In negotiation theory, BATNA stands for “Best Alternative To a Negotiated Agreement,” and it’s one of the key tenets of negotiation theory. Indeed, it describes the best course of action a party can take if negotiations fail to reach an agreement. This simple strategy can help improve the negotiation as each party is (in theory) willing to take the best course of action, as otherwise, an agreement won’t be reached.
Understanding a BATNA
BATNA is an acronym for the term “best alternative to a negotiated agreement.”
The term was first coined by Roger Fisher and William Ury in their 1981 book Getting to Yes: Negotiating Without Giving In.
It’s important to understand that the best alternative to a negotiated agreement is not necessarily the ideal outcome.
Instead, businesses should consider a BATNA to be the best they can do without the cooperation of the other party.
BATNAs are a critical part of negotiation tactics that should be in place before any business enters into a discussion.
This helps decision-makers avoid accepting a worse outcome than they could get elsewhere.
A solid BATNA also helps each party avoid rejecting an outcome that is better than its best alternative.
A BATNA can deliver several important other benefits:
It gives the business something to fall back on if negotiations fail.
It increases negotiation power. If a good alternative exists, the business does not need to concede as much. As a result, it can push the other party harder for a better deal.
It clarifies the reservation point, or the worst outcome the business is willing to accept.
Formulating a BATNA
A BATNA may not be immediately apparent. However, Fisher and Ury also provided a simple framework for stuck businesses:
Brainstorm
Start by brainstorming a list of actions that could be taken in the event an agreement is not reached.
At this point, these actions are purely theoretical. But they must be realistic.
Refine
Refine the list of actions according to their practicality, feasibility, and potential to add value.
The definition of value will vary according to the individual business, context, or market it operates in.
Select
Tentatively select one option that seems to have the best mix of characteristics.
Formulate
Lastly, formulate the reservation point. Remember that this is the lowest-valued deal the business is willing to accept.
BATNA best practices in business
Negotiations are often high-stress environments, so it is crucial to act decisively and strategically to ensure an optimal outcome.
Here are some BATNA best practices.
Do not reveal a weak BATNA
Otherwise known as a WATNA (worst alternative to a negotiated agreement).
This gives the impression of a business with little leverage that will accept any deal that is put in front of them – regardless of whether it benefits them.
Do not bluff about a BATNA
If prompted by the other party, explain that a range of possible alternatives is being assessed.
But maintain a focus on the current deal and do not embellish or fabricate a BATNA to increase bargaining power.
Do not reveal a BATNA too early
This can be misconstrued as hostility by the other party, creating a tense and non-collaborative atmosphere which stifles negotiation.
Even if the business has a robust BATNA, it is better used at the end of the process once all other avenues have been exhausted.
Work to actively improve a BATNA with a longer-term view
The business must do everything it can to actively improve an alternative course of action.
Avoid being talked out of a BATNA
If the other party criticizes or discourages a BATNA, the business must realize that this is nothing more than a negotiation tactic.
In other words, the other party stands to benefit by encouraging you to take a lower-valued course of action.
BATNA vs. WATNA
In negotiation, WATNA stands for “worst alternative to a negotiated agreement,” representing one of several alternative options if a resolution cannot be reached. This is a useful technique to help understand what might be a negotiation outcome that, even if negative, is still better than a WATNA, making the deal still feasible.
A BATNA is the “Best Alternative To a Negotiated Agreement,” which sets the best alternative for when ready to walk away from a negotiation.
The WATNA is the opposite of it. It sets the alternative in case the negotiation turns into a sub-optimal mode.
The WATNA, like the BATNA, is critical for any successful negotiation.
Setting both can be extremely powerful to prepare for the negotiation, successfully close it, or know when to walk away from it.
BATNA vs. ZOPA
The ZOPA (zone of possible agreement) describes an area in which two negotiation parties may find common ground. Indeed, ZOPA is critical to explore the deals where the parties get a mutually beneficial outcome to prevent the risk of a win-lose or lose-win scenario. And therefore get to the point of a win-win negotiation outcome.
BATNA and WATNA set the boundaries beyond which a negotiation should not fall.
And it helps you prepare a best and worst alternative in case the negotiation is not moving in the desired direction.
The ZOPA sets the boundaries within which negotiation can successfully happen.
Setting up a ZOPA is also critical to understanding where the negotiation can close by making both parties happy.
WATNA, BATNA and ZOPA
When going into a negotiation, the simple mental exercise of setting WATNA, BATNA, and ZOPA can exponentially increase the chances of making the negotiation successful.
WATNA and BATNA will set the outside boundaries under which the negotiation can’t fall into.
While the ZOPA is the area where negotiation can successfully close.
Understanding these elements on both sides of the negotiation enables both parties to understand where and how to deal with each other during the negotiation.
BATNA vs. Reservation Price
A BATNA is the best option a party has on the table to walk away from a negotiation, thus setting for that party a position of strength.
A reservation price or value is the lowest amount one of the sellers is willing to take into a negotiation to close the deal.
Take the case in which you sell a home, and you had set a market price of $300K.
Yet you are willing to accept also a proposal that moves around $250K.
If a buyer offers $250K, that is not the optimal sum of money you’re willing to take, but that is still the reservation price or point.
Thus the lowest amount still makes you willing to close the deal.
Whether or not the deal will be closed will also depend on your BATNA. Which is not an amount but rather a “what if scenario.”
For instance, take the case of the offer of $250K. You know that you don’t have to sell, as your backup plan is you can always sell later, as the market gets better since you don’t need the liquidity right now.
However, let’s assume that you decide that liquidity might put you in a comfortable position.
Thus, you do accept the reservation price of $250K.
You still closed the deal, even though you had a BATNA. So you could walk away from the deal and have a good alternative on the table.
Thus, BATNA and reservation prices are different, as the BATNA works as a favorable Plan B, in case the negotiation is not moving in the proper direction.
While the reservation price is the lowest amount, you’re willing to accept to close a deal, even if not optimal.
BATNA examples in business
Millennium Pharmaceuticals
Millennium Pharmaceuticals – now known as Takeda Oncology – is a biopharmaceutical company headquartered in Cambridge, Massachusetts.
The company’s core focus is the development and commercialization of oncology and inflammation-related products.
Millennium Pharmaceuticals was founded as a small start-up in 1993 but became a multibillion-dollar company less than a decade later.
This impressive growth was fuelled by a series of alliances and acquisitions where the company would negotiate with several parties at the same time to improve its BATNA.
Then-chief business officer Steve Holtzman once explained the rationale behind this strategy:
“Whenever we feel there’s a possibility of a deal with someone, we immediately call six other people. It drives you nuts, trying to juggle them all. But number one, it will change the perception on the other side of the table. And number two, it will change your self-perception. If you believe that there are other people who are interested, your bluff is no longer a bluff; it’s real.”
Kennecott Copper
Kennecott Copper – now a division of resources giant Rio Tinto – once operated the El Teniente underground copper mine in Chile.
But the contract stipulating the terms of use did not require the company to pay significant royalties to the Chilean government.
When the political situation in Chile changed, however, the terms of the contract were rendered unstable.
The country’s government had a very attractive BATNA in terms of the continued operation of the mine. It could force Kennecott to pay more royalties or alternatively, take control of the mine itself.
Conversely, Kennecott’s BATNA became extremely unattractive. The company could either accept the new terms and pay more royalties or relinquish ownership of the mine and cease operations in Chile.
Implementation of the 3-D strategy
For Kennecott, the realities of the situation were stark. With its own experienced personnel, the Chilean government didn’t need the company to run the mine.
What’s more, Kennecott could not move the mine elsewhere and did not have access to any downstream processing or marketing of copper metal.
To add value to its BATNA and make it feasible, Kennett adopted the 3-D negotiation strategy with three dimensions:
Set up – where the scope, sequence, and negotiation process are established before both parties meet at the table.
Deal design – to increase value for both parties, the deal design involved Kennecott analyzing the Chilean Government’s position in detail to uncover hidden interests.
Tactics – once at the table, the focus of the two parties was to create and claim long-term value via joint problem-solving. Value was increased for both parties by increasing the size of the pie, which we’ll explain in more detail later.
How did Kennecott improve its BATNA?
Kennecott’s negotiators developed a six-point plan to improve its BATNA and ensure the upcoming talks started favorably. Points included:
The offer to sell a majority equity interest in El Teniente to Chilean authorities.
A proposal to expand the current mine with the proceeds of the deal and an Export-Import bank loan.
A request that the Chilean Government guaranteed the loan subject to applicable laws in New York state.
Insurance coverage for as many of Kennecott’s assets as possible to protect the company from a takeover.
An arrangement to sell the extra output from the mine to North American and European customers on a long-term contract, and
Collection rights to such contracts that would be sold to a consortium of Japanese, North American, and European financial institutions.
These points fundamentally altered the course of the negotiation. Kennecott expanded the size of the pie by increasing the proposed size of the mine, which meant more money for the Government’s coffers as a majority owner.
The ability of Kennecott to bring in additional customers, creditors, and authorities also impacted the Chilean authorities’ BATNA.
Faced with a multiparty front of industrial, legal, and public players who would have future dealings with Chile, it became far less attractive for the government to remove Kennecott and take over mine operations itself.
Lastly, to improve its own BATNA, Kennecott’s decision to secure insurance, guarantees, and other contracts meant its situation would be less dire in the event the Chilean government decided to walk away.
While the El Teniente mine was nationalized a few years later, Kennecott’s improved BATNA resulted in additional years of cash flow that it would otherwise have missed out on.
BATNA case study: Starbucks vs. Kraft
Starbucks faced a BATNA situation after it was sued by Kraft Foods Group for $2.9 billion. The lawsuit was the result of a dispute between the two companies over the distribution of Starbucks coffee products in grocery stores.
Kraft had been distributing Starbucks coffee products since 1998 under a long-term contract that was set to expire in 2014. But in 2010, Starbucks announced that it was ending the contract and taking over the distribution of its products in stores. With sales of around $500 million, Starbucks offered Kraft $750 million to terminate the agreement.
Kraft disputed the move, claiming that Starbucks had breached the contract and then that it was entitled to compensation.
Kraft asks for an injunction
In October 2010, Starbucks informed Kraft that it would end the agreement within 30 days if certain contract breaches were not addressed. One month later, the company confirmed it would terminate the deal on March 1, 2011.
Starbucks accused Kraft of mismanagement of its brand with the coffee chain’s market share dropping from 33% in 2000 to 25% in 2010. Starbucks also wanted more flexibility to sell single-serve coffee pods, with the Kraft deal limiting sales to a small selection of pods that only worked in Kraft machines. Kraft hit back and demanded that Starbucks should pay it fair value for the business.
On December 6, Kraft asked a federal court for a preliminary injunction to prevent Starbucks from ending the contract before the matter could be resolved in arbitration. However, the appeal was ultimately dismissed which enabled Starbucks to sell the business to a private company known as Acosta Inc.
Kraft and Starbucks BATNAs
Kraft and Starbucks subsequently became involved in a protracted arbitration process over the next three years. While the two parties could not reach a consensus, both understood that court proceedings would be expensive, time-consuming, cause reputational harm, and offer no guarantee of a favorable outcome.
It was at this point that BATNAs became important.
For Starbucks, its BATNA was to continue with the plan to distribute its own coffee products in grocery stores. Starbucks understood that its BATNA would expose it to a decision in Kraft’s favor, but it later noted that there was “adequate liquidity” to compensate the company if required. In any case, Starbucks saw tremendous potential in the coffee pod market should it be able to distribute its products under what it considered more favorable terms.
Kraft’s BATNA, on the other hand, was to sue Starbucks for breach of contract if the arbitrator did not rule in its favor. While expensive, this would be a viable option for Kraft which had made a large and sustained investment in Starbucks products. The company also likely felt that its BATNA would make a strong case in court and produce a result commensurate with the $500 million it had lost in annual revenue.
Settlement is reached
In November 2013, arbitrators announced that Starbucks would be required to pay Kraft $2.23 billion (with an additional $527 million in attorney fees) for ending the contract prematurely. For Starbucks, this was lower than the $2.9 billion Kraft initially demanded.
While the company disagreed with the decision, it argued that the decision to take back its packaged coffee business was the correct one. Soon after the deal was finalized in 2013, Starbucks posted revenue of $1.4 billion in its channel development division which includes sales from non-Starbucks branded stores.
Kraft was more circumspect, with executive vice president of legal affairs Gerd Pleuhs remarking that “We’re glad to put this issue behind us. We can now fully focus on growing our global snacks business.”
Key takeaways
A BATNA, or the best alternative to a negotiated agreement, is a course of action to be taken when the negotiation process fails.
Establishing a BATNA begins with brainstorming a list of theoretical actions and then choosing the one with the highest potential to add value.
Best practices dictate how a BATNA should be used. A business should avoid fabricating or exaggerating a BATNA, as this could erode the integrity of their position in the negotiation itself.
The Fishbone Diagram is a diagram-based technique used in brainstorming to identify potential causes for a problem, thus it is a visual representation of cause and effect. The problem or effect serves as the head of the fish. Possible causes of the problem are listed on the individual “bones” of the fish. This encourages problem-solving teams to consider a wide range of alternatives.
In negotiation theory, BATNA stands for “Best Alternative To a Negotiated Agreement,” and it’s one of the key tenets of negotiation theory. Indeed, it describes the best course of action a party can take if negotiations fail to reach an agreement. This simple strategy can help improve the negotiation as each party is (in theory) willing to take the best course of action, as otherwise, an agreement won’t be reached.
In negotiation, WATNA stands for “worst alternative to a negotiated agreement,” representing one of several alternative options if a resolution cannot be reached. This is a useful technique to help understand what might be a negotiation outcome, that even if negative is still better than a WATNA, making the deal still feasible.
The ZOPA (zone of possible agreement) describes an area in which two negotiation parties may find common ground. Indeed, ZOPA is critical to exploring the deals where the parties get a mutually beneficial outcome to prevent the risk of a win-lose, or lose-win scenario. And therefore get to the point of a win-win negotiation outcome.
In a logrolling negotiation, one party offers a concession on one issue to gain ground on another issue. In logrolling, there is no desire by either party to advertise the extent of their power, rights, or entitlements. This makes it a particularly effective strategy in complex negotiations where partial or complete impasses exist.
The Theory of Constraints was developed in 1984 by business management guru Eliyahu Goldratt in his book The Goal. The Theory of Constraints argues that every system has at least one constraint that hinders high-level performance or profit generation. Fundamentally, the theory advocates identifying constraints and then eliminating them or at the very least, reducing their impact.
Win-win negotiations first rose to prominence during the 1980s, thanks in part to books like Roger Fisher, William Ury, and Bruce Patton’s bestseller Getting to Yes: Negotiating Agreement Without Giving In. Having said that, there was also a shifting mindset at the time as negotiators saw win-win negotiations as preferable to the then-dominant win-lose approach. A win-win negotiation is a negotiation outcome resulting in a mutually acceptable and beneficial deal for all involved parties.
A negotiation where one or both parties are unprepared can be disastrous. At best, the negotiation devolves into a loose and unfocused conversation. In the worst-case scenario, however, a negotiation can turn into an adversarial confrontation. The RADPAC model is a basic negotiation framework used in business to reach a favorable outcome for two or more parties.
The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.
You can use the Ansoff Matrix as a strategic framework to understand what growthstrategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growthstrategy can be derived from whether the market is new or existing, and whether the product is new or existing.
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.
In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
