In this article, Ashita Chawla pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses what is BATNA and why is it important.
Understanding BATNA
BATNA or Best alternative to a negotiated agreement is the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached.
BATNA can be explained with the following example. Suppose there is only one supplier of steel, the seller, in this case, dictates the price. The buyer, in such condition will have no say in this. On the other hand, if there were multiple sellers, then the buyers would suddenly be in a negotiating position. You have a BATNA!
BATNA is seen by negotiators not only as a point of safety net by the negotiators but rather as a point where they can seek a leverage in a negotiation. For example, A shopkeeper quotes me eggs for INR 20. I know the shopkeeper in the adjacent block sells it for 18. Therefore, instead of totally giving up the deal, I would rather renegotiate it with this shopkeeper telling him about the options available to me elsewhere.
However such simple BATNAs as above rarely exist in real life. Often the deals aren’t as plain, specially at large business platforms.
Therefore it is important to analyse one’s BATNA while making decisions or negotiating an agreement. For example, if I were to negotiate selling of the shares of my firm, following an ongoing litigation, it would be a good idea to analyse my BATNA at this point. I can make an estimation of the amount fetched by selling the shares of the company. Say its 10 million, the money I’ll lose in litigation is 2 million. The chances of me winning is 70%. I can now reach a rough estimate of my BATNA. But as mentioned above calculating BATNA is not easy, since there are a number of practical uncertainties associated with each decision and the way they’ll play out.
Broadly one can list these steps to calculate one’s BATNA
- Assessing your BATNA
- List your alternatives
- Evaluate your alternatives
- Establish your BATNA
- Calculate your reservation value
An awareness of our BATNA can help us move away from a Sub Par case. Even though BATNA is a common sense idea, reaching one in real life isn’t an easy option. For example, I already have an option to continue my internship in the present law firm, but in the meanwhile, I have also applied to another better law firm. Figuring out my best odds here are to find out what are the odds of my internship being confirmed in that law firm.
A few practical steps to reach the BATNA
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Translate your BATNA to the current deal
It is very important that one does not assume his/her BATNA. Only when one is completely sure that the deal is as attractive as it looks and that it has the potential to turn out the way it looks on paper should one leave the option at hand. For example, I might feel that changing my son’s school from school A to school B is a better option since school A charges more fee. I exercise this option, only to realize that school B had hidden charges. The new deal, in this case, turns out to be worse off than the older deal. Here, in this case, I had not analysed my BATNA properly.
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Assess your BATNA with care
Like the examples mentioned above, one may not always analyse the choices available very well. For example, i had a plot of land in an area which is now sanctioned for commercial development. I was running a low revenue generating grocery store on that land. On having done an estimation of my business I decide to sell it for 20 lakh rupees. The offerer offers 30 lakh for the land. I quote 40 lakh and the deal finally settles at 35 lakh. Here even though I have got more than what I expected, it wasnt the best deal I could negotiate. I completely missed out calculating the value of that piece of land from the buyers perspective. That the area is now soon going to be a commercial hub and that it would yield huge profits to the buyer. That the value of that land was very high now after the announcement was completely missed by the seller.
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Think through two level BATNAs
Most often when big negotiations are going on, one often comes across an individual’s negotiating on behalf of an organisation. It is important to analyse the BATNA at both these levels, the individuals and institutions. Often people dealing on behalf of such organisations have their individual egos and performance at stake. It is important to look at what an individual is looking at apart from the organization. An example of this case be seen from a case study shared in the Harvard Law School Journal few years later, the manufacturer held its annual meeting of top managers at the resort to show off its installations and celebrate the deal. The two organizations held a panel discussion to reflect on the dynamics of their negotiation. At one point, the moderator asked Frank to reveal his BATNA. He responded with a textbook analysis: “Our BATNA was to look around for some other major contract in which to powerfully demonstrate our capability.” When pressed, he continued, “Well, my BATNA, as a new hire, was probably to look around for another job if I didn’t get the deal.”
“The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are these results? What is that alternative? What is your BATNA – your best alternative to a negotiated agreement? That is the standard against which any proposed agreement should be measured” (Fisher, Ury, and Patton 1991:104)
A very interesting example of a negotiation can be taken from Kashmir. Here are the extracts of Ambedkar’s thoughts on Kashmir. One can see how well the then kingdom of Kashmir negotiated despite facing severe security threats from Pakistan and facing extremely tight existential crisis. The interesting point to note here is the deal is still kind of not sealed. The negotiations on the issues are still on.
“You wish India should protect your borders, she should build roads in your area, she should supply you food grains, and Kashmir should get equal status as India. But Government of India should have only limited powers and Indian people should have no rights in Kashmir. To give consent to this proposal, would be a treacherous thing against the interests of India and I, as the Law Minister of India, will never do it.“
Both the parties are readily in search of their respective BATNAs to clinch the deal. This also illustrates the importance of compromising and reaching an agreement instead of negotiating for eternity and reaching a deadlock.
Another analysis of BATNA can be seen in negotiation of H1B visas with the US. US sources highly skilled labour from India and other third world country using this Visa. This labour force provides a set of highly specialized and professional workforce which sustains the US economy. But the present political regime somehow felt that this labour was eating into the US jobs. The Indian authorities are now negotiating relaxation of these visa norms on behalf of the potential Indian workforce. Let us now analyse each party’s BATNA.
US cannot ignore the contribution of these workers to their industry, but at the same time must also play to the galleries of it local voters. India on the other hand has much less to loose. It would if not US find a demand for its workforce in other upcoming markets. The firms at most will shift their base from US to other world markets. In this case, India has much less to loose, and there is much more for the US to loose. The crackdown on H1 B visas is therefore going to be much lesser than anticipated in the media.
These real life examples shows how exactly BATNA plays out in complex negotiations involving more than one players and factors.
Negotiation is therefore a very valued skill and is left to experts, specially while negotiating big agreements involving millions of dollars and affecting a lot of people. In such a situation it is important to analyse the options available before sealing a deal. Analysing the options available to oneself alone do not determine where a deal would be set. An equally important thing is to deeply analyse the other parties BATNA. It is important to analyse the strength and weaknesses of the other party. It is important to understand what a party has to gain or loose from a particular negotiation. The expectations of the opposite party, negotiator, their potential of handling an agreement, the options available to them, all form an important part of calculating ones BATNA and reaching the most optimal solution. An understanding of calculation and analysis of BATNA is extremely helpful in such cases.
