Exercise: Lie Detector

dishonestyAre there cultural norms for telling the truth? Recent research by David Hugh-Jones suggests that this may be the case. In his coin flip experiment, respondents were asked to get a coin ready. On the next screen, they were asked to flip the coin and report the result. They were also informed that they would receive an incentive (either $3 or $5) if they reported “heads.” As such, respondents who flipped “tails” had to choose between telling the truth and receiving the money. This experiment allows honesty to be estimated at an aggregate level, by comparing the proportion reporting heads in any group to the 50% proportion expected. The figure above shows how the results for honest reporting differed by country. You may be able to repeat a version of this in your class. You may note that another coin flip exercise is recommended in the toolbox to explore luck and entrepreneurial success. You might run this in an earlier class with no incentive and record the proportion of people that report heads on each round. Then, in a class on ethics (or global strategy), repeat the exercise with an incentive ($20 should be enough). See if the proportions of heads reported differ. It may be that the class setting affords enough monitoring that cheating is not observed. Also, a large sample (100 or so per group) would generally be required to find significant differences in honesty. Even so, you can still present the results of the study (and, perhaps, argue that your class is more honest than average subjects in their country). You could also try to duplicate the lack of monitoring in the experiment by having students flip a coin at home or online and report the result. As such, there might be reasons to have students do this exercise outside of class and discuss the results in class.

Contributed by Aya Chacar and Russ Coff

Trumped up Strategy Class

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

Ethics: Gautam Style

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:

  1. 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
  2. The decision by a chemical company to use local safety standards in its different markets, which is completely legal,
  3. The decision to sell skin whitening creams in countries in India by large multinational companies,
  4. Provision of significantly discounted or couponed milk products for newborns,
  5. 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

OPEC Hits a Slick

OPEC might seem like a tired example of collusion since the alliance has been stable for many years. However, it is certainly produced a gush of news lately as oil prices have slipped by 60% in just a few months. This article offers a nice summary of why each member of the OPEC cartel has failed to bolster the prices (e.g., cut production). This underscores the different strategic objectives that each has an how difficult it may be to maintain cooperation. Some of the reasons reflect divergent goals among partners (e.g., Saudi Arabia, Iran, and Russia). Others reflect internal turmoil (Venezuela). Then there are strategic objectives such as the Saudi’s seeking to thrash the economics of newer, more costly, sources like fracking (which has made the US the top oil producing nation). While this sudden drop in in prices has hurt many oil producing nations (see chart) it has also lubricated many troubled economies in other parts of the world.

Contributed by Russ Coff

The Moral of the Story…

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 BarneyRajshree Agarwal, Jeff McMullen, and Peter Klein.

Contributed by Peter Klein

Executing Strategy … for a change

There are lots of cases, exercises, & simulations dealing with making strategic decisions, but few that deal with execution. Since implementation is a major hurdle for achieving a successful strategy, this can leave an important gap in the traditional strategy course. Bill Judge created this simulation dealing with strategy execution of an organization-wide strategic change. The product, developed in partnership with Harvard Business Publishing, is a single-player, online simulation that can be played over the internet or in the classroom. The student plays the role of a change agent trying to convince other managers to adopt the proposed green strategy. There are social networks embedded among them that are only revealed as stakeholders are interviewed (one of the 18 “levers” in the game). They, in turn, convince others based on their social ties. The simulation allows you to “play” in four scenarios that alter the change agent’s power (CEO vs. R&D director) and urgency (an opportunity to expand vs. the risk of losing the firm’s largest customer). This is a good vehicle to introduce notions of power and influence, human capital, readiness for change, leadership challenges, dynamic capabilities, balancing financial and social imperatives, and the organization and environment interface. The cost of the simulation is nominal if you are playing it within an academic institution (about the cost of 4 HBS cases). If you would like to explore this further, please click here and check it out. You can check out how it works since there is a video and preview available. If you have comments, questions, or suggestions, please email Bill Judge here.

Contributed by William Judge

Strategy on the High Road

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).

Contributed by Russ Coff

An Apple A Day Kills Profit?

This quick Zack King video shows what happens to profit in the healthcare industry when patients are healthy. You might talk about healthcare policy and strategy when good strategies reduce profit. Here, an important distinction might be made between industry and firm level profit. This might also trigger some interesting discussions of ethics. Here are more Zack King videos.

Contributed by Russ Coff

Tesla Strategy Sparks Cusiosity

Melissa Schilling notes that, despite extensive automation (video below), labor usage is quite high. “There are 3000 workers in the plant, and Tesla produced a little over 20,000 cars in 2013. That’s about 7 cars per worker in a year (assuming the workers are full time). However, the GM Lordstown plant made 70 cars per worker last year (thanks Linos Jacovides for this stat), and in the well-known Renault-Nissan HBS case it reports that Nissan’s productivity was 101 cars/worker/year, and Renault’s was 77 cars/worker/year.” Given the automation, the workers are probably highly skilled (and, thus, well paid). Is Tesla at a huge economies of scale disadvantage? What might be the strategy? They are still 3 years away from selling a cheaper model so it will be a while before they can generate volume from a mid-market product. In the meantime, one possible solution may be found in Chinese sales of electric cars.

Contributed by Melissa Schilling

Zappo’s Zaps Mgrs: A whole holacracy

Zappos is moving to a holacracy whereby managers and job titles go by the wayside (see this CNET article among others). This is a real kick in the head to bureaucracy and hierarchy. How does this organizational design mesh with their strategy of customer service and innovation? Another nice example is Valve — see the Valve post on this site. These examples can seed a discussion of strategy, structure, and organizational design as well as a critical analysis of many practices taught in business schools. Such radical forms can be very hard to design and implement. One problem that Foss explores in a recent Organization Science paper is incentives, motivation, and the tendency of managers to meddle in tasks that they say they have delegated. Here is an entertaining Zappo’s commercial to ease into the topic (though one of the many Dilbert videos would be quite compatible as well).

Contributed by Russ Coff

New Prius Designed to Kill Owner

Clearly the problem in green strategies is to reduce consumption. What could do this more effectively than reducing the owners carbon footprint to zero? This ONN story explores the new Prius that has this special feature. A nice introduction to green strategies…

 Contributed by Russ Coff

Fish Story: A common tragedy

The  tragedy of the commons refers to the inefficient use of a shared resource when individual actors have incentives that are misaligned with the larger community. Classic examples might be a shared pastures or common waters for fishing. Dennis Meadows and John Sterman offer a computer based game that simulates this problem in a fishing setting (Fishbanks: A Renewable Resource Management Simulation). Below is a short video that describes the problem.

Contributed by Russ Coff

Quiznos Business Model: Exploit?

This video describes the business model (musically) by which franchise owners were encouraged to open stores that they knew would be unprofitable. The business model was more about selling franchises than selling sub sandwiches. Very profitable for Quiznos but not so much for their partners. Here is a CBS news story on the resulting class action lawsuit.

Contributed by Aya Chacar

Green Underwear at Patagonia

One day, Yvon Chouinard, the enterprising founder of Patagonia, told his product design team to free the company’s underwear from wasteful plastic and cardboard packaging. His staff balked – he was told to expect failure. He pressed on with the changes anyhow, because it was the right thing to do.

Contributed by Sharon Livesey