Negotiation is a critical skill for business managers, influencing everything from securing partnerships to resolving disputes and finalizing contracts. A well-planned negotiation can lead to mutually beneficial outcomes, while a poorly executed one can result in missed opportunities or damaged relationships. This article provides a structured approach to planning and conducting successful business negotiations, along with real-life examples of successes and failures.
1. PREPARING FOR THE NEGOTIATIONS
Clarifying Objectives
Before entering negotiations, managers must define their objectives clearly. Outline primary and secondary goals, specifying what is negotiable and what is non-negotiable. This ensures alignment with business strategy and prevents wasted time.
Don’t be fooled by the ‘Great Leader’ approach to negotiating in which there is a winner and looser (distributive negotiating). Be clear that both parties need to emerge with ‘wins’, if a long lasting relationship is to be realized.
Gaining Approval to Negotiate
Ensure internal alignment by obtaining approval from key stakeholders. This involves briefing senior management, legal teams, and finance departments to avoid last-minute disruptions. It is also essential to define the authority levels of negotiators.
This might seem obvious, but think of recent events on the global stage.
Setting Up the Team
A negotiation team should include individuals with expertise in finance, legal matters, and operations. Assign roles based on strengths: a lead negotiator, a financial expert, a legal advisor, and a strategist. Conduct pre-negotiation meetings to ensure everyone is aligned.
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Gathering Facts and Defining Issues
Successful negotiations are based on data. Conduct research on market trends, competitor agreements, legal constraints, and historical agreements. Use SWOT analysis to assess strengths and weaknesses in relation to the other party.
See our course on ‘Understanding International Business’ to get some pointers of where to look:
Setting the Agenda and Structuring the Program
Draft an agenda outlining key topics and establish a timeline for discussions. Define the order of discussion points strategically, starting with easier issues to build momentum before tackling complex topics.
Preparing Your Negotiating Position
Take the time to:
- BATNA (Best Alternative to a Negotiated Agreement): Identify the best possible alternative if the negotiation fails. This provides leverage and prevents desperation.
- WATNA (Worst Alternative to a Negotiated Agreement): Understand the worst-case scenario to assess risks and prevent overly optimistic expectations.
- WAP (Walk-Away Point): Set an absolute limit beyond which the deal is unacceptable. This ensures discipline in decision-making.
- Clarifying Limits of Authority: Ensure negotiators know their decision-making boundaries to avoid overpromising.
What Not to Do:
- Enter negotiations without a clear understanding of objectives and limits.
- Assume the other party is unprepared and neglect research.
Example of Failure
In 2011, Netflix attempted to renegotiate content licensing with Starz but failed to prepare a strong BATNA. Their inability to secure alternative deals led to significant content losses and a decline in subscribers.
2. MANAGING THE OPENING PHASE
What to Keep to Yourself
Do not disclose your urgency, budget constraints, or bottom line too early, as this may weaken your position.
Again think of recent negotiations on the international stage.
Understanding Needs and Opening Positions
Start with open-ended questions to understand the other party’s priorities. Listen actively and take notes to identify areas of flexibility. Use mirroring techniques to build rapport and demonstrate understanding.
What Not to Do:
- Reveal too much about internal pressures or financial limitations.
- Underestimate the importance of listening to the other party’s position.
Example of Success
Steve Jobs’ negotiation with record labels for iTunes succeeded because Apple identified a win-win scenario, providing digital distribution while preserving revenue streams for labels.
3. BARGAINING
Knowing Your Zone of Possible Agreement (ZOPA)
ZOPA defines the range where an agreement is possible. Calculate this range in advance based on both parties’ needs and limits.
Making Concessions Strategically
Never give away concessions without receiving something in return. Use conditional offers such as, “If you agree to X, we can agree to Y.” Prioritize non-monetary concessions when possible.
Obvious you might say?
Working Towards Agreement
Use collaborative problem-solving to align interests. Summarize progress frequently to maintain momentum and confirm mutual understanding.
What Not to Do:
- Make excessive concessions without reciprocal gains.
- Focus solely on winning rather than achieving a mutual benefit.
Example of Failure
Yahoo’s negotiation to acquire Facebook in 2006 collapsed when Yahoo undervalued Facebook’s worth, offering too low a price. Facebook walked away, and Yahoo missed a multi-billion-dollar opportunity.
4. DEALING WITH CHALLENGES
Overcoming Objections
Prepare responses to anticipated objections. Use data, case studies, and logic to reinforce arguments. Ask clarifying questions to understand concerns fully.
Breaking an Impasse
If discussions stall, change the format—introduce mediators, switch locations, or shift to informal discussions. Propose new solutions or package deals that address both parties’ concerns.
Creating Mutual Gain
Seek creative ways to expand the value of the deal. Explore trade-offs that benefit both parties without additional costs.
What Not to Do:
- Become overly rigid, leading to deadlock.
- Ignore underlying interests in favor of positional bargaining.
Example of Success
The 1985 Plaza Accord, where multiple nations negotiated currency realignments, succeeded because negotiators prioritized long-term mutual benefits over short-term gains.
5. CLOSING THE NEGOTIATIONS
Setting the Terms of Agreement
Confirm all terms in writing to prevent misunderstandings. Use simple and clear language to outline obligations, deadlines, and enforcement mechanisms.
Preventing Strong-Arm Techniques
Beware of artificial deadlines and last-minute demands. If faced with pressure tactics, remain calm and request additional time for review.
What Not to Do:
- Rush to close the deal without clarifying all details.
- Allow undue pressure to dictate the final terms.
Example of Failure
In 2016, Microsoft’s rushed acquisition of LinkedIn led to integration struggles, demonstrating the risks of inadequate closure planning.
CONCLUSION
Effective negotiation is an art that requires preparation, strategic execution, and adaptability. By following a structured approach, managers can maximize their chances of securing beneficial agreements while maintaining strong business relationships. Learning from both successes and failures in negotiation history can provide valuable insights for future engagements.
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