Negotiation: an underappreciated science

Anyone familiar with the numerous antiques shows that have come to pepper the daytime TV schedules is likely to have a curious idea of the art of negotiation. If these programmes are to be believed, the bargaining process whenever one dealer meets another is roughly as follows:

Buyer: “How much do you want for this art deco lampshade?”

Seller: “Oh, I was thinking somewhere in the region of a thousand pounds.”

Buyer: “I’m afraid that’s bit rich for my taste. How about a fiver?”

Seller: “Hmmm... Would you go as high as a tenner?”

Buyer: “Shall we say £7.50?”

Seller: “Done.”

In the real world, away from the glare of the cameras and the demands of clock-watching producers, negotiations very seldom unfold with such swiftness and ease. They’re often lengthy and complicated. There’s a science to them – one that’s frequently underappreciated.

This is why businesses and business schools alike should provide negotiation training. The impact that even a basic understanding of negotiation can have, particularly for entrepreneurial firms, is potentially enormous. Looking back, I think this is the skill that I most lacked – and which would have been most useful – early in my own career.

Negotiation can be summed up as the act of two or more parties with different preferences attempting to reach a joint decision. This involves the tactical exchange of information – asking questions, absorbing answers, integrating new information and then doing it all again in a fresh iteration.

There are two broad types – the first of which, distributive negotiation, aims to divide what we might call the pie of desirable outcomes. This is a win/lose, zero-sum scenario in which the size of the pie is fixed: every additional slice that one party gains means an additional slice lost for the other party.

By contrast, the second type, integrative negotiation, seeks to find a way to make the pie bigger for all. In this scenario, because the size of the pie isn’t fixed, everyone works together to identify and carve up extra slices.

Each type of negotiation requires different strategies. Elements of both are sometimes present and recognising which are predominant can be crucial to success.

I once worked for a company that ended up paying 100% more than the market rate for a critical component. It spent hundreds of thousands of pounds on lawyers in a bid to extricate itself from a five-year contract – to no avail. The director responsible for signing the deal had thought that the arrangement represented a genuine coup for the firm, little realising that the scenario was distributive rather than integrative.

This is a good example of cognitive bias. We all tend to be overconfident in our ability to assess and manage uncertainty, which is why the key to doing well in negotiations lies in preparing properly. It’s important to view things from the perspective of the other parties, to discern what their interests are and to consider who has the most information and who is best placed to make the first offer.

I’ve delivered negotiation training for many years. During that time, I’ve noticed three things in particular that surprise participants.

1. The art of the possible

Training opens people’s eyes to what is actually negotiable. Things that have been regarded as immutable and structural become opportunities for discussion. Having suddenly realised what can be achieved, participants return to their business lives and make step changes for the better.

2. Not everyone can do it

 Training can make people see that negotiation isn’t for them and that the responsibility would be better delegated to someone else. There’s no disgrace in this, as none of us is ideally suited to everything. Accepting as much could ultimately save a business millions of pounds.

3. We’re negotiating all the time

 Training shows us that negotiation has a role in almost everything. When we meet a new colleague, when we give or receive praise or criticism, even when we discuss who should wash up after a meal – it’s all negotiation. Acknowledging this can help to further hone our skills.

 Good negotiation training should highlight a variety of practice and offer role-playing exercises that allow individuals to grasp their own strengths and weaknesses. A profiling tool can be useful in enabling them to appreciate their natural attitudes and preferences when faced with conflict and disagreement. Importantly, a key goal should be to make clear who is up to the task and who ought to step aside.

The cut-to-the-chase convenience of Antiques Road Trip or Bargain Hunt makes negotiation seem the stuff of off-the-cuff whimsy. The reality is very different, and every business – not to mention every business student – would do well to understand why.

David Falzani MBE is a Professor at Nottingham University Business School’s Haydn Green Institute for Innovation and Entrepreneurship and president of the Sainsbury Management Fellowship.