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What is Negotiation? - The Five Steps of the Negotiation Process

  • 1:35 Preparation and Planning
  • 2:17 Definition of Ground Rules
  • 3:16 Clarification and…
  • 4:29 Bargaining and Problem Solving
  • 5:35 Closure and Implementation
  • 6:11 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Companies have to negotiate in numerous areas of organizational conflict. Negotiation is an open process for two parties to find an acceptable solution to a complicated conflict. There are five steps to the negotiation process.

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.

Wet Paint Biz understands the $25,000 request, but offers to complete the job for $42,000. Wet Paint Biz provides documentation to support the price increase. The company explains that the paint has increased in price, and new laws require them to hire certified technicians to disassemble certain parts of the factory for cleaning. This is an added cost that the previous vendor did not have to incorporate into their price.

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