Thought for the Day
Value is not what you get,
Value is what you give
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The India Journal of Mercuri International: April - June 2016
IN THIS ISSUE
Brinkmanship in Business - Bruce D Henderson (1915 - 1992) Founder, Boston Consulting Group
A businessman often convinces himself that he is completely logical in his
Several elements seem basic to success in the cold wars of business. The executive must know the character, perspective, motivation, and values of his competitors. Using such knowledge, he may be able to achieve competitive success with a minimum of conflict by convincing competition that it can gain more by accepting a compromise of its objectives than by having a test of strength. Victory, if achieved, is more often won in the mind of a competitor than in the economic arena.
I shall emphasize two points. (1) Management must persuade each competitor to voluntarily stop short of his maximum effort to acquire customers and profits. (2) Persuasion depends on emotional and intuitive factors rather than on analysis or deduction.
The negotiator's skill lies in being as arbitrary as necessary to obtain the best possible compromise without actually destroying the basis for voluntary mutual cooperation or self-restraint. There are some commonsense rules for success in such an endeavor:
1. Be sure that your rival is fully aware of what he can gain if he cooperates and what it will cost him if he does not | 2. Avoid any action which will arouse his emotions, since it is essential that he behave in a logical, reasonable fashion | 3. Convince your opponent that you are emotionally dedicated to your position and are completely convinced that it is reasonable.
It is worth emphasizing that your competitor is under the maximum handicap if he acts in a completely rational, objective, and logical fashion. For then he will cooperate as long as he thinks he benefits at all. In fact, if he is completely logical, he will not forgo the profit of cooperation as long as there is any net benefit.
It may strike most businessmen as strange to talk about cooperation with competitors. But it is hard to visualize a situation in which it would be worthwhile to pursue competition to the utter destruction of a competitor. In every
A breakdown in negotiations is inevitable if both parties persist in arbitrary positions which are incompatible. Yet we have identified major areas in business where some degree of arbitrary behavior is essential for protecting a company's self-interest. In effect, a type of brinkmanship is necessary. The term was coined to describe cold war international diplomacy, but it describes a normal pattern in business, too.
In a confrontation between parties who are part competitors and part cooperators, the decision as to what to accept is essentially emotional or arbitrary. The decision as to what is attainable is essentially an evaluation of the other party's degree of intransigence. The purpose is to convince him that you are arbitrary and emotionally committed while trying to discover what he would really accept in settlement. The competitor known to be coldly logical is at a great disadvantage. Logically, he can afford to compromise until there is no advantage left in cooperation.
The heart of business strategy for a company is the creation of attitudes on the part of its competitors that will cause them either to restrain themselves or to act in a fashion which management deems advantageous. In diplomacy and military strategy the key to success is very much the same.
The most easily recognized way of enforcing cooperation is to exhibit obvious willingness to use irresistible or overwhelming force. This requires little strategic skill, but there is the problem of producing conviction in the competing organization that the force will be used without actually resorting to it (which is expensive and inconvenient).
In industry, however, the available force is usually not overwhelming, although one company may be able to inflict major punishment on another. If each party can inflict such punishment on the other, we have the classic case. If there is open conflict in such a case, then, as earlier pointed out, both parties lose. In the event of cooperation, both parties are better off but not necessarily equally so—particularly if one is trying to change the status quo.
When each party can punish the other, the prospects of agreement depend on three things: 1. Their respective willingness to accept the risk of punishment | 2. Their beliefs about each other's willingness to accept the risk of punishment | 3. Their degree of rationality in behavior.
If these conclusions are correct, what can we deduce about how advantages are gained and lost in business competition?
First, management's lack of willingness to accept the risk of punishment is almost certain to produce either the punishment or progressively more onerous conditions for cooperation—provided the competition recognizes the attitude.
Secondly, beliefs about a competitor's future behavior or response are all that determine competitive cooperation. In other words, it is the judgment not of actual capability but of probable use of capability that counts.
Thirdly, the less rational or less predictable the behavior of a competitor appears to be, the greater the advantage he possesses in establishing a favorable competitive balance. This advantage is limited only by his need to avoid forcing his competitors into an untenable position or creating an emotional antagonism that will lead them to be unreasonable and irrational (as he is).
If I were asked to distill the conditions and forces described into advice for the businessman-strategist, I would suggest five rules.
1. You must know as accurately as possible just what your competition has at stake in his contact with you. It is not what you gain or lose, but what he gains or loses, that sets the limit on his ability to compromise with you.
2. The less the competition knows about your stakes, the less advantage he has. Without a reference point, he does not even know whether you are being unreasonable.
3. It is absolutely essential to know the character, attitudes, motives, and habitual behavior of a competitor if you wish to have a negotiating advantage.
4. The more arbitrary your demands are, the better your relative competitive position— provided you do not arouse an emotional reaction.
5. The less arbitrary you can seem to be, the more arbitrary you can act in fact.
These rules make up the art of business brinkmanship. They will guide a businessman to winning a strategic victory in the minds of competitors. Once he has won it there, he can convert it into a competitive victory in terms of sales volume, costs, and profits.
The full version of this article as published in the Harvard Business Review of March 1967 is here.
Why do smart people make irrational decisions every day? The answers will surprise you. Predictably Irrational is an intriguing, witty and utterly original look at why we all make illogical decisions. At the heart of the market approach to understanding people is a set of assumptions. First, you are a coherent and unitary self. Second, you can be sure of what this self of yours wants and needs, and can predict what it will do. Third, you get some information about yourself from your body — objective facts about hunger, thirst, pain
What the past few decades of work in psychology, sociology
Ariely is not out to overthrow rationality. Instead, he and his fellow social scientists want to replace the “rational economic man” model with one that more accurately describes the real laws that drive human choices. In a chapter on “relativity,” for example, Ariely writes that evaluating two houses side by side yields different results than evaluating three — A, B and a somewhat less appealing version of A. The subpar A makes it easier to decide that A is better — not only better than the similar one, but better than B. The lesser version of A should have no effect on your rating of the other two buildings, but it does. Similarly, he describes the “zero price effect,” which marketers exploit to convince us to buy something we don't really want or need in order to collect a “free” gift. “FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is,” Ariely writes. None of this is rational, but it is predictable.
How tough is itA silent
Listening to birds chirpSoaking in the warm sunshineVivid flowers, rich moss
Or simply (not so simple) listening to othersMeditation Anyone
Choose your path...Be Happy Being You!
11 Body Language essentials for your next negotiation
Negotiating successfully is about more than just saying the right thing. Commanding body language is an essential business tactic and has been studied for years--but mastering it can be a challenge.
Columnists from Inc.com asked 11 successful entrepreneurs for their best body-language tips. Here is what they said. Excerpts from the article of Aug 2013: Successful negotiators do the following:
Mirror Their Actions:
Mirroring is when one person adopts another person's body language, vocal tone, and behavior, which builds rapport. For example, if the prospect is engaged, he or she will lean forward and follow your movements. If that's not the case and the person is leaning far back and crossing his or her arms, be sure to find a way to bring the person back in and ask what isn't right. --Kenny Nguyen, Big Fish Presentations
Nod Your Head:
I adopted a negotiation trick from President Obama after observing the following: Even when he's in the middle of a disagreement or being harshly criticized, he nods his head and maintains eye contact. I found that doing the same in negotiations defuses tension and builds alignment, even during contentious conversations --Christopher Kelly, Convene
Pay Attention to Your Hands:
When people are nervous or stressed, it often shows in their hands. When you're negotiating, make sure your hands project confidence and poise. Fidgeting or clasping your hands tightly together reveals that you're nervous. The other party can take advantage of that. Try putting your hands just below your chest and put your fingers together when you want to confidently make a point. --Natalie MacNeil, She Takes on the World
Plant Your Feet:
Your face, head, and hands are obvious body parts to control when negotiating. But your feet? Not so much. Keep them firmly planted on the ground to show your resolve. It also ensures that you avoid coming off as ambivalent or stubborn. This helps you stay confident, too --Danny Wong, Blank Label
Relax Your Body:
Negotiations can be intense, so assume a relaxed body position to help ease the tension. Complement that body language with soft-spoken or non-aggressive commentary. This can help build trust and lead to more effective negotiations. --Andrew Schrage, Money Crashers Personal Finance
Remember to Smile:
It's important that the environment doesn't get too intense. For the deal to be successful, it will most likely be a long-lasting relationship, and that can't happen if it's not friendly between both sides --Jordan Fliegel, CoachUp
Keep an Open Posture:
Keep yourself pleasant and appealing. Lean in and act engaged, and keep your stance open. People want to feel like the deal is about (or at least includes) them, even if it's not in their best interest. So they may not get exactly what they want, but they do want to know that you're interested in their thoughts or feelings about a topic in the negotiation. Otherwise, they shut down --Andy Karuza,
Hide Your Nerves:
Do not fidget during a negotiation. Any signs of being nervous or anxious can be a red flag. Don't bounce your legs, tap your feet, or touch your face. You want to appear calm and confident to the person with whom you are negotiating. --Heather Huhman, Come Recommended
Keep a poker face:
A good poker face is essential. I once heard someone say, "Don't negotiate like you're Tony Soprano unless you have a gun in your hand." That's true. People think they have to talk like Gordon Gekko in a negotiation. The best do their homework, come with really strong data and facts, and don't show their hand. --Danny Boice, Speek
Show Your Patience:
When negotiating, pretend that you are sitting with your grandmother. You need to focus because she might speak softly, and you certainly need to be patient explaining things because topics that are obvious to you (Facebook and mobile apps) may be foreign to her. Make sure to smile a lot, too. And focus on your partner; be empathetic to his needs -- Aaron Schwartz, Modify
Hold Eye Contact:
Although there are other body language factors that can detract from your negotiation skills, faltering eye contact is the most detrimental. The saying that eyes are the windows to the soul also applies to effective communication. Not maintaining eye contact gives off a perception of uneasiness, as well as a lack of confidence and conviction--characteristics that no strong negotiator embodies --Fabian Kaempfer, Chocomize
* For me, relationship is very important. I can lose money, but I cannot lose a relationship. The test is, at the end of a conversation or a negotiation, both must smile - Sunil Mittal
* Let us never negotiate out of fear. But, let us never fear to negotiate - John F Kennedy
* During a negotiation, it would be wise not to take anything personally. If you leave personalities out of it, you will be able to see opportunities more objectively – Brian Koslow
* He who has learned to disagree without being disagreeable has discovered the most valuable secret of a diplomat – Robert Estabrook
* You must never try to make all the money that’s in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won’t have many deals – J. Paul Getty
* It’s a well-known proposition that you know who’s going to win a negotiation; it’s he who pauses the longest – Robert Court
* Place a higher priority on discovering what a win looks like for the other person – Harvey Robbins
* In any negotiation, the one who first gives a number is the loser - Kenneth Eade
* Be persistent, be persistent, they say. But please, do not mistake being a pest for being persistent - Nike Thaddeus
* Do not compromise on the quality and your customers will not negotiate on the price - Amit Kalantri
* By fighting you never get enough, but by yielding you get more than you expected - Dale Carnegie
When the RPG group bought Spencer & Co in the late 1980s, Harsh Goenka, now the group chairman, was put in charge of the difficult negotiations. For example, Spencer's investment bankers fixed the initial meeting with the CEO at midnight — they said it was considered an auspicious time — but the gentleman never turned up. "That deal was a test of my patience," says Goenka. "I did get to understand the mind of the seller, who was a soft human being, with his own kinks. He even stipulated that his directors would remain on the board after the acquisition. It was a deal where most others would have opted out, but it was very important to me, and I gave in to all these strange conditions.”
Whether you're buying a company, a house or vegetables, it's always advantageous to keep the other side on the backfoot. Not showing up for an occasional meeting is probably one such tactic. But it's one that Goenka himself has never used. "In negotiation, patience is the biggest virtue, followed closely by decency," he says. "We have had several acquisitions over the last two decades and in all these, the spoken word was more important that the written document. I always look to find where the value lies not only for me, but also for the other side.”
Ratan Tata, Kumar Birla — rarely make an appearance at the negotiating table, preferring to orchestrate things from their offices. This is a good thing, says Nitin Potdar, M&A partner at the corporate law firm J Sagar & Associates, because the entry of a promoter usually leaves no room for further negotiation. "MNCs understand this better," he says. "They prepare a strategy of dealing with key points with key people. Typically, there would be two rounds of negotiations, with the hard issues reserved for the second round. Indian promoters make the mistake of entering the negotiation too early.”
E-mail and SMS have become important strategy tools in modern day negotiations, allowing the team at the negotiating table to stay in contact with headquarters at every stage. Sunny Banerjea, Executive Director, KPMG, is a veteran of customer negotiations, both in his present job and his earlier assignment with IBM in the USA. He says: "The chief negotiator needs to keep eye contact with the other side, because it is important to maintain the illusion that he is the decision maker. But there will be support staff at the table whose job it is to stay connected with headquarters. If the team members need to confer, they would SMS each other or have a very discreet set of physical cues.”
Rakesh Sarin, managing director of Wartsila India sells power plants, a business where negotiations can be intricate. Sarin usually sends in a team of not more than five members to meet the buyer, headed by sales and supported by service and finance. "We're selling a concept of smart power generation," he says. "We find some buyers are focused on the transaction price. Others are concerned about costs over the life cycle of the equipment. Often, both are on the same team. The biggest challenge is to understand the needs of the other party. As the saying goes, people buy holes, not drills.”
Negotiation, they say, is the art of letting them have your way. Or, as KPMG's
The art of smart negotiation – ET Bureau – July 2011
Mercuri Mail is a thoughtful compilation of meaningful articles drawn from Mercuri India archives, and from timeless management literature. Edited by Jaishankar Balasubramaniam & Sridhar Srinivasan of Mercuri Goldmann (India) Pvt. Ltd. This publication is for private circulation only.
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