Posts Tagged ‘bargaining chip’

How to Avoid “Value Blindness”

Saturday, April 3rd, 2010

x

How to Avoid “Value Blindness” and the Potential Bargaining Mistakes Resulting Therefrom

(plus Dogs Playing Poker)

 

This is my first blog post for LaborCosting.com.  I am David W. Berry and I am the owner and chief consultant for Labor Costing Associates, LLC.  I intend to post one or two blog posts per month to this website on relevant issues and topics related to our consulting practice.  I have left the comments section open to allow readers to remark on this and future posts, but such comments will be moderated to eliminate spam and other unwanted responses.

I chose this first topic on “value blindness” because it is fundamental to what we do at LaborCosting.com and how we can help you, the client, in your labor negotiations.

“Value blindness” is a concept that I came up with when discussing the necessity of costing out proposals and other issues in collective bargaining.  When questioned about the business necessity of performing the often complicated and time-consuming task of calculating the costs of proposals and potential settlements, one colleague responded that he could not be expected to go in and negotiate without know the true value of his bargaining chips.  He said it would be like “driving blind.”  From this, the hardly artful but truly necessary term “value blindness” was born.  As the expression implies, it simply means that negotiators who don’t know the value of their bargaining proposals and issues, is effectively blind.  Obviously, this is not a good situation, unless you’re seated on the other side of the bargaining table, and one that can and indeed has resulted in many a bargaining mistake, often leading to extraordinary and long-term costs being incurred by the blundering side.

A classic example of such a mistake is agreeing to an operating restriction that is effectively permanent and can cost a company many millions of dollars due to not properly costing out the ramifications resulting from the operating restriction.  I saw the impact of just such an operating restriction that was bargained by a former negotiator for the company for which I was then working.  The restriction mandated a certain staffing level for part-time employees, that charitably made sense at the time of its being agreed to, but certainly did not make any sense a decade later due to changes in operating circumstances both at the company and in the industry as a whole.  Not only did it cost a substantial amount of money in labor costs, but, it also forced the company to operate in an uncompetitive manner because the mandated staffing level meant that it was too expensive to assign anyone to attend to the purchases of customers, thus intensifying the harm.

Now that you have a sense of what “value blindness” is, where do the “dogs playing poker” come in?  Let me preface this to say that I love dogs, and even though I’m not crazy about poker, I have nothing against it, and I certainly see the parallels between playing poker and collective bargaining.  After my colleague’s comment regarding “driving blind” cited above, I chimed in that it would be like “dogs playing poker.”  Now to be honest, at the time, I was thinking that dogs, which are color-blind, couldn’t read the cards in their hands (as if dogs could really play cards in any event), but after quick reconsideration, I realized that they couldn’t tell the value of their poker chips because the value of poker chips are entirely dependent on their color (poker players, please don’t comment that some chips now have their denominations written on them as dogs can’t read numbers either).  A perfect analogy was born:  “dogs playing poker” is analogous to “negotiators bargaining labor contracts without knowing the value of their bargaining chips.”  Of course, everyone, at least in America, knows of the campy portrait depicting various breeds of dogs sitting around the poker table holding their respective hands of cards and closely guarding their respective stash of poker chips.  So now I had an effective visual to explain the purpose and meaning of labor costing that many could get their heads around.

For the readers’ edification, here’s the portrait, both as seen by humans and by color-blind dogs:

What the world sees.

What the dogs see.

Notice in the black-and-white version, it’s impossible to sense how much is in the kitty, while in the color one, you do get such a sense.  Again, the analogy works.

So great, dogs playing poker, I get it.  How can I use labor costing to my advantage to eliminate mistakes in bargaining?  That is the real message underlying this blog post.

As a negotiator, if you know the cost and the full financial and operational ramifications of every of your adversary’s proposals, and all of your proposals, you can properly prioritize them and trade them off to attain a fair settlement that is beneficial to your organization.  In my example cited above, if the negotiator who agreed to such an operating restriction had had an operational model that could cost out the impact should the company had wished to go to lower part-time staffing levels in the future, and then seen the substantial cost implications and maybe even the operational competitive considerations, he might have avoided it like the plague.  Just agreeing to it out-of-hand because it was the way the business operated at that particular moment in time, and thus assuming that it had no real cost or operational implications because the company was doing it anyway, was not only short-sighted but a real blunder.  Sometimes knowing just the sensitivity of how an operating restriction acts on a business operation is all you need to know to avoid it, or adjust it accordingly to avoid its overarching implications if it simply cannot be avoided.  Labor costing can provide the negotiator with the knowledge to avoid these bargaining blunders.  By the way, this particular operating restriction was later modified to the company’s benefit at considerable cost in negotiations.

Another common negotiating blunder is the unfair trade-off of bargaining chips.  I have seen an extra nickel of wage increase, costing millions over a contract period, traded for a slight change in sick leave provisions, costing only tens of thousands over the same contract period.  Now in this instance, I, and the rest of the bargaining team including the chief negotiator, knew we were being stiffed to the extent of two orders of magnitude of cost; we did it for other practical reasons that transcended the labor negotiations.  It still left a bad taste in all of our mouths.  However, I would imagine since the union in this case had the temerity to offer up this trade as a fair one, that it happened with regularity and that many companies willingly agreed to it thinking it a fair trade-off, only to find later on that it was anything but.  Labor costing is your defense against such a bargaining blunder.

Labor costing can also be used to come up with pro-active proposals to move your organization in the right direction.  Need to reduce costs?  Obviously, labor costing can show you the way to do that quite effectively.  What about adjusting the demographics of your bargaining unit to serve the customer more effectively?  Labor costing can also handle this situation.  Don’t know what you need to accomplish in negotiations?  Labor costing can develop a broad range of statistics and analyses that will assist the negotiator, the bargaining team, and senior management in developing a coherent strategy for upcoming collective bargaining.

So don’t be a color-blind dog playing poker with the union.  Remember, everything the union gets is additional; only management ends up paying the bill.  The union mantra of “the company bargains, we collect” is so true on a very fundamental level.  As a result, the union does not need to cost anything out; the union just needs to propose, see what proposals stick and reap the resulting rewards.  As negotiators, educate yourself fully on the economics of what you’re dealing with, then prepare appropriately for negotiations.  You won’t get everything you want as that never happens, but you can avoid blunders and actually obtain the things that you really need.

To allow us to begin assisting you in this manner, just click on “Our Services” and start perusing what we can do for you.  Then “Contact Us” to begin letting us help you to attain your business objectives.

x

DWB

x