Four Key Concepts—Your Starting Points

Chapter 2: Four Key Concepts—Your Starting Points

Overview

WHEN PEOPLE don’t have the power to force a desired outcome, they generally negotiate—but only when they believe it is to their advantage to do so. A negotiated solution is advantageous only under certain conditions, that is, when a better option is not available. Consider this example: One of your best employees, Charles, is being courted by another company. Replacing him will be costly, but perhaps not as costly as negotiating some combination of financial inducements and work changes that will persuade him to stay and keep on contributing. Your mental calculator tells you that the cost of these inducements is less painful than your only other option—losing a star employee.

Any successful negotiation must have a fundamental framework based on knowing the following:

 The alternative to negotiation

 The minimum threshold for a negotiated deal

 How flexible a party is willing to be, and what trade-offs it is willing to make

Three concepts are especially important for establishing this framework: BATNA (best alternative to a negotiated agreement), reservation price, and ZOPA (zone of possible agreement). This chapter develops these three concepts using distributed negotiations as examples. It then expands the framework to include a fourth concept: value creation through trade, switching to integrative negotiations for an example. This switch simultaneously illustrates how the concepts of reservation price and ZOPA shift when you move from distributive to integrative negotiations.

Know Your BATNA

BATNA, a concept developed by Roger Fisher and William Ury, is the acronym for best alternative to a negotiated agreement. It is one’s preferred course of action in the absence of a deal. Knowing your BATNA means knowing what you will do or what will happen if you fail to reach agreement in the negotiation at hand. Consider this example:

A consultant is negotiating with a potential client about a month-long assignment. It’s not clear what fee arrangement she’ll be able to negotiate, or even if she’ll reach an agreement. So before she meets with this potential client, she considers her best alternative to an acceptable agreement. In this case, the best alternative to a negotiated agreement—the consultant’s BATNA—is spending that month developing marketing studies for other clients—work that she calculates can be billed out at $15,000.

Always know your BATNA before entering into any negotiation. Otherwise, you won’t know whether a deal makes sense or when to walk away. People who enter negotiations without this knowledge put themselves in a bad position. Being unclear about their BATNAs, some will reject a good offer that is much better than their alternatives because they are overly optimistic. For example, Fred has brought a damage suit against a former employer. That employer has offered to settle out of court for $80,000. But Fred wants more. “I know that I’m in the right and can get what I want if I don’t settle, but go to court,” he tells himself. Going to court is his best alternative to the $80,000 settlement offer. But how good is that alternative? Fred hasn’t really done a thorough job of estimating the probability of winning in court, nor the size of a potential award. In other words, he has no real idea of the alternative to the employer’s settlement offer.

A King Who Knew His BATNA

Long before the acronym BATNA was invented, savvy operators kept their best alternatives in mind as they dealt with opponents. Consider France’s Louis XI, one of the most crafty monarchs in fifteenth-century Europe. When England’s Edward IV brought his army across the Channel to grab territory from his weaker rival, the French king decided to negotiate.

Knowing that his BATNA was to fight a long and costly war, Louis calculated that it was safer and cheaper to strike a deal with Edward. So he signed a peace treaty with the English in 1475, paying 50,000 crowns up front and an annuity of 50,000 crowns for the rest of Edward’s life (which proved to be short). To seal the deal, Louis treated his royal counterpart and the English army to forty-eight hours of eating, drinking, and merrymaking. As an added token, he assigned the Cardinal of Bourbon to be Edward’s “jolly companion” and to forgive his sins as he committed them.

As Edward and his army staggered back to their boats, ending the Hundred Years War, Louis remarked: “I have chased the English out of France more easily than my father ever did; he drove them out by force of arms while I have driven them out by force of meat pies and good wine. ” Such is the power of negotiating when you know your BATNA.

source: –Richard Luecke, Scuttle Your Ships Before Advancing (NewYork:Oxford University Press,1993),49.

Others run the risk of accepting a weak offer, one that is less favorable than what they could have obtained elsewhere if there were no agreement (“I probably have some other options, but this seems like a good deal”).

Strong and Weak BATNAs

Your best alternative to a negotiated agreement determines the point at which you can say no to an unfavorable proposal. If that BATNA is strong, you can negotiate for more favorable terms, knowing that you have something better to fall back on if a deal cannot be arranged. A weak BATNA, on the other hand, puts you in a weak bargaining position. Consider the position of the consultant in our earlier example if she had no other work lined up. In that case her alternative to a deal might be sitting around waiting for the phone to ring—a terrible position to be in during negotiations.

Whenever a negotiator has a weak BATNA (or hasn’t taken the time to determine what that BATNA is), it is difficult to walk away from a proposal—no matter how paltry it might be. And if the other side knows that its opponent has a weak BATNA, the weak party has very little power to negotiate. Not that this stops some people from trying to drive a hard bargain. For example, in late 2001, an organized group of the unemployed in France threatened to strike if the government failed to meet their demand for higher unemployment benefits! Needless to say, this group had little negotiating power.

Take a minute to think about your own best alternative to whatever deal you are presently negotiating. Do you have one? Is

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