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: 

1. 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...
2. 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.
3. 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.
4. 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:

1. Put class into 5-7 random (and uneven) groups as they enter the class
2. 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.
3. 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."
4. 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:

• A short compilation of exercises that Don Hatfield and I put together. I still use Builderific, Gourmet adventures, and the Paper Chase fairly regularly.
• Coff, R. and Hatfield, D.E. 2003. Tinkering in Class: Using the Tinker Toy Exercise to Teach First Mover Advantages and the Resource-based View. Journal of Strategic Management Education. 1(1): 289-303.
• Mason Carpenter's BPS teaching toolkit page includes a wealth of resources.
• Classroom expernomics is a page devoted to experiential exercises for teachging economics concepts.