Negotiation describes any communication process between individuals that is intended to reach a compromise or agreement to the satisfaction of both parties. Negotiation involves examining the facts of a situation, exposing the both the common and opposing interests of the parties involved, and bargaining to resolve as many issues as possible. Negotiation takes place every day in nearly every facet of life—from national governments negotiating border disputes, to companies negotiating work agreements with labor unions, to real estate agents negotiating the sale of property, to former spouses negotiating the terms of a divorce. Small business owners are likely to face negotiations on a daily basis when dealing with customers, suppliers, employees, investors, creditors, government agencies, and even family members. Many companies train members of their sales forces in negotiation techniques, and many others hire professional negotiators to represent them in business dealings. Good negotiation requires advance preparation, a knowledge of negotiating techniques, and practice.

Regardless of the type of negotiation, experts recommend entering into it with a cooperative rather than a competitive attitude. They stress that the point of negotiating is to reach agreement rather than to achieve victory. "Any method of negotiation may be fairly judged by three criteria," Roger Fisher and William Ury wrote in their book Getting to Yes: Negotiating Agreement without Giving In. "It should produce a wise agreement if agreement is possible. It should be efficient. And it should improve or at least not damage the relationship between the parties." When one of the parties uses "hard" negotiating techniques—or bullies and intimidates the other side in order to obtain a more favorable arrangement—it only creates resentment and poisons future negotiations. Instead, the idea should be to find a win/win solution that satisfies the needs and interests of both parties.


Good negotiation requires advance preparation, an understanding of the underlying assumptions and needs to be satisfied on both sides, a basic knowledge of human behavior, and mastery of a range of negotiating techniques, strategies, and tactics. In his book Fundamentals of Negotiating, Gerard I. Nierenberg outlined a number of steps toward adequately preparing for a negotiation. The first step is to "do your homework" about the other side. In nearly every negotiation, this will entail research to uncover their underlying motivations. In negotiating a business property lease, for example, it may be useful to find out the cost to the landlord of keeping the building vacant. The next step is to assess your own side's needs and establish objectives for the negotiation. It is important that the objectives remain relatively fluid, however, so as not to hinder the negotiation.

Another element of preparing for a negotiation involves deciding whether to use an individual or a team as your representative. This decision needs to be considered separately for every negotiation, and will always depend to some extent on what the other side is doing. A negotiating team offers a number of potential advantages. For example, it enables a small business to involve people with different areas of expertise in order to avoid misstatements of fact. Teams can also play into negotiating strategies and help gain concessions through consultation among team members. However, it is important to note that bringing extra people can be harmful to a negotiation when they do not have a distinct function. Using a single negotiator also offers some advantages. It prevents the weakening of positions that often occurs through differences of opinion within a team, and it also may help gain concessions through the negotiator's ability to make on-the-spot decisions.

The next step in preparing for a negotiation involves choosing a chief negotiator. Ideally, this person should have experience and training in negotiations, as well as a strong background in the area of the problem to be negotiated. Another important element of negotiation is selecting the meeting site. For a small business, holding the meeting on its own premises may provide a psychological advantage, plus will save on travel time and expense. It may also be helpful in enabling the negotiators to obtain approval from managers or use their own facilities to check facts and find additional information as needed. Holding a negotiation at the other side's offices, however, may help the negotiators to devote their full attention to the task at hand without distractions. It may also play into negotiating strategy by enabling the negotiators to temporarily withhold information by claiming a need to speak to higher level people or gather more information. A third alternative for a meeting site is a neutral location. Whatever site is chosen, it should be large enough to accommodate all parties and feature a telephone, comfortable chairs, visual aids, and available refreshments.


Fisher and Ury recommend conducting negotiations according to the process of "principled negotiation." Their method has four main tenets:

1. Separate the people from the problem. The idea should be for both sides to work together to attack a problem, rather than attacking each other. To achieve this goal, it is necessary to overcome emotional responses and set aside egos.
2. Focus on interests rather than positions. The natural tendency in many negotiations—for example, dickering over the price to be paid for an antique—is for both sides to state a position and then move toward middle ground. Fisher and Ury warn against confusing people's stated positions with their underlying interests, and claim that positions often tend to obscure what people truly hope to gain through negotiation.
3. Generate a variety of options before deciding what to do. The pressure involved in any type of negotiation tends to narrow people's vision and inhibit their creativity, making it difficult to find optimal solutions to problems. Instead, Fisher and Ury suggest developing a wide range of possible solutions as part of the negotiating process. These possible solutions should attempt to advance shared interests and reconcile differences.
4. Base the result on objective criteria. No one will be happy with the result of a negotiation if they feel that they have been taken advantage of. The solution is to find and apply some fair standard to the problem in order to guarantee a mutually beneficial result.

Fisher and Ury's principles provide a good overall guide for the actual negotiation process. In his book, Nierenberg offered a number of other tips and strategies that may be effective in promoting successful negotiations. For example, it may be helpful to ask questions in order to form a better understanding of the needs and interests of the other side. The questions must be phrased diplomatically and timed correctly in order to avoid an antagonistic response. The idea is to gain information and uncover basic assumptions without immediately taking positions. Nierenberg stressed the importance of listening carefully to the other side's responses, as well as studying their facial expressions and body language, in order to gain quality information.

Nierenberg noted that good negotiators will employ a variety of means to accomplish their objectives. Small business owners should be aware of some of the more common strategies and techniques that they may see others apply or may wish to apply themselves. One common strategy is forbearance, or "patience pays," which covers any sort of wait or delay in negotiations. If one side wishes to confer in private, or adjourn briefly, they are employing a strategy of forbearance. Another common strategy is to present a fait accompli, or come to a final offer and leave it up to the other side to decide whether to accept it. In a simple example, a small business owner may scratch out one provision in a contract that he or she finds unacceptable, then sign it and send it back. The other party to the contract then must decide whether to accept the revised agreement. Nierenberg warns that this strategy can be risky, and encourages those who employ it to carefully appraise the consequences first.

Another possible negotiating strategy is reversal, which involves taking a position that seems opposed to the original one. Similarly, feinting involves apparently moving in one direction in order to divert attention from the true goal. For example, a negotiator may give in on a point that is not very important in order to make the real objective more attainable. Another strategy involves setting limits on the negotiation, whether with regards to time, the people involved, or other factors. It is also possible to change the participation in the negotiation if it seems to be at an impasse. For example, a neutral third party may be enlisted to help, or one or two people from each side may be sent off to continue the negotiation separately. It may also be helpful to break down the problem into small pieces and tackle them one by one. Another strategy might be to trade sides for a short time and try to view the situation from each other's perspective. All of these techniques may be applied either to gain advantage or to push forward a negotiation that has apparently reached an impasse.

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