BATNA – Best Alternative to a Negotiated Agreement

… a core concept in Leadership Skills and Atlas 109

BATNAConcept description

BATNA is a term coined by Roger Fisher and William Ury in Getting to Yes: Negotiating Without Giving In and is the acronym for Best Alternative to a Negotiated Agreement.

The BATNA is the best one can do if the other person refuses to negotiate. It is not necessarily one’s ideal outcome but it is the best one can do without the other person.

Writing in Beyond Intractability, Brad Spangler (reference below) notes that BATNAs are critical to negotiation because you cannot make a wise decision about whether to accept a negotiated agreement unless you know what your alternatives are.

“If you are offered a used car for $7,500, but there’s an even better one at another dealer for $6,500 – the $6,500 car is your BATNA.  Another term for the same thing is your “walk away point” [or “reservation value,” see below]. If the seller doesn’t drop her price below $6,500, you will walk away and buy the other car.”

Spangler notes the simple rule: if the proposed agreement is better than your BATNA, then you should accept it.

“If the agreement is not better than your BATNA, then you should reopen negotiations. If you cannot improve the agreement, then you should at least consider withdrawing from the negotiations and pursuing your alternative (though the relational costs of doing that must be considered as well).”

He emphasizes that having a good BATNA increases your negotiating power.

“If you know you have a good alternative, you do not need to concede as much, because you don’t care as much if you get a deal. You can also push the other side harder. If your options are slim or non existent, the other person can make increasing demands, and you’ll likely decide to accept them – because you don’t have a better option, no matter how unattractive the one on the table is becoming. Therefore, it is important to improve your BATNA whenever possible. If you have a strong one, it is worth revealing it to your opponent. If you have a weak one, however, it is better to keep that detail hidden.”

Determining your BATNA

Spangler notes that BATNAs are not always readily apparent. Fisher and Ury outline a simple process for determining your BATNA:

  1. Develop a list of actions you might conceivably take if no agreement is reached.
  2. Improve some of the more promising ideas and convert them into practical options.
  3. Select, tentatively, the one option that seems best.

BATNAs may be determined for any negotiation situation, whether it be a relatively simple task such as finding a job or a complex problem such as a heated environmental conflict or a protracted ethnic conflict.

Spangler cites Fisher and Ury’s example of how to determine a BATNA.

“If you do not receive an attractive job offer by the end of the month from Company X, what will you do? Inventing options is the first step to determining your BATNA. Should you take a different job? Look in another city? Go back to school? If the offer you are waiting for is in New York, but you had also considered Denver, then try to turn that other interest into a job offer there, too. With a job offer on the table in Denver, you will be better equipped to assess the New York offer when it is made. Lastly, you must choose your best alternative option in case you do not reach an agreement with the New York company. Which of your realistic options would you really want to pursue if you do not get the job offer in New York?”

Spangler provides an example of a public management negotiation situation:

“A community discovers that its water is being polluted by the discharges of a nearby factory. Community leaders first attempt to negotiate a cleanup plan with the company, but the business refuses to voluntarily agree on a plan of action that the community is satisfied with. In such a case, what are the community’s options for trying to resolve this situation?

  • They could possibly sue the business based on stipulations of the Clean Water Act.
  • They could contact the Environmental Protection Agency and see what sort of authority that agency has over such a situation.
  • They could lobby the state legislature to develop and implement more stringent regulations on polluting factories.
  • The community could wage a public education campaign and inform citizens of the problem. Such education could lead voters to support more environmentally-minded candidates in the future who would support new laws to correct problems like this one. It might also put enough public pressure on the company that it would change its mind and clean up voluntarily.

“In weighing these various alternatives to see which is “best,” the community members must consider a variety of factors.

  • Which is most affordable and feasible?
  • Which will have the most impact in the shortest amount of time?
  • If they succeed in closing down the plant, how many people will lose their jobs?

“These types of questions must be answered for each alternative before a BATNA can be determined in a complex environmental dispute such as this one.”

Reservation value

Some writers distinguish between BATNA (a course of action) and Reservation Value (the lowest-valued deal you are willing to accept). For example, BATNA Basics (a special report from Harvard Law School’s Program on Negotiation, reference below) produces the following sample calculation:

“After building a profitable construction company together over several decades, Larry Stevenson and Jim Shapiro recognized that their differences had become irreconcilable. Stevenson wanted to buy out Shapiro, who was willing to sell for the right price. After months of haggling and legal maneuvering, Stevenson made his final offer: $8.5 million for Shapiro’s shares in the company. The company is worth about $20 million, Shapiro thought to himself. I own 49% of the shares. Heck, I helped build this company. I’m not going to accept anything less than my fair share – $10 million. I’d rather fight in court than accept $8.5 million. Shapiro rejected the offer, and each party prepared for a trial.”

“… To assess his BATNA, Shapiro first should have obtained the following information from his lawyers: estimated litigation costs, $500,000; his likelihood of winning in court, approximately 70%; and the fact that if he won, he would receive $10 million for his shares, whereas if he lost, he likely would receive only $3 million. Next, Shapiro should have used this formula to determine the actual value of his BATNA:

(0.7 x $10 million) Value if he wins in court
+ (0.3 x $3 million) Value if he loses in court
– $500,000 Cost of litigation
——–
$7.4 million

“Shapiro should then have determined his reservation value for the negotiation with Stevenson: What is the least he would accept? It’s worth noting that, after the trial was well under way, Shapiro came to believe that he should not have rejected Stevenson’s offer. “I still think the offer should have been higher,” he said, “but if I could go back, I’d accept it. Righteous indignation is worth something, but it’s not worth $1.1 million.””

BATNAs and the other side

Spangler notes that, at the same time you are determining your BATNA, you should also consider the alternatives available to the other side.

“Sometimes they may be overly optimistic about what their options are. The more you can learn about their options, the better prepared you will be for negotiation. You will be able to develop a more realistic view of what the outcomes may be and what offers are reasonable.

“There are also a few things to keep in mind about revealing your BATNA to your adversary. Although Fisher and Ury do not advise secrecy in their discussions of BATNAs, according to McCarthy, “one should not reveal one’s BATNA unless it is better than the other side thinks it is.” But since you may not know what the other side thinks, you could reveal more than you should. If your BATNA turns out to be worse than the opponent thinks it is. Then revealing it will weaken your stance.”

Sources

Brad Spangler (2003), updated by Heidi Burgess (2012), Best Alternative to a Negotiated Agreement (BATNA), Beyond Intractability, at http://www.beyondintractability.org/essay/batna, accessed 25 March 2016. The article references Roger Fisher and William Ury. Getting to Yes: Negotiating Agreement Without Giving In, 3rd ed. (New York: Penguin Books, 2011). <http://www.beyondintractability.org/library/external-resource?biblio=23737> and  William McCarthy, “The Role of Power and Principle in Getting to Yes,” in Negotiation Theory and Practice, Eds. J. William Breslin and Jeffery Z. Rubin. (Cambridge: The Program on Negotiation at Harvard Law School, 1991), 115-122. <http://www.colorado.edu/conflict/peace/problem/mcca7535.htm>.

Program on Negotiation Special Report, BATNA Basics – Boost Your Power at the Bargaining Table, free report available at http://www.pon.harvard.edu/free-reports/, accessed 24 March 2015.

Atlas topic and subject

Negotiating (core topic) in Leadership Skills.

Page created by: Ian Clark, last modified on 25 March 2016.

Image: Suze Cumming, LinkedIn Pulse, at https://www.linkedin.com/pulse/batna-best-alternative-negotiated-agreement-suze-cumming, accessed 25 March 2016.