Overview

Competing on the Edge: Strategy as Structured Chaos focuses on strategy and organization in high-velocity markets. These markets are emergent (blurred boundaries, competition, viable business models), transforming (major shifts in technology, government regulation, etc.), or hypercompetitive (oligopoly of aggressive competitors).

What is unique about managing in these markets?

• Key performance driver is the ability to change—to adapt, anticipate, and perhaps even set the pace of change.
• Time—time pacing, rhythm, past and future, time metrics—not just speed, is central.
• Organization drives strategy—too much is happening too fast for a “strategy first” approach. Rather, organizations on the “edge of chaos” create complicated, unpredictable and adaptive behavior. Small changes can have big impact.

The book is based on field research in firms from North America, Asia, and Europe plus cutting-edge science focusing on complexity theory, the nature of speed, and time-paced evolution. The field research provides a pragmatic “insider’s view” of managing—with both the successes and failures. The theories provide an intellectual framework that lets students generalize the concepts to a variety of situations.

The Competing on the Edge (COE) perspective contrasts with more static strategic views that suggest that it is possible to plan out strategy, predict which competences will be valuable, or defend a strategic position in other than a temporary fashion. It contrasts with organizational views of bureaucratic vs. mechanistic firms by positing a third form of organization, organization at the edge of chaos. Finally, by arguing that the best-performing businesses constantly change, COE offers a counterpoint to punctuated or transformational views of change.

Course Applications

Competing on the Edge fits into courses on strategy, corporate strategy, organizational design, and those focusing on managing a dynamic or uncertain context including managing technology-based firms, growth, innovation, entrepreneurship, and change.

In strategy courses, the COE material can be positioned after five forces and resource-based views that cover strategy in static markets. COE also pairs very well with hypercompetition and game theory views that are useful in dynamic, but established, markets. COE describes the organizational process side of these content approaches. COE is a natural finale to a course that is laid out in terms of increasing uncertainty as it describes strategy in rapidly changing and/or high-uncertainty markets. COE can also be blocked into a corporate strategy course for covering new topics such as patching and traditional ones such as multi-business strategy, cross-business synergies, and diversification.

Suggested Strategy Course Outline

Chapters and Cases Together

Chapters 2, 3, and 8 relate to balancing the organization on the edge of chaos and letting strategic behavior emerge—i.e., the edge of chaos arguments from complexity theory. Chapters 4, 5, and 6 focus on time. They rely on evolutionary arguments that change flows from building off the past, probing into the future, and time pacing the rate of change. Chapter 7 centers on implementation. Chapters 1 and 2 introduce and conclude the book, respectively.

The book chapters can be matched with cases to bring the theoretical ideas to life. The chapter/case combination makes it possible to incorporate the new cases as they become available and to tailor the sessions to a particular type of course—e.g., technology, growth, global, or entrepreneurial cases can be flexibly matched to the chapters.

Suggested Case/Chapter Pairings

The following is a matching of book chapters with topics and teaching cases that I have used in my strategy course. The cases are recent and have accompanying teaching notes plus my notes for COE teaching. They reflect a preference for creating debate around central issues (not laying out case facts), focusing decision, and strong case wrap-up.

Chapter 2: Playing the Improvisational Edge

Background

Many students understand strategy as strategic positioning or as core competences. But in high-velocity markets, it is impossible to predict which strategic positions or competences will be the best and for how long. So while these traditional approaches have some general value, they do not capture strategy in markets that are emerging (industry boundaries, effective business models, customer needs, and competition are still being shaped), transforming(major change in technology, government policy, etc., is reshaping competition), or hypercompetitive (dynamic oligopoly of aggressive players keeps reshaping competition).

Teaching Objectives

The teaching objectives of this chapter/case combination are to explore: (1) nature of business strategy in high-velocity markets, (2) the “edge of chaos,” and (3) the entrepreneurial role that business unit heads play.

The Ideal Case

Cases that include an in-depth view of a particular organizational process, a hook to strategy, and a rapidly changing market context. Two favorites are: Microsoft: Multimedia Publications (A) (9-695-005) and Living on Internet Time: Product Development at Netscape, Microsoft, Yahoo!, and Net Dynamics (9-967-116). Both of these focus on the link between strategy and the product innovation process in emerging markets. Both have great teaching notes. The Microsoft case is a negative example while Living on Internet Time is positive. My case notes for Microsoft: Multimedia Publications are below, some comments on teaching Living on Internet Time follow.

Key Points of Chapter/Case Combination

1. Nature of strategy in rapidly changing markets. Advantage is temporary. There is a strategy at any point in time, but that strategy is likely to shift. Therefore, it is often difficult to characterize over time in a simple way.
2. Organization drives strategy, not vice versa. In particular, simple organization is the source drives complicated strategy. This is the fundamental insight of complexity theory.
3. Strategy is closely related to innovation processes. That is, strategy is embodied in the products or services that are sold. The central dilemma is that the innovation process must be flexible enough to adjust to changing competitive moves, customer needs, and technologies, and yet still produce a product or service that works and will sell within a market window.
4. Edge of chaos. The most effective firms are structured at the “edge of chaos” where a few simple structures create complicated behaviors, there are surprises and mistakes, and managers must work to stay there. The edge of chaos is more than a bland mid-point on a continuum between organic and bureaucratic structures. The structures are not arbitrary. Staying on the edge of chaos pushes out the efficient frontier for the trade-off between innovation and efficiency. This is leading edge thinking on complexity theory for those more scientifically minded students.
5. The critical challenge is to balance innovation and execution as above and to create entrepreneurial business unit managers. In some firms (e.g., new ventures), this plays out in coaching people on the importance of have some structure while in others (e.g., traditional bureaucratic businesses), this plays out as having to light the entrepreneurial fire.

Microsoft: Multimedia Publications (A)

This case describes how Microsoft managers are approaching strategy within the emergent multimedia market. The market is uncertain, with few guidelines on what makes a popular product and little clarity on exactly who the competition is or will be, and what the right business model is. Multimedia is the “new” Microsoft that is outside of the familiar operating system (Windows) and major applications (Word, Excel) that most people know. The case centers on the strategy and product innovation process of the Baseball Project within the Jurassic Unit of MMPubs (Note: The Living on Internet Time teaching note is particularly good for explaining product innovation in this kind of market). The focal question is whether to develop a follow-on Football product before Baseball is launched.

Discussion Questions

1. What is Microsoft’s multimedia strategy?

• How has the product development process changed over time? How is the process at MMPubs different from that at the rest of Microsoft?

• Should Jabe Blumenthal approve the development of Football before Baseball is launched?

What is Microsoft’s multimedia strategy?

This question provides a good launch to the case. The case suggests two answers: one is that the strategy is to be high quality with a small number of titles. This answer can be played out by asking how effective this strategy will be, and whether or not the Baseball example is consistent with this strategy. The class usually moves towards recognizing that this strategy is probably more rhetoric than reality. The other answer is that there is no strategy. The evidence that supports this perspective comes from the Baseball project, which is driven opportunistically by a young and relatively inexperienced, part-time employee. The class can be pushed on whether “no strategy” is likely to be effective. I often then ask whether a clear strategic positioning strategy (e.g., low cost or differentiation) or one based on Microsoft’s core competences will work. This gets the class to think about the limitations of these traditional strategic approaches. By this time, the class is puzzled and believes that there is no strategy.

At this point, it can be useful to switch the frame of the discussion by asking what would an outstanding strategy look like in a dynamic market. Probe on the fact that it is likely to be changing rather than constant and surprising rather than predictable. I do this probing directly or I use examples. My favorite business example is Charles Schwab, which began as low-fee/low-service player, innovated in services like Schwab OneSource, and more recently has surprised the industry with moves into full-service brokerage even as they went down market against e*trade and Schwab-branded funds (violating a long-standing company taboo). I describe Schwab’s strategy and then ask the class to characterize it. A popular example is sports—e.g., imagine yourself playing tennis, what would your strategy be? Imagine yourself as a baseball pitcher, what would your strategy be? Most students will recognize that they will do better with a repertoire of shots/pitches that they play in changing ways to exploit the opposition’s weaknesses and to keep them off balance.

Probing the class on the underlying capabilities that firms need to play complicated, shifting, unpredictable strategies gets them to surface the innovation vs. execution dilemma.

What is the product-development process?

As an opener, lay out the progression of product development at Microsoft from the “star” developer model that produced technically innovative products that were difficult to use to the current system of clear roles, extensive prototyping, modularity, and constantly shippable products. I usually engage the class in a brief discussion of the current process from the point of view of its strengths and weaknesses. For the most part, the class sees the process (as they should) as a good one. More experienced students can add some depth in the conversation here by relating their own experiences.

I then ask the class to lay out the comparison of the current process with the multimedia approach of weak roles, unclear specifications, and tight deadlines. I usually ask for the strengths and weaknesses. I probe on particular features of the process like test use of contract employees. It usually comes out that there is too little communication with the marketplace, no marketing representation, no business focus on a performance objective. Typically more experienced students will be critical. Less experienced students will think that the process is excitingly creative. A few students may make over-structuring suggestions like the addition of more performance reviews and “go/no go” gates.

Try ending this discussion by asking the class to think alone or in groups for a couple of minutes about the one change that they would make to the multimedia product development process.

What performance metrics should Jabe be watching? How should Jabe’s performance be measured?

With these questions, I deviate from what the students have formally prepared. Sometimes I give them a couple of minutes to think about this alone or in groups. The class usually produces a laundry list of profit-type and internal execution measures. I usually ask how many metrics make sense,and how often they should be measured. Since they usually stress internal measures, I ask whether external and trend measures are more valuable. The point of this discussion is to get the class to think about what kind of real-time information it makes sense to track.

I then switch over to ask about how Jabe’s performance should be measured. The discussion quickly moves through a number of measures. I then get the class to focus on how many measures make sense (typically they recognize that their long list of possible metrics needs to get pruned to two to four) and then to prioritize them. We then usually get into whether Jabe is an entrepreneur vs. operating manager, and what that difference really means.

Should Jabe approve the development of Football before Baseball is launched?

Usually an effective start is to focus first on Baseball. I ask whether Baseball will be “a strike out, a single, an extra base hit, or a home run.” Various students volunteer to explain their votes. The more hopeful ones stress how knowledgeable Brian and the others are about baseball and how the popularity of office leagues helps the product. The more negative students focus on the lack of market research and the low consumer ratings for this kind of product. If there is time, ask for a quick analysis of costs and revenue, or some quick market research about who in the class would buy the product and at what price point. I often ask for a re-vote.

I then switch to Football. Here, too, the class usually splits widely, with some pointing out the leverage possibilities. Typically, the discussion is like the Baseball one and so I keep it brief.

Wrap-up of General Points

1. Strategy in high-velocity markets is complicated, unpredictable. I often use the example of Charles Schwab that I mentioned earlier, AOL, or Dell. Key point: strategy is constantly morphing, not highly punctuated or periodically transformational.
2. Structure is improvisational. A small number of rules—in the form of priorities on key processes like product development, two or three major outcome measures, real time measures and lots of communication—drives complicated strategy. I use The Grateful Dead, Pfizer, Yahoo!, or Miramax as examples. Key point: complicated strategy/behavior comes from simple organizations balancing at the edge of chaos.
3. Edge of chaos. I explain the ideas of surprise and work that go with “the edge.” I use the example of The Gap to illustrate the skill of recovering from mistakes—their very successful Old Navy diversification was, in part, a response to manufacturing quality that was not up to Gap standards. I use the COE example of Cruising to illustrate that it takes effort to stay on the edge. I use the example of jazz improvization to make the unpredictable point. Key point: edge of chaos drives out the efficient frontier of the innovation vs. efficiency trade-off. Key point: adaptability comes at the price of predictability.
4. Implementation. Must get to the edge of chaos. In new ventures this means convincing people that they need structure. In established firms, this means coaching people to be able to act without it. In both situations, the goal is having business unit heads act as entrepreneurs and to create business-level strategy.

Wrap-up of Microsoft-specific Points

1. Microsoft multimedia product development is too chaotic. They have unclear roles, no marketing, test/prototype too late. The deadline is useful, but that is about it. They are likely to get a few hits, but no sustained stream of effective performance.
2. Baseball was introduced during the major league strike and bombed. Football was not begun.

Living on Internet Time: Netscape, Microsoft, Yahoo! and NetDynamics

Discussion Questions

1. Describe the strategies of Yahoo! and Netscape.
2. What are the key similarities in their product development approaches?
3. Assume that you and a friend are going to develop a new video game. Your friend is the video game expert. You are the manager. Using the case as an idea source, design an appropriate product development process.

Teaching plan is similar to that for Microsoft: Multimedia Publications.

1. Discussion of strategy in high-velocity markets using these four firms as examples.
2. Switch over to the product development processes of the four firms. Here I cover their similarities and differences. Their similarities are a great example of an improvisational (on the edge of chaos) approach to product development. Then I tie the differences into the different strategic contexts of the various firms. It can also be useful to contrast the approach of these companies with the traditional gate processes and with chaos. The teaching note has a great description of this.
3. The discussion then moves into the example that the Teaching Note suggests (Q. 3). This is the counterpoint to Football in the Microsoft case in that it grounds the discussion in an action item.
4. The discussion concludes with a focus on how to measure the performance of these projects and of the managers involved in similar fashion to Microsoft class.
5. Same general wrap-up. Case-specific wrap-up is positive for these companies.

Chapter 3: Capturing Cross-Business Synergies

Background

One of the toughest problem in corporations today is capturing cross-business synergies. In firm after firm, these opportunities to capitalize are alluring, but they rarely happen. Managers get caught up in fiefdoms or the pace of change seems too fast for collaboration. Alternatively, managers may collaborate, but get bogged down in endless politicking and sub-optimal business level strategies. This chapter focuses explicitly on this issue, but with the underlying subtext of the meaning of multi-business strategy, especially in a rapidly changing market.

Teaching Objectives

The teaching objectives of this chapter/case combination are to explore: (1) the nature of multi-business strategy, (2) cross-business synergies, (3) the challenges of molding a multi-business team, and (4) the distinctive roles of business unit vs. multi-business managers

The Ideal Case

A case that has several clearly distinguishable businesses that have opportunities for collaboration plus descriptions of the managers’ interactions. A favorite is: Time-Life. There is an excellent teaching note plus two effective videos. Harvard Business School Publishing is an optional choice.

Key Points

1. The nature of multi-business strategy in rapidly changing markets. It is complicated and shifting. It is more complex than single-business strategy because it is a blend of individual business strategies, their reinforcement of each other, and elements of common strategy such as brand.
2. Effective multi-business strategy recognizes the often asymmetric and evolving opportunities for success among the businesses.
3. Organization drives strategy. As before, a simple and loosely connected organization at the edge of chaos allows a complicated and dynamic multi-business strategy to unfold with a shifting blend of emphasis on the collective vs. individual businesses.
4. That simple organization consists of clear priorities for collaboration, decision making on collaboration at the business level, a role structure among the businesses, and incentives. The central dilemma is that the structure must be free enough to let managers focus on the success of their own businesses and linked together enough to gain collective opportunities. Again the theme is the edge of chaos.
5. The critical challenge is to motivate managers to balance between their own success and that of others who are more advantageously positioned.

Time Life Inc. (A) (9-395-012)

This case describes Time Life and its three diverse media businesses, Books, Music and Video. The background for the case combines sluggish performance at the largest of these businesses, Books, with the apparently changing marketplace for media in the future. These businesses are distinct from one another in a variety of ways and yet they share some common functions, such as editorial and direct mail, that have been important sources of success in the past. Perhaps most important, the businesses share the Time Life brand. The case centers on how much the businesses should collaborate and how, if at all, their managers should become a team. The focal question is whether Time Life managers should go forward with a controversial new series, True Crime.

Discussion Questions

1. What is Time Life’s strategy?
2. Compare Time Life’s three businesses. How are they distinct from one another? What is their potential for success?
3. What are the two or three very best opportunities for collaboration across the businesses?
4. Take the role of one Time Life manager. From his or her perspective, should Time Life go ahead with True Crime?

Opener

I usually begin by asking if anyone is familiar with Time Life products. Typically several class members are. The solid, high-quality, if somewhat uninspired, image of Time Life clearly comes across. Often their parents or grandparents bought book and/or music products. I sometimes show my own Time Life books as exemplars. Often the continuity selling comes up—most students see it as a negative. This brief discussion solidifies the image of Time Life among class members (even among those who do not know the brand) which is useful for the later discussion of True Crime. Usually there is also a feeling that this is a company that is struggling to keep pace with change.

What is Time Life’s strategy?

This question usually results in most students seeing no collective strategy here (and probably correctly so). There is some collective leveraging of assets, but no true strategy and no sense of the strategic roles of the businesses. The same is true of a common vision.

It is often useful to follow up with the question of, What does a collective strategy look like? I use Sun Microsystems as an example and ask what is Sun’s strategy? It is to win in the computing space by advocating open systems and trying to change the nature of the computing game from Wintel to Java. Its various businesses reinforce each other and the collective strategy.

A reprise of the question of what is multi-business strategy usually gets some agreement around that it is a collective strategy in which there are common elements and individual businesses playing roles, and that Time Life does not have much of a strategy.

How are Time Life’s three businesses distinct from one another?

A student or student team can lay out the comparison of the three businesses in terms of financial performance, business model, culture, key success factors, size, and strategic challenges. Try to establish the distinctions across the businesses very sharply.

Next I push the students to describe the differences in potential for success. Most students see the newer businesses as having more potential. They seem healthier, they are growing more, and people are reading less. A few, however, favor books, given Time Life’s historic strength and the view that at least some people are reading more! A vote usually sharpens the student differences.

What are the two or three very best opportunities for collaboration?

Here I ask students to put out the two best opportunities and explain why. Usually these revolve around cross-promotion and the re-use of material to broaden the list. I sometimes lay out the value chain so that the class starts thinking about opportunities in other areas. E-commerce questions can push them further as well. That is, How could they collectively exploit Internet or Web-based technology?

I also try to cast the relationships as more than just sharing a common asset. I ask how Books could help Video, how Video could help Books, how Books could help Music, etc. Often there is a good discussion around the value of continuity series, if the order of introduction of material in different media matters, and the management/production of “hit” products. Sometimes the class also brings up the Books product-development process—a good example of overly structured innovation. The general conclusion is that there are a lot of opportunities. I try to get them to focus on the best.

It can be useful to follow up with questions around the amount of collaboration including: Are these businesses over- or under- collaborating right now? (most conclude under collaborating) and, As markets accelerate into new forms of media, should they collaborate more or less? (mixed opinions on this one).

John Fahey would like to create a strategic team among his managers. How should he do it?

I usually launch with the how question. This question starts a discussion of how to create a team among individualistic managers. The ideas range from common corporate incentives to more meetings and common goals. Obviously this is a set of ideas from creating cohesive groups and good group decision making processes.

Then ask why do it. What is the value of a team?

It can be useful to push on the value of moving John Hall from Music to Books—most students will see that as valuable—but then to follow up by asking if the compensation structure currently prevents that (e.g., ask who would move from Video to Books). This points out the wisdom of moving people into different businesses and the difficulty of actually doing it, especially when compensation is not uniform across the businesses.

Another interesting way to channel the discussion is to focus on sports, asking about how teamwork varies from sports like golf (almost none), to baseball (static), to basketball (dynamic, team win), to cycling (dynamic, individual win). Class members who have cycled or who know the sport can give insight into the nature of team work in this very unusual sport. Asking about how people are motivated is useful. Students who have experience in ballet will also understand the phenomenon from the star vs. corps experience.

Should Time Life pursue True Crime?

I ask the pros and cons of True Crime. Often someone suggests its introduction under a different brand. This gathers a lot interest until I ask whether it is realistic to do a new brand for one product. The video clip of the ads works here—this is the toned-down version. Some students will bring up the moral issue of this kind of sensationalism of crime. An optional probe is a question on which Time Life managers want True Crime. In other words, who benefits the most? An important question is: Who should decide? This gets at the business unit vs. multi-business roles. A vote makes for a clear conclusion to the discussion.

Wrap-up of General Points

1. Multi-business strategy is complicated, temporary and surprising as in the case of single business strategy. It is a combination of common elements and unique roles for particular businesses. The objective is to win in a market space against some particular set of competitors.
2. A major aspect of multi-business strategy is resolving the cross-business synergy vs. individual success dilemma. Clearly cross business synergies are problematic to achieve, but can be enormously useful. For example, Disney brought in $25 billion from The Lion King by capturing cross business synergies and whereas Sony only received about $4 billion for the similarly successful movie, Men in Black.
3. Several rules for successful cross-business synergies:
   • only collaborate on a few things, not everything. Worse to collaborate poorly than not at all.
   • decisions to collaborate work best at the best unit level. Receiver based communication is efficient for communicating these opportunities. I use the example of Kroger in which best practice is broadcast throughout the store chain. Banc One in the early 1990’s is another good example.
   • let roles emerge that are complex, not the simplistic cash cow, star, etc. of BCG.
   • collaborate less as markets accelerate.
   • overall, keep in mind the image of the cycling team
4. Implementation: The toughest managerial challenge is to create a team which balances the tension between individual and collective success. In North America, many managers are too individualistic. In parts of Europe and Asia, the reverse is often true. That is, managers prefer the collective and consider it poor form to stick out as an individual. The keys to creating a successful to team are to meet frequently, create common goals and competition with other firms, create incentives for both types of relationships. The goal is business unit managers who are entrepreneurs in their own businesses, make the collaboration decisions across businesses, and help to set collective strategy.
5. Results: Strength in the most attractive and growing markets, good performance elsewhere....like Hewlett-Packard’s in printers, Monsanto’s Round Up, NBC and Seinfeld, Microsoft and operating systems. Scores in the most attractive markets.

Wrap-up of Time Life-specific Points

1. John Fahey video describes what happened and why.
2. Time Life did not do True Crime, did launch a multimedia division, and John Fahey became the head of National Geographic. John Hall is the head of Time Life.

Chapter 4: Gaining the Advantages of the Past

Background

In high-velocity markets, the emphasis is often on the future. But the reality is that wise use of the past can get managers to the future faster and more effectively. Using evolutionary thinking as the underlying model, the idea here is that smart evolution is effective and that managers can be “genetic engineers.” This evolutionary thinking suggests the negatives of being trapped in either the greenfields mentality or path-dependence mindset. These ideas are more dynamic than a core competence view: competences as a genetic sequence of capabilities and not as “core,” evolution through mutation of capabilities and not building from a few core competences, importance of recombinations to effective evolution, and balancing future with the past and not just path dependence.

Teaching Objectives

The teaching objectives of this chapter/case combination are to explore: (1) diversification, divestiture, and more generally, effective growth paths, (2) more genetic algorithm-like thinking around mutation, recombination, and rearchitecture as the components of evolutionary change, and (3) established vs. entrepreneurial firms.

The Ideal Case

Cases that focus on growth strategy, diversification, or divestment. A favorite is Dell Computer Corporation (9-596-058).

Key Points

1. Time is central to strategy in high velocity markets. Time matters in terms of tracking time metrics, building off the past, extending into the future, and driving the rate of change through time pacing. This conception of strategy stresses that strategy is a flow of moves over time. Therefore, it is a constant balancing of past and future at the edge of time.
2. This conception of strategy relies heavily evolutionary theory and the assumption of the firm as genetic sequence of capabilities and managers as genetic engineers.
3. Wise use of the past is necessary to move effectively into the future. In particular, the past is the key advantage for established firms.
4. The critical managerial challenges are moving into the future by blending old and new and even more difficult, leaving past capabilities and businesses behind.

Dell Computer Corporation

This case describes the situation facing Dell managers in 1994. The company has recovered from the brink of disaster. The question is how to grow next: diversify into laptops where the firm has already failed once, diversify into servers which is an apparently high-growth market, or globalize. Underlying the choice is how and whether to leverage the Dell Direct Model. The article, “The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell,” Joan Magretta, Harvard Business Review (March–April 1998) provides excellent background.

Discussion Questions

1. Compare the laptop, desktop, and server markets. What are their key success factors?
2. Analyze the flow of the Dell Direct Model. What are its most critical features?
3. Is there anything that Dell should stop doing?
4. Formulate a plan and rough schedule for Dell’s managers to expand into laptops, servers, and/or new geographic markets? Justify your suggestions.

Compare the laptop, desktop, and server markets. What are their key success factors?

This question opens a straightforward discussion of these markets—a Five Forces analysis is useful, and a comparison along the value chain (R&D, product design, manufacturing, logistics, sales, service) is effective as well for highlighting the distinctions. Key success factors are next.

Once the major comparison points have been laid out, I complicate the discussion by asking, How are these markets changing? (i.e., what are the trends along the key dimensions of comparison), Are they all commoditizing in the same way (e.g., will servers be different), but are just at different points in the life cycle? and How does participation in one help or hinder the performance in another?

I conclude by asking Which is the most attractive market?

Analyze the flow of the Dell Direct Model. What are its most critical features?

I usually ask a student group to do this and it is laid out in the teaching note. A discussion around the model’s segmentation of customers is particularly interesting. I then follow up with a discussion of which products fit best with leveraging this capability (I sometimes add home and workstation computing to the discussion) and a probe of what the model really is: a manufacturing strategy, a cost saving approach, etc.

“Genetic algorithm” brainstorm of growth paths for Dell

I go off from the assigned questions by expanding the discussion to take a more genetic view. I ask the students to lay out the capabilities of Dell as a gene sequence (i.e., geography, customer, distribution channel, brand, price points, products/services). I then ask them to engage in the thought experiment of mutating first one “gene,” then two, and so on to create new possibilities for growth. I push for combinations of those mutations. I also push on breaking up the Dell Direct Model into modular pieces and mutating those. Clever students will figure out that if the model is broken up, then there are lots of Web-based opportunities in sales that are distinct from manufacturing. The point is to expand student thinking from simply leveraging off the Dell Direct Model as a single and monolithic competence. Sometimes I send them off into groups for ten minutes to come up with a new growth path, ask for several presentations, and have the class vote for the best.

Another interesting line of questioning is to ask, why did Dell fail in retail and laptops? Or did they? And, What are the learning curtves for choosing a future growth path. The retail case is particularly interesting because it is not clear that the foray was a failure. The exit may well have been a conscious recognition that profit margins were superior elsewhere. For laptops, the failure was probably due to poor design which Dell may well have fixed with the hiring of several key players from Apple’s very successful Powerbook laptop product design team.

A final line of questioning is to look at the current gene sequence of capabilities and ask, What does Dell do that is better (or worse) than its competition? What moves would surprise the competition?

Is there anything that Dell should stop doing?

Many managers and students ignore the exit question. It is a lot more appealing to concentrate on growth. This question forces the class to go in an “unnatural” but important direction. This discussion is usually brief.

Develop a plan.

Here I often ask a student group to present and have others critique as if they were board members. To focus the conclusion, I ask for a vote on: laptops, servers, Europe, Latin America, and Asia.

Wrap-up of General Points

1. The past is critical. Often in rapidly changing markets, managers are looking so much ahead that they forget the advantages of the past for saving time, cutting costs, and lowering risk.
2. The past is critical but it is easy to get trapped in jumping into greenfields (Saturn, Newton) or over-leveraging the past (McDonald’s USA). Although the two traps are different, their results are the same.
3. Several key lessons:
   • blend old and new, especially new
   • refresh old with new
   • watch for recombinations
   • watch for modularity
   • overall, think genetically
4. The most difficult challenge is to exit.

Wrap-up of Dell-specific Points

1. Dell went into servers, laptops, and European expansion. But the big surprise was that by breaking apart the Dell Direct Model, the firm was able to expand into servers with a strong Web-based service strategy.
2. Tie back: Dell is a great example of improvisation, especially their dedication to real-time information (see HBR article) and a few simple rules around select “scalable businesses” and supplier selection. The result is a great example of morphing strategy—first low cost, then some innovation especially around battery life, now service-oriented strategy. The strategy is complicated, unpredictable, and enormously effective. An excellent example of competing on the edge.
3. Tie forward: HBR also reveals some nice examples of probing.

Chapter 5: Winning Tomorrow Today

Background

In rapidly changing markets, it is challenging to predict which of the many possible futures will arrive and even more difficult to predict when. The dilemma is how to plan for a future while coping with the future that actually arrives.

Teaching Objectives

The teaching objectives of this chapter/case combination are to explore: (1) probing the future and (2) appropriate strategic planning.

The Ideal Case

A case that covers strategic planning, probing, or both. Amgen: Planning the Unplannable is good choice for the former and comes with an excellent teaching note.

Key Points

See Wrap-up and chapter.

Amgen: Planning the Unplannable (9-492-052)

Discussion Questions

1. What are the key success factors in biotechnology? What are the most critical contingencies that management must plan for?
2. What role does strategic planning play at Amgen? How useful is it?
3. How should Amgen management change its approach to managing the future?

What are the key success factors in biotechnology? What are the most critical contingencies that management must plan for?

Key Success Factors: good scientists, blockbuster drugs, good product innovation process, skills in developing deals to get funding.

Contingencies: research success, FDA approval, patent protection and being first (second place does not count), market size, alternative drugs, legal environment, HMO growth/reimbursement issues.

Conclusion is that it is a highly uncertain, big-ticket business.

What role does planning play at Amgen? How useful is it?

I usually begin by laying out the key features of the planning process:
top down by top 16
comment by 50 people bottom up
2 day off site with 16 people
final version of plan is drafted

I ask the class to layout the planning content
revenues
spending
headcount
mission statement

I ask, What does this planning process achieve? Some students usually bring up the legitimization aspects of planning especially in the early years plus expense control.

I then play the mind game of, If there were less structure (i.e., no plan) what would scientists like Szabo and executives do? Repeat for more structure (i.e., around specific resource commitments and no flexibility). Role plays can work here.

How should Amgen change its process for managing the future?

I let this question play out for awhile and extend to an evaluation of the current system. Once this discussion has gone on for awhile, I then push on the following.

Does the process help people to understand the future? Anticipate it? React better? Create the future? Class usually decides no.

Does the process address Key Success Factors like creating blockbuster drugs or uncertainties like technical uncertainty? Class usually decides no.

Is it a relic of small company days? Class usually says maybe.

Overall, is this a bad planning process in a weak company or a very clever planning process in a great company? Most students conclude the former. I hold off on my evaluation, but I do reveal that between 1987 and 1997 Amgen was a huge market cap star.

I then ask that if strategic planning only marginally relates to the future at Amgen, how if at all are Amgen managers gaining insight about the future? We then layout various probing options and time frames.

Wrap-up of General Points

1. Dilemma of cannot plan well and yet reacting is weak. Plan for a future while cope with the future. I then review some of the points from the COE chapter. I also discuss the importance of the proper portfolio (wide variety of low cost probes over a variety of time frames) and treating probes as not so much options but rather as scientific experiments in which there are hypotheses that are tested - therefore, the results are measured against hypotheses and learning is much sharper. Probes are not just hedges against an uncertain future which is really the limitation of options thinking here.

Wrap-up of Amgen-specific Points

1. Amgen’s strategic planning process is a delicate balance of structure and chaos that has been very effective. But it is a budget guideline that is not really about the future.
2. Rather Amgen does a lot of probing that is not shown in the case using futurists, options on experimental projects, scenario planning, etc.

Chapter 6: Setting the Pace

Background

Most managers think in terms of event pacing(i.e., change when an event occurs such as a product move by a competitor or a shift in government regulations). In contrast, the most successful managers in high velocity markets often time pace as well (i.e., change when it is time to change such as introducing a new product every 9 months, opening 20 store branches per year, deriving 25% of sales from products introduced in the past 5 years). Time pacing completes the discussion of competing on the edge as a fundamentally time-oriented strategy. In particular, time pacing helps managers focus on two often-forgotten questions that are crucial in rapidly changing markets: how often to change and how to transition between activities.

Teaching Objectives

The teaching objectives of this chapter/case combination are to explore: (1) time pacing, (2) its contrast with event pacing, and (3) limits of time pacing.

The Ideal Case

Cases where the time dimension is explicit. My favorite is 3M Optical Systems: Managing Corporate Entrepreneurship (9-395-017). The case works because 3M is time paced (e.g., corporate dictum of 25% of revenue must come from new products) and yet seems slow, and because the case is directed at the process of building a new business, which brings up the issue of whether time pacing is suitable for such an uncertain task. For further background material on 3M, try the Fortune article, “3M Fights Back” (Feb 6, 1996). The case itself comes with a video and a teaching note which is directed more at the managerial roles within the case than at the time issues. I teach this case with a long wrap so that I can really flesh out the time-pacing ideas. For further background material for that wrap, take a look at “Time Pacing: Competing in Markets that Won’t Stand Still,” Kathleen Eisenhardt and Shona Brown, Harvard Business Review (March-April 1998) or Connie Gersick’s 1995 article in Academy of Management Journal.

Key Points of Chapter/Case Combination

1. Time is central to strategy in rapidly changing markets. This is time in the sense of pace and flow, not speed.
2. Time pacing is the most sophisticated and least recognized features of strategy in rapidly changing and uncertain markets. Yet, it is also the feature that most clearly separates the very top firms from the rest.
3. Time pacing involves both choosing a pace and choreographing the transitions from one activity to the next.
4. Time pacing makes strategic the question of how often to change.

3M Optical Systems: Managing Corporate Entrepreneurship (9-395-017)

3M is a $15 billion firm that has grown from mining abrasives to a global leader best known for its consumer products such as Scotch tape and Post-It notes, and for its history of sustained innovation. At the heart of the company’s success is the ability to back entrepreneurial initiative while simultaneously recognizing the need to manage “well-intentioned failure.” The case centers on 3M Optical Systems, a fledgling business with promising technology and disappointing results. The central issue is whether it is time to stop the investment in the computer privacy screen. Specifically, should Optical Systems manager, Andy Wong, seek more money and should his boss, Paul Guehler, approve it?

Discussion Questions

1. Develop a time line of Andy Wong’s actions. How effective has he been?
2. Develop a time line of Paul Guehler’s actions. How effective has he been?
3. What practices make 3M such an innovative company?
4. What should Andy Wong do with the computer privacy screen AFE: postpone/reject the proposal, fund it within the business, get funding from Guehler, go to a senior mentor for funding. If Paul Guehler gets the AFE, should he approve it?

Develop a time line of Andy Wong’s actions. How effective has he been?

I usually start off with asking a student or group to lay out the time line. I then launch the discussion of Andy’s effectiveness against his description of his job: attract people, motivate people, make progress on objectives, and keep his managers in the boat. The video makes a good contribution in making Andy come alive. I sometimes push the class with the questions of is he an entrepreneur or a manager, and what is the difference. On balance, the class usually has a sense that he is surprisingly strong, especially as a people person (particularly after the video). A few will continue to stress that he has been slow in delivering results.

How effective has Guehler been?

In order to keep the discussion moving, I lay out the time line of Guehler’s moves (but students could do it) and ask the class to assess his performance. I push on whether he is a coach, disciplinarian, or both, and I ask them to focus on his most valuable activity. The class usually sees Guehler as quite effective.

Why has 3M been so innovative?

This is where I deviate from the themes of the case teaching note. I bring in the time theme and take a more critical view of 3M’s innovation prowess.

I lay out the key features of 3M’s system or have the class do it. This generates a discussion of the facets of the 3M management system, such as the Pacing Program, the 15% free time rule, the culture of sharing technology, and the 25% revenue (most are astounded that ratcheting up to 30% and 4 years is a 50% increase). I challenge the group on whether each of these “apple pie” tactics really works. For example, can you really accomplish anything with 15% time off? Will people really stop working on something to take their 15% time? Or I ask whether it is possible to accurately pick programs for pacing given that some of 3M’s own biggest successes, like Post-Its and Thinsulate were bootlegged. The general drift is to challenge whether the 3M practices are more important for folklore or reality. Depending upon the experience of the group, it is possible to discuss the effectiveness of these kinds of managerial tactics further.

I then double back to the 30% rule and put it into the context of Optical Systems. I ask class how this rule has affected Optical Systems. Has it prolonged its life, shortened it, or had no effect?

I then move into contemporary results and ask: If 3M is such a great innovation company, then why is their financial performance floundering in recent years? Is the 3M formula stale for the 21st century?

This opens up the opportunity for some mind experiments surrounding time pacing. Suppose there were a nine month limit on concept feasibility. What would be the effect? Suppose new businesses like Optical Systems had two years to show a profit? How would that change what managers did. With this time-pacing mindset, the class usually begins to see that time pacing would make managers more conscious of priorities, more simultaneous in their activities, and more aware of balancing the short vs. long term.

What should Andy Wong do with the computer screen AFE?

I begin this discussion with a quick recitation of the case facts—namely, that the privacy screen has already failed several times and that Andy has received poor personal evaluations. The arguments on the no side have to do with market size, competition, pricing, and viability, while the yes arguments relate to the recent improvements and Andy’s role as a champion. Usually the majority of students lean towards no.

The question for Guehler generates a similar discussion and can be kept short as the issues mirror those for Andy. The yes arguments add in that the amount of the request is not that significant. Nonetheless, the majority still usually votes “No”. Sometimes I have someone in the class role play telling Andy “No” so that the students (especially less experienced ones) feel how hard that is to do.

Wrap-up of General Points

1. Time pacing. Time pacing is doing things because of the passage of time, not the occurrence of events. Illustrations in widely diverse firms such as Intel, Sony, ESPN, and Starbucks bring home the point. Also interesting is the point that some managers are time pacing and do not even realize it. The Eisenhardt and Brown article on time pacing in HBR provides a lot of background on this issue. Specific time pacing points include:

• Time pacing motivates people to focus on doing things more simultaneously, have a clearer sense of priorities and different time horizons, and modularize and pace what they are doing.
• Time pacing is not a speed story. Rather, it is about finding a rhythm and entraining with relevant others. It is like setting the pace in sports - a strategic issue in both sports and business. Speed chess is a great example of changing up rhythms as is tennis.
• Time pacing includes both rhythm and transitions. Transitions become particularly important as pace accelerates because relatively more time is spent in transitions in this situation.
• Time pacing’s advantages include synchronizing the organization of complex tasks, giving people a way to pace their own work, creating a sense of rhythm which is focusing and confidence building (think skiing in a rhythm, a stadium doing the wave), and possibly even driving the rhythm of an industry that others end up following.
• Time pacing helps to keep managers from staying too long in a futile course of action and yet stay the course long enough so that there is not constant churn. In particular, most managers find it particularly difficult to stop doing something and time pacing can help.
• Overall, time pacing is critical aspect of strategy in high velocity markets. It focuses managerial attention on how often/when to change by centering attention on the dilemma of changing too soon (e.g., obsolete existing products too soon, not give ventures enough time to mature) and too late (e.g., stay too long with a course of action). It highlights: timing of change as aspect of strategy in rapidly changing markets.

• Optional: Tie back to Chapters 1 and 2. Guehler has done a great job of balancing between structure and chaos in the process. He sharpened the focus on priorities and outcomes while giving Wong the space to maneuver. The case also brings to life the idea that strategy is highly emergent and difficult to pin down in precise terms in companies like 3M that compete on the edge.
• Optional: Tie forward or even include Chapter 8 on patching and leadership. Summarize Andy’s role as an entrepreneur and business strategist who needs to find markets, create strategy and build infrastructure. Summarize Paul’s patching role. Donnelley notes have more detail on this.

Wrap-up of 3M-specific Points

1. Andy asks for the money. His rationale is that, as the entrepreneur, his job is to champion the efforts of his people. Guehler gives them one more shot and the venture becomes part of 3M’s very successful thrust into microreplication.
2. Overall, 3M’s financial performance is very good, but not as stellar as it once was. The question of their readiness for competition when timing is critical remains.

Chapter 7: Growing the Strategy

Combine the teaching note with the chapter for a straightforward layout of COE implementation. AmEx is a positive example.

Chapter 8: Leading on the Strategy

Background

The leadership roles in high-velocity markets are different from those in more static situations. Strategy moves down to the business-unit level. Top-level managers take on the job of synthesizing the collection of strategies that emerge from below. Most important, the role of multi-business management (what we term “patching”) takes on particular significance. Patching refers to the process of constantly mapping and re-mapping the match of businesses to market opportunities. Patching is a crucial aspect of corporate strategy in rapidly changing markets.

Teaching objectives

The teaching objectives of this chapter/case combination are to understand: (1) patching as a critical part of strategy in high velocity markets, (2) the crucial transition from probing to new patches, and (3) managerial roles at business, multi-business, and corporate levels within the corporation.

The Ideal Case

A clear patching situation (i.e., match of business to market opportunities) such as vertical and horizontal integration, establishing a new business, combining several businesses, splitting businesses apart, and so forth. It is also helpful to have a focus on several layers of management (i.e., business level, multi-business). A favorite is R.R. Donnelley & Sons: The Digital Division (9-396-154). It has a teaching note although I deviate from it substantially. My notes follow John Stopford’s approach very closely. Another possibility is 3M Optical Systems, which is suggested for Chapter 6.

Key Points of Chapter/Case Combination

1. Patching (i.e., the constant realignment of the match between business units and market opportunities) is, like time pacing, one of the uniquely important aspects of strategy in high-velocity markets. Patching involves the obvious decision of the content of the business and the much less obvious decision of size.
2. Transitions from one patching issue to another are critical. Usually there are several options and the keys are to move quickly, involve many people, and pay attention to patch size.
3. Managerial roles are distinctive in high-velocity markets. The multi-business (or patching) role takes on particular significance. Strategy moves down to the business level. Corporate executives shape broad directions and articulate corporate vision.

R.R. Donnelley & Sons: The Digital Division (9-396-154)

This case describes how managers at R.R. Donnelley, a major printing company, are approaching digital publishing. This new market may require a much different business model than Donnelley’s traditional businesses if and when the market goes digital. The patching issues center on whether the Digital Division has the right charter content, the optimal scale, and the best location within the firm. A related issue is the transition process from probing an opportunity to operating a full-fledged business. Also relevant are the roles of the various managers. The focal decision is how should Barb Schetter of the Digital Division go about trying to capture the digital print business of the Books Group.

Discussion Questions:

1. How do the critical success factors for Donnelley’s traditional print business compare with those of digital printing?
2. Barb Schetter thinks that the division’s scale is too small. Is she correct?
3. Role assignments

• As Barb Schetter, what does it feel like in your job? How has Janet Clarke’s appointment affected your work? How will you convince the Books Group to bring its digital printing to you?
• As Bart Faber, what are you trying to accomplish with the Digital Division? What are the key challenges within the Digital Division? How well is Schetter doing?
• As Rory Cowan, what is your vision for digital printing? How well are Faber and Schetter doing?
• As the Books Group, what compelling arguments do you need to hear to move your digital business to the Digital Division? What other alternatives are you considering?

How do the critical success factors for Donnelley’s traditional print business compare with those of digital printing?

The teaching note has a comprehensive list of the issues here. The primary distinctions are long runs, predictable demand with 3-10 year contracts, large and dedicated plants, clear sales proposition, smaller competitors, simple distribution, limited risk, and 3% growth vs. short runs, low capital costs, flexible plants, no scale economies as yet, uncertainty around demand, actual customer, and selling proposition, uncertain and possibly complex distribution logistics, high risk, and 16% growth.

Once this list is out, it is then useful to ask which Donnelley capabilities seem relevant to the new business and which are of little benefit. This then segues into the issue of whether digital printing is a new business or a just a new way of printing. For example, is there a new market segment or are the customers the same? Is the product the same or a value-added alternative to traditional printing? Is only the process different? The discussion helps to reveal that digital printing is coming, but that it is very uncertain what it will look like, when it will arrive, and how it will affect Donnelly’s skill set. This reinforces the challenges of strategy in this kind of market.

Barb Schetter thinks that the Digital Division is too small. Is she correct?

This question opens up the patching issue. Some students will agree with Schetter, but others will take the point of view that the division is too big (and its $40 million target is too large). Probe on what the benefits and drawbacks are of being bigger or smaller.

The issue of whether this should be a business at all will probably come up. Once the size issue is finished, a layout of the probes that relate to the digital business (investment in new ventures, Xierkon experiments, talks with 60 customers, current partnerships with five key customers) is helpful to lead into a discussion of whether the Digital Division is premature. Have the students think about how the digital opportunity would be managed if it were a probe, not a business. A discussion of the pros and cons of the new business process that has just been installed at Donnelley is effective here (my take is that the process is way over-structured).

Once the size and probe issues are out, then switch to the content debate. Should the charter of the business be more narrowly defined by, for example, geography or customer? Should it be more tightly tied to an existing business? Should it be in a regular business group, not ISG? This discussion can move quickly.

Role Play

The role play in the third assignment question is quite effective. I select four students or groups to play each role. The role play is most effective with Schetter’s beginning while the others wait outside. Bring the players in one at a time—Faber, Cowan, and then the Books Group. Schetter will probably reveal some discomfort with the ambiguity of her job. Faber is likely to see Schetter as not performing particularly well. Cowan and the Books Group are likely to see the Digital Division as not particularly large in their scheme of things. The overall points are that the managers have much different perspectives, Schetter’s job is too blurred with Janet Clarke’s, the division was launched too soon, and Schetter may well be in an unwinnable situation.

Focus the end of the discussion on what deal, if any, can be struck between the Books Group and Schetter.

Wrap-up of General Points

1. Patching. It is one of the distinctive strategic processes in rapidly changing markets. I then run through a quick lecturette on patching that covers the definition of patching, its importance in rapidly changing markets, the strategic use of patch (from COE, product patch at Compaq vs. customer patch at Dell, Honda’s innovative patching of products in the Japanese market), the almost counter-intuitive importance of patch size (Dell patch size has dropped even though total sales are up, wireless at H-P is too fragmented as five divisions have to coordinate), modularity of business units is necessary, and finally, examples of classic patching firms (Johnson & Johnson, H-P, 3M) as well as new economy ones (Sun, Dell).
2. Managerial roles. Business-level head as strategist/entrepreneur. Multi-business head as patcher as well as skills coach for business-level managers. Corporate level executive as shaper of the emergent strategy.
3. Transition from one patch arrangement to another: This is important in general, but the transition from probing to a new patch is especially critical. Probes are managed with an eye towards learning and even failing. Patches are managed for financial results. The transition between them is critical in rapidly changing markets.
4. Tie back: This is a classic case of a very uncertain market where how that market will emerge, when, and its effects on firms like Donnelley are essentially unknowable. Therefore, the best strategy is essentially improvisational. Refer back to the lessons from Chapter 2 plus Living on Internet Time or Microsoft: Multimedia Publications.

Wrap-up of Donnelley-specific Points

1. The Digital Division:

• A premature patch. The business opportunity needed more probing. So if anything, its scale is too large and its objectives are too ambitious. While it can be debated whether the division is housed correctly, that was a much less important issue than scale or timing.
• A problematic patch because it is not sharply modular. There is an unclear mission, complicated sales force structure, and confusing reporting lines.
• Roles are not appropriately defined. Cowan is too controlling, Faber is not particularly interested in the technology and opportunity, and Schetter/Clarke is a confused teaming.
• Overall a poor job. 3M was substantially better.

• Tie back: This is a classic case of a very uncertain market. It is essentially unknowable how the digital print market will emerge, and what its effects on Donnelley are going to be. Therefore, the best strategy is improvisation.
• Tie back: The revamped process for launching new businesses is very bureaucratic. The old one was too chaotic. In effect, Donnelley managers swung past the edge of chaos from one extreme to the other. They ended up with the Digital Division as a probe that is too big and too planned.
• The Books Group said no to the Digital Division as their source for digital printing, the CEO left to be heir-apparent at AT&T, most digital technology development was canceled, and Donnelley is missing out on the digital print business.

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