As Netflix’s strategy unfolds it becomes clearer the extent to which it threatens traditional media companies. Initially, Netflix was a welcome partner who paid for access to older entertainment assets – new income streams for studios. More recently they have developed new content and lure top talent away from traditional media companies. Now, by offering a compelling portfolio of options, they compete more directly against traditional media companies. AT&T, Comcast, Fox, and Disney have taken notice of Netflix’s increasingly vertically integrated business model that bypasses traditional distributors (cable, DSL, satellite) and doesn’t rely on advertising revenue. The new model is driving mega mergers & bidding wars as rivals try to build compelling portfolios to offer streaming services. This is a great live case to frame many strategic management course topics including:
What is strategy? I use the Strategy Diamond and Netflix is a great case to look at things like staging and pacing, vehicles, and arenas.
Market structure – How attractive is the media industry and how has this streaming model affected industry profitability
Resources/Capabilities – Rivals lack some resources and some of their substantial existing resources have become “core rigidities” that hinder adaptation
Competitive dynamics – What strategic moves can we observe? How will Netflix respond?
Disruptive innovation – Netflix started as a limited low-cost alternative but added features that eventually made it a significant threat to incumbents.
Corporate strategy – The billions rivals spent on M&A are another critical angle. This also provides a vehicle to discuss when vertical integration creates value.
I have assembled some useful materials to frame a discussion of this case. First, the case can be taught using a series of recent news articles (sample article pack). In addition, I have prepared a spreadsheet to explore scenarios for how various events might affect the value of Netflix. For instance, what would happen to its business model if the market started to value the company as a traditional media company as opposed to a tech firm? Similarly, what will happen if rivals’ M&A strategies succeed and pose a critical challenge? Finally, here is a link to a sample pre-class survey to help students think about the strategic issues before class.
Class participation is typically a major component of grades in strategy courses. Some students are quite comfortable participating. Others not so much. This video from Rich Makadok offers some advice and instruction for students on how to do well on this portion of the class (you can find the script for the video here). This is designed especially to help those who have language barriers or who are otherwise uncomfortable speaking in class. Students learn how they can contribute to making the class better for everyone — including themselves. You may want to use the video in conjunction with class discussion voting arrows to help bring different perspectives to the forefront.
Generic strategies are easy enough to explain and students typically feel that they understand. But do they really? Could they develop and implement a sound strategy? Sometimes it’s worth a bit of additional hands-on experience to make sure the lessons stick. Probably the most important message is alignment — the need to design the organization and product to fit the strategy. In other words, to make the appropriate tradeoffs. Lee Bolman offers a very simple house building exercise (out of index cards) that makes these points very nicely. Teams plan what kind of houses they will build and organize their production. Strategies naturally fall into more low cost (simple one story house) or differentiation (complex two story). The 20% quality bonus and 20% first mover bonus help to highlight these competing objectives. This one-page handout describes the rules and process for running the exercise. The debrief focuses on the teams’ strategies and how they organized:
Planning process — How did they frame the problem and explore solutions?
Competitive Dynamics — A strategy is more likely to be successful if few firms (teams) adopt it. How do they anticipate what rivals will do?
Implementation — Plans often don’t unfold as expected. A common problem is that when the time is up, they are stuck with inventories of unfinished products.
Overall, this is a simple and easy to implement exercise that drives home basic strategy and organization issues nicely. The exercise can be run in a little as 75 minutes, though 90 to 120 minutes provides more time for both the exercise and debriefing. The steps to run the exercise are:
Provide materials to teams (2 packs of 3-5 cards, 2-3 rolls of tape, 2-3 markers).
Distribute the Quality Housing Instructions. Briefly introduce the exercise and announce how much time is available for planning (10 min). At the end of the production period, do a count-down from 5 and firmly announce “Stop!”. Teams may be startled when the time is up.
Once teams have produced, have them calculate their expenses, revenue, and net income. You can check houses against the specifications either immediately after a team produces, or after all teams have produced. If a team produces multiple houses, test a few to see if they can be dropped 12 inches without damage.
Collect the financial results from all teams (revenue, costs, net), and award the bonuses for quality and first-to-market.
Entrepreneurship students often think they’ve found a “no brainer” idea – one that everyone “obviously” will want. We’ve all seen it before – an idea that is so good that it requires zero dollars for customer acquisition because word of mouth and social media will lead to infinite sales, virtually overnight.
Here’s an exercise that may help open students eyes to just how hard it can be to sell something. Even something as wonderful as their idea. Give each student group five single dollar bills. Ask them to develop a plan for giving away the dollar bills to strangers, in a public place. Have them develop a business plan that includes a target audience, script, etc. Giving away free money is harder than it appears! And if it’s hard to give away dollar bills, it will also be hard to get the attention of customers even for a “no brainer” idea. This exercise comes from the following video which might be assigned after the exercise as part of the debriefing.
Strategies rarely work out as planned but somehow, students remain eternally hopeful that everything will go exactly as they expect. This experiential exercise allows students to “feel” Mintzberg’s (1994) critique of strategic planning. It also helps to illustrate and compare causation and effectuation decision-making logics (e.g., finding entrepreneurial opportunities). You can bring “Deflategate” (from the 2015 NFL season) to a classroom near you. The exercise proceeds as follows:
Inflate ball & sit on it. Ask 2 volunteers to inflate a heavy duty inflatable ball using a small air pump (one can buy these a sport store) and try to sit on it afterwards for a minute. While introducing the exercise, the instructor should keep the plug hidden in her/his pocket. Inflating the ball is amusing (both the volunteers and the audience). It is not easy or quick to inflate the ball.
Where’s the plug? After inflating, students look for a plug. The instructor waits a few seconds and takes the plug out admitting that she/he had it all the time. The class will laugh. It may be frustrating for the volunteers but then we begin the debrief and explain the reason for the deception in the exercise.
Debrief: According to Mintzberg, decision-makers (those who inflate the ball) expect everything will go smoothly according to what they planned but usually some unexpected circumstances occur that alter the plan’s effectiveness. Decision-makers cannot anticipate everything and the exercise drives this home and shifts focus to decision-makers’ bounded rationality. It is quite rare that students will look for a plug before doing the exercise (though it happens on occasion). One might move from here to discuss innovation, business models and disruptive innovation.
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:
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:
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.
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…
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.
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
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?
Few things are more dramatic than a good hostile takeover attempt. Dollar General has been trying all summer to break up the planned nuptials between Family Dollar and Dollar Tree. They have offered $600 million more for Family Dollar than the preferred suitor. Two things may be preventing Family Dollar from switching partners: 1) concerns that a Dollar General deal would be thwarted by anti-trust regulators, and 2) the Family Dollar CEO would lose his job if Dollar General takes over. Of course, they say the second issue is not on their minds. This makes a great “ripped from the headlines” case (here is a small packet of news articles). There are many directions that the discussion can go which, I think, makes for a nice introductory case to frame the rest of the semester. Here are a few:
What is an industry? The anti-trust argument assumes that the industry is defined as small discount stores (in other words, Wal-Mart is not really a player).
Corporate governance: How much should it matter what the Family Dollar CEO’s preferences are?
Cost advantages: Do any of the players have a cost advantage? At what point do the advantages of scale diminish?
Industry structure: What, if anything, makes this an attractive industry?
Competitive dynamics: What will be the next competitive move? What has driven the past moves?
M&A Synergies: The news packet includes an estimate of the synergies and suggests that Dollar General could create more value. Do you buy this analysis?
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.
Is it good business to do good? This is an inevitable question in business strategy. Consider the contrast with economics where the assumption is that societal welfare is maximized when there is perfect competition. In this frame, competitive advantage may imply that societal welfare is sacrificed. Clearly there are examples of firms that have created value for shareholders while destroying it for other stakeholders. This discussion pushes us to consider the question of value creation … for whom? This video includes guest appearances by Jay Barney, Rajshree Agarwal, Jeff McMullen, and Peter Klein.
Sometimes no matter how strong your resources are, you still can’t win. In those cases, it’s critical to avoid conflict so you can fight another day. This classic video depicts a battleship demanding that a rival change course to avoid collision. This might be useful for competitive dynamics (game theory), entrepreneurship (failure to pivot) or strategy process (cognition & stubbornness) where it may be critical to know when to change course. Guoli Chen, Crossland, & Luo’s recent SMJ article on CEO overconfidence is a nice academic complement to this. Of course there is a large literature on escalation of commitment that is also relevant.
After a year of (painful?) meetings, Stanford Business School concluded that their mission was “to be the leading academic school of management in the world in terms of its impact on management theory, thinking, practice and performance.” Prior to that effort, we had no idea what they were about. Glad to have that cleared up. Years later, mission statements are still a key focus in the practice of strategy despite being almost ignored in the academic literature. One could ignore this in teaching strategy (many do) or one might discuss when mission statements are a grand waste of time and when they may prove to be useful. Automated mission statement generators help to make this point. While there are several good ones, this Mission Statement Generator is my favorite. With a single click, you can get profound statements like “It is our mission to continue to assertively operationalize principle-centered intellectual capital as well as endeavor to globally morph multimedia based solutions to meet our customer’s needs.” Of course, there is no shortage of Dilbert cartoons on the topic of mission statements. Now, Weird Al has gotten into the game with a new song that could have been written entirely from a mission statement generator. I think he deserves an honorary MBA for the strategic management anthem.
The recent legalization of marijuana in Colorado and Washington State offer an unusual view of industry emergence. In anticipation of pent up demand, entrepreneurs scramble to assemble resources. Scarce resources get bid up — one example in Washington is licenses to grow and sell. The second video in the sequence below features an entrepreneur seeking to sell his business to cash in on the license he has. Markets for complementary products and services are booming as well (from tourism to private security and ways to store cash that cannot be deposited into federally regulated banks). Who will win out in the scramble to exploit the opportunity? The results so far in Colorado suggest that many in the state will benefit from the boom — $11M in taxes were raised in just the first 4 months of business. The setting is bound to get students’ attention and it is a nice context to examine entrepreneurship, resource scarcity, ethics, and industry structure (among other things).