Ever wondered what it’s like inside an MBA classroom? What kinds of questions do students ask? What kinds of answers do faculty members give?
Every month, we’ll share insights from top GLOBIS faculty to give you a peek behind the classroom doors of Japan’s No. 1 business school.
February 2021 Questions & Answers
Q: Why does finance treat past investments/money spent as “sunk costs” and exclude them from ROI calculation in decision making?
A: This is one of the most important things to understand about the nature of finance. Finance is about forecasting the future of a business and calculating present ROI value. Accounting is about recording the past.
From this point of view, money you have already spent actually has nothing to do with the future. In a financial simulation, it does not make sense to regret past failures. If you look only at the future, you can concern yourself with how much money we need now and how much return we can expect.
In the real world, we tend to include sunk costs in our decision making. We hear, “We’ve already spent a ton of money on this project, so we can’t believe it will bring the level of return you estimated.” But in the finance world, this logic is meaningless. The future is always a blank slate, free of mistakes of the past and ready for new investment.
Q: How should business professionals approach digital marketing?
A: The answer is simple: think like a digital psychologist.
Successful digital marketing persuades. It changes minds and creates emotional memories through effective messaging, value-exchange, and communication. It must create a psychological transformation.
The digital transformation wrought by mobile devices and broadband mobile networks adds an immediacy and intimacy to modern marketing. Digital marketing puts rich and responsive content literally in the pocket of the customer—campaigns are constantly present in the customer’s daily life. Marketing is no longer restricted to advertising moments on TV or passing glances at outdoor media.
However, the valued place in a customer’s social media feed or friends list comes at a price: immediacy and intimacy must be earned. Trust must be built, meaningful value-exchanges made clear, social benefit proved, and positive memories and cognitive associations created.
As a first step, professionals at all levels and in all types of commercial organizations, from corporations to start-ups, must embrace digital transformation. They must accept that their businesses and markets are being disrupted by digital technologies. After that, they must learn the psychological drivers of their customers’ behavior, decision making, memory, and loyalty. Only with this understanding can we create modern marketing campaigns that persuade customers to invite brands into their digital lives.
Q: Why do I need to study human resource management (HRM) if I don’t want a career in HR?
A: HRM has two objectives: motivation management and resource management. Those are skills that are useful for anyone to learn. Studying HRM is about how to achieve these objectives—from top management and frontline manager perspectives. It’s not about the technical systems and details.
Further, HR doesn’t exist independently. It needs to be fully aligned with corporate strategy to help achieve the corporate goal. For this to happen, CEOs need to have a solid understanding of how HR works. CEOs and CHROs work together, hand-in-hand as management partners. CHROs also need to work closely with frontline managers so that they can communicate and penetrate the HR strategy and systems across the company.
So if you hope to be a manager in any department or function during your career, HRM provides skills you’ll absolutely need to motivate people and generate value for your company.
Q: During a negotiation, is it always best to make the first offer?
A: There are several reasons you might NOT want to make the first offer (or “anchor”) during a negotiation.
IT MAY BE VERY COSTLY. If you are a seller and significantly misjudge your counterparty’s negotiation position, you may get much less (in monetary value or other terms) than you hoped. Imagine if you offer to sell something for ¥10 million, and the buyer was ready to start negotiations at ¥20 million!
YOU MAY LOSE CREDIBILITY. If you make the first offer, and it’s way beyond what the other party is able or willing to accept, they may not consider you a serious negotiator. In the worst case, they may think that you’re trying to take them for a ride—at best, they’ll think you’re unprepared or inexperienced. Some counterparties might walk away under such circumstances—and you may want to do so, too.
YOU MAY WEAKEN YOUR FUTURE NEGOTIATION POWER. Let’s say you make a first offer, and it’s way off the mark. Realizing you misjudged the situation, you significantly reduce your demands. You may come to an agreement this time, but if you have to negotiate again with the same party in the future, there’s a good chance they’ll expect you to follow the same “strategy” as before.
YOU MAY FEEL ANXIOUS OR UNCOMFORTABLE. A recent experiment referenced by the Harvard Project on Negotiation (PON) showed that the majority of first-offer negotiators are anxious and uncomfortable—and less satisfied with their outcomes. The authors of the study therefore advise making a first offer if you only value the economic outcome of your negotiations. First-offer negotiators tend to get a better economic result. However, if you are more focused on the negotiation process and relationship (such as with a customer), you may want to think twice before making the first offer.
Deepak Malhotra, a negotiation expert and Professor at Harvard Business School, recommends that you make a first offer if you feel that you have a fairly good grip on the counter party’s negotiating position. If there are many uncertainties, however, he suggests you keep talking to get more information—and potentially even get them to make the first offer.