What to do when you have a really weak BATNA?

December 13, 2016

 BATNA - the term coined by Harvard Law School professors Roger Fisher and William Ury - refers to the Best Alternative To a Negotiated Agreement. In other words, this is your fallback plan if the negotiation does not come to an agreement. Every negotiation has a BATNA; it all depends on whether your BATNA is strong or weak. When you have a strong BATNA, you have the upper hand to influence the other party, walking away from the negotiation if need be.  For instance, you are negotiating to purchase a home in the prestigious district 10 in Singapore, and you have already secured a firm offer to purchase a similar piece of property at $5M - which is within your budget, by the way - then your BATNA is this particular property even though you are negotiating to purchase another piece just a stone's throw away simply because it has a nicer address (it is No. 8, as opposed to No. 3). So you try to offer $4.8M to the owners of No. 8, hoping to settle for anything at or below $5M. You could take into account the intangible value of having a house with the number 8 (it is an auspicious number for many in Singapore), costing that at $200,000; then the MOST you should settle for is $5.2M for No. 8. If your negotiations fall through because the owner will not accept anything less than $5.3M, then you can walk away happy and close on No. 3 at $5M. That is a strong BATNA.

 

But what if you had a weak one? For example you are heading up a task force to revamp your corporate website and it needs to launch just as the new product goes to market. As you round the corner for the home stretch, your CEO comes to you and tells you that he needs a specialised application included in the revamp - he saw one like this at a competitor's website - and this will not only knock the project off course, but also off budget. You voice out your concerns to your CEO, but he says, "Do something about it. Talk to the developers. I am sure it is a small job, and they can simply absorb the cost. We are already paying them so much!" You speak to the developers and they are all up in arms, saying that there is simply no way to put this in given the tight timelines. You pushed them and finally they relented, saying that they could do it within the timeline but it would cost another $10,000. You are in a bind, because to not do it will certainly mean your job, but there is no budget for it. (Well, that is not quite true. You spoke with your CFO and technically he can squeeze an additional $6,500 from the rabbit's hat for this, but he is preferring not to do it if possible.) The developers know that you have to spend that money because it was the CEO's request, and that you don't have an alternative. You have a very weak BATNA.

 

So what can you do if you had such a weak BATNA? All is not lost. Here are three things you can do...

 

(1) Create uncertainty as to whether the BATNA is truly as weak as the other side thinks it is

After the quote of $10,000 is received, stay silent. Don't say anything, don't react. Make it seem as though you were shopping around for alternatives. And it would actually be wise to do that, and find alternative solutions. Let's just say you did speak with several other developer companies and the best quote you received was $12,000 (without negotiations). All that was needed was an API to connect the application to the new website, and now you have a solution. Not necessarily at the right price, but this now gives you a new option. Then after about a week or so, go back to your developers and say, "I have spoken to other developers and they have come back to me on a cheaper solution. They can develop the app and then connect it to the website through an API. But I still prefer that we work together, and would like to see if you can quote a more reasonable price." This will give the impression that your BATNA is not as weak as the other party first assumed (even though it may well still be, since the alternative solution is more expensive, but they don't have to know that) and this will force them to be more reasonable in their next quotation.

 

(2) Use objective measures

Let's say for example that your developers, after thinking that you do have a stronger BATNA, comes back to you at $8,000. While this is a better solution, it is still too high, and you know it. Yet trying to haggle on price will not be fruitful because it is a matter of position, so you now need to shift the focus - use a different way to measure the cost, to be more objective. Turn around and say, "I still find that too high. Why don't we cost this in man-hour basis. Give me your man-hour quote for this job and the estimated number of man-hours and we will can come to a better feel for this additional job." By shifting the way the job is costed, using objective measure that can be tracked, you shift the negotiation away from price into something more reasonable. Now, the ball is in your developers' court. They know that when they use such a measure, they will earn significantly less than the $8,000 that they have just opened. And they know that you will know how many man-hours it will take to do this new app, so becoming so transparent in costing would paint them as predatory. They will now have to counter with an even lower price. Unless they are happy with the man-hour costing basis, giving away any opportunistic value to the additional job, they will still open with a lumpsum, albeit a little lower. Say they come off to $7,000 (they cannot come off much less because that would signal their predation, which is not good for brand reputation). Yet you know this is STILL too high. Then what can you do? Here is the third thing...

 

(3) Appeal to their sense of fairness

Respond to their $7,000 offer by appealing to their sense of fairness, saying something like, "Look, I want to be fair to you and to my company. I certainly don't want you to lose money on this additional job, but I also need to look out for my company's interests. Using the man-hour basis of costing will ensure that you get fair compensation, and also guarantees us that you are not trying to take advantage of our situation. Sounds fair, right?" When you appeal to fairness and to using objective criteria, it is difficult to argue against. This will compel the other party to either come off more on their quote (bringing you within the $6,500 that your CFO has authorised you to work within) or to use the objective measure. Either way, you arrive at a much better position than when you first started, and all the while having a poor BATNA.

 

The BATNA is a very strategic tool in negotiations and you should learn to use it to its full potential. A strong BATNA will be able to tip the scale in your favour despite the political, emotional or positional power that your counterpart comes with. You cannot be bullied if you have a strong BATNA. Yet, having a weak BATNA does not mean that you are out of the game, you just need to remember these three things: (1) give them the impression that you have a stronger BATNA than they first thought, (2) insist on objective criteria to cost the service, and (3) appeal to the other party's sense of fairness. Practice these well, and you will surely be on your way to becoming an Expert Negotiator.

 

 

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