoing business relationships.
Effective negotiators distinguish negotiations by type and apply appropriate strategies.
Categorize 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.” The more one gets, the less for others, creating winners and losers. Such negotiations are described as adversarial, bargaining, competitive, transactional, zero-sum, or win-lose. Compromises can leave all parties dissatisfied, as in across-the-board budget cuts, yielding lose-lose outcomes deemed more fair than having one side win.
Integrative negotiation gets its name from the idea of working together to maximize the goals of each party. Such negotiations are described as collaborative, transformative, or win-win. Negotiators “expand the pie” by including non-monetary tradeoffs and benefits.
A century ago, 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 wanted only the peel for baking a cake and threw out the pulp. Had they shared their true goals, each could have gained more through a different settlement.
One-Time Deals
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 for “best alternative to a negotiated agreement” to describe this option.
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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 prying 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 partners or customers 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, experts recommend 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.
- Make the first offer. Use “anchoring” to your advantage, argues Alison R. Fragale, Ph.D., a professor of organizational behavior at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School. In a blog post for the school’s online MBA degree program, she notes that opening negotiations with an offer as close as possible to the other party’s acceptable level can help you avoid a “too reasonable” offer that leaves money on the table.
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Some theorists believe all negotiations can be integrative. Others contend that 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.