Strategic Alliances don’t make the news the way M&A do so some may struggle for examples. It is especially helpful to make students aware that, while Alliances may be less risky than M&A, there are still risks that need to be analyzed. Tom Petty provided a useful example to apply the “Four C” alliance framework. Like many musicians, he signed a contract with a record label before he made it. He and ABC had Complementary capabilities needed to develop and promote hits. Initially, they had Congruent Goals in that their interests were aligned to make the band a hit. Organizationally, they were Compatible in that they were able to coordinate effectively. What Petty failed to anticipate was how things would Change over the course of their agreement. By their 3rd album, he felt that the arrangement was so unfair that he tried to back out of the agreement claiming that ABC had no right to sell the contract to MCA. Ultimately, he only got out of it by declaring bankruptcy. The song, Refugee captures the anger he felt over how he was treated by the record companies and offers a nice lead in to the discussion. This also brings out a discussion of bargaining power and how it may change over time.
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.
Comparative advantage is about nations leveraging their unique resource advantages. There was a time when, for China, that referred to cheap labor. There was once a notion that good manufacturing jobs were “shipped” to China because wages were so low. This narrative still bubbles up in today’s political rhetoric. However, today’s news also highlights that Foxconn, the World’s largest contract manufacturing company, is replacing 60,000 workers with robots. Wages in China do remain below those in other countries. However, the comparative advantage is no longer about cheap unskilled labor. In fact, China has produced about 60 million college graduates in the last ten years. At this rate, the World Bank predicts there to be up to 200 million by 2030. This is greater than the entire U.S. workforce. In short, they seek a comparative advantage based on human capital as opposed to generic labor. Cheap labor, in turn, may be replaced by capial investments (Foxconn seems to be on the leading edge in this trend). A question for a global strategy class might be how should other countries respond? Would an education arms race help or hurt comparative advantage?
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.
The NYT Deal Professor notes: “J. Crew, Michelle Obama’s sometime clothing retailer, is yet another struggling private equity buyout. J. Crew’s owners, TPG Capital and Leonard Green & Partners, are stuck, tied to the bargain they struck with the company’s chief executive, Millard S. Drexler. Call it the ‘great man’ problem.” In other words, is the strategic asset a single individual or a set of organizational routines that are robust to key individuals leaving? In this case, J. Crew investors and the board were bound to go with CEO Millard S. Drexler’s recommendations and take the company private. Current struggles suggest limitations to this great man’s capabilities. Indeed, in Leonard Barton’s terms, he is looking more like a core rigidity. This has become a recurring theme. We have explored (in the toolbox) the implications of this for Steve Jobs at Apple but more recently for Jony Ive as Apple’s product development guru. This mini-case may encourage a discussion of strategic human capital, capabilities, organizational routines, and how these relate to corporate governance. Do such key individuals reduce or enhance sustained competitive advantage? Then, along the lines of my own work (Coff, 1999), there is the question of implications for rent appropriation. Clearly Drexler has done well on that front…
Rather than fully embed superior design capabilities in organizational routines, Apple has instead identified and promoted Jony Ive into the design guru role once occupied by Steve Jobs. Ive “worked closely with the late co-founder Steve Jobs, who called Mr Ive his spiritual partner on products stretching back to the iMac.” As before, the reliance on a single person in this role raises key questions: An article published in the New Yorker earlier this year described how “Mr Ive had been describing himself as both ‘deeply, deeply tired‘ and ‘always anxious’ and said he was uncomfortable knowing that ‘a hundred thousand Apple employees rely on his decision-making – his taste – and that a sudden announcement of his retirement would ambush Apple shareholders.‘” Can this be described as an organizational capability? An organizational routine? A dynamic capability? Does it matter that the capability is largely embedded in a single person who is not an owner? All good questions to kick off a nice class discussion…
Contributed by Russ Coff
If Mick Jagger were a PhD student, we might have gotten a very different song. In the spirit of yesterday’s dissertation defense humor, today we have a musical number on writing a dissertation. Really, how often do people write songs about this? Of course, the fact that they put this together probably explains why their dissertations weren’t completed…
What is the most significant thing that differentiates entrepreneurs from others? Somehow, in the face of overwhelming odds that they will fail, they still manage to push forward. Rejection, almost inevitable, doesn’t deter them. The rest of us kill inventive ideas before we even test them because we fear rejection. This NPR story explores a new form of therapy where rejection is turned into a game: how many times can you get rejected in a day? Could desensitizing people to failure create more entrepreneurs? This also has important implications for academics who typically face many rejections from journals for each manuscript that gets accepted. Without “rejection therapy,” they may avoid sending papers to journals because they are concerned that the work will be rejected. Like would be entrepreneurs, they kill ideas before they have had a chance to test the waters.
Dave Kryscynski 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.
An emerging literature focuses on learning from failures — both in terms of entrepreneurship and strategy more broadly. For some recent examples, see studies by Ariño and de la Torre (1998), Eggers (2012), and Kim & Miner (2007). It might appear that learning from success should be taken for granted — the actor has done something well and will naturally repeat the behavior. However, in the complex world of strategic decision-making, causality and can be especially hard to determine. It turns out that failure tends to trigger more rigorous analysis of the causes (even if these analyses suffer from attribution biases). On balance, success may tend to trigger much less rigorous analysis (if any) that is even more biased in the attributions made. This WSJ article on a magician’s ability to dupe audiences illustrates the principle nicely. In class, this discussion might be used to discuss the role of luck and how it may skew attributions, reducing the likelihood of serial success in strategic decision-making. The magic trick described in the article (or something similar) might be a nice, and dramatic, way to introduce the topic in class — all you need is two dimes…
A useful way to introduce the topic of leadership is to understand how leaders differ from managers. The “Vision Thing” exercise is designed to help students distinguish the activities of leaders and managers in a fun and engaging manner. The exercise involves creating a three-tiered hierarchical structure. One person is the CEO, another is the manager, and a third is the employee. The CEO prepares a vision statement in advance and works with the manager to determine how to translate the vision to a tangible “product” using the toy construction set. The manager then guides the employee on building the “product.” The process is iterative in nature—the manager can communicate with the CEO and employee as often as necessary. But there is a finite amount of time available to implement the vision. Once the exercise is complete the team comes together to examine how close the team came to implementing the CEO’s vision. The learning objectives are:
To understand the distinct, yet complementary roles of leaders and managers
To appreciate the challenges involved in articulating a vision
To learn the difference between a vision and a strategy
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.”
This 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?
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.
A recent study found that recruiters look at each resume for an average of 6 seconds (using eye tracking software). This is especially revealing given self reports of 4 to 5 minutes per resume. Online profiles get about the same amount of scrutiny with almost 20% of the time spent on the picture — of course this has the potential to introduce significant bias. The other few seconds is spent scanning the current and prior work experience, dates, and education. They do report that well-organized resumes, with clear headers marking the critical information, are rated significantly better. So you teach a strategy class, why should you care? First of all, this is an insight into how imperfect strategic factor markets actually are. In this context, you might ask, how can a firm gain an advantage in hiring talent. A key reason to use this example is that your students will tend to care about the job market and this will instantly get their attention. You could couple this with an exercise where teams of students rank a stack of resumes to identify candidates who might have critical capabilities for a company you are doing a case on (could work with any case where human capital is critical).
This funny video depicts the movement from poorly trained and low paid local workers to outsourced workers overseas and finally to flawed voice recognition software. The result is equally frustrating for the customer. Ultimately, this touches on a variety of subjects including human capital, global strategy, outsourcing, and technology strategy. One important caution is that the video reinforces stereotypes. This too should probably be a part of the conversation.