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Experiential
exercises can be very valuable in class and I try to use an even mix
of exercises and cases. Below, I offer details of two valuable
exercises. MicroDesign is a negotiation that demonstrates the
transaction costs that hinder coordination across divisions. The
Global Game illustrates the search for complementarities in
alliances and M&A in the context of asymmetric information and
resources.
MicroDesign
Negotiation (75-150 minutes).
This exercise focuses on the problems with designing incentives
and structures to promote the cooperation across divisions needed to
achieve synergies. MicroDesign is a negotiation to transfer a
technology between 2 divisions of a corporation in order to take
advantage of a market opportunity. Sub-optimal agreements (money
left on the table) represent transaction costs and inefficiencies
that must be overcome in order to create corporate value.
There are two roles (Gant and Coleman). One division, Household
Appliances (HA), has developed a new technology that has value if
sold outside of the company. However, the division does not have a
charter to sell chips. In order to take advantage, the technology
must be transferred to the Chips & components (CC) division.
The four issues in the negotiation are:
- Transfer price. This allows the transaction to
take place but creates no value. Extra time spent on this
distributive issue could be viewed as wasted...
- Competitive protection for Household Appliances
would keep the innovation from HA's rivals and preserve their
competitive advantage. However, CC would have to give up
revenues. This is an integrative issue and could create value
(larger pie) if they arrive at the optimal amount of protection.
- Competitive protection for other divisions is
relevant mainly to the Office Automation (OA) division. They are
not a party to the negotiation but would like to have the
technology kept from their rivals as well. No one at the table
has any incentive to protect this interest though it is part of
the value to be created for Micro Design. The negotiators have
enough info in their roles to arrive at the optimal solution but
it is not reflected in their direct payoffs. Also, I have
prepared a separate payoff table for OA even though they are not
at the table and I don't hand that out.
- Training HA provides to facilitate the transfer
is another integrative issue so the parties can explore the
payoffs to identify the optimal level.
The spreadsheet displays what the optimal solutions are to the
last 3 issues (there is no optimal transfer price). It also charts
the money left on the table as value not created. I follow this with
a discussion of how you would maximize the value created through: 1)
incentives, 2) org structure & design, and 3) culture/clan. No
one level offers a complete solution to the problem (e.g., no
perfect incentive, etc.). A reasonable conclusion might be that a
firm that can address these problems better might enjoy a
competitive advantage over time.
This is a straightforward exercise in terms of the timing.
Usually, I assign roles the class before so they can prepare for the
negotiation (even through the roles are only 2 pages). In class, I
pair them with someone who has the opposite role and give them 20
minutes to negotiate. As they turn in their agreements, I enter them
in the spreadsheet so I can display the results graphically. This
leads to a rich discussion of incentives, structure, and culture --
sometimes I devote up to two classes to the exercise to accommodate
a deeper discussion.
Download
complete materials for MicroDesign here (including roles,
spreadsheet, slides, etc.)
The
Global Game (75-90 minutes)*
In the Global Game exercise students are placed in groups with
asymmetric resources with a task to maximize "points"
produced. In order to maximize output, they need to trade resources
(e.g., alliances) with other teams. The resources include raw
materials (e.g., paper), technology (e.g., scissors and templates),
knowledge (of the point system), and even people. They can also
merge teams.
The following is a brief overview of the exercise:
- Put class into 5-7 random (and uneven) groups as they enter
the class
- Give each group an envelope with instructions and their
initial resources (templates, scissors, paper, information about
the point system, etc.). Send them to their assigned meeting
places (teams 4 & 5 should be remotely placed so you can
discuss the impact of geographic dispersion). Let them plan for
5 minutes.
- Let groups trade resources with other teams for 25 minutes.
They can trade any of the resources (including people) and can
even merge teams if they wish. In the instructions, we simply
say that the only rules are to: "a) use only materials from
the game to produce output, and 2) no destruction of property or
people."
- Assign people to audit the output of other teams and give them
a worksheet to tally the output. Enter the totals in the
spreadsheet so you can display which team had the greatest gain
through trade.
The debrief focuses on how they searched for complementarities
and the hazards they faced in working with other teams. If there are
mergers, you can explore whether the gains could have been achieved
with an alliance (e.g., trading resources). Often they merge and
trade with teams that are in close physical proximity or through
pre-existing social ties -- e.g., a haphazard search for
complementarities.
Download
complete materials for the Global Game here (including roles,
spreadsheet, slides, etc.)
*Credit goes to Andrew
Ward who kindly shared this exercise with me.
Additional Resources
Here are a few additional resources:

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