Definition of negotiation

Official discussions between groups who are trying to reach an agreement. [1]

In the context of deal-making or dispute resolution, a negotiation involves a joint process of interactive problem-solving between at least two people who are facing challenging or conflicting requests from each other.  Each person has a problem that the other may be able to solve.  They attempt to resolve their problems together, with the objective of reaching an agreeable solution, while at the same time preserving or building their relationship.

Example case study
Take Mary who is head of purchasing and is responsible for managing 96 suppliers. Management made the decision to reduce the number of suppliers by half, and it was her responsibility to make that happen.

Many suppliers were less than effective and a high number of them were creating a lot of transaction costs.  However, most suppliers had a multi-year contract that her company was bound to, leading to a risk of a costly lawsuit for breach of contract, especially if “fired-to-be” suppliers united and litigated. Mary therefore decided to discreetly renegotiate some contracts.

For instance, she convinced many suppliers with overlapping activities to merge, and this way she could already reduce the number of suppliers by 30%.
She also approached suppliers, who were close to retirement, and suggested they should sell their businesses to other colleagues, while she helped the latter to get bank loans. That covered 10% of suppliers.

For an extra 8%, she negotiated severance packages, with a one-year transition period. At the end, her negotiation campaign worked for 46 suppliers.

Finally, she was left with only two suppliers filing a lawsuit for breach of contract. She settled with one of them before the court reached a decision, and she lost the remaining case with limited damages to pay. This negotiation process, coupled with creative outcomes, saved her a lot of money, compared to litigation. [2]