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.
- Understanding a WATNA
- Preparing a WATNA for use in a negotiation
- When is a WATNA most effective?
- WATNA vs. BATNA key differences
- Summarizing the key differences between WATNA and BATNA
- WATNA examples
- Key takeaways:
Understanding a WATNA
WATNA is an acronym for the “worst alternative to a negotiated agreement”. It describes the worst result a party could achieve if the negotiation process failed.
The WATNA is an important part of the negotiation process. In a book describing the principles of negotiation, authors Matthew P. Guasco and Peter R. Robinson note that “sometimes, the deal on the table is acceptable because it is less bad than your WATNA, i.e., you are minimizing loss or making the best of a bad situation.”
Put differently, the WATNA provides a benchmark that settlement offers can be evaluated against. It gives one party the confidence to accept an outcome that is far from ideal but, relatively speaking, is not the worst possible outcome.
Preparing a WATNA for use in a negotiation
Before a WATNA is prepared, each party must decide how likely that particular outcome will be.
Both parties need to be realistic. If either could achieve their ideal outcome with a minimum of fuss, there would be no need for negotiation in the first place. An organization without a clear WATNA (or BATNA) will enter a negotiation with false and unrealistic expectations.
The worst alternative to a negotiated agreement imbues each party with a sense of purpose at the negotiating table. With greater awareness of their respective worst-case scenario, each party gains more clarity as a result.
When is a WATNA most effective?
Sometimes, one party will be forced to cut its losses during a negotiation. This usually occurs in scenarios involving a high degree of uncertainty.
For instance, an unemployed person in discussions with a hiring manager is entering the negotiation in a weak position. The WATNA of the unemployed person may involve being overlooked for the job and having to declare bankruptcy.
However, we noted in the previous section that a WATNA could be used to give a negotiating party more purpose. In this example, purpose means the unemployed individual strengthens their position to reduce uncertainty.
Perhaps the individual applies for as many job as possible and receives a bunch of offers. Armed with a list of comparable jobs, they then become better equipped to use new insights as a negotiation tool during the next job interview.
With greater purpose, the job seeker is in a far stronger position. Instead of bankruptcy, the WATNA becomes successful employment in a low-paid job. While this is a long way from the most desirable outcome, the individual has nevertheless used a WATNA to strengthen their position. As Guasco and Robinson noted, the deal on the table is simply less bad than the original WATNA.
At some point in the future, the position of the person who is now employed may become strong enough to be designated as their BATNA.
WATNA vs. BATNA key differences
A WATNA, or the worst alternative to a negotiated agreement, is the worst result a party could achieve if it decided to cease negotiations.
A BATNA, or the best alternative to a negotiated agreement, is the best result a party could achieve after terminating the negotiation proceedings.
The WATNA represents the worst-case scenario if negotiation fails. In other words, where all possible alternative courses of action have been exhausted. The WATNA should be determined before entering the negotiation to avoid agreeing to a sub-optimal course of action.
In some cases, the WATNA may cause a negotiating party to look at their predicament from a different angle. This means they may reconsider their position and agree to a compromise that helps them avoid serious ramifications.
Common examples of WATNAs include:
- A loss of business, suppliers, employees, or distributors.
- Litigation or arbitration.
- A loss of time, money, or efficiency such as from strike action.
- Reputational damage.
For a business, the BATNA is the most profitable alternative option should the negotiation process not succeed.
Like the WATNA, the best alternative to a negotiated agreement is determined beforehand. Otherwise, a party cannot make an informed decision as to whether the proposed deal is better than any other alternative.
According to Harvard University researchers, the BATNA can be clarified in the following steps:
- List the potential alternative outcomes if the negotiation ends in a stalemate.
- Evaluate each alternative in terms of the value of pursuing it, and then select the course of action with the highest expected value. In other words, the BATNA.
- Once the BATNA has been determined, a reserve value can be calculated. This is the lowest-valued deal the business is willing to accept. When the value of a deal is lower than this threshold, it should be rejected and the BATNA pursued instead.
BATNAs are a key driver of successful negotiation because, in most cases, an entity never agrees to a deal that is worse than their best alternative. This gives them power at the negotiating table and the ability to walk away from an unfavorable deal.
Having said that, successful BATNAs rely on the business being able to accurately value each course of action. The value of time and money is relatively easy to measure, but the value of qualitative factors such as business relationships or brand reputation is harder to determine.
Summarizing the key differences between WATNA and BATNA
- A WATNA is the worst result a party could achieve if it decided to cease negotiations, while a BATNA is the best result a party could achieve with the same action.
- The WATNA may cause one party to look at their predicament from a different angle and compromise on a deal to avoid risks. These are usually risks related to legal action, a loss of business, reputational damage, and bankruptcy.
- BATNAs are a key driver of successful negotiation because, in theory, a party should never agree to a deal that is worse than their best alternative. Doing so relies on an ability to determine the value of each alternative course of action – whether that value is financial or otherwise.
In the final section, let’s conclude by listing some WATNA examples from common, everyday scenarios.
Consider in the first example that winter is approaching and you want to install underfloor heating in your home. After finding a contractor who quotes $7,000 for the installation, you can then enter into a negotiation to see if you can secure more favorable terms.
If the negotiation fails for whatever reason, the best alternative to a negotiated agreement (BATNA) would be to find a contractor who will install the heating for a lower price. The WATNA, on the other hand, may be that you have to hire another contractor at the same price or start a new negotiation process.
For those that live in a small town without access to many services, the WATNA may see them forced to hire a more expensive contractor or, worst of all, endure the winter without underfloor heating.
Buying product from a supplier
Suppose you are a café owner who purchases 2000 kilograms of coffee beans from a supplier each year. You consider yourself one of the supplier’s best customers and as a result, are hoping to negotiate a new rate from $10 per kilogram to $8 per kilogram. In dollar terms, this would represent a saving of $4000 per year. What’s more, you are also hoping to improve the delivery time from 72 hours to 48 hours to secure fresher beans and improve the taste of the final product.
Before you negotiate with the supplier, it’s important to know who the other suppliers are in the coffee bean industry. What are they are charging per kilogram and how fast can they deliver? Are they reliable? Do they pay on time? If you know there is a supplier who sells beans for $9 a kilo and can deliver in 48 hours, you have already have a BATNA. But this information also defines your WATNA.
Perhaps you identify that the only suppliers who sell for $8 per kilogram are international businesses that cannot meet your desired delivery timeframe. In other words, your WATNA may involve accepting fewer fresh ingredients to save $4000 per year. Alternatively, you may walk into the negotiation with the knowledge that $9.50 per kilogram is the industry price and that securing a lower price is unlikely. In this case, the WATNA is that you remain with your current supplier. If you and the supplier cannot come to an agreement, a café without enough coffee beans to supply customers may be the WATNA.
Selling a house
In the last example, imagine that you need to sell your house at short notice to start a new job in another state. You list the house for sale at $400,000 and begin negotiating with an interested party who offers $350,000.
This number is below what you paid for the home, but this is a more desirable option than the WATNA of failing to sell the home before the new job is due to commence. In other words, you choose to accept the offer and make a loss on the house because it is a more attractive option than arriving in a new state without a place to live.
- A WATNA describes the worst-case scenario for either party if the negotiation fails completely.
- A WATNA gives the individual or business the confidence to accept an outcome that, while far from ideal, is better than the worst possible outcome.
- A WATNA is most effective in negotiations with a high degree of uncertainty. It can encourage a concerned party to cut its losses and move forward with purpose.
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