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The reporting by Reuters here on the apparent bid by NBNK for the bank branches of Lloyd’s Bank tells us a lot about how deal making is viewed by the media.

We are told that NBNK has reputedly bid up to £1.5 billion for the 630 branches, and that’s about it. This reflects a common misconception that the only thing that is important about getting a deal done is the “content” of the deal (in this case the price). In fact the content is often the least important factor in getting the deal done. Other factors are much more important, none of which are covered in this piece. What is the state of mind of both parties? For example do they want to negotiate? Do they care what the other side wants? Are they negotiating from a position of confidence?

How about the process of the negotiation? There are normally at least 4 stages of a negotiation before the “bidding” stage which is reported here:

1. Have both sides “prepared” properly? What are their likely bottom lines? Who is on the teams and what roles are they likely to play? What is the balance of bargaining power between the parties? What are their styles as negotiators?

2. What is the “climate” of the negotiation? Is it warm, cold, hostile or wacky? Different types of climate suit different negotiations.

3. What are the emotional “needs” on both sides? – Reassurance? Respect? Achievement? A sense of belonging? Desperation? These needs underpin the outcome of any negotiation. If they are not met there is no deal.

4. What is the “coinage” available on both sides? These are concessions which have a low value to one party but a very high […]

Dragons’ Den provides fascinating insights into the modern art of negotiation.

On Monday’s episode of Dragons’ Den (3rd Oct, BBC2) only one pitch was successful. All the rest failed. Some of that was down to lack of quality of the product or service. A lot of it was down to inadequate negotiation skills.

The Dragons are investing their own money, somewhat blindly, in products and people that have only just been introduced to them. They’ll be thinking: “Is it going to be ok? Can I trust this person? How risky is the investment? Am I going to look like a fool if I invest?” They need reassurance.

In this context, there are certain key negotiating behaviours to avoid, and others to use.

Step forward James Eden and Chris Olivier with their toy, Culicka – the first pitch on last night’s Dragons’ Den. One tip here: the more you say as a negotiator, the more you give away. You should spend at least as much time listening as talking. James, however, talked for England.

My second tip: demonstrate expertise. Expertise is an acknowledged form of bargaining power. If you’re not expert enough to know what will constitute a successful level of sales for your product, you’re not likely to reassure potential investors – and so it proved here.

Rob Ford and John Blenkinsop made the mistake of “bidding” too early on Dragons’ Den. Good bidding in the negotiating process is all about timing. Bid too late and people will assume you lack confidence in your offer; bid too early and people won’t be in a state of readiness to receive your proposal well. In this context, bidding for £75k when you only […]

The latest stats from Tesco showing a dip in revenues are interesting from a negotiating point of view.

First they show that when it comes to bargaining power “size” isn’t everything. Second they remind us that the rules of the negotiation game have changed, and that if you don’t negotiate equitably – including with consumers, you can get yourself into trouble.

Tesco is of course a “giant” among supermarkets, with a market share of over 30% – nearly twice that of its nearest rivals. However, there are at least 9 sources of bargaining power and Tesco doesn’t have an exclusive grip on all of them. “Niche” market power can still be very important even if you don’t have scale. “Expertise” and “Information” are important sources of bargaining power. So are “network” power and “authority” power. The latter can stem from seniority or other forms of reputational enhancement – e.g. integrity. As Asda and Sainsbury begin to make inroads into Tesco’s market share this can be re-framed as Tesco’s rivals beginning to utilse their bargaining power more effectively than Tesco in the ongoing negotiation for consumers’ attention and custom.

Secondly it is interesting to note Tesco being tripped up by making what seem to be somewhat economical statements with regard to price cuts – with publicised price cuts of some goods being matched by unpublicised price hikes for other goods. One of the more dramatic features of the democratisation of the web caused by social media, such as Twitter and Facebook, is the impact that it has on negotiations between big public-facing organisations and the public upon whose support they rely. This applies to Governments and also big brands. If these big organisations don’t treat their […]

David Cameron’s appeal to “optimism” as a part of the UK’s recovery programme, is spot on. However, what he could have appealed for is an improvement in the negotiating skills of ‘UK Plc’.

Having a positive mindset is part of the toolkit of a successful negotiator, but UK Plc needs more than that. In all the discussion about the imperative to generate economic growth I never hear effective negotiating technique being mentioned as an agent of that growth. Yet every day, negotiated deals are underpinning UK economic activity – both for domestic and exported goods and services. If UK Plc could get 10% more value out of all those deals through effective negotiation then recovery would be assured.

Effective negotiators are able to manage successfully;

1) Their own mindset and the mindset of those around them
2) The process of the negotiation
3) Their own behaviour and that of others.

Negotiating mindset is critical and David Cameron is right to refer to a more positive outlook as being a pre-requisite of success. This applies at the level of everyday general experience (which is the sense in which he meant it). If we allow ourselves to be panicked by jittery, doom-laden headlines; if we are paralysed by fear into economic inactivity then a negative outcome is assured.

If we can instead believe that every disrupted current business model presents an opportunity for discovering new ways of being successful and new forms of commerce, then we stand a much better chance of economic recovery arriving quicker. If we believe it ourselves we influence those around us – if we influence enough of them it makes the difference between “sogginess” and “success” (see article in guardian.co.uk here).

But this also […]

In any negotiation, people have to believe that you mean what you say. The enduring problem in the on-going “negotiation” between the Eurozone governments and the financial markets is that the markets do not believe that the Eurozone governments have the will or the capacity to address the sovereign debt crisis.

Prevarication and avoidance have marked the response of the Eurozone Governments so far which simply deepens market scepticism. The Markets now assume there will be a sovereign debt default in Greece and so attention has switched to the stability of the Banks which would suffer in any such default.

Unfortunately in this context it is almost irrelevant that President Sarkozy and Angela Merkel stand shoulder to shoulder and say that “everything necessary” will be done to recapitalise Banks in the Eurozone. This also does not provide any credibility that the issue will actually be addressed – in legal terms it has all the persuasiveness of “an agreement to agree”.

If one side in a negotiation feels the other side lacks credibility then they are likely to push harder for what they want. So it is that in these circumstances it’s no surprise that after initial mutterings of support, the markets decided that the message from Merkel and Sarkozy meant virtually nothing. Indeed Moody’s warned that “since any recapitalisation initiative will not address the underlying driver of Europe’s Bank crisis (mounting sovereign debt concerns) it is unlikely to achieve more than a temporary respite from Banks sovereign debt woes and we expect investor sentiment to remain fragile”….

This is a crisis arising out of poor negotiating technique as much as underlying economics. Until the Eurozone musters the negotiating skill to negotiate with the markets effectively, […]

Well, the negotiation adage says that “if you fail to prepare you prepare to fail” and the unfolding story surrounding Dexia Bank illustrates this.

The ongoing Eurozone crisis has now turned the spotlight on the capitalisation of European Banks and a “negotiation” is going on between Eurozone institutions and the financial markets as to whether the Banks are strong enough to withstand expected defaults on sovereign debt from Greece, and possibly other states.

This negotiation is not unexpected. It has been apparent for some time that Greece in particular could not hope to pay its debts. So, there has been plenty of time to “prepare”, for the resulting negotiation with the markets – preparation being the first stage of any negotiation.

So, in July the European Banking Authority conducted stress tests on some 90 European Banks. Good idea except that the tests used outdated metrics and were widely derided by the markets. Indeed so inadequate were the tests that the now-collapsing Dexia came 12th out of the 90 banks assessed. This was despite the fact that it used a dangerous method of securing short term lending from banking wholesale markets to underpin its long term funding requirements – exactly the technique which caused Northern Rock to collapse as its access to short term funding disappeared.

If you skimp on preparation you will not win most negotiations – preparation is an investment of time. Having not used that time wisely, Belgium, France and Luxembourg have had to move hurriedly to prop up Dexia. Despite the protestations of Francois Baroi, the French Finance Minister, that no more banks will need to be rescued, it seems inevitable that there will be more to come. The Eurozone governments have […]

Negotiation and deal making is much more complex than many people think. You might be surprised to learn that with any deal there are seven different stages that the negotiation goes through, twelve possible behaviours and nine different sources of bargaining power.

An effective negotiator needs to be able to understand and practice the 3 angles of successful negotiation: Attitude (or ‘state of mind’), Process and Behaviour. For each of these angles, I will now outline 4 key points to help you manage your negotiations effectively.

Have a Positive Attitude to Negotiating

1) Know what you want – it’s important to keep your ideal outcome (or outcomes) in mind throughout a negotiation.
2) Believe you can get what you want – confidence is everything in negotiation. If you go into a negotiation lacking self-belief that will leak to the other side and your anxieties will be self-fulfilling.
3) Be interested in the needs of the other party – if you do a deal where the other side’s needs are not taken into account at all, they will seek to disrupt the deal either explicitly or covertly, even if they felt obliged to agree to it in the first place
4) Acknowledge that the use of negotiating skills is more important than the exercise of power. Again, if you force people into deals through the use of power, they will have no commitment to the bargain.

Understand the Process of a Negotiation

1) What is going on in the negotiation? – Are the 6 key ingredients in place for a negotiation to happen? Which stage are we at? Are we exploring the needs on both sides? Are we setting the appropriate climate for the deal? Are we bidding? Bargaining? Or […]

The votes in the Slovakian Parliament this week show how even though you may be a small player, you may have a lot of “niche” bargaining power.

Slovakia was the last one of 17 nations to vote on the proposed Eurozone extension of the bailout fund, in a context where all 17 countries had to approve it. This, in spite of its size (the country produces just 1% of the Eurozone’s total output) gave it a lot of bargaining power as it was in a niche of “one” – no other government could give this approval and the approval itself was essential for progress to be made.

The initial vote was apparently opposed for local, tactical reasons, the result of which was to bring the existing coalition government down. With this government removed and a massive amount of “push” negotiating behaviour coming from other Eurozone Governments, it wasn’t surprising that on Thursday night a 2nd vote by the Slovakian parliament eventually passed the EFSF bill. It is not difficult to imagine how forcefully expectations were stated and pressures exerted on Slovakia – both of which are typical “push” negotiation tactics.

I wonder though, if the Slovakians realised just how much bargaining power they had? On the face of it, it is slightly absurd that one of the poorest countries in the EU should apparently be required to shoulder an extra €7.7 billion of debt just to bail out the Greeks. If I were them I would have been tempted to use my bargaining power to negotiate an amelioration of their share of the bail-out burden.

The benefits would need to have been subtle so it didn’t look like Slovakia was taking advantage of the situation. […]

Interesting piece on Chinese public sentiment following a tragic accident during the week. It’s only a vignette, but could it be an indicator of how Chinese negotiating needs may change over time?

Yue Yue, A young girl of two was run over by a car in a hit and run accident. Nobody came to help and the driver drove off without stopping to assist. The child was left injured in the road. 18 passers-by walked on and didn’t stop. It was only after she had been hit by a second car that people came to her aid. This story has prompted a period of moral reflection in China, about whether the Chinese have become so fixated with money and material progress that they have no time for morals. Lawmakers are even meeting to discuss whether they need to introduce a ‘Good Samaritan’ legislation.

This is interesting. Individual’s needs in life (and in negotiation) often go through a progression, starting with survival needs, and moving through to a need for reassurance, then respect, then belonging, and then through to achievement. Each level of needs must be satisfied in turn.

China has been on a fast-track journey of economic growth, catapulting its population through these various stages of need. Negotiations with the Chinese are often characterised as being very hard-nosed; which is consistent with levels of need such as “respect”. It is also consistent with a negotiating need to “belong” – to be taken seriously as a leading economic super-power.

However, as China’s population becomes wealthier, a new imperative for “achievement” develops. It was interesting to see in the Sunday Times that China is pre-occupied with a desire to develop its own original internet businesses rather than copying western internet […]

When you are negotiating as a team it’s imperative to have a united team. If you don’t then the other side will make the most of your disunity. This is one of the many enduring problems in negotiations concerning the Euro. Ranged on the institutional side of the negotiation are the Eurozone Governments – in particular France and Germany, the European Central Bank, and the IMF. On the other side are the financial markets.

The Eurozone institutions are grappling in a disunited way with two major headaches – the inability of Greece to repay its debts on schedule, and how to set up safety mechanisms to offset the impact of a Greek default on other vulnerable countries such as Portugal, Italy and Spain.

In relation to the Greek issue a schism has emerged between the IMF and the ECB, with the IMF arguing that the bailout needs are that a further “haircut” is needed from private owners of debt in Greece as the economy has deteriorated so badly that global lenders would otherwise need to find €252 billion in bail-out loans through to the end of the decade. This is more than twice the €109 billion agreed by the EU and the IMF only 3 months ago. Accordingly the IMF is suggesting a “voluntary” 60% reduction in debt for bondholders as opposed to the 21% previously agreed. The ECB on the other hand fears that this would cause market panic. This very difference of opinion itself promotes anxieties in the financial markets.

The second issue is that of increasing the firepower of the European Financial Stability Fund which would address any need to buy or guarantee bonds of Governments under pressure because of their exposure to sovereign […]