Negotiation

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. 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. 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. 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. In automated negotiation, the participants and process have to be modeled correctly. Recent negotiation embraces complexity.

Types

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. 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 arbitration, where conflicting parties commit to accepting the decision of a third party. Negotiations in the workplace can impact the entire organization's performance.
Negotiation theorists generally distinguish between two primary types of negotiation: distributive negotiation and integrative negotiation. 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. Theorists vary in their labeling and definition of these two fundamental types.

Distributive negotiation

The total of advantages and disadvantages to be distributed in a negotiation can illustrated with the term "negotiation pie". 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. Contrary to enlarging the pie, the pie may also shrink during negotiations e.g. due to negotiation costs.
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. 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.

Integrative negotiation

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. While distributive negotiation assumes there is a fixed amount of value to be divided between the parties, integrative negotiation attempts to create value in the course of the negotiation by either "compensating" the loss of one item with gains from another, or by constructing or reframing the issues of the conflict in such a way that both parties benefit.
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, 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.
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. 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.

Text-based negotiation

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.
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 and the formation of the international agreement underpinning the Regional Comprehensive Economic Partnership in the Asia-Pacific Region, where the parties involved failed in 2019 to agree on a text which would suit India.
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, although some negotiations relax this requirement. The principle formed part of the British negotiating approach for the Brexit deal following the UK's withdrawal from the European Union.

Integrated negotiation

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.
Integrated negotiation is not to be confused with integrative negotiation, a different concept 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.
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.
Other examples of integrated negotiation include the following:

In sports, athletes in the final year of their contracts will ideally hit peak performance so they can negotiate robust, long-term contracts in their favor.
A union needs to negotiate and resolve any significant internal conflicts to maximize its collective clout before going to the table to negotiate a new contract with management.
If purchases for similar goods or services are occurring independently of one another across different government departments, recognizing this and consolidating orders into one large volume purchase can help create buying leverage and cost savings in negotiations with suppliers.
A tech start-up looking to negotiate being bought out by a larger industry player in the future can improve its odds of that happening by ensuring, wherever possible, that its systems, technology, competencies, and culture are as compatible as possible with those of its most likely buyer.
A politician negotiating support for a presidential run may want to avoid bringing on board any high-profile supporters who risk alienating other important potential supporters while avoiding any unexpected new policies that could also limit the size of their growing coalition.