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Best Alternative To a Negotiated Agreement (BATNA)
BATNA stands for "Best Alternative To a Negotiated Agreement" and was developed as a concept by negotiation researchers of the Harvard University. In this article we will describe what BATNA is, why it is such a powerful concept to achieve succesful negotiation outcomes and how you can use this concept to your advantage during your future contract negotiations.
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What is BATNA?
Wikipedia defines BATNA as follows:
the best alternative to a negotiated agreement or BATNA (no deal option) refers to the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached
Having a clear understanding of your own "best alternative" to a negotiation as well as an understanding of the best alternative for your counterparty can give a clear sense of control and confidence during the negotiation.
While Wikipedia's definition defines the alternative as a "course of action", we recommend to also think about a tangible alternative to the (to be negotiated) deal.
In the contract negotiation context, examples of best alternative courses of action look like:
- Delay or suspend the contract negotation
- Start negotiations with a different negotiation partner
- Solve for a problem / service internally, ie. without engaging an outside party
An example of what a "tangible alternative" during a negotiation can look like: Instead of the intended partnership deal that will cost us X resources and makes our company $Y with a Z% likelihood, we can change our focus on direct sales which will make us $Q with a R% likelihood and only costs us T resources.
Your BATNA
How to determine your own BATNA?
The Harvard Law School suggests to follow these four steps:
- List all alternatives to the currently negotiated deal
- Evaluate each alternative
- Select the most valuable alternative
- Calculate your "reservation value" - ie. the lowest deal you're willing to accept in the current negotiation. You can also think of this as your walk-away value.
For step #2: Evaluating your alternatives, it is important to think of this as broadly as possible and consider short and long-term value, optionality and quantitative as well as qualitative variables. Very often, deals are evaluated purely on the "numbers" (because they are measurable) but critical business success factors such as sustainable supplier relationships or internal employee satisfaction are ignored from such comparisons.
One of the most difficult aspect of evaluating the alternatives is to estimate likelihood (probability) of certain occurences and to anticipate key risks. For larger, impactful contracts it is recommended to use more advanced risk assessment techniques.
Their BATNA
Understanding your own best alternative to a business contract may be fairly intuitive and you are generally in possesion of most of the necessary data and information. However, any succesful negotiator will recommend to dive deeply into the BATNA for your counterparty as well. While this is generally harder to determine, it will be hugely beneficial to understand certain negotiation moves and decisions of your counterparty as well as provide you with the "bandwidth in which you can operate".
To determine the BATNA of your counterparty you can follow the same four steps as mentioned above, noting that you may not have all the information. While you want to prepare as much as you can at the start of the negotation, there will be additional information given during the negotation that can help adjust and improve your understanding of their BATNA.
Using BATNA to your advantage
Their are several ways in which you can use BATNA to your advantage during a contract negotiation, a few examples that you can consider
- Strengthen your own BATNA - always keep developing your own alternatives to strengthen your negotiation position and confidence
- Weaken your counterparty's BATNA - e.g. if your counterparty's BATNA is time-bound, you may not want to hurry the negotiation
- Infuse information about your BATNA or your knowledge of their BATNA into the conversations
- Limit information on your BATNA - This is especially important in case your BATNA is fairly weak, you do not want to come across as desperate or in a hurry.
- Merge key points of your counterparty's BATNA into your own offering
- Sequence your negotiations - Along the lines of #1, your first negotiation partner can be to develop your BATNA before you move on to the counterparty who was your primary choice - at which point you will have a solid BATNA in your backpocket
The concept of BATNA is powerful for any negotiation, no matter how small or big it is. We recommend thinking about this carefully while you are preparing your next contract negotiation.
About Canveo
Canveo is a contract negotiation and management platform. Contact us if you are interested to learn more about what we do or would like to see a demo.
