Vivek Kaul
Stuart Diamond has taught and advised on negotiation and cultural diversity to corporate and government leaders in more than 40 countries. For more than 90% of the semesters over the past 15 years his negotiation course has been the most popular at the Wharton Business School, based on the course auction. He is also the author of Getting More – How You Can Negotiate to Succeed in Work and Life. In this interview he speaks to Firstpost on why India and Pakistan need to negotiate, how the soldiers negotiate with tribal leaders in Afghanistan and why the lack of people skills is proving costly for technology firms.
What is the most important point in any negotiation?
Almost any negotiation worth doing with anybody, whether its a billion dollar deal, diplomacy or my kid wants an ice cream cone, is a high stakes negotiation to that person. So almost every negotiation that is done in the world begins as an emotional negotiation. When stakes are high people get emotional and listen less.
That’s a very perceptive point you make….
Hence, unless you deal with that in the beginning you are not going to get the response you like. Also, I’d like to point out that we have begun to study the cost of conflict i.e. the cost of not collaborating. It turns out that India is in a fair amount of trouble when it comes to this. Only 20% of the people in India, trust each other, 80% don’t. If India had the same amount of trust as Sweden, its GDP would be $95 billion higher, which is twice as much as the defence budget, ten times the education budget, fourteen times the health budget and equal to the entire budget shortfall. In addition to that it would have 38 million more jobs, which is twice the population of Mumbai. Therefore the lack of trust in this country is a significant social and economic issue.
Why would that be? Isn’t trust also a function the amount of equality in the country? Like you gave the example of Sweden. Sweden has one of the highest equality levels in the world…
I would phrase it differently. I would say that trust occurs when someone thinks you want to do something for them, even if you are unequal. It begins with the notion of do I care about them? For example, when we had terrorist attacks in Mumbai around five years back, that’s when India and Pakistan should have started talking non stop. That’s part and parcel of the problem, which is even if Pakistan wanted to stop talking, India should have been after Pakistan to start talking, because you cannot solve a problem by not talking. In other words, if we mistrust each other, that’s the time to start talking. So this is counter-intuitive to many people because it says that the less I trust you the more I need to talk to you.
Can you elaborate on that?
For example, instead of India threatening to clean out terrorist cells in Pakistan, and instead of Pakistan putting people on the border, India should say to Pakistan, do you like terrorism? If you don’t like terrorism, we don’t. You want us to be able to do something about it? Let’s start small. What’s the worse problem we can solve in the easiest way? How do we start? Have a discussion about it. As opposed to do it my way. Or I demand this. There needs to be discussion. Even my 11 year old son, when he breaks something on the floor, I don’t blame the floor, I say Alexander how can you prevent this from happening again? Even a 11 year old kid understands that. How do we fix the process?
Not many people would buy that argument these days…
So much time is being spent arguing over yesterday instead of fixing the process for tomorrow. Yesterday adds no value. It is done and you can’t fix it and you can’t do anything about it. Tomorrow is what we can add value to. Too many people are backward facing when they should be forward facing.
One of the interesting examples that I came across was where you allowed your son to watch Scooby Doo for every minute that he played the piano. What was that all about?
It was a trade. First of all life is about a trade. Even a relationship. Quid pro quo. If you don’t need each others needs, soon you won’t have a relationship. And parents expect kids to do things for nothing, when they themselves would never do things for nothing. I wanted to teach my child the value of the trade. I paid money for the piano. I knew he would grow out of Scooby Doo, but he still plays the piano.
What is the lesson?
I wanted to know what do we trade. It teaches people to be responsible. That’s a really good thing to be thinking about with kids and others. What do they value? It doesn’t have to be monetary. It can be something intangible. It can be a letter of reference.
Letter of reference?
Let me tell you an interesting story. About three months ago one of Google’s senior negotiators went to do a deal in the Southern United States where they doubled the fibre optics capacity. The first tranche cost $6 million and it closed two years ago. The vendor wanted $6 million for the second tranche. Instead of asking for a discount this Google negotiator said what can Google do for you? And the vendor said you can write us a letter of reference, so we could build our business.
That’s interesting…
The Google negotiator said fine we will do that. And then he said, what can you do for Google? The vendor decided to offer a discount to Google. And the vendor charged Google $6000 for an installation of $6 million, a 99.9% discount. This happened because they made the human connection and it wasn’t just about the money.
Can you give us another example of where an intangible played an important part in a negotiation?
My models are not only used by Google but by Special Operations in Afghanistan. If they make a connection with the tribal leaders, which may be something as simple as praising the fact that he(i.e. the tribal leader) was a war hero against the Soviets, the tribal leader will tell them where the bombs are buried and where the Taliban are. People say negotiations are complicated. No they are that simple. I like to watch kids negotiate. Kids are very simple. I am happy. I am sad. I am hungry. We are not getting along. A lot of what passes for negotiation is too complicated. Its just a conversation about what’s going on. The thing is it is not rocket science. But unless you know how to do it, it’s completely invisible. These tools are obvious when you see them, but are invisible unless you know them.
The Afghanistan example was interesting..
Let me give you another example. In Afghanistan, you have got tribal leaders interested in co-operating with the Allies. So, I teach the soldiers to say, think your kid is going to be sick next year? It takes some months to get medicines in Afghanistan. Your kid might die. We can get the medicine the same day. Who cares about that in your village? Whether they are a hard bargainer or a soft bargainer, it will be very hard for them(i.e. the tribal leaders) to turn down the alliance. So the more you can create a vision for someone, the more they are likely to buy in.
Any other example?
Here is one. Google wanted to put cigarette advertising and liquor advertising on cell phones. The legal department of Google did not want to do this because there was danger of kids getting access to it. We realised that whenever people think this is risky if you are more incremental you can be more persuasive. So then what was proposed was a limited experiment. We try with cigarette advertising in Britain and liquor advertising in the US for a small portion of the market and see if it can protected from under age people. Google would use that as a test to see how people self regulate. Google would be a leader in the industry as opposed to someone trying to get a heads up. So you can completely turn something around by being more incremental and by re-framing it in a way to capture the imagination of people.
In complicated situations do outsiders tend to be the best negotiators?
In fact, somebody without an emotional history is often the right negotiator. There are times when you can do it yourself but by the time it gets to a situation where the husband and wife are fighting with each other, you need a marriage counsellor. Before that point you can often do it yourself. But it is also true that sometimes the best negotiator with my wife is my son. So the right negotiator is the person who can make the best connection with the other side. The right negotiator is not the smartest, the most skilled and the most experienced. It might be the weakest member of your team.
That’s interesting. Can you give us an example?
I told this to the senior management of Morgan Stanley last month and they said that this flies in the face of a 100 years of investment banking experience. They are going to think of changing this. For 100 years, the most senior person did the negotiation. And that’s not often the right negotiator.
Because he has got too many things to do anyway. You need someone who does not come with a baggage…
Yes. Exactly.
“Men better do better at negotiations than women” you point out. Why is that?
And that’s only because men practice more. Women are instinctively better negotiators than men. They listen more. But they don’t practice enough and so they are not trained enough. And some training is better than no training. As soon as they get trained at negotiations they do very very well. In fact, 30% of the people in my classes are women and they get more than half the highest marks.
One of the things that you write about is that the lack of people skills is proving costly to technology firms…
Absolutely. I gave a talk four years ago to 400 people from Microsoft from the business development and legal departments. I started the talk by saying that this morning I googled Microsoft. I typed “Europe hates Microsoft”. Why did I get 10 million hits in a tenth of a second? I said you are thinking it costs you money because people don’t like you. People investigate you because they don’t like you. The notion is that it is not just about the technology, if people don’t like you they will find a way not to buy your products and services.
Hmmm. And that’s impacting technology firms?
The FBI in Washington tells me that they use Oracle. They hate Larry Ellison and they are trying to find a way to use something else. And of course if you have got $12 billion like Larry Ellison has, you can be an SOB, but the problem is when you get to an America’s Cup race, only two people show up, including you. So there are costs to that even if you can get away with it for a short period of time.
True…
Around 25 years ago I read a really an interesting quote from a treatise called The Myth of US Industrial Supremacy. though I am not sure of it.“There is no human organisation, institution or civilization, that cannot given enough time be ruined”. So I worry about it. However, powerful I am, if I make myself the issue over and over again, people are going to run away. The lack of people skills is the Achilles’ heal for the technology industry because it is not just about the technology. It is about how people feel about the technology.
The interview originally appeared on www.firstpost.com on October 1, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Trust
What the humble electric toaster tells us about the global financial system
Vivek Kaul
Tim Harford writer of such excellent books like The Undercover Economist, The Logic of Life and Adapt, once wrote a blog discussing the perils of a design student trying to make an electric toaster from scratch.
Harford discusses the experience of Thomsan Thwaites, a postgraduate design student, who decided to embark on what he called “The Toaster Project”. “Quite simply, Thwaites wanted to build a toaster from scratch,” writes Harford.
The toaster was first invented in 1893 and is a household good in Great Britain and almost all other parts of the developed world. It costs a few pounds and is very reliable and efficient. But building it from scratch was still not a joke. “To obtain the iron ore, Thwaites had to travel to a former mine in Wales that now serves as a museum. His first attempt to smelt the iron using 15th-century technology failed dismally. His second attempt was something of a cheat, using a recently patented smelting method and a microwave oven – the microwave oven was a casualty of the process – to produce a coin-size lump of iron,” writes Harford.
Next Thwaites needed plastic. Plastic is made from oil. But Thwaites never made it to an oil rig. He finally settled at scavenging plastic from a local dump, which he melted and then moulded into a toaster casing.
More short cuts followed. As Harford writes “Copper he obtained via electrolysis from the polluted water of an old mine… Nickel was even harder; he cheated and bought some commemorative coins, melting them with an oxyacetylene torch. These compromises were inevitable.”
A simple toaster has nearly 400 components and sub components which is made from nearly 100 different materials. So imagine the difficulty if everything had to be procured and made from scratch. As Thwaites told Harford “I realised that if you started absolutely from scratch, you could easily spend your life making a toaster.”
Thwaites finally did manage to make an electric toaster, but it was nowhere as good as the ones easily available in the market. As Harford writes “Thwaites’s home-made toaster is a simpler affair, using just iron, copper, plastic, nickel and mica, a ceramic. It looks more like a toaster-shaped birthday cake than a real toaster, its coating dripping and oozing like icing gone wrong. “It warms bread when I plug it into a battery,” he says, brightly. “But I’m not sure what will happen if I plug it into the mains.””
So dear reader, you might be reading this piece sitting in the air-conditioned comforts of your office on an ergonomically designed chair (hopefully). Or you might be sitting at home reading this on your laptop. Or you must be travelling in a bus/metro/local train hanging onto your life and reading this on your android smartphone. Or you must be waiting for your aircraft to take off and must be quickly glancing through this on your iPad.
The question that crops up here is that how many of the things mentioned in the last paragraph, would you dear reader, be able to make on your own? The answer is none. So then where did all these things that make life so comfortable come from?
Dylan Grice answers this question in the latest issue (dated March 11, 2013) of the Edelweiss Journal. “So where did it all come from? Strangers, basically. You don’t know them and they don’t know you. In fact virtually none of us know each other. Nevertheless, strangers somehow pooled their skills, their experience and their expertise so as to conceive, design, manufacture and distribute whatever you are looking at right now so that it could be right there right now.”
Estimates suggest that cities like London and New York offer ten billion distinct kinds of products. So what makes this possible? “Exchange. To be able to consume the skills of these strangers, you must sell yours,” writes Grice. It is impossible for a single human being to even make something as simple as a toaster from scratch. But when many people specialise in their respective areas and develop certain skills, only then does a product as simple as a toaster become possible.
Let me take my example. I sell my writing skills. With the compensation that I get I buy goods and services that I need for my existence. From something as basic as food, water and electricity, which I need to survive or comforts like buying a washing machine to wash clothes, a refrigerator so that I don’t need to cook on a day to day basis, hiring a taxi to travel in or catching the latest movie at the local multiplex.
At the heart of any exchange is trust. As Grice puts it “we must also understand that exchange is only possible to the extent that people trust each other: when eating in a restaurant we trust the chef not to put things in our food; when hiring a builder we trust him to build a wall which won’t fall down; when we book a flight we entrust our lives and the lives of our families to complete strangers.”
So for any exchange to happen, there needs to be trust. But trust is not the only thing that facilitates exchange. There is another important ingredient. And that is money.
Money has been thoroughly abused all over the world in the aftermath of the financial crisis which broke out officially in September 2008. Central banks egged on by governments all over the world have printed money, in an effort to revive their respective economies. The idea being that with more money in the financial system, banks will lend more which will lead to people spending more and that will help revive the economy.
But all this comes with a cost. “So when central banks play the games with money of which they are so fond, we wonder if they realize that they are also playing games with social bonding. Do they realize that by devaluing money they are devaluing society?” asks Grice.
Allow me to explain. In the aftermath of the financial crisis, government expenditure all over the world has shot up dramatically. This expenditure could have been met by raising taxes. But when economies are slowing down this isn’t the most prudent thing to do. The next option was to borrow money. But there was only so much money that could be borrowed. So the governments utilised the third possible option. They got their central banks to print money. Central banks used this printed money to buy government bonds. Thus the governments could meet their increased expenditure.
When a government increases tax to meet its expenditure, everyone knows who is paying for it. It’s the taxpayer. But the answer is not so simple when the government meets its expenditure by printing money. As Grice puts it “When the government raises revenue by selling bonds to the central bank, which has financed its purchases with printed money, no one knows who ultimately pays.”
But then that doesn’t mean that nobody pays.
With the central bank printing money, the money supply in the financial system goes up. And this benefits those who are closest to the “new” money. Richard Cantillon, a contemporary of Adam Smith, explained this in the context of gold and silver coming into Spain from what was then called the New World (now South America).
As he wrote: “If the increase of actual money comes from mines of gold or silver… the owner of these mines, the adventurers, the smelters, refiners, and all the other workers will increase their expenditures in proportion to their gains.” These individuals would end up with a greater amount of gold and silver, which was used as money, back then. This money they would spend and thus drive up the prices of meat, wine, wool, wheat etc. This rise in prices would impact even people not associated with the mining industry even though they wouldn’t have seen a rise in their incomes like the people associated with the mining industry had.
So is this applicable in the present day context? The money printing that has happened in recent years has benefited those who are closest to the money creation. This basically means the financial sector and anyone who has access to cheap credit. Institutional investors have been able to raise money at close to zero percent interest rates and invest them in all kinds of assets all over the world. As Ruchir Sharma writes in Breakout Nations – In Pursuit of the Next Economic Miracles:
“What is apparent that central banks can print all the money they want, they can’t dictate where it goes. This time around, much of that money has flown into speculative oil futures, luxury real estate in major financial capitals, and other non productive investments…The hype has created a new industry that turns commodities into financial products that can be traded like stocks. Oil, wheat, and platinum used to be sold primarily as raw materials, and now they are sold largely as speculative investments.”
While financial investors benefit, the common man ends up paying more for the goods and services that he buys, something that is not always captured in the inflation number. As Grice puts it: “So now we know we have a slightly better understanding of who pays: whoever is furthest away from the newly created money. And we have a better understanding of how they pay: through a reduction in their own spending power. The problem is that while they will be acutely aware of the reduction in their own spending power, they will be less aware of why their spending power has declined. So if they find groceries becoming more expensive they blame the retailers for raising prices; if they find petrol unaffordable, they blame the oil companies; if they find rents too expensive they blame landlords, and so on. So now we see the mechanism by which debasing money debases trust. The unaware victims of this accidental redistribution don’t know who the enemy is, so they create an enemy.”
And people all over the world are doing a thoroughly good job of creating “enemies”. “The 99% blame the 1%; the 1% blame the 47%. In the aftermath of the Eurozone’s own credit bubbles, the Germans blame the Greeks. The Greeks round on the foreigners. The Catalans blame the Castilians. And as 25% of the Italian electorate vote for a professional comedian whose party slogan “vaffa” means roughly “f**k off ” (to everything it seems, including the common currency), the Germans are repatriating their gold from New York and Paris. Meanwhile in China, that centrally planned mother of all credit inflations, popular anger is being directed at Japan.”
This is only going to increase in the days and years to come. As Grice writes in a report titled Memo to Central Banks: You’re debasing more than our currency (October 12, 2012) “History is replete with Great Disorders in which social cohesion has been undermined by currency debasements…Yet central banks continue down the same route. The writing is on the wall. Further debasement of money will cause further debasement of society. I fear a Great Disorder.”
The article originally appeared on www.firstpost.com on March 21, 2013
Vivek Kaul is a writer. He tweets @kaul_vivek