Organizational Islands

This recent AT&T commercial captures the essence of organizational coordination challenges. Of course, they promise to solve these problems. I suspect that they can barely scratch the surface in most cases. In any event the video might lead to some nice discussions of coordination dilemmas and how addressing them is critical for strategic implementation. I might use it from 3 seconds to about 20 seconds to cut out the commercial tag line.

Contributed by Russ Coff

Disintegrating Target: Inviting retail rivals as partners

Target has agreed to sell their Pharmacy business to CVS for $1.9B. CVS is a retail rival for many items that Target sells. Why invite them to share space in Target stores? A USA Today article identifies five likely reasons: 1) Complexity of the healthcare business, 2) Profitability was lacking, 3) Scale (since CVS can leverage many more locations), 4) It allows Target to focus on other businesses and 5) Foot traffic from CVS will increase other sales (complementarities). These factors tip the scales from integration to creating value through a strategic alliance — an opportunity, perhaps to apply the “Four C” alliance framework or the Resource Pathways framework to assess the opportunities and risks. This might also stimulate a nice discussion of Nalebuff and Brandenburger’s Coopetition framework. To what extent do the cited reasons (in the USA Today article) dovetail with the issues identified in the frameworks? What is left out of the more naive analysis?

Contributed by Russ Coff

iPhone Killers? Not when Rivals are Complementors…

iphone_killer1There has been much ado over the years about how Apple rivals seek to introduce iPhone killers. Here is a sampling of so-called iPhone killers that turned out not to be. Horace Dediu points out the revenue that rivals like Google, Microsoft, Samsung, and Amazon get from the iPhone. It turns out that iPhone owners are more likely to shop on their phones. This creates much more ad revenue for Google and purchases for Amazon. Apple remains the largest customer of Samsung’s semiconductor division and the largest source of operating profits. Microsoft has licensed IP for the iPhone and is increasingly offering software applications for iPhones. This graphic is a bit busy but shows the revenue and operating income growth of Apple and these key rivals — all strongly positively correlated. Of course, the whole sector is growing so the correlational evidence may not be as convincing as one might like. Nevertheless, performance is increasing overall, why would these rivals want to kill their golden goose?

Contributed by Russ Coff

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Strategic Complementarities at Steak

Complementarities drive so many aspects of strategy — particularly in the context of corporate strategy. M&A, Alliances, diversification and global strategy are fundamentally about complementarities between businesses and regions. On the video below, Will Mitchell notes that it would , “get a conversation started about one of the 3 additional forces I use in industry analysis – Porter 5, plus social factors, new strategies, and complementary organizations. The video is short enough to make the point about complementation, then to spark discussion of what this would mean in business strategy (e.g., software upgrades for hardware).” The video is also valuable in exploring how a narrow product can expand its market appeal or find new markets. See also the classic complementarities video here.

Contributed by Will Mitchell

OPEC Hits a Slick

OPEC might seem like a tired example of collusion since the alliance has been stable for many years. However, it is certainly produced a gush of news lately as oil prices have slipped by 60% in just a few months. This article offers a nice summary of why each member of the OPEC cartel has failed to bolster the prices (e.g., cut production). This underscores the different strategic objectives that each has an how difficult it may be to maintain cooperation. Some of the reasons reflect divergent goals among partners (e.g., Saudi Arabia, Iran, and Russia). Others reflect internal turmoil (Venezuela). Then there are strategic objectives such as the Saudi’s seeking to thrash the economics of newer, more costly, sources like fracking (which has made the US the top oil producing nation). While this sudden drop in in prices has hurt many oil producing nations (see chart) it has also lubricated many troubled economies in other parts of the world.

Contributed by Russ Coff

Dr. K Prescribes Strategy Videos

David Kryscynski (Dr. K) has provided an excellent series of online videos to supplement your course or to help move portions of it online. These are very well produced and may allow you to spend class time on more experiential activities found elsewhere on this site. Below is the video on Porter’s generic strategies but I have provided links to all of the available videos below and listed others that you can gain access to through Wiley. Dr. K’s newest collection can be found on his free web page at LearnStrategy.org.

More Videos (below) Accompany Text

The videos below are also available but are designed to accompany the textbook: Strategic Management 1e by Jeff Dyer, Paul Godfrey, Robert Jensen and David Bryce (BYU Marriott School of Business). Contact your local Wiley sales representative or Executive Editor, Lise Johnson, at lise.johnson@wiley.com to receive additional information about class-testing or possibly using the videos without the text. For information on how to utilize these animations for non-academic use please send an email to ols_dept@byu.edu.

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Boeing’s Self-Destructing Android

In a torrent of irony, Boeing is partnering with Blackberry to deliver a more secure line of smartphones. Do their capabilities transfer? Does their brand transfer? Did they pick the right partner to imbue confidence? This is almost an entry for the business combination scavenger hunt. Whether the business model makes sense or not, one might think Sony’s experience will help to create demand for this type of enhanced security. If asked to do a testimonial, will Sony byte?

 

Contributed by Russ Coff

Teaching Tips @ SMS Madrid

The Strategic Management Society always has excellent teaching sessions incorporated in their conferences. Here are some sessions to check out at the Madrid conference September 20-23, 2014:

  • Sat, 9/20 @ 13-16:00. Competitive Strategy Interest Group Teaching Workshop. Building on last year’s workshop on innovation & education, the 2014 theme is “The Impact of New Technologies on Teaching and Higher Education.” The education industry is abuzz with talk of MOOCs, distance learning, computer-based instruction, and other innovations. How are these best incorporated into the curriculum? (Co-sponsored by the Teaching Community).
  • Sun 9/21 @ 8-9:15. Teaching Corporate Strategy: Insights & Opportunities. Panelists will share experiences teaching corporate strategy topics related to their research: vertical integration, M&A, industry consolidation, and diversification.
  • Sun 9/21 @ 9:15-10:45. Researchers Hooked on Teaching / Teachers Hooked on Research. Most academics polarize teaching and research into separate worlds. Building on last year’s very popular session we bring together world-class scholars who have successfully bridged this apparent divide. This engaging session will showcase their experiences in “translating” their research into teachable moments and their teachable moments into research.
  • Sun 9/21 @ 15:45-17:00. Alternatives Takes on Teaching Strategy: Balancing the (ex)Tensions. Strategy is a complex subject with multiple teaching approaches. This interactive session will provide insights from experienced educators on the methods that work, as well as addressing moves to online content.
  • Mon 9/22 @ 11:00-12:15. Challenging the Way We Teach and Practice Strategy. This is a common ground session comprised of submissions to the teaching community track.
  • Mon 9/22 @ 14:45 – 16:00. Teaching Strategy Philosophically. Ethics applies different theories to address Socrates’s question of how we should act. The application of philosophical principles in teaching strategy has multiple advantages including a better appreciation of underlying values and motivation, and increasing tolerance of ambiguity. Join us in this highly interactive session in how great scholars teach strategy philosophically.

Contributed by Russ Coff

Vertical Integration with Style!

Andrew Shipilov offers a nice case (with video) of Louis Vuitton’s strategy for vertical integration and alliances. He documents how Vuitton vertically integrated into distribution when the rest of the fashion industry relied only on partnerships. This allowed them to gain access to important market information (customer preferences) on a more timely basis — a source of advantage in the industry. Shipilov notes: “The more unique your assets are and the greater the control you need to exercise over the value chain to extract competitive advantage from these assets, the more vertical integration makes sense. However, the higher the uncertainty and complexity in your markets, the more you should think about partnerships.

Contributed by Andrew Shipilov

Strategic Mgt of Job Interviews

RecruiterQuestion-GoogleThis Onion video illustrates some … um … interesting strategies one might apply in job interviews. While the strategies portrayed are entertaining, there is a key point hidden behind the humor: Analyzing a company’s strategy might help students ask questions that set them apart from other job candidates. Here is a 6-step “listicle” by Google’s HR executive on how to prepare for an interview. Getting a job could be turned into a class exercise that helps students see how the strategy content might be useful right away (as opposed to waiting until they are CEOs). For any case, consider a range of recruiter questions that convey a deeper understanding of a company’s strategy. For example, a good question for Apple might reveal an understanding of the nature and extent of their competitive advantage as well as strategic challenges: “How does Apple’s culture of creative product design extend to less creative jobs like sales and service?” or “How does Apple create a sense of urgency among employees to respond to rivals like Samsung?” Many of the key strategy frameworks can be applied to generate such probing questions:

  • 5 forces/Industry analysis might help you understand the market position & efforts to increase buyer switching costs. This might include marketing or operations efforts to get closer to customers (customer intimacy). Probing questions along these lines convey that you understand strategic issues in the industry.
  • VRINE/Internal analysis might help identify key resources to leverage (e.g., Apple example above). If culture is a critical resource, one might ask questions about how they develop and maintain it.
  • STAR framework might help to identify levers to develop and maintain a valuable culture or, for example, coordination across units (e.g., MicroTech negotiation). Thus, one could probe into hiring, reward systems, structure, and processes to understand how they achieve these capabilities.
  • “Four C” framework might be useful if alliances are a key component of the firm’s strategy (outsourcing, R&D, etc.). How do they find partners with congruent goals? How do they managing the changing relationship over time? End game?

Contributed by Russ Coff

Power & Alliances: Dog’s Best Friend?

This short clip is probably self explanatory. Not all alliances work out in the end for all parties. Nearly all alliances involve contexts where power is unevenly distributed. What are the management challenges for both the favored and unfavored partners? This follows a similar pattern as the classic dog and bird alliance featured in this commercial (similar to Tom and Jerry). Click here for more posts on alliances.

Contributed by Russ Coff

Keeping Your Cool in Alliances

Quirky is a company that collects ideas on innovative products from it’s “community members.” It is governed somewhere between crowdsourcing and a holacracy (see the posts on Zappos and Valve). They have formed an alliance with the much more established and traditional, General Electric (GE). The two companies have very different strengths which can be the basis of complementarities that drive value creation in alliances. Together, they have produced Aros, a connected air conditioner that, for example, uses one’s Phone location to tell the system when to turn on and cool one’s house. This is a nice opportunity to apply the frameworks for achieving a network advantage (see Greve, Rowley, & Shipilov’s new book). For example, Shipilov describes the Alliance Radar framework which allows you to see if an alliance portfolio is balanced and identify what kinds of alliances will create the most value. Below is a video review of the resulting product. See also Henrich Greve’s blog post on the alliance for a discussion of how it has worked. While GE handled the product design, manufacturing and sales, the core idea came from Quirky.

Contributed by Aya Chacar

French Connection (in Mexico)

Daimler and Renault-Nissan have entered into a new alliance to open a new joint plant in Mexico. As the video below indicates, they intend to achieve economies of scale that neither partner could accomplish on their own while maximizing differentiation between the two brands. What are the tradeoffs in trying to achieve these competing goals? How will consumers perceive the arrangement? This could spur some nice discussion on alliance management — an opportunity, perhaps to apply the “Four C” alliance framework or the Resource Pathways framework to assess the opportunities and risks. If you are looking for a complementary exercise, this case would go nicely with the Global Alliance Game.

Contributed by Aya Chacar

Frozen Corporate Strategy

Disney’s Frozen is now the top grossing animated film of all time (almost $800 million in revenue so far). But that is only the box office proceeds. FrozenThe Lion King brought in over 2 billion and the box office was just a small part (see the HBS Lion King case for a breakdown). Of course, they will leverage the characters across their entertainment assets (frozen cruises, stage shows, theme parks, broadcasting, etc.). This might make one think that the bulk of the additional returns stem form their diversification strategy. In fact, most of the revenue will come from merchandise sales where the manufacturing is outsourced. Because Disney owns the rights to the characters, they have bargaining power to appropriate most of the profit — no need to vertically integrate. For a rare discussion of management policies to maximize cross-business opportunities, see the Lion King B case (The Synergy Group). Interestingly, Disney has loosened their copyright grip to allow the many spoofs that have overtaken YouTube (click here for a listing). They now see this as free advertising that pumps up the demand for merchandise. This all makes for a nice classroom discussion as well as a host of entertaining videos (like the one below).

Contributed by Russ Coff

Beaten: An Alliance Out of Tune

Beats by Dre has a newly told story of an alliance partner that did most of the work but lost everything in the process. Monster, a father and son business (Noel and Kevin Lee) came up with the technology but was severely out negotiated by ts more experienced partner. A great cautionary tale for the study of alliances. I use the “Four C” alliance framework to teach alliances:

  • Complementarities. Monster had the engineering chops to design the path-breaking audio. Interscope and Dr. Dre had the marketing expertise and contacts to make them a fashion item. Clearly these complementary capabilities were strong.
  • Congruent goals. While they had a strong interest to cooperate, their interests diverged on the issue of who would own the intellectual property, brand, and on how the value would be split.
  • Compatibility of the Organizations. The larger and professionalized Interscope had a team of experienced lawyers. Kevin Lee had a BA in engineering. They could work together but not necessarily understand each other.
  • Change. Over the course of the alliance Interscope needed Monster less and less. Once the first products were designed and produced, they could hire other expertise to keep the products fresh (much of that was around fashion rather than new technology). This allowed Interscope to shut out Monster altogether.

Contributed by Russ Coff

Google/Apple vs. Their Employees?

Google and Apple must pay a total of $324 Million to current and former employees in a class action lawsuit that they lost. This highlights the multiple arenas on which competition and cooperation play out. Is it surprising that strategic alliance partners might agree not to actively poach employees from each other? Such trust seems like a prerequisite to a productive alliance. And yet, fierce competition in product and intellectual property markets makes it hard to imagine close coordination to collude in strategic factor (human capital) markets. This brings together a nice discussion at the intersection of factor markets, alliances, diversification, game theory, and rent appropriation. The video below gives an idea what Google employees do all day…

Contributed by Russ Coff and Aya Chacar

Coopetition: Shaping up your strategy

This exercise is a simplified version of the Global Alliance Game. That is, there are resource complementarities created among teams. However, this one emphasizes (to a greater extent) that the teams are in direct competition to complete the same tasks. As such, it is a nice exercise to explore coopetition and alliances with competitors. Introduce the exercise as an experience with the use of resources needed to accomplish a task that have been distributed unequally. Form the groups. Groups should be placed far enough away from each other so that their negotiation positions are not compromised by casual observation. Distribute an envelope of materials and a copy of the accompanying task sheet to each group. Explain that each group has different materials, but must complete the same tasks. Explain that groups may negotiate for the use of materials and tools with other teams. The first group to finish all the tasks is the winner. Give the signal to begin. When the groups have finished, declare the winner. Then conduct a discussion on using resources, sharing, negotiating, competing and using power.

Group Materials (Groups may negotiate with each other for the use of needed materials and tools on any mutually agreeable basis):

Marshmallow Challenge

This TED talk describes the marshmallow challenge exercise. This discussion has a nice twist to focus on team dynamics and the decision process. Interestingly, kindergarten students tend to do best on the exercise because they are more likely to iterate and prototype rather than separate planning and execution (as MBA students tend to do). Of course, this is similar to the Tinkertoy exercise but the team dynamics and decision-making message is quite distinct. You may also recognize this as a slightly altered version of the spaghetti challenge exercise that has been around for quite some time.

Contributed by Darren Dahl and Joann Peck

How to Build a Network Advantage

Network Advantage: How to Unlock Value from Your Alliances and Partnerships” is written for MBA, Masters of management, and Executive Education programs. It can be used in core strategy courses or electives on corporate strategy innovation, or strategic alliances. The book offers a step-by-step guide for how to build network advantages.

  • The impact of individual alliances, partnerships and their portfolios on the firms’ competitive advantage (Introduction, Chapters 1 & 2).
  • The role of complementarity and compatibility between partners for the formation of successful alliances and partnerships (Chapter 3)
  • Differential impact of the “hub and spoke” alliance portfolios and “integrated” portfolios on competitive advantage. These represent inter-organizational networks rich in structural holes and dense ties, respectively (Chapters 4 & 5).
  • The role of organizational status in competitive advantage (Chapters 6 & 7)
  • Should the firm build its own alliance portfolio or join another firm’s network (Chapter 8)
  • How to improve information flows inside the firm to attain competitive advantage from alliances and partnerships (Chapter 10).

Most chapters introduce tools for how to develop a collaboration strategy. These are compiled at the end of the book. A short introductory video is available on youtube:

Contributed by Andrew Shipilov