Meaning of negotiation
Definition: This is the process whereby two or more parties decide what each will give and take in an exchange between them. Negotiation can also be defined as any form of verbal communication in which the participants seek to exploit their relative competitive advantages and needs to achieve explicit objectives within the overall purpose of seeking to resolve problems which are barriers to agreement.
Importance of negotiation:
The aim of contract negotiation is firstly to achieve certainty, to record what is being supplied, when, in what quantities and to what standard, and what are the consequences of delay or failure to meet the agreed requirements. Many disputes are caused by the failure of the parties to define at the beginning of their relationship exactly what is going to happen in case of a dispute.
- The best deal
Seeking clarity does not conflict with the view that negotiations should achieve the best deal, it merely points out that both parties to a negotiation have to understand what it is that they have agreed to. Many disputes have their origins in a lack of clarity. Careful discussions of each element of the deal also ensure that each party’s objectives are acknowledged and dealt with. Negotiators should aim for a win-win solution which benefits both parties.
- Achievement of an Organization’s objectives
The goal of every negotiation must be to achieve a result which, even if it falls short of the original objective can be considered a satisfactory advancement towards it. Compromise is an essential feature of most successful negotiations: each party needs to walk away afterwards feeling that he or she has gained. Although most people, when asked, will say that money is the most important element in negotiation in practice it may be only one of a number of elements. In most markets, quality, reliability of supply, the transform of “know-how” and the creation of a long-term relationship will be of equal or greater importance.
- Creation of a long-term relationship between the parties
Whilst this is not always possible, and some cultures, such as the Japanese, place more emphasis on this aspect of negotiation this is increasingly important as companies build networks of alliance partners. Partnering in industries like aerospace and IT is essential, due to the complexity of the products and related projects. As the supply chain evolves into a virtual organization partnering is becoming increasingly important in all industries.
Other objectives of negotiation:
- To exert some control over the manner in which the contract is performed
- To persuade the supplier to give maximum cooperation to the buyer’s company
- To develop a sound and continuing relationship with competent suppliers: Buyers must maintain a proper balance between their concern for a supplier’s immediate interest and long-run performance.
- To obtain a fair and reasonable price.
Approaches/ Strategies of Negotiation:
Approaches to negotiation may be classified as adversarial and partnership
- Adversarial negotiation:
Also referred to as distributive or win-lose negotiation, is an approach in which the focus is on ‘positions’ staked out by the participants in which the assumption is that every time one party wins the other loses. As a result the other party is regarded as an adversary.
The characteristics of adversarial negotiation entail:
- Parties have competing goals
- Involves use of threats
- In case of deadlock, negotiation is terminated
- The approach is rigid
- The attitude is that of we must win, they must lose.
- Partnership negotiation:
Also referred to as integrative or win-win negotiation, is an approach in which the focus is on the merits of the issues identified by the participants in which the assumption is that through creative problem solving one or both parties can gain without the other having to lose. Since the other party is regarded as a partner rather than an adversary the participants may be more willing to share concerns, ideas and expectations.
The characteristics of partnership negotiation entail:
- Common goals emphasized upon.
- Negotiation is friendly and based on openness
- In case of a deadlock, negotiation results to further problem solving
- The approach is flexible
- The attitude is we both must win.
Styles to negotiation:
Negotiation styles vary with the person, their beliefs and skills, as well as the general context in which they occur. Here are a number of different styles considered from different viewpoints.
- Belief-based styles:
There is a common spectrum of negotiation that ranges from collaborative to competitive. The approach taken is generally based on:
- The spectrum of negotiation styles from concession to competition.
- Collaborative negotiation: Negotiating for win-win.
- Competitive negotiation Negotiating for win-lose.
- Balanced negotiation walking between collaborative and competitive.
- Professional styles:
Professional styles are those used by people who have a significant element of negotiation in their roles. Here is a selection of different contexts in which such negotiation takes place.
- Industrial relations: Confrontational bargaining.
- Managing board: Together and competing.
- International: Diplomatic dancing.
- Political: Scheming horse-trading.
- Selling and buying: Professional sellers and buyers.
- Hostage: Emotional big-stakes exchanges.
- Contextual styles:
Negotiation often happens within non-professional contexts, where the people either do not know that they are negotiating or they are not skilled at it.
Although negotiation styles can be classified as competitive or collaborative, in practice there are a ran ge of styles, based on the degree to which a person thinks about them self or thinks about the other person.
- Consideration for self:
Considering yourself in negotiation is natural and reasonable — after all, the main point is to get something that you want. In particular, if you care little about the other person or the relationship, then you will prioritize your needs actions above those of others.
Excessive consideration for self leads to a Machiavellian approach, where the end justifies the means. Overt aggression, intimidation and coercive deception are considered normal and necessary and destroying the other person in some way may be a symbol of your victory over them.
- Consideration for others
Consideration for others will depend on your values, which are often based on your beliefs about people. In particular, if you put yourself down (for example if you have low self-esteem) or you escalate the importance of others too highly, then you will think considerably more about the other person and prioritize their needs well above your own.
Excessive consideration for others leads to relentless concession, where you create a lose-win situation with you as the loser. You may even lose elements of the relationship as giving away too much can just end up in you losing respect. Some people like being the victim, but it is no way to conduct a negotiation.
- A middle way
Between concession and competition lies balance, although in practice this may be more dynamic and variable than may be expected. Thus, what should be a highly collaborative negotiation may become a balanced negotiation even with competitive elements. Shared values are commonly used, however, to protect the relationship and ensure fair play. At worst, some third person is called in to ensure a reasonable balance.
Ploys of Negotiation:
A ploy is defined in the Oxford English Dictionary as ‘a cunning act performed to gain an advantage’. A ploy can also be defined a manoeuvre in a negotiation aimed at achieving a particular result. A number of standard ploys are often used in commercial negotiations. They are worth knowing about – you may not wish to use such tactics yourself but you will certainly wish to know you’re your opponent is using a ploy against you.
Here are some of the more common ploys:
- The bogey: This is a buyer’s ploy. The buyer assures the seller that he or she loves the product but has a very limited budget, so that in order for a sale to occur the seller must reduce the price.
The idea is to test the credibility of the seller’s price. The seller might react positively by revealing information about costing, so that you can force the price downwards. It may also provoke the seller to look at your real needs.
- Minimum order ploy:
This is a ploy used by the seller whereby the seller maximises the value of the order by placing restrictions or conditions on the order the buyer has placed.
- Over and under ploy:
This ploy is a handy response to a demand made by your opponent. For example, your opponent might demand that you reduce your price by 5% if they pay your invoice within seven days. You could respond with an ‘over and under’: ‘if you agree to a 5% premium for late payment’.
- Quivering quill:
This is a ploy used by buyers in which the buyer demands concessions at the very point of closing the deal. At this point, the buyer is about to sign the contract and suddenly demands, for example, 3% off the purchase price. When the seller expresses unwillingness to agree, the buyer threatens not to sign the contract. A typical result is that the seller is pressured into giving a 1.5% reduction on the purchase price.
- Shock opening:
This is a negotiation ploy designed to pressure the opponent. The other negotiator starts with a price that is much higher than you expected. If they back up their opening price with a credible reason for it, one has to review his/her expectations.
This shows the cyclical nature of events in the process of negotiation ie Get the facts, determine the bargaining strengths, set objectives, plan strategies/tactics, negotiate and review performance.
Phases/Stages of Negotiation:
Negotiation falls into three distinct phases: pre-negotiation, the actual negotiation and post-negotiation.
- Pre-negotiation: In this phase the matters to be determined are as follows:
Who is to negotiate, what is to be negotiated, determination of venue, gathering intelligence and most importantly tactic and strategy.
- The actual negotiation (meeting phase):
- Stage one: Introductions, agreement of an agenda and rules of procedure
The major aim of this stage is to establish atmosphere conducive to agreement. This may include an impression of wishing to work to a mutually advantageous goal, the physical arrangement of venue, restating areas of agreement and so on.
- Stage two: Ascertaining the negotiation range: This is the start of the debate stage where the issues which the negotiation will attempt to resolve are ascertained. With adversarial negotiations this may be a lengthy stage since the participants often overstates their opening positions. However with partnership negotiation, there is more openness that saves time.
- Stage three: Agreement of common goals which must be met if the negotiation is to reach a successful outcome: This will usually require some movement of both sides from the original negotiating range but the movement will be less or unnecessary in partnership negotiations.
- Identification of and, when possible, removal of barriers that prevent attainment of agreed common goals: At this stage there will be:
- Problem solving
- Consideration of solutions put forward by each party
- Discertainment of what concessions can be made
It may be useful to: review what has been agreed, allow recess for each side to reconsider
Its position and make proposals or concessions which may enable further progress to be made.
If no progress can be made it may be decided to:
- Refer the issue back to higher management
- Change the negotiators
- Abandon the negotiations with the least possible damage to relationships
- Agreement and closure: Drafting of a statement setting out as clearly as possible the agreement(s) reached and circulating it to all parties for comment and signature.
Post-negotiation involves the following activities:
- Drafting a statement detailing as clearly as possible the agreements reached and circulating it to all parties for comment and signature
- Selling the agreement to the constituents of both parties i.e. what has been agreed, why it is the best possible agreement, what benefits will accrue.
- Implementing the agreements, e.g. planning contracts, setting up joint implementation teams, etc
- Establishing procedures for monitoring the implementation of the agreements and dealing with any problems that may arise.
Composition of effective negotiation team.
- User department
- Accounting officer
- head of procurement and staff
- Sales department
Qualities of a good negotiator.
- Communication skills
- Market intelligence
- Good understanding on the act