Excerpt from Chapter 2: You Can Negotiate Anything of “Harvard Business School: Secrets of Success by Emily Chan.
KNOW THE BATNA
Using the “real interest” approach helps identify a win-win agreement. Understanding the importance of the “Best Alternative to a Negotiated Agreement” (BATNA) can help you maximize the win for your side. The advantage in negotiations often does not depend on how big and powerful each party is, but on who has a better BATNA: who can better afford to walk away without an agreement.
The power of BATNA is seen in everyday life. When supply is less than demand, the seller has a strong BATNA. If you won’t agree to a price, many other customers will do so. In a depressed economy where supply is more than demand, buyers have all the leverage. They can always buy from another seller if they cannot get the price they want. Even toddlers understand BATNA: When they scream in a restaurant, they capitalize on an intuitive sense that their parents must either yield to their demands or risk more embarrassment and inconvenience.
The power of BATNA also is seen in more complex business situations. A classic example is the battle between Sky Television and British Satellite Broadcasting (BSB) in the early 1990s to dominate British satellite television. It would be a lose-lose situation if both firms were to stay in the market and compete vigorously. It would be a win-win if they could negotiate a deal for one to pay the other to exit. These are the estimates for the financial implications as documented in a HBS case study:
For BSB: Loss of £190 million if both BSB and Sky stay in game and fight; profit of more than £2 billion if Sky exits; loss of £180 million if BSB exits. For Sky Television: Gain of £700 million if both parties stay in game and fight; profit of almost £3 billion if BSB exits; loss of £70 million if Sky exits.
It would be a win-win if they could negotiate a deal for one to pay the other to exit. But who has a stronger negotiating position in this example? Some would say Sky has a stronger position, since it would still make £700 million even if BSB does not exit the market. BSB is weaker because it would lose £180–£190 million if Sky chooses to fight. So BSB must negotiate for Sky to exit.
However, that is not true if you look at the BATNA more carefully. Compare the fight versus exit option for each company if they fail to reach an agreement. If no agreement is reached for one of the players to exit, then:
For BSB: Fight versus exit means losing £190 million instead of £180 million. The difference is relatively insignificant. So BSB has flexibility of choosing whether to fight or not should Sky decide to fight. It has a strong BATNA.
For Sky: Fight versus exit means £700 million profit compared to a £70 million loss! Sky has no choice but to fight. If it has to fight, then it will increase its profit substantially (from £700 million to £3 billion) if it can negotiate to pay BSB to exit. In fact, theoretically, if BSB does its homework and understands Sky’s BATNA, it would know that Sky should be willing to pay anything up to £2.3 billion for BSB to exit! In the end, Sky did pay BSB to exit the market.
Reframe
A young man asked a priest, “May I smoke while I pray? The priest answered angrily, “Certainly not.” Another young man asked the same priest: “May I pray while I smoke?”
The priest answered, “Good child.”
Another story—as Professor Deepak Malhotra of HBS tells it—when President Theodore Roosevelt of the United States was campaigning for reelection in 1912, his campaign office made a brochure. The brochure included a picture of the president, together with information on his campaign. Three million copies were made, but only days before the brochures were supposed to be distributed, the campaign office realized they did not have the rights to use the picture. The rights belonged to a privately owned studio (call it Studio X). There was not enough time for a reprint.
The first reaction to solving the problem would be to send a representative to negotiate with Studio X as soon as possible. But this approach could have cost millions as copyright law allowed the copyright owner to demand up to a dollar a copy. What did the campaign office do? They sent a telegram to Studio X with the following content: PLANNING TO PRINT 3 MILLION COPIES OF CAMPAIGN SPEECH WITH YOUR PHOTOGRAPH. HOW MUCH ARE YOU WILLING TO PAY FOR OPPORTUNITY?
Studio X quickly responded: APPRECIATE OPPORTUNITY, BUT CAN ONLY AFFORD $250.
The campaign team accepted graciously.
These two stories illustrate the power of reframing (a concept also referred to as framing): gaining an advantage by changing the perception of a situation. Reframing is especially powerful if you can reframe to appeal to the interests of the other side of the negotiation. There are two ways to reframe: Change the context of the situation or change the meaning of the situation. “Context reframing” means taking the same behavior, experience, or event but seeing it in a different context. The story about smoking and praying is context reframing. The behavior, praying and smoking at the same time, remains unchanged. What is changed is the context of the behavior—whether it takes place when one is smoking or when one is praying.
The story about President Roosevelt’s brochure has an element of “meaning reframing.” Meaning reframing is taking the same situation and context but changing what it means.
For more information on “Harvard Business School: Secrets of Success” by Emily Chan, visit www.facebook.com/hbsconfidential.
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