Ultra-competitve mindset costs dealmakers

Deepak Malhotra (co-author of "Negotiation Genius," one of last year's top 5 books) and colleagues have once again dived into the psychology of negotiators and dealmakers in May's Harvard Business Review ("When Winning is Everything").

They find that certain factors present in many deals can drive irrational thinking and, ultimately, overpaying for acquisitions. The factors are:

1. Rivalry - animosity toward a competitive rival for an acquisition, say, can create a "win at all costs" mentality.
   
2. Time Pressure - racing to meet a stated or internal deadline can lead to accepting a poor deal
   
3. The Spotlight - if people are watching--coworkers or the public--a dealmaker may act less rationally than if the spotlight were off.
   

Malhotra et al write: "Rivalry, time pressure and a bright spotlight can each fuel competitive arousal. Collectively, they can lead to decision disasters." They point to the Boston Scientific acquisition of Guidant and Viacom's purchase of Paramount as two costly examples of this type.

What to do? As in "Negotiation Genius," Malhotra urges dealmakers, first of all, to be aware that these factors exist. Mere awareness of a feeling of time pressure is a tool to prompt reflection: "Is there a reason this has to be done this week?" Almost always, the answer is no. The world won't end if the deal is delayed.

As for rivalry and the spotlight, companies can put approaches in place to manage them. Often, it means spreading the responsibility among teams of dealmakers rather than allowing individuals to shoulder the entire burden. [Microsoft might have managed the recent Yahoo engagement better if it had not allowed it to become Steve Ballmer's deal.]

Malhotra and his colleagues are probing into new and important territory in business research. By bringing behavioral economics and psychology into the forefront of dealmaking and negotiation, they are providing a valuable service to businesspeople everywhere.

Most refreshingly, their focus on the costs of dealmakers' irrationality and aggression is a welcome antidote to the lionizing of ultracompetitive CEOs and moguls elsewhere in the business press.

(Photo: a still from the infamous Steve Ballmer monkey dance)


Related posts:
"The Best Negotating Book I've Ever Read"

Tags:
negotiation, psychology, dealmaking, competition, irrationality,
Harvard Business Review

Describe your strategy in a simple picture

Remember Venn diagrams? Those intersecting circles we learned about in elementary-school mathematics? (It was interesting that I didn't see those again until advanced college math--what a surprise that was!)

In the November Harvard Business Review ("Strategic Insight In Three Circles" - free link), Joel Urbany and James Davis of the University of Notre Dame use three intersecting circles (illustrated below) to simply describe a company's strategy. One circle identifies what value your company provides through its products and services. The second is what customers perceive about your company's value, and the third represents what customers perceive about your competitors' value.



The strategic goal, of course, would be to increase competitive advantage, decrease disadvantage, eliminate non-value and capture much of the white space. (Easier said than done!) Identifying and scrutinizing the attributes in each of those areas is a very useful exercise.

But be careful. It's important to be brutally candid with yourself when doing this type of evaluation. And you must truly look at things through the eyes of the customer, instead of how you'd wish them to see you and your competitor.

It's very easy to self-delude. In many cases, companies will come up with a self-congratulatory diagram like this:




When perhaps their true strategic situation is this (write Urbany and Davis, "The biggest surprise is often that [the advantage area], envisioned to be huge by the company, turns out to be minuscule in the eyes of the customer"):




So, it's important that this tool be used for genuine inquiry and candid appraisal, not to justify the current thinking or to make people feel good about themselves. If your company can use it properly, the three circles can clearly and vibrantly tell you where you are and where you should head.

(Illustrations adapted from Urbany and Davis, "Strategic Insight In Three Circles.")

strategy, strategic planning, competition, Harvard Business Review

The business world needs more wisdom, ethical conduct and compassion

"Business and the Buddha" is a book I expect will be widely ignored. And that's a bad thing, because it is one of the most thought-provoking books I've read in many years. It gets to the heart of many issues that trouble me about the business world, and how our societies have managed the free enterprise system. I suspect many others, were they to read it, would at least feel a mild unease at the base of their stomachs.

The author, Lloyd Field, uses the lessons of Gautama Siddhartha, the Buddha, to critique and recommend changes to business and free enterprise to increase its humanity and concern for the welfare of the planet and its inhabitants. Its focus is on three groups of guiding principles: wisdom, ethical conduct, and compassion.

Who could argue that we have enough of any of these in the business world?

It's a daunting analysis and prescription, however. Not because it's complex, but because it's so simple: Why do we work in companies that load us down with soulless tasks, enmesh us in petty politics, and treat us as disposable? Why are leaders drawn into ethical gray areas and beyond? Why is it acceptable to threaten and act in bad faith in the world of corporate bankruptcies?

"Business and the Buddha" is brief--180 pages including appendices. And it's an exceptionally well-written book, with sentences that are well-constructed and easy to read and free of errors that I could find.

It's not without flaws. The blanket condemnation of globalization didn't work for me--while it's a mixed bag, in the long run factories opening in a country will do good for a country's citizens, and keeping them out won't do good. I also disagree with his condemnation of competition as wrong behavior. While competition among firms can certainly go overboard and negative, competition is essential to much of the good that free enterprise offers. Better products, environmental breakthroughs, innovations, new ways of looking at the world come about by competition. And lack of competition nurtures bureaucracy and stasis--like the old Soviet Union, an ostensibly fair society that couldn't get a lot of the basics done. (Remember the photos of the empty food stores in the 1970's?)

But these criticisms are minor compared to the overall strength, coherence and simple good sense of the book. Especially from page eighty-five on, I was hooked. Notable quotes:

Too often, the good intentions underpinning corporate values and guiding pricniples are thrown to the wind when unexpected opportunities present themselves or when profitability is in question. (p. 125)

When push comes to shove, a profit-and-loss statement will almost always outrank a values statement. This betrayal...is usually accompanied by a good dose of rationalization, thereby reshaping the company's ethical reality. (p. 130)

"Business and the Buddha" also includes the best illustration of the union-management problem that I've read anywhere:

As long as corporations treat their employees as disposable, unions will have no incentive to seek out alternative value systems. Likewise, as long as unions, in the supposed best interests of their members, cause suffering for corporations, employees have no incentive to seek out other values systems. (p. 139)

Perhaps most challenging, Dr. Field urges companies to adopt a "Cause No Harm" values statement, including in part: "We will not acquire any raw materials, or design, manufacture or sell any products or services, the doing of which will be harmful to beings or to the environment."

It sounds impossible, even crazy, but think about this: so did "Zero Defects" forty years ago. (Sounds like a BHAG, an echo of an earlier, slicker business book.) You can also see the beginning of progress toward this goal, as companies take more accountability for their subcontractors and pledge carbon neutrality.

It's important to note: this is not a religious book. It doesn't preach, urge you to convert, or cite more than the barest bones of the Buddha's story to make its points. The focus is on the ideas, and putting them to use. And like a lot of Christian teaching, with which I'm familiar, the lessons are simple, but following them is hard, hard, hard.

(If you're interested in more business-related ideas inspired by the Buddha, check out "The Art of Happiness at Work" by the Dalai Lama. It's a very pleasurable read, and gives lots of practical advice to those who want their work to be more meaningful and their work lives more contented.)

reading list leadership strategy management human resources competition corporate social responsibility

Super-grocers are punishing convenience stores

Here in the northeast US, super-grocers like Wegmans are providing stiff competition to Wal-Mart in the grocery business, with more abundant produce, more ready-to-eat options and more attractive stores. But they are inflicting pain on convenience stores as well.

Consider my dad's recent visit from Connecticut. He reads the New York Post every day. You won't find the Post everyplace around Harrisburg, but you will find it in several local convenience stores. And at the enormous Giant grocery in Camp Hill.

I took him Friday morning to get the paper. I considered the Sunoco mini-mart, but decided on the Giant. My dad picked up the Post and a couple of scratch tickets. I got milk, orange juice and bread—-all things I could have gotten at the Sunoco. All told, the Giant siphoned $15 from the mini-mart. Not a big ticket for the Giant, but it is for the mini-mart. It made me think about the strategy that Giant is using. Why else would they stock the New York Post and offer easy lottery options if not to draw business away from the convenience stores? And, for me, at least, it's working.

Oh, yeah, our Giant is opening a gas station across the street from its main store. And when you spend $100 at the grocery, you get 10 cents a gallon off gas. Pretty soon the Sunoco will lose my gas business as well.

(Photo: "gas 5" by tome213 via stock.xchng)

retail strategy marketing competition