Inspire - Issue 2

Loughborough University School of Business and Economics Bi-Annual Magazine //

issue 2 // Summer 2011

Bespoke Programmes for the Health Protection Agency

Preparing for Emergency Banking ON REFORM p8 international Learning partnerships P10 The UK Inflation dilema p16

www.lboro.ac.uk/sbe

Editor: Ondine Barry Assistant Editor: Karen Roxborough Designer: Ian Jepson Photographer: Phil Wilson

41782 D&P Nov 10

Loughborough University School of Business and Economics Bi-Annual Magazine

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Welcome

Angus Laing

I’m delighted to welcome you to the second edition of Inspire, the magazine of the School of Business and Economics at Loughborough.

We can be in no doubt that we will have to work hard in communicating the value of our programmes to potential students and employers as well as in continually updating not only the content of our programmes but also the way we deliver them.

There is little doubt that as a School we, to borrow the old Chinese saying, “live in interesting times”.

The reverberations of the global financial crisis are challenging many of the assumptions that have underpinned our established business models and public policy.

In handling these challenges the School is fortunate in having a world-class staff. Staff who are at the cutting edge of many of the major research questions we confront. Staff who are at the cutting edge of pedagogical thinking and with vision to transform management education from undergraduate to executive levels.

As an educational institution we are inextricably caught up in these shifting sands. They raise challenging yet fascinating new research questions, ranging from the regulation of complex international financial systems, through the changing nature of professional work in contemporary society, to the changing relationship between the old developed economies and the emergent economic powers of China and India.

These shifting sands also raise challenges in terms of how to ensure that the education we deliver is relevant to this unfolding environment, of providing students with the knowledge and skills that will serve them throughout their career.

Such challenges, however, offer us the opportunity to build on the core strengths of the School and of Loughborough: relevance and engagement with the world of practice.

Institutionally, we are not immune from the fall-out of the global financial crisis. The pace of the UK government’s commitment to addressing the budget deficit has placed university funding at the forefront of the political agenda.

The introduction of student fees of up to £9000 per year and the removal of all public funding for programmes in business and economics is transforming the environment within which universities in this country operate.

Student expectations are going to change dramatically.

Competition is going to widen and intensify. The pressure to manage costs is going to be intense. Interesting times indeed.

However, for the School of Business and Economics this environment also offers potential opportunities. The nature of our programmes, in particular their outstanding levels of graduate employment, provides the School with an excellent base for competing in this new world.

It is not only our staff who are going to be critical in successfully responding to these challenges, our network of alumni across the world are equally going to be critical. Through promoting the School, though supporting placement and mentoring opportunities, through providing financial support to students, and through engaging with our research agenda our alumni community will be increasingly important to the future success of the School.

I trust this edition of Inspire will give you a stimulating insight into a range of the School’s activities, from research and teaching to the experiences of our alumni.

I hope, too – as the title suggests – that it inspires you to get involved in our work.

Sincerely Yours,

Angus Laing Dean, School of Business and Economics Loughborough University

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News School launches new Research Centre and new Joint Venture at 2011 Corporate Games Loughborough University is hosting the UK Corporate Games this year. The multi-sport festival, starting 14 July 2011, will bring together up to 4,000 competitors, representing 200 companies.

The 22 events range from football and cricket to dragon boat racing and ten pin bowling.

Not all the focus is on sport, however. Running in parallel with the Games, the University will host the “Profit From Sustainability” conference on Friday 15 July. This programme of workshops looks at the ways organisations such as Coca Cola and Santander have attempted to balance economic success with an ethical approach.

It will also highlight the leading research coming out of Loughborough University into areas like workplace health, renewable energy, sustainable transport, and the reduction of environmental and social impact through innovation.

Daniels and Dr Samir Dani will run a workshop outlining their holistic approach to organisational resilience, demonstrating how companies can get involved to address “the grand challenge of sustainability in business – practice, process and people”. They will be promoting the new Centre’s mission to research sustainable systems that will help organisations innovate and adapt to complex new challenges.

Also launching at the event is the new joint business venture between the School of Business and Economics and imago. The partnership offers short tailored courses delivered at the Burleigh Court conference and training centre. It aims to appeal to organisations seeking training solutions that offer quality and maximum return of investment for minimum disruption.

Delegates are encouraged to visit the School of Business and Economics stand for more information during the conference.

The conference will see the launch of the University’s new Centre for Organisational Resilience (COR). Centre leader Professor Kevin

2011 a very good year!

40 years management education and 20 years retail education at Loughborough.

Watch this space for upcoming celebrations.

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1991

2011

Loughborough University School of Business and Economics Bi-Annual Magazine

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News School of Business and Economics launches new Research Centres Further cementing Loughborough University’s reputation for internationally recognised research, the coming months see the official launch of two new research centres within the School of Business and Economics.

Continuing the tradition of producing “research that matters”, it is hoped the new centres will be instrumental in shaping policy and practice across both the public and private sector.

Loughborough Tops Student Poll for Fifth Year Running

The Centre for Professional Work and Careers, led by Professor Laurie Cohen, will lead research into the impact on people’s careers of globalisation-led transformations in the workplace.

The Centre will look to develop projects and engage with key partners in areas ranging from the offshore outsourcing of professional work to health and social care. A launch seminar is being planned for 28 September, so be sure to bookmark www.lboro.ac.uk/cpwc for the latest details.

Loughborough University has once again been voted the UK’s Best Student Experience in the annual survey conducted by Times Higher Education.

13,000 undergraduates were asked to rate their place of education on the 21 different attributes that matter to them most, from the quality of teaching and facilities to the non-academic aspects of student life that make up the overall experience.

For the fifth year in succession, Loughborough achieved first place, ahead of prestigious universities like Oxford and Cambridge. The poll shows that Loughborough excelled for its sports facilities and social life on campus, as well as its teaching quality and connections to industry.

Commenting on the results, Professor Shirley Pearce, the University’s Vice Chancellor, said: “This is an absolutely fantastic achievement.

We work closely with our Students’ Union to ensure we provide an all-round experience that equips our students for every aspect of their life and career.”

Observers believe the poll will become increasingly important as student funding issues force prospective students to think more carefully about where to study.

Lucy Hopkins, President of Loughborough Students’ Union explained: “Increasingly, as well as academic excellence, universities must offer extra-curricular and volunteering opportunities that enable students to develop as people. I am proud that Loughborough has such a recognised track-record of producing well-rounded students who have the skills and experience to set them up for life.”

The league table was published in Times Higher Education on 17 February 2011

The Centre for Organisational Resilience will research ways in which organisations can protect themselves against adverse and challenging conditions through innovation. Specific areas of interest for the researchers relate to systems engineering, supply chain management, operations management, small businesses and entrepreneurship.

Professor Kevin Daniels and Dr Samir Dani will be promoting the Centre’s mission at the upcoming Profit From Sustainability conference on 15 July. Please visit www.lboro.ac.uk/cor for more detail about the centre, or www.lboro.ac.uk/enterprise/sustainability to register for the event.

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by Charles Hancock

Preparing for Emergency:

Bespoke Programmes for the Health Protection Agency Emergencies, whether man-made (such as road or rail disasters), natural (such as flooding or other extreme weather conditions) or the result of terrorism, have the potential to cause disruption for communities on a large scale and present major operational problems for the National Health Service and the independent healthcare sector. Organisations, both within the NHS and in the wider healthcare community, therefore need to plan and prepare for such emergencies.

The Civil Contingency Act (2004) imposes duties on all NHS bodies with regards to civil protection. Organisations will need to carry out a risk assessment, ensure that emergency plans are sound and proportionate to risks, maintain their plans and carry out training and exercises to ensure that their plans are effective.

The Royal Society of Public Health have for some years validated a qualification designed to provide an introduction to health emergency planning and the requirements and principles of working collaboratively with other organisations involved in emergency planning. This was run previously by the Emergency Planning College on behalf of the Health Protection Agency (HPA).

However, in 2010 the syllabus was radically revised and the decision was made that academic institutions as well as others should be invited to tender for the contract to run the programme. The School of Business and Economics has, for many years, run healthcare courses up to and including Masters programmes in which emergency planning was a significant element of the course. We therefore submitted a tender and in December were informed that we had

been awarded the contract. This contract will run for five years until 2016.

In practice, Loughborough will design the programme, create the supporting material, recruit and train the teachers and examiner, identify suitable off-site locations and closely monitor results.

Working with the Loughborough team, which is headed up by Charles Hancock, Director of Healthcare Management programmes, are representatives from the HPA and the Department of Health.

A selection panel consisting of Melissa Frewin of the HPA, Phil Storr of the Department of Health and Charles has begun the process of recruiting the teachers and examiners. As a part of the selection process, each applicant is required to lead a micro-teaching session lasting for 15 minutes on a subject related to emergency planning.

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The programme is divided into three levels: 1. Healthcare Emergency Planning (HEP) Award, consisting of two units – the basic entry-level qualification 2. HEP Certificate, consisting of the Award plus a further four units, and 3. HEP Diploma, consisting of the Certificate plus a further three units.

Innovative features of the programme include:

Lindsey Beasley, Head of Emergency Planning at NHS East Midlands, says: “It is not feasible for the NHS to opt out of emergency planning and response – the NHS must continue to provide its routine services and ensure high quality patient care, but it must also be ready to respond to the current risks and significant challenges such as winter weather, pandemic flu and mass casualty incidents.

n Being run off-site at a number of locations throughout England: the north east, the north west, the south east and the south west. This is in order to reduce travelling time and costs and to reduce further the need for NHS staff to incur unnecessary expenditure relating to overnight accommodation. This means that lecturers from all over the country will be involved in delivering the programme.

“The NHS is an incredibly complex and dynamic organisation, currently undergoing radical reforms that will affect the way in which NHS services are commissioned and delivered. The interdependencies within the health sector are finely balanced, and it is crucial for emergency planners to understand the principles of integrated emergency management and how this applies to the health sector.

n The inclusion of a bespoke virtual learning environment (VLE) created specifically for this programme. The VLE will provide a site for students, a site for lecturers and a host of exciting features such as chat rooms for students to discuss coursework and experiences. (Naturally, since emergency planning deals with sensitive and potentially confidential information, access to the site will be restricted and closely monitored).

“The Health Emergency Planning Programme at Loughborough brings together professionals working in emergency planning, from a range of health organisations, providing an opportunity for learners to appreciate and understand integrated emergency management within the whole healthcare system. It is a valuable programme for any colleague working within NHS emergency planning and resilience.”

Possibly the most significant aspect of this programme is that, provided a candidate has sufficient experience as an emergency planner and has undertaken a number of specific tasks during that time, they may be eligible to continue onto our Healthcare Emergency Preparedness and Business Continuity Management Masters Programme. They also may be eligible for up to 40 credit exemptions from the MSc component of the programme.

Charles Hancock is Director for Postgraduate Programmes in Healthcare Management and can be emailed at C.P.Hancock@Lboro.ac.uk

Says Charles Hancock: “We live in times that are becoming increasingly uncertain. There are threats to our country, our climate and our way of life that were unthinkable even 30 years ago. We have a Health Service that was created as a result of one of the biggest emergencies that the world has ever had to cope with, the Second World War, and a Health Service in which we can be justifiably proud.

“I joined the NHS in 1963 when the NHS was 15 years old. Over the last 47 years I have seen the service grow in size and scope and efficiency. Standards of care and treatment have risen beyond all possible belief. However, it is now a service that will have to do its bit alongside the other public services if something catastrophic happens. Recently we have had devastating floods, fires and acts of terrorism on our home patch, all of which resulted in loss of life and property.

“The continued pressure on resources means that there is less spare capacity within the NHS than ever before. In consequence, the NHS must become even more resourceful and versatile in the ways in which staff and facilities are employed and managed. Coping with adverse events, whether expected or not, is something that the NHS is renowned for. Now they have to do it better and smarter.

“This programme, which will train 140 NHS staff from a variety of disciplines each year, is a major step forward in ensuring that whatever happens, our NHS will be able to keep the patients and the staff who care for them safe, secure and delivering and receiving the best of care.”

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by Tom Weyman-Jones and David Llewellyn

Banking on

Reform A View from the Centre for Financial Markets and Institutions The UK Government set up in June 2010 the Independent Commission on Banking (ICB) to report recommendations to reform the banking system and promote competition. Professors David Llewellyn and Tom Weyman-Jones of the School of Business and Economics were amongst those who made substantial submissions to the ICB in response to its call for views: http://bankingcommission.independent.gov.uk/bankingcommission/ Our contribution focussed principally on the issue of competition.

Competition is only effective in practice if consumers are able to make rational and informed choices between competitors, and to exercise choice at low transactions costs. Information is the major constraint to making rational choices, and transaction costs constrain executing them. Combined, they can have the effect of limiting the effectiveness of competition even in a market place which is contestable or which has many competitors.

Banking is not a homogeneous business but a conglomeration of different businesses. Competition takes place in sub-markets rather than generically between firms. It is necessary, therefore, to focus on the collection of narrowly-defined markets if the true nature of competitive conditions in the banking industry is to be understood.

Competition can be especially powerful when it develops from outside sources. For this reason, competition would develop to consumer advantage if entry barriers were to be lowered, and if diversity in the

banking system were to be fostered. In particular, enhancing the role of the mutual sector in retail financial services would be beneficial.

The degree of contestability in some banking and financial markets has increased. Many of the traditional entry barriers have been lowered partly because of the impact of technology. The impact of new entrants is not measured by the market share they secure, which may be quite limited. The biggest potential impact is actually how they force incumbents to behave differently.

Although entry barriers have declined in some banking markets, and as a result contestability has increased, this isn’t always the case and powerful excess returns and anti-competitive practices can be sustained. Reviewing the econometric evidence regarding competition and industrial structure in banking, we argued that market power in the banking industry is not straightforward to measure and that it has not been satisfactorily measured to date.

Economies of scale in banking (and hence the scope for market

Loughborough University School of Business and Economics Bi-Annual Magazine

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power) are determined by the rate of loan expansion, but this loan expansion may reflect poor quality risk management.

bank when triggered by a collapse in profits and market value. This practice has been particularly advocated by the Bank of England.

There could be lessons to learn from other countries about the role of equity capital in the aftermath of banking crises. When a banking system is being recapitalised the implicit return on equity may be very different from its long-run equilibrium, especially if the recovery involves extensive deleveraging.

This issue of the level of equity capital to total assets (capital ratio) is particularly controversial at present: Meryvn King has summed up the key solution to the banking crisis as: “much, much more equity; much, much less short term debt” but major banks have argued that this higher reliance on equity capital will raise their costs. Economists cite the famous Modigliani-Miller theorem here to show that this counter argument does not hold up in an efficient capital market, although the empirical evidence does point to high adjustment costs in moving from one regulatory state with low capital requirements to another with higher capital requirements.

Empirical research done at Loughborough has demonstrated that where banking systems have been massively recapitalised by the state, as has happened in Turkey after financial crisis, in China in anticipation of joining the World Trade Organisation and as is happening right now in Greece, Ireland and Portugal, the true return on equity capital in the banking system can turn negative with damaging consequences for the recovery of banking system productivity.

The key issues that are emerging in the debate started by the ICB are: break-up of large scale banks, living wills and ‘CoCos’ (contingent convertibles) and regulatory ratios.

The break-up issue concerns the role of investment banking activity alongside retail banking, and the Commission is known to be debating whether these functions should be separated as they have been in other countries and in the past. The major banks are waging a serious campaign against this because investment banking is their major source of profit, but the retail banking side helps to spread their risk.

The issue of living wills and ‘CoCos’ concerns the treatment of banks that are in crisis: how should they plan in good times for the procedures to handle downsizing in a financial crisis? CoCos or contingent convertible instruments are designed so that some of the bank’s debt converts into equity, automatically recapitalising the

At this time, we are in the middle of a massive and controversial debate about the future of the banking industry – it is engaging the attention of specialists in industrial organisation, econometrics and above all banking theory. These are all areas where the School of Business and Economics at Loughborough University has major contributions to make, especially through its emerging Centre for Financial Markets and Institutions, which is currently being developed.

Professor Tom Weyman-Jones is a Professor of Industrial Economics. His research focus is the field of efficiency and productivity analysis. He can be emailed at T.G.Weyman-jones@lboro.ac.uk Professor David Llewellyn is Professor of Money and Banking at Loughborough University, Honorary Visiting Professor at CASS Business School in London and Visiting Professor at the Vienna University of Economics and Business Administration. He can be emailed at D.T.Llewellyn@lboro.ac.uk

10 Richard Hill Rolls Royce plc. Interview by Ondine Barry

International Learning Partnerships that last As Director of International Learning and Business Development at Rolls Royce plc, Richard Hill travels to around 50 different countries throughout the year to develop bespoke education and training packages for high-level Rolls-Royce clients. A recent addition to the School’s newly revamped Strategic Advisory Board, Richard discussed with us some of the bigger issues in today’s global provision of professional training.

Describe your role at Rolls Royce...

Richard Hill: “Essentially my role is to develop learning strategies for both Rolls-Royce and its customers and external stakeholders. However, the majority of my time within this role is spent facing outside the company, talking to the boards and CEOs of companies and international governments to work out how we might best support them in developing their own organisational capability.

“Much of the focus of my international role is about establishing and developing relationships with key stakeholders. For that, I spend a lot of time working with potential and existing customers supporting them through educational initiatives on a long-term basis. I coined the phrase ‘learning partnership’ to describe the relationship we have with customers – a theme I’d like to explore more with the School of Business and Economics via the Advisory Board.

“In addition, I spend a lot of time also talking to international governments, working with them to see how Rolls-Royce might support their national educational and learning agendas. It is a means of demonstrating the company’s long-term commitment to a country – again back to relationships.”

How do you develop these strategies when you’re working on the longterm partnerships? How long and involved a process is that?

RH: “The initial relationship is usually diagnosed through our regional offices (in each of the major markets of the world we have a regional director in situ who is responsible for the position of Rolls-Royce in that region) who notionally determines the prime stakeholders with whom we should have a dialogue. Once that stakeholder mapping is put in place, I go in for the initial discussions. The combination of local knowledge and corporate capability means we usually have a well-crafted proposition to discuss even at this initial stage.”

Loughborough University School of Business and Economics Bi-Annual Magazine

Do you get protocol lessons before you go in?

RH: (laughs) “I’ve been in this job a long time and have kind of learned on the fly. But take China for instance. I’ve been working with China for about 22 years now and have some basic Chinese.

It seems obvious, but if you go into a country with some basic knowledge – even to say “hello”, “thank you”, “goodbye” – it makes all the difference. It’s a sign that you’ve taken the trouble to try to understand the culture. I make an effort to get local briefing before I go in, and when I’m in a country I always have a session with the regional director to get the briefing on the commercial side as well as the cultural side; the do’s and don’ts. But a lot of it is common sense borne out of experience.”

Has this role and the emphasis on creating long-term partnerships been a cultural shift for Rolls-Royce?

RH: “I’d say for Rolls-Royce, in principle, no. For example, we’ve been working with China since 1963 and we’ve built long-term relationships since then. All of our sectoral businesses – Civil Aerospace, Defence Aerospace, Marine, and Energy – are long-term businesses with long-term lead times in terms of orders, deliveries, usage, so the relationships are inherently long term. And in many ways the whole notion of executive education and training generally is about Rolls-Royce supporting the customer throughout the partnership, developing capability through tailor-made solutions for that specific organisation. It really is a good way of building and sustaining relationships.

“When I joined Rolls-Royce, it was a British company with a strong Atlantic focus, but over the years Rolls-Royce has acquired strong business divisions in North America, Mainland Europe and the Nordic countries, as well as enhancing our presence in South East Asia. We clearly have strong hubs in the UK, mainland Europe, North America, but we also now have a real presence in about 50 different countries with customers in around 160 countries. And so it’s changed, yes – the numbers change all the time, but a recent count had us at about 40,000 strong, and of that 40,000 approaching half are now outside the UK.”

What is your favourite part of the job?

RH: “The mixing and working with people from different cultures. One of the things I enjoy doing is presenting Rolls-Royce and education matters in a way that is accessible to business people. One of my prime personal interests is theatre, and I have a real thing for people being able to put over a point of view in a variety of cultures and be interesting. My other big passion is sport – like many other people I suppose. I’ve worked with Loughborough University a lot, using the benchmark of sport to transpose lessons from sport onto business – and it works all the time, particularly with international audiences.

“For example, we brought a delegation from India to the English Cricket Board (on the Loughborough campus) to look at how the ECB develop people, analyse competition, select and manage teams, etc. And then we transposed those lessons onto business. We’ve done it with a group of European aviation executives – we had them managing a football tournament here at Loughborough, buying and selling, nurturing players, sacking players, developing tactics. It’s very powerful and easily transferrable, and in essence is about leaders

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being able to coach their teams. You can have all the business acumen in the world but if you can’t transmit your messages…”

And your role here on the School of Business and Economics Advisory Board?

RH: “One of the reasons I accepted the invitation to be on the Advisory Board is that I think Loughborough undersells itself on its potential to support and add value to business. There is a corpus of talent here at Loughborough that’s not recognised nationally let alone internationally, and I think we can do so much more to develop the brand and the position of the School. And I believe the board will add a lot of value to the School.

“I think the new Advisory Board has a number of roles – certainly to act as the commercial conscience of the School (how you address the external market, are you providing students and business what they need?). It’s about shaping your resources to meet the outside world and then positioning the proposition appropriately. If you’re looking at long-term survival or sustainability you have to develop your portfolio, otherwise you just become a static entity. If we in Rolls-Royce had remained static we’d have been overtaken by our competitors and would have disappeared in a generation.

“I think academics generally need to be a bit more focussed on the market – sometimes the learning has to have some form of application rather than just developing academic rigour. I do understand the intrinsic value of learning, but sometimes application is a fundamental corollary to it, especially with something like an MBA. I’ve never directed either a Chinese or an Indian executive programme where the delegates haven’t said to me, ‘Can we have more case studies and can we have more case studies of our sector?’ It’s a very powerful message from the customer.

“Personally speaking, I have a strong commitment to Loughborough, having been a postgraduate here (on the MBA programme) and, having worked intermittently with the faculty here, I very much want to give something back to this place as it has so much to offer. As the School embarks on its fresh start with a new advisory board, I think there is much to be optimistic about.”

“The majority of my time within this role is spent facing outside the company, talking to the boards and CEOs of companies to work out how we might best support them in their use of our products.”

12 Richard Smith Interview by Ondine Barry

All Eyes on Loughborough:

Elite Sport & the 2012 Games As Great Britain prepares for next year’s Olympic and Paralympic Games and the media hype begins in earnest, eyes are increasingly starting to turn towards Loughborough. And for good reason: home to the UK’s best sporting and fitness University facilities and with close to 20 Team GB hopefuls studying or based on campus, the University is already playing a major role in the 2012 Games.

We spoke to one Team GB hopeful, Richard ‘Smudge’ Smith, an MSc Business Analysis and Management student at the School and a candidate for the Men’s Hockey Squad, about his aspirations and concerns as he prepares for the big draw this summer…

You’ve been playing hockey at a senior international level since 2009 and have more than 50 caps now under your belt, helping England win Silver at last year’s Champions Games and Gold at the Europeans – but how did you get into hockey in the first place?

Richard Smith: “I began playing hockey in my junior school and decided I wanted to play some more and so went down to City of Portsmouth hockey club. I was playing football at the same time, but I really enjoyed hockey and saw how they had better structure in the sport – if you were successful and wanted to strive for the top, you could do because if you were good at club level you could go to county trials, if you were good at county level you could go to regional trials, if you were good at regional level you could go to national trials.

With football it was a case of one in a million hoping to be seen by a scout.

“I also enjoyed the crowd - we had quite a good group at the City of Portsmouth and were quite successful, and so it was a bit addictive I guess. And then I went to play for Guildford for two years, which was a really good stepping stone, before coming up to here for university where I gained a Maths & Sports Science BSc.”

Why Loughborough?

RS: “I knew for a couple of years before coming to Loughborough that I wanted to be here. I had friends who were involved in the England set-up that I knew were here, and with a top-quality hockey pitch 100 metres from halls, it’s a pretty good place to balance the whole athlete-student thing.”

Did you become part of Loughborough Student Team at that point?

RS: “The hockey world isn’t so big in this country that people who are involved in under-18 and under-21 set-ups would be unnoticed - the head coaches will all be aware of them. And so it was a case of getting in contact with the head coach (then, David Ralph who’s now Head Coach for England’s U21), and making him aware that you want to come and he then facilitates you coming.”

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Andy Borrie, Deputy Director of Sport (Coaching & Performance), in the University’s Sport Development Centre SDC, said:

“Loughborough University’s philosophy is to deliver sporting excellence and support academic achievement. The University has always recognised the dual demands placed upon studentathletes and sees a responsibility in assisting them to meet these demands.

We view the student-athlete as a whole person and work to help them remain balanced and grounded.”

How was it as an undergrad balancing studies with sport?

RS: “It took me a while to grasp it and get the right balance. It’s very hard when you first come to uni, because there’s no one standing over you making you do your work. Now, over the five years here, it’s finding a more appropriate balance, which I’ve thankfully managed to do.”

Did you take any time off between getting your BSc and starting your MSc in Business Analysis and Management?

RS: “No. I had a great three years here at undergraduate level and knew it was a good place for me to stay for the next two years.

I wanted to continue my studies to supplement my career options parallel to my hockey commitments and am really pleased I took on the MSc – the 2012 scholarship made the whole decision about studying for an MSc a lot simpler.”

And it’s just got more full-on since then…

RS: “The focus is totally tied to Great Britain…and it’s true of the whole squad. We meet once a week, and now we’re looking at a two-month block of training before a tournament that we leave for on the 1st of May – the Sultan Azlan Shah Cup in Malaysia, a 7-nation tournament (Australia, India, Korea, China, Malaysia, Great Britain and New Zealand) – all teams in the top 12/13 in the world. It’s a chance to play some countries we don’t play as regularly and find out more about them before the Games. The Asian teams we don’t know as well and they’re different to play against – they’re dangerous teams. Thinking ahead to the Olympics, if any are in our pool they could be a sort of banana skin for us.

“Following that there’ll be some more GB training throughout the summer but it’ll then filter a little bit back into an England focus with

the European Cup this summer – we’re defending the title, so it’ll be quite exciting… The GB and England squads aren’t too dissimilar, so we can prepare for that and develop GB things at the same time.”

You’re finishing up on your MSc this year – how will you manage writing your thesis with your hockey commitments?

RS: “Because I’m a 2012 Scholar, I was able to get a fairly flexible programme structure, stretched over two years rather than one so I could fit in the sports side. The first year was fairly intense, but it was quite good. I enjoyed the full-on student-athlete life, because every day that first semester I was in and I was training or studying and utilising and maximising everything I was doing. Now I’ve got three modules to do this semester and then one to finish. I might potentially have to push one exam back, but the School’s been amazingly flexible. I’ll just have to wait and see how it is when I start training in a couple of weeks and see how it all balances.”

What’s the plan after 2012?

RS: “In hockey you can’t build a life around the money you get, it’s quite a sacrifice. The most professional you can be in hockey in the UK at the moment is government funded – which is the level I’m currently at. That’s fine for now, but if you want to make it your career, you need to have other jobs to supplement your income. You can play in Holland where bigger sponsorship means you can make a decent living. But honestly, I’m in the ideal situation. I’ll finish my MSc this summer and by then will know whether I have a real shot at making the Olympic team for 2012 and whether I should push on with my hockey and have a year of working towards that.

14 Richard Smith Interview by Ondine Barry “Ultimately, I want to use my business education even if I ended up playing professional hockey in a different country. So it’ll be a combination of both I think. I always thought I would want something that was still developing me aside from hockey, but being a year away from the Olympics and with now a decent amount of funding in the programme, it’s really a case of head down and doing everything I can training wise.”

Do you think the popularity of hockey will change if Great Britain brings home a medal in 2012?

RS: “I imagine so. I imagine we could move up to a profile which is maybe something like athletics – major tournaments on TV, bigger sponsorship – but it wouldn’t ever jump to say the heights of football or cricket and rugby… And that’s the problem here in the UK as opposed to Europe; it’s why we struggle to get media love, because there are so many sports in this country…”

I guess there’s a lot riding on this year…

RS: “Yes. I’ll find out about the Olympic Team in June – and it’s a tight squad. All I can do is maintain my fitness and keep improving myself, which is what I’ve been focussing on. If I do everything I can then even if I’m not selected I can take satisfaction in that fact.

“There’s also a really exciting four years after the Olympics, with the Europeans the following summer and the Hockey World Cup – which is going to be in Holland where it’ll be treated like a football tournament – in 2014, and then you’re only two years away from the Rio Olympics…”

Performance Sport at Loughborough Loughborough University is deservedly renowned for sport, offering arguably the highest level of sports and fitness facilities, training grounds and coaching to athletes in the UK. Complementing the academic departments involved in sport, with its reputation for excellence in research and teaching in sports contexts, the Sports Development Centre (SDC) facilitates all other sports operations with which the University is involved.

The SDC supports and complements the Students Athletic Union Clubs by providing facilities, coaches, programmes, athlete support services and administrative support for Performance Sport at Loughborough, where students and student teams are performing at national and international level. SDC’s Performance Sport team also operates partnerships with the English Institute of Sport and a number of National Governing Bodies for Sport.

Loughborough also recently launched the Loughborough Sporting Club, with one of Loughborough’s most famous graduates, Lord Sebastian Coe as President of the Club. Lord Coe is also one of the first 21 inductees to be selected into the Loughborough University Sport Hall of Fame.

And in terms of a professional career post-hockey?

RS: “I’m getting help from the EIS Performance Lifestyle Group, a professional service that runs our strength and conditioning programmes, who are also pushing to set up connections with big businesses to try and get flexible jobs for athletes who are training. I’ve been accepted to an interview with a major company so far, so it’ll be a case of at the interview discussing with them the opportunities available and figuring out what might work for me.

“From brief discussions I’ve had about a business career post-degree, possibly business consultancy, on the analysis side of things. I always try to push for the best in any situation and effectively problem solve to find the best way to improve any given situation. If I really believe in something I’m involved in, like I am with hockey, I will give it my all to take it forward and make it better…”

Loughborough’s Sporting Success At the 2008 Beijing Olympic and Paralympics Games, 48 past and present Loughborough students competed. 19 of these athletes reached finals and broke 15 national and 2 European records, winning a silver and bronze medal.

The 2010 Delhi Commonwealth Games saw 80 past and present Loughborough athletes compete, with 44 of them winning medals. If Loughborough had been a country we would have been placed 8th in the overall medal table.

Loughborough’s Sporting Success Alumni Sebastian Coe

Gerald Davies

Bob Wilson

Clive Woodward

Fran Cotton

David Moorcroft

Paula Radcliffe

Tanni Grey Thompson

Loughborough University at the London 2012 Games Loughborough University is the official preparation camp headquarters for Team GB and Japan. You can find out more about the University’s activities in the build up to the Games through our new London 2012 website:

www.lboro.ac.uk/london2012

Loughborough University School of Business and Economics Bi-Annual Magazine

15

Supporting Intellectual Excellence and Innovation

by Professor Angus Laing

This year marks the 40th year of Management Education at Loughborough. In this time we have developed a comprehensive and highly regarded research programme and achieved many top ten rankings for our teaching quality.

These qualities together with Loughborough’s award for ‘Best Student Experience’ for five years running, ensures that we remain a popular choice for talented people wishing to study business and economics in higher education.

Today the newly formed School of Business and Economics and its activities lie at the very core of Loughborough University. Through multiple connections across all parts of the University the School contributes to and draws on the intellectual community that is Loughborough University.

We have ambitious plans that continue to build on these excellent foundations to establish Loughborough as a leading international university that delivers world class research and education that shapes individuals, businesses and society. We want to sit at the intersection of contemporary intellectual debate and the real challenges confronting the business community.

Our vision is to be a School that via all its activities and its pivotal position in the University develops responsible leaders, enhances organisational performance, and promotes sustainable growth.

In order to achieve our vision we also face challenges in: n Ensuring that the most talented and able students, regardless of their social or economic circumstances can study business and economics at Loughborough. n Continuing to sustain the resources and opportunities to help such talented people realise their full potential in the global economy of the 21st century.

As we begin the next stage of the School’s development it has become increasingly important that we develop our relationships with the business community and our graduates to support our activities.

Our alumni are very important to us and can help us in many ways including supporting School events, providing work placements and careers advice for students and engaging with research projects.

As part of our development programme for the School we have established the Fund for Excellence. This fund aims to support teaching and research programmes in the School of Business and Economics to ensure that the most talented young people can continue to study here and to enrich the academic life of the school.

The Fund for Excellence will be an extremely important resource to allow us to enhance teaching and research activities and encourage genuinely innovative thinking. In the face of this rapidly changing global economy in which we operate this fund will help us to ensure that Loughborough University continues to make major contributions to the world of business. I hope you will join me in supporting this fund and in doing so, help to develop the entrepreneurs, business leaders and innovators of the future.

Professor Angus Laing is Dean of Business and Economics at Loughborough University. For more information about how to support the Fund for Excellence please contact Leah Graham at L.C.Graham@lboro.ac.uk or call 01509 223418.

16

The UK

by Eric Pentecost

Inflation Dilemma

From February 2010 to February 2011 the annual rate of inflation in the UK stood at twice the government’s target rate, at 4.3%, some 1.3% higher than the same time period for 2009/10. In this article, Professor Eric Pentecost discusses the principal causes of this increase and the effect it is having on UK authorities.

So why has inflation risen in 2010-11?

The Consumer Price Index (CPI) measure of inflation is a price index made up of a ‘shopping basket’ of goods and services on which people typically spend their money. The price of every good and service is weighted, according to its importance in a total households’ expenditure, so changes in the indices reflect the change in the average cost of the typical household’s shopping basket from month to month. The current weighting of these twelve broad categories depicting our ‘shopping basket’ can be seen on the following page.

Loughborough University School of Business and Economics Bi-Annual Magazine

17

Andy Borrie, Deputy Director of Sport (Coaching & Performance), in the University’s Sport Development Centre SDC, said:

CPI Weights Food & non-alcoholic Beverages

10.8

Alcohol & tobacco

4.0

Clothing & footware

5.6

Housing & household services

12.9

Furniture & household goods

6.4

Health

2.2

Transport Communication Recreation & leisure Education Restaurants & hotels Miscellaneous goods & services

16.4 2.5 15.0 1.9 12.6 9.7

Rises in prices of items with larger CPI weights are more important for the CPI index than those with smaller weights. So rises in the cost of transport, housing and household services and food and nonalcoholic drinks are the most important categories and these are the categories which have seen the largest price rises in recent months.

According the Office for National Statistics, between November and December 2010:

n

air fares rose by 42% compared to the same period in 2009

 n fuels and lubricants rose by 2.8% (the largest monthly rise since 1996)  n food prices (especially vegetables, bread, cereals, milk, cheese and eggs) rose by 1.6 per cent - the largest ever one month recorded rise  n petrol prices as recorded by the CPI, stood at £1.22 a litre in December 2010, a record high, but with the political unrest in the Middle East it has been approaching £1.35 a litre since March 2011 Between January and February 2011: n domestic heating costs, particularly gas - average bills rose by 0.4 per cent (compared to a fall of 2.8 per cent a year ago) n clothing and footwear prices rose by 3.6 per cent following the January sales which was a record movement between January and February

The principal cause of the rise in inflation during the second half of 2010 and early 2011 has been rising global costs, largely outside the control of the UK authorities. For example, since July 2010, oil and other commodity prices have risen by over a third. Despite this, as the chart shows, UK inflation is still low by historical standards.

Given that the target for inflation is 2 per centphilosophy per annum, why “Loughborough University’s has the Bank of England’s Monetary Policy Committee (MPC), is to not raised thedeliver Bank rate?sporting excellence and

The MPC has resisted raising the Bank rateachievement. so far for two main The support academic reasons. Firstly, demand for goods and services in the UK is still very University has always recognised the weak following the sharpest post-war recession in 2008-9. During this time the UK has also seen a sharp rise in unemployment, which dual demands placed upon studentis currently standing at 2.53 million, the highest level since 1994 athletes and sees a responsibility in (8 per cent of the economically active population). Secondly, if assisting them meet demands. expectations of inflation a yearto to two years these ahead remain subdued, then We there view will be little upward pressure on wage settlements which the student-athlete as a whole in turn would lead to higher increases in future wages and prices, and work help them makingperson it more costly for the MPC toto bring inflation back toremain the target in the future. This suggests balanced that any rises in the Bank rate will be ” and grounded. delayed as long as possible by the Bank and when they do occur they will be small, something of the order of 0.25 to 0.5 per cent.

The dilemma the Bank of England faces, however, is that as actual inflation persistently runs ahead of the Government’s declared target rate, the Bank loses its ‘credibility’ as an institution that will deliver low inflation. Yet to show it is serious about maintaining low inflation by raising interest rates it may damage the fragile recovery.

The MPC Minutes for January identify three reasons for inflation remaining above target for the medium term: (i) recent increases in commodities prices might continue; (ii) general inflationary pressures in emerging economies could lead to higher UK import prices; and (iii) prices of domestically produced goods and services would rise further in the aftermath of sterling’s depreciation as the economy recovered. Given that (i) and (ii) are beyond the authority’s control, the Bank of England has wisely decided to wait on events.

In contrast the European Central Bank (ECB) raised its Repo rate in April, by 0.25 per cent to 1.25 per cent, because inflation in the eurozone touched 2.6 per cent, despite this adding to the risk of debt default in three member states (Greece, Ireland and Portugal) whose economies do not suffer from overheating. This extremely cautious approach to inflation is a very good reason for the UK to remain outside the eurozone.

A recent survey of Marketmakers suggests that Bank rate will be at 1.5 per cent by May 2012. Such a small rise is likely to have little direct impact on inflation or demand, but the Bank will hope that it will be sufficient to signal its concern about inflation and that as a result inflation expectations will remain subdued and the recovery will not be jeopardised, notwithstanding the massive fiscal contraction about to be imposed by the Coalition government.

Professor Eric Pentecost is a Professor of Economics and can be emailed at E.J.Pentecost@lboro.ac.uk

18

by Ondine Barry

Managing Innovation at Loughborough Staff at the School of Business and Economics have initiated a truly unique module for Loughborough MBA students that engages with local technologists in the use of an algorithm, developed at North Carolina State University (NCSU) in the 1990s, to provide a detailed framework for evaluating the commercial value of a venture.

The Managing Innovation module, now compulsory for all Loughborough MBA students, was launched in 2005 after Dr Grahame Boocock’s work saw him visit NCSU to explore the detailed content of their Technology, Entrepreneurship and Commercialisation (TEC) Algorithm.

The Algorithm is designed specifically for the assessment of innovations with high growth potential, and to date, ventures associated with this TEC Algorithm have created more than 350 jobs and attracted more than US $200m in venture capital in the US. At the core of the process is a set of analytical tools used to assess the potential value of technologies developed in universities or in local/regional companies. This set of tools is applied in multidisciplinary teams, supported by the lecturing team, mentors from the local SME community and other advisers, who are recruited as necessary for their expertise in intellectual property, science and technology, venture capital etc. The Algorithm does not offer a

Loughborough University School of Business and Economics Bi-Annual Magazine

definitive success/failure prediction for a given technology, but it is a powerful decision-supporting tool.

The use of the Algorithm at Loughborough, in an adapted form, comprises four phases: n ‘Search & Ideation’ Phase – this phase generates potential products from pre-selected platform technologies The capacity for multiple uses from a technology is a primary driver of high-growth businesses in this field. n The ‘Assessment’ and ‘Analysis’ Phases – these phases consider a product’s potential commercial viability in relation to a number of functional areas, including legal implications, marketing and operations. Product ideas with ‘fatal flaws’ are eliminated. n The ‘Commercialisation Strategy’ Phase – this phase involves choosing a route to commercialisation (licensing, manufacturing, selling and joint venturing), and thinking about pre-launch issues – such as obtaining access to capital. This is the final phase taught at Loughborough.

At NCSU, their students are taught a fifth phase, ‘Commercialisation Implementation’, as the time devoted to the programme there is almost twice as long as at Loughborough, and the clear goal is that students should aim to start their own high-technology business.

However, students on the Loughborough MBA are mainly in well-paid, secure employment, with good prospects for advancement within their organisations or highly employable by others. Such individuals are less likely to take on the risks associated with start-ups (especially in the high-technology field). At Loughborough, therefore, the emphasis has switched from new venture creation (incorporating full investor activity), to the development of a commercialisation strategy. As part of strategy development, students are required to produce a folder that comprises a viable business proposal for a product or service, with supporting market analysis, market entry and expansion strategies.

19

The folder demonstrates to the technologist that students have explored a variety of alternative opportunities generated by a given technology, without jumping to a market ‘solution’ too early. This activity enables them to engage in research, rethink ideas and change direction throughout the process.

The technologies assessed at Loughborough have been drawn from the fields of biology, medicine, telecommunications, electronic engineering, automotive engineering, solar power and sports technology. Specific projects have included the use of drive-by-wire systems in cars, the introduction of cooled ceiling tiles in construction and other areas, an investigation of multiple uses for pomegranate juice, and the potential for capturing and storing solar power.

The module, currently delivered by Drs Grahame Boocock and Regina Frank, and supported by Dr Julie Holland, is also planned to be used in the future with alternative audiences, such as PhD students and local/regional entrepreneurs. The module will also feature strongly in the planned full-time MBA and Sports Management MBA programmes to be offered by the School in the near future.

The School will continue to working closely with the University’s Enterprise Office and also the Sports Technology Institute, to ensure that academic researchers in the science and technology fields get the opportunity to test out their ideas using the Algorithm.

In addition, Drs Boocock and Frank (Principal Investigator) have recently secured substantial EU funding to develop a network of technology entrepreneurship educators, in cooperation with other EU and US institutions. In essence, this will ensure that Loughborough MBA students are part of a worldwide network of students engaged in technology commercialisation: a real USP for the programme and the School.

The module has received external recognition from major accountancy firms (currently Ernst and Young) who have offered prizes for the best oral presentation and folder on the module.

20

by Huw Edwards, Tulio Cravo, Todd Landman and David Kernohan

The International Political Economy of Human Rights

Recent months have seen dictatorships overthrown in Tunisia and Egypt and unrest spread across North Africa and the Middle East as disenfranchised people took to the streets for democracy and human rights. But, while the study of human rights has long been dominated by the disciplines of law and political science, it has yet to find comparable coverage in the economics arena – something economists at Loughborough University are seeking to change.

Working alongside the Institute for Democracy and Conflict Resolution (IDCR) and Middlesex Business School, researchers in Loughborough’s School of Business and Economics are exploring a number of human rights issues through quantitative analysis. The data comes from a recently completed index that details such human rights violations as arbitrary detention, extra-judicial killings, disappearances and torture.

The notion of relative human rights stems from the view that good governance within a country helps to promote economic prosperity in the longer run, while acknowledging that good governance can also build from economic prosperity. In the case of trying to promote good human rights provision within poorer countries, it is particularly important to focus on – and reward – countries that are providing good human rights relative to their level of income.

The second idea being explored is that human rights are partly location dependent. This originates from econometric analysis which shows a strong pattern of spatial correlation between one country’s human rights and those of its neighbours.

Current examples of this idea exist in the ‘Arab spring’ with the overthrowing of tyrants in the Arab states. Indeed, pressure for democracy and human rights across the North of Africa and the Middle East is subsequently continuing to grow.

From this work, the researchers have been able to establish a league table of good and bad location-relative human rights performers, taking into account not only a country’s low income levels, ethnic fractionalisation and domestic conflicts, but also its geographical neighbours:

Loughborough University School of Business and Economics Bi-Annual Magazine

Countries with the worst location-relative Human Rights

Absolute HR

Relative HR

Colombia

-1.80

-1.60

China

-1.41

-1.43

Israel

-1.18

-1.36

Haiti

-1.54

-1.23

Cote d'Ivoire

-1.54

-1.15

Nigeria

-1.17

-0.86

Algeria

-0.80

-0.86

Indonesia

-1.17

-0.86

Egypt

-0.92

-0.83

Bangladesh

-1.17

-0.79

Ethiopia

-1.29

-0.71

Libyan Arab Jamahiriya

-0.67

-0.70

Philippines

-1.05

-0.70

Iran (Islamic Republic of)

-0.70

-0.68

Syrian Arab Republic

-0.79

-0.67

Brazil

-0.69

-0.56

Pakistan

-1.04

-0.55

India

-0.93

-0.54

Saudi Arabia

-0.67

-0.53

Countries with the best location-relative Human Rights

Absolute HR

Relative HR

Chile

1.30

1.35

Senegal

0.81

1.15

New Zealand

1.42

1.02

Ghana

0.43

0.96

Uruguay

1.05

0.94

Sierra Leone

0.31

0.87

Congo Brazzaville

0.19

0.83

Mongolia

0.43

0.81

Burkina Faso

0.44

0.78

Canada

1.42

0.77

Malawi

0.06

0.76

Liberia

0.06

0.75

Madagascar

0.39

0.74

Sweden

1.54

0.74

Panama

0.63

0.73

Finland

1.54

0.71

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In relation to those countries that perform poorly, it is worth noting, with relation to the current situation in North Africa and the Middle East, that several countries in this region are prominent in the table of bad human rights performers. It is perhaps even more notable that the rising economic giants, China and India, also do relatively poorly. This is important as these are large fast-growing countries, whose poor human rights record is likely to have a strong negative effect on other countries in their region. The bottom of the league table would almost certainly feature the complex countries of Zimbabwe, Iraq and North Korea if the data were available.

At the other end of the scale, expected good performers such as Scandinavia, Canada and New Zealand are also joined by a number of countries that do well despite lower income levels and ‘unfortunate’ neighbours.

From this data it could be suggested that the increasing improvement in human rights over the last 25 years for countries such as Chile and Uruguay, and relative improvements for neighbours Brazil and Mexico, has been an easier process due to the proximity of each country.

This perhaps is a sign of hope for the North African/Middle Eastern countries in turmoil today.

Dr Terence Huw Edwards is a Lecturer in Economics. His research focuses on applied general equilibrium modelling, international trade and transition economies.

Tulio Cravo is an Economics PhD student at Loughborough Universiy. Professor Todd Landman is Director of the Institute for Democracy and Conflict Resolution (IDCR) at the University of Essex. Dr David Kernohan is Head of Department for Economics and Statistics at Middlesex Business School. For more information on this research, please contact Dr Terence Huw Edwards on T.H.Edwards@lboro.ac.uk

22

International Negotiations:

Co-operation and Conflict Between Haggling, Hurrying and Holding Out

by Ursula Ott

A former Ford manager and a HP manager, in the middle of a bargaining experiment, suddenly begin haggling as if they are trying to get the best price in a street market. Why?

use of ‘no’ was not an answer to a question; even so it preceded a statement of disagreement.)

My work proposes a theoretical framework for international negotiations based on a game theoretical bargaining model combining different cultural activity types tested on real-life observations.

To understand international negotiations from a procedural perspective, we need to take into account the cultural differences with regard to their actions and strategies leading to an outcome. This asks us to find a less descriptive and more dynamic way of understanding cultural differences.

Whether political or commercial, at the centre of each international negotiation is the conflict and co-operation between cultures. There are three categories – security, political and economic – but the dynamics of international negotiations are relevant in all three areas and subject to the cultural cognitive bargaining patterns of the players involved. Empirical research into culture shows that it ‘profoundly influences how people think, communicate and behave, and it also affects the kinds of deals they make and the way they make them’ (Salacuse, 1999).

Using cultural activity types helps to translate bargaining characteristics into strategies and moves that are relevant for a game theoretical analysis. There are three main cultural types: linear-active (task-oriented planners), multiactive (people-oriented interlocutors) and reactive types (respect-oriented listeners), developed by Richard Lewis. Based on national culture, they offer an appropriate way to analyse the clash of cultures, consistent with the observations of empirical negotiations research.

John Graham’s 1980s study tests the bargaining strategies of US-American, Brazilian and Japanese negotiators. His three negotiation types have similar features to the activity models that triggered my work. Particularly intriguing was the observation that Brazilian bargainers asked for much more initially, and initial concessions appeared higher than for the Americans and the Japanese. Additionally, Brazilians used the word ‘no’ more frequently. (The

Silent periods during negotiations process were more frequent in the Japanese interactions (5.5/30 minutes) than with either American (3.5/30 minutes) or Brazilian (none were discovered).

Translating cultural characteristics into bargaining rules is viewed as an important requirement for modeling. Using game theory provides insights into bargaining relating to different cultural programming. The results of interactions between sellers and buyers of different activity types show the cognitive cultural moves in international negotiations and help us understand why political and business negotiations are prone to stalemates and premature termination.

My research shows that bargaining longer than originally planned for helps negotiators to come up with agreements that would otherwise be lost. This is particularly relevant for cultures (linear-active cultures such as US-American and German players) with a short bargaining horizon.

Over ten years in classroom experiments, the pattern emerged that the cognitive programming was very strong in the bargaining process.

People tend to adapt to new cultural environments, but the procedure of offering, rejecting or accepting an offer, making counter-offers, the length of the bargaining horizon and the use of price as a signal is determined by cultural roots.

Observing and documenting these bargaining procedures showed consistency with the scenarios developed in the theoretical work. Overall,

Loughborough University School of Business and Economics Bi-Annual Magazine

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Buyer-Seller Model for Different Cultures in Intercultural negotiations Buyer (Player II) Linear-active Culture Multi-active Culture Reactive Culture Linear-active culture

Seller (Player I) Multi-active culture

Reactive Culture

Similar cultural background with refinements

Seller linear-active and buyer multiactive

Scenario1

Scenario 4

Example: American Seller – German buyer ‘Time is Money’ – Approach

Example: American Seller – Brazilian buyer

Seller multi-active and buyer linearactive

Similar cultural background with refinements

Scenario 6

Scenario 2

Example: Brazilian Seller – American buyer

Example: Brazilian Seller – Italian buyer

Seller reactive and buyer

Seller reactive and buyer

Linear-active

Multi-active

Scenario 8

Scenario 9

Example: Japanese Seller – American buyer

Example: Japanese Seller – Brazilian buyer

Seller linear-active and buyer reactive Scenario 5 Example: American Seller – Japanese buyer

Seller multi-active and buyer reactive Scenario 7 Example: Brazilian Seller – Japanese buyer

‘Haggling’-Approach Similar cultural background with refinement Scenario 3 Example: Japanese Seller – Finnish buyer ‘Building trust’Approach

Source: Ott (2011)

the framework offers an anticipation of moves, strategies and outcomes for linear-active (Western players), multi-active (players from the Middle East) and reactive (players from the Far East). The theoretical model supports the evidence found in empirical work and answers questions raised in these publications.

We return to the former Ford manager. He considered himself culturefree and showed clear signs of linear-active bargaining behavior prior to the experiment yet started to haggle unbelievably during negotiations, as did the HP manager. In the debriefing session, it transpired that the first one actually grew up in Nigeria and the latter in Uganda, and both took with them that cultural mental model of ‘negotiating as art’.

Similarly surprising was a Finnish Nuclear power plant manager who felt comfortable bargaining with a Chinese counterpart in an experiment. This is not untypical for this bargaining model as both Finnish and Chinese negotiators have a similar cultural profile of a reactive bargaining strategy.

“When it comes to bargaining situations, there’s a very clear, deeprooted cognitive programme that is based on one’s nationality.

I’ve observed hundreds of negotiations, and each time, people go back into the way they were brought up. For instance, when we, as linear-active Western Europeans, go into the grocery store we’re not going to haggle about a loaf of bread. In cultures with a multiactive background however, you would never do something without haggling.

“I developed the mathematical formula out of game theory which was already there – everyone knows how to model the buyer-seller situation, that’s a given. But I added the cultural perspective of the multi-actives, the reactives and the linear-actives and gave it that twist with the length of the bargaining horizon and the costs and the value of the whole bargaining situation, and through doing the subsequent proofs I found out that I could actually show it in the diagrams, which was fascinating to see.

“I’ve started applying this formula to terrorist negotiations and climate change negotiations as well as across wider negotiations.

When looking at negotiation protocols I could often see a situation being inherently prone to disaster.”

journal in a Special Issue on Culture and Negotiation, can be seen as a starting point in understanding one’s own cultural profile and the opponent’s cultural bargaining pattern to come up with more cooperative solutions. This paper is going to be published as state of the art among the works of the leading scholars in negotiations, including Jeanne Brett, Michele Gelfand, Wendi Adair, Catherine Tinsley. It has been recognised as seminal work in the international business community with a nomination of the Journal of International Business Studies/AIB Frontiers Award.

This framework has already been applied to buyer-seller negotiations, multinational headquarter and subsidiary negotiations, as well as climate change and terrorist negotiations. The potential for further research in this direction is vast and of particular interest for practitioners, governments and academics alike as clearly shown by collaborations with industry and governments.

In all experiments, linear-active players tried to finish off negotiations too early to make any significant gains. Overall, the culturally intelligent negotiator can anticipate and learn from moves in an actual bargaining situation, undoing their own culturally determined bargaining strategy and understanding the opponent’s way of reasoning.

My paper ‘The Influence of Cultural Activity Types on Buyer-Seller Negotiations – A Game Theoretical Framework for Intercultural Negotiations’, which is forthcoming in the International Negotiation

Dr Ursula Ott is a Lecturer in International Business and Management. Her research centres on International Business Theory, Applied Game Theory, Cross-Cultural Negotiations and International Joint Ventures. She can be emailed at U.F.Ott@lboro.ac.uk

www.lboro.ac.uk/sbe

45020 D&P July 2011

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