Glitch in the (McKinsey) Matrix

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The GE/McKinsey matrix is a classic strategy framework … gone bad. Initially thought to be a radical innovation, it guided flawed corporate diversification strategies of the 1980s. Indeed, it is still sometimes taught in business schools, and some consultants still sell this analysis as a service. My first intuition is to ignore it in class. Indeed, I’ve not discussed this framework in class since posting a collection of exercises from the late 1990s here where the data reflected the Sears Financial Network.

However, showing the framework’s flaws can help students to see what they should be looking for when analyzing diversification strategies. Brian Silverman suggested that we update the exercise so students would evaluate a disguised version of Disney’s portfolio using the tool. Without context, the studio and video game divisions appear to be “dogs” to be divested, and the theme parks seem to be stars. The relationship between the units is opaque. Once the company and divisions are revealed, it becomes apparent that the links between businesses are absolutely critical. Of course, the theme parks are especially valuable because they can leverage creative output from the studios.

Since my class is partially online, I created this Google sheet to facilitate the exercise that will accommodate up to 12 student teams. It would also prove useful in a large in-person class. Here’s how it works:

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Short Change: Killing it in (strategy) execution

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Managing change is an essential part of strategy execution but many courses focus on strategy content and fail to give implementation the attention is deserves. As such, students may underestimate how much resistance they will encounter and managing this is key to success. Amy Lewis and Mark Grosser published a Journal of Management Education paper that describes an exercise for teaching change management. This 45-minute exercise can be used in a range of management courses and works well in almost any size class. Students are divided into two groups (managers and workers) that must cooperate to produce a re-organization (a simple seating chart). However, managers discover that workers are reluctant to move and about 90% of classes fail to achieve the task. This generates a lively discussion on what is required to lead change, as well as on topics such as communication, trust, power, and motivation. The first time I ran this, to my surprise, the students were successful. However, in the process, it was clear that there were moments of distrust within and between groups. A last person held out to see if he could appropriate more value. In the end, the management team gave up more than the value that was created. That is, employees appropriated all of the value and managers actually lost money in the exercise. It was quite successful, and students thanked me for the experience. I have since run it numerous times and the class never successfully completed the change. All of the details needed to run the exercise are in the article at the link above and it was easy to set up and run.

Contributed by Russ Coff

Exercise: Planning to Pivot?

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An earlier post has all the materials for the Tinkertoy tower building exercise and it was published by Coff & Hatfield (2003) in JSME (Full text here). This variant of the exercise is especially valuable for teaching entrepreneurship as it focuses on the need to pivot from an initial plan/idea. Recent work (Kirtley & O’Mahoney, 2020) demonstrates how difficult the decision to pivot can be but this may be hard to fully convey to students without their experience of struggling to recognize the need to pivot. The modification is simple. During the 10-minute planning period, teams should:

  • Develop an initial plan/design for their tower.
  • Anticipate what might go wrong with their initial plan (as with the scenario planning variant).
  • Develop an alternative plan or adjustment that addresses the concern.
  • How would they know that there is a need to change the plan.
  • When would they know (how many seconds into the implementation period).

As with all Tinkertoy variants, many of the towers will fall at the very end and the teams will have missed their opportunities to adapt. Here, the debrief focuses on how they would design a test to identify what would go wrong (as in lean startup). For example, I have used Builderific toys instead of Tinkertoys which are quite flimsy. A good test would be to attach 3 pieces together and hold them out. It will be quickly apparent that the pieces bend and that the tower may not be stable. This can be determined in 20 seconds if they think to do it. The issue is that teams do not think carefully about how they would test their hypotheses even when they are prompted that something might go wrong. This clearly drives home the value of testing assumptions as well as the challenges of knowing when one needs to pivot from their original plan. Here are Coff’s slides as well as Coff’s spreadsheet which will help you administer the exercise more efficiently.

Contributed by Russ Coff

Smart Restart for Disrupted Alliances: Razed from the ashes?

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Alliances may be disrupted for reasons beyond partners’ control, ranging from pandemics to cyber attacks. They then look to the contract for a way forward. When obligations are not met, contracts focus attention on blame and penalties for the breach. Force majeure clauses may void a contract without penalties but they are typically applied narrowly, if at all (weather-related events, etc.). So, the parties must assess blame, assign penalties, and void the existing contract before finding a way forward even if a disruption could not have been anticipated or prevented. Economic recovery from the pandemic depends on many firms addressing this difficult challenge.

This negotiation exercise, conducted in a session at the SMS Milan conference, drives that point home. The context is a UK-based office equipment company (SmartTech) and their alliance with an Italian chip manufacturer (ChipComm). Italy was closed down by the pandemic while the UK remained open and the supplier was unable to meet obligations. The parties must determine if ChipComm is culpable and if so, what penalties apply. Then, they need to identify how they might revise the contract to move forward. Of course, building trust to move forward after assessing penalties is no easy task.

The exercise is straightforward in terms of the timing. We describe the setting and assign roles in class. Then they have 5 minutes to read the 2-page roles. We then pair them with someone who has the opposite role and give them 15 minutes to negotiate. They can then enter their contracts into a Google form which summarizes the contracts for class discussion. Here are the materials: SmartTech role, ChipComm role, Sample form for students to enter contracts.

This leads to a rich discussion of when contracts are harder to reboot (degree of trust, fairness/sharing losses, attribution of blame, contract language regarding penalties or bonuses, nature/extent of the disruption, etc.). For example, students may compare the pandemic context to a disruption caused by a less pervasive factor, such as a ransomware attack. Prior specific investments make both parties more committed to continuing the relationship – perhaps even if the specific assets are no longer needed. Then, the question is how to gain trust when the contract has failed, and who to involve in the process (lawyer cat may be less helpful here…).

Contributed by Libby Weber and Russ Coff

Vehicle for Strategic Factor Market Success

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At the core of a resource based advantage is the need to acquire strategic inputs at a bargain. Factor market success is either driven by superior information or expectations. Expectations, in turn, can arise from a creative entrepreneurial vision and/or unique complementary assets (see Barney 86). Brent McKnight created this experiential exercise to bring this dynamic out. Like the Egg Drop Auction exercise, teams bid for inputs, create a product, and compete to generate value based on accessing valuable inputs cheaply and engaging in entrepreneurial creativity as a team (see Coff & Perry-Smith, 2011). This exercise excels since is that it is greatly streamlined (less class time and mess) and it is very compatible with online teaching.

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Melissa’s Marvelous Movies: The Innovation Collection

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As many of us prepare to move our strategy courses online, we need video “shorts” that introduce core strategy principles to go along with key readings. By now, you may have already seen collections by David Kryscynski, Shad Morris, and others in the toolbox. In an earlier post, Melissa Schilling provided a set of videos oriented around a basic strategy course. Now, she has provided an additional set oriented around innovation strategy. Below is her video introducing individual creativity as a sample.

In addition, she covers the following topics that may be useful for an innovation course (note that there is some overlap with her strategy collection):

Contributed by Melissa Schilling

Teaching the Zoom Case Online

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ZoomTortureThe Zoom live case is provided in an earlier post. Most instructors are all or partially online now so I’m sharing some online tips for teaching the case. The key task here is to use some asynchronous learning before a synchronous session so you can hit the ground running. One really important tip: Use worksheet assignments and Google docs for group breakouts in synchronous sessions. Here’s how:

Asynchronous Zoom Assignments. I’ve created “worksheets” using essay questions in the Canvas survey/quiz tool. These questions are structured so the answers need not be long and are easy to grade. I have two worksheet assignments.

  • Strategy Diamond Worksheet. I use Hambrick & Fredrickson’s strategy diamond framework to answer the question “what is strategy?” I entered the worksheet as a quiz/survey in canvas but the link is the answer key in MS Word. Specifically, the prompt is: Zoom recently entered conferencing hardware, describe the strategy using the framework (e.g., Arena, Differentiator, Staging/Pacing, Vehicles, Economic Logic). While these are short essay questions, it is easy to see if they are able to understand the framework and allows synchronous sessions to move faster.
  • 5 Forces Worksheet. The 5 forces worksheet is also entered as a canvas survey. For each force, students list 3 actors ordered by their impact on industry profitability. Then they explain their ordering briefly. For buyer power: List several types of buyers in the video conferencing industry (at least 3) where each might be thought of as a market niche. Put them in order reflecting their willingness to pay (high to low). Then indicate a few factors that drive the differences in willingness to pay. Again, it is easy to grade since it is clear whether they understand from the order.

Synchronous Activities. Here, I rely on group breakouts with Google docs. Here are two such activities.

  • Industry evolution. The link goes to a 5 forces worksheet for before, during and after the pandemic (3 tables in the doc). As a breakout exercise, I assigned 2 teams to each page of the worksheet and told them to start at different places in the framework. Then, after 10 minutes, I brought them to the main room, shared the Google Doc and asked the teams to describe their analysis to predict how the industry will develop (post pandemic) – rivalry, growth, willingness to pay, etc. These are used to develop assumptions in the next exercise.
  • Financial Scenario Analysis. This link goes to a Google sheet with 8 Zoom financial models based on: 1) Rival product quality 2) Rival price competition, and 3) Zoom’s continued innovation/quality. Varying these 3 sources of uncertainty (H/L) generates 8 scenarios. I assigned each team to a scenario and at breakout, sent them all to the Google sheet to predict profit margins and revenue growth in that scenario. We then discussed the probabilities associated with each scenario. the bottom line was that the market capitalization was so high that selling the company should probably be considered as a very real alternative (e.g., what problem are you trying to solve?).

Contributed by Russ Coff

Zoom Wars Live Case

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a53d805c5fbe0510926a423c6e184518I like to start the semester with a “ripped from the headlines” case. This is especially helpful if some of one’s cases are older. This semester, Zoom is a great alternative. The current market capitalization is about $80B which puts it well above many more established companies (including the combined value of the 7 largest airlines). I have compiled a short packet of news articles for the case. In addition, I have created a spreadsheet that guides students through key scenarios and how they would affect the value of the company (Do rivals match on quality? Is there a price war, Does Zoom keep innovating?). This highlights how qualitative analysis affects assumptions in quantitative models. It is also an introduction to decision trees as a simple tool for modeling complex sources of uncertainty (this is available in a separate instructor spreadsheet that uses PrecisionTree to model the uncertainty). The Zoom context hits just about every key aspect of a strategy course so you can circle back to it repeatedly:

  • What is Zoom’s strategy? I use the strategy diamond framework (arena, vehicles differentiators, staging/pacing…) but one can use a standard set of questions to explore this.
  • Trends/PEST. The industry was growing at about 10% — what were the drivers of this and how will this change in the future?
  • Industry analysis:
    • Why was the videoconferencing market attractive (pre-COVID)? (e.g., network effects, value produced)
    • How did COVID change the market attractiveness?
    • Rivalry: Competitors like Microsoft and Cisco are putting substantial resources into their products. Will they match the quality? Will there be a price war?
    • Evolution: How will the industry change going forward?
  • Resources and Capabilities:
    • Why has Zoom been so successful even before the COVID pandemic?
    • Why has Zoom been more effective than rivals during the pandemic?
    • Will they be able to keep up the rate of innovation after COVID?
  • Corporate strategies. Do business portfolios confer an advantage to rivals?
    • Consider Microsoft’s complementary assets (e.g., MS Office) – Why might they be important?
    • Consider Cisco’s complementary assets  (e.g., enterprise networks) – Why might they be important?
    • Zoom has entered the hardware industry through multiple alliances with DTEN, Poly, NEAT and others. Evaluate both the strategy to enter the hardware arena and the vehicle (alliances).
  • Zoom’s global strategy? Zoom has operations all over the world. What is their global strategy? Is it sound?
  • Technology/Entrepreneurship. Of course, these are key aspects of the context. Why did Zoom CEO, Eric Yuan, leave WebEx? Why did his nascent company do so well against established, well-resourced, rivals.

There are many videos you can bring into this including (Thanks to Rich Makadok for suggestions):

Contributed by Russ Coff

What to Expect When You’re Expecting … To go up for tenure

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For many academics, the tenure process is something of a mystery even after you have gone through it. PhD students don’t hear much about it. Assistant professors are told what to prepare but they know little about the other elements in a tenure case. For example, they have no idea of the critical role that the department letter plays or how detailed it is — not to mention the same for the external letters. In my experience, department letters are in the 15-20 page range (single spaced). Helpful outside letters are usually 3-4 pages each and go into substantial detail on papers — this is a especially important indicator of impact since papers have typically not been out long enough to gather citations. It is in that context that I prepared this presentation for the STR doctoral consortium. I hope it is useful to some of you.

Contributed by Russ Coff

Heroes of Strategy: The Movie

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Rich Makadok‘s new “Strategy Researcher Virtual Proseminar” video channel provides “celebrity talk show” style interviews of some of the world’s leading academic researchers in the field of strategic management, discussing their career histories and sharing their experience and insights with doctoral students and junior faculty researchers.

Episode 1 is an interview of the legendary Professor Will Mitchell from the University of Toronto’s Rotman School of Management. New episodes will be posted about once per week, and you can watch them at this web link. Bookmark it, like it, subscribe, comment, share, and click the bell to be notified about new episodes. Here is a sample interview:

Contributed by Rich Makadok

Melissa’s Marvelous Movies: The Strategy Collection

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As many of us prepare to move our strategy courses online, we need video “shorts” that introduce core strategy principles to go along with key readings. By now, you may have already seen collections by David Kryscynski, Shad Morris, and others in the toolbox. Melissa Schilling has graciously made a new set of videos available that address core strategy principles not found in the other collections. See also her related collection focused around innovation strategy (note that there is some overlap). Below is her video introducing agency problems as a sample.

In addition, she covers the following topics that may be useful for a strategy course:

Contributed by Melissa Schilling

MicroTech: Negotiating Online Teaching

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HandshakeHow can we make online courses more interactive? Often people create videos of their PPT lectures as the basis of an online course. We know we can do better. It turns out that negotiation exercises can work surprisingly well online. My MicroTech negotiation exercise is described in a previous post. Here, I describe a simple adaptation to use it in an online course. The negotiation focuses on the problems promoting cooperation across divisions (for example to achieve synergies). In the exercise, two general managers negotiate over the terms to transfer a technology to take advantage of a market opportunity. Sub-optimal agreements (money left on the table) represent transaction costs and inefficiencies that must be overcome to create corporate value. The debrief can also focus on alignment of activities/units to achieve a strategy. The discussion focuses on how to achieve requisite cooperation. This is hard to achieve in a competitive culture. How, then, can the firm create a cooperative culture? This, it turns out, may be a VRIO resource…

To conduct this exercise online, follow these steps

  1. Assign roles and negotiation partners from the class list (1/2 of the class in each role). The roles can be emailed to the individuals with their assigned negotiating partners. I would try to pair them with people they may be less likely to know well to simulate negotiating across divisions (usually not someone on the same project team, etc.).
  2. Students conduct the negotiation (outside of class) at a time of their choosing. It can be done through video conference, email, or in person.
  3. Collect agreements (have them emailed back) by the night before class. Better yet, you might want to set up a simple poll to collect the agreements (like this one which will allow you to download the results and copy them into the spreadsheet that is used to summarize/analyze the results).
  4. Debrief can be synchronous or asynchronous
    • Synchronous. In a synchronous session, you can present the results of the negotiation and engage in a rich discussion of organizational design and strategy. What levers would students suggest changing to increase coordination between units? (focus on things like incentives, structure, people, processes/routines, etc.). But this takes a lot of class time to do it right.
    • Asynchronous debrief of outcome. I recommend recording or posting an overview of the results and conduct the discussion asynchronously (here is an example of a recorded debrief). This allows you focus the synchronous debrief on organizational design solutions for the company (to promote cooperation across divisions). That is the essence of the problem and it is best to devote as much class time to it as possible.
    • Synchronous discussion of organizational design. The key learning objective for me is to get them to understand how hard cooperation can be to achieve. It is critical to get to this in the debrief. I assigned teams (4-6 students) to make recommendations to improve coordination (less $ left on the table). Each team focused on a lever (of Galbraith’s Star Framework) such as incentives, org structure, people (hiring/firing), or processes/routines. I had each team work in breakout groups (or offline) in a shared Google worksheet. The asynchronous approach may work better as teams can think through their recommendations.

Click here are all of the required materials (roles, spreadsheet, PowerPoint, etc.).

Contributed by Russ Coff

Silverman’s Transaction Cost Economics Primer

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Way Signs "Outsourcing - In-House Solutions"Firms often make errors in selecting governance forms and the scope of the firm. This is one common reason firms must undergo painful periodic restructuring programs. If only managers could frame these problems more effectively and identify the key factors to make more informed decisions — in short, a primer on Transaction Cost Economics (TCE). Brian Silverman provides just that tool in a sequence of three short videos. This is especially useful in today’s online teaching environment since transaction cost economics readings may not be the most user-friendly. I might add that this overview provides an excellent introduction for PhD students prior to diving into academic readings on the topic. Here is the second of the videos explaining the predictions of transaction cost economics.

Contributed by Brian Silverman

COVID Innovation Scavenger Hunt

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frugal-innovationMuch of the news focuses on how hard businesses have been hit by the pandemic. However, strategy is about finding opportunities and adapting in a dynamic environment. Let’s not forget to focus on inspirational examples along these lines. Send students on a scavenger hunt (like the business combination scavenger hunt) to find unique examples. Invite students to identify 5 innovations have each student introduce an innovation and others who have the same innovation must cross it off their list. Note that this could be done in an online discussion forum. See how many unique innovations your class can identify. This can be done easily in a synchronous online session or in threaded discussion. Some types of examples to consider:

  • Innovations to meet critical shortages. The shortage of ventilators has spurred multiple innovations such as the possibility of one ventilator serving up to 4 patients and the adaptation of CPAP machines.  Many innovations have increased the supply of protective equipment (PPE) including companies re-purposing production facilities.
  • New Treatments. Of course many firms are working to find treatments and/or an effective vaccine. These efforts are spread around the world so it is a race to see what will be most effective.
  • Product Adaptations. Some products can be adapted to new uses and it is a question of how to recognize those opportunities. For example, Kinsa thermometers has collected data on fevers due to normal influenza patterns. The were then able to back out normal patterns to identify atypical fevers that might be due to COVID before patients began showing up in emergency rooms.
  • Process Adaptations: Many service firms have adapted their processes to avoid contact. Some firms may be better equipped to do this than others (physical facilities, etc.) and it may help them survive. Even some farmers who have lost distribution channels have created contactless alternatives while others have had to destroy food that they could not get to market.
  • Delivery Partners as a lifeline. Restaurants and other businesses often rely on partners to get their products to consumers. While these partners may have been a side business previously, they are a critical lifeline now (see EatStreet, GrubHub, DoorDash and others). Amazon has also done better than other retailers for this reason.
  • Products in heavy demand. It isn’t just toilet paper and hand sanitizer. Other products have experienced significant demand and need to adapt their supply chains and processes to meet needs. Automatic door openers, video conferencing tools like zoom, door cameras like ring, are all in greater demand than anticipated.
  • Innovation on the front lines. Healthcare workers and others on the front line are also innovating to try and do their jobs safely. Telemedicine has taken off sharply as a way to treat COVID and other types of medical problems while limiting the spread of COVID. These may also highlight opportunities for firms.

Contributed by Russ Coff

Bringing COVID into Your Classroom (not literally, please)

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Health-Workers-COVID-19I have taught during numerous crises (various wars, 911, 2008 crash, etc.) and always regretted missing opportunities to bring the events into the classroom. So how can we encourage our students to think strategically about the COVID crisis? Here are a few ideas for discussion or team projects (but please add more ideas in the comments):

  • Dynamic capabilities and Resource Redeployment. How can different types of firms redeploy their resources in this crisis to: 1) help others survive the pandemic, and/or 2) keep the business from going under? How does this redeployment lesson link to other types of challenges? Consider, for example, Eight Oaks’ distillery conversion to produce hand sanitizer.
  • Resource Acquisition & Retention. Many resources (especially Human capital) have been released. This could be an opportunity for some firms to access resources. For others, the challenge is to retain the resources through the crisis so they are able to ramp up once the crisis passes. How should firms respond?
  • Firms’ Ethical Responsibilities. The two issues above raise inherently ethical problems. What are the firm’s responsibilities to its employees? To shareholders? To society? To survive?
  • Generic virus strategies. China opted for extensive testing, isolated those who test positive from their families, and limited travel. The policies are well aligned (like a generic strategy) to limit spread. Is there an alternative aligned strategy involving limited testing? To what extent are countries “stuck in the middle?”
  • Technology strategy. What new technologies can be deployed to fight the virus? For example, Kinsa produces a connected thermometer that allows them to map parts of the US where there are unusual fevers— a week before people need hospitalization. How can this new resource be effectively deployed?
  • Entrepreneurial Strategy. What business opportunities are created by the crisis? How can an entrepreneur pursue them when resources are scarce? What are the implications for social entrepreneurship?
  • Global strategy. How can firms adapt to disrupted supply chains? Are there global opportunities created by the crisis? Along the lines of the first bullet, this could be opportunities to help those in hard hit areas or those that allow the firm to survive.
  • Diversification. Are there portfolios of businesses that are more or less likely to survive COVID? What do firms need to do to leverage those parts of their portfolio? What is the role of the corporate HQ?
  • Rigorous Data Analysis. The media presents data on cases and deaths at the country level. There are so many questions one might raise. Is the country the right level of analysis? Given the limited testing in some countries, does the number of known cases even provide useful data? How do we interpret missing data in countries like China and Russia?

Contributed by Russ Coff

Strategy as a Load of Bull

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BullTheory is, by definition, a simplification of reality. A useful theory is parsimonious in that it reflects the most important details of the context and allows for reasonably accurate predictions (see a review of Weick and Thorngate’s discussion here).  In a similar fashion, strategy frameworks and tools are simplifications designed to guide decision-makers. Ultimately, the question is, what are the essential elements of the problem that must be analyzed? This is what a simplified framework is designed to capture. Ignacio Canales has designed a class exercise that brings this to the forefront and makes a great introduction to the topic before diving into individual frameworks. With no warning, he asks the class to take out a piece of paper and draw a bull. He then invites them to post their pictures in the front of the class and pick the best drawing. The debrief focuses on what are the essential elements needed for the drawing to clearly be a bull? He then introduces Picasso’s study of a bull and how this is used in Apple’s training to focus designers on the most essential elements. Here is a more detailed description of the exercise and here are some slides of the Picasso art.

Contributed by Ignacio Canales

Locating Median Voters?

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PizzaHutTacoBell-txtWe often see rivals locate very close to each other (e.g., CVS and Walgreens, Home Depot and Lowes, etc.). The question of how and when rivals choose to co-locate is interesting both in theory and in practice. Peter Klein explores the topic in class using a simple Hotelling model of spatial competition. Here, two firms with identical products choose where to locate on a street, assuming buyers: 1) are evenly distributed along the street, 2) prefer to shop at the closest store, and 3) will shop with the same frequency no matter what choice is made. The Nash equilibrium has the firms located next to each other in the middle of the street — if either locates to the left or right, it can attract more customers by moving toward the center, without losing those at the extremes.

That last assumption, that buyers will shop with the same frequency is central to the median voter theorem in a two party system. That is, people will vote with the same frequency regardless, so it is best for candidates to “co-locate in the middle” of the political spectrum.  Note however, that as this Politico piece suggests, voter turnout can be very much in question: “modern American elections are rarely shaped by voters changing their minds, but rather by shifts in who decides to vote in the first place.” Under these assumptions, having candidates at political extremes may be a winning strategy. In a similar fashion, firms must be aware of whether some customers will choose to stay out of the market if there is no seller located nearby.

Contributed by Peter Klein

Human Capital Competitive Advantage Survey

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TugOfWarHuman capital is often considered to be a critical component of valuable capabilities. However, it is intimately tied to value capture in that one might anticipate that those who have valuable and rare skills might also be in a position to appropriate rent. Is it a competitive advantage if the resulting value does not flow to shareholders? The following survey gets at this question and may spur interesting discussion among academics and students alike.

Human Capital Competitive Advantage Survey

Contributed by Russ Coff

Alliances are a Great Ride … While they last

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Alliances are temporary by their very nature. A key component of an alliance capability is the ability to manage the exit strategy. However, managers in operating units may not recognize the temporary nature and plan for its termination. This short video illustrates. How long will the alliance last?

Contributed by Russ Coff

Extreme Ironing as a Capability

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In conducting internal analysis, managers often point to things they do well as critical strengths. However, for it to be an important strength, it would be important to know: 1) How it relates to value creation (e.g., does it lower costs or increase willingness to pay), and 2) Do rivals have similar or substitute capabilities. In the end, many things that managers report as strengths may not be relevant in determining whether the firm has a competitive advantage. Take this video on extreme ironing, for example. One might ask their class if it depicts valuable capabilities? It might if you consider promotional expertise (video has over a million views)…

Contributed by Russ Coff