Jay 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
The 
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). 
Reprinted here with permission of author Jeffrey Barach along with my PointPoint slides I use to administer the case.
The mid course evaluation or any other feedback from students (such as the 
seems to be closed down now. They also offered a prize for submissions of the best exercises and tools for teaching entrepreneurship. This looked like a really nice resource. It would be great if people can re-post some of the best exercises here as well. Please feel free to submit if you have run any of them in your class (but be careful to attribute credit to the original authors and provide links to the original post).
The essence of this exercise is simple. Teams must build a device that will catch an egg dropped from 25 feet (e.g., a stairwell). The trick is that they must build it from items purchased in an auction. As such, items that are easy to use (e.g., an old pillow) are very expensive while items that are hard to imagine a use for (a brick) are cheap. Profit is determined by 1) succeeding in the task of catching an egg and 2) having the lowest cost function. As such, this demonstrates Barney’s (1986) notion of superior expectations in strategic factor markets.
In the Global Game exercise students are placed in groups with asymmetric resources with a task to maximize “points” produced. In order to maximize output, they need to trade resources (e.g., alliances) with other teams. The resources include raw materials (e.g., paper), technology (e.g., scissors and templates), knowledge (of the point system), and even people. They can also merge teams.
The key points are that managers deal with complex problems, and often use cognitive frameworks to help constrain the problems. These frameworks tell the managers what information is needed; however, unless the managers understand that all frameworks have limitations, these frameworks can fall trap to cognitive biases.
in-class exercise was for them to write their own BHAG for their career 5 years from now, along with a vivid description of what a day in their professional life would be like (as they might describe it to a former classmate in five years). For some of them, this is the first time they thought in concrete terms this far into their professional futures. I got very positive feedback from the class on this exercise and some of them did a remarkably good job with it. I read two of them aloud to the class (anonymously). I sometimes find it difficult to craft meaningful exercises early in the semester before we have gotten into the “meat” of the concepts of Strategic Management, and was glad to get a good response from my students on this one.”
Carpenter Strategy Toolbox 