For both individuals and business owners, negotiations can prove to be one of the most difficult and most important things that we do. The largest purchases that most people make frequently involve very intense negotiations. The ability to gain employment, and earn promotions is also frequently influenced by your ability to negotiate. Negotiation has a very significant impact on personal, professional, and financial negotiations skills training. Because of this, it is very important to understand the parts of negotiations that are the most important, along with the parts that are frequently misunderstood.
To many people, the idea of negotiating brings up images of aggressive arguments where both sides attempt to prevail against the other in a pitched battle for power where one side wins and the other side loses. Another paradigm of negotiations skills training is one where a "win-win" paradigm requires that no deal be made unless both sides realize significant benefits. The truth of negotiation exists in-between these opposite visions.
Best Alternative To a Negotiated Agreement
The term BATNA, meaning "Best Alternative to a Negotiated Agreement" was coined by Roger Fisher and William Ury of Harvard University, and incorporates many of the ideas published by John Nash in his work on negotiations skills training. The idea incorporated in BATNA is that our ability to negotiate is heavily influenced by our alternatives if the negotiated agreement does not occur.
One way to think about BATNA is to imagine that you're looking to sell a car. If you have one buyer lined-up who will pay $2,000 for the car, then you will be very unlikely to accept less than $2,000 from anybody else unless you have negotiations skills training doubts about the original offer. Your best alternative is selling the car for $2,000 and that places you in a position of power to confidently list the car for sale at a higher price. Alternatively, if you need to raise cash very quickly and have no buyers lined-up, then you may need to accept $500 or less from the first able buyer whom you come into contact with. Thus, your best alternative exerts a tremendous degree of influence over your decisions.
How BATNA Influences Our Idea of Fairness
One of the enduring ideas of humanity is the notion of fairness. The situations that most people perceive as being unfair are those where one side has a significantly better BATNA than the other. An example of this is if you are walking across a desert, parched of desperate thirst, and run across a truck who offers to sell you a 20 ounce bottle of water for $5,000. The natural response to this scenario is that the negotiations skills training transaction is supremely unfair since the cost of that bottle to the seller is approximately one dollar. In this situation, the BATNA of the person walking through the desert is a painful death of dehydration. Alternatively, the BATNA of the seller is their lost time and the expense of driving across the desert to find somebody walking whom they can sell water.
The reason why this feels so unfair is because the alternative of the person walking is death, while the alternative of the person selling the water is simply wasted time. However, this transaction still makes both parties better off, even though it feels patently unfair. If the truck were not present to sell the high-priced water, the person walking across the desert would suffer a painful death. Even when the person driving the truck engages in what is frequently called "price gouging," he still delivers a valuable service that is critically important to the person in the desert. Thus, in what seems to be a blinding paradox, some of the transactions that appear to be the most unfair to the "little guy" are actually the most beneficial. The reason for this is because when the best negotiations skills training alternative for the "little guy" is worse that the seemingly unfair exchange, then they are far better off with the deal that feels severely slanted against them. Thus, by using legislative power to prevent exchanges that feel unfair, it is possible that we are actually condemning the people whom we think we are helping to suffer an even worse outcome.
How BATNA Influences our Negotiations
Another important thing to consider in regards to BATNA is its impact on our personal, career, business, and investing decisions. Within this insight are two levels of distinction. The first is that our alternatives influence our decisions. The second is that our negotiations skills training perceptions may differ from reality, and result in decisions that are sub-optimal. In short, it is very easy to both over-estimate and under-estimate our best alternative.
Why Our Alternatives Matter
Over-Estimating the Alternatives
Under-Estimating the Alternatives
In the end, understanding our alternatives is a critical part of optimal decision making. It is important to make an honest assessment of what our options look like so that we can avoid the errors of both over-estimating and under-estimating the quality of our alternatives. This is one of the fundamental keys to negotiating success in our personal, professional, and financial life.