The Financial Times reports that in 2010, a Heuer Autavia Reference 2446, a popular driver’s chronograph of the 1960s, was sold for £5,400. But late in 2016, Christie’s achieved $125,000 for an identical watch. Valuable and rare resources are heavily sought after. This also creates a strong incentive to imitate. Enter “Frankenwatches.” Enterprising individuals have been able to cobble together watches from vintage spare parts that can be convincing. This has bread mistrust in the market and increased the value of market mechanisms (e.g., prim auction houses) that can certify authenticity. Then, there is also a market for known fakes (if they are done well). Ultimately, this demonstrates valuable and rare resources as well as imperfect imitation. Perfect for watch affectionados and students of the resource based view. The Financial Times article is a good (and timely) reading to prime a classroom discussion of strategic resources and attempts to imitate.
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).
- First 100 Days. Trump offered an ambitious list of things he planned to try and accomplish in the first 100 days. One can divide the list among groups and ask them to identify the implications of the policies for business in general or, preferably, for a specific firm/client.
Contributed by Russ Coff
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
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:
- Written mini-case from Aya Chacar
- Pokemon GO news articles
- Pre-class poll to capture preliminary analysis of the case
- Survey for Pokemon GO users
- Lessons from the Pokéconomy: Teaching Economics with Pokémon GO (Reilly & Holder)
- There is no end to entertaining Pokemon videos…
Students might be confused about time compression diseconomies as a foundational component of a resource-based advantage. However, Dierickx and Cool’s (1989) idea here is quite simple: It may take time to build a resource or capability and even if rivals know the source of an advantage, they may not be able to recreate the resource in a timely fashion. Of course, Barney (1991) captures this as history or path dependence being the barrier to imitation. This simple video illustrates the principle (in a darkly humorous way). Of course, in this case, our protagonist merely needs to incur some search costs to find a fully grown tree. There is no practical way to rush the process to get the tree to grow substantially faster.
Contributed by Russ Coff
Successful strategy is often a combination of luck firm specific skills and favorable conditions. AmorePacfic makes a great ripped-from-the-headlines case since it rose to be the #1 South Korean firm buoyed by a growing and large domestic demand from a growing population. Hallyu – the Korean equivalent of Hollywood was also a driving factor as South Koreans want to look like their favorite stars and use the same cosmetic products and that includes men. In fact, it is estimated that a whopping 20% of South Korean men use cosmetic products on a regular basis. AmorPacific capitalized on this growing trend by building up its brand and investing in R&D and ultimately riding the popularity of K-pop and K-movies to expand internationally. At a time that demand is softening, K-cosmetics are still growing with exports increasingly exceeding imports and Korean cosmetics brands now more popular than European brands in China and increasing their penetration in many countries including China, Hong Kong, Japan, the US, Vietnam, and in a surprising list of other countries such as Poland where their addition to Sephora’s product line and other large retailers will ensure broad distribution. How has a $150 1.7 oz managed to gain global popularity? Some materials for the case might include:
- This older Forbes article highlights the importance of country specific advantage along with luck and firm specific advantages to the success of AmorePacific.
- A more current state of the South Korean cosmetics industry can be found here.
- A case on AmorePacific focusing on innovation in peripheral components.
- A global cosmetics industry report
- PowerPoint (visual) analysis of the Korean cosmetics market
Contributed by Aya Chacar
Aldi has been crushing the competition for years and makes an excellent case of how organizational alignment can deliver a strategic advantage (cost in this case). Here is the version of the case for Madison Wisconsin but it would be easy to customize to almost any location since Aldi has spread far and wide. I divide the students into groups reflecting segments of the market (Whole Foods/Kroger/Wal-Mart/Stop-n-go, etc.) and have them assess the competitive threat as Aldi expands in their market. The Whole Foods group typically concludes that there is no threat. However, the threat becomes more apparent once the other rivals decide to add services since they can’t compete with Aldi’s prices. This Bloomberg article shows that Aldi has been a much more direct threat to Whole foods. Ultimately, none of the rivals can duplicate Aldi’s cost structure because their assets are not aligned toward that strategy. Here are a few very funny ads demonstrating the simple principle — why pay more than you have to?
To see a few more Aldi commercials, Continue reading
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.
Contributed by Isabel Coff
Would your students recognize a capability if they saw one? Which of the following examples seem to fit the bill? What would be required?
Contributed by Russ Coff
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.
Early 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).
Contributed by Peter Klein
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…
Contributed by Russ Coff
Nonsubstitutability is a critical resource attribute for sustaining a competitive advantage. Otherwise, a rival may find a different resource that can nullify an advantage without actually imitating the focal firm’s resource or capability. An example might be Apple’s iPhone patent for the “screen bounce” when the user scrolls to the bottom of a page or list. Early Android phones had the same feature but, more recent phones, work around this patent by displaying a blue tinge at the edge of the screen (see picture) when one has scrolled to the end. In this way, many patents do not confer an advantage as rivals find ways to work around them and customers don’t perceive a significant difference in the product. In class, one might give this example coupled with the video below which depicts a battle between Fezzik and Westley in the Princess Bride — agility and size can be discussed as substitutes in determining competitive advantage (of course, Westley wins though he at first seems to be at a disadvantage).
Contributed by Russ Coff
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.
Contributed by Russ Coff