The Art of Negotiation

posted in: Business/Marketing | 0

Amazon lists no fewer than 225,000 books on negotiation. Remember my view on this – the more books there are, the more important the subject and the less likely that any one book can ever give you the answer. Negotiation lies at the heart of business. As Chester L. Karrass said (the title of his book), “In business as in Life, You Don’t get What You Deserve, You Get What You Negotiate”. And if you don’t understand the art of negotiation you will get what you deserve but not what you want. Negotiation is a business art everyone should understand and want to try to improve on. My experience is that very few do.

If you want to spot someone who does not understand even the basics of negotiation – and is therefore likely to be easy prey assuming you do- try this simple test. Go through the concessions or terms you want them to accept one at a time and see if they are dumb enough to comment on the first one. If they do you know you have a rank amateur in front of you. You never comment on a list of concessions until you have them all out on the table. Until you are sure you do you just say nothing or perhaps ask a question, ideally “Anything else you want?”. If you have any skill you then run the negotiation so as to get as much information about a) why the person is asking for something and b) how important it is relative to the other things they are asking for.

A seminal piece on negotiation is ‘Getting to Yes’ by Messrs Fisher, Ury and Patton. It was first published, and I first read it, in 1981. I re-read it as a summary from GetAbstract (a very good summary, well done guys) and was reminded just how wise it is. This is where you should start – the summary or the full book. It merits consideration as one of my top 10 business books of all time.

Just like you can always spot someone who has had media training if you have had some yourself (Good morning, can I start by saying that our deepest sympathies go to the relatives of the family who died as a result of the fire at our factory) anyone who has read ‘Getting to Yes’ will spot that you have also read it. They will see how you are trying to focus on interest areas rather than pre-determined negotiating positions, they will notice that you introduce the idea of objective criteria to judge the eventual outcome, how you ask a lot of questions and use silence as a weapon. “You do your most effective negotiating when you say nothing”. But it doesn’t matter – you will both get to a better outcome if you understand and apply the principles of ‘Getting to Yes’. Actually, the most dangerous thing in negotiation is someone who understands nothing about it.

The Secret of Success – Contender for Top 10 Business Books?

posted in: Business/Marketing | 1

Malcolm Gladwell is a great writer and a true thought-leader. I chose to include him and his first book, Tipping Point, and stuck with that choice even after the publication of his second book, Blink. His third book, Outliers, may in fact be his best book yet. No-one can argue the influence of Tipping Point. It propelled Gladwell to being one of the world’s most highly sought after and highest paid speakers and writers. The notion of there being a Tipping Point in how ideas, including new business ideas, catch on has itself caught on like wild fire. Mark Earls, featured on my site, takes issue with some of the social science behind Gladwell’s theories but even Mark would acknowledge the power of Gladwell’s work in reshaping thinking in the business world.

I actually prefer Outliers although I hate the title – it is positively misleading. This book is about the secret of success and, in a similar vein to Freakonomics, another of my Top 10 Best Business Books, it takes a closer look at the data and facts that lie behind freakish success. As Gladwell puts it “Success is not a random act. It arises in a predictable and powerful set of circumstances and opportunities”. He then sets out what these are based on a series of true stories stretching from Bill Gates and The Beatles to Korean Air (whose story was originally about spectacular safety failures).

You could criticize Gladwell for stringing out these stories and it is true that no detail or flowery description is spared in first saying what appeared to happen, then showing what really happened and the lessons to be learned. I forgive him for this for two reasons. Firstly, he is a writer and so like all writers he wants to paint a picture in words, which he does very well. You get drawn into the stories, you get to know the people and their lives. Secondly and most importantly, he has to spin the story because if he did not the conclusions would seem trite and they are anything but. They are powerful and very important – to blow the denouement of the book, Gladwell’s point is that if only we could see past the myths and apparent blind luck we could see that with the right opportunities and circumstances we could help create a million Bill Gates.

I always like to give people the summary, the 2 minute version, because that is my thing – I like to give the maximum return on the time you spend to learn about business. You then make up your mind whether to invest more time to learn in more detail. So here they are, the 6 key points, but they will sound trite, even platitudinous.

Here is the secret of success:-

  1. Be born at a certain time – e.g. people born in the first quarter of the year do better simply because they are older than their school peer group.
  2. Spend at least 10,000 hours getting really, really good at something – as Bill Gates did because he luckily had access to a computer, which was rare at the time, and he was a geek.
  3. There is an IQ threshold of 130 – above that other things come into play like being a divergent thinker – in the same way that above a certain minimum height other things determine how good a basket ball player you are.
  4. Your family circumstances are key – middle class kids grow up empowered, with a sense of entitlement and in a home full of books.
  5. Your cultural legacy is key – Asians have a much harder work ethic because they come from a rice growing culture (much, much more demanding work than growing other crops as they did in Europe i.e. 3000 hours work a year versus 1200). On the other hand they tend to respect authority too much and that accounted for Korean Air’s appalling safety record until they brought a westerner in to get Pilots and First Officers to work as partners.
  6. In one sentence success comes down to chance and opportunity plus hard work, persistence and experimentation.

They may not sound earth shattering but Gladwell’s point is that if we see success in this way, we can stack the odds to create much more success in the world. Simple but very well argued and very powerful. The title could have been “Outliers i.e rare success stories need not be rare” – ok, not that catchy. The sub title of the book, “The Story of Success” is catchier but again misleading – these are the facts not just the story of success.

I like Outliers a lot and if you enjoy reading a well written book so will you. I won’t change the book against Malcolm’s name in our Top 10 Best Business books list just yet – I will wait until you and other business people regard it as more seminal that Tipping Point. I think you might. Success is everything in business – and this book is all about the secret of success.

Budget Setting

posted in: Business/Marketing | 0

This topic always seems to attract interest, I guess since so much of business is spent doing it and then living with the consequences.  The most common problems with budgets is that either people just look at the past and add on a bit for inflation (or the expectation that they will get cut back so better to start high) or else they double guess whoever will have to sign off the budget. “We better not go in asking for more than X or they’ll think we’re mad”. Another common mistake is to work the percentages based on benchmarks – it is just a version of setting budgets based on historical precedents. “Other businesses like us typically spend 2% of revenue on R&D so we will so the same”. Interesting to know but not the way you set a budget.

A budget, any budget, is an investment in the future that is intended to have a positive outcome. That is where you start – if successful what is this worth to us? The next thing is to look at the tasks that need to be accomplished and the realistic costs. “Task related budget setting” has to be the baseline.

Then you see how this can be funded, over what timescales and the effect on cash as well as P&L and balance sheet. Not so hard.
Adjust accordingly – if the budget outweighs the benefit (or is uncomfortably close) then re-evaluate the benefits not the budget. If the benefits by far outweigh the budget but there is an issue with funding then look at alternative ways of funding or alternative timescales over which the budget is invested – but don’t re-evaluate the budget.

Finally, when you are happy with all of that, then you look again at the budget. As I suggested before, do the plus 10% or minus 10% test. If you spend an additional 10% where would you spend it? If you had to cut 10% where would you cut it? This tells you a lot – where are you scimping, where might you have some slack (in which case put it in a contingency budget).

This leads on to the final two stages – risk management and procurement. Look at each individual task within the budget and evaluate the risks on two axis – how likely are they to happen and how big a financial impact? Decide what you need to do about the high likelihood/high impact. Then apply sensible procurement disciplines – have you compared alternative suppliers or ways of doing it? Do you understand how your suppliers costs are made up and examined ways of reducing them.
It is not that complicated and it is not that hard. But is a whole lot better than “last year’s budget plus 5%/what we spent last time/what our competitors do”.

The next time you are in a budget setting or review meeting go through this simple process:-
•    Benefits
•    Task related budget
•    Funding
•    Plus or minus 10%
•    Risk management
•    Procurement

I guarantee a better discussion and budget outcome!