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Company MergeA school of behavioral economists has long argued that when it comes to money, people are incapable of acting in their own best interest — that decisions result from impulse and overconfidence as much as from reason. Smart folks, in other words, are just as likely to soon part with their money as all those fools.The truly bad news is that smart companies are just as prone to make terrible decisions for the same reason. Take one of the biggest business decisions of all —merger. Research consistently shows that most mergers fail in every sense of the word, from falling stock prices to lower profitability after the merger. Yet, even with suffering capital markets, a recent Hewitt Associates study found that more than half of the 70 senior executives and board members surveyed planned to step up merger activity during the next three years.Why? Call it executive hubris. CEOs are not different from the rest of us in that they fall prey to the self-enhancement bias: we all like to think we are intelligent and efficacious. So we overestimate our abilities. That’s why studies show that significantly more than half of all people believe they are above average — in negotiating ability, even in income. This overly optimistic view is, of course, worse for CEOs — after all, they generally are way above average. But the result is the same: bad decisions. One study, by business school professors Matthew Hayward and Donald Hambrick, showed that the greater the hubris of the chief executive, the more a company tends to overpay for acquisitions.The aphorism “Pride goeth before a fall” seems to hold true in business too. When executives are confronted with the appalling statistics, their first response goes something like this: “That may happen to other companies, but not ours. This acquisition will be more successful. We have learned.”The next CEO challenge is persuading a possibly recalcitrant board of directors to let you pursue your urge to merge. Hubris, again, returns to center stage. You paint a picture of doom and gloom that will result if you don’t merge. Take a look at one of the rationales given for the merger of Hewlett-Packard and Compaq, two companies with poor operating track records. The argument was that PCs were becoming a commodity industry, consolidation was inevitable, and if HP didn’t do the consolidating, it would soon be one of the consolidated. Here’s another variant of the same rationale: If you don’t buy the target company, your competitor will — and you’ll lose out. This gambit uses the influence strategy of scarcity — we want what we can’t have, and we find particularly desirable anything that we may lose to someone else.Here’s how to avoid hubris-fueled merger mama. First, follow the adage from medicine: Forgive and remember. Go back and evaluate past merger decisions, admit when you were wrong, figure out why, and learn from it.Second, beware of too much agreement in the boardroom. When Alfred Sloan ran General Motors, if he couldn’t find opposition to a decision, he’d postpone it. He interpreted a lack of dissent as a lack of analysis. Find, even encourage, people to disagree with you, so that all sides of the decision are examined. Mostly, we like those who agree with us. But as one of my colleagues likes to point out, if two people agree all the time, one of them is redundant.The urge to merge is still like an addiction in many companies: Doing deals is much more fun and interesting than fixing fundamental problems. So, as in dealing with any other addiction or temptation, maybe it is best to just say no.2. The writer says that as far as merger is concerned, ____
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Company MergeA school of behavioral economists has long argued that when it comes to money, people are incapable of acting in their own best interest — that decisions result from impulse and overconfidence as much as from reason. Smart folks, in other words, are just as likely to soon part with their money as all those fools.The truly bad news is that smart companies are just as prone to make terrible decisions for the same reason. Take one of the biggest business decisions of all —merger. Research consistently shows that most mergers fail in every sense of the word, from falling stock prices to lower profitability after the merger. Yet, even with suffering capital markets, a recent Hewitt Associates study found that more than half of the 70 senior executives and board members surveyed planned to step up merger activity during the next three years.Why? Call it executive hubris. CEOs are not different from the rest of us in that they fall prey to the self-enhancement bias: we all like to think we are intelligent and efficacious. So we overestimate our abilities. That’s why studies show that significantly more than half of all people believe they are above average — in negotiating ability, even in income. This overly optimistic view is, of course, worse for CEOs — after all, they generally are way above average. But the result is the same: bad decisions. One study, by business school professors Matthew Hayward and Donald Hambrick, showed that the greater the hubris of the chief executive, the more a company tends to overpay for acquisitions.The aphorism “Pride goeth before a fall” seems to hold true in business too. When executives are confronted with the appalling statistics, their first response goes something like this: “That may happen to other companies, but not ours. This acquisition will be more successful. We have learned.”The next CEO challenge is persuading a possibly recalcitrant board of directors to let you pursue your urge to merge. Hubris, again, returns to center stage. You paint a picture of doom and gloom that will result if you don’t merge. Take a look at one of the rationales given for the merger of Hewlett-Packard and Compaq, two companies with poor operating track records. The argument was that PCs were becoming a commodity industry, consolidation was inevitable, and if HP didn’t do the consolidating, it would soon be one of the consolidated. Here’s another variant of the same rationale: If you don’t buy the target company, your competitor will — and you’ll lose out. This gambit uses the influence strategy of scarcity — we want what we can’t have, and we find particularly desirable anything that we may lose to someone else.Here’s how to avoid hubris-fueled merger mama. First, follow the adage from medicine: Forgive and remember. Go back and evaluate past merger decisions, admit when you were wrong, figure out why, and learn from it.Second, beware of too much agreement in the boardroom. When Alfred Sloan ran General Motors, if he couldn’t find opposition to a decision, he’d postpone it. He interpreted a lack of dissent as a lack of analysis. Find, even encourage, people to disagree with you, so that all sides of the decision are examined. Mostly, we like those who agree with us. But as one of my colleagues likes to point out, if two people agree all the time, one of them is redundant.The urge to merge is still like an addiction in many companies: Doing deals is much more fun and interesting than fixing fundamental problems. So, as in dealing with any other addiction or temptation, maybe it is best to just say no.1. What is the argument in the first paragraph about earning money?
The Negotiating TableYou can negotiate virtually anything Projects, resources, expectations and deadlines are all outcomes of negotiation. Some people negotiate deals for living. Some people negotiate deals for a living. Dr. Herb Cohen is one of these professional talkers called in by companies to negotiate on their behalf. He approaches the art of negotiation as a game because, as he is usually negotiating for somebody else, he says this helps him drain the emotional content from his conversation. He is working in a competitive field and needs to avoid being too adversarial. Whether he succeeds or not, it is important to him to make a good impression so that people will recommend him.The starting point for any deal, he believes, is to identify exactly what you want from each other. More often than one party will be trying to persuade the other round to their point of view. Negotiation requires two people at the end saying ’yes’. This can be a problem because one of them usually begins by saying ‘no’. however, although this can make talks more difficult, this is often just a starting point in the negotiation game. Top management may well reject the idea initially because it is the safer option but they would not be there if they were not interested.It is a misconception that skilled negotiators are smooth operators in smart suits. Dr. Cohen says that one of his strategies is to dress down as that the other side can relate to you. Pitch your look to suit your customer. You do not need to make them feel better than you but, for example, dressing in a style that is novelty, expensive or successful will make you more approachable. People will generally feel more comfortable with somebody who appears to be like them rather than superior to them. They may not like you but they will feel they can trust you.Dr. Cohen suggests that the best way to sell your proposal is by getting into the world of the other side. Ask questions rather than give answers and take an interest in what the other person is saying, even if you think what they are saying is silly. You do not need to become their best friend but being too clever will alienate them. A lot of deals are made on impressions. Do not rush what you are saying – put a few hesitations in, do not trying to blind them with your verbal dexterity. Also, you should repeat back to them what they have said to show you take them seriously.Inevitably some deals will not succeed. Generally the longer the negotiations go on, the better chance they have because people do not want to think their investment and energies have gone to waste. However, joint venture can mean joint risk and sometimes, if this becomes too great, neither party may be prepared to see the deal through. More common is a corporate culture clash between companies, which can put paid to any deal. Even having agreed a deal, things may not be tied up quickly because when the lawyers get involved, everything gets slowed down as they argue about small details.Dr. Cohen thinks that children are the masters of negotiation. Their goals are totally selfish. They understand the decision-making process within families perfectly. If Mum refuse their request, they will troop along to Dad and pressurize him. If all else fails, they will try the grandparents, using some emotional blackmail. They can also be very single-minded and have an inexhaustible supply of energy for the cause they are pursuing. So there are lessons to be learned from watching and listening to children.5. Dr. Cohen mentions children’s negotiation techniques to show that you should
The Negotiating TableYou can negotiate virtually anything Projects, resources, expectations and deadlines are all outcomes of negotiation. Some people negotiate deals for living. Some people negotiate deals for a living. Dr. Herb Cohen is one of these professional talkers called in by companies to negotiate on their behalf. He approaches the art of negotiation as a game because, as he is usually negotiating for somebody else, he says this helps him drain the emotional content from his conversation. He is working in a competitive field and needs to avoid being too adversarial. Whether he succeeds or not, it is important to him to make a good impression so that people will recommend him.The starting point for any deal, he believes, is to identify exactly what you want from each other. More often than one party will be trying to persuade the other round to their point of view. Negotiation requires two people at the end saying ’yes’. This can be a problem because one of them usually begins by saying ‘no’. however, although this can make talks more difficult, this is often just a starting point in the negotiation game. Top management may well reject the idea initially because it is the safer option but they would not be there if they were not interested.It is a misconception that skilled negotiators are smooth operators in smart suits. Dr. Cohen says that one of his strategies is to dress down as that the other side can relate to you. Pitch your look to suit your customer. You do not need to make them feel better than you but, for example, dressing in a style that is novelty, expensive or successful will make you more approachable. People will generally feel more comfortable with somebody who appears to be like them rather than superior to them. They may not like you but they will feel they can trust you.Dr. Cohen suggests that the best way to sell your proposal is by getting into the world of the other side. Ask questions rather than give answers and take an interest in what the other person is saying, even if you think what they are saying is silly. You do not need to become their best friend but being too clever will alienate them. A lot of deals are made on impressions. Do not rush what you are saying – put a few hesitations in, do not trying to blind them with your verbal dexterity. Also, you should repeat back to them what they have said to show you take them seriously.Inevitably some deals will not succeed. Generally the longer the negotiations go on, the better chance they have because people do not want to think their investment and energies have gone to waste. However, joint venture can mean joint risk and sometimes, if this becomes too great, neither party may be prepared to see the deal through. More common is a corporate culture clash between companies, which can put paid to any deal. Even having agreed a deal, things may not be tied up quickly because when the lawyers get involved, everything gets slowed down as they argue about small details.Dr. Cohen thinks that children are the masters of negotiation. Their goals are totally selfish. They understand the decision-making process within families perfectly. If Mum refuse their request, they will troop along to Dad and pressurize him. If all else fails, they will try the grandparents, using some emotional blackmail. They can also be very single-minded and have an inexhaustible supply of energy for the cause they are pursuing. So there are lessons to be learned from watching and listening to children.4. Deals sometimes fail because
The Negotiating TableYou can negotiate virtually anything Projects, resources, expectations and deadlines are all outcomes of negotiation. Some people negotiate deals for living. Some people negotiate deals for a living. Dr. Herb Cohen is one of these professional talkers called in by companies to negotiate on their behalf. He approaches the art of negotiation as a game because, as he is usually negotiating for somebody else, he says this helps him drain the emotional content from his conversation. He is working in a competitive field and needs to avoid being too adversarial. Whether he succeeds or not, it is important to him to make a good impression so that people will recommend him.The starting point for any deal, he believes, is to identify exactly what you want from each other. More often than one party will be trying to persuade the other round to their point of view. Negotiation requires two people at the end saying ’yes’. This can be a problem because one of them usually begins by saying ‘no’. however, although this can make talks more difficult, this is often just a starting point in the negotiation game. Top management may well reject the idea initially because it is the safer option but they would not be there if they were not interested.It is a misconception that skilled negotiators are smooth operators in smart suits. Dr. Cohen says that one of his strategies is to dress down as that the other side can relate to you. Pitch your look to suit your customer. You do not need to make them feel better than you but, for example, dressing in a style that is novelty, expensive or successful will make you more approachable. People will generally feel more comfortable with somebody who appears to be like them rather than superior to them. They may not like you but they will feel they can trust you.Dr. Cohen suggests that the best way to sell your proposal is by getting into the world of the other side. Ask questions rather than give answers and take an interest in what the other person is saying, even if you think what they are saying is silly. You do not need to become their best friend but being too clever will alienate them. A lot of deals are made on impressions. Do not rush what you are saying – put a few hesitations in, do not trying to blind them with your verbal dexterity. Also, you should repeat back to them what they have said to show you take them seriously.Inevitably some deals will not succeed. Generally the longer the negotiations go on, the better chance they have because people do not want to think their investment and energies have gone to waste. However, joint venture can mean joint risk and sometimes, if this becomes too great, neither party may be prepared to see the deal through. More common is a corporate culture clash between companies, which can put paid to any deal. Even having agreed a deal, things may not be tied up quickly because when the lawyers get involved, everything gets slowed down as they argue about small details.Dr. Cohen thinks that children are the masters of negotiation. Their goals are totally selfish. They understand the decision-making process within families perfectly. If Mum refuse their request, they will troop along to Dad and pressurize him. If all else fails, they will try the grandparents, using some emotional blackmail. They can also be very single-minded and have an inexhaustible supply of energy for the cause they are pursuing. So there are lessons to be learned from watching and listening to children.3.According to Dr. Cohen, understanding the other person will help you to
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