Negotiation

A dialogue between two or more parties to reach a mutually beneficial outcome or resolving a conflict

What is Negotiation?

Negotiation is a dialogue between two or more parties with the intention of reaching a mutually beneficial outcome or resolving a conflict. In negotiation, each party will try to persuade the other one to agree with his or her point of view. The goal is to avoid arguments and disputes and reach some form of compromise between parties.

 

Negotiation

 

Negotiation is applied in many aspects of everyday life, even though you may not realize it. Some examples in normal, everyday life include negotiating a price at an open market, negotiating a car purchase at a dealership, negotiating compensation for a job, and negotiations between warring countries.

 

How Negotiations Work

As mentioned, negotiations are a way of settling differences. The key to a successful one is to arrive at the outcome that you want, without creating any animosity. Negotiations, both in informal and formal forms, follow the same general process:

  1. Discussion
  2. Clarification
  3. Negotiating an outcome
  4. Agreement

Before starting a negotiation, it is important to assess not only what you are seeking out of the negotiation, but you must keep in mind what the other party is seeking as well. Only by understanding each other’s desires can you hope to fulfill both parties’ needs in a win-win scenario.

If you only seek a scenario where only you get what you want, but the other party is disadvantaged, you will create hostility and are less likely to end up getting the outcome you desire.

 

1. Discussion Phase

The discussion stage of the negotiation is crucial to getting a better understanding of what the other party is looking for. You want to ensure that you are listening, questioning, and clarifying what the other party has brought forth.

It is equally important to communicate what you are looking for. However, you do not want to make the mistake of saying too much and giving away too much information.

 

2. Clarification Phase

The clarification stage is simply to ensure that both parties have identified and established a common ground on which to start their negotiation. Misunderstandings should be minimized as much as possible.

 

3. Negotiation Phase

As mentioned, a win-win outcome is the best outcome. Sometimes, it may not be possible, but it should be what both parties are striving for.

Alternative strategies and compromises should be made in the negotiation phase. You should avoid lengthy negotiations, and compromising may be necessary.

 

4. Agreement Phase

Each party should keep an open mind so that the best solution can be achieved for all parties. Agreements should be clear to all parties, without ambiguity.

 

Negotiations in Business

Negotiations play a crucial role in the world of business. Whether it is negotiating your salary with a prospective employer, closing a potential sale, or negotiating a deal on a company acquisition, negotiation skills are important for a successful career.

Possessing strong negotiation skills can lead to success in business through different aspects, such as:

  • Building relationships
  • Delivering quality solutions
  • Solving potential conflicts
  • Creating value for clients or senior employees

 

Negotiation Skills

Strong negotiators will develop their written, verbal, and non-verbal communication skills. Good negotiators usually exhibit the following traits:

  • Strong communication skills
  • Flexible
  • Creative thinkers
  • Self-awareness, and awareness of others
  • Honest

There are varying communication styles to be used during a negotiation, such as a passive style, aggressive style, or assertive style. An assertive style is preferable to increase the chances of negotiating a successful outcome.

A passive communicator will adopt under-confident language and give in to demands too easily. On the other hand, an aggressive communicator is very confrontational and creates animosity between parties.

An assertive communicator strikes a good balance – being both confident and thoughtful. They are more likely to remove emotion from the negotiation and reach agreeable outcomes.

 

Tips for Negotiations

 

Don’ts:

  • Don’t turn the negotiation into a confrontation. You should not be aggressive. You should remain calm and professional.
  • Don’t be too emotional. Remember what your goal is and do not make the negotiation personal.
  • Don’t push the negotiation too far. You should have a good idea of when to keep pressing for your position, to accept a compromise, or to just walk away.

 

Do’s

  • Be clear about your position and what you are seeking.
  • Make sure you have a good idea of what the other party is seeking.
  • Be prepared to compromise with what the other party is seeking; you need to be reasonable to be a strong negotiator.
  • Be confident and consistent with what you are seeking.
  • Seek out leverage over the other party. For example, if you are in a salary negotiation, you can remove the time aspect of the negotiation by saying, “I’ll sign right now for $XXX amount.”

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • 5 Ways to Negotiate a Pay Raise
  • Interpersonal Skills
  • Negotiating Tactics
  • Networking and Building Relationships within the Company

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!