Beginning of the third week. Most people here seem to be quite happy that two weeks have passed and there is lot of bonhomie among the people. It is quite surprising how professionals who don't know each other till two weeks back, start working together as though you have known each other for many years. Of course the setting here is non-political, non-threatening and most people here are emotionally secure.But still what could be achieved in such a short time surprises me - how much of it because all of us are experienced professionals, how much is due the environment here, how much is because of the schedules and living rooms - is quite difficult to tell. But put all these ingredients together, there is magic in the air !
Monday of week three is quite a busy day. There is homework on negotiations that we have to do in groups of three - my group mates were from Lucian Isar from Romania and Jose Minana from Philippines - Jose works in the Retail industry and Lucian is from the Banking industry. We met for breakfast and decided very quickly to have a open book negotiations with the other party - where in we will maximize the outcome for both parties - keeping in mind what parameter is more relevant to each other.
The first class on Financial management was on whether Airbus should go ahead with the $13b investment in developing the new super jumbo the A3XX. When we look at the investments needed and uncertainty involved in the airline industry, one wonders how people ever take decisions. Interesting discussion was on the value of money, when looked at "in perpetuity". The question is : if one is going to get a return of $1 every year forever and the interest rate is 11%, what is the present value of this ? In other words what is the PV of $1 forever @ 11% - the answer is $9.09; and the value of $1 for 50 years @ 11% is $9.04 - did you notice the very small difference ? And the value of $1 for 14 years @ 11% is $6.98. This becomes crucial in agreements between two parties, when one party decides that they will take the profits for the first few years and the other party for the later years. The concept of the present value of money is crucial and needs to be understood completely.
The airline manufacturing industry is also fraught with trade disputes on government subsidies - there are many pending with the World Trade Organization (WTO) - looks like both Airbus and Boeing are being subsidized and both are illegal according to the WTO. The question is who is subsidizing more ?
The second session on Marketing was about a company which was a price leader but had a reducing market share due to changing market dynamics. Some points which were interesting to me were :
You cannot fire a customer without reducing the cost structure; otherwise your remaining customers cost structure will go up (assuming we want to have the same margins)
There is a sequence of steps you need to follow before you fire a customer : converse, educate, offer choices (like unbundled offerings, increasing volume, etc), raise price, fire
All organizations should make a chart with bubble size indicating volumes - and plot them on a chart with x-axis being the "cost to serve" and y-axis being "Price paid". This will give a lot of clues on what to do to your customer base
You should invest in customer/product profitability metrics much before you need it - this will help you later
It is very difficult for market share leaders to reduce price - as you will need to increase revenues substantially to remain as good on the margin front.
Peter Drucker said, “In a commodity market, you can only be as good as your dumbest competitor”; points to the need for differentiation
There are a few choices you have as defenses in a commoditized market:
Innovation (had to be the first, I suppose; but most difficult to do)
Non-transparent pricing (confuse the market; does not work with sophisticated buyers; or buyers who attend HBS AMP program !)
Introduce another fighting brand at lower price (Ex: Celeron)
Customer Profitability management
Hybrid distribution
Clear strategic objective
We have to invest in customer selection - who we do not want to serve; serving all customers is a sure recipe for disaster
The final session was the last session on negotiation with Prof. Max Bazerman. Our team did well on the negotiation ! Some points which were interesting:
If the other side cares more about one issue, it is better to give in and get what you care about
Contingent contracts are good, if and only if:
You are very clear and confident about your data analysis
there is clarity in measurement metrics
Create value in negotiation ( yes it it possible !)
Build trust and share information
Ask questions
Give away some information
Make multiple offers simultaneously
Search for post-settlement settlements
Improve your negotiations
Unfreeze
Change
Freeze
Unlike the other modules, where we are using the case study approach, in negotiations, it was more of role play and actually trying to negotiate - and with multiple role plays, you get to play the buyer as well as the seller. Interesting approach - but be keen to know the pros and cons of the two approaches.
Overall the day was good, but a long one. Ended at 4:30 PM and we have lots of reading to do for tomorrow. So all work and no play ... at least for today. More later ...........
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