How to negotiate in a principled way

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Getting to Yes: Negotiating an agreement without giving in is the classic text on negotiation by Roger Fisher and William Ury, setting out an approach to something many of us do all the time.

Good agreements should be fair, wise, efficient and capable of lasting.

Many negotiators, however, start with a position – such as price and get ready to bargain.

This tends to be confrontational – imagine that this is like trench warfare, where you dig in for the long haul and try to wear the other side down.

That hasn’t really worked out well in the past.

An alternative, set out by Fisher and Ury, is the idea of principled negotiation – set out as four principles to follow.

1. Separate people from problems

All too often, negotiators identify too closely with the problems they are trying to resolve and take things personally.

Winning or losing a point becomes about personal victory or failure.

We have all experienced the person that refuses to back down even when they are wrong. Sometimes we are that person.

The first step is to try and step back, untangle the personalities from the issues at hand, acknowledge and respond to the emotions swirling around us and use words carefully, listening actively and using language designed not to provocate while trying to see the other person’s point of view.

2. Focus on interests, not positions

A position is a decision. An interest, however, is the thing that led us to taking that position.

Our interests need to be put on the table, discussed and understood. A useful visual tool for this is a compare and contrast diagram, as shown in the picture above.

The idea is that the better we understand each other’s interests, the more likely we are to find a solution that satisfies both of us.

3. Generate a variety of options before settling

We often fall into the trap of thinking there are few options open to us.

This happens a lot with jobs. If someone is frustrated, they think the only option is to quit.

Instead, if they were able to have a principled negotiation, it might be possible to find other approaches that might work better.

Generating options is about being creative – coming up with a range of ideas and working through them, perhaps using a framework such as TOLOPOSOGO.

This is where the idea of win-win comes into it. Alternatives that maximise each parties interests are more likely to go ahead than win-lose.

4. Insist that agreement be based on objective criteria

When we just can’t agree because our positions are directly opposed, then we need to find a form of objective criteria that we can both share and use to resolve differences.

The classic example here is when you share a cake between to children and they both want to cut and choose first.

Resolving this often means agreeing that one child cuts it and the other gets to choose first.

It might be possible to adapt a decision table to make this clear to both parties.

BATNA – the Best Alternative To a Negotiated Position

Sometimes we can’t agree, perhaps because the other side refuses to engage in the open way needed for principled negotiation or thinks that they can get their way through manipulation and dirty tricks – such as deception, trying to create artifical stress (banging the table, eating before a meeting and leaving you hungry) or leaking to the media.

In this situation, we need to call them out.

For example, if someone makes a take-it-or-leave-it type offer, then we need to treat that as a proposal and not simply accept the feeling of finality imposed by one side.

It’s also important not to have a bottom line, especially when there are imbalances in perceived power.

The only reason to negotiate is to get a better deal than one we can get if we didn’t negotiate.

That is our BATNA, the best alternative. Knowing our BATNA helps us make the most of what we have.

The power in negotiations comes from the ability we have, in the end, to walk away.

How to deal with the facts in front of you

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How do we know what’s round the corner when we’re driving somewhere?

We look in front of us, through the windshield, at the road ahead.

The road behind us, reflected in the rear view mirror, isn’t going to add much to our journey now.

So, why is it that so much of what we do in work resembles driving by looking in a rear view mirror?

Take budgets, for example.

In many businesses these are set at the start of the year. We assume levels of sales and costs and work out what we think will come in that year.

Perhaps we set targets that are higher than we can achieve – as “stretch goals”, with the idea that this might motivate us and drive us to accomplish more.

Then, we tend to forget about them. Perhaps someone looks at them once a month and sends out an update.

Or, take the business of losing weight.

If we’ve put on a couple of stone and decide at the start of the year it’s going to come off – then we’re essentially setting a budget for weight loss.

Perhaps we then check our weight every once in a while and see where we are – and then it all gets a little too de-motivating and we switch off.

Many entrepreneurs seem to have a different approach – both to money and weight loss.

Instead of thinking up a magic number and then looking back each month to see how they are doing when compared to that number, they look forward.

They pick a target – for example the amount of money they need to bring in each week to break even and then watch how they are building up to that number every week.

This is a subtle but important difference.

They don’t ask themselves, “How did I do last month compared to budget”.

They ask, “How far off am I this week from target?”.

They know that if they build up to their target every day, every week, then as the weeks turn into a year, they will arrive at their destination ahead of any budget they might set.

In addition, if they are having trouble getting to the target, they can do something – they can change tactics, commit to doing the basic things they need to better or set a more realistic target.

There are no penalties – just deal with the facts in front of you.

Like driving, if a tractor pulls into the road ahead of you, then you can slow down or change direction.

You can only do this if you are looking forward, not back.

How much work can you really get done today?

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What kinds of things does work cover?

For many workers, it’s either a task or an appointment.

We handle tasks in to-do lists.

We add to these lists every day, either with a constantly growing one or on scraps of real or digital paper, scattered about.

Items on to-do lists are like weeds, they keep turning up and there is never enough time to get them all cleared away.

Appointments go on a calendar.

They are a commitment that we will meet with someone at a particular time, and they go into a slot.

More often than not, we are pretty good at keeping appointments.

Dan Charnas, in his book Work Clean – The Life-Changing Power of Mise-En-Place to Organize Your Life, Work and Mind, writes about how many people deal with the day.

Underplanners plunge in unprepared.

How the day goes is likely to be a surprise and what they do is determined by how others interrupt, order or interact with them.

Overplanners go to war with the day.

Their schedules are tight, with no space for disruption or the unexpected. They expect you to set an appointment for every discussion.

Both approaches don’t really leave us with a feeling that it’s been a good day at work.

Dan suggests that working clean with time means two things:

  1. Work out what you want to do
  2. Organise those in sequence

What you want to do – appointments or tasks can be collectively called actions.

He suggests starting with listing three actions that you want to do tomorrow. Put them on your calendar in the order you want to do them – fitting them in around any appointments you already have.

Then, do your actions.

If you did everything on your list, then move to setting out four actions.

Keep increasing the number of actions until you reach the point where you can’t always cross off every item on your list most of the time.

For example, if you can mostly do six things every day but never break seven, then your optimal number is six – what Dan calls your Meeze Point.

Less than that, and you’re probably not pushing yourself enough.

More than that, and you’ll probably just be overloaded and feel like you’re not achieving anything, even though you really are.

Your Meeze Point is the number of things you can really get done today.

How to do technical analysis in energy markets

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Most of us shouldn’t be doing any technical analysis.

If you are an end-user – someone who actually needs a commodity and uses it in real life, then the maths of markets shouldn’t be the main thing you think about.

Instead, like in any other business, the closer your purchase price is to the cost of production, the better the deal you’re getting.

In a commodity market, like the electricity and gas markets in the UK and Europe, the best strategy is to first work out that number.

Then wait.

When the market price is close to your number – buy.

If you buy too early and the price goes doen – then buy some more and average down.

But – these opportunities only come along once in a while. In the last 15 years, there have been perhaps four occasions when the price was right and it made sense to fill your boots.

So… what do we do if we have missed those opportunities?

At that point, many people fall back on market timing – trying to get a better position by making a call on the whether the market will go up or down from where we are now.

And the tool we use is technical analysis.

The idea is that a combination of indicators can help us come to a view on where the market is headed.

The indicator to start with is the Moving Average. This is the average of a number of days and smooths out the daily variations in prices.

When a 9-day moving average crosses the 20-day moving average, it can be a signal that the market is going to change direction.

Between these, the smoother curves help us form an opinion on the trend.

In commodity markets, the Relative Strength Indicator or RSI is a popular measure.

The RSI is created by adding the number of days the market went up and dividing it by the number of days the market went down and turning it into an index from 0-100.

When the line crosses above 30, it’s a bullish signal and when it crosses below 70 it’s bearish.

Volumes traded in the market also provide an advance signal of changes.

If more people buy, it might push the price up, and as less people engage, the price might go down.

A change in volume levels can be an early sign that the market is changing its mind.

Bollinger Bands are a more complex technical indicator.

We work them out by calculating two standard deviations from a central line, usually the 20-day moving average. The theory is that prices should be within this range most of the time.

If they break out of the bands that could be a signal to buy or sell.

The challenge in energy markets is that as the number of options increases we have more of them to track and take positions on.

There are obviously many more indicators, some fiendishly complicated.

The point is that markets may be closely correlated – but that doesn’t mean just looking at one measure, like an annual contract, is enough these days to pick out a price that is undervalued.

In an ideal world, we would buy at cost-price and not need to do any technical analysis at all.

But – when we do, it’s useful to know how it’s done.

How to make daily progress towards a goal

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Many projects need continued work and commitment over time without providing the kind of feeback that tells us that we are on the right track.

Managing a project, writing a book, doing sales calls, managing accounts, reading papers, writing code – all these require us to do something, day after day.

It’s easy to think that we aren’t making progress on the big goals just because all the small bits of work we do aren’t amounting to anything more than half finished drafts and work in progress.

Part of the the solution, according to James Clear, is to create visual cues that help you measure your progress.

He uses the example of Trent Dyrsmid, now a serial entrepreneur. In his first job, Trent had to make sales calls – and the method he used helped him launch his career.

He had two jars on his desk and filled one with 120 paperclips. Even day, he’d start making calls and after each one move a paperclip from one jar to the other.

He was done when he had moved all the paperclips.

He credits this with helping him develop a large book of business and his subsequent success.

It’s hard to visualize progress on a big goal or objective.

When we can break it into small, manageable chunks then we can make meaningful progress quickly on each small chunk.

If we can also make that progress visible, it also helps motivate us to keep going.

The idea of a visual cue, like a Kanban board, is that it takes things out of our heads and puts them in front of us.

The question to then ask is – what are the things we most want to do, and so what activity should each paperclip represent and how many do we need to know that we have made real progress that day?

And, because we have limited space, we should have the fewest number of visual cues necessary to monitor only the most important things we need to do.

How can you become more profitable?

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What exactly does it mean to grow a company?

In the age of the internet, it seems that growth means eyeballs. You need to add users, quickly.

It doesn’t matter if those users are unprofitable. The idea is that if you add enough people, then a larger company will buy you just to be able to talk to your customer base and sell them more stuff.

Most businesses, however, don’t work like that.

They have three levers they can push – money, customers and operations.

According to Peter Lynch, the well-known manager of Fidelity Investments’ Magellan Fund until 1990, there are five things companies can do to increase earnings.

An investor would look at which of these options are open to any particular company before investing.

1. You can cut costs

Focusing on costs can be boring, but every penny you save has an immediate impact on profits.

Some costs, like electricity, gas and water, may be small – but their impact on profits can be considerable, especially in a competitive, low margin marketplace.

In an ideal world, you would compare costs against expectations daily, taking action to correct variations as soon as possible.

2. You can raise prices

If you raise prices, you will lose some customers.

That is no reason to keep prices low.

The calculation one needs to make is to work out at what price point a further increase will result in a net loss from customers leaving as a result.

This can be calculated – it requires a pricing model and charting, or if you’re feeling in the mood, differential calculus. Let me know if you’d like more information.

3. You can sell more to old markets

You may have more services that existing customers would take, if they were aware of what you did.

If you already have an existing working relationship with someone and have provided a good service you have an advantage over the competition.

4. You can expand into new markets

Now we’re looking at how you can get new customers.

The easiest place to start is to find customers like the ones you already have.

It’s much easier to have a conversation when you already have similar customers to the one you’re trying to work with.

And those conversations may tell you where the opportunities are for new products and services.

5. You can fix, close or sell a losing operation

If a part of the business is hurting profits, then you need to look at it carefully and work out what your options are.

It’s easy to fall into the sunk cost fallacy, where previous decisions and investments stop you from just stopping.

If you can’t fix it, then you need to close the operation or sell it – and that will have an immediate impact on your profits.

Lynch argues that how a company plans to deal with these five areas is its “story”.

As an investor, a company needs to to have a plausible and preferably compelling story about how it plans to increase profits before you put your money into it.

The rules on energy reporting for large companies

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The government consultation on a streamlined energy and carbon reporting system is open until 4th January 2018.

Many companies still don’t save as much energy, carbon and cost as they can.

This is partly because decision makers are just not aware of the opportunities that exist across businesses.

Take a large business that operates in a competitive industry. Let’s say that it has a turnover of £40 million and it’s EBITDA margin is around 20%, giving it £8 million in earnings.

The costs of energy might only be around 5% for such a business – at around £2 million.

If it could save 10% through low-cost energy efficiency investments, that would add £200,000 to EBITDA, an increase of 2.5%.

The business would need to increase sales by £1 million to have the same impact on profits as cutting energy costs by 200,000.

And, especially for listed companies, that increase in earnings can directly increase shareholder value through valuation multiples.

But there are problems.

There are too many reporting systems, the obligations are fragmented and the benefits are unclear.

Most companies see it is as just another obligation that needs to be met at the lowest cost rather than a source of opportunities.

The consultation aims to change that.

Under its proposals, existing reporting mechanisms will be streamlined into a simpler reporting framework that will make energy and emissions information more standardised and transparent, increasing awareness among shareholders and senior managers.

It will apply to large companies, whether defined by energy usage, financial strength or company structure. Between 4,000 and 10,000 organisations will need to comply with these proposals.

The reporting will cover energy and transport and potentially also cover other forms of energy such as biofuels – drawing more emissions into the reporting framework.

It is meant to be UK specific, although listed companies will report on global operations.

In addition, there may be a requirement to report against progress on energy efficiency opportunities.

Following the consultation and the governments response, the new rules are likely to be introduced by 2019.

Companies will need to report this information on their annual reports filed with Companies House, and there may be a separate data portal set up to hold and provide this information as well.

So, what should you do now?

Whatever conclusion the government comes to, it’s likely to involve some form of reporting.

So, start collecting your energy data now.

Where are the opportunities in the Fourth Industrial Revolution?

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Industry is rapidly adopting and adapting digital technology in modern manufacturing, in a trend sometimes called Industry 4.0 or the fourth industrial revolution.

This marks a change from “strong” machines to “smart” machines, as a network of connected devices with increasingly sophisticated technology add value and remove waste from manufacturing processes, supported by more monitoring and analysis capability for operators.

The Made Smarter Review looks at how UK manufacturing can benefit from using Industrial Digitalisation Technologies (IDTs) to boost manufacturing, growth and jobs.

The review argues that the prize is large. The global market for IDTs is already significant, in the region of trillons of dollars for Internet of Things (IOT) devices.

We are already seeing the increasingly widespread application of big data and analytics. A robust communications infrastructure, underpinned by 5G and wireless will make it easier for devices to talk to each other.

Advances in robotics, autonomous vehicles and advanced manufacturing are already being implemented and wearable technology is being seen as a huge growth area.

We will need more people with the skills and capabilities to implement IDTs.

In addition, the challenge with collecting increasing amounts of data is that you can end up with the same problem we have now with emails – humans have limited processing power and there is more coming at us than we can deal with.

There is little point in capturing lots of information if someone then has to look at it and intepret it before taking action. That simply creates a new bottleneck as human capability fails to keep up with the power of industrial systems.

The opportunities in these technologies will be unlocked when machines can work out when to take action based on the data they collect – from the “voice of the process”.

For example, a wearable tech heart monitor package may continuously monitor your heart and alert both you and your hospital if your readings go out of tolerance, and perhaps even check your diary and book an appointment for you.

A machine learning algorithm may be able to figure out a shift pattern at your facility based on your electricity or gas usage and calculate when to buy from the wholesale market in order to minimise total cost.

Digital competence is quickly becoming a “threshold” competence.

It’s something you have to have in order to compete and profit as the next industrial revolution gathers pace.

This review is a useful and comprehensive overview of what needs to happen in the UK to increase productivity, create new businesses, better jobs and make it more competitive globally.

How to manage a process using a Kanban board

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We’re all too busy all too often.

How can you get a handle on this – and get some control and visibility over what is going on?

One approach is to put a Kanban system in place.

Kanban is a way to see how value flows through your business.

At the end of any process, something should come out that has value to someone. Things – information, materials flow through the process and get changed into value.

Our job is to make it easier for things to flow from one stage to the next and we can do this using a Kanban board.

On the board, we set out the stages that we follow in our business. To keep things simple, let’s assume these are To-do, Doing and Done.

Under each title, we list out the things that fall into that category – usually on post-its, or perhaps in a spreadsheet.

The next part of the process is to introduce a constraint. The big number at the top limits the number of pieces of work that can be done in that stage at any time.

You can see in the picture above that there is conflict. The limit in Doing is 3 but there are six items.

Three need to be moved back into the To-do pile.

You can only move an item from To-do to Doing by moving something else from Doing to Done.

Applying the constraint and stopping your list from growing has an interesting effect.

To keep flow going, you have to get things done.

If there are things on your Doing list that don’t add value, or are acting as a bottleneck and taking up resources, you need to stop doing them or do them better.

In other words, do only things that matter to the end result.

A Kanban system is a deceptively simply way to improve a process.

It might look just like another way of creating lists.

But, when you combine the lists with a constraint on the number of items and a focus on flow, you end up creating more value at the end of the process than you were before.

How to pitch your idea

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The author Dan Pink writes that we are all in the business of moving others now in his book To Sell is Human.

Whether it’s persuading others to back an idea or strategy to what people think of as traditional sales, all of us are increasingly required to pitch our ideas and get support in order to do anything.

The test for whether an idea was clear was the elevator pitch. Could you succinctly sum it up in 30 seconds or less as you went up an elevator with someone important.

But… we rarely share lifts with important people any more. What do you do when you don’t have an elevator available and you want to get their attention and spark interest?

Dan Pink describes six successors to the elevator pitch. It might help to remember them as you look at the symbols on your keyboard that match the ones in the picture.

1. ! The one word pitch

Can you describe your idea in one word?

Pink suggests starting with a short description, say 50 words. Cut it down to 25. Cut again to 10. One of those that is left is the one word that describes what you do.

For example, the website of Patek Philippe, the luxury watch brand, has the word Aesthetic scrolling on its homepage.

In an interesting twist, they have the one word that they feel describes the beauty of their product in several languages.

2. ? The question pitch

If you are sure of your facts and logic, then asking a question is a powerful way to get started.

WaterAid, a charity that helps bring clean water and toilets to people who lack basic sanitary provisons around the world, simply asks Are you ready? on their website.

Then they explain their goals and how you can get involved.

3. = The rhyme pitch

A rhyme sticks in your mind.

Pink says that if you are in competition with others, coming up with a rhyme that summarises what you do will help people remember your firm and potentially give you an advantage.

4. @ The tweet

Can you summarise what you do in less than 140 characters?

Apple is a company that mastered this approach with short, snappy lines under Steve Jobs.

“1,000 songs in your pocket” and “The world’s thinnest notebook” still probably bring to mind the iPod and the Mac Air.

5. _ The subject line

Email is still where most of us live, and where we get the most junk.

To stand out, your email must do at least one of two things, and preferably both, according to Pink.

It must have utility – a clear statement of whats in it for the reader.

It must spark curiosity – a desire to learn more.

6. ” “ The story pitch

The story pitch, also called the Pixar pitch, says that every Pixar pitch has the same formula:

  • Once upon a time…
  • Evey day…
  • One day …
  • Because of that, …
  • Because of that, …
  • Until finally, …

Pink’s site has a few videos that also explain these in more detail – and the book is a pretty good read as well.

The next time you’re stuck for a way to craft your pitch, just look down at your keyboard and remember the six new options you now have.

!?=@_” “