Common Ground - September 1999
"The more easily and happily you can walk away from a negotiation, the greater your capacity to affect its outcome."
One of the keys to being effective as a negotiator is knowing your alternatives and knowing as much as you can about their alternatives. This is especially important in situations where the other side has more power. Knowing your alternatives helps you to avoid making an agreement which you should reject and secondly helps you to maximize your assets.
The acronym BATNA is found in Getting to Yes by Roger Fisher and William Ury, the bible of principled negotiation. It means "Best Alternative to a Negotiated Agreement". The counterpart they describe is WATNA, Worst Alternative to a Negotiated Agreemen.
When you fully understand what your alternatives are you can evaluate whether the terms you are negotiating are better than what you could achieve without having this particular negotiation.
Some negotiators use the concept of a bottom line as a way to protect themselves against agreeing to something which they might be tempted to accept in the heat of negotiations. It is a way to limit the authority of a lawyer or real estate agent - "Get the best price you can but don't sell for less than $850,000." Having a bottom line ensures that no one on your side of the negotiation will tell the other side that you will sell for less.
While a bottom line offers protection it also has costs. A bottom line is rigid by definition. It reduces the opportunity to build creative solutions which might be better for you than getting your bottom line. With a bottom line you are limited in your ability to integrate what you learn in the negotiation into the agreement. The bottom line soundproofs your hearing. By deciding your bottom line in advance you have decided that nothing they say in the negotiation will cause you to raise or lower your bottom line. In addition a bottom line may be unrealistically optimistic. Your team may have a conversation to decide a bottom line. Anyone on your team who will benefit from selling at the highest possible price will not be likely to argue against a high bottom line If the bottom line is too high it may restrict you from selling the property.
How would knowing your BATNA be different than having a bottom line? Let's use the example of selling a small piece of commercial real estate. The question would be to ask what you will do if the property is not sold within a certain time. Will you leave it on the market indefinitely? Will you tear down the current building and make it into a parking lot? Redevelop it yourself? Renew or not renew the current leases? Rent it on condition that the tenants make the necessary repairs? Create your own businesses to fill the unrented space? Try to get it rezoned for another use? The question is: which of those alternatives is the most attractive? How does that alternative compare with the selling the property for as little as $850,000. Maybe one of the alternatives is better than selling it for that price? Even thought it has been appraised at $1.3 million maybe selling at $750,000 is better for you than leaving it on the market indefinitely. This analysis will be much more helpful in negotiating than an arbitrarily selected bottom line.
"The reason you negotiate is to produce something better that the results you can obtain without negotiating," according to Fisher and Ury.
Once you have analysed your alternatives you know the standard against which you are measuring any proposed agreement.
If you have not thought carefully about your alternatives you may be unrealistic about your choices. For example you might be too optimistic - what really are your chances of getting it rezoned for another use? How many other buyers are out there? Even more of a risk is being too pessimistic and continuing negotiations when your alternatives are better. If you think "I'll negotiate now with this prospective buyer. If I don't make a deal with them then I'll decide what to do with the property." Without knowing what your alternatives are you are unable to accurately assess the attractiveness of any prospective deal. You have no measuring stick of alternatives.
Protecting yourself is one use of the BATNA. The other use is to make the most of your assets.
Is negotiating power determined by such resources as wealth, political connections, military power, physical strength, and friends with connections? Fisher and Ury say that "In fact, the relative negotiating power of two parties depends primarily upon how attractive to each is the option of not reaching agreement." Think about how you would feel going to your boss to ask for a pay increase with no other possible jobs on your horizon and knowing there are lots of other people with your qualifications. Now contrast that with walking in to see your boss to discuss a pay increase having received another job offer at the higher pay level.
You can develop your BATNA as part of your preparation for negotiation. After you list your possibilities if no agreement is reached, you can improve some of the more promising ideas and build them into practical alternatives from which you can select the most attractive.
In preparing to negotiate you will also need to think about the other side's BATNA. They may be unrealistically optimistic about their alternatives. In that case you will want to lower their expectations. They may feel their BATNA is so good they do not have to negotiate with you. For example if the town does not want to consider rezoning your property because they can delay your application until it becomes too costly for you to wait around any longer, you may decide to start a legal proceeding to force them to proceed with consideration of your application. If both sides have attractive BATNAs the best outcome for both parties may be to walk away from this negotiation and not make further efforts to reach agreement.
When the other side is more powerful it is particularly important to develop your BATNA, your best solution independent of them.
The paradox is stated by Fisher and Ury, "The more easily and happily you can walk away from a negotiation, the greater your capacity to affect its outcome."