Its final exam time in Shanghai, so many of the students from my International Negotiation class are waking up and starting to ask naïve questions. Those are the best kinds of questions since they get to the root of all possible misunderstandings. This semester’s crew is finding BATNA a little tricky to apply in practice (cases).
BATNA stands for Best Alternative To No Agreement. There are variations on the acronym, but the basic concept is meant to identify where you’ll be if this negotiation yields a big fat ‘NO’ from one side or the other.
The BATNA should be an assessment of your present business assessment. It forms the basis for your strategy and informs your action plan — but the BATNA is itself an essentially static description or snapshot of your organization’s assets, liabilities, capabilities and resources. It has numbers and time. It is a cold-blooded assessment of your organizations health- and is completely independent of the outcome of the negotiation you are planning. That’s the whole point. If you think your BATNA is ‘if we don’t get this deal than we’re screwed’ then your REAL BATNA is ‘we’re screwed’. That’s the whole point of the exercise – to know how bad your worst-case scenario really is.
Because the BATNA is so closely tied to the action plan, many students of the negotiation craft get them confused. They end up developing a BATNA assessment that basically says, “if we don’t get this deal then we are going to be in trouble so we had better get this deal on the most aggressive terms possible since our situation in the marketplace is deteriorating so quickly”. That’s neither a BATNA nor a negotiating plan. A well-developed BATNA underpins a negotiating action plan, but it is not merely statement of that action plan. BATNA analysis starts with independent metrics and observations about the organization.
Here are 5 elements to a BATNA analysis that demonstrate its importance. The first one is the only one that is absolutely necessary.
Elements to BATNA analysis
- Snapshot of the P&L and other basic business metrics.
Notice the words “metric” as in ‘to measure’. The first job of BATNA analysis is to have a very clear idea of where you really are now. Everyone thinks they are doing this implicitly, but that’s simply not good enough. You have to sit down and articulate in very explicit terms just what your financial and operational status will be if this negotiation doesn’t yield an agreement.
- Deal Structure.
The BATNA and Goal analysis work together to tell you what you should be negotiating for. Put another way, the BATNA sets the M in your LIM analysis. The goal analysis tells you where you want to be. The BATNA analysis tells you where you are. Now you understand the gap – and hopefully have numbers on it. The BATNA forms the floor of your negotiating strategy. You can now build your walk-away position as one that puts you marginally better off than your BATNA. From there, putting your ‘most likely’ and ‘best case’ scenarios on the map are pretty easy.
BATNAs fall and rise. This is particularly important if your environment is in flux (i.e.: now, everyone) or if your competitive position is shifting. You should know if your own BATNA is rising and falling in the near term. Is your steady-state business remaining stable, or are you in a deteriorating position in a failing industry? This is more of an environmental analysis than an inward looking audit. I referred to ‘rising or falling BATNA’ in my class when the recession shifted the negotiating balance of power from suppliers to purchasers – and now my class thinks that this is the main purpose of the BATNA analysis. Determining if your BATNA is rising or falling is an interesting issue to analyze – after you already have a solid understanding of your operational and financial status in the event of no deal. BATNA’s shouldn’t be referred to as ‘rising’ or ‘falling’ until you’ve already stated what yours is.
- Short Term Tactics.
The BATNA analysis can act as your own personal ‘devil’s advocate’. If performed seriously, it will let you know your own weaknesses and friction-points. Your job is now to address your immediate shortcomings with good bargaining while simultaneously hiding or disguising your shortcomings from counter-parties. In other words, the BATNA tells you what to look for and what to lie about.
- Long Term Strategy.
In the short term, you can just react to deficiencies and weaknesses revealed by the BATNA. In the long term, it’s your job as a manager to steadily improve your company’s strategic position — or to increase your company’s BATNA. You can think of BATNA as a key metric for understanding a company’s strategic position — and every deal you do now should contribute to raising your company’s BATNA in the future.
Remember — a thorough BATNA analysis is the launching pad for a negotiating action plan — but it is by definition remains independent of the negotiation itself. You BATNA should include numbers and descriptions of competitive pressures and advantages — but should not be a plan for changing the future. That’s what your goal and LIM analyses are for.