Saudi Oil Price Redux

November 19, 2014 By in Economy Tags:

In an earlier article I corrected some common misconceptions on what is happening with oil prices and how it affects the economy. This generated some feedback and further questions that I will address in this article. In particular I will focus on understanding the role of a cartel, the long term incentives of an oil producer and why oil prices have risen.

Let’s start with the concept that OPEC is a cartel. It isn’t because it lacks a major feature of a successful cartel: legal enforceability of quotas. To understand OPEC’s actual role in the history of oil, you need to start with the Texas Railroad Commission (‘TRC’). The TRC is the original cartel that controlled global oil prices and was an agency of the State of Texas that controlled up to 40% of US production until the late 1950s. Their power was derived from an oil production boom that saw prices plummet and Texas oilmen demand a cartel system of enforced quotas. The TRC served as a model for OPEC. The irony is not lost upon this writer. Continue reading →

Disinformation in the Investment World

November 19, 2014 By in Due Diligence Tags: , , ,

The main documents pertaining to the state of a business are either legally notarised, such as the memorandum and articles of association, or are heavily regulated, such as the audited financial statements and analyst reports. This information, however, is not enough to understand the business and quite often colour needs to be added in the form of written and verbal commentary from management. Regulation of this commentary is either light or easily circumvented allowing management to present a picture that is at best optimistic and at worst fraudulently manipulative. I had the unfortunate experience of being exposed to several such companies. Continue reading →

Leaders are the Drivers of Corporate Change

November 18, 2014 By in Leadership Tags: , ,

The Change Management industry is doomed. Change means uncertainty. Uncertainty means risk. Risk means danger. Humans are genetically coded to avoid danger. Therefore they will always resist corporate change.

Change management consultants (‘CMCs’) will advise that winning employee buy in is critical. But how do you do that? How do you convince employees that an unknown future is better than a known present? Maybe if the present is really bad, but by then things are usually too late. Continue reading →

Negotiation: Playing Chicken

November 17, 2014 By in Negotiation Tags:
This entry is part 2 of 6 in the series Negotiation

This article is part of the Negotiation Series.

Chicken is a famous game by which two drivers drive their cars towards each other at high speed. The first driver to swerve to safety is deemed a “chicken” and the loser. If neither driver swerves then a high speed collision results with serious injury and even death. This negotiating style has gained popularity as the strategy that a hard nosed negotiator uses, it has become sexy. This is a problem as it is completely destructive and after any game of negotiation chicken the working relationship between the parties involved become irreparably harmed. Continue reading →

Adaptive Strategy Construction

November 16, 2014 By in Strategy, Strategy Cornerstone Tags: ,
This entry is part 2 of 3 in the series Strategy

In a previous post, Deconstructing Strategy, I discussed some of the difficulties in developing a strategy. In this post I present a method that has worked well for me. The philosophy behind this method is based on the two ideas that the Pareto principle, also known as the 80/20 rule, applies to business strategy and that strategies must adapt to new information and changes to the business environment.

Continue reading →

Breaking Negotiation Deadlocks: Pricing the Free Option

November 15, 2014 By in Negotiation Tags:
This entry is part 4 of 6 in the series Negotiation

This article is part of the Negotiation Series.

Implicit assumptions in an argument are assumptions that are assumed true by one or more parties to the argument but not explained or proven to other parties to the argument, especially the decision makers. A simple example, used by parents against their children since time began, is: “If all your friends jumped off a building, would you do that as well?” The implicit assumption is that the friends in this case are not capable of making rational judgments and that if they are jumping off a building they must be foolish. The idea that there may be a good reason to jump is assumed away. We do not expect children to be able to identify such a subtlety. Unfortunately adults would have a hard time identifying this implicit assumption. Continue reading →

Negotiation: Appeals to Authority and the Burden of Proof

November 13, 2014 By in Negotiation Tags: , ,
This entry is part 5 of 6 in the series Negotiation

This article is part of the Negotiation Series.

Have you ever been in involved in a discussion or argument, knowing that you are correct and/or the other person is incorrect but had a hard time proving that you are right or the other person wrong? It is extremely frustrating. It can also be damaging to your career. The frustration comes from your difficulty in expressing logical arguments and, more often, recognising the logical fallacies in your opponent’s arguments. I’ll use an example of an executive who used false logic to try gain access to a large amount of funds. I will highlight the fallacies used in negotiation and how to counter them. Continue reading →

Negotiation: Defending Against the Concession Tactic

November 13, 2014 By in Negotiation Tags: ,
This entry is part 6 of 6 in the series Negotiation

This article is part of the Negotiation Series.

Early in my career I got involved with a person who was supposed to be a partner but who in every interaction with me left me feeling used. Let’s call him Damien. It was easy for me to recognise when Damien was trying to manipulate me and I would refuse his requests. What took me time to understand was how to explain to my peers and stakeholders that Damien was not being reasonable and was in fact highly manipulative. It was only when I read the book Influence by Robert Cialdini that I finally understood the answer. Continue reading →

Negotiation Basics: The Missing Lesson

November 12, 2014 By in Negotiation Tags: 1 Comment
This entry is part 1 of 6 in the series Negotiation

This article is part of the Negotiation Series.

There are many books and articles that discuss contemporary negotiation basics and I won’t repeat what they have to say. My aim, instead, is to discuss how my experience differed from what I was taught about negotiating basics. This experience includes buying and selling companies, raising funds from investors and shareholders, entering into operating and equity partnerships as well as hiring dozens of employees. My conclusion is that game theory doesn’t apply to negotiating but psychology does.

Continue reading →

Monetising Business Opportunities

November 11, 2014 By in Entrepreneurship Tags: , ,

عربي

The ups and downs of a professional life, either as an employee and even more so as an entrepreneur, are quite often blamed on luck. If something positive happens it is good luck and if something negative happens it is bad luck.

his language is unfortunate as it implies that large portions of a person’s professional life are out of his hands. Although there are external events that are always out of a person’s hands, this does not mean that one has no control. Indeed, how one prepares for, recognises and responds to these events can alter the outcomes completely.

A helpful change in language can go a long way to improving one’s ability to manage unforeseen external events. Instead of calling them good luck and bad luck it is useful instead to call them opportunities and challenges. This small change immediately reframes the issue in a way that accepts the randomness of external events but still allows for the possibility that although the event is uncontrollable the outcome can still be influenced if not managed. Continue reading →