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Institute of Business Administration, Karachi

MBA - Executive Program
Name:
Assignment – 3 ID #:
Strategic Sourcing and Negotiation Skills
Mr. Faisal Jalal

Important Dates
Assignment: 17th November, 2021
Soft Copy (Video with .doc file summary) by email (faisaljalal@iba.edu.pk): 4th December 2021
Hard Copy: Examination Day
Points: 10.0
(NOTE: Late submission ZERO Marks)

Q#1 Case for Negotiation Exercise 10.0

Instructions
Overview: This is a case study where you negotiate with others, hopefully using the techniques you've learned
so far. Once you find your negotiation partners, this assignment should take between 2-3 hours to complete—
about 45 minutes of negotiation, then perhaps another hour or two to report your results, edit and upload your
video and write your summary, and review the projects of three peers.

Here are the instructions and guidelines for the case:

Before the Negotiation

1. Be prepared: Read the case (below) and do some preparation before beginning your negotiation.
2. Determine how you want to negotiate, when, and with whom: find partners from the class; decide date
and time for negotiation and perform the negotiation online

1. Get ready to record and review: This negotiation is a peer-reviewed assignment. You will need to video
record your negotiation and edit it down to a five-minute highlight video and submit a 500-750 word
summary of your negotiation (each participant individually).
2. There are three roles in this case:
(i) Zincit: that is, the Zincit team representative;
(ii) Eli Hasan: the inventor; and
(iii) Sam Massey: Hasan’s lawyer.

You may assign roles however you like. All three parties are reading the same case material so there are no
secrets.

During the Negotiation

1. You should limit the negotiation to 45 minutes. If after 45 minutes you do not have a deal, then your
result is no deal.
2. Remember, no-agreements are better than bad agreements. You should never make a deal that is worse
than your reservation value, or BATNA.
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3. If you reach an agreement and have extra time, you should try for a post-settlement settlement. If you
want to debrief the negotiation with your partners, you may. Just remember, once the debriefing begins,
there should be no more negotiating.
4. If 2 out of 3 people (likely Hasan and Massey) would like to have a private side conversation, they may
but for no more than five minutes. As this is an online negotiations, you will need to ask the third person
to temporarily mute his or her volume. You can decide to set a time for the third person to return (like
five minutes) or simply get his or her attention (by waving or by sending a chat message) to rejoin.

After the Negotiation

1. Each participant must upload the summary at LMS, summary file name must consists of the other
members names as well. Any one of the group member will upload the edited video (if all are agreed on
edited version) and on LMS and complete video via Dropbox.
2. In order for you to complete the peer-review assignment, the person who did the recording needs to send
the complete negotiation video file to the rest of the group. There are lots of free (or free trial) services
that will allow you to send such a large file, e.g., Dropbox, WeTransfer, Mail Drop (Mac), or SugarSync.
You may choose to work together with your negotiation partners to create a single highlight video OR
work on your own to create individual highlight videos.
3. Please do not discuss the negotiation with any other students until they have completed the exercise.

---- Case for Negotiation Exercise ----

Eli Hasan had always wanted to be an inventor. In high school, he was a runner-up in the Intel Science Talent
Search. He went on to study chemistry at MIT, before earning an MD from Tufts. Dr. Hasan’s day job is
radiation oncology in private practice, but weekends are a chance to experiment. His latest experiment was
highly personal. Hasan’s father was suffering from acid reflux, a condition that is both extremely unpleasant
and dangerous, as it can lead to esophageal cancer. Hasan experimented with traditional medicines along with
minerals, and settled on a compound made up of turmeric, barley grass, and zinc salts. This compound was
added to calcium carbonate, the main ingredient in Tums, and compressed into a tablet.
After seeing dramatic benefits for his father, Dr. Hasan did a pilot study and used the data to obtain a patent
on the use of zinc salts for acid reflux. The results were published in the American Journal of
Gastroenterology. After the article came out, Hasan started receiving inquiries from companies looking to
obtain an exclusive license to the patent. One company wants to use the tablet as a competitor to Tums. The
“Zums” team is not going to apply for FDA approval; they plan to sell Hasan’s invention as a dietary
supplement. Dr. Hasan hired lawyer Sam Massey to help negotiate the deal. Hasan was more than a bit
surprised (and pleased) when Massey came back with a $20 million all-cash offer.
While this is a great option, as a physician and scientist Hasan wants the invention to have the credibility of a
medicine, not a dietary supplement. That is not an option with Zums, who has no experience or interest in
seeking FDA approval. However, Massey has been talking with a second potential buyer of the license. The
“Zincit” (pronounced Zinc-It) team has experience with the FDA approval process. The process would likely
cost $10 million, but since getting FDA approval would be a huge boost to sales, Zincit is willing to commit
to the expense. After lots of back and forth with Zincit, the following five packages are options under mutual
consideration:

With FDA approval, the company expects to earn $120 million in profits over the life of the drug (all numbers
in present discounted value). If the FDA does not grant approval, Zincit would settle for the dietary supplement
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route, where its estimated profits would be $20 million. Note: $120 million and $20 million are the profits
after taking into account the $10 million FDA submission cost.
The Zincit team has concluded Hasan’s compound only has a 1 in 10 chance of winning approval. Even after
hearing Zincit’s estimates, Hasan still believes the efficacy of the drug is so great there is a 60% chance it
would be approved.
Given the Zums offer, Zincit knows it can’t buy the license for less than $20 million. At the other extreme,
Zincit can’t afford to pay more than its expected profit of $30 million (a 90% chance of $20 million plus a
10% chance of $120 million). Although risk might be a legitimate concern, all contracts should be evaluated
by their expected cost.
As Hasan’s lawyer, Massey receives a fee of 5% of Hasan’s upfront payment. His contract doesn’t provide for
any share of a bonus in the event of FDA approval. There is no potential to go back and renegotiate Zums’
$20 million offer. And there are no other potential bidders.

Barry Nalebuff prepared this exercise as the basis for class discussion. The names, companies, and drugs in the case are entirely fictional.

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