Negotiation is a dialogue between two or more parties to resolve points of difference, gain an advantage for an individual or collective, or craft outcomes to satisfy various interests. The parties aspire to agree on matters of mutual interest.[1] The agreement can be beneficial for all or some of the parties involved. The negotiators should establish their own needs and wants while also seeking to understand the wants and needs of others involved to increase their chances of closing deals, avoiding conflicts, forming relationships with other parties, or maximizing mutual gains.[1] Distributive negotiations, or compromises, are conducted by putting forward a position and making concessions to achieve an agreement. The degree to which the negotiating parties trust each other to implement the negotiated solution is a major factor in determining the success of a negotiation.
People negotiate daily, often without considering it a negotiation.[2][3] Negotiations may occur in organizations, including businesses, non-profits, and governments, as well as in sales and legal proceedings, and personal situations such as marriage, divorce, parenting, friendship, etc. Professional negotiators are often specialized. Examples of professional negotiators include union negotiators, leverage buyout negotiators, peace negotiators, and hostage negotiators. They may also work under other titles, such as diplomats, legislators, or arbitrators. Negotiations may also be conducted by algorithms or machines in what is known as automated negotiation.[4][1][5] In automated negotiation, the participants and process have to be modeled correctly.[6] Recent negotiation embraces complexity.[7]
Negotiation can take a variety of forms in different contexts. These may include conferences between members of the United Nations to establish international norms, meetings between combatants to end a military conflict, meetings between representatives of businesses to bring about a transaction, and conversations between parents about how to manage childcare.[8] Mediation is a form of negotiation where a third party helps the conflicting parties negotiate, usually when they are unable to do so by themselves. Mediated negotiation can be contrasted with the arbitration, where conflicting parties commit to accepting the decision of a third party. Negotiations in the workplace can impact the entire organization performance.[9]
Negotiation theorists generally distinguish between two primary types of negotiation: distributive negotiation and integrative negotiation.[10] The type of negotiation that takes place is dependent on the mindset of the negotiators and the situation of the negotiation. For example, one-off encounters where lasting relationships do not occur are more likely to produce distributive negotiations whereas lasting relationships are more likely to require integrative negotiating.[11] Theorists vary in their labeling and definition of these two fundamental types.
Distributive negotiation, compromise, positional negotiation, or hard-bargaining negotiation attempts to distribute a "fixed pie" of benefits. Distributive negotiation operates under zero-sum conditions, where it is assumed that any gain made by one party will be at the expense of the other. Haggling over prices on an open market, as in the purchase of a car or home, is an example of distributive negotiation.
In a distributive negotiation, each side often adopts an extreme or fixed position that they know will not be accepted, and then seeks to cede as little as possible before reaching a deal. Distributive bargainers conceive of negotiation as a process of distributing a fixed amount of value. A distributive negotiation often involves people who have never had a previous interactive relationship with each other and are unlikely to do so again shortly, although all negotiations usually have some distributive element.[12] Since prospect theory indicates that people tend to prioritize the minimization of losses over the maximization of gains, this form of negotiation is likely to be more acrimonious and less productive in agreement.[13]
Integrative negotiation is also called interest-based, merit-based, win-win or principled negotiation. It is a set of techniques that attempts to improve the quality and likelihood of negotiated agreement by taking advantage of the fact that different parties often value various outcomes differently.[14] While distributive negotiation assumes there is a fixed amount of value (a "fixed pie") to be divided between the parties, integrative negotiation attempts to create value in the course of the negotiation ("expand the pie") by either "compensating" the loss of one item with gains from another ("trade-offs" or logrolling), or by constructing or reframing the issues of the conflict in such a way that both parties benefit ("win-win" negotiation).[15]
However, even integrative negotiation is likely to have some distributive elements, especially when the different parties value some items to the same degree or when details are left to be allocated at the end of the negotiation. While concession by at least one party is always necessary for negotiations,[16] research shows that people who concede more quickly are less likely to explore all integrative and mutually beneficial solutions. Therefore, early concession reduces the chance of an integrative negotiation.[17]
Integrative negotiation often involves a higher degree of trust and the formation of a relationship, although INSEAD professor Horacio Falcao has stated that, counter-intuitively, trust is a helpful aid to successful win-win negotiation but not a necessary requirement: he argues that promotion of interdependence is a more effective strategy that development of trust.[18] Integrative negotiation can also involve creative problem-solving in the pursuit of mutual gains. It sees a good agreement as one that provides optimal gain for both parties, rather than maximum individual gain. Each party seeks to allow the other party sufficient benefit that both will hold to the agreement.
Productive negotiation focuses on the underlying interests of both parties rather than their starting positions and approaches negotiation as a shared problem-solving exercise rather than an individualized battle. Adherence to objective and principled criteria is the basis for productive negotiation and agreement.[19]
Text-based negotiation refers to the process of working up the text of an agreement that all parties are willing to accept and sign. Negotiating parties may begin with a draft text, consider new textual suggestions, and work to find the middle ground among various differing positions.[20]
Common examples of text-based negotiation include the redaction of a constitution, law or sentence by a constitutional assembly, legislature or court respectively. Other more specific examples are United Nations' negotiation regarding the reform of the UN Security Council[21] and the formation of the international agreement underpinning the Regional Comprehensive Economic Partnership (RCEP) in the Asia-Pacific Region,[22] where the parties involved failed in 2019 to agree on a text which would suit India.[23]
Such negotiations are often founded on the principle that "nothing is agreed until everything is agreed". For example, this principle, also known as the single undertaking approach, is often used in World Trade Organization negotiations,[24] although some negotiations relax this requirement.[25] The principle formed part of the British negotiating approach for the Brexit deal following the UK's withdrawal from the European Union.[26]
Integrated negotiation is a strategic attempt to maximize value in any single negotiation through the astute linking and sequencing of other negotiations and decisions related to one's operating activities.
This approach in complex settings is executed by mapping out all potentially relevant negotiations, conflicts, and operating decisions to integrate helpful connections among them while minimizing any potentially harmful connections (see examples below).
Integrated negotiation is not to be confused with integrative negotiation, a different concept (as outlined above) related to a non-zero-sum approach to creating value in negotiations.
Integrated negotiation was first identified and labeled by the international negotiator and author Peter Johnston in his book Negotiating with Giants.[27]
One of the examples cited in Johnston's book is that of J. D. Rockefeller deciding where to build his first major oil refinery. Instead of taking the easier, cheaper route from the oil fields to refine his petroleum in Pittsburgh, Rockefeller chose to build his refinery in Cleveland, because he recognized that he would have to negotiate with the rail companies transporting his refined oil to market. Pittsburgh had just one major railroad, which would therefore be able to dictate prices in negotiations, while Cleveland had three railroads that Rockefeller knew would compete for his business, potentially reducing his costs significantly. The leverage gained in these rail negotiations more than offset the additional operating costs of sending his oil to Cleveland for refining, helping establish Rockefeller's empire, while undermining his competitors who failed to integrate their core operating decisions with their negotiation strategies.[28]
Other examples of integrated negotiation include the following:
When a party pretends to negotiate but secretly has no intention of compromising, the party is negotiating in bad faith; for example, when a political party sees political benefit in appearing to negotiate without having any intention of making the compromises necessary to settle.[32][33]
Bad faith negotiations are often used in political science and political psychology to refer to negotiating strategies in which there is no real intention to reach compromise or a model of information processing.[34] The "inherent bad faith model" of information processing is a theory in political psychology that was first put forth by Ole Holsti to explain the relationship between John Foster Dulles' beliefs and his model of information processing.[35] It is the most widely studied model of one's opponent:[36] A state is presumed implacably hostile, and contra-indicators of this are ignored. They are dismissed as propaganda ploys or signs of weakness. Examples are John Foster Dulles' position regarding the Soviet Union.[36][neutrality is disputed]
The total of advantages and disadvantages to be distributed in a negotiation is illustrated with the term negotiation pie.[37] The course of the negotiation can either lead to an increase, shrinking, or stagnation of these values. If the negotiating parties can expand the total pie, a win-win situation is possible, assuming that both parties profit from the expansion of the pie. In practice, however, this maximization approach is oftentimes impeded by the so-called small pie bias, i.e. the psychological underestimation of the negotiation pie's size. Likewise, the possibility to increase the pie may be underestimated due to the so-called incompatibility bias.[38] Contrary to enlarging the pie, the pie may also shrink during negotiations e.g. due to (excessive) negotiation costs.[38]
In litigation, a negotiation pie is shared when parties settle outside the court. It is possible[39] to quantify the conditions under which parties will agree to settle, and how legal expenses and the absolute coefficient of risk aversion affect the size of the pie as well as the decision to settle outside the court.
Due to different cultural lenses negotiation style differ worldwide.[40][41] These differences comprise among others how the parties exchange information, the use of different strategies, conceptions of the nature of negotiation, the use of power, the use of options. Negotiations as they are often taught and used by practicionners in "Western" countries may not be effective or may even be counterproductive in "non-Western" countries – such as Asian countries.[42][43]
There are many different ways to categorize the essential elements of negotiation.
One view of negotiation involves three basic elements: process, behavior, and substance. The process refers to how the parties negotiate: the context of the negotiations, the parties to the negotiations, the tactics used by the parties, and the sequence and stages in which all of these play out. Behavior refers to the relationships among these parties, the communication between them, and the styles they adopt. The substance refers to what the parties negotiate over: the agenda, the issues (positions and – more helpfully – interests), the options, and the agreement(s) reached at the end.[44]
Another view of negotiation comprises four elements: strategy, process, tools, and tactics. The Strategy comprises top-level goals. Which typically include the relationship and the outcome. Processes and tools include the steps to follow and roles to take in preparing for and negotiating with the other parties. Tactics include more detailed statements and actions and responses to others' statements and actions. Some add to this persuasion and influence, asserting that these have become integral to modern-day negotiation success, and so should not be omitted.[44]
Strategic approaches to concession-making include consideration of the optimum time to make a concession, making concessions in installments, not all at once, and ensuring that the opponent is aware that a concession has been made, rather than a re-expression of a position already outlined, and aware of the cost incurred in making the concession, especially where the other party is generally less aware of the nature of the business or the product being negotiated.[45]
Negotiators do not need to sacrifice effective negotiation in favor of a positive relationship between parties. Rather than conceding, each side can appreciate that the other has emotions and motivations of their own and use this to their advantage in discussing the issue. Understanding perspectives can help move parties toward a more integrative solution. Fisher et al. illustrate a few techniques that effectively improve perspective-taking in the book Getting to Yes, and through the following, negotiators can separate people from the problem itself:
Additionally, negotiators can use specific communication techniques to build stronger relationships and develop more meaningful negotiation solutions.
A skilled negotiator may serve as an advocate for one party to the negotiation. The advocate attempts to obtain the most favorable outcomes possible for that party. In this process, the negotiator attempts to determine the minimum outcome(s) the other party is (or parties are) willing to accept, then adjusts their demands accordingly. A "successful" negotiation in the advocacy approach is when the negotiator c