Either through becoming emotionally invested, getting pressure from leadership or being unable to analyze key factors that should indicate retreat, business negotiators often find themselves spending long amounts of time on deals of diminishing — or even illusory — value.
One of the cornerstones of negotiation theory is BATNA (best alternative to a negotiated agreement), advanced by Roger Fisher and William Ury of the Harvard Program on Negotiation (PON) in their book, Getting to YES.
The wisdom of BATNA is that you cannot make wise decisions about continuing to negotiate unless you understand the available alternatives if you (or the other side) walk away. By looking at your perceived BATNA you should understand alternative courses of action in the event that a negotiation fails. It is intended to serve as a guidepost. If the outcome of the deal is likely to be worse than the BATNA scenario you have calculated, it may be time to walk away.
As Fisher and Ury recognized, “The reason you negotiate is to produce something better than the results you can obtain without negotiating.” That presumes at least four conditions:
- You understand the results, i.e., value you will get from continuing to negotiate.
- You understand the alternatives and the value you can glean from them.
- You understand the alternatives available to the other side.
- There is some commonality regarding the value the other side puts on negotiating with you versus their alternatives.
This sets up the BATNA Traps.
Common BATNA Traps
We will discuss three common BATNA Traps — reasons that people on either side of a negotiation can become over-committed to a deal that no longer makes sense.
Lack of knowledge about alternatives
In most cases, we are working with potential deals that are not yet completed. Even the deal you are pursuing is dependent on assumptions about its value because it is not yet done. And since we are pursuing that deal, we know even less about the deals that make up our or the other side’s alternatives (of course “do nothing” is always an alternative and we may know the value associated with that scenario). This means we have to estimate the values inherent in each alternative. But how often do we actually estimate the value of those alternatives?
If we perceive the value of the other side’s alternatives as high, then the danger is that we will erode the benefits we expect for ourselves from the negotiation, leaving money on the table. For example, if we wrongly assess that business impact of a competitive solution is closer in time for the client than our own solution, we may make concessions to offset the value of that delay.
Alternatively, if we perceive the other side’s alternatives as poor, we may stick to a negotiating position that will never close, or simply continue to talk when the deal is not viable for either side. Alternatives include alternative uses of money. A recent example we discussed with a colleague had a retail buyer of technology repurposing funds for a data management solution. The sales team continued to negotiate even after the retailer had repurposed the budget to pave their parking lots!
Thus, the value of the other side’s alternatives (as well as your own) is critical.
Becoming emotionally invested
It is easy to become emotionally invested in a deal, especially a complex one that requires a large time and resource commitment from you and your team. Nobody wants to simply walk away from something they have cultivated for months — even when the rationale for actually doing the deal starts to dwindle. If you have a savvy counterpart on the other side of the negotiation table, they may recognize your psychological stake in the deal and exploit it, thereby diminishing your leverage.
Once again, understanding the value you bring to the table, as well as the value of alternatives, becomes critical to removing the emotional and psychological stake from the equation.
Pressure from the organization
Period goals, such as quarterly quotas, or promises made further up the chain of command can all make a negotiator feel like his or her deal is a “do or die” situation. We once worked with a CEO who had promised his board that a specific deal would “land soon.”
Because of the added pressure from that promise, he made several unnecessary concessions to a customer — and gave away considerable profit. He eroded leverage built over months of negotiating about delivering business impact to the other side. In the end, the deal got done, but it cost him and his company money.
Lack of defensible rationale
We spoke about understanding alternatives, but it is also critical to understand why the other side is negotiating with you and why you are negotiating with them. Sometimes the sheer momentum of events prevents us from stopping and validating (as well as measuring) the “why?” of a deal.
Without a “toolkit” for gauging rationale or the actual value delivered, it’s easy for a negotiation to snowball, growing as it sucks resources out of the organization.
To avoid these pitfalls, you need to have evaluation tools that serve as a dashboard for determining whether or not a deal is worth pursuing.
Not every deal should get done! Check out our white paper for negotiation analysis techniques that will help you maximize the value of your time and speed toward important goals by recognizing common negotiation mistakes that rope us into fruitless, protracted negotiations. You can start making better go/no-go decisions on deals that take a lot of time, but may have dubious benefit.
This blog post is excerpted from K&R’s newest white paper, “When Not to Do the Deal: How to Analyze Negotiations at Critical Go/No-Go Junctures.”