Five Minute Refresher – Is This Deal Necessary? How to Know To Say "No" to Bad Offers | Professor Freeman
When you see business leaders announcing a big deal on TV, the chances are excellent that you are witnessing a disaster in the making. In fact, many deals you read about (and do?) may be mistakes. How can this be, and what can you do to intentionally avoid bad ones? ^^
Even top business negotiators routinely enter bad deals. The evidence is clear, for example, that most mergers fail. Research by KPMG* suggests that only 17% of all mergers added value, while 53% actually destroyed shareholder value. KPMG also found shareholders lose out in more than 80% of all cross-border mergers. Booze Allen & Hamilton**, McKinsey***, and other consulting firms have reached similar findings.
Why do so many mergers fail? One contributing factor, I suspect, is that conflicts of interests are often at work, producing deals that should never have happened in the first place. When mergers go through, advisors profit and CEOs increase their dominions, their compensation, and stature.
More generally, though, bad deals happen because we all feel that agreement is good and disagreement is bad.
The failure of most mergers implies that getting to yes may be a terrible idea, and that ‘no’ may be a good answer. As Gavin Kennedy, an expert on negotiation, puts it, “as many companies go bust because they negotiate unprofitable agreements as go bust because they cannot find enough customers.” Inc. Magazine highlights the point vividly in a memorable article you can read on-line called: “Just Say No: Why not all business is good business: seven CEOs on the sales they refused to make, plus 20 good reasons to think twice before closing a deal.****
To know whether ‘getting to yes’ is wise, ask yourself these questions –
1. Does this deal satisfy my interests (and the other person’s)?
2. Does it satisfy my interests better than my Best Alternative to a Negotiated
Agreement does?
3. Is the deal free of Time Bombs- that is, serious, foreseeable problems that may well arise later?
4. How close is the deal to your best targets, or, as my students call them, ‘Louis numbers’?
5. Do objective criteria confirm the deal is fair?
Time bombs are a particularly important problem to watch for. For more information on how to spot time bombs, check my website http://www.betternegotiating.com. Click on “Articles” and look for the article on “Spotting Time Bombs with the WIN LOSE mnemonic.”
________________________________________________________
*http://news.bbc.co.uk/1/hi/business/542163.stm.
**http://www.boozallen.de/content/downloads/viewpoints/5K_merger_integration.pdf
***http://www.mckinseyquarterly.com/article_abstract.aspx?ar=1113&L2=5
****http://www.inc.com/magazine/19960401/1621.html