Negotiation Strategy - A New Approach

Negotiations are highly unstructured and complex. Therefore, it is important that a proper perspective be developed considering a number of 'presumed' perspectives from the various stakeholders . These perspectives can easily be developed using an approach called the soft system methodology originally proposed by Peter Checkland.

In order to develop an effective negotiation strategy, one must understand the reasons why negotiations can fail between management and union. Below listed are the top 10 reasons why negotiations may fail [ref: 1]:

1. A clash of values
2. Poor communication skills
3. The lack of trust and integrity
4. Unable to empathize and relate with each other
5. Refusal to endorse the virtues of compromise or give-and-take
6. Believe only in win-lose results as the outcome of negotiations
7. People are out to reap the other party apart
8. Far too many complex issues to be sorted out
9. Not knowing the next step of the plan
10. Close mindedness

Many of the above reasons can easily be seen as a cause of failure for negotiations. One can easily use soft system methodology to eliminate some of these causes. Ts1wehese causes of failure occur due to improper understanding of the negotiation dynamics and propounding of hard-core rational concepts which aggravate the problem further.

External and Internal Business Analysis

Let us talk about three important things when trying to understand a business:

1. General Business Environment
2. Industry Specific Environment
3. Competitor Environment
   

In the general business environment, we are mainly concerned with the external environment. The external environment consists of the following:

Demographic: This is mainly concerning the population size, age structure, geographic distribution, ethnic mix, and income distribution.

Economic: This is mainly concerning the macro-economic environment. What is the impact of inflation, interest rates, trade and budget deficits or surpluses, personal savings rate, business savings rate, gross domestic product etc?

Socio-cultural: This mainly concerns available work force, work force’s expectations on the quality of work life, environmental considerations, work and career balance, attitudes towards products and services, role of women etc.

Global: The global environment mainly concerns impact of macro economic events at the international level. Events such as low labor costs in China, rise of Chinese RMB, Outsourcing to India, default of the debt by Argentina etc. can have a local impact on one’s business. Hence one should pay a close attention to the global events as the world has continued to shrink.

Technological: A society’s use of technology predisposes it to certain paradigms. With the rise if internet, BlackBerrys, iPhones and iPods, society expectations have changed drastically with respect to access to information, product portability, battery life longevity etc. When introducing product in those segments, one must pay close attention to the technological advancement of the society.

Political/Legal: A political or legal landscape in the market place can be most daunting and complex. Hence it is important to understand it. Antitrust laws, taxation laws, labor laws etc. can be quite difficult to follow especially in the developing countries.

Industry environment analysis requires us to pay close attention to Michael Porter’s five forces competition model. Those five forces are listed below:

Threat of Substitute Products: Can the product we sell be substituted with other products? Are those products cheaper? Are they better quality? How will they impact our sales? Those are the questions one would need to answer in attempting to gain an insight into the industry specific environment.

Rivalry among Competing Firms: Questions such as - How intense is the rivalry among the competition? How will the competition respond to one’s tactics? , will need to be answered.
Threat of New Entrants: If the market is growing fast and the barrier to entry is low then that is not a good thing for business. AOL has lost most of its advantage although it was the first mover in the industry.

Bargaining Power of Suppliers: Suppliers can make a mess of small companies while they are trying to grow. Hence it is important to have options. Never depend on a single supplier no matter how attractive it is.

Bargaining Power of Buyers: What will it take to keep the customers loyal to your company? Can they hop and skip to a competition or do you have a better mouse trap?

I believe that the competitor analysis should be done by using the five forces model. It gives a good insight into how the competition stacks up against you in all the five categories.

Learning about the Internet

Internet technology is advancing so fast and web marketing is becoming so advanced that it is difficult to know how to keep up.

I am starting a list of questions I am trying to answer to see if my learning can grow:

1. Is it possible to optimize a website which can be found by video and image search, in addition to traditional text-based search? It sounds cool but is it no more than few tag lines embedded in the HTML code surrounding the video or audio clip?
2. What is Google's Universal Search 2.0?
3. How to you optimize a web site to be found by local search engines?
4. How to you optimize it so that it can located through map services?
5. How do you ensure higher search ranking on the search engines such as Google etc.
6. What is tag based search?
7. What is blog-specific search?
8. How can you submit site to all the search engines in the US/Canada?
9. What are the niche-specific forums and blog communities relevant to us?
10. Is there a thing called - Electronic press release distribution to general search engines, news search engines, blog search engines, tag-based search engines, syndication networks, XML feeds etc?
11. What are XML feeds anyhow?
12. Can one use blog to increase interaction between management and customers?

Strategic Management Textbook

I need to write a synopsis for Chapter 1 of the text book I am reading for my MBA. The book is called Strategic Management by Hitt, Ireland and Hoskisson (7th Edition).

Here are some of my thoughts on this Chapter.

I am always looking for concepts I can apply to the business I run. In Chapter one I find many general concepts which are broad truths such as "Effective strategic actions that take place in the context of carefully integrated strategy formulation and implement actions result in desired strategic outcomes". The chapter is full of sentences like these and it has no value for a businessman like me. More useful for me would be to show how to you formulate an integrated strategy? How do you go about implementing those actions after the formulation? How do you ensure desired strategic outcomes.

Chapter has a number of definitions such as Strategic Competitiveness, Strategy, Competitive Advantage, Above-Average Returns, Risk, Average Returns, Strategic Management Process, Global Economy, Strategic Flexibility, Resources, Capability, Core-Competencies, Vision, Mission, Stakeholders, Strategic Leaders, Organizational Culture, Profit Pool etc. Some of these definitions are very useful.

Here is my twist on them:

Strategic Competitiveness: If you have been in business for a few years and have figured out how to make money on a consistent basis you have achieved strategic competitiveness. You have figured out how to add value to your core business processes.

Strategy: This is essentially your business plan. You have outlined everything you are going to do and know how to do it. You have made a commitment to your stakeholders and stakeholders have made a commitment to you and others. All salute the flag and jump in the lake of frigid waters called market. You know how to exploit your core competencies and make money doing it.

Competitive Advantage: What is it that you do so well that nobody else can do it better than you do.

Above-average returns: Is your business worth the hassle? Can you produce returns better than the money market or the stock market portfolios?

Risk: How fast can investor lose his or her shirt if things go south?

Strategic Management Process: The process of developing a decent business plan for the year. It lists what company has to do to make money.

Global Economy: The entire world is your oyster. The world has no boundary. If you see an opportunity, seize it. If you don't, others will.

Strategic Flexibility: Can you turn on a dime? If not, you have no strategic flexibility. GM is like a Titanic. It has no flexibility. All watch helplessly as it sinks.

Resources: All the investment going into the company to make it happen. Money, People, Skill, Intellect etc.

Capability: Can all work as an effective team to make things happen? or will the organization die because of inside politics, lack of passion, hard work and reality?

Core Competencies: What are you exactly good at? Can you be number one or two in the world in what you do (in Jack Welch's words)? or Do you wander in the nadir where ninety percent of the company exist.

Vision: Do you have a dream? Does your team share your dream? Without a dream, you have a high chance of failure? No human excellence is possible without a dream. One example of the vision statement could be " To be the very best in what we do, otherwise we do not do it"

Mission: I am always confused between the definition of vision and mission. The book says mission is more specific. It has more words. One example would be " To be number one electric bicycle company in the word. To excel in products, customer service and people management at all times."

Stakeholders: All who are bound to get nervous when your business begins to go south.

Strategic Leaders: People who deeply care about the business and whose input is taken seriously.

Organizational Culture: Do you have the work ethics to become a world leader? Can people feel a purpose to their life when they are at the work place? Can you invoke their passion and commitment to the cause of the business. If not, you have a very poor organization culture.

Profit Pool: This is an interesting word. How I read it is understand your market size and potential. Discover your niche and exploit it relentlessly. But for a management consultant, profit pool can be a nice term to use.

There are two other interesting concepts in this chapter:

1. The I/O Model of Above-Average Returns
2. The Resource-Based Model of Above-Average Returns

Both of them are great terms for management consultants and multi-national companies. But for small and mid-sized businesses, here is my interpretation of them.

1. The I/O Model: Look at the external business environment. Find an attractive business opportunity. Work out what is going to take to make money in that industry. Make a business plan. Acquire investment. Go for it. It is kind of common sense. But it is cool to use the word - The I/O model: Is it not?
2. The Resource-Based Model: Look at all the resources you got. How do they compare with respect to others? Do you have better ammunition than others? Identify the business opportunity where you can be number one using your resources. Now what is confusing about the definition in the book is that locating an attractive industry comes after the resources. It is a concept similar to the one proposed in the book "Good to Great" called get the right people on the bus. I find it hard to implement for small or mid sized businesses. It may be easy to implement in a multi-national company where you could identify an industry after looking at your resources and you have other businesses who are bringing in the cash.

I think for a businessman with a little bit of commonsense, one could easily determine that one would either need one of the above models, or a combination of both of them based on the business situation. Do not you think?

Understanding Globalization

Check out this website - http://www.oecd.org/ - Organization for Economic Cooperation and Development.

This is a great web site to understand international trade patterns.

OECD in figures can be checked at:
http://titania.sourceoecd.org/vl=8310246/cl=13/nw=1/rpsv/figures_2007/en/index.htm

The following page has the figures for direct investment:
http://lysander.sourceoecd.org/vl=7892297/cl=13/nw=1/rpsv/figures_2007/en/page29.htm

United states attracts most direct investment in the world followed by United Kingdom, Germany, France and China.

Running a Business in Hard Times

17-rules of running a business during hard times:

1. Understand the Macroeconomic business cycle and change (Neither boom cycles nor bust cycles go on forever). Get involved in the public policy formation.
   
2. Understand your industry business cycle and change
   
3. Focus on generating cash
4. Take care of your customers
5. Stand behind your product
6. Understand your customers and change as they change
7. Got to have a right distribution channel for your product
8. Solutions always exist - think outside the box to find a workable solution
9. Think long term always. (Aggressive short term cost cutting may lead to disastrous results)
10. Today's business leaders need to build not only the company they lead but also the community they live in.
11. Best companies do well in all economic climates - Bad, Good or Mild. They keep their costs low, take care of their customers, keep a sharp eye on the competition and invest in their people and products.
12. Be Patient and preserve and never lose hope. Work smart and hard. Follow the fundamentals and the results will come.
13. Think of the success not the failure. If you think of trying not to fail, you will fail.
14. When resources are tight, put them where they matter the most. Follow the 80/20 principle. Focus on the 20% which produce 80% of the results. Treat the remaining 80% differently.
15. In difficult times, the strong gets stronger and the weak gets weaker.
    
16. Be number one in your core competence.
17. Invest in smart people who realize they do not have all the answers but are willing to learn.