JebBush.com & Late Mover Disadvantages

DillonEdwardsEarly movers stand to lose if late movers learn from their mistakes and enter with better product offerings or better strategies. Classic early movers who lost include Osborne Computer Company  (subsequently overtaken by Compaq) or EMI’s exit from the CT Scanner business. Myspace and AoL might also be counted among early entrants that ultimately fizzled.

That said, early movers can can gain key assets that make it hard for rivals to enter and compete. You may have noticed that “JebBush.com” takes one to Donald Trump’s home page and there are numerous other political misdirections along these lines for other candidates. Similarly, Tesla Motors has only just gained ownership of the Tesla.com domain (probably at a handsome price). In this way, there can be a race to secure resources and capabilities to take advantage of an opportunity and others are in competition for those resources even if the resources are firm specific (as candidate domains tend to be). From a scholarly standpoint, such resources can be approached from a variety of perspectives including strategic factor market theory, Coasean bargaining, or first mover advantages. Of course, there is a humorous side to all of this. SNL has captured this nicely in their spoof commercial for Dillon Edwards Investments (note that this may be a bit “saucy” for many classrooms but we’re all adults here).

https://video.yahoo.com/dillon-edwards-investments-000000517.html

Contributed by Peter Klein

Disney Wields its Princess Power

Mattel just lost to Hasbro on producing Disney princess dolls — a $500M a year business. This brings to an end a 60+ year strategic alliance. A recent Bloomberg article tells the story of what happened and makes a nice start to a mini case. There are many facets to this that might be of interest in the classroom. Bargaining power is probably front and center. Mattel wanted to have their own princess line that they didn’t have to pay the substantial licensing fees to Disney. Once they were a competitor, Disney started to consider other options (an alliance or coopetition story). By seeking out Hasbro, Disney increased their options (BATNA to you negotiation buffs) and thus gained even more bargaining power. In the end, Hasbro had to work hard to present a fresh vision (including substantial firm-specific investments) but Disney still retains the power in the relationship. This also sends a signal to other Disney partners about reducing their commitment to Disney. Of course, Disney’s power is rooted in strategic assets (characters) and capabilities (to create more characters) so this brings in the resource based view (RBV) nicely. If you are in need of related comic relief, there are ample videos. Here are hipster princesses to get you started.

Contributed by Russ Coff (HT Virgina Postrel)

Not Your 父亲 (Father’s) Buick

Buick will begin selling the Chinese-made Envision crossover in the U.S. next summer despite resistance from the UAW, which would prefer that it be produced in the U.S. The car is produced through a joint venture with China’s largest auto maker SAIC Motor Corp. Rather than produce the car in the U.S., GM plans to import the Envision from Yantai, China, where the joint venture has produced the vehicle for about a year. Through the first 11 months of 2015 it sold 127,000 of them in China. This example brings out several key points with respect to strategic alliances. Certainly the UAW viewpoint brings in a stakeholder perspective. However, SAIC is also potentially a competitor. It’s home market has sheltered it while it gained capabilities to produce on a very large scale. Recently, growth in the Chinese auto market has slowed which may push SAIC to seek other growth opportunities. This venture with GM may help it gain capabilities that allow it to enter U.S. and other world markets. In sort, this is a nice case to apply the “Four C” alliance framework (or other alliance tools) to identify whether the alliance is likely to create value for both sides (and for how long).

Contributed by Russ Coff

Lego Industry Ecosystem

Lego profits have more than doubled in the last five years. The company has sold non-core businesses and doubled down on the core building block products. They are the undisputed king of building toys. A recent New York Times article describes the lay of the land brick by brick. Lego has focused on more wholesome building themes (Star Wars, etc.) while rivals have sought space where they don’t have to directly compete. For example, Mattel’s MEGA unit has a series of much more realistic building sets (Sponge Bob, Terminator, and Star Trek). Similarly, McFarlane toys has a very successful series of “Walk Dead” building sets that deviate from the image Lego prefers to maintain. In addition to competitors seeking to differentiate, many complementors have emerged such as Pley which offers Lego set rentals (the “Netlix” of the Lego world) or numerous used Lego trading businesses (here is one in Madison). Interestingly, research suggests that these Lego sets may actually reduce creativity — especially compared to the older version that involved a simple bucket of bricks rather than a kit to build a specific thing. Of course, their move into Lego films brings in an interesting discussion of diversification.

Contributed by Russ Coff

MegaBrew: M&A value or flat beer?

The $104B merger between AB InBev and SABMiller makes a great holiday addition to your classroom.ABInbevTree While it is largely a corporate strategy question, I used this discussion to kick off my course and I plan to come back to it as we hit various topics. Here is a packet of news articles that I used as the basis of the case. I also had students complete a brief online poll in advance of the class. This allowed me to start by summarizing their positions and to call on people who I knew had relatively unusual opinions. I used the case to show them how to draw a decision tree (click the image to enlarge) reflecting the uncertainty associated with the acquisition. Of course, it also frames topics throughout the course. Here are a few examples:

  • Internal capabilities. AB InBev’s capability to conduct acquisitions and to cut costs.
  • External analysis. Market structure for beer in different countries (namely Africa and China which drive this deal). Also, we compared the market structure for micro- and macro-brews. Of course, these mega-brews act to control distribution channels so barriers to entry are a key part of the game.
  • Competitive dynamics. Of course this is a game among the rivals but it also includes adjacent industries (like spirits).
  • Corporate. What are the logics for value creation? For example, to what extent does scale lower manufacturing costs as opposed to purchasing power or other mechanisms. At what point is a larger scale no longer an advantage?
  • Strategic factor markets: The M&A context makes it clear that most of the synergies go to the target (especially at the 50% bid premium).
  • Global. As indicated above, this is mostly about entry into new markets (China and Africa, among others).

Contributed by Russ Coff

How Xerox PARC Lost the PC: Putting the “O” in VRIO

Sometimes students struggle with how a firm can have valuable, rare, inimitable resources and still not have an advantage. This is central to the resource-based view and the VRIO framework. This clip from “Triumph of the Nerds” shows how PARC Xerox developed the GUI interface, object-oriented programming, and local area networks. Then it shows how they failed to exploit any of these innovations. In particular, it shows how Steve Jobs toured PARC and lifted the GUI to create the Macintosh computer. Here is a nice discussion of what the Xerox engineers thought of Steve Jobs’ visit. This can lead to a nice discussion of intellectual property, complementary assets, internal and external analysis. It is useful to show the first half (first 4.5 minutes) and ask students to speculate on why we don’t all have Xerox computers. Then the second half explains how Apple exploited the innovations.

Given Apple’s legal actions against Samsung and Google over the look and feel of their product, there is a certain irony that Apple imitated Xerox in their flagship product.

Contributed by Rich Makadok

Matrix Lassie

Sometimes the value of a capability is that it deters rivals’ actions without having to be deployed at all. As you will see, the video below demonstrates this principle nicely. In the context of industry analysis, this might be the credible threat of retaliation on new entrants. If it deters entrants, the threat may not have to be used frequently (though credible commitment to deter may be essential to demonstrate).

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

Exercise: Show Me the Money

Here is a simple exercise to demonstrate competitive advantage on the first day of class. Hold up a crisp $20 bill and ask “Who wants this?” When people look puzzled, ask, “I mean, who really wants this?” and then “Does anyone want this?”  Continue this way (repeating this in different ways) until someone actually gets up, walks over, and takes the $20 from your hand. Then the discussion focuses on why this particular person got the money. How did their motivation differ? Did they have different information or perception of the opportunity? Did they have a positional advantage based on where they were sitting? Other personal attributes (e.g., entrepreneurial)? The main question, then, is why do some people/firms perform better than others? This simple exercise gets at the nexus of perceived opportunity, position, resources, and other factors that operate both at the individual and firm level. Note that instructors should tell the class not to share this with other students. However, if you do have a student who has heard about the exercise (and grabs the money), asymmetric information about an opportunity is certainly one aspect of the discussion. The following “vine” might also help drive home the point about money and resources…

Contributed by Rich Makadok

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

SocialCompare

Dollar Auction: Looking for Bubble

8410493_origEconomic bubbles reflect irrational escalation but there is always an element of underlying rationality. This classic exercise, the Dollar Auction, is an ideal vehicle to emphasize how this can come about — even with actors who intend to be rational. With much fanfare, the instructor auctions off a dollar bill (a very crisp one to reflect a “rare” asset). The bill goes to the winner; however, the second-highest bidder also loses the amount that they bid. The game begins with one player bidding five cents (the min), hoping to make a ninety-five-cent profit. However, a ten cent bid would still yield a ninety-cent profit (if bidding stopped there). If the first bidder bids ninety five cents, and the second bidder bids one dollar (for no net gain or loss), the first bidder stands to lose ninety five cents unless she bids $1.05. In this way, bidding continues well beyond a dollar, usually until one player issues a preemptively high bid to signal intent to outbid at any cost. Only the auctioneer gets to profit in the end. While the incentive structure is idiosyncratic, one might debrief with a discussion of why they didn’t anticipate this problem when they started bidding? This fits broadly in discussions where escalation is a risk (decisions under uncertainty, M&A, technology investments, etc.). You may find that some students have seen this exercise previously. However, it only takes two uninformed bidders to create a bubble. Of course, the following classic bubble video is a good fit in the debrief (came out right before the real estate bubble)…

Contributed by Russ Coff

The Emperor’s New Rope…

This is another in a series of reminders that individuals respond to perceptions even if they are inaccurate. The short video of the invisible rope prank might be followed by a discussion of how firms can influence the perceptions of their rivals, complementors, and/or customers. This is especially an issue in contexts where there is a great deal of uncertainty (entrepreneurship, technology, etc.). An earlier post presents a driving prank with a similar theme.

Contributed by Russ Coff

Grocery Stores Find a New Bag

Traditional grocery stores are losing share as new organizational forms emerge (15% over the last decade). Once thought to be as stable a market as can be, new business models increasingly challenge the landscape. The link above includes mostly additional services such as “Grocerants” (upscale restaurants within grocery stores), fishmongers, butchers, more delivery options. Also, online grocers are back and some are peeling off customers with more targeted business models. Many of these differentiated alternatives are more focused smaller stores serving specific types of consumers. However, not all of the change is on the differentiation side of the aisle. The trend also includes increasing popularity of lower cost alternatives alike Aldi. This is discussed in a related toolbox post with Aldi videos.

Contributed by Aya Chacar

Die Another Day Gazelle

This clip shows a cheetah catching a gazelle. Then a hyena tries to steal dinner from the cheetah. While they are busy fighting, the gazelle, who was playing dead, gets up and runs away. In this way, a cunning weaker firm might avoid being noticed by more resource rich firms until the moment when it has more resources of its own. A basic principle of competitive dynamics under bounded rationality is to fly under the radar so as to avoid retaliation from stronger incumbents.

Contributed by Russ Coff

Samsung Throws Apple for a Loop

Will Samsung Pay win a standards war over Apple and Google? Apple Pay and Google Pay may have gotten lots of buzz but adoption of contactless payment has been slow. The near field communications (NFC) technologies that they rely on require that merchants invest in new technology at the point of sale. Samsung has acquired LoopPay and its technology to allow phones to communicate with any magnetic strip reader. The new service is expected to launch in the 2nd half of 2015. Even if NFC is ultimately a superior technology, the ease of adoption may allow Samsung to dominate as users seek a solution that they can use with most merchants. Meanwhile, Google plans to include it’s Pay app on all Android devices which could increase its penetration. Though it is important to note that this might create a conflict with its key Android partner Samsung. This should engender a nice discussion of strategy in “winner take all” standards wars. In class, one might assign groups to debate why Google, Apple, Samsung, or other will win this market.

Contributed by Russ Coff

Network Effects Silence Phones!

In teaching industry analysis, I always make a point of discussing network effects as a potential barrier to entry (see Peter Klein’s comment to this post on the term “network externalities”). Usually, I use an example like the iPhone FaceTime application which increases in value depending on the number of family and friends who have iPhones. This, in turn makes it hard for rivals to enter because of the need for a large installed base. Google+ is another example in it’s failure to make much of a dent in Facebook’s market. Now, a new app gives discount points to students for locking their phones based on the number of other locked phones in the same vicinity. As such, when the whole class locks down using the PocketPoints app, they all get discount points. This pushes everyone to adopt the same app to get the most points and makes it hard for a competitor to enter. This might also be a nice way to turn the class into a lab to study game theory, or incentives. It does all this and keeps people off their phones in class! The following video describes the app.

Heard Through Virginia Postrel

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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North Korea: Craziness & Competitive Advantage?

Madness has been recognized in the game theoretic literature as a potential source of advantage. That is, a crazy person willing to pre-commit to a course of action might preempt rivals who consider that course to be irrational. In this context, North Korea’s attack on Sony might be considered as credible commitment to being crazy. As such, it confirms that North Korea may be unpredictable and might engage in activities that appear quite irrational. Thus, without incurring the cost of a full scale war, they can convince the west that they would be willing to sacrifice everything to hurt their rivals. In the scheme of things, attacking Sony is a relatively cheap way to do this. Here is an academic paper applying madman theory to the North Korean context. This might lead to a nice discussion of related game theoretic strategies in a business context.

Contributed by Nicolai Foss

A Blanket Theory of Market Share

Every wonder why hospital receiving blanket always look the same (pink & blue stripes)? Medline’s “Kuddle-up” line has a near complete market share of the hospital receiving blanket business. The company started in 1910 making butcher’s aprons for the Chicago meatpacking industry. They entered the receiving blanket business in 1950’s and now sell more than 1.5M blankets/year. A recent article in Quartz notes: “The Kuddle-Up blanket was entwined with the institutionalization of childbirth. Just as we began to standardize the process of birth, we began to standardize the post-partum experience, too, such that the newborn photo in the Kuddle-Up blanket is, at this point, an instant signifier. Thousands of new parents, and even grandparents, were themselves swaddled in such a blanket when they were born; that same pattern spans generations.” In a strategy course, one might ask how could a company gain and sustain such an advantage virtually unchallenged for over 60 years? Was there a substantial cost advantage? If so, what are the limits to scale advantages? Why isn’t there a stronger market for a differentiated product? That certainly is the case in related baby care product markets. Will this post make potential entrants aware and help to erode the advantage?

Contributed by Peter Klein