Reference no: EM133176762
Case study 1
BEST ALTERNATIVE TO A NEGOTIATED AGREEMENT
In negotiation theory, the best alternative to a negotiated agreement or BATNA is the course of action that will be taken by a party if the current negotiations fail and an agreement cannot be reached. BATNA is the key focus and the driving force behind a successful negotiator. BATNA should not be confused with the reservation point or walkway point. A party should generally not accept a worse resolution than its BATNA. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult to value, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors.
The BATNA is often seen by negotiators not as a safety net, but rather as a point of leverage in negotiations. Although a negotiator's alternative options should, in theory, be straightforward to evaluate, the effort to understand which alternative represents a party's BATNA is often not invested. Options need to be real and actionable to be of value, however without the investment of time, options will frequently be included that fail on one of these criteria Most managers overestimate their BATNA whilst simultaneously investing too little time into researching their real optionsThis can result in poor or faulty decision making and negotiating outcomes.
BATNA was developed by negotiation researchers Roger Fisher and William Ury of the Harvard Program on Negotiation (PON), in their series of books on Principled negotiation that started with Getting to YES, unwittingly duplicating a game theoretic concept pioneered by Nobel Laureate John Forbes Nash decades earlier in his early undergraduate research.
CASE STUDY 1
It is easy to overestimate BATNA and invest too little time to research real options. This can lead to poor or faulty decision making and negotiating outcomes. 1987 saw the conclusion of a complex series of negotiations between Southwest Airlines and two different pilot groups: Southwest pilots and Muse/Transtar pilots. The Muse/Transtar pilots failed to properly analyze their BATNA: their missteps and misfortune offer valuable lessons for anyone exposed to the risks of negotiating in a volatile industry.
TranStar began as Muse Air amid the 1982 traffic controllers' strike. By the end of 1984 the company was still struggling, and actively looking for a merger to keep it afloat. At the end of the year, Harold Simmons, president of the Amalgamated Sugar Company offered the airline the money to continue, on the condition that Lamar Muse return as CEO. Despite the new influx of cash and new leadership, the company was not able to generate a consistent profit despite its use of non-union labor and competitive fares.
In 1985, Southwest Airlines acquired Muse Air. The Muse pilots were initially unrepresented so negotiations ensured between Southwest Airlines and the Southwest Airlines Pilot Association (SWAPA). Complicating the always-contentious issue of seniority list integration was the large disparity in pay at the two companies. The difference was so large that the Muse Air operation was unable to support the Southwest Airlines pay scale.
SWAPA pursued a strategy of integrating the Muse pilots to the bottom of the list, with pay parity in five years combined with a card campaign to represent the Muse pilots. This strategy was rejected by the company on the basis of Duty to Fairly Represent and SWAPA agreed to a one time, temporary waiver of their scope clause. This allowed Muse to be run as a separate operation with numerous caveats and protections including a 1:4 growth ratio.
Muse became TranStar and chose independent representation through the TranStar Pilots Association (TPA). Perceiving the dangers inherent in a wholly owned subsidiary the pilot groups attempted to negotiate a combined master seniority list. In November 1986 an agreement was reached.
This agreement placed a pilot hired in Jun of 1982 by Southwest senior to a TranStar pilot hired in January 1981 and improved the relative seniority of all Southwest Airlines pilots. The agreement included fences, Captain seat protections and brought the TranStar pilots to pay parity no later than December 1990.
The TPA Board of Directors rejected the proposed Integrated Seniority List (ISL), apparently believing that such rejection would create more leverage for their Merger Committee to obtain a more favorable ISL.
What followed was a breakdown in negotiations and an angry exchange between union presidents.
"I can only conclude that your inner circle objects to the seniority settlement and engaged in a last minute search for reasons to sabotage the agreement and rationalize the action within your organization. This indicates a lack of good faith, which precludes any further dealings between our two unions." SWAPA President Gerald Bradley to TPA President Captain Golich
"I have waited a few days to respond to your recent letter addressing our unsuccessful negotiations. As you can imagine, it was difficult not to be angered by your groundless accusations, blatant threats and misleading statements." Captain Golich to Captain Bradley.
Negotiations were never resumed and TranStar was operated as a wholly owned subsidiary until the 9th of August 1987 when it closed its doors forever. 146 pilots who had seniority numbers at Southwest Airlines, seat protection, and (eventually) substantial raises now had no jobs. Excerpts from a letter Captain Golich wrote to Herb Kelleher on August 2:
"As you know, the TranStar pilots are in their darkest hour ... I therefore request first right of hire, subject to Southwest's normal screening, in seniority order, for the TranStar Pilots ... ... request some form of assistance be provided relative to the requirement for a 737 type rating ... ... the TranStar pilots will provide their own ground school."
The TPA BOD assessed their BATNA as superior to the agreement their merger committee was able to negotiate. Unfortunately for the pilots they represented this was a gross overestimation, and the actual BATNA turned out to be inferior not only to the negotiated agreement, but even to SWAPA's opening position of staple.
Unfortunately the mistakes made by the TPA Board of Directors are not unique. The Airline industry is littered with examples of misapplied or overestimated BATNA. BATNA isn't a walk away position or an assessment of the lowest acceptable offer. It is a tool to assess the certain gains presented in a negotiated agreement against the uncertain risks of the alternative. The uncertainty of those risks can lead to outcomes that are surprising and devastating.
QUESTION
'The Muse/Transtar pilots failed to properly analyze their BATNA: their missteps and misfortune offer valuable lessons for anyone exposed to the risks of negotiating in a volatile industry. Their missteps and misfortune offer valuable lessons for anyone exposed to the risks of negotiating in a volatile industry.'
From the case study, you find that the result of negotiation based on BATNA if not properly analyze will lead to outcomes that are surprising and devastating. If you are appointed one of the negotiation team representing The Muse/Transtar, what are steps or strategy that will you apply to ensure the result is encouraging if not full benefited the members. Please discuss in detail.
Note:
Research suggests that the existence of a BATNA changes several things in a negotiation:
- Compared to negotiators without attractive BATNAs, negotiators with attractive BATNAs set higher reservation prices for themselves than their counterparts did.
- Negotiators whose counterparts have attractive BATNAs set lower reservation points for themselves; and
- When both parties are aware of attractive BATNA that one of the negotiators has, that negotiator receives a more positive negotiation outcomes.
Thus, negotiators with attractive BATNA should tell the other party about it if they expect to receive its full benefits.