HBX Business Blog

Word of the Week: Accrual Accounting

Posted by Christine Johnson on September 29, 2016 at 3:01 PM

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Gone are the days when people paid cash for the goods and services they needed. More often than not, companies (and individuals) prepay, or pay later for goods and services. The form of accounting that allows companies to keep up with these more complicated transactions is called Accrual Accounting.


Accrual Accounting: An accounting method that recognizes revenue in the period in which it is earned and realizable, not necessarily when the cash is received. Similarly, expenses are recognized in the period in which the related revenue is recognized rather than when the related cash is paid.


Accrual Accounting is helpful because it shows underlying business transactions, not just those where cash is involved. Most transactions that a company has are straightforward, with payment happening at the time of the transaction. Other, more complicated transactions, involve buying and selling on credit, which requires a company to account for monies that they will have to pay at a future date or receive at a future date.

Even more complicated are transactions that require paying for goods or services in advance or receiving money from customers in advance. The timing of when revenues and expenses are recognized related to these more complicated transactions can have a major effect on the perceived financial performance of a company.

How does all of this work in the real world?

Deferred Revenue

When a company receives cash before a good has been delivered or a service has been provided, it creates an account called deferred (or unearned) revenue. This account is a liability because the company has an obligation to deliver the good or provide the service in the future.

Suppose you paid a gym $1,200 on January 1, 2016 for a year-long membership. Using the accrual accounting method, the gym would set up a deferred revenue account (a liability) for the $1,200 to show that they had received the cash but not yet provided the service. As each month of 2016 passes, the gym can reduce the deferred revenue account by $100 to show that they have provided one month of service. They can simultaneously record revenue of $100 each month to show that the revenue has officially been earned through providing the service.

Prepaid Expense

When a company pays cash for a good before it is received, or for a service before it has been provided, it creates an account called prepaid expense. This account is an asset account because it shows that the company is entitled to receive a good or a service in the future.

Suppose that a dental office buys a year-long magazine subscription on January 1, 2016 for $144, so patients have something to read while they wait for their appointments. At the time of the payment, the dental office will set up a prepaid expense account for $144 to show that they have not yet received the goods, but they have already paid the cash. As each month of 2016 passes, the dental office can reduce the prepaid expense account by $12 to show that they have ‘used up’ one month of their prepaid expense (asset). They can simultaneously record an expense of $12 each month to show that the expense has officially incurred through receiving the magazine.


Interested in learning the language of business? Take HBX CORe and discover the basics of Economics for Managers, Financial Accounting, and Business Analytics.

Learn more about HBX CORe


christine

About the Author

Christine is a member of the HBX Course Delivery Team, focusing on Financial Accounting and Disruptive Strategy. She holds a B.S. in Management from UNC Asheville, an M.S. in Accounting from Northeastern University, and an MBA from Northeastern University. In her spare time, she enjoys reading business journals and watching NFL games.

Topics: HBX CORe, HBX Insights

Why the Polls Seem to Have Agreed to Disagree

Posted by Jenny Gutbezahl on September 27, 2016 at 3:40 PM

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If you've been following the election at all, you've probably noticed that some polls give very different estimates of who's likely to win the presidency in November. For example, at 1:00 PM EDT on Tuesday, September 27th [this will probably change by the time you read this]:

  • The New York Times shows Clinton leading 45% to 42%
  • The Los Angeles Times reports Trump leading 46.2% to 42.7%
  • HuffPost Pollster shows Clinton up 47.6% to 44.1%
  • Data analysis site FiveThirtyEight gives three different estimates:
    • Their Polls-only forecast is 55.8% to 44.2% in Clinton's favor
    • Their Polls-plus forecast (which includes such factors as the economy and event-related spikes in either candidate's favor) is 55.2% to 44.7% in Clinton's favor 
    • Their nowcast (what they'd expect if the election were held today) is 52.7% to 47.3% in Clinton's favor

There are a number of reasons for this: they poll different people, using different questions, via different media. For example, polls that use only mobile numbers, and exclude landlines, tend to under-sample older voters. And wording changes as simple as which candidate is mentioned first by the poll can affect responses.

But the biggest differences may be caused by weighting, a method used to make the sample (which may be demographically different from the expected voter turnout) look like the population. Each organization uses its own weighting algorithm, leading to a diversity of predictions. In fact, the New York Times recently shared poll data it had collected with four well-respected analysts.

Even with the exact same data, the different weighting methods led to results varying from a four point lead for Clinton to a one point lead for Trump. That's because each organization has a slightly different idea of what the electorate will look like in terms of gender, ethnicity, education, socio-economic status, etc. These assumptions about who will vote influence what the polls tell us.

One thing is pretty clear: this will be a tight race, and people seem more emotionally invested in it than they have been in many recent elections. And given last night's debate, the numbers will likely fluctuate in the upcoming days.


Interested in learning more about how to interpret data? Take HBX CORe and discover the basics of Economics for Managers, Financial Accounting, and Business Analytics.

Learn more about HBX CORe


jenny

About the Author

Jenny is a member of the HBX Course Delivery Team and currently works on the Business Analytics course for the Credential of Readiness (CORe) program, and supports the development of a new course in Management for the HBX platform. Jenny holds a BFA in theater from New York University and a PhD in Social Psychology from University of Massachusetts at Amherst. She is active in the greater Boston arts and theater community, and she enjoys solving and creating diabolically difficult word puzzles.

 

Topics: HBX CORe, HBX Insights

Q&A with HBX CORe Participant J. Holden Gibbons

Posted by J. Holden Gibbons on September 22, 2016 at 3:52 PM

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Army veteran and past HBX CORe participant J. Holden Gibbons talks about how CORe allowed him to understand the language of business and help grow his non-profit, Veterans Combating Child Hunger.

Tell us a little bit about your organization.

When I was serving in Afghanistan with the Army, I saw how it had little arable land and lacked a lot of core assets, making it hard to support life. It made me see the United States in a new light; we live in this bountiful nation but don't value the land, water, or natural resources in the way we should. There are a ton of areas where we can improve efficiencies and reduce our reliance on fossil fuels and technology.

I asked myself, how can we sustainably reuse this land, reduce greenhouse gases, get veterans involved in their community, and improve certain communities that oftentimes have poor nutrition? So, upon returning home, I founded Veterans Combating Child Hunger, an organization that seeks to involve the veteran community in sustainably farming undervalued real estate assets in communities throughout the United States.

How has CORe has helped with this venture?

HBX CORe is the type of program that helps you make a quantum leap and take what's in your head and translate it into real world success. One of the really nifty things about CORe is that the skill set they give you is directly applicable to what you are going through as an entrepreneur or a small business owner. On a day-to-day basis, I'm literally astounded by how often I use the coursework.

For example, with Economics for Managers, I'm constantly weighing how to utilize the farm's assets. Is it worth me spending a few hundred dollars to take a flight? That might not seem like the best short-term expenditure, but if I can expand the network which then amplifies later on, that may be a good decision to make. I am asking myself questions like what's the cost basis of this? What am I giving up to pursue that? Would I be better off not pursuing that?

Financially speaking, I really wanted Veterans Combating Child Hunger to be a self-sustaining corporation. We want to offer value added, we don't want to consistently be asking people for funds to get started. In accounting, we learned about “going concerns” so now I ask myself, what is the best way we can use our time, use our assets, to be able to bring sustainability and add more value to society?

What advice would you give entrepreneurs considering CORe?

Before you sign up or apply for CORe, I’d suggest you do a gut check and ask yourself whether you have the time to dedicate to mastering the material and building a network. To truly be successful in the program, it takes a lot of effort, it takes a lot of proactive decision-making, and you're really going to be expected to bring a large amount of focus. Not only that, you're also expected to integrate with your cohort and to help them through the platform.

You're expected to be a member of a community, and you are expected to put in a healthy amount of work. You need to look within yourself and ask, “Am I prepared to take three very intensive courses that require me to be the fulcrum of my learning?” In CORe, you’re conducting your own train. That train can take you as far as you want to go, and if you're on board all the way, there's really nowhere that you can't go.


The CORe community consists of a rich and diverse group of learners. Want to learn more about other students who've participated in the program?

Read Additional Student Profiles

Topics: HBX Student Spotlight, Student Spotlight

How to Take the Sting Out of Saying ‘No’

Posted by Patrick Mullane on September 20, 2016 at 10:12 AM

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This article was originally posted to Fortune Insiders and can be found here.

If you, like me, have children, you’ve probably become convinced that the most common word in the English language is “no.” In fact, you may have concluded that “no” is the perfect sentence unto itself — no modifiers, adverbs, or adjectives needed. It’s always on the tip of the tongue with offspring around, no matter the question. “Dad, can I …” “NO!”

The word is also one that children learn to use frequently because of how prolific we parents are in uttering it. It is among the most common first words an infant says. They say it to siblings, to us, and to playmates. It’s just so easy to say — until, that is, we become adults in the working world.

At that point, the word seems to get lost. Why? Warren Buffett famously said, “The difference between successful people and very successful people is that very successful people say ‘no’ to almost everything.” But if that’s true, then why does the word go missing from our vocabulary? Why do we become selectively dumbstruck?

Volumes have been written about this, but the most common explanation is that we are wired to avoid conflict and to seek approval from those around us. So we often say “yes” even when we don’t mean it. In almost all situations, this is bad. A wedding proposal, a request to do something shady, agreeing to pick up somebody at the airport — saying yes when we don’t mean it can be a really miserable experience.

So, how do we say no? If you accept the premise of why it’s hard to say, then you need to find ways to lessen the likelihood of creating a conflict or disappointing someone.

First, remember that saying “no” by itself is almost always provocative. So one key is to provide context when responding to a question or request. People are much more likely to accept a “no” when they understand the train of thought that led to your response. “No” or “I can’t” should always be followed by a “because” clause. For example: “No, I’m not going to be able to get that report done by Tuesday because I’m concerned that rushing it will mean we have inaccurate data.”

I’m not suggesting that such an answer will always be well-received. Interactions between humans are rarely that simple. But by providing a “because,” you have offered information that can be the basis of a discussion if the other side pushes the issue. Without this qualifier, defenses immediately come up and all parties can quickly feel aggrieved.

In addition to explaining your refusal, saying “no” can be more effective if the word “no” is never actually part of the response. In place of it, use information and data to lead the requester to understand they are being turned down.

Using the example from above, let’s suppose my boss asks me if I can get the monthly production report done by Tuesday. The response I suggested above still has a bite to it because it begins with “no.” What if, instead, you responded, “I’m not sure if you know, but I need to gather information from our global sites and I’m concerned that if we don’t give them time to respond, the report will be less useful.” As long as the information presented is legitimate, this can be an effective way to respond without ever having to say the dreaded “no.”

Take it from Mahatma Gandhi: “A ‘no’ uttered from the deepest conviction is better than a ‘yes’ merely uttered to please, or worse, to avoid trouble.”


Patrick

About the Author

Patrick Mullane is the Executive Director of HBX and is responsible for managing HBX’s growth and long-term success. A military veteran and alumnus of Harvard Business School, Patrick is passionate about finding ways to use technology to enhance the mission of the School - to educate leaders who make a difference in the world.

Topics: HBX Insights, Executive Insights

Is Tax Policy Hindering U.S. Competitiveness?

Posted by HBX on September 15, 2016 at 3:29 PM

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The U.S. Competitiveness Project is a Harvard Business School initiative led by Professors Michael Porter and Jan Rivkin. This year's report was released today and included research from HBX Professor Mihir Desai on U.S. tax reform. Professor Desai teaches the new HBX certificate program Leading with Finance.

Harvard Business School (HBS) launched the U.S. Competitiveness Project in 2011 as a multi-year, fact-based effort to understand the disappointing performance of the American economy, its causes, and the steps needed by business leaders and policymakers to restore economic growth and prosperity shared across all Americans. Read the full report here.

This year's report outlines an eight-point plan for restoring U.S. competitiveness. Professor Desai's research focuses on tax reform, an area where much attention is given. According to Professor Desai's research, "tax reform is the single area with the greatest potential for immediate impact on the economy and is long overdue given changes in the global economy. Corporate tax policy has become a key obstacle to U.S. competitiveness and economic growth, and reforming both corporate and personal taxation is essential to achieving a sustainable federal budget."

The report goes on to say, "the top corporate tax problems, according to the surveyed business leaders, are the high corporate tax rate and the taxation of international income. Business leaders reported overwhelming and bipartisan support (over 95%) for corporate tax reform...The feasibility of corporate tax reform is promising given the broad consensus on the nature of the problem and the required direction for reform."

The report calls on leaders to be frank about the challenges the U.S. faces and to work harder to move the U.S. economy in the right direction. "To achieve the right kinds of tax reform, leaders must begin to speak more realistically about the fiscal realities America faces. In addition, simplistic polarizing and protectionist rhetoric must be avoided. The time for tax reform is long overdue."

Read the full press release on the U.S. Competitiveness Project here.


Professor Desai teaches Leading with Finance, an online program designed to provide business leaders with a thorough understanding of the principles of finance and a toolkit for making smart financial decisions. 

  Learn More


Topics: HBX Insights, HBX Finance

HBX Staff Spotlight: Emily Bottis

Posted by HBX on September 13, 2016 at 11:01 AM

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We sat down with Emily Bottis, User Experience Architect, to talk about her role at HBX and to learn what goes into designing and developing platform features.

What do you do at HBX?

I am the user experience architect. I work across the teams at HBX to design and improve the digital learning experience of our students.

What does a normal day look like for you?

Every day I create and review new feature and enhancement requirements and design. I regularly meet with the software development team to discuss how we translate these designs into code. I also typically meet with the course development team to discuss and design new interactive course features.

Where did you go to school and what did you study?

I attended Brown University and studied Organizational Behavior.
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Any hidden talents?

When I'm not chasing my kids around, I am into photography, writing, and I play ice hockey!

What is your favorite food?

I love anything Indian or Middle Eastern, and I am a vegetarian.

 

How did HBX start building the platform?

First, we had discussions with the faculty members about how they wanted to build their courses. Through these discussions, we decided that we wanted the courses to be real-world, interactive, and social. Based on those goals, we envisioned the ideal platform, making sure to incorporate the Harvard Business School teaching methodology which meant using the case study method.

What's a Teaching Element?

Teaching elements are small units of learning content that exist in the course on what we call the concept pages. Examples of teaching elements are spreadsheets, videos, and drag categorization.

Tell me about how you built peer interaction into the platform.

When we began building the peer interaction platform we made an effort to keep the discussions close to the content. The goal was to intentionally couple the peer interaction platform with the course content so that peer interaction would be available in the educational context.

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What's your favorite feature?

The concept page side bar. This side bar is a navigational element which helps you navigate through the entire course, and we added it in after a bunch of student input and feedback.

How do you decide what features to add/change on the platform?

Altering the platform is primarily based on participant feedback. We constantly run surveys and focus groups to figure out what aspects of the platform are working for our participants and what aspects are not working. We also have a team of people who work on the “release planning process.” This is the process we go through before we add or change something in the platform. My personal job is to represent our users. I am always pushing to make additions to the platform based on direct participant feedback.

What surprised you most about the learning experience once users went through the course?

The enthusiasm and creativity that people have brought to our courses. Also, I am constantly impressed by the commitment our students have, it is awesome!

Any cool features in development?

We are currently experimenting with mobile, designing a new search function, and we are also building new courses!

Topics: HBX Staff Spotlight

A Picture is Worth a Thousand (Wrong) Words

Posted by Jenny Gutbezahl on September 6, 2016 at 10:27 AM

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Graphs can be an effective way of communicating information about data. However, when poorly used they can be confusing, inaccurate, or misleading. Thanks to the internet, many of the worst displays of data remain long after their creators have identified the problems and corrected or removed them. Here are five of the more egregious instances that have shown up over the past few years.

1. The pieces of a pie should add up to 100%.

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Source: Everydata

There's a couple of things wrong with this graph. First, any chart (such as a pie chart) that divides a single image into subsection should sum to 100%. This chart shows distinct stripes, but clearly if 88% of organizations raise funds via one-on-one solicitations and 87% use direct mail, there must be some overlap. Secondly, the four categories are virtually the same size, but there's about six times as much ink for Direct Mail (which 87% of organizations use) as for Special Events (which 88% use).

2. Shapes have meaning.

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Source: NBC Nightly News

This chart does show about 100% in each column of figures, but the choice of shape makes it confusing. The different parts of the map have distinct meaning, beyond the demographics listed. Given this, it looks like Asians only live in Maine and Washington and that Texas existed only in 2010.

3. Start numbering at zero.

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Source: Business Insider

One common problem in graphs is misuse of the y-axis (the vertical axis at the left of the graph, which often indicates frequency). The y-axis isn't labelled here, but it looks like it probably ranges from about 73 to 78, which makes the drop from 77.3 to 75.3 seem precipitous. But if the graph covered a more reasonable range of knuckleball speeds (say 40-100 mph), the decrease would seem much smaller.

4. Numbers should read up from zero.

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Source: Free Thought Blogs

In this case, the y-axis has actually been inverted, so that the highest numbers are on the bottom. Logically, there's no reason you couldn't make a graph like this, and the graph does include the scale of the y-axis. However, we're so used to seeing graphs with the high numbers on the top, that we automatically assume that the change after 2005 is a decrease, when it's actually an increase.

5. Use the same scale for both axes.

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Source: PolitiFact

The lack of labeling on the y-axis is particularly confusing, because it appears that the two lines on the graph are using entirely different axe. The change in both lines appears to be about the same, even though one change is almost 30 times as great as the other (the red line goes up 37,250 and the pink line goes down 1,071,987). Furthermore, on the left side of the graph, the smaller number is on the bottom, while on the right side, the smaller number is at the top.

Graphs can be a great tool to tell stories about data. However, just like language, images can confuse or deceive. So it's worthwhile to be a conscientious consumer of data and make sure that the pictures you see accurately reflect the numbers.


Interested in learning more about how to interpret data? Take HBX CORe and discover the basics of Economics for Managers, Financial Accounting, and Business Analytics.

Learn more about HBX CORe


jenny

About the Author

Jenny is a member of the HBX Course Delivery Team and currently works on the Business Analytics course for the Credential of Readiness (CORe) program, and supports the development of a new course in Management for the HBX platform. Jenny holds a BFA in theater from New York University and a PhD in Social Psychology from University of Massachusetts at Amherst. She is active in the greater Boston arts and theater community, and she enjoys solving and creating diabolically difficult word puzzles.

Topics: HBX CORe, HBX Insights

How Crowdsourcing Could Help Simplify America’s Tax Code

Posted by Professor Mihir Desai on September 1, 2016 at 1:59 PM

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This post was originally published on Fortune.com.

By soliciting ideas from large groups, the U.S. can come up with the right policies to reform the nation’s tax code — similar to the way complex computer systems are managed around the world.

Complaining about the complexity of the tax code has become a treasured ritual during spring tax season. The code has grown ever more complex and this complexity has considerable costs. As one example, the incredible complexity of tax incentives for education limits uptake and redistributes wealth away from those targeted and toward sophisticated taxpayers. How could we transform this ritual of complaining into spring cleaning?

Addressing complexity in the tax code requires analogizing to other complex systems and drawing on the research that demonstrates how to manage that complexity. Indeed, there is a well-developed literature on how to manage complex systems that can provide the foundation for simplifying the tax code. In particular, we know a lot about how to manage the evolution of software codes. This analogy yields two primary lessons.

First, “over the wall” engineering is highly problematic and “concurrent” engineering is preferred. Throwing completed ideas “over the wall” to the next part of the production process limits learning and engenders complexity relative to a concurrent and iterative production process. Currently, policy ideas are often developed without a clear vision of the associated language and with even less attention to the perspective of administrators. As with software, this yields bulky and contradictory language that could be avoided if the practice of policy formulation and drafting were a collaborative activity with the administrative agency in charge of enforcement. While the 1998 IRS Reform Act calls for such an approach, the reality does not live up to the law’s aspiration.

Second, and more radically, we should embark on an effort to crowd source the code. Much as the development of software capitalizes on a distributed talent pool, our legislative and regulatory processes on taxes could be opened up radically during comment and drafting.

Currently, the code is managed much as it was 50 years ago – in a fundamentally closed manner. Laws and regulations are drafted by small groups in a non-transparent way that pays little attention to the overall architecture of the tax system. As a consequence, vested interests can influence the management of complexity toward their advantage and complexity grows by ignoring interrelationships.

Research shows that effective management of complex codes – be it Linux or the tax code – requires three things. First, the code must be mapped so that the interrelationships, technically and conceptually, of different parts of the code and associated regulations and rulings become manifest. Second, this mapping enables modularization whereby the code is reorganized into pieces that reflect these relationships. Finally, this modularization provides the foundation for opening up the code to experts throughout society – so-called crowdsourcing – who contribute suggestions for rationalization and simplification.

By mapping, modularizing and opening the code and associated regulations, we could draw upon widespread expertise, provide transparency on a critical process, address the imbalance in resources between the taxing authority and sophisticated taxpayers and begin the process of simplifying the code and its administrative guidance. In the limit, one could imagine a detailed mapping of the tax code and associated regulations hosted by the IRS much as software code is mapped. This mapping would then serve as a guide to reorganizing laws and regulations over time. While decision making rights would remain with Congress and the IRS, opinions on policies would then be solicited widely and the drafting of laws and regulations could be aided by experts around the country through an open platform.

The commentary and drafting process that is so critical to policy formulation and administration would be completely open in real time. Such transparency is the only guard against capture of the process by vested interests and will allow for broad expertise to inform the highly complex matters that the code addresses. Even more than with software, there is deep expertise distributed broadly and government staff and the IRS could benefit immeasurably from this assistance. It is possible that more sophisticated groups with more resources will govern the process even with this open architecture. Hopefully, their efforts will be countered by other citizen groups and transparency will yield benefits relative to current processes.

Embarking on this process of crowdsourcing the code would bring our tax system in line with the way in which complex systems are managed around the world. Let’s all stop complaining about the complexity of the tax system and start contributing to its simplification.


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About the Author

Professor Mihir Desai is an award-winning teacher at Harvard and a leading scholar of corporate finance and tax policy. He has been teaching for nearly twenty years to varied student populations, including senior executives from around the world, MBA students, undergraduates and lawyers. Professor Desai teaches HBX’s newest offering - Leading with Finance.

 

Topics: HBX Insights, HBX Finance

What Artists, Activists, and Other Alternatives Can Get Out of HBX CORe

Posted by Tiara Shafiq on August 30, 2016 at 1:05 PM

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At first glance, I seem like the last person to ever consider taking a course like HBX CORe. I am deeply rooted in arts and social justice, most of my peers critique capitalism at every turn, and financial documents make me yawn. However, I do love learning, and have a philosophy of signing up to anything that seemed interesting - and HBX CORe seemed intriguing enough to try. To my surprise, I found HBX CORe far more engaging than I anticipated, and I was able to find many ways to connect my background and my values with my learning experience.

Understanding analytics can protect you from being exploited by misleading information and fine-tune your knowledge in an area of interest.

Statistics of all kinds are commonly used to persuade or advocate for any position - this group is correlated with high crime rates, or this diet change correlates to massive weight loss, for example. It’s easy to be confused by a random p-value or the use of a different kind of “average” (mean, mode, median) than expected - and unfortunately many take advantage of that confusion to present false information.

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Being able to read and understand analytical data helps you be more discerning: you are able to recognize when someone is misusing data to push an agenda, know what the results actually say, and can draw more solid conclusions. On the flip side, understanding basic analytical skills – such as linear regression or surveying – can help you better understand your topic of interest and be able to communicate your findings accurately: from community opinion polls about a recent Governmental measure to what you should sell at your next Artist’s Alley booth.

Accounting is really all about organizing how money comes in and goes out in a business.

At first I found the whole concept of financial accounting daunting and dreadful; I could never make sense of all these profits and losses, and actually shied away from starting various projects because I didn’t think I could handle the financial paperwork. However, through HBX CORe I learned that all those documents are really just different ways of recording and organizing financial transactions that happen in a business: every purchase, sale, loan, investment, even tax and depreciation.

Start with a record of every transaction, organize them into categories (“accounts”), and from there group similar accounts together to see where the money is going. Once all that data is organized, the ratios to figure out things like profit margins or cash conversion cycles become very straightforward. How quickly are you going through your inventory? How much profit are you earning relative to the costs of your business? When do you pay off your debt, when do you get paid by your customers, and how long does this take?

Even if you don’t plan to start a business, knowing what those terms refer to can help make sense of big financial news, such as a company's IPO or prospectus release. You get a sense for where those companies’ priorities lie and which areas are stronger than others.

Understanding economics concepts can really strengthen your political/social justice position (and HBX CORe is a welcoming space for it)!

Through my strong involvement in intersectional activism, I’ve learned a lot about how capitalism and mainstream economics can become oppressive forces for marginalized communities. Certain parts of the Economics module in particular became very challenging and somewhat frustrating because it felt like they did not really dive deeper into the socio-political implications or critiques of those theories.

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I decided that, rather than be silenced for fear of jeopardizing my grades, I was going to take this opportunity to bring my passion and experience to the program. I drew connections between what we learned in class and how they applied to the wider world outside our HBX bubble. I spoke up about the real-world impacts of minimum wage and illustrated the connection between Willingness to Pay and sex worker rights. While these conversations were sometimes very heated, I found that my coursemates and even the professors were open to my critique, with many appreciating the varying perspectives I brought to the table. 

Our work and perspectives have value.

As artists, activists, change makers, community builders, creatives, and others with more alternative life paths, we are often surrounded by messaging telling us that our work is not worth as much, that it’s frivolous and not as important as being rich and successful. While we may not seem like the target market for a business course like CORe, there’s actually a lot of material within that we have every right to adopt, make our own, and benefit from understanding – from being willing to price ourselves by our true value (rather than undersell ourselves), to tracking concrete measurements of the value we give and receive. There will be plenty of people in your cohort that are more than willing to listen to your point of view and respect you for sticking to your values.

You may not ever need to make profit and loss statements or set up a multiple variable linear regression in Excel, but at the very least you’ll understand another powerful language to navigate the world - and make it more like the world we envision.


Interested in learning Financial Accounting, Business Analytics, and Economics for Managers?

Learn more about HBX CORe


tiara

About the Author

Tiara Shafiq earned a Pass with High Honors in the January 2016 cohort of HBX CORe. She is passionate about liminality, identity, and community, and has over five years of experience in the arts, media, community cultural development, tech, education, and activism. Tiara has recently relocated to Melbourne, Australia, and is busy seeking out opportunities for work, creativity, and community. Visit her at creatrixtiara.com.

Topics: HBX CORe, Student Bloggers

How to Negotiate (Even When Everything Seems Hopeless)

Posted by Professor Mike Wheeler on August 25, 2016 at 10:37 AM

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This post was originally published on Linkedin Pulse.

If you want to be a great negotiator, you have to be a great improviser. There’s no choice in the matter. You can’t script the process. It’s too unpredictable. The people you deal with will have their own ideas about how things should go.

That’s why we all can learn from master improvisers in other fields, especially jazz. I described a business application of this principle in one of my early posts. In another—on the importance of paying heed—I quoted pianist Herbie Hancock of sometimes being so focused that “I’m listening with my toes.”

Today’s negotiation lesson comes from trumpeter Miles Davis who said, “It’s the notes that you don’t play that matter.” 

I found another great example of how this maxim applies powerfully to negotiation in my colleague Deepak Malhotra’s new book Negotiating the Impossible. Right there on page 145 in bold type he channels Miles by saying: “Ignore ultimatums. The more attention you give to them, the harder it will be for the other side to back down if the situation changes.” 

He’s absolutely right. (I only wish the book was available back in January when I wrote a post on dealing with take-it-or-leave it job offers, as his advice applies there, as well.) 

When someone says, “absolutely not” or “it’s against company policy,” the natural impulse is to ask why or ask for an exception--or to challenge the assertion itself. But often it’s smarter to let the remark pass without comment. Your counterpart may have spoken in haste. Given time, he or she may soften their position—provided you haven’t reinforced it. 

The worst thing to do is to rise to the bait. Don’t ask if they really mean what they just said. If someone paints themself into a corner, why hand them another bucket? Instead, let the moment pass, as Miles said. It’s in the same spirit of the feisty credo of the actress Ruth Gordon (the star of the cult classic, Harold and Maude.) “I never face facts,” she said. “I never listen to good advice. I’m a slow starter but I always get there.” 

But what if your counterpart persists? Deepak recommends re-framing the ultimatum using less rigid language so it’s easier for them to back down. If not now, then maybe later. For example, say something like, “I can understand how, given where things stand today, this would be difficult for you to do . . .” 

Note how much those three italicized words pack so much meaning into that short phrase: 

  • Understand is an acknowledgment that you have heard their problem, so they don’t have to state again;
  • Today reminds them that things may change, especially if you can jointly tackle their underlying constraints; and
  • Difficult sounds more pliable than impossible. It implies that somewhere within a tangled problem, there’s a solution struggling to find its way out. 

This style of response is what another colleague of ours, Deborah Kolb, calls a “turn.” It’s a deft rephrasing that keeps the door open for further discussion. Done well the transformation might take hold without even being noticed. 

Deepak realizes, of course, that some ultimatums are truly non-negotiable, but thinks there’s little harm in ignoring one when you first hear it. If it is real, he says, “they will repeat it over and over again, in all kinds of contexts and in all kinds of ways.” 

That advice reflects Deepak’s refreshing perspective on the overall negotiation process. He is skeptical about street wisdom such as never make the first offer, or always negotiate on your own turf. Depending on the circumstances, what would be right in one situation might be disastrous in another. 

It comes down to making judgment calls, he says, case by case. And that requires operating from more general principles such as controlling the frame, being mindful of optics, and helping others save face (all of which are factors in deciding how to respond to ultimatums). 

Thinking about the wisdom of (sometimes) not facing facts and ignoring ultimatums (at least the first time you hear them) reminded me of a case I was involved in years ago. I was a member of the local land use planning board. Seldom did all five of us agree on the applications that came before us. But in one instance, we turned down a developer’s proposal with an unequivocal five to zero negative vote.

When we announced our decision, the guy cheerfully said, “Okay. What’s the next step?” 

He acted as if he had just won the first round—which was nuts under the circumstances. Anyone with sense would have given up. But this fellow came back again and at least two more times after that. He revised his plans and we tweaked our policy. Ultimately his project got built. 

Hats off to him! And my guess is that Miles and Deepak would give him two thumbs up for ignoring our initial veto. 

PS: If you’re interested in learning more about Deepak’s work, here's a recent interview with him.


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About the Author

Professor Mike Wheeler's current research focuses on negotiation dynamics, dispute resolution, ethics, and distance learning. He is the author or co-author of eleven books, and his self-assessment app—Negotiation360—was released early in 2015. Professor Wheeler is developing a new HBX program on Negotiation which will launch in early 2017.

 

Topics: HBX Insights