Category Archives: Strategy process/Decisions

Jay’s Coinflip: Innovation as luck

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coinflipJay Barney describes a coin flip exercise to make the point that innovation might be modeled as an outcome of pure luck.  If so, how can firms manage such processes? The exercise is simple:

  • Distribute coins to the class and have them flip.
  • Those who flip “heads” remain standing, “tails” sit down (unless everyone gets a tail – then they remain standing)
  • Repeat until one person is standing & pass all coins to him/her

Discussion focuses on several key points (Russ Coff’s slides emphasize real options):

  • What capabilities/skills did the winner have? Make a big show of trying to find out how the winner did it (it’s all in the wrist, etc.). Often the winner will have flipped 5 in a row or more (a 3% probability?). People will laugh since they know it’s luck.
  • Is it possible that innovative companies are just lucky? We don’t see a lot of repeat innovators and, if it is luck, even these might be explained.
  • Selection bias is a problem if we try and draw conclusions by only looking at winners. In a population (like the class), the probability that someone will flip 5 in a row is rather high. We can only identify causality if we study the whole population.
  • If it is luck, how should one manage investment? This is a nice lead in for portfolios of strategic investments/real options or superior expectations/forecasting.

Contributed by Jay Barney

Don’t Judge Too Quickly…

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Another in a series of videos that illustrate perceptual biases. In the context of strategy, decision-makers inevitably have incomplete data from which to draw conclusions. Any one of the commercials in the sequence below will illustrate the perils of assumptions one might make.

Contributed by Russ Coff

Groupon Follies: Get a Brazilian…

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This Groupon Superbowl commercial is quite funny (even if it is in bad taste). However, the company has struggled and one year after its IPO the price was 81% below the initial price. A recent spike when a hedge fund took a toehold position only underscores the company’s troubles as investors hope for better management. Before the IPO, Groupon turned down a $6B offer from Google — something that Google should appreciate since the company is worth less than half that amount a year after the IPO. One reason for the bearish response is that the entry barriers are fairly low and the competition is significant (e.g., Living Social and even a new eBay venture along these lines). Why was this so hot anyway?

Contributed by Russ Coff

Merging Cultures: BaFa BaFa

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Cultural differences can undermine M&A, alliances, or entry into foreign markets. As such, it may be important to show students how difficult it is to comprehend and coordinate with a different culture. The BaFa BaFa exercise accomplishes this beautifully. This exercise was originally developed for the U.S. Navy to train personnel on how to interact when being exposed to new cultures (see the extended history in this Simulation & Gaming article). The web site describes it as useful in diversity training. That’s true but it is also useful for strategy courses where cultural differences are relevant. The exercise requires about 2 – 3 hours to run so it is more useful for evening or executive courses where you have larger blocks of time. Here is an overview of how the exercise unfolds:

  • Separate the class into two groups that will be trained in the two cultures (you will need two classrooms and assistance in bringing both cultures up to speed).  Continue reading →

Winner’s curse at Gourmet Adventures

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Often in M&A, there is a concern that the buyer has overbid – especially when there is competition for the target and the risk of winner’s curse is heightened. In essence, if firms bid based on their “unbiased estimates” of the target’s value, the bids may be normally distributed around the true value and the winner is especially likely to have overbid (cursed). The task then, is to shade one’s bid to avoid overbidding. A standard exercise to demonstrate this phenomenon is to have the students bid on a jar of coins (which I describe as a restaurant chain). This is of special interest in a strategy course since the risk of being cursed is driven by the variance around the valuation (not the mean). Variance, it turns out, is driven by aspects of the target that are hard to value. These include strategic resources, human capital, complementarities, cross business synergies (e.g., layers of coins to reflect different target business units), or any other source of uncertainty. As such, even if the winner’s curse is covered in another course, these elements will be specific to a strategy course. Here are materials needed to run the exercise:

  • Instruction sheet describing the bidding/valuation task (and to submit bids)
  • Spreadsheet to record the results and show a simple estimation method
  • PowerPoint slides to lead discussion
  • 500ml jar with quarters, pennies, and nickels (as shown)

If you teach an online course, there is also a nice online simulation of this at GameTheory.net.

Contributed by Russ Coff

Core Competence Follies at 3M

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This is an old video depicting the process for a $20M investment in the laserdisk division. It has two uses in class. First it illustrates some limits of “core competence” (as the term is usually used) as a guiding principle for analyzing whether business units will add value — the clip describes 3M’s competence, with a straight face, as “two dimensional products.” Second, the video might be described as depicting an exercise decision for a real option that was acquired earlier. One can explore the role of core competence and other organizational factors in making such exercise decisions.

3M, of course, is extremely sophisticated in it’s management of core competencies — maintaining deep expertise in a well-defined set of technologies. The only one with the wool pulled over their eyes was the filmmaker who really did believe that 3M’s core competence was 2 dimensional products…

Contributed by Russ Coff

Words in Sentences Org Design Exercise

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The attached documents (below) contain the instructions to distribute to students and the raw material strips for the exercise. The attached PowerPoint file contains a list of what to prepare before class (slide 1) and the slides for class, including discussion and wrap up slides. It is best to go over the directions in detail in class as, unfortunately, students often do not read the directions very carefully; the verbal overview also gets them thinking about setting up a divisional vs. a functional structure for the task. It really is worth stressing the fact that they need to set up a structure. Choose an external quality control group at the beginning of class — Purposefully pick students who are quick and pay attention to detail for this task, as it will have to be completed in a short period of time.Overall, what tends to happen is that both groups improve from trial 1 to trial 2, however the functional group improves by a much greater amount and generally has fewer QC errors (i.e. words used repeatedly). Continue reading →

Steve Jobs Version 2 Released

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Of course Steve Jobs’ passing raises the question of whether Apple’s capabilities are housed more in organizational routines or were lost when Jobs died. This ONN spoof describes Apple’s release of a new and improved Steve Jobs (now in a white turtleneck with curly hair).

Contributed by Russ Coff

Alaska Gold Mine Exercise

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The Alaska Gold Mine case is my (Mason’s) favorite starter case for undergraduate, MBA, and executive MBA strategy courses. Reprinted here with permission of author Jeffrey Barach along with my PointPoint slides I use to administer the case.

Click to get the:

The video below provides a lot of good fodder to reference back to when doing the exercise. Start the class session by showing the video before doing anything else. Continue reading →

Org Change in the Classroom: A ruse

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organizational-change-timizzer1-1024x8181The mid course evaluation or any other feedback from students (such as the culture artifact hunt) can be used as a jumping off point for an exercise on organizational change. All you need to do is take their suggestions to a logical conclusion and tell them that you are changing the assignments and/or grading structure. This, of course, is small potatoes compared to real strategic change. However, even if you pick fairly moderate changes, students will typically protest. Then you can discuss the influence tactics used to thwart the proposed change. It can be great fun to play with their heads (but be sure to let them know it was only an exercise)! You might think it unwise to intentionally anger your students as part of an exercise. However, this is a lesson they won’t forget and, if you debrief carefully, they will see why the lesson is so important. Here is an example of the types of changes I announce:

  • Added assignment (to emphasize a new topic they want). Include a few additional readings and a case — hopefully that add up to an expensive additional coursepack (> $10).
  • Change the teams to emphasize diversity, skills, or to increase their inventory of available skills.
  • Change the grading weights (e.g., less emphasis on class participation is guaranteed to make the more vocal people voice their concerns).
  • Add a comprehensive exam (out of concern that the additional studying is needed for them to integrate the materials).

Contributed by Russ Coff

Crimson Tide: Launch the Missiles!

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This scene depicts a confrontation over whether or not to launch nuclear missiles. The scene illustrates a series of cognitive biases and blind spots in decision-making.


Contributed by Paul Friga

NASCAR Strategy: Press the peddle

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This funny video illustrates the importance of a simple strategy. “Press the peddle and occasionally turn left.” In reality much of strategy involves following routines — occasionally there is a left turn…

Contributed by Tim Madden

Awareness: See anything unusual?

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Awareness is a critical element of strategy. Have your students count the number of passes made in the video. Then ask if they saw anything unusual. Most will miss the moon-walking bear because they are so focused on the counting task.

 

Contributed by Joan Allatta

Rumelt: What is Strategy?

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Richard Rumelt offers a cogent interview on what makes a good business strategy. The video is not set up to be downloaded or embedded but can be found here at UCLA.

Contributed by Joan Allatta

Governance Under Fire at Tyco

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This is an INSEAD video examining the unfolding scandal at Tyco. “Shareholders are screaming. The stock price has dropped from $60 to $7 a share. The press is hitting you every day with requests for info on the turnaround of the company. The prior management is still there, wondering about their futures. The prior board is there, wondering about their futures. And you’re there, trying to bring some order to this chaos.” That’s how Eric Pillmore describes a typical day at the office when he stepped into the corporate governance role at Tyco early in August of 2002.

Contributed by Joan Allatta

Paul Friga’s Video Library

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Paul Friga is kind enough to maintain a library of videos for teaching various strategy topics. You can find it on his web page here (or click on he picture). Resources are arranged by topic so they are easy to find.

Additional Video Libraries

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A number of excellent suggestions came out of the SMS Teaching Community session on using videos in class. Eventually, all of these will be integrated into this site. Here are a few additional video libraries you may wish to check out.

  1. The BCG Library has more than 100 videos on YouTube. They are usually 2 to 3-minute long.
  2.  Accenture channel: Like BCG, Accenture has their own YouTube channel.
  3. Graziado Business School has a video library with interviews, etc.
  4. Inc. magazine has a series of interviews with entrepreneurs.
  5. Stanford’s Entrepreneurship Corner is also a great source.
  6. There are gazillions videos at MIT, but I couldn’t find a channel dedicated to business…
Contributed by Bernard Forgues

Case Libraries

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2e1e41_ff04ac9674ba4be1848f097fee5bd061Here are some popular case repositories:

The CEO who wouldn’t leave

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I found that a recent article in BusinessWeek can be used as an interesting reading to explore power & politics in the context of M&A. The article describes how William Johnson was designated as CEO of Duke Energy after its acquisition of Progress Energy and how he was fired after only two hours. The original M&A agreement included a condition that stated that the CEO of the target (Progress Energy) would be named CEO of the merged company. However, he was fired two hours after the designation and the CEO of the acquirer (Duke Energy) was named CEO of the merged company. I think this article could motivate to further study this acquisition. It seems to be a novel illustration of a hostile acquisition.

 

Contributed by Francisco Morales

Corporate Culture Artifact Hunt

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We often talk about culture as a source of sustained competitive advantage (see Jay Barney’s article on the topic).Cave Painting I have run a great exercise where I send students on an artifact hunt through the business school to identify strengths and weaknesses in the school culture. Students present and analyze their artifacts and we discuss the implications for the competitiveness of the school. The next class explores the levers or impact points one would use to influence the culture. A final class might explore the implications of this for managing strategic change. The time this takes may make it better for a strategy elective but I am using it in my core class this semester.

Here is a bit more detail on how the exercise is run:

Continue reading →