What is a 'Negotiation'

A negotiation is a strategic discussion that resolves an issue in a way that both parties find acceptable. In a negotiation, each party tries to persuade the other to agree with his or her point of view.

In advance of the negotiation, participants learn as much as possible about the other party's position and what the strengths and weaknesses of that position are, and are prepared to defend their positions and counter the arguments the other party will likely make to defend their position.

BREAKING DOWN 'Negotiation'

Many offers that people assume to be firm and final are actually flexible. For example, negotiation can be used to reduce debts, to lower the sale price of a house, to get a better deal on a car or to improve the conditions of a contract. Negotiation is an important skill when accepting a new job. Often, the employer's first compensation offer is not a company's best offer, and the employee can negotiate for higher pay, more vacation time, better retirement benefits and so on. Negotiating a job offer is particularly important because all future increases in compensation will be based on the initial offer.

Key Factors in Negotiation

There are understood to be seven elements or factors that come into play in successful negotiations:

  • Who the parties are in the negotiation and what their interests are. What is the background of all involved and how does that affect their position in the discussion?
  • The relationship of the parties and their intermediaries in the negotiation. How are the parties connected and what role does that play in the terms of the negotiation process?
  • Deciding how best to communicate the needs of the parties involved in order to secure their agreements through negotiation. What is the most effective way to convey the desired outcomes and needs? How can the parties be certain they are being heard?
  • Outlining hether there are any alternatives to what either party initially wants. If a direct agreement is not possible, will the parties need to seek substitute outcomes?
  • What options may be possible to achieve an outcome. Have the parties expressed where there may be flexibility on their demands?
  • The legitimacy of what each party requests and promises. What evidence do the parties offer to substantiate their claims and show their demands are valid? How will they guarantee they will follow through on the results of the negotiation?
  • The amount of commitment required to deliver the outcome of the negotiations. What is at stake for each party and do the negotiations consider the effort that will need to be made to achieve the negotiated results?
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