August 2006

Negotiation

How Strong is Your BATNA?

by David Goldwich

Suppose you are engaged in a difficult negotiation. Your counterpart is driving a hard bargain, and you are beginning to feel that you are going to have to settle for less than you would like. What can you do? The answer depends on your BATNA. Negotiation is a consensual process, based on mutual agreement. You do no have to accept any offer unless you choose to. You can always say no. But we negotiate to satisfy some interest, and if we do say no we must find another way to satisfy our interest. In everyday parlance we use the terms option and alternative interchangeably. In the negotiation context, however, it is important to distinguish between options and alternatives. An option is a possible solution to a negotiation. During a negotiation there is often a range of options or possible agreements available to satisfy your interests. But if you and your negotiating counterpart cannot agree on one you may have to look elsewhere for an alternative to get what is important to you. These alternatives exist outside of the negotiation. For example, suppose you are negotiating for a salary increase with your current boss at Myco. You and your boss have a number of options available: she can offer you a big increase, no increase, or an increase of any number of figures in between. She can base the increase on your performance, the cost of living, or tie it to company practices or industry trends. She can offer you various combinations of benefits in lieu of a higher salary. These are all options that can result in a negotiated agreement. If you and your boss cannot reach an agreement, you still have a choice: you can resign. What, then, are your alternatives? How can you satisfy your interests (recognition of your worth, maintaining your standard of living, being treated with fairness and respect, etc.) outside of Myco? You can find a position with another company, change careers, resume your studies, retire early, start your own business, or run away and join the circus. You may not like any of these alternatives, but you do have choices.

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August 2006

Some of your alternatives are better than others. When evaluating the options available with your negotiating counterpart you just need to know which alternative is the most attractive.

This is your BATNA, your Best Alternative To a Negotiated Agreement.

You then choose between what your counterpart is offering you and your BATNA. In the example above, if your best alternative is to find a similar position with another company, you can forget about joining the circus for the moment. Your decision then becomes: should I accept my boss offer and stay with Myco, or do I take a job with Other Company? Your BATNA is critical for a number of reasons: Your BATNA gives you confidence. Your BATNA is like a safety netif you can get a better outcome in the negotiation, take it; if not, walk away from the table and go with your BATNA. It guarantees that you will not be worse off by negotiating. Your BATNA is a benchmark. Most of the time, your BATNA is not very different from an option on the negotiating table. For example, your BATNA may be an offer for a position with Other Company at $3,500/month and you are negotiating with Myco for a similar position at a comparable salary. Knowing your BATNA gives you an idea of what a realistic option should be. Your BATNA must be realistic, something you could and would really do if the negotiation fails. Bluffingclaiming to have a BATNA that does not existcan be risky. If you are negotiating a salary increase with your boss at Myco and you tell her that Other Company has offered you $1,000 more, she just might say A thousand dollars more? You should take it! Make sure its for real. Your BATNA can be improved. Most people assume their BATNA is fixed. For example, suppose your BATNA is an offer for a position with Other Company at $3,500/month. All things being equal, you would not accept an offer for less than that salary. If Myco offers you $3,600 you take it; if they offer you less you go with Other Company. But what if, during your negotiations with Myco, you contact Other Company and they agree to increase their offer to $3,800, plus insurance coverage and a transportation allowance? Or you get an offer from ThirdCo at $3,900? Now you can confidently ask Myco for more, knowing you can beat their previous offer of $3,600. Once you determine your BATNA, see if you can improve on it. Note that your counterpart also has a BATNA. You may be able to estimate the other partys BATNA by anticipating their alternatives to dealing with you and identifying the most favorable one. Be aware that they may have some idea what your BATNA is as well. Perhaps they know what Other Company and ThirdCo pay their employees. While BATNAs can be improved, they can also be made to appear less attractive. The idea is to improve your BATNA and suggest that your counterparts is weaker than they think it is. Of course, you need to be subtle and tactful about this. You also need to understand that your counterpart may use this tactic on you. However, if your BATNA is strong enough and realistic you can resist this.

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August 2006

Returning to our example, your boss says she can only increase your salary to $3,700. What is her best alternative if you resign? She may say she can hire a younger person for less than she was paying you. Her BATNA looks good; how can you make it look weaker? You can suggest that it is troublesome and expensive to recruit a replacement, the new hire will take time before he can get up to speed and be productive, he may not work out at all, why take the risk? Now her BATNA doesnt look so good, and she might decide to increase her offer. Or, she might try to diminish your BATNA by suggesting that Other Company are slave drivers, they have a dysfunctional culture, why leave your friends and a good position for a lousy couple of hundred dollars more? There are other ways of making a BATNA seem less attractive than by trying to persuade your counterpart that it is so. Suppose you are negotiating to purchase a house. Your offer of $372,000 is a bit less than the seller would like. What is the sellers BATNA? Perhaps another prospect has expressed a willingness to buy the house for $373,500. What can you do to weaken his BATNA? Put down a cash deposit. The other prospects words may sound sweeter, but they are only words, and money talks. Sellers BATNA suddenly seems less attractive next to your cold, hard cash. Understanding your BATNA is an indispensable part of planning for your negotiation. A strong BATNA ensures that you will not settle for less than you can get elsewhere, and gives you confidence that you can reach a more favorable agreement during a negotiation. By improving your BATNA and undermining your counterparts BATNA, you can expect an even better outcome.

Article reprinted with permission from the author.

All rights reserved. IQPC Worldwide Pte. Ltd.

August 2006

ABOUT THE AUTHOR David Goldwich was born and raised in Miami, Florida, USA. He has a BA degree in Political Science with a focus on Political Communication, Organization Theory, and Psychology. He has an MBA with a specialization in Business Management and Organization and also earned a JD degree. David practiced law in the United States for more than ten years, and is also trained as a mediator. He has experience managing a small business as well, serving as CEO of BVS, Inc., an employment screening company, from 1996-98. Recognizing that lawyers perpetuate rather than solve problems, David began lecturing and training in 1995. He has taught at the tertiary level in the USA and in Singapore, teaching in the areas of law, management, organizational behavior, communications skills, and critical and creative thinking. David seeks to apply the 80/20 Rule to training by identifying the few critical tools necessary for the greatest improvement and presenting them in a form that is simple to learn and simple to use. The psychology of learning and the application of NLP technology in all of his material provide delegates with the visual, auditory, kinesthetic, and participatory experiences required for better, faster learning. David's ability, sense of humor, and wealth of experience enable him to deliver breakthrough changes at all levels

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