Upper management of ACME Manufacturing, Inc. constantly complains that its personnel department is a "cost center" rather than a "profit center" for the company. However, over the last 5 years, part of the Personnel Department has spent some of its budget on developing a modular personnel computer software program. This program tracks applicants for new jobs, new hires, existing employees and a variety of data important
to modern personnel practices including training programs attended by employees as a result of federally and state mandated healthy safety programs. The software appears to have substantial commercial potential. Now Personnel wants to commercialize it to generate revenues. Before it can do that, it needs to negotiate with upper management what arrangement
will be acceptable to them. What needs to be considered?
Interests of the personnel department:
a. generate revenue
b. achieve better recognition
c. avoid liability and support obligations
Interests of the upper management:
a. increase profits
b. avoid liability
c. look good to shareholders
+===+Your side
+===+Your side but not present
+===+Other side
+===+Parties on other side but not present
+===+Negotiator on other side
Negotiator on other side
---------------------------------------
What kind of negotiator is on the other side?
The Senior Vice President of Administration and Finance and the legal counsel for the company are the likely negotiators for ACME.
The VP is excitable and nervous type. The legal counsel is slow to decide and then quite firm in her opinion.
+===+Background to negotiation
+===+Briefing book research
+===+Other research materials
+===+Needed research materials
+===+Involved parties' interests and proposals
Judy
----------
Interests:
a. Commercializing its software
b. Become a profit center
c. Get more recognition for its contribution to the company
Proposals:
a. License the software to a major software company which specializes in sales of this type of personnel management software
Terms:
a. Up-front payment to recapture investment to develop program
b. 12% royalty fee per year
BATNA:
Personnel have not thought of any specific BANTA except for perhaps some of the personnel Department to leave to set up their own company and license and market the software themselves
____
Ted
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Interests:
a. Have Personnel become a profit center
b. Reduce risks associated with sale of a new product, i.e. software
c. Not provide software to a competitor of ACME Manufacturing
Proposals:
a. Set up a subsidiary to sell software to customers of its own choosing
Terms:
a. New subsidiary reports to VP of Administration and Finance
BATNA:
Upper management haven't thought of any BATNA either except that one executive now wants to take credit for this new product and get it away from Personnel.
+===+Terms and Standards
Judy
----------
$ Terms:
Ideal: License software out immediately for lots of cash now and royalty
Good: License software out for a fair amount of upfront cash and steady royalties
Acceptable: License software and recoup costs for development
Standards:
The terms set forth in Question No. 3 basically are typically of normal software licensing agreements
Accreditation:
Point to similar software licenses by other major companies (i.e. Zayers) developed an important computer tracking/document system
___
Ted
------
$ Terms:
Ideal: Set up subsidiary to market software in a controlled way
Good:
Acceptable:
Standards:
This is how ACME Manufacturing has always handled new product lines (i.e. SOP - standard operating procedure - set up a new sub to protect the parent from direct liability
Accreditation:
Point to similar software spin-offs where subsidiary was set up (i.e. MacDonald-Douglass)
+===+Acceptable Outcomes
+===+Select strategies
Already the Personnel Department and the Senior Vice-President for Administration and Finance seem to be headed for a "competitive" negotiation without much consideration being given to strategy by either side.
Personnel can, however, probably work in a more "cooperative" manner with the other negotiator, the general counsel for ACME, since the attorney does not appear to have any hidden agenda. Since all the parties have to co-exist within ACME after the negotiation, a cooperative approach seem most likely to serve the long term interests of all involved.
+===+Tone of negotiation
+===+What might modify the intended tone
+===+Establishing a relationship
+===+Who is on your team
+===+Who is on other team
+===+Proposed groundrules
1. Weekly meeting between Personnel and the Vice-President and legal counsel seem necessary at this point to formulate a proposal for the President of ACME.
2. In order to keep the paperwork to a minimum, Personnel proposes that it draft a proposal and then give it to the others for criticism. It will then address the criticism in a new draft. This interactive approach also has additional advantages in this case. It gives Personnel a chance to control the proposal and address critiques by others so that consensus can be formed more expeditiously. It also permits Personnel to address virtually all the problems the VP may raiase before the proposal gets to the President. This will limit the VP's abilitiy to undermine any proposal later.
+===+Will you open the negotiation
Personnel decides that instead of trying to defend its initial proposal it will ask the VP as many questions as possible about what the VP doesn't like about its proposal and the reasons behind the VP's proposal to set up a subsidiary. This will initially make the start of the negotiations less confrontational. Also, this approach is somewhat more deferential to the authority status the VP holds. All in all this approach seems to do less damage to the relationships the two sides will have after the negotiation ends.
+===+How make first offer
+===+How and when to communicate your interests
+===+How and when to communicate your BATNA
+===+Willingness to make new proposals
+===+How will you accredit your proposal
+===+Select tactics
Tactics that might be useful include:
1. Explicitly acknowledging concerns and summarizing points - are two methods of insuring that the Personnel Department acknowledges that they have heard the criticisms that the VP makes during the discussions. It also gives a less confrontational tone to the meetings.
2. Joint problem solving - method might be useful. This lets the VP identify problems but makes the brainstorming about options to solve them more consensual.
3. Humor and selective story telling might also be useful to breaking the stern appeal the VP has in potentially confrontational meetings like these.
+===+Possible disagreement with client over tactics
+===+Tactics for impasse
+===+Other side's possible proposals
+===+Other side's concerns
+===+Your concerns
+===+Tie-down tactics
1. To insure the VP does not try to undermine the agreement, which was worked out in principal during the weekly discussions, a single draft of an improved proposal should be initialed by all involved in the discussions.
2. A joint meeting with the President and the Personnel Department and VP should be held to outline the final agreement in detail and its cost. This will permit the President to get his questions answered face-to-face with all interested parties present. This should make it easier for the President to understand the final proposal so that he can present the
proposal to the Board of Directors.
+===+Insuring compliance
To reach an enforceable agreement, the final proposal between the
Personnel Department and the VP was as follows:
1. A joint venture between ACME and a major software company will be set up as a separate free standing corporation. This helps limit ACME's liability risk but at the same time does not let the VP control the subsidiary which the Personnel Department was concerned about.
2. ACME will contribute its software and a representative from the Personnel Department. And the software company will provide funds and marketing support. ACME will also receive an up-front fee payable in equal installments over 5 years to recapture the capital it spent to develop the program and a royalty fee beyond that will be included. This helps the Personnel Deparment demonstrate its revenue generating ability as well as providing for continued input of the Perosnnel Department in additional software development.
3. The joint venture by agreement will not market the software to direct competitors of ACME or if it does, it will not sell custom designed modules similar to ACME's. This will take care of an additional concern of the VP. Also, the joint venture will grant back to ACME improvements in any of the software so that the Personnel Department can benefit. Also, ACME will in effect be a beta test site for new software development which will lend credibility to the software product itself.
4. Any disputes between the software company and ACME will be first resolved by mandatory mediation and if not successful, then mandatory arbitration.
5. To provide some incentive to the software company, it will have an option right to purchase the entire joint venture after a 5-year waiting period at a price to be established by a group of appraisers jointly chosen by it and ACME.
Two types of compliance are structured into this transaction. First, compliance of the VP to support the proposal once agreed to. And second, compliance of the software joint venturer. Reduction of agreements to writing and manditory mediation and arbitration provisions are helpful in assuring compliance. Also, it makes some sense to have a standing committee composed of the VP and a representative from Personnel periodically report to the President of ACME on the software joint venture.
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