BATNA down the hatches 8 May 2017
If nothing else, the politics of our time are an object lesson in leadership. Is Trump a great leader because he managed to win an election on (most would argue) racist hot air and pandering to some notional desire to blitz elites? Or is he a terrible leader who’s merely chanced his arm?
What about Marine Le Pen? A champion of national unity and cultural cohesiveness thwarted at the last by a panicky coalition of the establishment? Or a petty fascist (a term that has been tested in court) riding the tiger of aggressive jingoism and grass-roots discontent? Is Angela Merkel a great leader because she is shrewd and wily? Or because she is logical and level-headed? (Spoiler: both. Read this article... there's a reason she dominates the political sphere.)
And then there’s our own Theresa May, of course. Her leadership style is fascinating – but for very different reasons. She shuns public engagement (mostly because she’s not really a people person, and there's no harm in that...), yet has massive approval ratings. She seems crude and uncultured in her dealings with the EU – which will be the defining test of her leadership – but was quick and cunning enough to wrest Number 10 from some of the most grasping hands in the Tory party.
Still, whatever she does domestically against pitiful opposition, her leadership legacy is all going to come down to her skill at negotiation. And that means the next two years will be an object lesson – for FD, FCs and every manager in fact – in how to strike good deals.
So we thought we’d dip into some management thinking on negotiation. A lot of today’s negotiating theory came out of Harvard Business School, and Harvard Business Review is a great place to brush up your thinking. Four links (all of which we rather hope Theresa May’s team has been reading, even if there’s not much evidence to date…):
This guide looks at getting the emotional states right in negotiations. Tip for Theresa: this a tough call when politicians are in the room and nationalism is on the rise. Hurling insults might not be the best plan... Tip for FDs: When the economic environment is tight and your business is on the line, you need to keep a cool head, too. Keep asking why to drill down into rational reasons for your decisions – and theirs.
How do you negotiate with those stronger than you? Tip for Theresa: prepare well, know your own value and put yourself in the EU’s shoes. That might mean being more realistic and more empathetic than you’re used to. Tip for FDs: always ask questions when you’re negotiating with a more powerful company. Their motivations are often multifaceted, opening up unexpected doors.
Control the negotiation before it begins? It’s a must. Harvard professor Deepak Malhotra says, “Substance is the terms that make up the final agreement. Process is how you will get from where you are today to that agreement. My advice to deal makers: Negotiate process before substance.” Tip for Theresa: please reassure us that all the posturing with the EU is smart electioneering – because we see precious little process (and barely any substance) right now. Hopefully that changes on June 9th. Tip for FDs: if you’re in a backed business and don’t understand the frameworks for private equity before you deal, start reading. Process is everything.
A podcast – on how to negotiate better. No tips, but worth a listen if you don’t have time to read more…
There’s one other (Harvard-sourced) theory on negotiation to mention – which most of you will know already: BATNA – the Best Alternative to a Negotiated Agreement. (You can try to find your own BATNA for Brexit using this fun Reuters interactive tool...)
This is essentially your walk-away position. If the other side doesn’t play ball and you can’t secure your “red line” terms, what’s the plan? Have you got another counterparty lined up? Can you pivot the deal and change what it is your buying or selling? Can you simply walk away? This, most experts agree, is the key to confident and effective negotiations.
Wikipedia says: “Most managers overestimate their BATNA whilst simultaneously investing too little time into researching their real options.” So let’s hope that isn’t true of Theresa and the WTO trade terms everyone expects in the event of a hard Brexit. Let's hope the bluster is a smokescreen and that no-one is overestimating the value of a WTO-only deal or poorly researching our options.
In business, it’s crucial to nail your BATNA in every situation. Ultimately, in a high-pressure environment where currency movements, febrile consumer sentiment (personal debt is scary right now), disruptive competition and geopolitical upheaval put many deals on a knife edge, having a very careful analysis of the value of every possible deal – and when it makes sense to walk away rather than snatch at a deal – is crucial.
The lessons FDs and other business leaders take from the UK’s Brexit talks themselves aren’t just abstract business school theorising, of course. For many of you, the next two years (and probably the next decade) will be dominated by negotiations of your own. Trade deals, tariffs and regulations might be the stuff of high politics – but the knock-on effect is felt in every business with any kind of extended supply chain once those macro decisions have been taken.
So soak up the lessons, good and bad, from Mrs May. And start working on that process to establish your very own BATNA the next time your business is trying to do a deal… especially with EU counterparties.