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
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
Differentiation can be a challenge if existing products have identified the most central value propositions for customers. Increasingly, firms must differentiate using paths that may not follow others and there may be good reasons that rivals have left the path uncharted. Here is an example of differentiation whose time may not have come…
Contributed by Russ Coff
Presenting material clearly and concisely may not be the best way to help students learn. In fact, presenting ambiguous information that leverages common sources of confusion may be a much better route to learning. This post is intended to serve as a BLEG to solicit examples of confusions that students experience. Accordingly, this is a starting point for developing new material that draws on confusion to teach strategy. We begin by understanding what confuses students. Here are some examples that come to mind (please add your own examples in the comments):
- What does 5 Forces tell us about the firm’s advantage? Students often put a focal firm in the center and consider rivals to be substitutes. They don’t understand that the framework addresses the industry and not the firm.
- What industry to choose for 5 forces? Students often choose an umbrella industry instead of the specific segment they are considering entering (e.g., beer instead of micro brews in South Africa). The result, then, is almost useless for making decisions and the analysis is not used to make recommendations.
- Some resources are valuable while others are Inimitable (VRIO): Students think they are looking for some resources that fit in each bucket (V,R,I, & O) instead of a few resources that meet all of the criteria. They don’t understand that VRIO is a filter to evaluate all strengths in the value chain.
- What is that “O” for anyway (in VRIO)? It seems to make sense but students often don’t really understand how a firm can have all of the pieces and still not execute. I use Xerox PARC as an example.
- How do we make decisions using VRIO? Students often think they understand but don’t really know how to use it to make a decision. For example, how are capabilities relevant to decisions like entering new markets or fending off rivals?
- Motivation for diversification: guilty until proven innocent. Students often suggest that a firm should acquire a successful target. They fail to see that future success is built into the acquisition price and don’t ask why the buyer could create unique value over other bidders.
- Technology advantages erode rapidly. People see technology as key but miss that it can be easy to reverse engineer (leading to a temporary advantage). While the iPhone confers an advantage to Apple, Samsung has more market share.
- Core competence is not what a firm does well if rivals can do it better. Core competence must refer to VRIO resources in order to create value.
Again, please add your own examples in the comments below. The following TED talk by Derek Muller describes the technique in teaching science.
string of educational videos that leverage this “confusion” technique to teach principles of science here.
You can find a
Contributed by Rich Makadok and David Kryscynski
Ronnie Chatterji and Charlie Williams have put together an excellent research podcast series. They describe it as “Big ideas from business school professors.” It offers an excellent bridge between cutting edge business research and the world of practice. The podcast is sponsored by the Strategic Management Society (publisher of the Strategic Management Journal, Strategic Entrepreneurship Journal, and Global Strategy Journal). You can find the podcasts at iTunes, Soundcloud, and YouTube among other places. Want a quick taste? Here are some of the topics that this reviewer found especially interesting in the realm of entrepreneurship and innovation:
Contributed by Russ Coff
Early movers stand to lose if late movers learn from their mistakes and enter with better product offerings or better strategies. Classic early movers who lost include Osborne Computer Company (subsequently overtaken by Compaq) or EMI’s exit from the CT Scanner business. Myspace and AoL might also be counted among early entrants that ultimately fizzled.
That said, early movers can can gain key assets that make it hard for rivals to enter and compete. You may have noticed that “JebBush.com” takes one to Donald Trump’s home page and there are numerous other political misdirections along these lines for other candidates. Similarly, Tesla Motors has only just gained ownership of the Tesla.com domain (probably at a handsome price). In this way, there can be a race to secure resources and capabilities to take advantage of an opportunity and others are in competition for those resources even if the resources are firm specific (as candidate domains tend to be). From a scholarly standpoint, such resources can be approached from a variety of perspectives including strategic factor market theory, Coasean bargaining, or first mover advantages. Of course, there is a humorous side to all of this. SNL has captured this nicely in their spoof commercial for Dillon Edwards Investments (note that this may be a bit “saucy” for many classrooms but we’re all adults here).
Contributed by Peter Klein
Entry barriers are a critical element of Porter’s five forces framework. A key question is how firms get around the barriers. While the framework is at the industry level, a central part of the discussion is how the entry barriers might differ for different potential entrants. Some will have complementary resources or capabilities that make entry much easier. If a firm is considering entering a new industry, they want high entry barriers for all firms — except them. This sometimes sounds too good to be true until you discuss critical differences in resources and capabilities. This (admittedly silly) Doritos commercial from Superbowl 50 illustrates entry barriers and how some creative dogs get around them…
Contributed by Russ Coff
Nonsubstitutability is a critical resource attribute for sustaining a competitive advantage. Otherwise, a rival may find a different resource that can nullify an advantage without actually imitating the focal firm’s resource or capability. An example might be Apple’s iPhone patent for the “screen bounce” when the user scrolls to the bottom of a page or list. Early Android phones had the same feature but, more recent phones, work around this patent by displaying a blue tinge at the edge of the screen (see picture) when one has scrolled to the end. In this way, many patents do not confer an advantage as rivals find ways to work around them and customers don’t perceive a significant difference in the product. In class, one might give this example coupled with the video below which depicts a battle between Fezzik and Westley in the Princess Bride — agility and size can be discussed as substitutes in determining competitive advantage (of course, Westley wins though he at first seems to be at a disadvantage).
PrincessBride-Nonsubstitutability (click to download)
Contributed by Russ Coff
Here is another great whiteboard video from Shad Morris. This one focuses on how to evaluate the overall health of a country’s economy. This is important in assessing the business environment for strategic investment. Is a given market attractive? This might also lead into a nice discussion of comparative advantage of nations. If so, this might be another application of the Global Game exercise.
Contributed by Shad Morris
PEST analysis can be helpful to identify trends or factors outside of a firm’s focal industry that will ultimately affect the industry. It stands for Political, Economic, Socio-cultural, and Technological factors. PESTEL is a similar framework that adds Environmental and Legal trends to the mix. The PEST framework is simple but it has the advantage of focusing trend analysis efforts so you can cover ground in a more systematic fashion (than, for example, SWOT analysis which is quite unsystematic). Shad Morris’ video below offers a great introduction to the analytic framework.
Contributed by Shad Morris
Mattel just lost to Hasbro on producing Disney princess dolls — a $500M a year business. This brings to an end a 60+ year strategic alliance. A recent Bloomberg article tells the story of what happened and makes a nice start to a mini case. There are many facets to this that might be of interest in the classroom. Bargaining power is probably front and center. Mattel wanted to have their own princess line that they didn’t have to pay the substantial licensing fees to Disney. Once they were a competitor, Disney started to consider other options (an alliance or coopetition story). By seeking out Hasbro, Disney increased their options (BATNA to you negotiation buffs) and thus gained even more bargaining power. In the end, Hasbro had to work hard to present a fresh vision (including substantial firm-specific investments) but Disney still retains the power in the relationship. This also sends a signal to other Disney partners about reducing their commitment to Disney. Of course, Disney’s power is rooted in strategic assets (characters) and capabilities (to create more characters) so this brings in the resource based view (RBV) nicely. If you are in need of related comic relief, there are ample videos. Here are hipster princesses to get you started.
Contributed by Russ Coff (HT Virgina Postrel)
Buick will begin selling the Chinese-made Envision crossover in the U.S. next summer despite resistance from the UAW, which would prefer that it be produced in the U.S. The car is produced through a joint venture with China’s largest auto maker SAIC Motor Corp. Rather than produce the car in the U.S., GM plans to import the Envision from Yantai, China, where the joint venture has produced the vehicle for about a year. Through the first 11 months of 2015 it sold 127,000 of them in China. This example brings out several key points with respect to strategic alliances. Certainly the UAW viewpoint brings in a stakeholder perspective. However, SAIC is also potentially a competitor. It’s home market has sheltered it while it gained capabilities to produce on a very large scale. Recently, growth in the Chinese auto market has slowed which may push SAIC to seek other growth opportunities. This venture with GM may help it gain capabilities that allow it to enter U.S. and other world markets. In sort, this is a nice case to apply the “Four C” alliance framework (or other alliance tools) to identify whether the alliance is likely to create value for both sides (and for how long).
Contributed by Russ Coff
I started my class last Saturday with words of hope that my students’ friends and family were safe. Since I teach in Madison Wisconsin, it was a fair bet that they were not heavily touched. This first response is probably a good starting point. However, where does the discussion in a strategy class go then? Here are a few brief thoughts:
- Responding to the humanitarian crisis. From there, one might explore how firms can respond to the humanitarian crisis. Do the Syrian refugees and terror victims all over the world pose an imperative to which businesses must respond? How can they help? What types of businesses can make a real difference?
- Responsibility to shareholders. Should firms help even if this hurts shareholder returns? Of course, helping people can build a firm’s reputation. When would this come into play and how can firms position such actions to help firm performance (eliminating any conflict with shareholders)? If it does hurt profitability, when is that justifiable? When is it an imperative?
- Global strategy. How should firms develop and execute international strategies in a more uncertain business environment? How should they balance this type of risk in their portfolio?
- Employee Welfare. What steps should be taken to assure employee welfare and/or help employees in need?
- Opportunity. Some firms may see economic opportunities amid the uncertainty. Of course, defense contractors and security-related firms may win. What other types of firms might see opportunity? See, for example, the video below about Ikea’s refugee shelters or bulletproof blankets for kids in response to school shootings.
- Exploitation & Fraud. One of my students pointed out that some firms may take advantage the situation and play off of people’s fears. This might be considered the unethical side of opportunity and is certainly important to discuss as well.
- Broader economic impact. Andrew Ross Sorkin offers a brief discussion of this. Conventional wisdom (from studies of the economic impact) is that attacks cause only small blips in GDP and stock markets. However, the political impact and the diversion of resources to agencies like homeland security and defense contractors show up positively in GDP and so understate the impact. Isolationism also may impact global trade well beyond the initial shock.
You may notice that I offer questions rather than answers. I think this topic is fruitful for class discussion and I would hope to learn from the students. I only wish I had answers…
Contributed by Russ Coff
Knowledge and intellectual property inherently complicate exchange (e.g., property rights are poorly defined, the value is unclear, there are high transaction costs). One manifestation of this is the disclosure problem (Arrow’s 1962 information paradox). Figuring out the “price” for an idea requires revealing data which intrinsically reduces its value. Entrepreneurs often have ideas stolen by larger corporations that have significant complementary assets. Accordingly, they often try to go it alone despite the fact that their lack of such resources may ultimately create less value (for example, Tony Fadell tried to go it alone before bringing the iPod idea to Apple). His alliance with Apple turned out very well. However, this is often not the case. This clip illustrates what happened to Kramer (on Seinfeld) when he approached Calvin Klein with his idea for a new cologne called “beach” hoping to access their resources while gaining a signal of the idea’s value. He reveals the idea in an effort to obtain both. While it is funny, it will also kick off a serious discussion on this issue.
Contributed by Michael Leiblein, Marcel Bogers and Marcus Holgersson
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