What Are Negotiations?
Negotiations are an often underutilized Legal Risk Management (LRM) tool. Used as a dispute resolution mechanism, negotiations can be used to resolve disputes, internal and external to a corporation, prior to such disputes turning into litigation. It is another tool to avoid the risk of litigation or arbitration and can minimize legal costs and expenses that might otherwise occur.
Negotiations can be simple or complex, depending on the subject matter. International negotiations are the most complex as they involve different cultures, languages, legal systems, and viewpoints. Nonetheless, all negotiations, whether domestic or international, will involve strategies, knowledge of the facts and issues, an understanding of the other side’s viewpoints, and, above all else, an understanding of the problems and risks at hand.
Stages of Negotiations
Negotiation can be defined primarily as a decision-making process whereby two or more parties resolve their disputes or differences by advancing their interest’s vis-à-vis each other. Negotiations may be broken down into several distinct stages:
The beginning or pre-negotiation stage
The middle or negotiation stage
The final or post- negotiation stage
All three stages are crucial to successful resolution of a dispute or potential dispute that could lead to the risk of litigation.
The beginning stage is just as important as the middle or final stage and deserves some consideration.
The Pre-negotiation Stage
Prior to negotiating with the other party or disputant, a party must understand the facts, identify the issues involved, and map out a strategy to deal with negotiations. Though it may seem easy, this stage actually involves numerous steps. Each step may involve several processes or sub-processes as well. The basic steps are as follows:
Determining the problem at hand
Determining the interests of all parties involved
Identifying possible solutions
Deciding upon negotiation strategies
Understanding your best alternative to a negotiated agreement—sometimes called the BATNA.
Knowing your BATNA sets the bottom floor of any deal, as it will set the range of a possible settlement. No party will agree to a negotiation that offers less than the party’s BATNA.
Many people fail to consider their BATNA before entering into negotiations. Only when one truly knows his or her BATNA, can one enter into effective negotiations. After all, how can you really negotiate if you don’t know your BATNA?
For example- if you are trying to buy a new car and are relying on trading in your used car for the down payment, you need to know the true value of your used car before you negotiate the purchase of the new car. If you are thinking of buying a house but are relying on the proceeds of the sale of your current house to fund the down payment, you can’t really negotiate the purchase of the new house without knowing the approx. value of your current house.
Therefore, when a company or organization negotiates a contract, it must first understand its BATNA before it negotiates with its counterpart. Only when you understand your alternatives do you really understand what the floor or the bottom is. Afterall, why negotiate a deal for less money than your best alternative- or BATNA?
Remember- knowing your BATNA ensures you won’t leave money on the table. Take the time to understand your BATNA.