Best alternative to a negotiated agreement

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In negotiation theory, the best alternative to a negotiated agreement (BATNA) is the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached. The BATNA could include diverse situations, such as suspension of negotiations, transition to another negotiating partner, appeal to the court's ruling, the execution of strikes, and the formation of other forms of alliances. [1] BATNA is the key focus and the driving force behind a successful negotiator. A party should generally not accept a worse resolution than its BATNA. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult to value since they are frequently based on uncertain or qualitative considerations rather than easily measurable and quantifiable factors.

Contents

Oftentimes, it is even more difficult to determine the BATNA of the other party. However, this information is crucial as the BATNA determines the other side's negotiation power. Sometimes, conclusions can be drawn by determining his/her main interests and the negotiation itself can be used to verify or falsify the assumptions. If, for example, it is assumed that a very early delivery date is of key importance to the negotiating partner, deliberately setting a later delivery date can be proposed. If this late delivery date is decidedly rejected, the desired delivery date is likely to be of great importance. [2]

History

BATNA was developed by negotiation researchers Roger Fisher and William Ury of the Harvard Program on Negotiation (PON), in their series of books on principled negotiation that started with Getting to YES , equivalent to the game theory concept of a disagreement point from bargaining problems pioneered by Nobel Laureate John Forbes Nash decades earlier. [3] [4] [5] A Nash Equilibrium is reached among a group of players when no player can benefit from changing strategies if every other player sticks to their current strategy. [6] For example, Amy and Phil are in Nash Equilibrium if Amy is making the best decision she can while taking into account Phil's decision, and if Phil is making the best decision he can while taking into account Amy's decision. Likewise, a group of players are in Nash Equilibrium if each one is making the best decision that he or she can while taking into account the decisions of others.

Overview

The BATNA is often seen by negotiators not as a safety net, but rather as a point of leverage in negotiations. Although a negotiator's alternative options should, in theory, be straightforward to evaluate, the effort to understand which alternative represents a party's BATNA is often not invested. Options need to be actual and actionable to be of value, however, without the investment of time, options will frequently be included that fail on one of these criteria. Most managers overestimate their BATNA whilst simultaneously investing too little time into researching their real options. This can result in poor or faulty decision making and negotiation outcomes.[ citation needed ] Negotiators also need to be aware of the other negotiator's BATNA and to identify how it compares to what they are offering. [7]

Some people may adopt aggressive, coercive, threatening and/or deceptive techniques. This is known as a hard negotiation style; [8] a theoretical example of this is adversarial approach style negotiation. [8] Others may employ a soft style, which is friendly, trusting, compromising, and conflict avoiding. [3] According to Fisher and Ury, when hard negotiators meet soft negotiators, the hard negotiators usually win their position, but at the cost of potentially damaging the long-term relationship between the parties.

Attractive alternatives are needed to develop a strong BATNA. In the book Getting to YES: Negotiating Agreement Without Giving In, the authors give three suggestions for how to accomplish this:

  1. Creating a list of actions one might take if no agreement is reached
  2. Converting some of the more promising ideas and transforming them into tangible and partial alternatives
  3. Selecting the alternative that sounds best

In negotiations involving different cultures, all parties need to account for cultural cognitive behaviours and should not let judgments and biases affect the negotiation. The individual should be separate from the objective. [3]

The purpose here, as Philip Gulliver mentions, is for negotiation parties to be aware. [9]

Preparation at all levels, including prejudice-free thoughts, emotion-free behaviour, bias-free behaviour are helpful according to Morris and Gelfand. [10]

BATNA-based tactics and order of negotiations

Because of the importance of the BATNA for negotiation success, several tactics focus on weakening the opponent's BATNA. This may be achieved e.g. by striving for exclusive negotiations, delaying or accelerating the ongoing negotiations, or limiting the negotiation partner to technical systems. If a negotiator is faced with such tactics it is his/her task to examine the possible consequences for their own BATNA and to prevent or counteract any deterioration of the own party's BATNA. [11]

The BATNA can also influence the order in which negotiations are taken up with potential contracting partners. A sequential approach is favourable. In a sequential approach, one starts negotiations with the less favoured partners and continues negotiations with the preferred option afterward. This way, there is the BATNA of a contract with the less favoured partner. [12]

Difference between BATNA and reservation value

A BATNA represents one party's best option if negotiations fail, whereas a reservation value represents the worst deal they are willing to accept. A reservation value should never be less than the BATNA. When purchasing a bike, for example, the BATNA may represent the option of shopping at another dealer. Depending on the cost of finding other dealers, the reservation value would represent the highest price you are willing to pay.

Process to develop the best alternative to a negotiated agreement

  1. First, list out all possible alternatives to the current negotiation - what could you do if the negotiations fail?
  2. Determine the worth of each alternative - how much does each alternative mean to you?
  3. Go with the option that provides the most value to you (this is your best alternative to a negotiated agreement)
  4. Calculate the lowest valued-deal you're willing to accept after determining your BATNA.

Types of BATNA

There are three types of BATNA:

  1. Walk-away BATNA
  2. Interactive BATNA
  3. Third-party BATNA

Walk-away BATNA

If the seller does not want to drop the asking price to less than an alternative option, the buyer will walk away and buy the other alternative. Professional negotiators and researchers alike regard BATNA, or “walk away” outcome as the primary source of relative power for a negotiator. However, relying on alternatives can be risky. A party's relative power in a negotiation is their ability to use resources to influence the circumstances of another, and the role of a BATNA in this regard can range from significant to non-existent.

Interactive BATNA

Interactive BATNAs are sought when one or more parties in a negotiation are not cooperating with the other parties. There are many types of interactive BATNAs, but the three primary ones are:

  1. Economic: For example, a newspaper forgetting to replace an inappropriate ad in one issue resulting in 50% of their subscribers unsubscribing and them losing half of their ad revenue. In this case, the unsubscribers would be the non-cooperative party.
  2. Political: For example, a political party filibustering a piece of legislation another party is trying to pass. In this case, the party filibustering would be the non-cooperative one.
  3. Social: For example, a group of protestors not succumbing to the police's attempts at displacement. In this case, the protestors would be the non-cooperative party.

Third-party BATNA

Third-party BATNAs are sought when two parties in a negotiation are unable to come to a common conclusion on their own or the dispute between them is endless. So, a third party is required in the form of either:

  1. Mediation: A neutral third party is brought in to help the disputing parties resolve the dispute on their own. Mediation does not resolve the dispute, they just facilitate it.
  2. Arbitration: A neutral third party is brought in to arbitrate or resolve the negotiation through a BATNA. Unlike mediation, they resolve the issue.
  3. Litigation: When the negotiation takes a turn for the worst, an authoritative third party intervenes in the form of law and the issue is resolved in court with both parties having to comply with the court's decision.

With tongue-in-cheek, American speculative fiction writer Neal Stephenson places the invention of BATNA in 17th century by putting the following words in his novel The Confusion: "“I learnt it from English traders in Surat,” said the befuddled Surendranath, “It stands for Best Alternative To a Negotiated Agreement.”" Another character of the novel responds: “To have a BATNA is good and wise, as Surendranath has pointed out. But the Negotiated Agreement is much better than this Best Alternative.”

See also

Related Research Articles

Dispute resolution or dispute settlement is the process of resolving disputes between parties. The term dispute resolution is conflict resolution through legal means.

<span class="mw-page-title-main">Mediation</span> Dispute resolution with assistance of a moderator

Mediation is a negotiation facilitated by a third-party neutral. It is a structured, interactive process where an impartial third party, the mediator, assists disputing parties in resolving conflict through the use of specialized communication and negotiation techniques. All participants in mediation are encouraged to actively participate in the process. Mediation is a "party-centered" process in that it is focused primarily upon the needs, rights, and interests of the parties. The mediator uses a wide variety of techniques to guide the process in a constructive direction and to help the parties find their optimal solution. A mediator is facilitative in that they manage the interaction between parties and facilitates open communication. Mediation is also evaluative in that the mediator analyzes issues and relevant norms ("reality-testing"), while refraining from providing prescriptive advice to the parties.

<span class="mw-page-title-main">Negotiation</span> Dialogue intended to reach an agreement

Negotiation is a dialogue between two or more parties to resolve points of difference, gain an advantage for an individual or collective, or craft outcomes to satisfy various interests. The parties aspire to agree on matters of mutual interest. The agreement can be beneficial for all or some of the parties involved. The negotiators should establish their own needs and wants while also seeking to understand the wants and needs of others involved to increase their chances of closing deals, avoiding conflicts, forming relationships with other parties, or maximizing mutual gains. Distributive negotiations, or compromises, are conducted by putting forward a position and making concessions to achieve an agreement. The degree to which the negotiating parties trust each other to implement the negotiated solution is a major factor in determining the success of a negotiation.

<span class="mw-page-title-main">Bargaining</span> Negotiation between a buyer and seller over the price and nature of their transaction

In the social sciences, bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service debate the price or nature of a transaction. If the bargaining produces agreement on terms, the transaction takes place. It is often commonplace in poorer countries, or poorer localities within any specific country. Haggling can mostly be seen within street markets worldwide, wherein there remains no guarantee of the origin and authenticity of available products. Many people attribute it as a skill, but there remains no guarantee that the price put forth by the buyer would be acknowledged by the seller, resulting in losses of profit and even turnover in some cases. A growth in the country's GDP Per Capita Income is bound to reduce both the ill-effects of bargaining and the unscrupulous practices undertaken by vendors at street markets.

Roger D. Fisher was Samuel Williston Professor of Law at Harvard Law School and director of the Harvard Negotiation Project.

Conflict resolution is conceptualized as the methods and processes involved in facilitating the peaceful ending of conflict and retribution. Committed group members attempt to resolve group conflicts by actively communicating information about their conflicting motives or ideologies to the rest of group and by engaging in collective negotiation. Dimensions of resolution typically parallel the dimensions of conflict in the way the conflict is processed. Cognitive resolution is the way disputants understand and view the conflict, with beliefs, perspectives, understandings and attitudes. Emotional resolution is in the way disputants feel about a conflict, the emotional energy. Behavioral resolution is reflective of how the disputants act, their behavior. Ultimately a wide range of methods and procedures for addressing conflict exist, including negotiation, mediation, mediation-arbitration, diplomacy, and creative peacebuilding.

The foundations of negotiation theory are decision analysis, behavioral decision-making, game theory, and negotiation analysis. Another classification of theories distinguishes between Structural Analysis, Strategic Analysis, Process Analysis, Integrative Analysis and behavioral analysis of negotiations.

In economics, a reservationprice is a limit on the price of a good or a service. On the demand side, it is the highest price that a buyer is willing to pay; on the supply side, it is the lowest price a seller is willing to accept for a good or service.

<span class="mw-page-title-main">Zone of possible agreement</span>

The term zone of possible agreement (ZOPA), also known as zone of potential agreement or bargaining range, describes the range of options available to two parties involved in sales and negotiation, where the respective minimum targets of the parties overlap. Where no such overlap is given, in other words where there is no rational agreement possibility, the inverse notion of NOPA applies. Where there is a ZOPA, an agreement within the zone is rational for both sides. Outside the zone no amount of negotiation should yield an agreement.

The Program on Negotiation (PON) is a university consortium dedicated to developing the theory and practice of negotiation and dispute resolution. As a community of scholars and practitioners, PON serves a unique role in the world negotiation community. Founded in 1983 as a special research project at Harvard Law School, PON includes faculty, students, and staff from Harvard University, Massachusetts Institute of Technology, Tufts University, and Brandeis University.

The Mutual Gains Approach (MGA) to negotiation is a process model, based on experimental findings and hundreds of real-world cases, that lays out four steps for negotiating better outcomes while protecting relationships and reputation. A central tenet of the model, and the robust theory that underlies it, is that a vast majority of negotiations in the real world involve parties who have more than one goal or concern in mind and more than one issue that can be addressed in the agreement they reach. The model allows parties to improve their chances of creating an agreement superior to existing alternatives.

Bargaining power is the relative ability of parties in an argumentative situation to exert influence over each other in order to achieve favourable terms in an agreement. This power is derived from various factors such as each party’s alternatives to the current deal, the value of what is being negotiated, and the urgency of reaching an agreement. A party's bargaining power can significantly shift the outcome of negotiations, leading to more advantageous positions for those who possess greater leverage.

Cooperative bargaining is a process in which two people decide how to share a surplus that they can jointly generate. In many cases, the surplus created by the two players can be shared in many ways, forcing the players to negotiate which division of payoffs to choose. Such surplus-sharing problems are faced by management and labor in the division of a firm's profit, by trade partners in the specification of the terms of trade, and more.

Alternative dispute resolution (ADR), or external dispute resolution (EDR), typically denotes a wide range of dispute resolution processes and techniques that parties can use to settle disputes with the help of a third party. They are used for disagreeing parties who cannot come to an agreement short of litigation. However, ADR is also increasingly being adopted as a tool to help settle disputes within the court system.

<i>Getting to Yes</i> 1981 book about negotiation methods by Roger Fisher

Getting to Yes: Negotiating Agreement Without Giving In is a best-selling 1981 non-fiction book by Roger Fisher and William Ury. Subsequent editions in 1991 and 2011 added Bruce Patton as co-author. All of the authors were members of the Harvard Negotiation Project.

<span class="mw-page-title-main">Simultaneous game</span>

In game theory, a simultaneous game or static game is a game where each player chooses their action without knowledge of the actions chosen by other players. Simultaneous games contrast with sequential games, which are played by the players taking turns. In other words, both players normally act at the same time in a simultaneous game. Even if the players do not act at the same time, both players are uninformed of each other's move while making their decisions. Normal form representations are usually used for simultaneous games. Given a continuous game, players will have different information sets if the game is simultaneous than if it is sequential because they have less information to act on at each step in the game. For example, in a two player continuous game that is sequential, the second player can act in response to the action taken by the first player. However, this is not possible in a simultaneous game where both players act at the same time.

A contingent contract is an agreement that states which actions under certain conditions will result in specific outcomes. Contingent contracts usually occur when negotiating parties fail to reach an agreement. The contract is characterized as "contingent" because the terms are not final and are based on certain events or conditions occurring.

William Ury is an American author, academic, anthropologist, and negotiation expert. He co-founded the Harvard Program on Negotiation. Additionally, he helped found the International Negotiation Network with former President Jimmy Carter. Ury is the co-author of Getting to Yes with Roger Fisher, which set out the method of principled negotiation and established the idea of the best alternative to a negotiated agreement (BATNA) within negotiation theory.

<span class="mw-page-title-main">David Lax</span> American academic

David Lax is an American negotiation expert, author, speaker, statistician and academic. He is currently a Distinguished Fellow at the Harvard Negotiation Project, Managing Principal of Lax Sebenius LLC, a firm that advises companies and governments in challenging and complex negotiations, and a former professor at Harvard Business School.

References

  1. ↑ "::증권용어사전::". dic.mk.co.kr (in Korean). Retrieved 9 May 2018.
  2. ↑ Jung, Stefanie; Krebs, Peter (2019). The Essentials of Contract Negotiation. Springer International Publishing. p. 42. ISBN   9783030128661.
  3. 1 2 3 Fisher, Roger; Ury, William (1991). Patton, Bruce (ed.). Getting to YES: Negotiating Agreement Without Giving In (2nd ed.). Penguin Books. pp. 166–168. ISBN   978-0-14-015735-2.
  4. ↑ Myerson, Roger B. "Nash Equilibrium and the History of Economic Theory" (PDF). Journal of Economic Literature. Retrieved 1 October 2012.
  5. ↑ Myerson, Roger B. (1999). "Nash Equilibrium and the History of Economic Theory". Journal of Economic Literature. 37 (3): 1067–1082. doi:10.1257/jel.37.3.1067. ISSN   0022-0515. JSTOR   2564872.
  6. ↑ Hawkins and Steiner, Jeff and Neil. "The Nash Equilibrium Meets Batna" (PDF). Gamed Therory Varied Uses in ADR. Harvard University Press. Archived from the original (PDF) on 28 February 2013. Retrieved 1 October 2012.
  7. ↑ Lewicki, Roy J.; Barry, Bruce; Saunders, David M. (2014). Negotiation: Readings, Exercises and Cases (7th ed.). McGraw Hill Education. p. 467. ISBN   9780077862428.
  8. 1 2 Nolan-Haley, Jaqueline M (2001). Alternative Dispute Resolution in a Nutshell. Thomson West. pp. 39–50. ISBN   978-0-314-18014-8.
  9. ↑ Gulliver, P.H (1979). Disputes and Negotiation: A Cross Culture Perspective. Academic Press. p. 287.
  10. ↑ Morris, Michael W.; Gelfand, Michele J. (2004). "Cultural Differences and Cognitive Dynamics: Expanding the Cognitive Perspective on Negotiation". In Gelfand, Michele J.; Brett, Jeanne M. (eds.). The Handbook of Negotiation and Culture. Stanford University Press. pp. 45–70. ISBN   978-0-8047-4586-4.
  11. ↑ Jung, Stefanie; Krebs, Peter (2019). The Essentials of Contract Negotiation. Springer International Publishing. p. 142. ISBN   9783030128661.
  12. ↑ Jung, Stefanie; Krebs, Peter (2019). The Essentials of Contract Negotiation. Springer International Publishing. p. 44. ISBN   9783030128661.
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