Being irrational is a fantastic place to negotiate from. An irrational person is unconstrained by the normal rules of the negotiating table and therefore has a power advantage over the other side. However, when faced with an irrational agent on the other side of the table the natural instinct is to either give in, or give up. In this article, we’re going to explore a paradigm shift and give you a few tools to get you through this seemingly impossible situation.
While it might seem on the face of it that the irrational negotiator is not acting in his best interest, or in a profit-maximizing manner, often there is either a constraint or a hidden motivation that is preventing the deal from going through. The best way to deal with a person who doesn’t seem to be acting in his own best interest is to analyse the situation without the assumption that the other side is irrational, and try to find a justification for their behavior. Once you have done this a solution will fairly quickly present itself.
Reasons they might seem irrational are many, here are a few so you know what to look out for next time you’re dealing with some one who seems self-defeating. [click to continue reading…]
by nikhil on February 16, 2009
in Research
EDIT: This post is the first in a series where Nikhil Vachani, a Chartered Accountant at KPMG will comment on an auditor’s perspective on various business. Nikhil has studied business and finance and has been in the accounting profession for a number of years. He will contribute a series of posts over the coming months.
Post the Satyam scandal; everyone has one line of questioning in their minds. “Where were the auditors?”, “What were they doing?”
Everyone talks about this term - “auditing”, but very few people actually understand what exactly an audit entails and what the auditor’s responsibilities are.
First and foremost it is essential to establish a definition of what an audit means.
Does it mean 100% verification of all details? Does it mean finding faults within organizations or detecting fraud (as most people think)?
Although many would define an audit as the abovementioned statements, the real definition of an audit is a bit different from what people think it is.
An audit refers to “obtaining reasonable assurance as to whether or not the financial statements of a company give a true and fair view and are free from material errors”.
- Reasonable Assurance - refers to assurance that is not 100%. I.e. the auditors are saying that although the financial statements are correct, they are not 100% error free. This is due to the limitations placed on auditors due to time and money. As an auditor spends only 3-4 weeks in a company which operates for 365 days a year, it is next to impossible to verify each and every transaction. Hence auditors take a sampling approach - i.e. - they test transactions on a sample basis (by randomly selecting a few transactions out of hundreds, that would statistically represent the entire set) and hence use the words “reasonable assurance” and NOT “absolute assurance”.
- Materiality - Even if the auditors come across errors they will not report them if they are not material. Materiality differs from organization to organization and there are numerous ways of calculating it. One method, for example, depends upon the level of revenues generated by a Company. For example, if a Company earns revenue of Rs. 1 crore during the year, the auditors decide (as per International accounting standards) that 1% of the revenue amount is considered material - i.e. - Rupees 1 lac is the materiality limit. Any errors below this limit will not be considered material and hence they will not be reported. Therefore there may be some error of Rs. 90,000 but it may not change the opinion of the auditor, as it is not MATERIAL.
- True and Fair- True means materially correct and fair refers to “free from bias” - i.e. - an auditor must be independent. He or she should not have any ulterior motive while expressing an opinion. The auditors CANNOT take any favors from the clients or accept any gifts or items that will impair their independence.
Lastly, I would like to highlight the fact that detection of fraud is not the responsibility of the auditor. It is the Company which is responsible for preventing and detecting any fraud that has or can occur. The auditors are only responsible to express an opinion on what is given to them. AUDITORS ARE NOT WATCHDOGS, but professionals who just assess information given to them in good faith.
In my previous post, “What does Success mean to you?” we discussed the meaning of a successful venture (is one that meets the goals of its stakeholders).
Although, every venture is different, a set of common factors lie behind every successful business: (Wickham, P.A. (2004) Strategic Entrepreneurship. FT Prentice Hall)
1. Venture Exploits a Significant Opportunity
The opportunity spotted by the entrepreneur is real and significant. The venture is faced with the possibility of delivering sufficient value to a large enough number of customers to make the business viable in terms if income and profits.
2. Opportunity is Well Defined
It must be clear as to why the venture exists and the nature of the opportunity it aims to exploit. Having a ‘Mission Statement’ helps - it is basically a formal statement containing the purpose of the venture (expect a post explaining the mission statement in detail). The trick is not to pursue too many opportunities for your innovation - focus resources on the significant opportunities ONLY.
3. Innovation is Valuable
The innovation behind the venture (i.e. its new way of doing things) must be effective and different from the way existing businesses operate. It must be appropriate the exploit the opportunity identified. All new ideas (no matter how good they are) must be scrutinised in the light of what the market really wants.
4. Entrepreneur brings the Right Skills
The entrepreneur possesses the right skills and knowledge to build the venture to exploit the opportunity. These include knowledge of the industry they are working in, familiarity with the product and markets, general management and people skills like communication and leadership. The effective entrepreneur is constantly refining and developing these skills and learns how to learn.
5. Business has the Right People
Entrepreneurs rarely work alone. The business as a whole must have the right people working for it. Specialists and technical experts will be required, as well as people who will make the product or deliver the service that the business offers. A growing business would require identifying and recruiting the right people to support its growth and this is an important task for the entrepreneur.
6. Organisation has a Learning Culture & its People a Positive Attitude
The entrepreneurial venture must use the fact that it is new, to do things in a fresh and innovative way. It must recognise its experience as an opportunity to learn a better way of doing things. This can only be achieved if there is a positive culture within the organisation, which regards change as opportunity. The entrepreneur is responsible for establishing the culture in their organisation through leadership and example.
7. Effective use of the Network
Successful entrepreneurs and the people who work with them use the network (in which the organisation finds itself) to good effect. They look at suppliers and customers, not as competitors for resources, but as partners. The idea is that all parties in the network can benefit from sharing information and resources and even some of the risk to some extent - but it is up to the entrepreneur to convince customers/suppliers etc of the benefits of the network.
8. Available Financial Resources
Financial resources are critical because the business must essential investments in productive assets, pay its staff and reimburse suppliers. Expenditure is higher than income in the early stages. The business must have enough resources to cover expenditure in this period. Also, more resources will be required in the growth stage. The entrepreneur must be an effective resource manager. He/she must attract financial resources from investors and then use them effectively to grow the business.
9. Clear Goals and Expectations
Clear and unambiguous objectives must be set to provide a benchmark against which performance can be measured. Success can only be understood in relation to the expectations that stakeholders have for the business. The entrepreneur must learn to recognise and manage the expectations of all the venture’s stakeholders.
“Success is not permanent. The same is also true of failure.” - Dell Crossword
This is a great quote for those who are riding the wave of success, as well as those who have tasted failure. Becoming successful is not as difficult as staying successful. Work wisely towards your goals, identify and focus your energy and resources on the right opportunities. People often say, “work smart, not hard”, unfortunately in a new venture you will have to work very hard and smart. No shortcuts!
Does success simply mean money to you? Or does it have a broader social significance?
The goal of any entrepreneur is to be successful. The possibility of success is what drives us forward and it is a measure of our achievement. It is a difficult concept to define because it is complex. It may be measured by numbers alone, but also by softer, qualitative criteria. (Wickham, P.A. (2004) Strategic Entrepreneurship. FT Prentice Hall)
Success is something that is visible in public but also experienced at a personal level. It can be best understood in terms of four interacting aspects:
1. Performance of the Venture
2. People who have Expectations from the Venture
3. The Nature of those Expectations
4. Actual Outcomes relative to Expectations
The performance of a venture is indicated by a variety of quantitative measures. These relate to its financial performance and the place it creates for itself in the marketplace. The indicators can also be compared to the performance of competitors. Such performance measures relate to the business or company as a whole.
However, a business is made up of individual people and it is crucial for success to be also experienced by them. If you want to be successful then first your business has to be successful. The business creates the resources which interested individuals can use to improve their lives. The individuals who have an interest in the business are its stakeholders (e.g. entrepreneur, employees, customers, suppliers, investors, society, etc.). So, the success of the venture must be considered in relation to the expectations its stakeholders have for it.
The performance of the venture as a business provides the means by which individual stakeholders can fulfill their own goals. Personal goals exist at three levels:
1. Economic - monetary rewards.
2. Social - fulfilling relationship with other people.
3. Self-development - the achievement of personal intellect and spiritual satisfaction and growth.
Success experienced at a personal level is not complete. It is recognized by comparing actual outcomes to prior expectations. It is achieved if outcomes meet expectations and is ensured if expectations are exceeded. However, if expectations are not met than a sense of failure will emerge.
For me, success is relative. It is being able to achieve what I want to achieve in a given period of time, but failure is a big part it. I see failure as not the opposite of success but as one of the stages on the way to success - and I know this will help me achieve success, both in business and life.
Clearly success means different things to different people. You must be absolutely clear in your mind as to what success means to you. As the entrepreneur it is your responsibility to think of success for your business as a whole (not just for yourself!). Once you have a clear picture of what you want to achieve, you will be that much closer to achieving it.
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