For decades, negotiators have been working out agreements by focusing on interests, not positions. But the messy problem of how to share the gains created by deals has remained unresolved--until now. The answer, argue Yale's Nalebuff and NYU's Brandenburger, lies in accurately identifying and sizing the negotiation "pie," which they define as the additional value produced by an agreement to work together. It's the value over and above the sum of the two sides' best alternatives to a negotiated agreement, or BATNAs. The pie most people have in their heads, however, is the total value available to be split. Because of this, they argue over the wrong numbers and issues, taking positions that they think are reasonable but that are in fact self-interested. Once the pie is properly understood, the allocation rule is simple: The parties in a negotiation have an equal claim on the pie, so it should be divided evenly. This is true regardless of what they can accomplish on their own, because both are equally needed to create the gains. This principle can be applied in a variety of increasingly complicated real-world scenarios, which the authors walk readers through in this article.
"Co-opetition"--cooperating with a competitor to achieve a common goal or get ahead--has been gaining traction for three decades. Yet many companies are uncomfortable with the concept and bypass the promising opportunities it presents. In this article two professors who helped introduce the approach offer a framework for deciding whether to team up with a rival, drawing on examples from Apple and Samsung, DHL and UPS, Ford and GM, and Google and Yahoo. Their advice: Start by analyzing what each party will do if it chooses not to cooperate and how that will affect industry dynamics. Sometimes working together is a clear win, but even if it isn't, it may still be better than allowing someone else to take your place in the deal--which could leave you at a disadvantage. Next, it's critical to figure out how to cooperate without giving away your "secret sauce"--your current advantages. Once you've done that, you'll need to craft an agreement that clearly outlines the deal's scope, who is in charge, how the arrangement could be unwound if needed, and how gains will be divided. You'll also have to manage resistance within your own firm and alter internal mindsets. Co-opetition requires mental flexibility, but firms that develop it can gain an important edge.
When business school students are taught strategy, they dutifully study mapping the five forces, for example, and drawing a value net, but they know that game-changing strategies come from somewhere more creative. To generate groundbreaking strategies, executives need tools explicitly designed to foster creativity. A number of such tools already exist, often in practitioner-friendly forms. They take their inspiration more from how our thought processes work than from how industries or business models are structured. Thus they can help strategists invent a genuinely new way of doing business. The author explores four approaches to a breakthrough strategy: (1) Contrast. Identify--and challenge--the assumptions undergirding the status quo. (2) Combination. Connect products or services that seem independent from or even in tension with one another. (3) Constraint. Look at limitations in an organization and turn them into strengths. (4) Context. Consider how a similar problem was solved in an entirely different context--surprising insights may emerge.
Although today Intel is a titan, the company's history has been a roller-coaster ride. And no one is more qualified to reflect on Intel's close calls and spectacular successes than its CEO, Andrew Grove. Adam Brandenburger and Barry Nalebuff say that Grove's book, Only the Paranoid Survive, offers advice to managers in every business on how to bridge the narrow line between catastrophe and opportunity, and seize the opportunities. Grove's leadership of Intel has led him to conclude that some fear is healthy, especially in organizations with a track record of success. His prescription for ending complacency is a dose of paranoia--a suspicion that the world is changing against you. How can managers catch this mental condition? By stepping outside their organization and adopting the perspective of someone without a vested interest in the status quo.
The essence of business success lies in making sure you're playing the right game. How do you know if it's the right game? What can you do if it's the wrong game? To help managers answer those questions, the authors have developed a framework that draws on the insights of game theory. The primary insight of game theory is the importance of focusing on others. In other words, companies should consider both cooperative and competitive ways to change the game. Who are the participants in the game of business? The authors introduce a schematic map that represents all the players and all the interdependencies among them.
Minnetonka Corp. which was founded in 1964, began as a niche player in the gift soap and novelty toiletries markets. In 1980, it entered--and managed to capture a piece of--the mass bar-soap market with pump-dispensed Softsoap liquid soap. In 1984, the company took on the toothpaste market with plaque-fighting, pump-dispensed Check-Up. This time, success was more fleeting. Minnetonka launched the hugely successful Obsession fragrance in 1985, following up with Eternity in 1988. Minnetonka's various businesses were sold over the period 1987 to 1989. Analysis suggests that the key is the use of scope--starting a new game linked to an existing game in which rival players are already established. Analysis indicates that rivals may then deliberately choose to delay imitating the innovator if they view the innovation as: 1) sufficiently unlikely to succeed in the marketplace, and 2) sufficiently close a substitute to their existing products. A rewritten version of an earlier case.
Companies sometimes issue rebate coupons entitling the holder to a certain amount off the price of their products. This case explores the effects of rebate coupons on the game between two companies that operate in a market where there is very little underlying customer loyalty. Analysis indicates that all sellers gain, even if only one seller issues rebates. When all sellers issue rebates, all sellers gain more. The effect is seen to depend on the presence of an underlying rule of the marketplace ("one-price-to-all").
The 1980s were the "Nintendo" decade in video-games, while the early 1990s saw Sega rise to prominence on the basis of next-generation, 16-bit technology. By early 1994, Nintendo and Sega split the worldwide installed base of 16-bit home video-game systems about equally. Still, while 16-bit systems offered superior graphics, sound, and game play over the earlier 8-bit systems, many observers considered them a transitional technology, likely to be superseded in the next two to five years. The case focuses on the efforts of 3DO, a high-profile U.S. start-up, to promote a new 32-bit platform. Also describes the new technologies being developed by Nintendo, Sega, Sony, Philips, and Atari. By expanding the scope of the game, 3DO engineered a window of opportunity with respect to the established players, Nintendo and Sega. Focuses on how 3DO chose to exploit that opportunity. Illustrates, in particular, the strategy of bringing new players into a game. Planning to make money from licensing the software technology, 3DO gave away the hardware technology for free.
Home video-game systems were pioneered by the U.S. company Atari in the mid-1970s. After going through boom and bust in the early 1980s, the industry was resurrected in the mid-1980s by the Japanese company Nintendo. With its 8-bit video-game system, Nintendo established a dominant position in a greatly expanded home video-game market. The case focuses on the post-1987 period, when new 16-bit home video-game technology began to come on the market. First to introduce a next-generation system was the major Japanese electronics company NEC. Second out with a 16-bit system was Sega, the leader in the Japanese arcade-game business and an unsuccessful player in the 8-bit home video-game market. Nintendo itself moved more slowly in introducing a 16-bit system. The case ends with the battle between Sega and Nintendo to gain the edge in 16-bit sales.
The home video-game industry began in 1972 with the founding of Atari. After riding a dramatic boom and bust in the early 1980s, most players left the business. Nintendo of Japan then rebuilt the industry--establishing a commanding worldwide position by the end of the decade. By 1990, Nintendo game systems could be found in one out of every three households--in both Japan and the United States. The company's stock market value exceeded that of Sony or Nissan. The case describes the steps Nintendo took to achieve this success. Also covers the U.S. antitrust investigation of Nintendo.
Describes a problem of bankruptcy, following the treatment in the 2,000-year-old Babylonian Talmud. A person dies, leaving a number of debts that total more than the size of the estate. The question is: How should the estate be divided among the creditors? The case presents the Talmudic prescriptions for dividing three such estates. The estate division problem is then reinterpreted as the problem of how a number of partners involved in a project should divide the total cost of the project among them. The Talmudic prescription for estate division coincides with the added value approach. (In particular, it is neither equal nor proportional division.) The analysis applies beyond the context of estate division, as the cost-sharing reinterpretation demonstrates.
The early 1990s saw a new wave of start-ups in the U.S. airline business. One entrant, Kiwi International Air Lines, took to the skies in September 1992 with a strategy of attracting small-business travelers looking to save money but lacking the flexibility to book in advance. Fares were to be pegged to the lowest restricted fares in the market, but offered on an unrestricted basis. Another setting in which entrants have recently sought to capture market share from large, established players is the U.S. credit card industry. In the early 1990s, the industry witnessed an onslaught of new players wooing customers with offers of low interest rates and small or nonexistent fees. This case explores some aspects of the game between small-scale entrants and large-scale incumbents.
Costly "wars of attrition" are common. Examples include: 1) the battle over the business of market-making in British government bonds that took place following the 1986 deregulation of the London financial markets, and 2) the battle that took place in the late 1980s between British Satellite Broadcasting and Sky Television over the U.K. satellite broadcasting business. The case explores what can happen when two companies find themselves engaged in a war of attrition. Analysis shows that given any length of time whatsoever, it is possible to rationalize a strategy of fighting for precisely that length of time. This provides a reason why wars of attrition often lead to long fights and large cumulative losses for the players involved. There is an irreducible "fog of war" that makes the war of attrition a very dangerous game to play.