HARVARD UNIVERSITY
GRADUATE SCHOOL OF BUSINESS ADMINISTRATION

George F. Baker Foundation

NEGOTIATION

Course Outline – Winter 2002

Faculty:

Max Bazerman (co-course head)

Gary Bolton

Terry Burnham

Brit Grosskopf

Lorraine Chen Idson

Guhan Subramanian (co-course head)

Kathleen Valley

NEGOTIATION

Winter 2002

1. Course Objectives

   Managerial success requires agreement and collaboration with other people. This is certainly true for transactions between suppliers and customers, and between investors and start-up companies. It also applies in settling lawsuits, resolving labor problems, forging joint ventures, and crafting strategic alliances.

   Since other stakeholders do not have the same interests, perceptions, and values that you do, negotiation skill is needed, professionally and personally. This course is aimed at enabling you to become a more effective negotiator. Effectiveness at the bargaining table requires many things, including:

   • The ability to create value and execute deals that others might overlook;
   • The strategic skill to garner your fair share of what is negotiated;
   • The ability to avoid common mistakes made by negotiators;
   • The perception to understand your own ethics, and the ethics of others;
   • The ability to work with people whose backgrounds, expectations, and values differ from your own; and
   • The capacity to reflect and learn from your experience.

   Effectiveness requires analytic vision and interpersonal understanding. The ability to identify key stake-holders, their interests, and leverage is essential, yet even the most ingenious strategy will fail if not artfully implemented. By the same token, being very persuasive does little good unless it is in service of a carefully conceived plan.

   This course provides you with the opportunity to learn how to analyze negotiations at a more sophisticated level. It will give you the opportunity to identify your strengths as a negotiator and to work on your weaknesses. More fundamentally, the course will provide a conceptual framework to diagnose problems and promote agreement, both outside and inside your organization.

   
   
2. Method of Instruction

   This course differs from the rest of the first year MBA curriculum in some important respects. While we will study traditional business school cases in some of our sessions, the heart of the course is a set of interactive negotiation exercises and simulations. These exercises have a dual purpose. First, they will give you hands-on experience with negotiation. You will learn first by actually negotiating, and then by stepping back to compare your approach and results with those of your classmates. You can test your analytic skills and experiment with new techniques. Special preparation and follow-up assignments will encourage you to draw practical lessons from your personal experience. You will also have the chance to exchange feedback with your classmates in a structured way.

   The exercises also illustrate the key elements of our systematic approach to negotiation analysis. Our first simulation will involve a two-party, price-focused negotiation. We will then move on to progressively more complex situations involving a broader range of issues, multiple parties, and internal-external relationships. Debriefing the exercises, we will examine the range of agreements that people reached, and then identify the key drivers of success. We will see why, for example, some pairs of buyers and sellers agree to a low price while others settle much higher, even though both pairs were given the same initial instructions. We will also see why some people reach agreement while others, in identical situations, do not. Comparing your own results with the class's collective experience will demonstrate the economic, psychological, and social dynamics that animate the negotiation process.

   Because your regular sections are "scrambled" for this course, you will have the chance to negotiate with both people that you see every day and others that you do not know very well – just as in the real world. Appendix A explains the procedures for conducting the exercises.

   
   
3. Content and Organization

   Because the course provides a general approach to negotiation, it draws on examples from a variety of industries and contexts. Likewise, the underlying principles incorporate ideas from a range of fields and disciplines, from economics and decision theory to psychology, organizational behavior, and law.

   The first seven classes present the core model of negotiation analysis, explaining how value is generated at the bargaining table and how the parties divide it. The remainder of the course extends this model by considering more complicated cases. We will consider the strategic consequences of having many parties in a negotiation – for example, how coalitions form and bargaining power often shifts. We will also explore the complexity that arises when internal differences within an organization make it difficult to reach agreement with outside partners and customers. Likewise, we will look at how hidden political agendas, cross-cultural issues, and a host of other factors can impact the negotiation process. As an on-going theme, we will consider challenging ethical issues of truth-telling, fairness, use of power, and principal-agent conflicts. An outline of the classes appears in Appendix B.

   This is a relatively short, graded course. It is meant to give you the basic tools and concepts to be an effective negotiator and to systematically learn from your future experiences. Students who wish to do further classroom work in this area will be well prepared for the following specialized second-year electives: Corporate Diplomacy; Changing the Game; Dealmaking; Negotiating New Ventures; Power & Influence; and Negotiating Complex Deals & Disputes.

   
   
4. Materials

   The basic course packet and a second packet of confidential instructions for the negotiations exercises will be distributed through the Spangler Center. This second packet is customized for you and will not contain exactly the same material as other people will have. Finally, some supplementary material will be distributed through the web or handed out in particular classes.

   
   
5. Grading and Course Requirements

   Grading in this course will be on the standard HBS system (i.e., Category 1, 2, and 3). Grading will be based on four components: class participation (40%); short assignment #1 (15%); short assignment #2 (15%); final examination (30%).

   Class participation has several components. First and foremost is diligent completion of all the negotiation exercises. This means not merely taking part in them, but being well-prepared for them – and completing the polls on time. Appendix C shows, in chronological order, the complete set of poll submissions that you will be responsible for this semester. All this is important for your own learning. It also guarantees a good experience for the people with whom you will be matched. With rare exception, students in the past have more than met this requirement. A failure in this regard, however, will have negative conseqeunces in grading.

   Second, participation includes timely feedback to your counterparts in the negotiation exercises through diligent completion of the peer feedback polls. Again, please refer to Appendix C for a complete list of feedback submissions that you will be responsible for. This feedback provides a unique opportunity for you to think carefully about how you perceive others (and why), as well as receive feedback from your classmates on how they perceive you in negotiation situations. This feedback is anonymous. It will be aggregated and reported back to you, along with your outcomes relative to your classmates in each of the negotiation exercises, in our second to last class.

   Finally, class discussion will be graded as well. We are mindful that in a shorter course like this one, the relative quantity of comments may have some element of chance. As a result, we will give less weight to the number of times a person has spoken in class. We are more concerned with the quality of discussion. Here again, our expectation is that it generally will be high. We will particularly note, therefore, truly outstanding observations, insights, and questions. The rare comment that betrays a lack of preparation or attention will be noted.

   In a sense, the course is a laboratory in which you will be both experimenter and subject. Your instructor will encourage you to articulate general principles and extract prescriptions from your personal experience in the negotiation exercises. Merely relating who offered what in a particular simulation will be of little value to the rest of the class. The challenge will be to identify the underlying dynamics of a situation, and extract lessons that everyone will find useful.

   Sometimes the most important learning comes from apparent "failure." After all, if you have gotten a good deal, it may be hard to know whether you have been smart or simply lucky. By contrast, if you were deadlocked or got a poor outcome, it is often possible to identify what happened – and to see how to avoid getting in the same position in the future. As a consequence, we hope to create a classroom atmosphere that encourages self-reflection and candor. In this process of discovery, good questions will be valued at least as much as good answers.

   You will also be assigned two short written assignments. These assignment are intended to solidify the learning from the course in advance of the final exam. Please be aware that the second of these two assignments will be done as a group project.

   
   
6. Optional Speaker Series

   For the first time this year, we will be running an entirely optional speaker series, in which members of the Negotiations teaching group, one other member of the HBS faculty, and one outside speaker will present their current research or particular applications of negotiations tools and techniques. While we welcome all students, these sessions are entirely optional – none of the material presented will be tested in any way, and your attendance or non- attendance will have no impact on your grade for the course.

   We believe that the seminar series will provide interesting and fun additional insights on the basic material covered in the course. The seminars will be stand-alone presentations, so that you may pick and choose according to interest. Unless otherwise announced in class, they will take place from 12:00 to 1:00 pm, approximately one per week for the six weeks that the course is in session. Please bring your lunch if you wish. The calendar for the speaker series is given in Appendix D.

   Relatedly, those students who wish to do further reading on the topic of negotiations can find a list of recommended readings in Appendix E.

   
   
7. Special Note on Research

   The results of the negotiation exercises and related polls provide rich material for class discussion. This data sometimes may also support valuable research. Analysis of such data has contributed to the on-going evolution of negotiation theory. Some of the concepts and insights that you will encounter in this course can be directly traced to learning that took place in prior versions of this course.

   Whether or not the results of these negotiation exercises should be regarded as "experiments" in the formal sense of the word, the faculty in the course want to inform students of the potential research use of this data. Only aggregate, statistical information would ever be published. Complete anonymity would be guaranteed. No personal information is ever involved.

   We very much hope that you are comfortable with this kind of use. Nevertheless, if you are not, please contact the course administrator and she will ensure that your data are removed from any archived results that might subsequently be used for research. The course administrator is Nicole Nasser; her number is 495-6909.

Appendix A: Policies and Procedures for Negotiation Exercises

You will take part in a series of exercises or simulations in this course. The instructions and confidential information for them will be distributed through the Spangler Center. Other people will be assigned different roles, and therefore will get different confidential information.

Typically, you will be asked to read the background information for the upcoming negotiation, privately plan your strategy, and then meet with your assigned counterpart to try to negotiate an agreement. Sometimes there will be a pre-negotiation assignment. There will always be a post-negotiation assignment. At a minimum, one person in your particular pairing must report the outcome on a course platform poll; other information may need to be submitted as well.

For the most part, these negotiations will take place outside of class time. They constitute your preparation for class just as would reading a conventional case. For the WineMaster, M&A, and Deeport negotiations, however, we have set aside class time for the negotiations, due to the complexity of these simulations.

Preparation for these exercises should be done entirely on your own, not with a study group. An exception would be if you have been assigned teammates in the same role; this will be the case with WineMaster and M&A.

Do not show your confidential instructions to others, before, during, or after the negotiations. In the real world, they would not have access to your confidential information unless you give it to them. Showing this information would compromise the negotiation experience for all concerned. By contrast, when you are actually negotiating with your assigned party, you may discuss as much or as little of your information as you think is appropriate. Whatever you say or do, you should be prepared to explain your negotiation behavior in class. We hope there will be spirited – and useful – debate about ethical questions of fairness and disclosure that arise during your negotiations.

In these simulations, you only know the information provided to you. To the extent that you convey facts that you do not know to be true, you are lying. Please note, we are not guaranteeing that the other side will not deceive you. Unfortunately, deception exists in the world, and it may exist in your simulation. We are simply clarifying that if you make up facts, you are lying, not editing the case.

It should be understood that everyone is trying to achieve as good an outcome as they can, consistent with their particular instructions. Your skill will improve if you are matched with excellent opponents. Someone who takes it easy on you does you no favor. By the same token, there is no obligation to come to agreement in any of these exercises. If you believe the other side is being unreasonable or unfair, you are free to declare an impasse and walk away from the bargaining table. You should be prepared to explain your decision in class, of course, and you still will have to report the outcome in the post-negotiation poll.

Unless a specific exercise has explicit instructions to the contrary, you and your counterpart can decide when, where, and how to negotiate. In most instances, you will want to meet face- to-face, but telephone and e-mail are important modes of communication as well. At some point in the course, you might want to experiment by negotiating through these media to see how it affects the process.

Firm deadlines are set for completing these negotiations, so that the faculty can organize and analyze the results for class discussion. Generally (but not always), these deadlines are at 8:00 pm the night before the exercise will be discussed in class. Failure to submit results will be understood as failure to do the exercise. Even after you are finished, be especially careful about discussing any exercise. If you are inadvertently overheard by people who have yet to do it, their opportunity to learn may be seriously compromised.

Outcomes in negotiations are not a factor in grading. While we expect that people will strive to get good deals, success in this regard will be its own reward. Someone who has paid the highest price in a given negotiation will not be graded any differently than someone who paid the least. As noted in the syllabus itself, however, failure to diligently prepare for and carry out the negotiation would be a serious matter.

We encourage you to keep track of your own outcomes and to compare them to the group results that will be presented in class. It is extremely unusual for anyone to get an above average outcome in all of the exercises, but some people tend to do better than others. While it may be a bit discouraging to discover that you are not in that group, we hope that you will search hard for explanations. It is far better to confront such issues in this setting – where the stakes are low and the opportunities to learn are high – than in real world negotiations, where losses, financial and otherwise, can be truly painful.

Appendix B: Class Schedule (please consult course platform for updates)

Appendix C: Poll Submission Schedule (please consult course platform for updates)

Appendix D: Negotiations Seminar Series Schedule

All of the sessions listed below are entirely optional – the material will not be tested in any way, and your attendance or non-attendance will not affect your grade. Each session will be held from 12:00 to 1:00 pm, unless otherwise noted. Please bring your lunch if you wish.

Tuesday, January 15th (Aldrich 107)

Senior Lecturer Bob Higgins -- Commentary on Startup.Com & VC/Entrepreneur Negotiations

Wednesday, January 23rd (Aldrich 108)

Professor Kathleen Valley -- Negotiating Your Summer Job

Tuesday, January 29th (Aldrich 112)

Professor Guhan Subramanian -- Bargaining in the Shadow of the Law: Hostile Bids & Negotiated Transactions

Thursday, January 31st (time and location to be announced in class)

Mr. Paul Beeston, President & COO of Major League Baseball

Wednesday, February 13th (Aldrich 112)

Professor Max Bazerman -- Decision Biases in the Context of September 11th

Tuesday, February 19th (Aldrich 112)

Professor Gary Bolton -- Trust & Reputation in Negotiations

Thursday, February 21st (Aldrich 110)

Professor Terry Burnham -- Mean Genes: How Evolution Has Shaped Human Nature

Appendix E: Recommended reading

Though not required for this course, the following books are recommended for those who have an on-going interest in negotiation:

• Bazerman, Judgment in Managerial Decision Making (Wiley, 2002)
• Cialdini, Influence: The Pyschology of Persuasion (William Morrow, 1993)
• Hammond, Raiffa, and Keeney, Smart Choices, (Harvard Business School Press, 1999)
• Kolb and Williams, The Shadow Negotiation, (Simon and Schuster, 2000)
• Lax and Sebenius, The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain (Free Press, 1986)
• Mnookin, Peppet, and Tulumello, Beyond Winning: Negotiating to Create Value in Deals and Disputes (Harvard University Press, 2000)
• Raiffa, The Art and Science of Negotiation (Harvard University Press, 1982)
• Salacuse, Making Global Deals (Houghton-Mifflin, 1991)
• Shell, Bargaining for Advantage (Viking, 1999)
• Stone, Patton, and Heen, Difficult Conversations (Viking, 1999)
• Susskind and Field, Dealing with an Angry Public (Free Press, 1996)
• Thompson, The Mind and Heart of the Negotiator (Prentice-Hall, 2001)
• Ury, Getting Past No (Bantam, 1993)

In addition, the Negotiation Journal, published by the Program on Negotiation (Pound Hall, Fifth Floor, Harvard Law School) is a good source of current trends in negotiation theory and practice.