Looking beyond the ‘Black Swan’ - getting ahead of the curve in the new normal

Malcolm Smith has followed-up his popular webinar - Beating the Black Swan: negotiating for mutual survival – for students and alumni of the University in the Middle East. As he concluded at the end of his first webinar,  we are all in this together and fast and sensible negotiations will help many more companies survive and thrive, post pandemic. 

At a time of negativity, how can we best position ourselves to advantage because there are always opportunities and areas of value to look for in the pandemic. We are an innovative species and I am very confident that we will defeat the virus and move on but how will we manage the process?  

We have learnt a lot already from the very interesting changes as a result of Covid-19 and especially in the huge acceleration in the pace of change in the digital sector. When we hit these major inflection points in history, it may not be immediately obvious what the  impacts and outcomes will be (other than some gifted people will make some smart guesses and make a lot of money).  What can we do to improve our outcomes?

It’s all about modelling the ‘new normal’. There won’t be many times like this in our lifetimes and the changes we see now will accelerate and affect your business. The proactive companies will win and the passive ones may get some crumbs from the table, at best. Information asymmetry is what it’s all about and old paradigms are no longer valid. Try to avoid emerging from the pandemic with this phrase in your head - ‘if only I had known that, I could have got a better outcome’.

You should ensure that this ‘new normal’ includes you and that you are able to shape your part in it. Of course, you can only do this and hope to move forward if you are able to secure business survival, which is the immediate short term goal in turbulent times. Don’t imagine that we will be returning to the previous models because we will not.

Negotiations will play an important role shaping your future and impacting outcomes, especially in these uncharted waters. Times are changing and negotiations need to address the boundaries of relationships and contracts with key partners, from the workforce to the supply chain. 

The basic rules of negotiation have changed. Rule number one is ‘don’t work from an old set of rules in a new paradigm’. Rule number two is refer to rule number one (it’s that important). Rule number three is to look at deals from the viewpoint of the counterparty and look for value for both parties. 

A negotiation is a rational process and aims to diminish information asymmetry and identify new ways to create value and new opportunities. When preparing for negotiations, we need to think about where we go next and consider what factors impact sustainability and remember: everything has changed. This includes relationships – with landlords, the workforce, clients and prospects, supply chain partners, and lenders.

Perhaps the most significant transformation we are experiencing is homeworking. We have all been looking at this for a long time but the connectivity hasn’t been good enough; we now have 4G and 5G and so this is going to improve quickly. We all need to get used to it and it’s here to stay.

In this emerging ‘new normal’, we have seen an increase in productivity among our developers and back office staff, and while we have also enjoyed reduced costs the staff have no time-consuming and expensive commute to an office that we may no longer need. There’s an opportunity to agree a new structure for homeworking, agreeing with staff a set of KPIs to help measure and monitor output. 

There’s also an opportunity to look at ways to improve the employee homeworking experience, such as paying to increase their bandwidth to make communication much faster and easier. Workforce packages are important to look at; people are not travelling and are making savings as a result and so even keeping salary packages at the same level means an increase in salary, in effect. Look at the trendsetters such as Twitter - to hire good people in future, we will need to know where they want to live and work.

Landlords have had it easy in the past but these days have now gone. Tenancy agreements need to be much more flexible and shorter term, and you need to build this into your thinking. For retail landlords, footfall is not going to return as so much shopping has moved online. So, I expect to see more rental agreements based on business turnover, especially in the fast-food sector. If you are in negotiations,  don’t close a deal too far out and some parties will be looking for longer term agreements. Test the boundaries and don’t wait for the counterparty to suggest terms - take control and make your offer.

There is fertile ground field for change with lenders as we approach negative interest rates around world, and lenders come under pressure from governments to support business. But no one is going to support a dead or dying company and owners have to be upfront about the state of the business.  The key to success to diminishing information asymmetry in this context is by telling them the way it really is.

You have to ask yourself two questions and answer very honestly: am I going to survive? Is my company going to survive? If you believe the company will not survive, then you should cut your losses because the ‘first loss is the best loss’. 

If your aim is to survive and thrive in the post Covid-19 world, then you may want to ask a question posed to me by a webinar participant: “In two words, how long will it take to recover from the pandemic? The answer: “Don’t know.”       

I stand by my answer because no-one knows, but I would also add that it will take longer than we would wish and some sectors will recover faster than others.

Malcolm Smith is an alumnus of Alliance Manchester Business School and lectures on the school’s part-time Global MBA programme, focusing on Private Equity & Venture Capital, as well as negotiation. He is non-executive chairman of several companies operating in the internet space.