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

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

Chrome Goes on Safari: Vertical integration advantage realized?

Chrome has been sucking power from your laptop batteries. Google has been playing catch up to Apple’s Safari in terms of power consumption on Mac computers for some time. Apple’s product is optimized to be more efficient to their own proprietary operating system while Google is optimizing development efforts across platforms. Indeed, Microsoft’s Internet Explorer also enjoys a power consumption advantage on Windows machines. Of course, this could just be a flaw in Chrome but it does seem like it might be linked to specialization on a single platform as opposed to cross-platform compatibility. Strategy classes might explore more deeply how valuable the advantage of vertical integration might be in this case. Also, what type of organization must be in place to realize this potential value. Of course, the ad revenue gleaned from these products may justify vertical integration but it is less clear how this would create value for users. Power consumption, on the other hand, would be important to users.

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

Apple Clones Jobs in Jony Ive

Rather than fully embed superior design capabilities in organizational routines, Apple has instead identified and promoted Jony Ive into the design guru role once occupied by Steve Jobs. Ive “worked closely with the late co-founder Steve Jobs, who called Mr Ive his spiritual partner on products stretching back to the iMac.” As before, the reliance on a single person in this role raises key questions: An article published in the New Yorker earlier this year described how “Mr Ive had been describing himself as both ‘deeply, deeply tired‘ and ‘always anxious’ and said he was uncomfortable knowing that ‘a hundred thousand Apple employees rely on his decision-making – his taste – and that a sudden announcement of his retirement would ambush Apple shareholders.‘” Can this be described as an organizational capability? An organizational routine? A dynamic capability? Does it matter that the capability is largely embedded in a single person who is not an owner? All good questions to kick off a nice class discussion…
Contributed by Russ Coff

iPhone Killers? Not when Rivals are Complementors…

iphone_killer1There has been much ado over the years about how Apple rivals seek to introduce iPhone killers. Here is a sampling of so-called iPhone killers that turned out not to be. Horace Dediu points out the revenue that rivals like Google, Microsoft, Samsung, and Amazon get from the iPhone. It turns out that iPhone owners are more likely to shop on their phones. This creates much more ad revenue for Google and purchases for Amazon. Apple remains the largest customer of Samsung’s semiconductor division and the largest source of operating profits. Microsoft has licensed IP for the iPhone and is increasingly offering software applications for iPhones. This graphic is a bit busy but shows the revenue and operating income growth of Apple and these key rivals — all strongly positively correlated. Of course, the whole sector is growing so the correlational evidence may not be as convincing as one might like. Nevertheless, performance is increasing overall, why would these rivals want to kill their golden goose?

Contributed by Russ Coff

SocialCompare

Strategic Complementarities at Steak

Complementarities drive so many aspects of strategy — particularly in the context of corporate strategy. M&A, Alliances, diversification and global strategy are fundamentally about complementarities between businesses and regions. On the video below, Will Mitchell notes that it would , “get a conversation started about one of the 3 additional forces I use in industry analysis – Porter 5, plus social factors, new strategies, and complementary organizations. The video is short enough to make the point about complementation, then to spark discussion of what this would mean in business strategy (e.g., software upgrades for hardware).” The video is also valuable in exploring how a narrow product can expand its market appeal or find new markets. See also the classic complementarities video here.

Contributed by Will Mitchell

Grocery Stores Find a New Bag

Traditional grocery stores are losing share as new organizational forms emerge (15% over the last decade). Once thought to be as stable a market as can be, new business models increasingly challenge the landscape. The link above includes mostly additional services such as “Grocerants” (upscale restaurants within grocery stores), fishmongers, butchers, more delivery options. Also, online grocers are back and some are peeling off customers with more targeted business models. Many of these differentiated alternatives are more focused smaller stores serving specific types of consumers. However, not all of the change is on the differentiation side of the aisle. The trend also includes increasing popularity of lower cost alternatives alike Aldi. This is discussed in a related toolbox post with Aldi videos.

Contributed by Aya Chacar

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

Samsung Throws Apple for a Loop

Will Samsung Pay win a standards war over Apple and Google? Apple Pay and Google Pay may have gotten lots of buzz but adoption of contactless payment has been slow. The near field communications (NFC) technologies that they rely on require that merchants invest in new technology at the point of sale. Samsung has acquired LoopPay and its technology to allow phones to communicate with any magnetic strip reader. The new service is expected to launch in the 2nd half of 2015. Even if NFC is ultimately a superior technology, the ease of adoption may allow Samsung to dominate as users seek a solution that they can use with most merchants. Meanwhile, Google plans to include it’s Pay app on all Android devices which could increase its penetration. Though it is important to note that this might create a conflict with its key Android partner Samsung. This should engender a nice discussion of strategy in “winner take all” standards wars. In class, one might assign groups to debate why Google, Apple, Samsung, or other will win this market.

Contributed by Russ Coff

Auctioning eBay?

As evidenced by the business combination scavenger hunt exercise, corporate strategy is always a slippery slope. eBay is in the process of splitting into 3 parts: auctions, Paypal, and the enterprise unit that helps brick and mortar retailers gain an online presence. Their conclusion: these businesses don’t fit together well and are worth more apart than together. Here is a back of the napkin sum of the parts valuation to back that up. This may be a tired story but it won’t go away. In this case, there is no compelling reason that Paypal must be integrated with eBay to be used as a payment mode in auctions. In fact, other marketplaces (like Amazon) may consider Paypal to be a rival instead of a potential partner because it is tied to eBay — more business opportunities if they are separate businesses. Of course, eBay shouldn’t be surprised that an auction would allow one to capture the most value. This might be a nice starting point for corporate strategy. Why do firms have so much trouble determining what combinations will create value?

Contributed by Russ Coff

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

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

A Blanket Theory of Market Share

Every wonder why hospital receiving blanket always look the same (pink & blue stripes)? Medline’s “Kuddle-up” line has a near complete market share of the hospital receiving blanket business. The company started in 1910 making butcher’s aprons for the Chicago meatpacking industry. They entered the receiving blanket business in 1950’s and now sell more than 1.5M blankets/year. A recent article in Quartz notes: “The Kuddle-Up blanket was entwined with the institutionalization of childbirth. Just as we began to standardize the process of birth, we began to standardize the post-partum experience, too, such that the newborn photo in the Kuddle-Up blanket is, at this point, an instant signifier. Thousands of new parents, and even grandparents, were themselves swaddled in such a blanket when they were born; that same pattern spans generations.” In a strategy course, one might ask how could a company gain and sustain such an advantage virtually unchallenged for over 60 years? Was there a substantial cost advantage? If so, what are the limits to scale advantages? Why isn’t there a stronger market for a differentiated product? That certainly is the case in related baby care product markets. Will this post make potential entrants aware and help to erode the advantage?

Contributed by Peter Klein

Love Triangle Goes Hostile

Few things are more dramatic than a good hostile takeover attempt. Dollar General has been trying all summer to break up the planned nuptials between Family Dollar and Dollar Tree. They have offered $600 million more for Family Dollar than the preferred suitor. Two things may be preventing Family Dollar from switching partners: 1) concerns that a Dollar General deal would be thwarted by anti-trust regulators, and 2) the Family Dollar CEO would lose his job if Dollar General takes over. Of course, they say the second issue is not on their minds. This makes a great “ripped from the headlines” case (here is a small packet of news articles). There are many directions that the discussion can go which, I think, makes for a nice introductory case to frame the rest of the semester. Here are a few:

  • What is an industry? The anti-trust argument assumes that the industry is defined as small discount stores (in other words, Wal-Mart is not really a player).
  • Corporate governance: How much should it matter what the Family Dollar CEO’s preferences are?
  • Cost advantages: Do any of the players have a cost advantage? At what point do the advantages of scale diminish?
  • Industry structure: What, if anything, makes this an attractive industry?
  • Competitive dynamics: What will be the next competitive move? What has driven the past moves?
  • M&A Synergies: The news packet includes an estimate of the synergies and suggests that Dollar General could create more value. Do you buy this analysis?
  • Scenario planning: How might this unfold? To explore this, I have created a simple decision tree and added financials draws from a SeekingAlpha analysis in the news packet. Here is the spreadsheet (which uses the Precision Tree Excel add-in).

Contributed by Russ Coff

Scenario Planning Success?

In 1993, AT&T released a series of commercials offering their vision for the future. Their predictions were surprisingly on target (ebooks, turn-by-turn GPS directions, iPads, sending documents via mobile devices, video conferencing, electronic tollbooths, on-demand videos). Someone had a good handle on technology possibilities that would transform our world. And yet, AT&T was decidedly NOT the company to bring us this future: it was effectively gone within a decade. Colbert offers some explanation for how the AT&T brand collapsed and rose again after the disappearance of the old ma bell. Mike Leiblein points out that the company may have failed to make appropriate investments or been concerned about cannibalization of their existing products. This old case about internal disruptors from Bell Labs trying to shake things up at AT&T suggests that is true – the company ejected the “disruptors” and tried to suppress the heresy that the internet would change everything. Ironically, at the time these commercials were filmed, Rebecca Henderson was writing about organizational limitations that hinder incumbents from successfully pursuing radical innovation. These ads make a nice point about the limits of scenario planning. Even if a company has people who can see the future clearly, it may be unable to execute. Here are a few slides that Charlie Williams uses to make that point.

Contributed by Charlie Williams

Technological Breakthrough: BookBook

This excellent ad for the 2015 IKEA catalog spoofs Apple’s over-the-top spots about their new products (as well as Samsung’s “next best thing”). This will spur some additional discussion about the value of older technologies and how to sell them to customers as the “best thing you always had.” It also is a nice opener for a discussion of how IKEA leverages their capabilities (advertising and reputation). You can find more background in this Forbes article. For an even lighter take on legacy products, see this Onion post on failing newspapers.

Contributed by Russ Coff

Vertical Integration with Style!

Andrew Shipilov offers a nice case (with video) of Louis Vuitton’s strategy for vertical integration and alliances. He documents how Vuitton vertically integrated into distribution when the rest of the fashion industry relied only on partnerships. This allowed them to gain access to important market information (customer preferences) on a more timely basis — a source of advantage in the industry. Shipilov notes: “The more unique your assets are and the greater the control you need to exercise over the value chain to extract competitive advantage from these assets, the more vertical integration makes sense. However, the higher the uncertainty and complexity in your markets, the more you should think about partnerships.

Contributed by Andrew Shipilov

Stuck in the Middle Blues

Samsung’s profits are down by a whopping 25% and they put the blame firmly on Chinese competitors entering with cheaper smartphones (see this NYT article). Companies like Xiaomi and Huawei have increased market share in China over the last year as they sell good products at break-even prices. Now, they have turned their sights on western markets that eat into Samsung’s bread and butter. Pressure on Samsung to respond with lower prices? Perhaps but Apple continues to compete effectively at the high end. It’s proprietary operating system keeps rivals from fully imitating many of the most important product attributes. For now, Samsung is signalling that it will accelerate efforts to differentiate their products — an innovation war more than a price war. The real winner may be Google which gains as Android dominates growth in this market. As you can see, this “live” case allows one to explore the complexities of how different strategies play out in the market. It also pushes us to explore how a sequence of strategies might unfold leading to a longer term competitive advantage. This case might go nicely with the HBS case on Samsung’s dual (cost/differentiation) advantage in memory chips and the threat of Chinese rivals. Of course, in the race for new features, one wonders what they will think of next…

Heard Through Michael Leiblein

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