Case studies and essay questions
Case: Iceberg
Eight weeks ago Iceberg Limited opened its newly built food retail store on a prestige site it acquired at a premium price from Papete Investments Plc. It has invested a great deal in marketing its frozen food operations around the theme of ‘customer confidence’. The refrigerator system was manufactured and installed by Keep–it–Cold Limited for £250000, who also have the maintenance contract costed at 7.5% of the contract value per year – £18750 – (though for the next 12 months the equipment remains under warranty) with a 2 hour call-out commitment. Keep–it–Cold is sited in a nearby city, 130 miles to the north of Iceberg's new store and it services clients up to a radius of 150 miles from its depot.
On Friday of last week at 2 p.m., the visual alarm on one of the refrigerated display cabinets in the delicatessen section became active, indicating that the temperature had risen slightly above the regulation 3 to 5 degrees range. A member of staff called Keep–it–Cold to request a visit by their service engineer. She agreed that the alarm was not of sufficient seriousness to require an immediate response and also agreed that the service visit could be postponed until the next day. This suited Keep–it–Cold because that afternoon all of their service engineers had been assigned to calls to the north of their depot and were furthest away from Iceberg's store.
When the store was opened by the deputy manager next morning at 8 a.m., he discovered that the entire refrigeration system for the whole store had gone down during the night and that all of the display cabinets and the storage rooms were close to room temperature. There was no way that any of the contents of the store could be saved and every unit had to be emptied and their contents disposed of in sealed bins. This represented a stock loss of
£40000.
To compound the problem, the service engineer arrived at 11 a.m. instead of 8 a.m. when she was expected. She explained that she had been working up to 2 a.m. that morning on a major emergency 200 miles away. She had ‘signed on’ for duty at 9.00 a.m. and had gotten to Iceberg as fast as she could.
Meanwhile, at Iceberg, the deputy manager had been on the telephone several times to Keep–it–Cold, exhibiting various degrees of rage about what had happened on Friday and had become increasingly angry about the non-appearance of an engineer. He was told that on the basis of the conversation with his colleague on the previous day it had been agreed that the alarm did not indicate a major emergency and that they had not received any calls between 2 p.m. and when the store had closed at 8 p.m. to indicate that the alarm had gone from an initial indicator warning through the subsequent warning levels to ‘critical’. As far as they understood, the initial warning stage had remained static and they had no reason to revise their non-emergency grading of the problem.
The deputy manager stated that his member of staff did not have the authority to agree anything with Keep–it–Cold about service responses and that she had clearly been ‘persuaded’ (later described as ‘intimidated’) by whoever had answered her call to accept a lower and ‘wholly unacceptable’ response. His case was weakened by being unable to explain why she had not reported to him or another manager their response to her call. That week the Store Manager was on holiday and his deputy had taken his ‘half day’ that Friday afternoon.
When Iceberg's security monitoring service had rung Iceberg's Regional Office to report the initial alarm in one of the stores, they were told that Iceberg ‘was aware of the situation’ (because the employee had reported to them at 2.30 p.m. that she had requested a service call from Keep–it–Cold – though not, unfortunately that the engineer was not coming until the next day). They had received the same response when, throughout the night, their electronic monitors picked up the other alarms. Iceberg's Night Unit assumed that Keep–it–Cold engineers were on the premises dealing with the problem. They had not rung the store nor Keep–it–Cold to check their assumption.
The initial phone calls between Iceberg and Keep–it–Cold were argumentative and blame seeking. Whatever had happened the previous day, Iceberg insisted that Keep–it–Cold's engineers should have been on their premises at 8 a.m. Keep–it–Cold insisted that they were in no way responsible as they were not informed of the worsening situation either by Iceberg's local staff, or its Regional Office, and they had no direct link to Iceberg's monitoring service.
Iceberg calculated that it had lost £56000 as a result (£40000 stock, £14000 net profit and £2000 in labour costs) on what would normally have been a busy week-end. This was apart from the inestimable damage to their reputation with their customers, especially as the store was brand new in the area and the equipment was only eight weeks old. They demanded compensation from Keep–it–Cold and warned them that their reputation was at risk too because, once this incident was reported to Iceberg's head office, it could put in jeopardy their maintenance contracts and their role as a major supplier of refrigeration equipment to the whole group (256 stores across the country, with one new store a month scheduled for the next two years).
How serious the implications were for Keep–it–Cold is a matter of conjecture but the business relationship was at risk to some extent. They had a good reputation generally but were convinced that they were not solely to blame and that the local store management had much to answer for because of their absence that afternoon, as did Iceberg's regional office for how they had responded to the calls from their monitoring service that night.
A meeting has been called to discuss the problem.
1. What is the main common interest of Iceberg and Keep–it–Cold in this dispute?
(8 marks)
2. How far should Iceberg push for compensation?
(8 marks)
3. Should Keep–it–Cold resist or pay compensation?
(8 marks)
4. What proposal might Iceberg make to resolve the dispute?
(8 marks)
5. What would jeopardize Iceberg's and Keep–it–Cold's chances of resolving the immediate problem?
(8 marks)
Essay Question 1
In what circumstances is negotiation an appropriate method for making decisions and why does persuasion work well and coercion not work well in conjunction with negotiation?
Case Airport Authority
The Airport Authority (AA) has been under considerable pressure from the Regional Government to increase capacity at Changow Airport. Originally built fifty years ago as a small regional airport serving a population of 250000, Changow's single runway is at full capacity for 20 hours of the day. The region's population has climbed to over 5 million and much of this growth in air travel is due to the rapid economic expansion of the region from industry and tourism.
The options facing the AA are not attractive. To increase capacity at Changow presents some serious engineering problems on the only available land to the north, over which a new runway must be built. The problems are due to local geology and some regular flooding from the Hankse River delta flowing nearby. A residential population of about 1 million lives within an area of 15 kilometres to the north of the airport and they believe that their lives would be affected severely by a major new runway.
Moreover, economic developments close to the airport crowd right up to the southern boundary, which is the only suitable means of access from Changow city for a wider road. The land close to the east and west boundaries contains mainly high income residential properties, mixed with isolated green sites, containing rare natural plants, exotic birds and other small wildlife. The State Government recently designated some of these areas as ‘National Heritage Sites’.
The other option is to build a completely new airport at Fongow, at a distance of forty kilometres from Changow, in agricultural land, presently farmed by thousands of small holders, whose families have worked the land there for many generations. New access roads would be needed, plus, perhaps a railway system which would require many bridges and tunnels, and the airport would be close to high wooded hills. There are doubts about the operational feasibility of building an airport so far from the regional capital.
The local political representatives, all members of the governing coalition, favour expansion of Changow airport on the grounds of ‘national economic development’, ‘social progress’ and national pride. So does local business, which claims that the current airport is holding back economic expansion in the region. Airport passengers, business and tourist alike, are plagued by long delays to flights and missed connections, and traffic jams during access and egress along the airport's single and inadequate southern road to Changow city.
Public disquiet about proposals to expand Changow airport have surfaced and are attracting media interest. The main opposition comes from local residents around the airport, though they do not yet form a majority. On the southern boundary, people living along the main road to the airport oppose widening the road because this would mean demolishing many thousands of homes. People living just behind these houses oppose widening because this brings the new road right up to their properties. A ‘Homes Before Roads’ campaign is underway.
People to the north oppose a new airport runway because of the impact during construction and afterwards on the residents who would have to move to make way for it, and on those left behind, who would be near aircraft taking off and landing. A ‘Hands off the Hankse’ campaign has been formed.
Assume that you were asked to advise the State Government on how to defuse opposition to the new runway. What answers would you give to the following questions?
1. What are the interests of residents who oppose the new runway?
(8 marks)
2. What negotiable issues might serve those interests?
(8 marks)
3. What are the interests of the state government?
(8 marks)
4. What negotiable issues might serve the state government's interests?
(8 marks)
5. Is there a potential overlap on the positions of the residents and the State Government?
(8 marks)
Total of 40 marks
Essay Question 2
How does the concept of the negotiator's surplus assist the analysis of practical negotiation problems?
(20 marks)
Slobovic
Gunter Slobovic, Financial Director at Ivory Press Plc, has a formidable reputation as a ‘hard nosed’ negotiator. He does not agree to anything easily, especially if it costs money and he does not normally indulge in social pleasantries, unless it gets him concessions from whatever is proposed to him by suppliers unlucky enough to have him on their ‘slow paying’ clients’ list and due for a ‘motivational’ visit.
While occasionally affable, Gunter is unfriendly. He is always in a hurry to finish a meeting with a supplier and go somewhere else. He gives the impression that time is so scarce for a busy man like him that whatever time he spends with you, the people who should be benefiting from his presence that very moment are making a supreme sacrifice in him stopping long enough to say ‘hello’. So he doesn’t say much more, except ‘good bye’.
Most visitors are intimidated by Slobovic's manner and usually drop on his desk the paperwork about their visit and get out as fast as they can. Those (few) brave enough to stay and conduct their business suffer indignities, including being kept waiting well beyond their appointed interview time, having to endure constant interruptions while in his presence, having to ignore obvious signs that he is not listening very attentively, having to put up with sneers about their company or its services and suffer being threatened with outrageous consequences if they do not ‘sharpen their pencils’.
In short, Gunter Slobovic is a difficult person with whom to deal. Only his firm's growth and profitability as a customer saves it from being dropped by suppliers as ‘more trouble than it is worth’ (though over the years, several firms have done just that, because they cannot endure the personal costs of trying to deal with Gunter).
He is also abusive, given to ‘bad language’, highly prejudiced about ‘foreigners’ (and not too fond of younger people) and can be outright rude when challenged over his statements during a debate. He also theatrically switches off his hearing aid when he doesn't want to listen to anything he disapproves of, such as a complaint about a late payment, an announcement of a price increase, or a refusal of a concession that he thinks he is justified in (rudely) demanding.
A new account manager has joined the finance and investment team of your merchant bank recently and she is about to visit Gunter to discuss his requirement for a stand-by finance package to cover a proposed acquisition programme his firm is putting in place, with a view to some rapid acquisitions in their business sector. Your company wants to be involved in this acquisition programme because Ivory Press's plans are sound and likely to be profitable and Gunter's firm could grow from a $170 million turnover to $400 million in three years.
This could become a major first account for your new manager and you want her to do well (you recruited her from a rival merchant bank). She has come to you for some advice in handling Gunter – she has heard of his reputation on the ‘grapevine’ – and asks you the following questions:
1. How should I respond to Slobovic's bad behaviour?
(8 marks)
2. How much will the fact that Slobovic wants something from us soften his approach – and should it stiffen mine?
(8 marks)
3. Is it better for me to go in pretty close to our ‘best price’ or should I go in ‘high’ and leave room to negotiate?
(8 marks)
4. Should I let him know what I think of his expected rude behaviour or should I ignore it and stick close to the business in hand?
(8 marks)