Professional Documents
Culture Documents
Guhan Subramanian
Joseph Flom Professor of Law & Business, Harvard Law School H. Douglas Weaver Professor of Business Law, Harvard Business School
June 2010
BATNA: Best Alternative to a Negotiated Agreement Reservation Value: The value at which you would be indifferent between entering into or not entering into an agreement ZOPA: Zone of Possible Agreement
A BATNA Checklist
1. Identify all the plausible things you might do without the other party, if you are unable to reach an agreement. Calculate the value associated with each alternative. Select which of these alternatives is bestthis is your BATNA. Important: always analyze the other parties BATNAs with equal care and objectivity.
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2. 3. 4.
A BATNA Illustration
After Mississippi legalizes riverboat gambling in the late 1980s/early 1990s, entrepreneur approaches farmer to buy land for casino development. Before meeting, farmer hires an agriculture professor to estimate the value of the land. Agriculture professor conducts soil tests and estimates cash flows to conclude that the land is worth ~ $3.0 million. In the negotiation, farmer (luckily) keeps quiet first offer from entrepreneur is $7.0 million. Farmer negotiates further and eventually reaches a deal at $8.5 million.
From: Subramanian, Taking BATNA to the Next Level, Negotiation (Nov. 2006)
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1. Set an effective anchor. 2. Make sure the process is perceived to be fair. 3. Manage your patterns of concession. 4. If a gap still exists, seek agreement on process to close the deal.
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Anchoring Effectively
Anchoring: a potent cognitive bias in dealing with uncertainty in negotiations, in which people give too much weight to the first tangible number or evidence, and adjust too little from that starting point. Implications for first offers in negotiations: (1) Anchor the negotiation by making a first offer, but only if you have a good sense for where the ZOPA is. (2) If you dont know where the ZOPA is, or even whether it exists, hang back and let the other side make a first offer, or consider setting a soft anchor. (3) Avoid being anchored defuse the anchor clearly and forcefully if your counterparty sets one against you.
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An Anchoring Experiment
What % of countries in the United Nations are African? Cash prize! Before answeringspin a random wheel numbered from 1-100 Is number greater or less than the number chosen by the random wheel?
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% of countries in the UN that 45% are African? _______
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How High Should I Aim? In general: People estimate that the pie is about 1/3 smaller than it actually is, which results in first offers that are too conservative. Ask yourself: What is the most aggressive offer I can justify? But always make sure to explain your proposal: Dont just throw a number over the fence.
#1
NBC Offers
#2 #3
$6.0 $4.75
#4 #5
$5.5
Paramount Offers
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CounterThreat
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Use When
Other side speaking in paragraphs
Some Illustrations
So, if I am hearing you correctly... It sounds as if . . . The main issues, as I heard them, are What, specifically, do you mean by Can you elaborate more on Please say more about Wow! Hmmm. It must have been frustrating for you to feel
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Other side speaking in vague or conclusory way Hidden emotions or core interests on one or both sides
Stepping Back from the Negotiation Table: Effective Deal Process Design
= source of competitive pressure
Negotiation
Auction
Buyer
Negotiauction
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Buyer
Buyer
Source: Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace (Norton 2010).
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Playing Effectively in Negotiauctions: A Taxonomy of Moves Setup Moves: establishes the terms of entry into a negotiation or auction situation Rearranging Moves: reconfigures the assets or the parties, or both, in ways that create and claim value Shut-Down Moves: short-circuits a negotiation or auction situation that is underway
Source: Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace (Norton 2010).
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Representative Analyst Commentary Attractive acquisition for Verizon a MUST HAVE for Qwest Investors should not be surprised to see Qwests premium bid for MCI, as such a deal is in our opinion absolutely necessary for the company if it ever expects to begin paying down its onerous $17 billion debt load, which it likely could not do on its own.
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Stock Cash
Qwest has submitted what we believe to be an inferior offer. If the MCI board, capitulating to Qwests artificial deadline, declares this bid to be superior, it would seem to us that the decision-making process is being driven by the interests of short-term investors rather than the companys long-term strength and viability. Should this occur, we would no longer be interested in participating in such a process.
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