Best Alternative to a Negotiated Agreement

By Drs. Sheila Boysen, Lesley Page and Mike Cherry

As we enter the second month of the year, we often start to act on the planning and strategizing we conducted in January. Some of our actions can include crucial conversations with vendors, employees, and family. To assist in these negotiations, we offer a model called BATNA.

What is BATNA? 

BATNA is stands for Best Alternative To a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and a full agreement cannot be made. In other words, a party’s BATNA is what a party’s alternative is if negotiations are unsuccessful. The BATNA is also called the walk-away point.

BATNA is often used in negotiation tactics and should always be considered before a negotiation takes place. It is never wise to enter into a serious negotiation without knowing your BATNA. The value of knowing your best alternative to a negotiated agreement is that:

  • It provides an alternative if negotiations fall through.
  • It provides negotiating power.
  • It determines your reservation point (for example, the lowest price you would accept for a sale).
  • It provides confidence. There is nothing more powerful than doing homework and being prepared.

BATNA Process

Clearly Define your Purpose 

You need to understand what you are trying to get from the negotiation. For example, someone trying to sell a business will have a different negotiating purpose than someone trying to find better pricing on products. Before you set out to negotiate, gather all your stakeholders. Negotiating as a team can help clarify what the stakes are. If you are going to negotiate for a higher salary, make sure you know the terms you are demanding. You must know how credible your demands are for this agreement. A couple of examples:

  • If you are negotiating with a potential customer, your BATNA is to keep your product/service.
  • If you are negotiating with a potential employer, your BATNA is to not take the job.

Brainstorming

You cannot begin without brainstorming all the possible alternatives you can use during the negotiation. Write down all the alternatives; you will come up with more than you initially thought. Once you make a list of all the alternatives, identify the top ones. One mistake people make at this step is having assumptions about the other party. Try to, realistically, ‘put yourself in the others shoes’ and do a bit of research.

Evaluation

Next comes the evaluation of each alternative. This step can help you check possible mistakes you’ve made in identifying the best options. Do some research about the options you have. The more options you have, the better your understanding of the market will be. Assess each of the options very carefully.

Setting the Reservation Point

A reservation point is the breaking point of the negotiation. At this point the deal will no longer be profitable for you. Great negotiators never reveal their reservation point. Having a viable alternative will let you figure out your where your reservation point should be. 

Conclusion

Having crucial conversations is an ‘essential function’ of leadership. Being prepared with your BATNA will give you confidence to partner with others in a way that is empowering for all parties. Make it a great month!

References

Kofman, F. (2013). Conscious Business: How to Build Value Through Values. Sounds True Inc.

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