"Each of us must be better off as one of us."
If you are negotiating with me in good faith, you must believe that you can do better with me than on your own. If I'm negotiating with you in good faith, I must believe that I can do better with you than on my own. Putting these two beliefs together, each one of us must believe that we can create sufficient value together to share it in a way that each of us is better off as part of a collaborative effort than as an isolated individual. In other words, we can do something together that makes each one of us happier than we would have been by ourselves.
We could be wrong. Until we explore our options, we can't tell for sure if our beliefs are warranted. It may be that we can't create that much value together, or that we can create it but we can't split it in a way that makes each one of us better off than he or she would have been by him or herself. In that case, it's best to finish the negotiation "agreeing to disengage." In that case, each one of us can implement the best possible course of action for him or herself that does not involve the collaboration of the other party.
The boundaries for every rational negotiation are, thus, the best alternative each party has to a negotiated agreement, or its BATNA.
Your BATNA is the worst possible outcome to which you would agree in a negotiation. Anything worse than that, you'd prefer to walk away. For example, if you are negotiating with a potential buyer, your BATNA is to keep your product and sell it to the next best offer. If you are negotiating with a potential seller, your BATNA is to keep your money and buy it from the next best offer. If you are negotiating with a potential employer, your BATNA is to not take the job and work somewhere else. If you're negotiating with a potential employee, your BATNA is to not offer him the job and hire someone else.
Consider the example of the previous post where two of my kids are arguing about how to split a cookie. The negotiation will be very different depending on what each of them believes will be the case if they don't agree. For example, if Tomás (Sophie) thinks that in a case of disagreement he (she) gets to keep the whole cookie (BATNA = 1), it's very unlikely that they will ever agree. If they both know that unless they agree I will take the cookie away (BATNA = 0), it's very likely that they will agree.
Never Negotiate Without It
By discovering your BATNA, you clarify the lower boundary of your negotiation space. It gives you confidence because it lets you know what value you can guarantee for yourself even in the no-agreement scenario.
One of the most useful things you can do in preparing to negotiate is to take action to improve your BATNA. For example, negotiating the sale of your house when your alternative is to be foreclosed by the bank is very different from when you have the financial means to carry the loan, or better yet, an offer from a potential buyer that guarantees that you will get a price above your original investment.
Your BATNA is not a given. You can work to improve it. For example, before you apply for a job at a particular company, you can acquire skills that make you more appealing to other employers. If the market salary of an unskilled worker is twenty dollars an hour, and the one of a skilled worker is thirty, you can raise your "minimum wage" from the former to the latter through your educational investment. There is nothing more self-empowering than doing one's homework and entering a negotiation with a high BATNA.
In this video you will find out more about why you should never negotiate without discovering and developing your BATNA.
Readers: Take a negotiation you must conduct and consider your BATNA. Is there something you can do before negotiating that would improve this value for you? What do you think is your counterpart's BATNA? What could you offer that would make him (and you) better off?
Fred Kofman, Ph.D. in Economics, is Vice President at Linkedin. This post is part 2.1. of Linkedin's Conscious Business Program. You can find the introduction and structure of this program here. To stay connected and get updates join our LinkedIn Group: Conscious Business Friends.
You can Follow Fred Kofman on LinkedIn here.