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Expanding the Pie in Negotiations

Before falling back on negotiation theory's ''Best Alternative to a Negotiated Agreement," what are the other perimeters to be considered?



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The UK faces years of trade talks following last week’s Brexit decision, both with the EU and with other countries around the world. As it enters these uncertain negotiations it is salutary to consider the fundamental precepts behind any business negotiation.

If all else fails, the only way forward might be BATNA – the term coined by Roger Fisher and William Ury in their 1981 book, Getting to Yes: Negotiating Without Giving In. In negotiation theory, the Best Alternative to a Negotiated Agreement or BATNA is the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached.

But before falling back on BATNA what are the other perimeters to be considered? And how might other factors be included to expand the pie and help reach mutual agreement?  

According to Erika Hall, assistant professor of organization and management, Goizueta Business School at Emory University, there are three important metrics to know before entering into negotiations: the reservation price, the target price, and the best alternative to a negotiated agreement price (BATNA). The reservation price is the seller’s bottom line, she explains.

“The target is the seller’s stretch or aspirational point, and the BATNA is any other offer or anything else that you might do if this negotiated agreement doesn’t go through.”

A negotiation is considered successful “if you’re anywhere above your reservation price, which is determined by your BATNA, plus or minus any idiosyncratic factors that you might have.”

Idiosyncratic factors are non-monetary conditions, such as a guarantee that employees will keep their jobs. These factors add value and prevent the negotiation from becoming a zero-sum process by expanding the pie instead of just splitting it, she says.

Hall illustrates with a hypothetical example of a company she wants to sell for no less than $1 million. Two people want to purchase the company. The first person has offered $1 million and has agreed to keep all her employees. This job guarantee is a non-monetary factor that for negotiation purposes she values at, say, $100,000. To match this offer, the second person has to offer at least $1.1 million.

“You should never take anything lower than your reservation price,” she adds. “It doesn’t make sense to accept something that’s worse than what you currently have.”

As we watch things unfold for the UK, over the next months and years, it will be worth bearing Hall’s clear description in mind. How will these metrics be applied in the various trade negotiations ahead? In particular, it will be interesting to see what idiosyncratic factors can add value and prevent negotiations between the UK and the EU becoming a zero-sum process, by expanding the pie.

Erika Hall’s comments first appeared in EmoryBusiness.com May 11, 2016


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