Week 6 (Negotiation Challenges: Sustaining Agreements)
PART A
Read: David A. Lax and James K. Sebenius, 3-D Negotiation, Chapters 10 and 11 (required textbook).
These chapters distinguish between the substantive or economic contract and the social contract, and discuss the role of both in sustaining agreements.
PART B
Prepare: "Honda-Rover (A): Crafting an Alliance" (HBS case 899-923) (Available in Chalk)
Faced with vexing financial challenges in 1993, British Aerospace (BAe) is determined to shed its loss-making automaker, Rover. It offers to sell its stake in Rover to Honda, Rover's partner since 1979, but Honda is reluctant to raise its stake in Rover. Meanwhile, BMW approaches BAe with a confidential bid to buy out Rover. This case places these developments within the context of the history of the British auto industry, Rover's heritage, evolution of the Honda-Rover partnership, and the rationale for BMW's interest in Rover.
We will discuss and analyze the start of the alliance between Honda and Rover, as well as subsequent developments.
Questions
1. Simpson is on his way to Tokyo to deal with Honda in what, at best, will be an unhappy development for the Japanese automaker. What steps might Honda have taken earlier to have avoided or mitigated this situation?
2. Evaluate the negotiations leading to the formation and early evolution of the Honda-Rover alliance. What is the rationale for the alliance?
3. Lax and Sebenius distinguish between the substantive or economic contract and the social contract. How would you characterize the social contract underlying the Honda and Rover alliance? What steps did each side take to build it? What, if anything, could have been done more effectively on either side?
4. In specific terms, assess BAe’s negotiating moves (with respect to the possible sale of Rover) leading up through Simpson’s January 27 trip to Tokyo. Do you think the extreme confidentiality was a good or a bad idea? What was the effect of the Honda-Rover social contract on this process?
5. Evaluate BMW’s negotiating strategy. If successful, what should BMW do to build a new social contract with Rover and, possibly, Honda?