Negotiation

Conceptual Overview

Negotiation is a critical managerial skill. Every business discipline requires some form of negotiation: purchasing, selling, proposing and defending budgets, handling conflicts with bosses and subordinates, dealing with regulatory agencies, or coordinating actions between departments in order to deliver the product to market efficiently and effectively. Courses in negotiation skills have become a popular staple in every major business school. The academic study of negotiation dynamics and processes, therefore, is often translated into prescriptive advice that can be given to negotiators on ways to perform more effectively.

The study of negotiation has focused on two basic fundamentally different negotiation processes: distributive and integrative. The first process is variously called distributive bargaining or claiming value negotiation. (While some authors attempt a formal distinction between bargaining, which is more distributive, and negotiation, which is more integrative, the two terms are used synonymously herein.) Distributive negotiations typically take place between buyers and sellers of some commodity (everything from a dozen apples in a farmers' market to a used car to a collective bargaining agreement); in this kind of negotiation, the amount of resources available is usually fixed, and each party's intent is to maximize the amount of resources they get (the cheapest price, the biggest share, the best contract). The essence of distributive bargaining is often represented as in Figure 1. Negotiators—buyer or seller—are encouraged to set three points for themselves in advance of the negotiation: an opening, where they expect to begin the negotiation; a target, which is the deal they hope to achieve; and a walkaway, or the lowest outcome they will still accept rather than walk away from the negotiation. Naturally, the buyer starts high and plans to make concessions down toward his or her target and walkaway, and the seller starts low and plans to make concessions upward to his or her walkaway. Naturally, neither reveals their target or walkaway, because to do so would give the other important information that would probably lead to a worse settlement for the discloser. If each party knew the other's walkaway, each could discover the size of the settlement zone; any proposed settlement within the settlement zone should be acceptable to both parties and lead to an agreement. Any proposed settlement outside the zone should be rejected.

Figure 1 Buyer and Seller Bargaining Range

Research on distributive negotiation has focused on various strategies and influence tactics that negotiators can use to persuade the other party to yield more than they do. These include tactics of setting a very high or low opening offer, signaling a serious commitment to the opening as a target, making very small concessions (and a very limited number of them) toward the target, asking the other lots of questions to get them to divulge their true target and walkaway, using deception and dishonesty to provide erroneous information, and making threats to walk away if the negotiator doesn't get everything he or she wants.

...