This isn’t the first time polls have been wrong. The election of Donald Trump was a shock to many college students (as well as the press) and this may warrant some class time. Some instructors responded by providing space for students to express their feelings and this may be within the scope of the educational objectives for some classes. For a strategy class, a more relevant focus might be to examine the implications of the outcome for business strategies or to examine the campaigns from a strategic perspective. This might be considered as a template for how to discuss other sudden world events in the strategy classroom. Here are some takes on how to bring the election in while still emphasizing the pedagogical objectives of a strategy course:
Project case scenario analyses (Aya Chacar). Scenario analysis is designed to unearth factors that affect the efficacy of a given strategy. In a global context, country risk is a central factor in assessing strategic alternatives. In class, students discussed the likely impact of the election on the companies their teams are studying. Can you help the company? What do you think “could” be the impact on the companies under the new American administration -based on stated positions or past behavior? The companies they chose to study in this class are Amazon, Auchan, Didi Chuxing, General Motors, Naver, Uber, Volkswagen, and Walmart. All already have major international presence with some but not all having significant operations in China, Europe, India, Japan, Mexico, South Korea, SouthEast Asia and the US.
Entrepreneurship/Opportunity Recognition. The pollsters were all wrong. Often businesses and whole industries miss critical trends in consumer preferences and this probably means that there is unserved market space. Given trends that are now unearthed by the election, what market opportunities might there be for firms in various industries? One could use the project firms, cases you have done or specific firms that you think might be affected.
SWOT on campaigns (Peter Klein). While this framework is not preferred by most strategy scholars, it may raise some good points. A few examples from the Clinton campaign: O: demographics (e.g., increased Hispanic population, more socially tolerant electorate), unpopular opponent,chance to make history. T: middle-class concerns about economic inequality, backlash against political correctness, Clinton fatigue, incumbent fatigue, WikiLeaks. S: experience; support from major media, Wall Street, large corporations; ties to Obama and WJ Clinton; large staff of handlers; polish. W: experience; support from major media, Wall Street, large corporations; ties to Obama and WJ Clinton; large staff of handlers; polish.
Resources/Capabilities. Many of the campaign strengths turn out to be weaknesses depending on the context (experience, polish, support from corporations, etc.). What resources give a party a sustained advantage? What does “sustained” mean in this context? This might bring in a discussion of core rigidities and how once valuable resources can become critical weaknesses over time.
Disruptive Innovation (David Burkus). Clay Christensen described disruptive innovations as an innovation (typically from an outsider) that creates a new market and value network that eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances. The Trump campaign might be viewed in this light as a disruptive strategy that overtook the conventional establishment.
PESTEL. Of course, this demonstrates the value/importance of looking outside of the industry for trends that may influence whether a given strategy will be effective or not. The PESTEL framework is a simple tool for bringing this in to the analysis (Political, Economic, Social Technological, Environmental, and Legal).
Gautam Ahuja won the 2016 BPS Irwin Outstanding Educator award. It became clear from student testimonials that the capstone ethics lecture was not just memorable, it was an emotional peak that few students (or teachers) ever reach. What follows is a brief description/outline of the lecture. While it certainly won’t do it justice, it may offer some important ideas for instructors to explore.
I have them debate an actual decision (that varies from year to year). Essentially, I pick some current significant and controversial business decision or event that is legal and ideally, morally ambiguous, or even amoral (not immoral), at least apriori, and then foster a discussion on its pros and cons. This reveals much deeper fundamental issues. To illustrate I have used the following in different years:
The decision by banks to award bonuses to traders for being on the “correct” side of the financial crisis deals in the years following the Lehman collapse
The decision by a chemical company to use local safety standards in its different markets, which is completely legal,
The decision to sell skin whitening creams in countries in India by large multinational companies,
Provision of significantly discounted or couponed milk products for newborns,
The federal reserves decision to keep interest rates low for the last x years and so on…
I then try and get them to debate this and, almost invariably, there emerge two sides to the issue. However what is interesting is that three other factors usually emerge: A) the problem is much deeper and more morally ambiguous than you thought, B) reflexive reversion to standard MBA, theories frameworks and concepts often leads to very flawed Continue reading →
Will presents his 5 forces plus 3 more framework. In the video, he discussed the standard 5 forces framework but adds the following 3 critical elements that are left out of the five forces: Complementors, Social forces, and new strategies. Complementors are organizations that provide complementary products or services to an industry (e.g., cases for iPhones). New strategies refer mostly to rivals who are pursuing distinct strategies that may alter the fundamental way that firms compete in the industry. Social forces refer to the customer values and norms that may affect their preferences and thus, their willingness to pay. In short, these additions may serve to unpack factors that drive change in the five forces over time in an industry. Here is the video:
The augmented reality (AR) game, Pokémon Go, has taken the world by storm as players roam the real world catching Pokémon and battling in Pokémon gyms. The game has set 5 records since its launch in July 2016 — including the most revenue by a mobile game in its first month ($206.5 million). Nintendo’s stock doubled 15 days into the release, adding $7.5B in value, but then settled back into a mere 50% increase when it became clear that Nintendo was a partner with limited ownership in the company that developed the game (Niantic, a Google spinoff). Although the game is free, users can make purchases in the app store to support their Pokémon ‘hunting’. The bewildering success must clearly be keeping Niantic’s CEO, John Hanke, and his crew awake at night. Besides the operational issues related to scaling up, intellectual property (IP) had become a big issue. A slew of imitators were emerging as well as a number of companies trying to steal the game’s data content and algorithm. In addition, the formidable international expansion faces roadblocks in the most populous Asian countries while potential users were impatient. There were many additional potential revenue sources to be tapped and explored such as the recent win-win partnership with McDonalds Japan. Moreover, while getting gamers out and about was good, there were a number of unintended consequences. On the plus side, many entrepreneurs were finding ways to make money from the game — for example restaurants could lure in customers if there was a Pokestop nearby. At the same time, users and non-users worried about possible injuries, trespassing, and invasion of privacy among other things. Naturally, this makes an outstanding ripped-from-the-headlines case for strategy courses. It is a great vehicle to cover key topics such as entrepreneurship, strategic alliances, internal analysis/capabilities, and external analysis. The following are some materials that are useful for the case:
This cooking competition show begins with an auction of resources needed to cook including space to work and cooking utensils. The contestants bid to preempt rivals by obtaining access to key resources while saddling them with inferior resources. This is ultimately quite similar to the egg drop auction exercise but it can be assigned as a “video case.” This is a nice way to introduce to students to the fact that fierce competition occurs in resource markets – an arena that they may be less familiar with. One can then explore different resources and how they are acquired (human capital, locations, technologies, etc.). It might even be an opportunity to assign them Barney’s original article on strategic factor markets.
Economics-games.com is a free educational games site for teaching microeconomics, industrial organization and game theory. This site includes some simple (short) simulations designed to demonstrate specific principles. This should not be confused with longer simulations that extend across many class sessions. Instructors set up user IDs & passwords for their class and students are paired with others in the class (or even across universities if desired). These are really nice interactive online exercises that can be done between classes. In this sense, they are an excellent online complement beyond the usual readings and talking head videos. Here are some of the games:
Cournot and Stackelberg games
Public good financing game
Common-pool resources game
Asymmetric matching penny game
An air transport economics simulation covering price discrimination, vertical differentiation and peak-load pricing.
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.
Entry barriers are a critical element of Porter’s five forces framework. A key question is how firms get around the barriers. While the framework is at the industry level, a central part of the discussion is how the entry barriers might differ for different potential entrants. Some will have complementary resources or capabilities that make entry much easier. If a firm is considering entering a new industry, they want high entry barriers for all firms — except them. This sometimes sounds too good to be true until you discuss critical differences in resources and capabilities. This (admittedly silly) Doritos commercial from Superbowl 50 illustrates entry barriers and how some creative dogs get around them…
Here is another great whiteboard video from Shad Morris. This one focuses on how to evaluate the overall health of a country’s economy. This is important in assessing the business environment for strategic investment. Is a given market attractive? This might also lead into a nice discussion of comparative advantage of nations. If so, this might be another application of the Global Game exercise.
PEST analysis can be helpful to identify trends or factors outside of a firm’s focal industry that will ultimately affect the industry. It stands for Political, Economic, Socio-cultural, and Technological factors. PESTEL is a similar framework that adds Environmental and Legal trends to the mix. The PEST framework is simple but it has the advantage of focusing trend analysis efforts so you can cover ground in a more systematic fashion (than, for example, SWOT analysis which is quite unsystematic). Shad Morris’ video below offers a great introduction to the analytic framework.
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.
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.
I started my class last Saturday with words of hope that my students’ friends and family were safe. Since I teach in Madison Wisconsin, it was a fair bet that they were not heavily touched. This first response is probably a good starting point. However, where does the discussion in a strategy class go then? Here are a few brief thoughts:
Responding to the humanitarian crisis. From there, one might explore how firms can respond to the humanitarian crisis. Do the Syrian refugees and terror victims all over the world pose an imperative to which businesses must respond? How can they help? What types of businesses can make a real difference?
Responsibility to shareholders. Should firms help even if this hurts shareholder returns? Of course, helping people can build a firm’s reputation. When would this come into play and how can firms position such actions to help firm performance (eliminating any conflict with shareholders)? If it does hurt profitability, when is that justifiable? When is it an imperative?
Global strategy. How should firms develop and execute international strategies in a more uncertain business environment? How should they balance this type of risk in their portfolio?
Employee Welfare. What steps should be taken to assure employee welfare and/or help employees in need?
Opportunity. Some firms may see economic opportunities amid the uncertainty. Of course, defense contractors and security-related firms may win. What other types of firms might see opportunity? See, for example, the video below about Ikea’s refugee shelters or bulletproof blankets for kids in response to school shootings.
Exploitation & Fraud. One of my students pointed out that some firms may take advantage the situation and play off of people’s fears. This might be considered the unethical side of opportunity and is certainly important to discuss as well.
Broader economic impact. Andrew Ross Sorkin offers a brief discussion of this. Conventional wisdom (from studies of the economic impact) is that attacks cause only small blips in GDP and stock markets. However, the political impact and the diversion of resources to agencies like homeland security and defense contractors show up positively in GDP and so understate the impact. Isolationism also may impact global trade well beyond the initial shock.
You may notice that I offer questions rather than answers. I think this topic is fruitful for class discussion and I would hope to learn from the students. I only wish I had answers…
The $104B merger between AB InBev and SABMiller makes a great holiday addition to your classroom. 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).
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.
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).
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.
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.