The Naked Negotiator

You are ambling down the street and you spot a dime on the pavement. You bend over, pick it up, just as a $10 bill flies by. Because you concentrated on picking up the dime, someone else grabs and pockets the $10 bill.

The opportunity cost of pocketing the dime is $9.90.

Profitable deal making invariably involves opportunity costs — the costs of not landing an alternative deal.

In deal-making, before you even start negotiating, you need to assure yourself you are talking with the right party. If you want to achieve your Best Possible Agreement (BPA) you must talk to the right people.

Too many deal-makers pursue sub-optimal deals with the wrong party. So, instead of ending up with the Best Possible Agreement (BPA) they end up with a Barely Acceptable Deal (BAD).

In a recent webcast I ran with over 200 C level executives, over 60% in an online poll reported over half of their deals could be classified as Barely Acceptable Deals. If you have a high proportion of BAD deals you need to review your dealmaking process now!

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“We lose money on every sale… but we make it up on volume.”

- Insolvent Retailer

If you substitute the word acquisition for sale, this quote describes the behavior of more than a few CEOs who pursue expansion without disciplined negotiation strategies in place. The fact is, that in the orgy of acquisitions and mergers at least 50% of buyers lose money. In essence, they overpay. The skillful ones, such as G.E. and Pitney Bowes, who pursue disciplined plays, executed by highly trained staff, enjoy markedly superior results. In the last six years, Pitney Bowes has acquired 70 companies. In the words of their CFO Bruce Nolop:

“For us buying other companies couldn’t be a seat of the pants adventure, it had to be tracked as a business process.”

Manage the process, shape the result. Smart dealmaking is much more about process management than few dealmakers care to acknowledge.

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I am often asked how long it takes someone to make their initial judgment on a person when they first meet them.

I used to answer, “4 minutes.” This reply was based on research on the time it took job interviewers to make up their mind on the suitability of a job applicant. However, I now answer “10 seconds.”

In their remarkable studies, social psychologists Nalini Ambady and Robert Rosenthal, have shown that we often form positive or negative impressions of people in a mere “blink” or “think slice” of time.

After subjects watched three two-second video clips of professors teaching, their teaching ratings predicted the actual end-of-the-term rating by the professor’s own students.

To get a feel on someone’s energy and warmth, the researchers concluded just six seconds is usually enough.

First impressions matter because, we lock down on our first impression. Once we have made a judgment we tent to look for confirming evidence to reinforce our initial impression — good or bad.

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As negotiations drag out, the practical responses you have to solve a problem run out.

As your options shrink, time pressure increases, you concede more and the deal turns from your Best Possible Agreement (BPA) to at best Barely Acceptable Deal (BAD).

The triangle of doom warns us:

1. We need to spend more time, investigating and strengthening our alternatives.
2. We need to monitor, capture and analyze problems in real time if possible.
3. For large, complex negotiations projects you need a real time reporting and response process. Some times the best deals you make are the ones you walk away from.The more time we invest in a deal, the more committed we become to sealing a deal – regardless of its consequences.

Popularity: 17% [?]

In our supposedly globalized economy, businesses are advised to charge across borders as if the whole world were one.

But the world isn’t so flat after all. Businesses that don’t take into account specific political, cultural, and economic differences are set up to fail. Redefining Global Strategy, by professor and strategy consultant Pankaj Ghemawat, offers a reality based view of globalization - and practical tools to help your business cross borders profitably.

His book is full of insightful, useful information. I love his tools especially his CAGE distance framework which helps you identify barriers that your global marketing strategy will have to overcome.

Here is a summary of the CAGE Framework.

• Cultural distance
  • different languages
  • different ethnicities
  • different values
• Administrative distance
  • closed economy
  • extent of home bias
  • corruption
• Geographic distance
  • physical distance
  • time zones
  • geographic remoteness
• Economic distance
  • rich and poor differences
  • differences in cost/quality in infrastructure
  • economic size

Ghemawat proves differences do matter when you market outside your homeland. Redefining Global Strategy is a must read for anyone with ambition for profits from the international economy.

Popularity: 17% [?]