Know thyself, negotiator

My new book post is up on s+b:

A New Hat for Negotiators

What hat do you wear when you negotiate? A conservative Homburg, a swaggering Stetson, a gangster’s Fedora? If you’re literal-minded like me, you may say that you don’t wear one at all. But Shirli Kopelman, professor at the University of Michigan’s Ross School of Business and executive director of the International Association for Conflict Management, says all negotiators wear hats of some kind or another.

In Negotiating Genuinely: Being Yourself in Business (Stanford Briefs, 2014), Kopelman explains that when managers and executives enter negotiations, they typically assume a role—the proverbial hat. Wearing it “implies calculated self-interest with a dose of inauthenticity, or walling off vulnerable parts of ourselves.” This description may sound familiar to you. I know I’ve experienced the disconcerting feeling of sitting down with a heretofore friendly client to talk about a contract and finding that the client’s body has been possessed by a hard-eyed stranger who is determined to wring every possible concession out of me.

Kopelman, who broadly defines negotiations, thinks that even more enlightened win-win negotiators can find themselves impaired by the hat they wear. It’s as if the negotiator’s hat includes a set of blinders that artificially limits the options of every party in the negotiation. She says that we all wear multiple hats in our lives, and that each one represents a different role that comes with its own resources and constraints. (For instance, a business executive may also be a parent, a child, a spouse, a soccer fan, a scuba diver, or a church deacon.) But, Kopelman says, if we can integrate our hats, we might be able to use their combined assets to negotiate in a more genuine way and craft superior outcomes.

“Negotiating genuinely—wearing your integrated hat—enhances creativity, draws on diverse strengths, aligns you with your moral compass, and enables you to straddle the complex dualities of negotiations: Focusing on both the task and the people,” writes Kopelman.

How do you go about integrating your hats? In her slim book, Kopelman says to start by listing the names of all the hats you wear (she has 14 on her list). Then, define the domain in which you wear each hat, the people with whom you negotiate when wearing it, and the resources you negotiate for when wearing it. Finally, consider how you can integrate key elements of each hat.

This sounds pretty nebulous, and it does contradict common practice, which says the only hat you need to wear when negotiating is the one that will benefit your side the most. But Kopelman suggests you work through the exercise. “The key is that the process of hat integration transforms your hats into a single integral hat. It is not about impression management, nor is it a façade nor a mask, but a genuine reflection of you as person,” she says. “The integral hat becomes a metaphorical container that symbolically carries your identity as it ephemerally (momentarily), yet repeatedly, comes into being, reflecting you as a negotiator who fully engages with other people.”

It’s an intriguing idea—even if it’s not fully formed in this book. But if trying on your own integrated hat can help you achieve better relationships and outcomes in negotiations, it might be well worth the time.

Soccer and economics

My new book post is up on s+b's blog:

What the Beautiful Game Reveals about the Dismal Science

A lot of people watched the World Cup in Brazil this past month. The final numbers won’t be in for a while, but with record-breaking viewership for the first round of matches and a big bump in the U.S. audience, it’s a good bet that the 2014 Cup eclipsed the more than the 3.2 billion viewers (nearly half the people on earth) who tuned in at some point or another during the 64 matches in 2010. It’s also a good bet that Ignacio Palacios-Huerta, a professor at the London School of Economics and Political Science, is one of very few soccer fans who watched this year’s matches for insights into perverse incentives, market efficiency, and other economic concepts.

What can the beautiful game tell us about the dismal science? As Palacios-Huerta explains in Beautiful Game Theory: How Soccer Can Help Economics (Princeton University Press, 2014), soccer—and indeed many other professional sports—is a terrific laboratory for testing economic theories. “There is an abundance of readily available data, the goals of the participants are often uncomplicated (score, win, enforce the rules), and the outcomes are extremely clear,” he says. “There is an abundance of data, the goals are uncomplicated, and the outcomes are extremely clear.” 

Take incentives, for instance. We’re often warned that incentives can have unexpected consequences, but it’s tough to isolate the effects of an incentive—such as stock options, for instance—in the business world. Are senior executives neglecting the long-term well-being of their firms to bump up the value of their options in the short term, or is something else going on? Are managers sabotaging one another to boost their own performance in forced ranking systems or not? That’s tough to prove without a smoking gun, and managerial saboteurs tend not to leave that kind of evidence lying around.

For a more rigorous test, Palacios-Huerta and his colleague Luis Garicano examined the outcomes stemming from a 1994 FIFA rule change in which three points, instead of two, were awarded in round-robin tournaments for a win. (It was an attempt to drive up soccer scores and attract U.S. fans, who presumably find the subtleties of the game far less appealing than a Pelé-style bicycle kick into the net.) In doing so, the economists found empirical evidence for the risks attendant in strong incentive plans.

By analyzing the incidence of dirty play before and after the rule change, they discovered that increasing the points awarded for a win caused a rise in sabotage on the field: fouls and unsporting behavior resulting in yellow cards increased. By analyzing the results of matches, they further determined that the rule change did not change the number of goals scored. Teams played more aggressive offense until they got their first goal, then they hunkered down defensively to protect the win. “The beautiful game became a bit less beautiful,” concludes Palacios-Huerta.

In Beautiful Game Theory, Palacios-Huerta also reports on how he used soccer to prove the long-standing efficient-markets hypothesis—a theory suggesting that in the stock market, for instance, information is processed so efficiently that “unless one knew information that others did not know, no stock should be a better buy than any other.” The problem with proving this hypothesis is that you can’t stop time to analyze the effects of a piece of news on the market. But time does stop in a soccer match.

Palacios-Huerta realized that at halftime, “the playing clock stops but the betting clock continues.” So he identified matches in which a “cusp” goal was scored just before the halftime break, and then analyzed the changes in betting odds during the break at the Betfair online betting exchange. He found that Betfair lived up to its name: “Prices impound news so rapidly and completely that it is not possible to profit from any potential price drift over the halftime interval.”

This is good news for sports bettors, but it’s far less reassuring in light of the New York Times exposé that broke on May 31. It seems that some gamblers are allegedly paying off referees to use penalty calls to rig soccer matches. Efficient or not, when it comes to economic markets, it seems like somebody always knows something that no one else knows.

Killer quotes #8

 

 

"Originality is the fine art of remembering what you hear but forgetting where you heard it." -- Laurence J. Peter

Beating the odds on startup survival

My new book post is up on s+b's blog:

Navigating Innovation’s Perilous First Mile

In the opening paragraph of his newest book, Scott D. Anthony describes being in Bangalore, with a stranger’s razor at his neck. No, it’s not a thriller, at least not of the Ludlum and Clancy variety. The book is The First Mile: A Launch Manual for Getting Great Ideas into the Market (Harvard Business Review Press, 2014), and Anthony, in his capacity as head of Innosight’s venture capital (VC) arm, is considering an investment in a new concept for a chain of barbershops.

Anthony likes the idea—a single-chair kiosk manned by a professional barber in a market where there are few options between a high-end salon and a chair on the side of a road—and he recommends the investment. Four months later, the startup fails: A single-chair shop can’t do the necessary volume, and the best barbers leave to start their own businesses.

It’s just another wreck on innovation’s first mile from idea to reality. According to the statistics Anthony cites, 75 percent of VC-backed startups fail to return their investor’s capital; 95 percent fail to hit their financial targets. Of more than 10,000 VC-financed software startups since 2003, only 40 are worth more than US$1 billion. More than 50 percent of companies don’t survive to their sixth birthday.

I asked the innovation expert to describe the biggest pothole in this stretch of road. “The single biggest challenge facing innovators in the first mile is maintaining the appropriate balance between thinking and doing,” he replied.

“Either end of the spectrum is dangerous. At one extreme is ‘paralysis by analysis.’ Too many innovators create elegant pieces of Microsoft fiction. The Excel spreadsheet features ‘what if’ analyses and pivot tables that would rival those created by a seasoned investment banker. The PowerPoint document is stunning, with charts and visuals comparable to Al Gore’s award-winning presentation on climate change. And the Word memo summarizing it all features prose that is so lucid that somewhere Malcolm Gladwell is shedding a tear. The plan looks airtight on paper, but in reality, it is incredibly brittle. As Intuit’s Scott Cook once quipped, ‘For every one of our failures, we had spreadsheets that looked awesome.’

“The other extreme is doing without thinking. Unfortunately the Lean Startup movement, popularized by Steve Blank and Eric Ries, has been twisted by some of its followers into a viewpoint that all thinking is worthless. That’s dangerous, because innovators can waste a lot of time and money discovering things that the world already knows. Or they can prematurely scale a business before they have figured out key elements of the business model, leading to a deadly spin-out.”

The methodology that Anthony offers in The First Mile is designed to enhance the odds of startup survival. Based on his experiences as an innovation consultant to large companies and as an investor in startups, it’s summed up by the acronym DEFT: document, evaluate, focus, and test. “Innovators should take the time to document and evaluate their ideas comprehensively, while remembering that no business plan survives first contact with the marketplace,” explains Anthony. “They should view themselves as strategic scientists whose job is to focus on the most critical uncertainties, and test rigorously and adapt quickly.” This practical and concise book includes checklists, tools, and tips for each step.

“Success in the first mile comes from striking a balance between the two extremes of thinking and doing,” Anthony concludes. “Innovators should be structured and thoughtful, but with a clear bias to action. The overarching goal is to find the magic ingredients behind every great idea: a compelling solution that targets a deep need in a way that creates value. The first mile can be both promising and perilous. The right approach makes all the difference.”

Marketing insights from the art world

My new post on s+b's blog:

What Marketers Can Learn From Contemporary Art

Contemporary art often amuses me. I’m thinking of the 200-lb pile of wrapped candies that’s meant to be “installed” in the corner of a room for your guests to eat—or the waxwork of supermodel Stephanie Seymour made to hang on your den wall like a hunting trophy.

And there’s York University economist Don Thompson’s personal favorite: Yves Klein’s Transfer of Zone of Immaterial Pictorial Sensibility, a conceptual art piece executed and sold between 1959 and Klein’s death in 1962. As Thompson tells the story in The Supermodel and the Brillo Box: Back Stories and Peculiar Economics from the World of Contemporary Art (Palgrave Macmillan, 2014), Klein offered to sell art lovers an “immaterial zone”—that is, empty space. This was truly the emperor’s new clothes of the art world: You gave Klein a specific amount of gold leaf and he gave you a receipt stating you had purchased a zone of your own. But that was just the first step. If you were willing to pony up more gold leaf, Klein would throw half of it into the Seine (keeping the rest as his fee) and burn the receipt. You would receive photographs and an affidavit documenting the act. Apparently, Klein found eight buyers with a hankering for immaterial zones.

Of course, amusement turns to bemusement when you consider that the pile of candy sold for US$4.5 million and the waxwork of Seymour brought $2.4 million at auction. In fact, the market for contemporary art is booming again, after a big dip during the Great Recession. In May, Christie’s had its best auction ever, selling $745 million worth of postwar and contemporary art. Bloomberg reported that 68 lots out of 72 offered found new homes. But what is it that makes a Jeff Koons balloon dog worth $58.4 million and what can marketers learn from that?

Well, for one thing, there’s the power of a compelling backstory. The story of a piece of art—who made it, how it came to be, what happened to it in the past, and who has owned it—“may be more important than the artwork itself,” according to Thompson. That’s why art experts estimated that the value of Picasso’s Le Rêve actually rose after casino owner Steve Wynn accidently stuck his elbow through it.

Another insight relates to the value of reputation. Why did one painting created by Rachel Howard sell for $90,000 in 2008 and, a few months later, a similar painting by the same artist sell for $2.25 million? “The difference,” explains Thompson, “is that while Howard had created both, the second had Damien Hirst’s (indistinct signature) on it.” Howard worked as a technician for Hirst, who is the creator of works such as The Physical Impossibility of Death in the Mind of Someone Living. And Hirst is considered one of the great, if not the greatest of, contemporary artists—a reputation conferred on him by credible third parties, including critics, gallery owners, auction houses, and museum directors.

A third lesson regards the price-boosting effect of the art-buying experience. Paraphrasing Marshall McLuhan, Thompson observes that the “market becomes the medium” when it comes to selling art. Auctions create emotion-laden competitions to buy and be seen buying that drive prices up, even though, says Thompson, “Half of the works purchased at auction in 2013 will likely never again resell at the hammer price.” Art fairs, such as Art Basel Miami Beach and Frieze London, are also vibrant experiences, featuring VIP passes and lavish events that drive up both attendance and sales.

These are the things that distinguish Andy Warhol’s Brillo Soap Pads Box, which sold for $772,500 in a 2012 auction, from a case of Brillo in a supermarket, the design for which, Thompson informs us, was created by abstract expressionist and commercial artist James Harvey in 1961. It would be interesting to hear what Harvey, who passed away in 1965, might have had to say about that.