Do You Know How to Approach a Specific Negotiation Situation?

For negotiation to make sense, the parties involved must have both common and opposing interests.

Two (or more) parties negotiate because they can offer something to each other and, in return, receive something. Most of what is given and desired causes disagreement to some extent because the negotiating parties have different interests and perceptions of the negotiation situation. The way we resolve such situations depends on our understanding of how to approach a specific negotiation situation, and for that, we need to understand the context of the negotiation situation. Therefore, how to approach a specific negotiation situation should be our thoughtful choice, part of our strategy and our preparation.

Essentially, negotiation situations can be considered as:
• A one-time transaction – when it involves negotiating a deal in which the parties entering into the deal will no longer be in a business relationship afterward
• Long-term business relationships – when it involves negotiating a deal in which the parties establish long-term business relationships (or are already in such relationships)

Furthermore, negotiation situations can be categorized as:
• Distributive in nature – when negotiating over a single item (dispute)
• Integrative in nature – when negotiating over multiple items (disputes)

In every negotiation situation, consciously or unconsciously, we take care of two things:
• The outcome of the negotiation (the goals we want to achieve to a greater or lesser extent) and
• The relationships we have or want to have with the other party.
Of course, things become complicated when they are elaborated upon, and other aspects are added, which we will see below.

Now let’s consider two negotiation situations, one simpler, a transaction-distributive in nature, and one significantly more complex, long-term partnership relationships-integrative in nature, to provide frameworks – How to approach a specific negotiation situation.

Business Case 1.
You want to sell a used machine (one year old) of high value to someone, and the only thing you will negotiate is the price. You want to get the highest possible price for your machine, while the other party wants to buy it at the most favorable possible price. Consider how you would negotiate in these situations:
• You are negotiating with a person you are meeting for the first time and will not be in any business relationship afterward.
• You are negotiating with a person you are meeting for the first time and do not plan to be in further business relationships; however, you have a common circle of acquaintances.
• You are negotiating with a person who is your acquaintance, and you have a common circle of acquaintances.
• You are negotiating with someone with whom you have long-term business relationships on some other basis.
• You have financial problems and urgently need financial resources (the other party from the previous points is aware/unaware of this).
• You know/do not know that the other party is in a position to make a lucrative deal and urgently needs a machine like the one you are selling, and they have no other alternative in such a short time.

Business Case 2.
Let’s say you are entering into a consortium with someone to participate in a tender where knowledge, skills, finances, and other resources are needed, of which you have some resources and other companies have some other resources. What will you negotiate about and how will you negotiate the establishment of the consortium? 

• How to evaluate individual resources with which individual companies enter into a joint venture? What will your efforts be? Will some partners in the consortium try to achieve greater profit/gain at your expense? Will they charge such a margin that you lose the entire deal?

It is understandable that you will strive to achieve the best possible agreement for your company, but you must also take care of your business partners because you cannot do the job alone, so if you are only focused on the outcome of the negotiation in your favor (your goals), you may end up without partners, and thus without the entire deal (revenue). However, you must also ensure that your company does well in that deal because that is why you are in business, to generate revenue and profit.

The principles of creating value and sharing value (making mutual concessions) in these two situations are different.
• Generally, a one-time transaction-distributive in nature requires you to be cautious in giving essential information to the other party (information that may be detrimental to you) and strive to obtain essential information from the other party to use it to your advantage, as can be inferred from the variants I provided in Business Case 1.
• Generally, long-term business relationships-integrative in nature require significant information exchange if significant value is to be created (maximized value) from the business relationship. In assumed long-term partnership relationships, the exchange of information largely depends on the level of trust that exists among partners, so negotiators must first work on establishing trust.

Things become even more complex when we need to create value in situations where we have a one-time transaction-integrative in nature when it is essential to exchange information in a situation where there will be no long-term business relationships and trust is not built. Situations become even more complex when we have so-called ‘Multiparty negotiations’ where the interests of multiple participants must be considered, where coalitions for and against our benefit are formed, and where the sequence of involvement of negotiation participants must be taken into account. Along with all this, you need to consider what approach (strategy and tactics) the other party will have so that you are not led ‘thirsty across the water.’

How we should approach a specific negotiation situation will depend on our understanding of the mentioned situations, and it essentially boils down to the fact that in every negotiation situation we need to use two basic approaches or more. Let’s first consider the two basic ones:

• Cooperative approach – Every negotiation situation requires us to be cooperative to some extent (we give and require certain information, we give and seek some concessions), because if we are not cooperative, we cannot create value – ZOPA (Zone of Possible Agreement) and we will have nothing to share. Of course, in a one-time transaction-distributive in nature, we will be significantly more restrained in giving essential information and concessions.

• Competitive approach – Every negotiation situation requires us to be competitive to some extent. Competitiveness is necessary for us to appropriate part of the created value for ourselves, and that is the basic purpose of negotiation. Of course, just as in creating value, it is important to understand the modalities of competitiveness.

For these two approaches, we need excellent skills in asking questions and listening, which the vast majority of those participating in negotiations simply do not have developed (this conclusion is drawn from research and my own experience).
• To understand my assertion, I suggest that you participate as an observer in the next negotiations and note how many and what kind of questions negotiators from your side and theirs will ask.
• To improve your skill, I suggest that before the next negotiations, you write down what essential information you need from the other party to achieve the best possible agreement, and what questions you will ask and how to obtain that information.

It often happens that negotiators only try to argue their positions, and it is known that the other party will agree to the deal for their reasons, which should of course be uncovered. Negotiators frequently apply a “one size fits all” approach in all negotiation situations, as over time they adopt only one way of negotiating, often without being aware of it.

• Compromise as an approach – is not the same as making concessions, as exchanging something that the other party values more for something that we value more and on that basis reaching an agreement, and that is the basic principle of negotiation. Compromise is when both parties agree to something that is not entirely in line with their expectations, i.e., the value they want to obtain from the negotiation, yet they agree to it to continue the negotiations or to reach some sort of agreement. To avoid this, negotiators need to have well-developed cooperative and competitive skills. However, in the absence of such knowledge and skills, those participating in negotiations often declare ‘rotten’ compromises as exceptional achievements.

• Avoidance as an approach – avoidance is also used as part of our strategy or tactics in various cases, one of which might be when you know that the other party has a “deadline” so you intentionally delay negotiations because you know that the other party will be more lenient when you put them under time pressure.

• Accommodating as an approach – the basic principle in negotiations is that you never give something without getting something in return, and there are several reasons for this. One is that you will create a pattern of behavior, and the other party will always use it, perhaps without you even being aware of it.
However, there are some exceptions when you need to accommodate the other party without getting something in return (at that moment), for example, as a sign of goodwill for continuing negotiations, or if you have long-term partnership relationships and the partner is in a difficult situation, or if something arose from your poor actions and you want to appease the other party. But this should always be part of your well-developed strategy and tactics, in the good sense of the word and not as manipulation.

In conclusion, it is essential to understand the negotiation situation so that you can develop/define an adequate approach (strategy and tactics) considering all the elements mentioned here and also taking into account the understanding of negotiation that you have gained in previous texts and that you will gain in the future.

S.M.A.R.T. – WIN Concept of Business Negotiation 

Copyright Ivica Katanić, www.pregovaranje.com