Negotiation is a process of convincing each other. Negotiation is also called bargaining. Every person negotiates in his life every time, such as while purchasing groceries to reduce the price, he bargains with the shopkeeper politely. In business operations, negotiation plays an important role in making business partners, dividing shares among partners, taking third-party services, and so on.
Negotiation is used to achieve goals, build trust, create value, and maintain long-term relationships.
This article provides a comprehensive guide on negotiation, its importance, types, phases, tactics, and tips on how to negotiate successfully.
Table of Contents
1. What is Negotiation?
Negotiation is a process of communication between conflicting parties. It is an interpersonal decision-making process used whenever a person cannot achieve certain objectives alone. It is a back-and-forth communication in which two parties discuss their interests, try to convince each other, and finally come to an agreement.
Negotiation takes place everywhere and in everyone’s life. In business organizations, shareholders negotiate with the owner of the firm to increase their shares, employees negotiate with customers to increase sales, and project managers negotiate while bidding. Negotiation either has a negative or positive impact on the party’s relationship, depending on the conflict and confrontation between the parties.
The negotiation can be formal or informal. Negotiation helps to build relationships and make the work more effective with effective communication. In a formal negotiation, parties agree at the end by listing their demands, requirements, and needs. In informal negotiation, debates occur to solve problems among team members.
2. Phases Of Negotiation
Before negotiating with the party, the negotiator needs to be prepared about what to tell and how to convince the other party. The negotiator needs to know the aspects of the other party and what he will demand from him. To win the negotiation, the negotiators need to use BATNA (the best alternative to a negotiated agreement, which must be kept secret.
The parties need to fix a time and place for negotiating and come in a well-dressed manner. This gives a good and positive impression to each party. Usually, there are three phases in each negotiation. They are
- Initiation: In this phase, each party will collect information about each other and their demands using tactics to know each other’s resistance and target points. Each party must negotiate in a good environment, as it also affects the final results. Each party must listen carefully to each other’s perspectives and demands. Two parties must keep their points and start bargaining to convince each other’s point of view.
- Problem-Solving: in this phase, each party need to keep different ideas and solutions to resolve the problems and convince each other to make a final agreement. If the parties are not making decisions, the negotiation needs to be paused for some days so that each party can think over the solutions provided by each other. In win-win bargaining, it is good to give time to think, but in a win-lose negotiation, negotiators do not give time to the other party and try to agree in a single round only.
- Conflict Resolution: In this phase, the two parties come to one acceptable point to break off the negotiation. Then, they agree to win-win negotiation by writing their terms and conditions so that it will be useful in the future.
3. Four Negotiation Tactics In Business
Tactics are nothing but planning where the negotiator tries to win over the other party. Sometimes, this leads to manipulation. Some of the tactics are
- Assessing Resistance and Target Point: Assessing the resistance point, target point, and final cost to terminate the negotiation of the other party by using indirect indicators like speaking to experts or checking the documentation and publications, or the negotiator can get the information by directly speaking to the other party.
- Controlled Communication: Impress the other party by speaking as little as possible and making him agree on the negotiator’s resistance point, or the negotiator can reveal the necessary points about his target or present a different idea that is more favourable than the current situation.
- Perception Modification: Interprets the other party’s resistance point and tries to modify his perceptions.
- Cost Manipulation: Manipulate the costs of terminating the negotiations by increasing the cost, forming a union that helps to influence the outcome of the negotiation, or manipulating the negotiation schedule to save you from the other party’s action. The manipulation means ending the deal in a single meeting. Otherwise, the other party gains time to ponder over the agreement.
Many other tactics, such as threatening, good cop, bad cop, lowball, and highball, are used in distributive negotiation without worrying about future relationships with the other party. In some way, the negotiation comes to a settlement where two parties agree on their shares and sign the agreement.
4. Effective Negotiation Skills
To negotiate effectively, the negotiators should have the following skills:
- Interest: To negotiate well, the negotiator should have clarity on what he wants from the agreement, and he should know the other party’s interests and preferences.
- Legitimacy: The proposal should be legitimate and fair. The negotiator should communicate clearly and provide valid information to the party to build trust.
- Relationships: The negotiator should use effective communication because it can hurt the relationship with the other party. If the agreement is not in favour, then the negotiator should be polite with the other party. The relationship with the other party will affect the future deals and reputations of the company in the market.
- BATNA and alternatives: While preparing for the negotiation, the negotiator should analyze the Best Alternative to a Negotiated Agreement(BATNA) as this helps him to provide alternate solutions to the interests of the other party.
- Options and Commitment: The negotiator should provide different options to the party to convince and commit him to agree. The conditions and interests must be included in the negotiation agreement and signed by the parties.
- Communication: To negotiate, the parties must choose a place with peace and a good environment. A good place will also affect the negotiation deal.
5. 10 Benefits Of Negotiation
- A successful negotiation satisfies each party’s requirements and builds a long-term relationship.
- Negotiation is used to solve complex problems before they create a risk to the business.
- Negotiation allows the team members to innovate ideas and solve problems that may occur in the future.
- It helps to make wise decisions by reducing conflicts of interest.
- Negotiation helps to increase knowledge, trust, and understanding among the team players.
- It also helps to unhide the information and explore new opportunities.
- It helps to fill the communication gap.
- Negotiation avoids project delays.
- It builds trust among the clients.
- Communicating information about the project to the clients will reduce rework.
6. Types Of Negotiation
6.1. Win-Win Or Integrative Bargaining
In this negotiation, the two parties come to a deal that benefits them. Both parties try to resolve the conflict between them by making a decision that is good for both. This type of bargaining increases respect for each other, and the relationship between the parties lasts for a long time. More opportunities and benefits will be obtained by the parties.
In business organizations, not all use these negotiations because it depends on the aspect or project they are negotiating on. This negotiation must be used when dealing with customers and suppliers because they will be needed for a long time.
6.2. Win-Lose Negotiation Or Distributive Bargaining
In distributive bargaining, a party uses tactics and strong strategies to maximize its resources without thinking about the other party. This type of bargaining is also called slicing-the-pie bargaining or win-lose bargaining. The essential element of distributive bargaining is the best alternative to a negotiated agreement (BATNA).
Business organizations use distributive negotiation when they want to increase their profit, do not think about the relationship they are having with the other party, and try to make a win-to-lose negotiation. The negotiation begins with the negotiator, who has high power. The negotiator must be prepared with his target and resistance point to start a negotiation. The target point is the point where the negotiator wants to conclude the negotiation, and the resistance point is where the negotiator does not want to go.
For example, a man goes to a shop to buy some material with no price tag, and the seller tells the price, which is not in the buyer’s budget. In the case of pricing, the resistance point for the buyer is the highest price and the lowest for the seller. The bargain occurs between these two points.
The buyer tells his target price, and the negotiation starts between them. The buyer keeps his point and makes the seller agree by using tactics like walking away from the shop. Finally, the seller lowers his price and sells the material. Alternatives play an essential role in bargaining because they give power to the negotiator to walk away from the negotiation when there is no chance for a deal in the agreement.
7. Tips For Successful Negotiation In Project Management
A project manager is responsible for bidding and negotiating with the parties to have a win-win negotiation. Negotiation takes place at any stage of the project, either among team members, company and client, suppliers, dealers, or with any other person who has contributed to the project.
- The negotiator, either the project manager or assistant who communicates on behalf of the manager, has to be prepared for the negotiation. They should communicate with the other party to fix the time and place to communicate.
- The negotiator has to gain a thorough knowledge of the project, the market condition, the prices, and the client.
- The negotiator has to be patient and have good listening skills. It is very important to listen calmly to understand and predict the interests of the client.
- Be positive and supportive throughout the project lifecycle.
- Know the status, the opening offer, and the bottom line.
- Know clients’ interests, offers, and limits.
- If the project is large, take time to make a decision. Meet twice or take time to think about the offer before making any decision.
- Be consistent and persuasive during negotiating.
- Note down the lessons learned and use them to improve future negotiations.
- Be prepared for hardballs and try to take a break when not knowing what to do.
- Research on the areas of negotiation and communicate clearly and effectively.
- Set goals, get advice from experts, and make decisions.
- Communicate openly on important matters and get clarity on every clause.
- Avoid informal talks, threats, and other misbehaviour at the meeting.
- On successful negotiation, make an agreement listing all the clauses and conditions. Sign the agreement after reading it thoroughly or take time to sign.
8. Conclusion
Negotiation in the business world has both negative and positive impacts. It depends on the management how well they negotiate with their opposite party. In business organizations, it is important to maintain a good relationship with each stakeholder. To gain profit for one time, organizations should not use distributive negotiation. Rather, they need to think of long-term success.
The win-to-win negotiation will increase the reputation of the organization in the market and also increase its profit. Negotiation is used in every field and everyday life. Business organizations need to have a conflict management team who are responsible for handling negotiations and resolving conflicts among the parties effectively to increase profit.