We negotiate to get to better results—it could mean a better deal for everyone involved, a win/win. Framing issues as a joint search for objective criteria opens the door for reason and standards to apply. This works well in situations where we're on equal footing, both parties have an open mind.
But what happens if one party has a stronger leverage or simply more power? In this case, we need to develop the Best Alternative to a Negotiated Agreement or BATNA. In their classic Getting to Yes Roger Fisher and William Ury of the Harvard Negotiation Process say we need to have one to protect ourselves.
To understand the importance of understanding alternative in negotiation imagine rushing to catch a plane—we develop tunnel vision, all we see is the importance of getting on board. When we look back, we have the befit of a broader view; we could have caught a later flight.
It's the same with negotiation—the more vested we feel, the harder to loosen our grip on getting to an agreement. This makes us vulnerable to giving up too much or too quickly “to put an end to this.” And by this we mean the discomfort of leaving things unresolved.
Bottom line cost
First we need to understand why a bottom line approach is not the way to go.
A bottom line is the maximum amount we agree to pay if we're the buyer and the lowest we would accept if we're the seller. But there is a problem with this strategy. It limits our ability to shed light on what else is going on in the negotiation—and that is a high price to pay.
Our mind is set on a fixed position at the exclusion of more inventive solutions that could improve our lot. Which is why we should never bargain over positions, and focus on interests and options first. Because there are many variables in a negotiation and not just one.
For example, if we just look at price, we may miss terms, or lose the opportunity to create the conditions for multiple transactions that could be much more advantageous. Plus, our bottom line might be too rigid—either on the high or low side—and keep us stuck in place.
Value of alternative development
A negotiation with a more powerful party should motivate us to develop an alternative strategy. Fisher and Ury call it the Best Alternative to a Negotiated Agreement (BATNA) to create the standard we should use to measure a proposed agreement.
The alternative has a double benefit of protecting us from unfavorable terms and helping us consider terms we might otherwise reject. It's also flexible enough to help use our imagination as we explore choices. We should take extra care in appreciating that we may have many options to explore, but that we can pick only one alternative:
One frequent mistake is psychologically to see your alternatives in aggregate. You may be telling yourself that if you do not reach an agreement on a salary for this job, you could always go to California, or go South, or go back to school, or write, or work on a farm, or live in Paris, or do something else. In your mind you are likely to find the sum of these alternatives more attractive than working for a specific salary in a particular job.
The difficulty is that you cannot have the sum total of all those alternatives; if you fail to reach agreement, you will have to chose just one.
But since we fail to develop an alternative mos of the time, the problem is usually tunnel vision—we're too committed to getting an agreement. That's because we generally avoid taking extra steps, or don't want to face the possibility that we may not find common ground.
Our alternative should be attractive to do its job of helping us prevent or reject a bad deal. On the protection side of things, we might want to add a tripwire to give us some room to move.
For example, by limiting the authority of an agent. Insurance companies use authority limits for their underwriters based on their years of experience and track record. They can underwrite a risk up to a certain limit above which they need approvals from officers of the company.
Making the most of our assets
A well developed alternative gives us negotiating power:
In fact, the relative negotiating power of the two parties depends primarily upon how attractive to each is the option of not reaching agreement.
How badly do we want the deal? If this is the only game in town, for example the sole potential job offer, we're captive, if this is one of three, we have a potential alternative—“The difference is power.” This applies to individuals and organizations. Another way of thinking about it is whether we're ready to walk away from the deal:
In one case, a small town negotiated a company with a factory just outside the town limits from a “goodwill” payment of $300,000 a year to one of $2,300,000 a year. How?
The town knew exactly what it would do if no agreement was reached: it would expand the town limits to include the factory and then tax the factory the full residential rate of some $2,500,000 a year. The corporation had committed itself to keeping the factory; it had developed no alternative to reaching agreement.
At first glance the corporation seemed to have a great deal of power. It provided most of the jobs in town, which was suffering economically; a factory shutdown or relocation would devastate the town. And the taxes the corporation was paying helped provide the salaries of the very town leaders who were demanding more.
Yet all those assets, because they were not converted into a good BATNA, proved of little use. Having an attractive BATNA, the small town had more ability to affect the outcome of the negotiations than did one of the world's largest corporations.
When we put some thought into finding attractive alternatives, we broaden our options.
Developing best alternatives
The process to generate BATNAs involves three distinct operations:
- inventing a list of actions we might take if we don't reach an agreement—what else would we do?
- improving some of the more promising ideas and converting them into practical alternatives—what steps would we take?
- selecting the one alternative that seems best—which of our realistic alternatives would we pick?
When we have a st of steps we can take and a clear path connecting them, we're in a position of strength. The other party may also have alternatives, so we should take them into consideration as we estimate the outcomes of a negotiation.
We may even find that both parties have a better alternative to reaching an agreement.
If the other side is more powerful, we should focus more on the merits of what we're proposing and work to build a larger role for principles. Preparing a best alternative independent of what the other side decides helps us take the power to affect outcomes.