The following question about “BATNA” (best alternative to a negotiated agreement), was posed to Program on Negotiation faculty member and associate professor of business administration at Harvard Business School in the Negotiations, Organizations & Markets Unit, Francesca Gino and involves a negotiation from the world of business.
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Negotiations with Options Away from the Negotiation Table
Question:
I was recently put in charge of negotiations with a supplier involved in one of our company’s products.
Given what I’ve learned in school and in negotiation books, I did my homework: I started exploring options with other suppliers to gain power and reduce risk in case the current negotiations with my preferred vendor go sour.
I invested quite a bit of time (and money!) creating those options, but in the end, I was not interested in pursuing them, and I let them go.
Now I can’t help but wonder: Was it a mistake to do so much research?
Answer:
Negotiators often spend time and energy pursuing alternatives to the current deal to gain more power at the bargaining table (see also, BATNA Negotiations: Power in Negotiations).
In classic negotiation research and textbooks, you’ll find the same advice: bargainers would be wise to invest resources in strengthening their best alternative to a negotiated agreement (BATNA), or their fallback alternative, in the event that the parties fail to reach a negotiated agreement.
Investing in outside alternatives enhances power by giving you other opportunities if the current negotiation cannot or will not provide the outcome you desire.
Thus, outside alternatives often entail sunk costs or irrevocable investments that keep open the possibility of pursuing other specific courses of action in the future. In a situation such as yours, investments in outside alternatives may enhance your leverage in the negotiation.
So far, so good, right?
Well, there’s more to the story. In addition to helping you enhance your power, these investments in strengthening your BATNA can have other, potentially unintended consequences. Your realization that investments you made and discarded represent irrecoverable costs may affect your behavior in the current business negotiation in ways you don’t expect.
Specifically, the research I conducted with my Harvard Business School colleague Deepak Malhotra shows that the extent to which decision-makers invest directly in outside options influences how entitled they feel in the current negotiation. When you decided to forgo options that you invested time and money in creating, you may feel as though you wasted resources.
This perceived loss creates a desire for a counterbalancing gain. Thus, it is likely to trigger a sense of entitlement: the feeling that you deserve a favorable outcome in the current negotiation.
BATNA: Negotiation Skills and Tactics Derived from Research
Our research shows that the costlier a negotiator’s investment in developing a strong BATNA is, the stronger those feelings of entitlement will be.
We found that this sense of entitlement causes the negotiator to have high aspirations in the current relationship, and these aspirations fuel opportunistic behavior.
Your sunk costs—and not simply the leverage provided by the outside options you created—may lead you to exploit your counterpart in ways that could damage your relationship going forward.
So, for instance, you may find yourself lying or misrepresenting information to your counterpart in an attempt to improve your outcomes. You may feel entitled to use aggressive strategies to reach a better deal for yourself. Without your realizing it, the foregone alternatives are influencing your behavior.
Negotiation to Avoid the Pressure of Sunk Costs
Since you likely are interested in maintaining a good relationship with the supplier in your current negotiation, you should consider the effect that the forgone options in which you invested might have on your expectations and behaviors as you negotiate. Namely, your prior investments may compromise your ethical standards.
By remaining vigilant about negotiating in good faith and reciprocating goodwill, you should be able to emerge from the shadow cast by sunk costs (see also, Business Negotiations: Beware the Pressure of Sunk Cost).
Do you know your BATNA? Share your negotiation tips with us in the comments.
Related BATNA Article: What is BATNA? Negotiations to Create Win-Win Scenarios in Business
BATNA and Other Sources of Power at the Bargaining Table
Making the Most of an Unappealing BATNA
How to Find Your Best Alternative to a Negotiated Agreement
Claim your FREE copy: BATNA Basics
Discover how to unleash your power at the bargaining table in this free special report, BATNA Basics: Boost Your Power at the Bargaining Table, from Harvard Law School.
Adapted from “Ask the Negotiation Coach: The Hidden Hazards of BATNA Development,” first published in the August 2011 issue of Negotiation.
Originally published in 2014.
The mistake was not in doing the research to explore alternative sources, but rather wasting that effort by not using it to confirm that the best possible deal was extracted from the market. Assuming that a number of possibly acceptable vendors were identified during the research work, it was foolish to not negotiate the best deal from each of them … and then close the deal with the best of the lot.
I negotiated high-dollar deals for a Fortune 10 company for 20 years. Never would I arbitrarily select a “preferred” vendor. Each deal had to stand on its own, and the vendors had to compete against each other for the business every time. Sometimes the results were quite surprising as a vendor would make an attractive offer I did not anticipate at the outset. Had I ruled them out in favor of a “preferred” vendor, I would have missed the best deal available. In some cases the difference would have been millions of dollars needlessly spent and a bitter vendor who felt cheated out of the opportunity.
One important caveat: Never negotiate with a counterparty who cannot, for whatever reason, actually win the business. Using a party who has no chance of winning as a stalking horse is sleazy and unethical. People will discover that behavior eventually and when they do you (as a negotiator) and probably your principal(s) are toast.
I was a little surprised by the answer to the question “Now I can’t help but wonder: Was it a mistake to do so much research?” There is no such thing as wasting time and money getting to know your options- even if not finding a something better is what you learn. Not finding that better option will lead you to realize that the current vendor is ‘your better option’, you have defined your BATNA – maybe not the one you hoped for but the one you have.
You can now go forward and conduct your negotiations knowing you have already found your best option and work instead to make it better, not replace it.