Log In Menu

Copyright
Business Courses / Course / Chapter

Negotiation | Definition, Process & Stages

Lesson
Transcript

Devon Denomme, Jennifer Lombardo, Wendy Kwong

Learn the negotiation definition and the purpose of negotiation. Read about the negotiation process and explore
the different steps and stages of negotiation. Updated: 11/21/2023

FAQs
Activities

Writing Prompts about What is Negotiation? - The Five Steps of the

Negotiation Process

Short Essay Prompt

Write a brief essay made up of four paragraphs about whether the results of negotiation could be finalized with a
handshake based on a verbal agreement rather than a written agreement. If a company has a longstanding
relationship with the other party, would a verbal agreement be sufficient compared to a written contract? Discuss
the pros and cons of finalizing the results of a negotiation verbally and in writing.

Scenario Case Prompt

Suppose a local contractor has been hired to complete some renovations in an office building. After the
negotiation process, work commences based on the terms outlined in the final agreement. While tradespeople
who work for the contractor to perform the necessary work for the renovation project, they inadvertently cause
some damage to the existing property. This particular situation is not specifically addressed in the written and
signed contract for the renovations. When the damage is brought to the property owner's attention, it is resolved
with an oral agreement whereby the contractor agrees to fix the damage caused by the tradespeople for no
additional cost. In this situation, what is the best course of action for the property owner? Is the oral agreement
adequate given the new issues that have arisen during implementation?

Journal Prompt

At your place of work, you have been promoted from an administrative role to a new position in the purchasing
department. Your job description includes but is not limited to procuring goods for the company and coordinating
shipments with suppliers. Imagine one day you are asked by the purchasing manager to research a new
prospective supplier. Your assigned task involves comparing the company's current supplier with the prospective
supplier and what other competitors in the marketplace have to offer. What type of information would you research
and summarize? How can it be used as leverage during the negotiation process?

Solutions:

Short Essay Solution

While sometimes a handshake and verbal agreement may be sufficient for finalizing the results of negotiation,
generally, a written agreement is more beneficial. Although a handshake and verbal agreement are both simpler
and quicker, especially when a previous similar agreement is already in place with a longstanding vendor, a written
contract helps ensure there are no misunderstandings between both parties. For the protection of the parties
involved, a written contract specifies the terms and conditions of the agreement. Compared to a verbal agreement,
a written contract can be more time-consuming and expensive, especially if legal counsel is required. However,
putting the agreement in writing is more beneficial if a dispute arises or if one party breaches the terms of the
contract.

Scenario Case Solution

In this scenario, it may be easier for the property owner to simply accept the contractor's oral agreement that the
damage caused will be fixed for no additional cost. However, the best course of action for the property owner
would be to create an addendum to the original agreement. Doing so is wise because new terms and conditions
may need to be agreed upon regarding the repairs. Depending on the extent of the damage, the addendum could
outline details such as the quality of materials, the timeline for completion, and other expectations. An oral
agreement may not be adequate, especially if repairs cannot return the property to its original condition. In this
case, it is advisable to document a clause in the addendum that requires the contractor to guarantee the repair
work for a period of time to minimize the risk of recurring issues in the future.

Journal Solution

For the assigned task of comparing the current supplier with the prospective supplier and other competitors, a
number of different selection criteria should be taken into consideration. For example, you could start by
comparing costs and pricing offered by each supplier. You would also want to consider factors such as delivery
and servicing. Additionally, it is important to take into account what kind of reputation each supplier has when it
comes to product quality and expertise in the market. For some companies, another consideration is social
responsibility and the environmental impact of their products and operations. The results of the research can be
summarized using a rubric with rating criteria based on the needs of the company and its priorities when securing
a supplier. During the negotiation process, detailed research and information about available alternatives can be
used as leverage because it provides factual evidence, substantiates claims, and increases bargaining power.

What is the purpose of negotiation?

The main purpose of the negotiation process is to peacefully resolve a conflict between two or more parties and
return operations to a satisfactory state. During negotiation, each party will gather evidence to support their
claims, determine a meeting location, discuss small details with the other parties, contribute and sacrifice benefits
to create a viable contract, and finally agree upon specific terms to implement.

What is negotiation and why is it important?

Negotiations are a group of discussions or a five-step process used to form business relationships and resolve
conflicts between two or more parties. They are important because they allow disagreements to be resolved
peacefully and can create lasting business partnerships where all parties contribute to the overall success of the
agreed terms.

What are the five stages of the negotiation process?

The negotiation process contains five stages, each involving certain characteristics that progressively enhance the
potential for agreement between all involved parties. They are:

1. Preparation and planning

2. Definition of ground rules
3. Clarification and justification
4. Bargaining and problem-solving
5. Closure and implementation
Create an account

Table of Contents

What is Negotiation?
Negotiation Process
Stages of Negotiation
Lesson Summary

Show

What is Negotiation?

In many fields of business, multiple organizations must work together to achieve a common goal. However, people
and processes do not always work in unison, and these occurrences may lead to conflict between certain areas
within or between each company. Conflicts can be resolved or avoided through negotiation, allowing each
business to proceed peacefully with its specialized roles or operations on a set of agreed terms.

To unlock this lesson you must be a Study.com Member.

Create your account
 Video
Quiz
Course

268K views

Negotiation Process

Most often, negotiation is a process that involves many unique elements and aspects of consideration. In
business fields, the negotiation process must account for internal factors, such as people (workers), equipment,
procedures, and external business ventures, including the economic climate, market competition, and interests of
business partners and shareholders. When utilizing the negotiation process, all parties must consider the
consequences of their choices and determine the best possible outcomes to present to other negotiating parties
before a final decision is reached.

For example, if one company chose to buy out another company and both parties were mutually interested in
creating the best merger outcome. The negotiation process would likely be used to reach a final decision. When
the company being acquired is fully integrated into the acquiring company, negotiations may decide that all
employees from the prior company would retain their positions with equal benefits. Likewise, the equipment from
the acquired company would be incorporated into the acquiring company. Inevitably, both negotiating parties
realize that the merger will create a stronger, more competitive business that will interest both the buyer and the
company being acquired.

Elements in Negotiation

There are a number of key elements and considerations to make while using the negotiation process in any
application. Decisions made during the negotiation process cannot only affect short-term outcomes. Still, they can
change the long-term objectives of each party, impact future collaboration efforts, or even affect the course of the
national or global economy. Before, during, and after employment of the negotiation process, all involved parties
should recognize the impacts that the following elements of negotiation may have on business:

To unlock this lesson you must be a Study.com Member.

Create your account

Stages of Negotiation

The negotiation process utilizes five specific steps to resolve conflict or help numerous parties reach a decision
effectively. The five stages of negotiation used in most fields of business are:
 1. Preparation and planning
2. Definition of ground rules
3. Clarification and justification
4. Bargaining and problem-solving
5. Closure and implementation

The following sections will provide an overview of each of the five negotiation steps, describe their specific
functions within the negotiation process, and explore a progressive example of the stages of negotiation in action.

Preparation and Planning in Negotiation

The first step of the negotiation process is preparation and planning. During this stage of negotiation, all
participating parties organize together and obtain the pertinent facts or information required for an effective
negotiation to take place, which could include an examination of history, the realization of payment, or the
determination of benefits. Further, the potential value of negotiation is determined, and the interests of each party
become better understood. A specific time and place where the meeting will be held are also determined, and a
time scale may be employed so that further disagreement or conflict does not occur. Preparation is important to
ensure the validity of arguments and establish relationships that are sought to be built by each party.

In order to illustrate the negotiation process and stages of negotiation, an example scenario between a labor union
and a large corporation will be analyzed. If a corporation did not fully represent its employees or take action in their
best interests, for example, then a labor union would rightfully not be pleased about the treatment of its members.
The union may choose to strike, which could lead to negotiations between the two parties with the intention of
ensuring that strikes do not continue to happen. During the preparation and planning stage of negotiation, the
labor union and the large corporation would gather evidence of their actions, determine a meeting time and
location, and recognize the value of negotiation to prevent further conflict as well as the interests of each party.

Definition of Ground Rules in Negotiation

Following the planning and preparation stage, each participating party must establish ground rules and conditions
before the meeting take place. Considerations may be given to the meeting location, any potential time constraints
placed on the negotiation, any topics that are not willing to be discussed, and what course of action will be taken if
no agreement is reached. Additionally, if applicable to a sale, each party should determine the price being sought
during negotiation. For instance, a company may need to determine the bottom line (lowest point willing to be paid
by another party, such as a minimum of $1 million to work for) or provide an opening offer (starting negotiation
price) before the meeting takes place.

Before the meeting takes place, the labor union and large corporation determine that the meeting will be held for
two days at the corporation's headquarters. The discussion will solely revolve around employee treatment
regarding work procedures and company policies, as well as include a discussion about employee benefits and
pay. The labor union uncovers that the corporation is willing to give the union employees a $500 minimum bonus
as bottom-line compensation for their efforts. Hence, the union suggests a bonus of $750 as an opening offer. If
no agreement is reached after the negotiation, the union decides to consider striking more regularly.

To unlock this lesson you must be a Study.com Member.

Create your account

Lesson Summary
A negotiation is a series of discussions or processes used to resolve conflicts peacefully. Negotiations are most
beneficial when a conflict consists of two or more parties or groups, when all parties want to work together
(instead of having a dysfunctional conflict situation), or when all parties feel that the negotiation will lead to a
better outcome. The negotiation process consists of five steps, each of which must consider elements of
negotiation such as communication, party relationships, alternatives or options, legitimacy of the conflict, the
interests of each party, and the commitment of each party to resolving the conflict.

To unlock this lesson you must be a Study.com Member.

Create your account

Video Transcript

Negotiation

The Ninja Corporation has one of the largest factories on the East Coast. Every five years, the company puts out a
request for bids for businesses to clean and paint the factory floor. Once a contractor is selected, Ninja
Corporation starts a negotiation process in order to facilitate the best price and service on this massive
undertaking. Negotiation is an open process for two parties to find an acceptable solution to a complicated
conflict. There are some specific conditions where negotiation will achieve the best results:

When the conflict consists of two or more parties or groups

A major conflict of interest exists between both parties
All parties feel that the negotiation will lead to a better outcome
All parties want to work together, instead of having a dysfunctional conflict situation

Ninja Corporation has received numerous bids for the factory painting job. The company has decided to enter
negotiations with Wet Paint Biz. There are five steps to the negotiation process, which are:

1. Preparation and planning

2. Definition of ground rules
3. Clarification and justification
4. Bargaining and problem solving
5. Closure and implementation

Wet Paint Biz and Ninja Corporation are starting to get organized for the big negotiation meeting that will be held
at the local town office.

Preparation and Planning

Preparation and planning is the first step in the negotiation process. Here, both parties will organize and
accumulate the information necessary to have an effective negotiation. Ninja Corporation and Wet Paint Biz both
need to prepare fully for the negotiation. Information can be powerful in negotiations and help add validity to
claims. Both companies should investigate each other's history and try and figure out what the opening offer will
be for the paint job. Wet Paint Biz needs to uncover the highest amount Ninja Corporation is willing to pay for the
factory paint job, while Ninja Corporation needs to figure out the lowest Wet Paint Biz will take for the job.

Definition of Ground Rules

The second step in negotiation is the definition of ground rules. In this step, rules and procedures will be
established for the planned negotiation. Consideration will be given to questions, such as:

Where will negotiations take place?

Will time constraints exist?
Will there be any issues that are off limits?
What happens if there's not any agreement?

In addition, both parties will try and figure out what price should be the starting point for the negotiation. Also,
demands and expectations should be disclosed up front. Lastly, the bottom line, which is the lowest price that Wet
Paint Biz will provide services to Ninja Corporation for, will need to be uncovered by Ninja Corporation. Ninja will
start the negotiations with an opening offer, or starting price, suggesting a price of $25,000 for the job. Both
parties also agreed that the negotiations would last one day and if a price for the job was not agreed upon, then
Ninja Corporation would consider a different vendor.

Clarification and Justification

Now that the rules have been established, a discussion needs to take place regarding the specifics of the job price.
In the third negotiation step, clarification and justification, the positions of both parties are discussed at length.
Each side will get a chance to explain, justify and support their original request. This part of the negotiations
should not be argumentative, but instead, it should provide the opportunity for each side to educate and inform
each other about their position. Ninja Corporation feels that the factory job should only take $25,000 to complete.
They provide documentation to Wet Paint Biz to show them what the previous vendor charged them and adjusted
for inflation.

To unlock this lesson you must be a Study.com Member.

Create your account
Unlock all of Study.com
back
I am a
Choose one
Looking to
Choose a goal

Start today. Try it now

Start today. Try it now

Business 107: Organizational Behavior

22 chapters | 144 lessons | 13 flashcard sets

Ch 1. The Evolution of Organizational...

Ch 2. Management and Organizational...
Ch 3. Foundations of Individual...
Ch 4. Personality and Behavior in...
Ch 5. Emotions and Moods in the...
Ch 6. Attitudes and Values in the...
Ch 7. Perception and Attribution
Ch 8. Employee Motivation
Ch 9. Individual Decision Making in...