As many of us prepare to move our strategy courses online, we need video “shorts” that introduce core strategy principles to go along with key readings. By now, you may have already seen collections by David Kryscynski, Shad Morris, and others in the toolbox. Melissa Schilling has graciously made a new set of videos available that address core strategy principles not found in the other collections. Below is her video introducing agency problems but you might also like her introduction to network externalities.
The clip below is a lightning version of internal analysis (connecting value chain and VRIO analysis). This was my special request because I don’t like how most readings cover this critical topic.
This clip provides a very high level overview and may require some supporting materials. This one-page handout details the steps and this old AME article provides a longer reading on internal analysis on which this approach is based.
How can we make online courses more interactive? Often people create videos of their PPT lectures as the basis of an online course. We know we can do better. It turns out that negotiation exercises can work surprisingly well online. The MicroTech negotiation is already described in another post (see the older post for details). Here, I describe a simple adaptation to use it in an online course. The negotiation focuses on the problems promoting cooperation across divisions (for example to achieve synergies). In the exercise, two general managers negotiate over the terms to transfer a technology to take advantage of a market opportunity. Sub-optimal agreements (money left on the table) represent transaction costs and inefficiencies that must be overcome to create corporate value. The debrief can also focus on alignment of activities/units to achieve a strategy. The discussion focuses on how to achieve requisite cooperation. This is hard to achieve in a competitive culture. How, then, can the firm create a cooperative culture? This, it turns out, may be a VRIO resource…
To conduct this exercise online, follow these steps
Assign roles and negotiation partners from the class list (1/2 of the class in each role). The roles can be emailed to the individuals with their assigned negotiating partners. I would try to pair them with people they may be less likely to know well to simulate negotiating across divisions (usually not someone on the same project team, etc.).
Students conduct the negotiation (outside of class) at a time of their choosing. It can be done through video conference, email, or in person.
Collect agreements (have them emailed back) by the night before class. Better yet, you might want to set up a simple poll to collect the agreements (like this one which will allow you to download the results and copy them into the spreadsheet that is used to summarize/analyze the results).
Debrief can be synchronous or asynchronous
Synchronous. In a synchronous session, you can present the results of the negotiation and engage in a rich discussion of organizational design and strategy. What levers would students suggest changing to increase coordination between units? (focus on things like incentives, structure, people, processes/routines, etc.)
Asynchronous. Alternatively, you could record or post an overview of the results and conduct the discussion asynchronously. For example, I would assign student teams (perhaps project groups this time instead of the pairs) to make recommendations on how to improve coordination (less $ left on the table). I have each team focus on one a lever such as incentives, organizational structure, people (hiring/firing), processes/routines, or create symbols (to influence the culture). Each team can work offline and share their insights for additional discussion (synchronous or asynchronous). I actually think asynchronous works better since teams have more time to think through their recommendations.
Firms often make errors in selecting governance forms and the scope of the firm. This is one common reason firms must undergo painful periodic restructuring programs. If only managers could frame these problems more effectively and identify the key factors to make more informed decisions — in short, a primer on Transaction Cost Economics (TCE). Brian Silverman provides just that tool in a sequence of three short videos. This is especially useful in today’s online teaching environment since transaction cost economics readings may not be the most user-friendly. I might add that this overview provides an excellent introduction for PhD students prior to diving into academic readings on the topic. Here is the second of the videos explaining the predictions of transaction cost economics.
Much of the news focuses on how hard businesses have been hit by the pandemic. However, strategy is about finding opportunities and adapting in a dynamic environment. Let’s not forget to focus on inspirational examples along these lines. Send students on a scavenger hunt (like the business combination scavenger hunt) to find unique examples. Invite students to identify 5 innovations have each student introduce an innovation and others who have the same innovation must cross it off their list. See how many unique innovations your class can identify. This can be done easily in a synchronous online session or in threaded discussion. Some types of examples to consider:
New Treatments. Of course many firms are working to find treatments and/or an effective vaccine. These efforts are spread around the world so it is a race to see what will be most effective.
Product Adaptations. Some products can be adapted to new uses and it is a question of how to recognize those opportunities. For example, Kinsa thermometers has collected data on fevers due to normal influenza patterns. The were then able to back out normal patterns to identify atypical fevers that might be due to COVID before patients began showing up in emergency rooms.
Process Adaptations: Many service firms have adapted their processes to avoid contact. Some firms may be better equipped to do this than others (physical facilities, etc.) and it may help them survive. Even some farmers who have lost distribution channels have created contactless alternatives while others have had to destroy food that they could not get to market.
Delivery Partners as a lifeline. Restaurants and other businesses often rely on partners to get their products to consumers. While these partners may have been a side business previously, they are a critical lifeline now (see EatStreet, GrubHub, DoorDash and others). Amazon has also done better than other retailers for this reason.
Products in heavy demand. It isn’t just toilet paper and hand sanitizer. Other products have experienced significant demand and need to adapt their supply chains and processes to meet needs. Automatic door openers, video conferencing tools like zoom, door cameras like ring, are all in greater demand than anticipated.
I have taught during numerous crises (various wars, 911, 2008 crash, etc.) and always regretted missing opportunities to bring the events into the classroom. So how can we encourage our students to think strategically about the COVID crisis? Here are a few ideas for discussion or team projects (but please add more ideas in the comments):
Dynamic capabilities and Resource Redeployment. How can different types of firms redeploy their resources in this crisis to: 1) help others survive the pandemic, and/or 2) keep the business from going under? How does this redeployment lesson link to other types of challenges? Consider, for example, Eight Oaks’ distillery conversion to produce hand sanitizer.
Resource Acquisition & Retention. Many resources (especially Human capital) have been released. This could be an opportunity for some firms to access resources. For others, the challenge is to retain the resources through the crisis so they are able to ramp up once the crisis passes. How should firms respond?
Firms’ Ethical Responsibilities. The two issues above raise inherently ethical problems. What are the firm’s responsibilities to its employees? To shareholders? To society? To survive?
Generic virus strategies. China opted for extensive testing, isolated those who test positive from their families, and limited travel. The policies are well aligned (like a generic strategy) to limit spread. Is there an alternative aligned strategy involving limited testing? To what extent are countries “stuck in the middle?”
Technology strategy. What new technologies can be deployed to fight the virus? For example, Kinsa produces a connected thermometer that allows them to map parts of the US where there are unusual fevers— a week before people need hospitalization. How can this new resource be effectively deployed?
Entrepreneurial Strategy. What business opportunities are created by the crisis? How can an entrepreneur pursue them when resources are scarce? What are the implications for social entrepreneurship?
Global strategy. How can firms adapt to disrupted supply chains? Are there global opportunities created by the crisis? Along the lines of the first bullet, this could be opportunities to help those in hard hit areas or those that allow the firm to survive.
Diversification. Are there portfolios of businesses that are more or less likely to survive COVID? What do firms need to do to leverage those parts of their portfolio? What is the role of the corporate HQ?
Rigorous Data Analysis. The media presents data on cases and deaths at the country level. There are so many questions one might raise. Is the country the right level of analysis? Given the limited testing in some countries, does the number of known cases even provide useful data? How do we interpret missing data in countries like China and Russia?
Theory is, by definition, a simplification of reality. A useful theory is parsimonious in that it reflects the most important details of the context and allows for reasonably accurate predictions (see a review of Weick and Thorngate’s discussion here). In a similar fashion, strategy frameworks and tools are simplifications designed to guide decision-makers. Ultimately, the question is, what are the essential elements of the problem that must be analyzed? This is what a simplified framework is designed to capture. Ignacio Canales has designed a class exercise that brings this to the forefront and makes a great introduction to the topic before diving into individual frameworks. With no warning, he asks the class to take out a piece of paper and draw a bull. He then invites them to post their pictures in the front of the class and pick the best drawing. The debrief focuses on what are the essential elements needed for the drawing to clearly be a bull? He then introduces Picasso’s study of a bull and how this is used in Apple’s training to focus designers on the most essential elements. Here is a more detailed description of the exercise and here are some slides of the Picasso art.
We often see rivals locate very close to each other (e.g., CVS and Walgreens, Home Depot and Lowes, etc.). The question of how and when rivals choose to co-locate is interesting both in theory and in practice. Peter Klein explores the topic in class using a simple Hotelling model of spatial competition. Here, two firms with identical products choose where to locate on a street, assuming buyers: 1) are evenly distributed along the street, 2) prefer to shop at the closest store, and 3) will shop with the same frequency no matter what choice is made. The Nash equilibrium has the firms located next to each other in the middle of the street — if either locates to the left or right, it can attract more customers by moving toward the center, without losing those at the extremes.
That last assumption, that buyers will shop with the same frequency is central to the median voter theorem in a two party system. That is, people will vote with the same frequency regardless, so it is best for candidates to “co-locate in the middle” of the political spectrum. Note however, that as this Politico piece suggests, voter turnout can be very much in question: “modern American elections are rarely shaped by voters changing their minds, but rather by shifts in who decides to vote in the first place.” Under these assumptions, having candidates at political extremes may be a winning strategy. In a similar fashion, firms must be aware of whether some customers will choose to stay out of the market if there is no seller located nearby.
Human capital is often considered to be a critical component of valuable capabilities. However, it is intimately tied to value capture in that one might anticipate that those who have valuable and rare skills might also be in a position to appropriate rent. Is it a competitive advantage if the resulting value does not flow to shareholders? The following survey gets at this question and may spur interesting discussion among academics and students alike.
Alliances are temporary by their very nature. A key component of an alliance capability is the ability to manage the exit strategy. However, managers in operating units may not recognize the temporary nature and plan for its termination. This short video illustrates. How long will the alliance last?
In conducting internal analysis, managers often point to things they do well as critical strengths. However, for it to be an important strength, it would be important to know: 1) How it relates to value creation (e.g., does it lower costs or increase willingness to pay), and 2) Do rivals have similar or substitute capabilities. In the end, many things that managers report as strengths may not be relevant in determining whether the firm has a competitive advantage. Take this video on extreme ironing, for example. One might ask their class if it depicts valuable capabilities? It might if you consider promotional expertise (video has over a million views)…
Amazon is encouraging employee spinouts. They are offering employees $10,000 plus 3 months salary to quit and form entrepreneurial ventures in their Delivery Service Partner Program. This makes for an excellent “ripped from the headlines” case. I ask students to read a brief packet of news articles on the program and complete a poll before class (here is the poll I used). Since the program started, Amazon has shifted 30-50% of its delivery needs away from big vendors (USPS, UPS, FedEx, etc.) in favor of internal and small external service providers. It brings out multiple strategic issues and can be used to frame a semesters worth of strategy issues:
Market structure: How does this alter the market structure for Amazon? On the other side, what is the market structure that employee entrepreneurs face?
Competitive dynamics: How will players respond? (FedEx has now declined to serve Amazon)
Internal analysis: How might this move enhance Amazon’s competitive advantage? Do the entrepreneurial ventures enjoy any competitive advantages?
Entrepreneurship: Is the opportunity for employee entrepreneurs attractive?
Corporate: Should Amazon vertically integrate into the delivery business? How does their tapered integration affect the market?
Alliances: How do the collaborative relationships between Amazon and its partners differ between big and small partners?
Team projects are quite common in strategy classes. While the topic of team effectiveness is usually more central for organizational behavior courses, it is essential for organizational effectiveness … and team projects. While you may not want to allocate a lot of time and resources to the topic, you may want to get teams off to a good start so you don’t have to address dysfunctions later in the semester. One reason things may go south is the team’s desire for a “fast and enthusiastic start.” A bias for action can sometimes sabotage collaborative efforts. That well-meaning call to action — “let’s get this done!” – can result in a “sloppy start.”
Larry Dressler offers a solution to this challenge for teams in organizations — require that teams undergo a careful process of “chartering.” This involves bringing team members together at the outset to clearly articulate answers to these questions. The following adapts the chartering process for student project teams:
Purpose: Why does this team exist? Why are team projects important for the learning process?
Role: What is our authority to make decisions? What aspects are required for the project and on what dimensions does the team have latitude?
Goals: What concrete outcomes do we intend to accomplish as a team? What level of quality? What learning objectives? What grade?
Agreements: What do we expect from one another? What shared commitments do we want to put in place in order to ensure we function well? (e.g., How we go about sharing information, meeting, making decisions, etc.)?
Support: What kind of support (e.g., guidance, resources, information, etc.) do we think we will need from others to succeed in achieving our purpose and objectives?
High performing teams invest the time and effort to create a project charter at the outset. Skipping the chartering process is like blowing off breakfast so you can get to work 30 minutes earlier. It seems like a good idea until intelligence and productivity fade away as your blood sugar plummets by 9:30 am. Once a clear project charter is in place, the team should review it periodically to reaffirm shared purpose, goals, and agreements or to update that charter based on what the team has been learning over the course of the work.
Managing change is an essential part of strategy execution but many courses focus on strategy content and fail to give implementation the attention is deserves. As such, students may underestimate how much resistance they will encounter and managing this is key to success. Amy Lewis and Mark Grosser published a Journal of Management Education paper thatdescribes an exercise for teaching change management. This 45-minute exercise can be used in a range of management courses and works well in almost any size class. Students are divided into two groups (managers and workers) that must cooperate to produce a re-organization (a simple seating chart). However, managers discover that workers are reluctant to move and about 90% of classes fail to achieve the task. This generates a lively discussion on what is required to lead change, as well as on topics such as communication, trust, power, and motivation. I just ran this for the first time and, to my surprise, the students were successful. However, in the process, it was clear that there were moments of distrust within and between groups. A last person held out to see if he could appropriate more value. In the end, the management team gave up all value that was created. That is, employees appropriated all of the value and managers actually lost money in the exercise. It was quite successful and students thanked me for the experience. All of the details needed to run the exercise are in the article at the link above and it was easy to set up and run.
The Alphabet Soup exercise was posted here earlier as a general exercise to flesh out the impact of cognitive traps when applying frameworks. This focuses students to think about how frameworks, while valuable, could lead them astray as they try to analyze complex problems. A special application of this lesson is in the discussion of the problem of Architectural Innovation (see Henderson and Clark, ASQ 1990). That is, when firms are very familiar with a set of components, a small change in how they interact may create a very difficult adaptation challenge. Here, the letters in the alphabet are the components and a simple priming tool gets people focused on how these components relate. This exercise is very easy to run and makes the point powerfully how such cognitive frames may prevent people from reaching obvious solutions.
As Netflix’s strategy unfolds it becomes clearer the extent to which it threatens traditional media companies. Initially, Netflix was a welcome partner who paid for access to older entertainment assets – new income streams for studios. More recently they have developed new content and lure top talent away from traditional media companies. Now, by offering a compelling portfolio of options, they compete more directly against traditional media companies. AT&T, Comcast, Fox, and Disney have taken notice of Netflix’s increasingly vertically integrated business model that bypasses traditional distributors (cable, DSL, satellite) and doesn’t rely on advertising revenue. The new model is driving mega mergers & bidding wars as rivals try to build compelling portfolios to offer streaming services. This is a great live case to frame many strategic management course topics including:
What is strategy? I use the Strategy Diamond and Netflix is a great case to look at things like staging and pacing, vehicles, and arenas.
Market structure – How attractive is the media industry and how has this streaming model affected industry profitability
Resources/Capabilities – Rivals lack some resources and some of their substantial existing resources have become “core rigidities” that hinder adaptation
Competitive dynamics – What strategic moves can we observe? How will Netflix respond?
Disruptive innovation – Netflix started as a limited low-cost alternative but added features that eventually made it a significant threat to incumbents.
Corporate strategy – The billions rivals spent on M&A are another critical angle. This also provides a vehicle to discuss when vertical integration creates value.
I have assembled some useful materials to frame a discussion of this case. First, the case can be taught using a series of recent news articles (sample article pack). In addition, I have prepared a spreadsheet to explore scenarios for how various events might affect the value of Netflix. For instance, what would happen to its business model if the market started to value the company as a traditional media company as opposed to a tech firm? Similarly, what will happen if rivals’ M&A strategies succeed and pose a critical challenge? Finally, here is a link to a sample pre-class survey to help students think about the strategic issues before class.
Class participation is typically a major component of grades in strategy courses. Some students are quite comfortable participating. Others not so much. This video from Rich Makadok offers some advice and instruction for students on how to do well on this portion of the class (you can find the script for the video here). This is designed especially to help those who have language barriers or who are otherwise uncomfortable speaking in class. Students learn how they can contribute to making the class better for everyone — including themselves. You may want to use the video in conjunction with class discussion voting arrows to help bring different perspectives to the forefront.
Strategy classes often give short shrift to managing change but this is where the rubber hits the road. Chris Smith offers a number of very simple group exercises that allow a deeper dive. These are especially helpful since they demonstrate key points quickly but in an interactive way. Of course, there are many other change management materials in the toolbox. One of my favorites is the classroom ruse. Here are a few that jumped out at me from Smith’s page:
Small Change: Cross Your Arms. Ask students to cross their arms. When they are comfortable, ask them to cross their arms the other way. Ask why the 2nd attempt might have left them feeling uncomfortable, even though it’s basically the same action. How tricky is it to cross your arms in different ways and equally how tricky it is to cope with even very small changes? Steer the conversation towards specific changes within the university or in their experience with other organizations. Discuss how to deal with such discomfort.
Mindful Routines: Alien at Dinner. Ask students to imagine themselves as aliens observing a human dinner party. Their task is to point out unusual human social norms and to explain them to the beings on their imaginary planet. Why do they drink poisonous alcohol? Why do they knock their glasses together when celebrating? This exercise helps to point out that just because something is accepted, does not mean it is the best way of doing things. It prompts students to examine existing routines anew and assess whether there are better methods. Continue reading →
Some fear that eventually and robots will be able to do anything that humans can — better. Many have hailed the dangers of artificial intelligence to society (see Stephan Hawking, Elon Musk, Bill Gates, etc.). Hundreds of millions of jobs would be affected. Trillions of dollars of wealth created (and captured by whom?). These are the potential impacts of a coming wave of automation. In this episode of Moving Upstream (below), the Wall Street Journal traveled to Asia to see the next generation of industrial robots, what they’re capable of, and whether they’re friend or foe to low-skilled workers. Interestingly, new innovations in robotics allow robots to work safely side-by-side with humans and this achieves higher levels of productivity than either humans alone or robots alone. This is because most processes are not 100% programmable and working side-by-side allows for greater flexibility in handling exceptions to programmed routines. This is a great video to discuss topics like technological innovation, substitution of capital for labor, and interfaces between humans and technology.
As the container shipping industry continues to boom, companies are adopting new technologies to move cargo faster and shifting to crewless ships. But it’s not all been smooth sailing and the future will see fewer players stay above water. This WSJ video takes students through the history and shows how the industry structure has changed with new innovations. Excellent for teaching industry analysis and innovation (architectural/systemic innovation).
Generic strategies are easy enough to explain and students typically feel that they understand. But do they really? Could they develop and implement a sound strategy? Sometimes it’s worth a bit of additional hands-on experience to make sure the lessons stick. Probably the most important message is alignment — the need to design the organization and product to fit the strategy. In other words, to make the appropriate tradeoffs. Lee Bolman offers a very simple house building exercise (out of index cards) that makes these points very nicely. Teams plan what kind of houses they will build and organize their production. Strategies naturally fall into more low cost (simple one story house) or differentiation (complex two story). The 20% quality bonus and 20% first mover bonus help to highlight these competing objectives. This one-page handout describes the rules and process for running the exercise. The debrief focuses on the teams’ strategies and how they organized:
Planning process — How did they frame the problem and explore solutions?
Competitive Dynamics — A strategy is more likely to be successful if few firms (teams) adopt it. How do they anticipate what rivals will do?
Implementation — Plans often don’t unfold as expected. A common problem is that when the time is up, they are stuck with inventories of unfinished products.
Overall, this is a simple and easy to implement exercise that drives home basic strategy and organization issues nicely. The exercise can be run in a little as 75 minutes, though 90 to 120 minutes provides more time for both the exercise and debriefing. The steps to run the exercise are:
Provide materials to teams (2 packs of 3-5 cards, 2-3 rolls of tape, 2-3 markers).
Distribute the Quality Housing Instructions. Briefly introduce the exercise and announce how much time is available for planning (10 min). At the end of the production period, do a count-down from 5 and firmly announce “Stop!”. Teams may be startled when the time is up.
Once teams have produced, have them calculate their expenses, revenue, and net income. You can check houses against the specifications either immediately after a team produces, or after all teams have produced. If a team produces multiple houses, test a few to see if they can be dropped 12 inches without damage.
Collect the financial results from all teams (revenue, costs, net), and award the bonuses for quality and first-to-market.