Presenting material clearly and concisely may not be the best way to help students learn. In fact, presenting ambiguous information that leverages common sources of confusion may be a much better route to learning. This post is intended to serve as a BLEG to solicit examples of confusions that students experience. Accordingly, this is a starting point for developing new material that draws on confusion to teach strategy. We begin by understanding what confuses students. Here are some examples that come to mind (please add your own examples in the comments):
- What does 5 Forces tell us about the firm’s advantage? Students often put a focal firm in the center and consider rivals to be substitutes. They don’t understand that the framework addresses the industry and not the firm.
- What industry to choose for 5 forces? Students often choose an umbrella industry instead of the specific segment they are considering entering (e.g., beer instead of micro brews in South Africa). The result, then, is almost useless for making decisions and the analysis is not used to make recommendations.
- Some resources are valuable while others are Inimitable (VRIO): Students think they are looking for some resources that fit in each bucket (V,R,I, & O) instead of a few resources that meet all of the criteria. They don’t understand that VRIO is a filter to evaluate all strengths in the value chain.
- What is that “O” for anyway (in VRIO)? It seems to make sense but students often don’t really understand how a firm can have all of the pieces and still not execute. I use Xerox PARC as an example.
- How do we make decisions using VRIO? Students often think they understand but don’t really know how to use it to make a decision. For example, how are capabilities relevant to decisions like entering new markets or fending off rivals?
- Motivation for diversification: guilty until proven innocent. Students often suggest that a firm should acquire a successful target. They fail to see that future success is built into the acquisition price and don’t ask why the buyer could create unique value over other bidders.
- Technology advantages erode rapidly. People see technology as key but miss that it can be easy to reverse engineer (leading to a temporary advantage). While the iPhone confers an advantage to Apple, Samsung has more market share.
- Core competence is not what a firm does well if rivals can do it better. Core competence must refer to VRIO resources in order to create value.
Again, please add your own examples in the comments below. The following TED talk by Derek Muller describes the technique in teaching science.
You can find a string of educational videos that leverage this “confusion” technique to teach principles of science here.
Contributed by Rich Makadok and David Kryscynski
Sometimes students think that rivalry is most intense in a two-player industry. I wonder if they have been influenced by sports. Coke vs. Pepsi and Miller vs. Bud look like Chicago Bears vs. Green Bay Packers.
Sometimes students think that the popularity of a product or service necessarily causes network effects.
The line between horizontal growth and concentric diversification and the line between concentric diversification and conglomerate diversification can be fuzzy. Much depends on accurate definition of the focal firm’s industry, and that can be a challenge too.
The direction of vertical integration can be difficult to determine. If Uber hired drivers as employees or deployed autonomous cars, would it be integrating backward into a supplier’s industry or forward in the distribution and delivery of its service?
Differentiating among suppliers, distributors, and complements can be challenging. For an airline, is the gate at the airport more of a supply, a complement like gas stations are to cars, or a key component in distributing/delivering a service?
Some students confuse the threat of new entrants with recent entrants and the threat of substitutes with actual substitutes.
1. I’m very gratified that it’s not only my students that make these mistakes.
2. The most common thing I see that isn’t reflected above is the impact of barriers to entry. I see students say things like “It’s a difficult industry if you’re not already part of it, but if you’re in it already, it’s favorable.”
Defining an industry BEFORE doing an industry analysis
Confusing different and differentiation