Deflategate: Letting the air out of strategic planning

ballStrategies 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:

  1. Air pumpInflate 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.
  2. Where’s the plug? After inflating, students look for a plug. The instructor waits a few seconds and plugtakes 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.
  3. 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.

Other related toolbox exercises that demonstrate the challenge of predicting outcomes and implementing effectively include the Tinkertoy Exercise, the Strategy Puzzle, and the Paper fight. There are also some materials under the topic of scenario planning.

Contributed by Piotr WÓJCIK

Failure: The sequel

learning-failuretosuccessThis is another in our series of explorations in learning from failure (and learning from success). The Swedish Museum of Failures reminds us of some of the most spectacular product failures. Interestingly, most of them can be closely linked to some spectacular product successes. A complete failure may be a near miss. Perhaps a slight pivot away from extreme success. This video offers a window into some of the more interesting exhibits in the museum. One might ask students to review the video and imagine how a well-placed pivot might have helped each failure turn the corner. This might also fit with some of the toolbox posts on pivoting.

Contributed by Russ Coff

Angry Shareholders Sacrifice Donkey

StockholderFluDartShareholder activism is often identified as a mechanism to discipline managers and keep them focused on value creation for investors. An NPR story reports that shareholders in a zoo near Shanghai, frustrated that they weren’t making a profit on their investment, fed a live donkey to zoo tigers as a form of protest. At a shareholders meeting they voted in favor of feeding the donkey to the tigers to express their anger. Their objections center on the zoo’s debts and legal troubles. For two years, the investors said the venture has not been profitable. The video of the event has stoked public outrage and condemnation. While this is a rather unusual example of shareholder activism, it may spur some fruitful discussion in class. One of the interesting elements of this action is that the Corporate Social Responsibility literature would lead us to expect that investors have idiosyncratic preferences and will make trade-offs on returns (see this article by Mackey, Mackey & Barney). For example, one might expect that investors in a zoo would be willing to trade off financial returns to care for animals. A protest of poor profitability that hurts an animal seems especially unlikely. Yet there is is. As the cartoon implies, there are other ways for investors to protest…

Contributed by 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

What Strategic Change Feels Like

Managing change is given little time in most strategy courses. We often understate how difficult strategic change actually is and then wonder why organizations struggle so much with implementation (and our students think its all common sense). You can think of it as walking blindfolded on a tightrope between two solid foundations. During the transition, there is great uncertainty about whether the desired path is attainable. This, of course, is another way of looking at Lewin’s unfreeze/change/refreeze model. This video can help to illustrate the issue:

Contributed by Russ Coff

Fun and Game Theory

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
  • Prisoner’s dilemma
  • Asymmetric matching penny game
  • An air transport economics simulation covering price discrimination, vertical differentiation and peak-load pricing.

In addition, you may wish to check out some of their longer, commercial games (http://aireconsim.com).
Contributed by Nicolas Gruyer

How Xerox PARC Lost the PC: Putting the “O” in VRIO

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.

Given Apple’s legal actions against Samsung and Google over the look and feel of their product, there is a certain irony that Apple imitated Xerox in their flagship product.

Contributed by Rich Makadok

Organizational Islands

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.

Contributed by Russ Coff

J. Crew’s “Great Man” Problem

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…

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

Rejection Therapy: For PhDs, entrepreneurs & other failures

What is the most significant thing that differentiates entrepreneurs from others? Somehow, in the face of overwhelming odds that they will fail, they still manage to push forward. Rejection, almost inevitable, doesn’t deter them. The rest of us kill inventive ideas before we even test them because we fear rejection. This NPR story explores a new form of therapy where rejection is turned into a game: how many times can you get rejected in a day? Could desensitizing people to failure create more entrepreneurs? This also has important implications for academics who typically face many rejections from journals for each manuscript that gets accepted. Without “rejection therapy,” they may avoid sending papers to journals because they are concerned that the work will be rejected. Like would be entrepreneurs, they kill ideas before they have had a chance to test the waters.

Contributed by Don Hatfield

Dr. K Prescribes Strategy Videos

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.

More Videos (below) Accompany New Text

The following videos are also available but are designed to accompany the forthcoming textbook: Strategic Management 1e by Jeff Dyer, Paul Godfrey, Robert Jensen and David Bryce (BYU Marriott School of Business). Continue reading

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

All About that Bitch

Much has been made of glass ceilings in organizations and this is a very appropriate conversation for strategy courses. Recent research indicates that appointments of female executives have positive implications for innovation but investor reactions are sometimes negative when such appointments are announced. This video might start the discussion and the research takes it in a more serious direction (as the title suggests, the content may be a bit edgy for some…).

Contributed by Russ Coff

Negotiating Coordination Costs

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). Caucasian mid-adult businessman and woman staring at each other with hostile expressions.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…

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