Apple Clones Jobs in Jony Ive

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

Exercise: Show Me the Money

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…

Contributed by Rich Makadok

Dollar Auction: Looking for Bubble

8410493_origEconomic bubbles reflect irrational escalation but there is always an element of underlying rationality. This classic exercise, the Dollar Auction, is an ideal vehicle to emphasize how this can come about — even with actors who intend to be rational. With much fanfare, the instructor auctions off a dollar bill (a very crisp one to reflect a “rare” asset). The bill goes to the winner; however, the second-highest bidder also loses the amount that they bid. The game begins with one player bidding five cents (the min), hoping to make a ninety-five-cent profit. However, a ten cent bid would still yield a ninety-cent profit (if bidding stopped there). If the first bidder bids ninety five cents, and the second bidder bids one dollar (for no net gain or loss), the first bidder stands to lose ninety five cents unless she bids $1.05. In this way, bidding continues well beyond a dollar, usually until one player issues a preemptively high bid to signal intent to outbid at any cost. Only the auctioneer gets to profit in the end. While the incentive structure is idiosyncratic, one might debrief with a discussion of why they didn’t anticipate this problem when they started bidding? This fits broadly in discussions where escalation is a risk (decisions under uncertainty, M&A, technology investments, etc.). You may find that some students have seen this exercise previously. However, it only takes two uninformed bidders to create a bubble. Of course, the following classic bubble video is a good fit in the debrief (came out right before the real estate bubble)…

Contributed by Russ Coff

The Emperor’s New Rope…

This is another in a series of reminders that individuals respond to perceptions even if they are inaccurate. The short video of the invisible rope prank might be followed by a discussion of how firms can influence the perceptions of their rivals, complementors, and/or customers. This is especially an issue in contexts where there is a great deal of uncertainty (entrepreneurship, technology, etc.). An earlier post presents a driving prank with a similar theme.

Contributed by Russ Coff

Fly Like an Eagle: Dynamic capabilities in the wild

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 ;-).

Contributed by Aya Chacar

Die Another Day Gazelle

This clip shows a cheetah catching a gazelle. Then a hyena tries to steal dinner from the cheetah. While they are busy fighting, the gazelle, who was playing dead, gets up and runs away. In this way, a cunning weaker firm might avoid being noticed by more resource rich firms until the moment when it has more resources of its own. A basic principle of competitive dynamics under bounded rationality is to fly under the radar so as to avoid retaliation from stronger incumbents.

Contributed by Russ Coff

Samsung Throws Apple for a Loop

Will Samsung Pay win a standards war over Apple and Google? Apple Pay and Google Pay may have gotten lots of buzz but adoption of contactless payment has been slow. The near field communications (NFC) technologies that they rely on require that merchants invest in new technology at the point of sale. Samsung has acquired LoopPay and its technology to allow phones to communicate with any magnetic strip reader. The new service is expected to launch in the 2nd half of 2015. Even if NFC is ultimately a superior technology, the ease of adoption may allow Samsung to dominate as users seek a solution that they can use with most merchants. Meanwhile, Google plans to include it’s Pay app on all Android devices which could increase its penetration. Though it is important to note that this might create a conflict with its key Android partner Samsung. This should engender a nice discussion of strategy in “winner take all” standards wars. In class, one might assign groups to debate why Google, Apple, Samsung, or other will win this market.

Contributed by Russ Coff

Strategic Magic: Success stunts learning

i-failAn 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…

Contributed by Donald E. Hatfield

North Korea: Craziness & Competitive Advantage?

Madness has been recognized in the game theoretic literature as a potential source of advantage. That is, a crazy person willing to pre-commit to a course of action might preempt rivals who consider that course to be irrational. In this context, North Korea’s attack on Sony might be considered as credible commitment to being crazy. As such, it confirms that North Korea may be unpredictable and might engage in activities that appear quite irrational. Thus, without incurring the cost of a full scale war, they can convince the west that they would be willing to sacrifice everything to hurt their rivals. In the scheme of things, attacking Sony is a relatively cheap way to do this. Here is an academic paper applying madman theory to the North Korean context. This might lead to a nice discussion of related game theoretic strategies in a business context.

Contributed by Nicolai Foss

Boeing’s Self-Destructing Android

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?

 

Contributed by Russ Coff

Honda “B” Emerges

In this video, Henry Mintzberg presents the story behind the classic Honda B case. That is, when Honda tried to enter the traditional US motorcycle market with large machines but ran into implementation problems that pushed it toward introducing small bikes through non-traditional distribution channels. As a result of their pivots, they were able to create a new market for smaller bikes in the US. This was a startling contrast to the “A” case which implied that the strategy was intentional from the start.

Heard Through Marko Rillo

Love Triangle Goes Hostile

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?
  • Scenario planning: How might this unfold? To explore this, I have created a simple decision tree and added financials draws from a SeekingAlpha analysis in the news packet. Here is the spreadsheet (which uses the Precision Tree Excel add-in).

Contributed by Russ Coff

Scenario Planning Success?

In 1993, AT&T released a series of commercials offering their vision for the future. Their predictions were surprisingly on target (ebooks, turn-by-turn GPS directions, iPads, sending documents via mobile devices, video conferencing, electronic tollbooths, on-demand videos). Someone had a good handle on technology possibilities that would transform our world. And yet, AT&T was decidedly NOT the company to bring us this future: it was effectively gone within a decade. Colbert offers some explanation for how the AT&T brand collapsed and rose again after the disappearance of the old ma bell. Mike Leiblein points out that the company may have failed to make appropriate investments or been concerned about cannibalization of their existing products. This old case about internal disruptors from Bell Labs trying to shake things up at AT&T suggests that is true – the company ejected the “disruptors” and tried to suppress the heresy that the internet would change everything. Ironically, at the time these commercials were filmed, Rebecca Henderson was writing about organizational limitations that hinder incumbents from successfully pursuing radical innovation. These ads make a nice point about the limits of scenario planning. Even if a company has people who can see the future clearly, it may be unable to execute. Here are a few slides that Charlie Williams uses to make that point.

Contributed by Charlie Williams

Vertical Integration with Style!

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.

Contributed by Andrew Shipilov

Fail to Pivot: Battleship v. Lighthouse

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.

Contributed by Russ Coff

Stuck in the Middle Blues

Samsung’s profits are down by a whopping 25% and they put the blame firmly on Chinese competitors entering with cheaper smartphones (see this NYT article). Companies like Xiaomi and Huawei have increased market share in China over the last year as they sell good products at break-even prices. Now, they have turned their sights on western markets that eat into Samsung’s bread and butter. Pressure on Samsung to respond with lower prices? Perhaps but Apple continues to compete effectively at the high end. It’s proprietary operating system keeps rivals from fully imitating many of the most important product attributes. For now, Samsung is signalling that it will accelerate efforts to differentiate their products — an innovation war more than a price war. The real winner may be Google which gains as Android dominates growth in this market. As you can see, this “live” case allows one to explore the complexities of how different strategies play out in the market. It also pushes us to explore how a sequence of strategies might unfold leading to a longer term competitive advantage. This case might go nicely with the HBS case on Samsung’s dual (cost/differentiation) advantage in memory chips and the threat of Chinese rivals. Of course, in the race for new features, one wonders what they will think of next…

Heard Through Michael Leiblein

Taking Strategic Risk for a Spin

Individuals and firms have different tolerances for risk. This video certainly captures fearlessness (and maybe stupidity). This might lead to a nice discussion on how such different attitudes might affect competition (for example between small and large firms). It also might seed a discussion of how decisions are made or human capital.

Contributed by Russ Coff

Coopetition: Shaping up your strategy

This exercise is a simplified version of the Global Alliance Game. That is, there are resource complementarities created among teams. However, this one emphasizes (to a greater extent) that the teams are in direct competition to complete the same tasks. As such, it is a nice exercise to explore coopetition and alliances with competitors. Introduce the exercise as an experience with the use of resources needed to accomplish a task that have been distributed unequally. Form the groups. Groups should be placed far enough away from each other so that their negotiation positions are not compromised by casual observation. Distribute an envelope of materials and a copy of the accompanying task sheet to each group. Explain that each group has different materials, but must complete the same tasks. Explain that groups may negotiate for the use of materials and tools with other teams. The first group to finish all the tasks is the winner. Give the signal to begin. When the groups have finished, declare the winner. Then conduct a discussion on using resources, sharing, negotiating, competing and using power.

Group Materials (Groups may negotiate with each other for the use of needed materials and tools on any mutually agreeable basis):

The Key Lime Market Sours

This NYT article about the scarcity of key limes, and the concurrent price increase, is perfect for a PESTEL analysis. The current violence in Mexico (Political factor), rains when the trees were blooming and pests (environment) have resulted in poor harvests. The problem is compounded because of the increase in demand from Hispanics in the US, and the growing popularity of Mexican food around the world (social factors). The Florida plantations that used to be the main source of key limes were all but wiped out by hurricane Andrew and citrus canker (environment). Production moved to Mexico because of the weather, but also because legal factors (NAFTA) make it cheaper to import the limes from Mexico than from anywhere else. This explains why lately waiters have been asking if I want lemons or limes with my half and half tea…

Contributed by Susana Velez-Castrillon

Rival Analysis: A whale of a problem

Sometimes firms think they are the “hunter” only to find that their rivals are stronger than they thought. Firms may find that they are the prey rather than the hunter. After an especially cold winter, this video may help to drive home that point. In the context of judo strategy, it demonstrates the value of going undetected until you are stronger than rivals expect. Finally, the video is valuable to illustrate the general issue of managing under uncertainty.

Contributed by Russ Coff