Dan Erwin

Making Better Decisions: Egocentrism

Few execs have impressed me as much as the COO of a major firm who told his team of VPs this: "The decision we've got to make will not help my career an iota.  I might even lose my job as a result. But it's the right decision to make for our business."

In contrast to that COO, it's very difficult for any of us to escape egocentrism.  We tend to read situations, build perceptions and create expecations from our own personal bias.  We make decisions in our behalf.  In short, it's utterly human to be biased in our favor.

A US News and World Report from January 30, 2005, had these survey results:

Question: "If someone sues you and you win the case, should he pay your legal costs?"                --85% answered yes.

Question: "If you sue someone and lose the case, should you pay his costs?"                    --44% answered yes

Again, as Max Bazerman points out, it's difficult for any of us to escape egocentrism.  When you're negotiating, typically you first decide on a certain interpretation, belief or outcome that will benefit you--and make you feel good.  Then you decide on ways to justify this decision.  So when people are faced with the possibility of having someone else pay their court costs, they're liable to argue it's fair.  It discourages frivolous lawsuits and ensures that only the guilty party suffers.

It's a different story when you're suing and losing the case.  Then, far fewer think it's fair for the one who sued and lost to pay court costs.  The bias of egocentrism applies to all kinds of decisions, personal and organizational. 

What's the best way to overcome egocentrism?  The starting point is to become aware of it, and try to correct it.  I was intrigued that when Judge Sotomayor faced questioning about her bias, among the first things she declared was the necessity of identifying and setting aside one's bias in order to make more legally accurate judgments.

Personal bias can be very costly.  We can lose friendships and even our business over it.  The attempt to look at our decisions more fairly--with less bias--leads to greater efficiency and success over the long haul.

Gen-Y Skill: How to Haggle (Part 3)

If you want to get good at saving yourself a few bucks at a time, you will need to become far more scientific at the process.  Assessing the other party's alternatives is just as important as exploring your own.  Both of these steps should be very analytical and scientific. Just twenty-five years ago, courses on haggling were rarely taught in management schools.  According to Max Bazerman, who's tops in the field, negotiation is one of the most sought-after courses in business schools.  Negotiation is the best way to manage those inevitable conflicts in business and life.  For simplicity sake, I think of haggling as a sub-discipline of negotiation.  Negotiation as a bit more complex and comprises a larger skill base for such things as legal difficulties, contracts, or vendor relationships.    

The conventional wisdom is that haggling is a gift.  Some have it and some don't.  Nahhhh.  Haggling like any other competency is learned, not innate.  And there's plenty of research showing you can improve those skills with some training or coaching.

In my previous post I talked about exploring your alternatives when you have an opportunity pop up on the radar screen.  In this post, I want to flip this discussion from my alternatives to the other party's alternatives.

In the last post I told about making a few bucks off the sale price of Walleye, a fish I really love.  I was at the up-scale grocery and saw the fish on sale for $15.99 and decided that it might be a real opportunity for me.  Since I buy it when the price isn't sky-high, I knew that it usually sold upwards of $20--say, $17.99 or 18.99.  Quickly, I thought through the butcher's BATNA (best alternative to a negotiated sale).  What will he do if he can't close a sale with me or other shoppers?  There were customers buying fish, but I didn't see anyone buying the fresh Walleye which was stacked pretty high.  Furthermore, he'd engaged in a dumb marketing move:  he had Atlantic salmon on sale for $7.99 a pound.  Why would anyone pay for the Walleye when she could have perfectly good salmon at less than half the price of Walleye.  Furthermore, fresh Walleye has short shelf-life.  I walked away to do a bit more shopping so I could analyze my butcher's alternatives.  The only info lacking was how much Walleye he had to sell.  That was easy.  I walked back to the butcher and said that it looked like he had an awful lot of Walleye.  He fell into my trap and told me that he had a lot.

So how did I analyze my butcher's alternatives?  I checked the foot traffic, assessed the amount he had to sell, noted that Salmon was successfully competing with Walleye, and decided that if he couldn't sell it all, he'd have to toss it.

That was my assessment of his alternatives.  Evidently they were accurate, and as my previous post revealed, I bought ten pounds of Walleye at $14.85--a figure below his sale price, instead of one pound at $15.99.

Another tidbit: Consumer Reports notes that inventory tags often tell how long an item has been on the shelves.  Salespeople will be more willing to haggle if the merchandise has been sitting there for a long time.

Exploring your own alternatives and the other's are the first two steps to successful haggling.  It's always easier to learn the skill if you start out with small potatoes.  It'll take time to learn it before you'll be ready to negotiate for a new car, house or mortage interest reduction.  I suggest you need 10 to 15 successes in ordinary haggling before you move on to the big issues.  You need to get used to how the other guy is going to push back on you and how you're going to respond.

Why Do Students Drop Out of College?

I've been working on a "contrarian" paper for how to select a college--for a guest post on emergingtiro.com--recognizing all the while that as a result of the banking industry and our tendency to think about value in terms of money, my perspective is going to have tough sledding.  I decided, without research, that whether or not a kid finishes college is tied more to family values than money. 

Along comes David Brooks who reframes my notion, far better.  Here's what he has to say:

I’ve had this discussion with my liberal friends a thousand times, and I have come to accept that they will never wrap their minds around the truth: lack of student aid is not the major reason students drop out of college. They drop out because they are academically unprepared or emotionally disengaged or because they lack self-discipline or because bad things are happening at home.

I checked out Brooks' idea with a liberal friend and he's quite correct.  Not that a sample of one proves much, but she couldn't get her mind around his notion. 

I have a lot invested in this.  I dropped out, or was it "kicked out," after my first year of college.  It was, clearly, lack of self-discipline and bad things at home, so it took a few years to get my "stuff" together. (You'll notice from my bio that I got it together.)

I'm wondering.  Why do you think students drop out of college?

Gen-Y Skill: How to Haggle (Part 2)

Explore your alternatives.

If you've decided that now is the time to save some money, learn how to haggle, and that you'd be willing to think of yourself as a "haggler," the next step is to explore your haggling opportunities.  In my previous post, I emphasized that haggling is just a form of negotiation and that it's a serious discipline supported by great research from some of the best org behavior people.  The July/August issue of Negotiation reminds its readers that haggling is both an art and a science.  Building upon the article, in this post I intend to lay out some of the science.

Let's suppose that your TV is on the edge of breakdown, and you'd like to get a replacement.  Before you march into your neighborhood electronics dealer, do the same kind of research you would if you were looking for a new car or a new house.  If you're in the market for a new HDTV, you're talking big bucks.  So you want to avoid being unduly influenced by your recollection of past experiences and end up paying the full price.

FYI: Research shows that we tend to make decisions such as what we'll pay for an object, based on our memory of previous experiences.  Our memory, however is inappropriately influenced by the vividness of a past experience or the ease with which we remember an experience.  This is known as the availability heuristic.  A heuristic is a technique we've developed over time to resolve problems.  People use a variety of types of heuristics.  The mortgage banker is again following the technique, after this financial mess, that people shouldn't spend more than 35% of their income for house expenses.  The poker player follows the heuristic "never play for an inside straight."  Memory is not a trustworthy technique or heuristic for deciding what you'll pay for an object. 

The first scientific step is to begin with a thorough evaluation of your BATNA, the best alternative to a negotiated agreement--the "action you'll take if a particular negotiation ends in impasse."  BATNA is common negotiation-speak, so if you're going to earn an MBA, find yourself hiring vendors for your firm, or becoming a contracts negotiator, you might as well get familiar with it.

In the case of your HDTV, your BATNA might be a low, no-haggle price from Amazon or NexTag.  Just knowing your options and what you'll do if you can't get a good deal will give you bargaining power with your electronics dealer.  Your BATNA also helps you calculate what's called your "reservation price"--the highest price you'd be willing to pay for that HDTV.  

Let's suppose you'd like a 42" Panasonic HDTV that is selling for about $950, and Amazon is selling the same TV for $865 on a sale that will end the next day.  For simplicity sake, let's ignore taxes.  Amazon will deliver at no-cost, but it will be eight to ten days before you can get it.  The Amazon price is your BATNA.  But what's it worth to take the TV home the same day of purchase?  You decide you're willing to pay $50 above the Amazon price and not having to worry about shipping it back if you don't like it.  Your reservation price, then, is $865 plus $50, or $915.   

Some opportunities pop up on the fly.  My wife and I love fish, especially Walleye, which at the top store usually costs upwards of $20 a pound.   In April I was doing some shopping, noticed that Walleye was selling for $15.99 a pound and that it was stacked high in the display case.  I commented to the butcher that it looked like there was a run on Walleye.  He agreed and said that he had plenty.  I did some instantaneous calculating, decided my BATNA was one pound.  My reservation price was $15 a pound.  I told him that I was going to buy a pound, but that if he would give me a deal, I'd buy more.  I said that I'd buy 10 pounds (wrapped in half pound packages for freezing) and give him $14.85 a pound.  (It's a recession and people aren't usually buying expensive meat or fish, even in the best stores.)  He got out his pencil, figured something, and said it was a deal.  Better a lower price than spoiling fish.  Figure it out.  I got the best fish a Minnesotan can eat below the sale price, and kept an additional $11.40.  

As I walked away to finish my shopping while the butcher wrapped my fish, a woman stopped me and asked, "How'd you do that?"  Just smarts, I grinned.        

When a Gen-Yer Manages Gen-Yers

A recent post on Brazen Careerist discussed one of the first issues every new Gen-Y manager faces: how do you manage someone your own age or someone who is a friend?  

The insightful comments that followed the post reveal the kind of motivation and commitment every executive wants in his/her managers.  They demonstrate the kind of personal wrestling with new responsibility that makes for success.  Taken together, the comments read like the frustrations of a new manager from any generation.  But here's what Gen-Yers have to say:

• We're not used to having someone our own age being in charge of us.
• Gen-Yers don't take work as seriously as they should.  Too often deadlines are missed or opportunities are not taken because Gen-Yers don't have the drive they should.
• It's great that many Gen-Yers approach me as a friend.  Befriending one another makes the boss more approachable and more respected.
• Maybe a little formality between boss and report is necessary.
• How do you think Gen Y will do managing Gen X or Boomers?
• I don't believe in looking down at your employees and I also don't like to be strongly authoritative.
• It's hard to tell someone your own age he needs to be a little more responsible and proactive with his job issues.

When I analyzed these comments, I found that they are all focused on one issue: what relationship between manager and subordinate will be most productive? 

The best way to deal with these issues is through the use of a "relationship format."  Most Gen-Yers are familiar with digital formats on which you store, discover or deliver information.  Excel, for example, is a format that enables users to plug in information and come up with specific outcomes.  A relationship format builds on the same principle.    

The objective of this work-relationship format is to enable a manager and subordinate to work together most effectively.  Although a manager can initiate the process, it works better when the subordinate initiates and manages the format.  That way the conversation becomes an act of self-advocacy and tells the manager that he or she intends to make the relationship work.  The process was spelled out by Ed Schein of MIT more than twenty-five years ago.  (It's a tragedy that it has not been widely disseminated.) 

Remember that the basic task between manager and subordinate is to build a relationship and establish an emotional climate that facilitates getting things done effectively, and provides a set of agreed-upon relationships that support decision making and business.  The questions asked by Gen-Yers need to be answered by each manager.  The answers may change over the years, but the answers need to be mutually agreed upon.  The conversational format normally includes answers to the following:

• How will we set mutually shared goals?
• How will we go about solving problems?
• How will we make decisions?
• How will we ensure follow-through and completion of tasks?
• How will we keep our lines of communication open?
• How will we manage our differences?

If you don't know each other very well, you may want to begin with a conversation about the first question.  Set up a 45 minute appointment and start talking.  It might sound like this: "I've not worked with you as a manager, and I'd like for our relationship to be a success.  Can we talk about project goals?  Do you prefer to talk big picture, or are you more analytical and prefer to start out our relationship with work tactics?  I'm comfortable either way." 

Make certain that over the next few weeks you consider all of the issues. . . take notes, and follow through on the decisions.  Managers consistently love the process.  One of the most typical comments from both both subordinates and managers is, "Wow, is that useful.  It saves hours and hours and prevents all kinds of breakdowns.  I can work with this guy."  

This format, supported by protocols and scripts, is a proven step-by-step strategy for gaining a particular response--techniques that can be used to resolve recurring issues.  In the near future, I'll lay out some of the typical issues that come up and provide you with actual protocols and scripts to deal with them.

FYI:  Brain scientists have recently researched the actual impact of such techniques as protocols and scripts on brain development.  They've found that every technique or skill we develop exists as a circuit in the brain.  In the language of scientists, "experience-expectant processes" are teed up and waiting to create skill circuits.  A "skill has to be formed and optimized," but circuits are available and waiting to lock onto those skills that are in the development stage.  Technique development, the practicing and repeating of a skill initiates an expertise circuit.  The effect is further development of your brainpower and your work expertise.

 

Gen-Y Skill: How to Haggle (Part 1)

Negotiation, the monthly newsletter put out by the Program on Negotiation at Harvard Law School, has a fascinating article on the science and art of haggling in its August issue.  Haggling and bartering were a bit of my family heritage, what with a father who was a Southern horse trader (on the side) and who also loved haggling with Detroit ethnics during the 1930's and 1940's.  Although a number of my college friends viewed haggling as offensive, I thought their views were nutty.  When they saw what could be done, they asked for help.  My basic haggling rule follows the ubiquitous book title:  Everything is Negotiable.

In some cultures haggling has a long tradition in the markets and bazaars and so it inevitably flows into the bricks and mortar stores.  Some cultures assume that only fools pay the full price on anything.  Growing up in Detroit, I learned that some first generation immigrants and their children--Greeks, Jews, Chalcedonian Christians, Armenians and Lebanese Americans--took haggling for granted.  With the influx of East Indians, I've learned that some of them are geniuses at haggling. 

If you fail to haggle in this economy, you're passing up real chances to save money.  This is a true buyer's market, so just about everything is up for grabs, even, to my surprise, some meat at the supermarket as well as my recent auto check-up.  ($30 off a $180 bill is $30!) 

A May 2009 Consumer Reports poll found that 66% of Americans had tried to negotiate discounts in the previous six months.  Of these hagglers, 83% succeeded in getting lower hotel rates, 81% got better deals on clothing and cell phone service, 71% negotiated cheaper eletronics and furniture, and 62% lowered their credit-card fees.  I make it a rule to haggle over my cable and cell phone bills at least every two years.  Since I use a hotel one or two nites a month, I call the day before I leave and "double-check the fee" and usually get it lowered or some amenity.

So, Gen-Yers, that May Consumer Reports suggests you could save considerable cash by negotiating in the following realms:

• Hotel rates and airfare
• Phone, internet, and cable-TV
• Credit-card interest rates and fees
• Clothing and jewelry
• Furniture, electronics, and appliances
• Medical and dental bills
• Lease renewals
• College tuition
• Existing mortgages and other loans

I'll pump out several posts on the art and science of haggling over the next few weeks.  The academics have researched the sox off the practice of negotiation over the past ten years.  Here's another rule: don't pay any attention to negotiation strategies unless there is research supporting them.  This is a field that seems to attract quacks.  So, I'll happily share the research findings and talk about some relevant experiences.  Stay tuned.

When Men AND Women Make the Decision: The Death of Macho

Larry Summers, the former president of Harvard, learned three years ago that generalizing about the differences between men and women is like sticking your arm into a blender.  As Valerie Hudson puts it in the July/August issue of Foreign Policy, the issue is just too rife with controversy, contradictory data, deep-seated emotion, sundry fears, and political agendas of all kinds.  But the financial meltdown of the hypermasculine finance industry is just another signal, like that from the Harvard women, that men are not going to rule the world much longer.

Take a look at the statistics.  The recession has become known to some economists as the "he-cession."  More than 80% of the job losses have fallen on men in the U.S.  And the numbers are similar in Europe.  Even more serious, men are consistently falling behind in gaining the educational credentials necessary for success in the knowledge-based economies that "will rule the post-recession world."  In the near future, there will be three women graduating from college for every two men, and a similarly uneven outlook in the rest of the developed world.   What this means is that "Macho run amok and excessively compensated is now giving way to macho unemployed and undirected."  The machos of Goldman Sachs and JP Morgan don't fit in this category, but they represent a miniscule percentage of the macho population.

So what's the upside of the demise of American macho?  Recent research demonstrates clearly that when males and females make joint decisions, all participants are more satisfied with the outcome than when it is a sole male decision.  Additional studies show than when there is male/female collaboration, the levels of government corruption are lowered.  In addition, meaningful sharing of power in a corporation or in society may well be a prerequisite for the best kind of policymaking.  Those are intriguing positives.

And the downside?  Women tend to be more risk-averse than men, and when decisions are collegial, that orientation may become paramount.  There is little doubt that the new economy requires significant levels of risk in order to achieve success.  Collegial decision-making bears watching when it comes to priorities such as risk, creativity and innovation.  Organizations as well as the nation cannot afford business or society without innovation. 

I wonder what experiences you've had with male/female decisionmaking.  Does the research ring true?  What conclusions have you drawn.    

Quotation of the Week: David Brooks

Individuals aren’t formed before they enter society. Individuals are created by social interaction.

                --David Brooks

Gen-Y Squishy Skill #3: Adventurous

Sue Shellenbarger's WSJournal column, Raising Kids Who Can Thrive Amid Chaos in Their Careers, drives home a great deal of realism about the 21st century job market:  hot jobs for 2001 have already vanished.  Although the recession of 2008-2009 was driven by the finance industry, in a real sense it is the supreme announcement that the industrial age is over. 

The metaphor of the industrial age was the assembly line: tangible, concrete and stable.  Employees were hired for a specific task or job: drop in that engine, screw in this widget and polish that door.  Employees could count on salary, healthcare and pension.  The primary executive position was manager which reinforced control and order.  Permanence and stability were the primary characteristics of that world. 

On Tuesday I was in Detroit and as I drove north through Hamtramck, where Polish immigrants once worked in the Chrysler plant, and Highland Park, where Henry Ford built his first assembly line, evidence for the implosion of that world is obvious.  Once beautiful, busy manufacturing plants were closed, the windows knocked out, paint chipping, rust everywhere and workforce nowhere to be seen.  The assembly line has imploded and we're looking for another metaphor to explain the 21st century.  It's no longer possible to count on salary, healthcare or pension.  The new economy is searching for people who know how to learn and leaders who can inspire. 

In this new world, the ability to adapt to any situation and imagine new situations--the entrepreneurial task--will be rewarded.  You will also need to be adventurous.  Curiosity, the drive to know new things, and the fuel of science and innovation is an imperative.

To be adventurous assumes that you'll be exploring the options placed before you.  Variety allows comparison and, therefore, discrimination: "This makes sense, it resonates, and that doesn't; I like X better than Y; even in the best of situations, I don't think Z will work."  Being adventurous means taking action to see what happens, without trying to make a prediction or test a hunch.  An adventurous experiment is a probing, playful activity in which you get a feel for things.  Adventure succeeds when you're able to learn whether your ideas are supported or refuted by the evidence.  Adventure leads to gains in knowledge and challenging experiences for learning.

Adventuresome people eschew security and safety and willingly engage in activities that many perceive as risky, dangerous or uncertain experiences.  Businesspeople with the drive to know new things, who enjoy learning and change, will fare better in the new economy.  There are still many who go into a career, expecting to remain in it for the rest of their lives, but people with that career theory are liable to find themselves in difficulty in the 21st century.  In contrast, those who are adventurous will not only find, but also make possible the creation of new opportunities for themselves and others.                             

Scared About Your Job Being Outsourced to Asia?

We're being Bamboozled.  Don't believe the outsourcing to Asia hype, or the China and India takeover of the West.  Minxin Pei, a Chinese-American, and senior associate at the Carnagie Endowment for International Peace has a lot to say about the subject.  Born in China and with a PhD from Harvard, he says we need to think again about Asia's rise..  The July/August issue of Foreign Policy, one of my favorite quick reads on the international scene, leads off the subject with this:

Don't believe the hype about the decline of America and the dawn of a new Asian age.  It will be many decades before China, India, and the rest of the region take over the world, if they ever do.

Here are the paragraph headings:

"Power is shifting from West to East."  Not Really.

"Asia's rise is unstoppable."  Don't bet on it.

"Asian capitalism is more dynamic."  Hardly.

"Asia will lead the world in innovation."  Not in our life time.

"Dictatorship has given Asia an advantage."  No.

"China will dominate Asia."  Not likely.

"America is losing influence in Asia."  Definitely not.

If you're a Gen-Yer and wondering why you should bother reading this, I have two answers to the question.  First, you can cool the jets of scaredy-cats that surface at the strangest time in the strangest places with fears about losing their jobs to Asia.  (That's also a form of emotional intelligence.)  In case you haven't noticed, a lot of jobs are coming back from outsourcing because of outsourcing failures.  And the Asian infrastructure?  With the exception of Japan, it's in shambles. 

Second, and probably more important, you need to be aware of what's going on so you'll have a place to invest those retirement funds.  You know.  The Social Security you'll never get had better be covered, and Asia is often a good place to put some of your money.  By now you know it's not especially smart to fully trust your investment advisor.  You're going to have to learn to cover your own ass with your own investing smarts.  Don't ignore advisors by any stretch, but bring your own smarts to the table too.

Fascinating article.  Available at Barnes and Noble.  (I get nothing for the advertisement.)