Sunday, October 6, 2013

Best Alternative To A Negotiated Agreement (BATNA)


In negotiations, there is a concept known as the “best alternative to a negotiated agreement” (BATNA). The concept was first described in a book called “Getting to Yes” published in 1981 by researchers at Harvard Law School. In a nutshell, BATNA refers to the situation that remains if current negotiations fail; that is, what are the consequences to all parties if negotiations fail? What cards are both parties left holding?
Of course, I’m heavily influenced to write this blog because of the current government budget stalemate, but BATNA also applies to CIOs and their negotiating skills, especially with healthcare IT vendors, as well as negotiating in personal life for things like a new job, new car, or cell phone contract.
Unfortunately for President Obama, the founding fathers of the US constitution established the “separation of powers” between the executive and legislative branches, giving funding authority to Congress, primarily the House of Representatives where government funding must originate. The President’s BATNA position is not very appealing — we are experiencing his BATNA right now in furloughed government workers and the shutdown of non-essential government services.
The BATNA for the House of Representatives is somewhat the same — they are also victims of the government shutdown, but more importantly, their constituents are victims of the shutdown; thus the BATNA for members of the House is an unhappy constituency which would, following logic, eventually lead to a reflection of that unhappiness in the next election cycle with members of the House losing their electorate. But, in reality, under the current state of gerrymandered legislative boundaries, the members of the House who are refusing to negotiate on the budget are not really at risk of losing their seats in the next election.
At the end of the day, President Obama’s BATNA position is barely — slightly — stronger than that of the House. The members of the House (and their families) cannot operate forever without the government services that are currently impacted by the shutdown. But, the President is leveraging the pain of the American populace in his negotiations, hoping that the pain will eventually rise up in backlash against the House of Representatives. For the gerrymandering mentioned above, that’s not likely to happen. Since funding originates in the House, the President needs to negotiate more flexibly in order to resolve the shutdown, sooner. Unfortunately, the negotiations have degraded. Terms like “winning” and “losing” and “gun to our heads” are being used by both parties to describe the situation. The best negotiators never talk in those terms — ever.
Unfortunately, President Obama and the Democrats set a pejorative tone in the early stages of negotiating with a very radical element in the House. The worst thing you can do when dealing with radical and irrational parties in a negotiation is fan the flames of their radicalism, especially when your BATNA is relatively weak. On the other hand, when your BATNA position is clearly the strongest, you can beat your counterpart to a negotiating pulp. Neither party — Republican nor Democrat — are in that position of strength.
Quite often, in business contract negotiations, especially with healthcare IT vendors, I witness C-level executives publicly announcing the winner of a large and important contract before the actual contract is signed. The C-levels go through their evaluation and selection process, choose the vendor, and then prematurely announce the winner of the procurement, thus leaving those C-levels in a very poor BATNA position. The deal is not done until the actual contract is signed with the vendor. By prematurely announcing the “winner” before the contract is signed, the C-levels reduce their negotiating power because their BATNA to a failed contract negotiation is falling back to the second place vendor, which means the C-levels must unwind their public announcement for the premature winner. The second place vendor is now in a very strong position to negotiate favorable terms in their contract.
Get to know your BATNA — and that of your counterpart — in the negotiations, very early in the negotiating process. Like it or not, your BATNA is the basis for your negotiating strength.
(Dale was a faculty member, specializing in IT contracting and negotiations, for Northwestern University’s Graduate School of Continuing Studies, Masters in Medical Informatics program.)
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