JebBush.com & Late Mover Disadvantages

DillonEdwardsEarly 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).

https://video.yahoo.com/dillon-edwards-investments-000000517.html

Contributed by Peter Klein

Entry Barriers (for Terriers)

content-marketing-barriers-349x171Entry 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

Princess Bride, Nonsubstitutability & the RBV

screen-shot-2012-08-28-at-2-04-20-pmNonsubstitutability 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

Dr. Shad Takes you Global

Here are a couple of great videos from Shad Morris on international strategy. The first 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. The second video offers the distinction between multi-domestic, mega-national, and trans-national.

Contributed by Shad Morris

A PEST to Infest Your Analysis

pest-analysisPEST 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

Disney Wields its Princess Power

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)

Not Your 父亲 (Father’s) Buick

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

Is ESPN the Right Toon for Disney?

Between the Football games, you may have seen that ESPN is losing subscribers in droves (7M lost in the last 2 years — about 7%). Not only is it dragging down Disney’s stock price, its a weight on the whole industry. This is an interesting problem to discuss in class. Of course, Disney’s corporate strategy always provides fodder for discussion (see our discussion of the multi-business strategy around Frozen). I have asked my class the following questions:

  • Discipline. As a stand-alone business, you might start with what needs “fixing”? Why hasn’t Disney fixed it already and is there another company better positioned to fix it?
  • Potential Synergies? Digging further, as a part of Disney’s portfolio, you might ask why ESPN would be worth more as a part of Disney than it would be as a stand-alone company or as part of another company. For the most part, Disney can’t leverage it’s content, characters, or brand to enhance the value of ESPN. What can they bring to the game?
  • Should they sell it off? If Disney doesn’t add much here, who do you think could create more value with ESPN? What would be the next steps?

Contributed by Russ Coff

Lego Industry Ecosystem

Lego profits have more than doubled in the last five years. The company has sold non-core businesses and doubled down on the core building block products. They are the undisputed king of building toys. A recent New York Times article describes the lay of the land brick by brick. Lego has focused on more wholesome building themes (Star Wars, etc.) while rivals have sought space where they don’t have to directly compete. For example, Mattel’s MEGA unit has a series of much more realistic building sets (Sponge Bob, Terminator, and Star Trek). Similarly, McFarlane toys has a very successful series of “Walk Dead” building sets that deviate from the image Lego prefers to maintain. In addition to competitors seeking to differentiate, many complementors have emerged such as Pley which offers Lego set rentals (the “Netlix” of the Lego world) or numerous used Lego trading businesses (here is one in Madison). Interestingly, research suggests that these Lego sets may actually reduce creativity — especially compared to the older version that involved a simple bucket of bricks rather than a kit to build a specific thing. Of course, their move into Lego films brings in an interesting discussion of diversification.

Contributed by Russ Coff

Smartphone Scavenger Hunt

Of course there are a spate of Chinese entrants into the Smartphone space. This probably comes as no surprise since many of them have been manufacturing phones for other firms and have large local markets that help to incubate their capabilities to become global players. In addition, there are some players that seek to leverage very different capabilities into the smartphone space. For example, I have reported here on Boeing’s efforts to leverage their defense contracting capabilities — now, it would appear that the U.S. government is interested in Boeing’s self-destructing Black phone. More recently, Pepsico is entering the fray with a branded Android phone. These examples fit nicely with the business combination scavenger hunt exercise. Of course, it is worth noting that Pepsi and Boeing are entering via strategic alliances with key players who have significant capabilities. Given these very different approaches, capabilities, and entry modes, one might have a fruitful class discussion of the emergent competitive dynamics in the industry.

Contributed by Russ Coff

Discussing Terrorism in a Strategy Class

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 impactAndrew 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

Having your IP Stolen is a Real Beach

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 LeibleinMarcel Bogers and Marcus Holgersson

MegaBrew: M&A value or flat beer?

The $104B merger between AB InBev and SABMiller makes a great holiday addition to your classroom.ABInbevTree While it is largely a corporate strategy question, I used this discussion to kick off my course and I plan to come back to it as we hit various topics. Here is a packet of news articles that I used as the basis of the case. I also had students complete a brief online poll in advance of the class. This allowed me to start by summarizing their positions and to call on people who I knew had relatively unusual opinions. I used the case to show them how to draw a decision tree (click the image to enlarge) reflecting the uncertainty associated with the acquisition. Of course, it also frames topics throughout the course. Here are a few examples:

  • Internal capabilities. AB InBev’s capability to conduct acquisitions and to cut costs.
  • External analysis. Market structure for beer in different countries (namely Africa and China which drive this deal). Also, we compared the market structure for micro- and macro-brews. Of course, these mega-brews act to control distribution channels so barriers to entry are a key part of the game.
  • Competitive dynamics. Of course this is a game among the rivals but it also includes adjacent industries (like spirits).
  • Corporate. What are the logics for value creation? For example, to what extent does scale lower manufacturing costs as opposed to purchasing power or other mechanisms. At what point is a larger scale no longer an advantage?
  • Strategic factor markets: The M&A context makes it clear that most of the synergies go to the target (especially at the 50% bid premium).
  • Global. As indicated above, this is mostly about entry into new markets (China and Africa, among others).

Contributed by Russ Coff

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

Smooth Recovery: Learning to Pivot

Pivoting from one strategy to another is essential for entrepreneurial firms but also for more established firms operating in a dynamic environment (see other materials on dynamic capabilities on this site). The video below can stimulate a conversation on what it takes to pivot (both in entrepreneurial and established contexts). Of course, its also moderately entertaining…

Contributed by Russ Coff

Matrix Lassie

Sometimes the value of a capability is that it deters rivals’ actions without having to be deployed at all. As you will see, the video below demonstrates this principle nicely. In the context of industry analysis, this might be the credible threat of retaliation on new entrants. If it deters entrants, the threat may not have to be used frequently (though credible commitment to deter may be essential to demonstrate).

Contributed by Russ Coff

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

BBQ & Foot Massage: Diversified Humor

There is no shortage of business combination humor to stimulate discussion of corporate diversification. Below are a couple of videos depicting some unlikely combinations (mild language). You can also find Delta Dental commercials posted here as another great example. Of course, truth can be stranger than fiction and you might want to check out the real examples listed under the business combination scavenger hunt exercise

BBQ and Foot Massage

Prepaid Legal Services and Daycare

Contributed by Russ Coff

Disintegrating Target: Inviting retail rivals as partners

Target has agreed to sell their Pharmacy business to CVS for $1.9B. CVS is a retail rival for many items that Target sells. Why invite them to share space in Target stores? A USA Today article identifies five likely reasons: 1) Complexity of the healthcare business, 2) Profitability was lacking, 3) Scale (since CVS can leverage many more locations), 4) It allows Target to focus on other businesses and 5) Foot traffic from CVS will increase other sales (complementarities). These factors tip the scales from integration to creating value through a strategic alliance — an opportunity, perhaps to apply the “Four C” alliance framework or the Resource Pathways framework to assess the opportunities and risks. This might also stimulate a nice discussion of Nalebuff and Brandenburger’s Coopetition framework. To what extent do the cited reasons (in the USA Today article) dovetail with the issues identified in the frameworks? What is left out of the more naive analysis?

Contributed by Russ Coff