Proposals that take the risk

As keen students of all things negotiation related (oh, go on then: we’re nerds), a group of us at Scotwork regularly discuss blog topics and what’s going on around us. Responding to my suggestion to write about the “mini” budget sitting at the base of the volcano which recently erupted underneath the Truss government, a colleague (wiser, more experienced and definitely smarter than I) pointed out that by the time we published a blog about this subject, we’d have a new PM, events would have moved on and “it may as well have been written by Homer”. I don’t think he meant Simpson. I do think, however, that it’s true – and it encapsulates one of the lessons we can draw from what the “mini” budget might tell us about our own negotiations.

One of the perennial topics of debate with participants on our courses revolves around whether pitching a proposal may be most effective. The debate tends to coalesce around a spectrum we can call “ambitious” – where one end is tempered by realism and credibility, and the other by moving the goalposts by being more extreme. Our advice is that – for the most part – a realistic proposal will be in your best interests. In the sense that the “mini” budget was a series of fiscal measures yet to be enacted, it was a proposal. If we’re going to measure that proposal on our spectrum of ambition, then the following evidence could help: the measures were estimated by the FT to add up to a cost of £45bn; when announced, how they would be funded was not included; the Office of Budget Responsibility (put in place by the Coalition government 10 years ago) had not been given the necessary time required to provide a commentary on the proposed measures; taking all this into account, key markets saw severe and negative responses. It would, I think, be fair to characterise the package of measures as being at the extreme end of the spectrum.

One risk of “going big” when we make an ask is the potential reaction from the other party in the negotiation. In this instance, the market response demonstrated the risk that the response may make matters worse and act against your best interests.  Another risk inherent in extreme proposals is that they can engender equally extreme counter-proposals – in this instance, leading to the defenestration of both the then-Chancellor and then-PM, as the Conservative Party’s counter-proposal amounted to being one requiring those changes.

The risks associated with extremely ambitious proposals can be related to the uncertainty principle. If nobody really knows what a fair, accurate or appropriate price looks like (for example with an entirely new product, or market) then being extremely ambitious may result in other parties moving their goalposts towards you. The simple truth is that for most of us, the majority of our negotiations take place with people who do know their markets and other data that will inform their estimate as to how realistic a proposal may be – there will still be a degree of uncertainty, for sure, but it will narrow. And as we saw with the Mayfly government of Liz Truss, getting it wrong can have unforeseen consequences – becoming a historical footnote worthy of Homer being one of the more sobering.