Knowledge and intellectual property inherently complicate exchange (e.g., property rights are poorly defined, the value is unclear, there are high transaction costs). One manifestation of this is the disclosure problem (Arrow’s 1962 information paradox). Figuring out the “price” for an idea requires revealing data which intrinsically reduces its value. Entrepreneurs often have ideas stolen by larger corporations that have significant complementary assets. Accordingly, they often try to go it alone despite the fact that their lack of such resources may ultimately create less value (for example, Tony Fadell tried to go it alone before bringing the iPod idea to Apple). His alliance with Apple turned out very well. However, this is often not the case. This clip illustrates what happened to Kramer (on Seinfeld) when he approached Calvin Klein with his idea for a new cologne called “beach” hoping to access their resources while gaining a signal of the idea’s value. He reveals the idea in an effort to obtain both. While it is funny, it will also kick off a serious discussion on this issue.
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).
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
Firms work hard to differentiate their services. A common theme in strategy courses is that customers must have a willingness to pay that exceeds the cost of the premium service. If so, we can explore whether a given firm has an advantage in offering the premium service. Sometimes the bar for “premium” isn’t very high… As always, the Onion hits it right on the head with this clip:
American Eagle Outfitters has shown strength among teens at a time when hipster Abercrombie & Fitch is struggling (see this WSJ article for details). The company credited their “Don’t Ask Why” collection in part for its 3% increase in revenue. They referred to the collection a cost-effective “testing lab” to spot trends. By experimenting with new fabrics, washes and styles, they believe they can gauge which styles are gaining favor and add them to the regular collection. American Eagle said the process was key to turning around the company’s tops business, which is now one of the best-performing segments. For example, one of the trends is to abandon the logo covered clothing that was popular in the 1990s. For class, this might make a discussion of dynamic capabilities much more tangible than the academic literature has so far achieved. How do they do it? Does this confer an advantage? If so, to what extent is it sustainable? Of course, this is also an opportunity to bring research into the classroom. For example, one might have students discuss whether this example looks more like Eisenhardt & Martin’s view or dynamic capabilities or those of Teece, Helfat, Peteraf, Winter or others (even Coff had something to say about this ;-).
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.
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?
The MicroTech negotiation is a slightly simpler version of another exercise in the Toolbox. It focuses on the problems promoting cooperation across divisions (for example to achieve synergies). MicroTech is a negotiation over the terms to transfer a technology between 2 divisions of a company to take advantage of a market opportunity. Sub-optimal agreements (money left on the table) represent transaction costs and inefficiencies that must be overcome in order to create corporate value. There are two roles (Gant and Coleman). One division, Household Appliances (HA), has developed a new technology that has value if sold outside of the company. However, the division does not have a charter to sell chips. In order to take advantage, the technology must be transferred to the Chips & components (CC) division. In the process, about 20-40% of the potential value is typically left on the table. The discussion focuses on how to align objectives and achieve cooperation across divisions. It turns out that such cooperation is hard to achieve in a competitive culture. How, then, can the firm create a cooperative culture? This, it turns out, may be a VRIO resource…
Personality – in its many forms — is critical for working together and for leading organizations. This is a critical topic for strategy courses — especially for executive audiences. While there are large gaps in our understanding of personality and leadership, research does provide several pointers that can help assess who would be a good organizational leader in different contexts. This video offers a nice, digestible, summary of the research and how it relates to leading organizations. Since it is 35 minutes, it might be assigned for out of class viewing prior to a session on strategic leadership.
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?
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 @ 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.
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.
This excellent ad for the 2015 IKEA catalog spoofs Apple’s over-the-top spots about their new products (as well as Samsung’s “next best thing”). This will spur some additional discussion about the value of older technologies and how to sell them to customers as the “best thing you always had.” It also is a nice opener for a discussion of how IKEA leverages their capabilities (advertising and reputation). You can find more background in this Forbes article. For an even lighter take on legacy products, see this Onion post on failing newspapers.
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?