WHO SHOULD READ THIS
- Persons involved in any form of commercial business who may be involved in commercial negotiations.
THINGS YOU NEED TO KNOW
- While there should be no doubt that the primary aim of the commercial negotiation is to obtain your desired outcome, ensuring that the process is conducted in a respectful environment, and reaching an outcome that is to the benefit of both parties, can in many cases lead to a strengthening of the long-term relationship between both parties.
WHAT YOU NEED TO DO
- Consider the five key tips provided in this article as a starting point on effective negotiation strategies and seek further legal advice to maximise your chances of achieving a desired outcome.
Negotiation is an intrinsic part of our day-to-day lives whether it is with family members, friends or colleagues, over matters as simple as what to eat for lunch or who will be washing the dishes. While the scale of the potential outcome in commercial negotiation is significantly higher than those that many of us are ordinarily accustomed to, many of the fundamental principals that underlie successful negotiations are applicable regardless of what the subject of the negotiation may be.
In this article we set out five key tips to conducting a successful negotiation that may not only assist to avoid the need for long and costly court battles, but in some instances, can aid in building successful long-term relationships with other parties.
The preparation stage is most certainly the critical phase that can define the outcome of the negotiation. No stone should be left unturned at this point, and you should ensure that as much as possible is done to develop a full and complete understanding of the critical issues underlying the matter which will allow you to determine the best strategies to take into the negotiation. Being prepared will also allow you to determine the bargaining zone within which you will be able to determine whether to accept the other party’s offer or to suggest alternative compromises that may be reached to ensure the arrangement meets the needs of both parties. In particular:
- decide what would be your best outcome (i.e. your ultimate goal), and the worst outcome (i.e. the minimum outcome at which you will settle) as these limits will act as your boundary lines in making key decisions through the process and ensure you keep in mind which outcomes you must achieve, must avoid, and those that would ideally be achieved, and
- consider the other party’s underlying drivers and objectives and determine, to the extent possible, agreements that both parties would be willing to make in relation to each of the issues. Be flexible and consider a range of possible solutions.
While there may be unexpected proposals or strategies taken by the opposing party from time to time, it is important to keep an open mind and be flexible in assessing any such situations.
2. Focus on interests – not positions
Successful negotiators will always focus on seeking to resolve the issue at hand by understanding each party’s interests, rather than their positions. While positions reflect what we ultimately want as an outcome, interests focus on the underlying reason as to why we have chosen that position. When presenting possible solutions to the other party, be clear about why you’re proposing certain things and how they meet the needs of both parties. Conversely, when engaging with a party who refuses to budge from their position, it is critical that you understand the underlying interests they are seeking to protect so it will become possible to consider alternative positions that might be acceptable for both parties. From our experience, raising the following issues will assist in this process:
- the reasons why the other party is uncomfortable on a particular point
- the reasons why a particular position is important for the other party
- which aspects of your proposal the other party are most unhappy with
- what is needed to make your proposal more acceptable to the other party, and
- understanding the priorities of the other party.
Achieving a fair and reasonable outcome, or at the very least, the perception of a fair and reasonable outcome, are key elements in many commercial negotiations. In most instances, this will come down to imposing relatively objective and external standards like market value or past standards when attempting to reach an agreement. Where both parties can agree on standards, principles and arguments that make an agreement or a term feel more or less fair and reasonable, it more often than not results in successful negotiations. Some examples of questions that you could consider internally prior to the negotiation are:
- what standards might a judge apply?
- what should govern this agreement?
- how will we explain and defend each term – why that term?, and
- what will they argue? How can we build our case on top of theirs?.
4. Play the ball not the person
While important to be firm and robust in your stance, it is easy for parties in a long and stressful negotiation to make the mistake of losing sight of the true purpose of what needs to be achieved. Successful negotiators focus on solving the problem at hand, which is to reach an agreement that respects the needs of both parties. Focusing on the other party’s personality or other issues that are not directly relevant to reaching an agreement can be harmful to the negotiation. In particular, verbal attacks, expressing visible frustration and taking an overly adversarial approach tend to entrench both parties and can make it more difficult for the other party to make concessions to your position. Some further points that will assist in maintaining a respective and positive environment are:
- to be constructive
- don’t react to emotional outbursts
- don’t interrupt or point score and avoid sarcasm, and
- to build a working relationship (for example, avoid all party emails pointing out typos).
5. Control the agenda
Effectively managing the negotiation process is one of the most challenging elements to achieving a successful resolution. Where possible, the ability to have control over the location, timing, topics, and pace of negotiation will provide a significant advantage in your favour. While both parties will often face the pressure of wanting to reach a resolution as soon as possible, it is crucial that you avoid making rushed and ill-informed decisions. Don’t be afraid to inform the other party that more time is needed to consider a proposal, and only enter into the negotiation once you are satisfied you are fully prepared (for example, avoid, where possible, negotiations over unplanned phone calls).
While negotiations can be a daunting prospect for even those that are well experienced at it, it is important to bear in mind that the other party is also more than likely to be seeking the same outcome as you – to reach an agreement acceptable to both parties. While it is primarily the purpose of the negotiation to achieve your desired outcome, it is also important to keep in mind that you are likely to have dealings with the other party in the future and any hostile behaviour or taking an overly adversarial approach is unlikely to be ever effective in the long-run.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.