- Subject: Strategic Management. - Mandatory book for this week's assignment (file attached - please include in citations): Rothaermel, F. T. (2013). Strategic management: Concepts. New York: McGraw-

E ssay # 1: A n in ve stm ent o f $ 100 in G ene ra l E le ctr ic ( G E) o n A pril 2 2, 1 981, w hen J a ck

W elc h to ok o ve r a s c h air m an a nd C EO w ould h ave b een w orth $ 6,3 20 b y 2 000.

In clu din g s to ck p ric e a ppre cia tio n p lu s d iv id ends, G E’s to ta l s h a re hold er r e tu rn w as

6,2 20 p erc e nt d urin g th is p erio d, e quatin g to a n a nnual c o m po unded g ro w th r a te o f

about 2 3 p erc e nt. A lt h ough th e s h e er m ag nit u de o f G E’s to ta l r e tu rn s to s h are hold ers is

i m pre ssiv e , to a sse ss w heth er G E h ad a c o m pe tit iv e a dva n ta ge th at p ro duce d th at

re tu rn , w e n eed a b ench m ark . B eca u se G E is a w id ely d iv e rs if ie d c o nglo m era te

s p annin g fin ancia l a nd in dustr ia l o pera tio ns a cro ss a n um be r o f d if f e re nt in dustr ie s, o ne

co m mon m etr ic fo r c o m paris o n is a b ro ad s to ck m ark e t in dex s u ch a s th e D ow J o nes

In dustr ia l A ve ra ge ( D JIA ). T he D JIA ( o r D ow 3 0) r e pre se n ts a n a ve ra ge s to ck r e tu rn ,

base d o n th e s to ck p ric e s o f th e 3 0 m ost w id ely h eld p ublic c o m panie s in th e U S T he

D JIA w as e sta blis h ed in 1 896, a nd G E is th e o nly c o m pa ny r e m ain in g fr o m it s o rig in al

m em bers ( a lt h ough G E w as d elis te d fo r a n um be r o f y e a rs ). A lt h ough th e D JIA h ad a

r e tu rn o f s lig htly o ve r 1 ,0 00 p erc e n t b etw een 1 981 a nd th e e nd o f 2 000, th is r e tu rn is

d w arfe d w hen c o m pare d w it h G E’s ( s e e F ig -8 ). T his c o m pa ris o n im plie s th at G E

outp erfo rm ed th e D JIA b y s e ve ra l m ult ip le s d urin g th is 2 0-y e a r tim e p erio d. W hen w e

apply to ta l r e tu rn to s h are hold ers a s a p erfo rm an ce m etr ic , G E’s to ta l r e tu rn o f 6 ,2 20

perc e nt is a sto nis h in g. G E c le arly e njo ye d a s u sta in ed c o m pe tit iv e a dva nta ge d urin g

th e J a ck W elc h e ra . T his fe at is e ve n m ore im pre ssiv e fo r tw o r e aso ns. F ir s t, th e

ca lc u la tio n w as s e t in a w ay th a t b oth s ta rte d a t 0 p erc e n t in 1 981. S eco nd, G E is o ne

of th e 3 0 c o m panie s in clu ded in th e D JIA , a nd th us it is o ne b ig r e aso n w hy th e D JIA

p erfo rm ed q uit e w ell d urin g th e 1 981– 2 000 tim e fr a m e. J e ff r e y Im melt w as a ppoin te d

G E’s C EO a nd c h air m an o n S epte m be r 7 , 2 001, ju st fo ur d ays b efo re th e 9 /1 1 te rro ris t

a tta cks. S in ce th at tr a gedy, M r. Im melt h ad s p e nt h is tim e p uttin g o ut fir e a fte r fir e .

F ollo w in g 9 /1 1 , th e U S e co nom y w ent in to a r e ce ssio n, a nd a g lo bal e co nom ic

s lo w dow n b egan. S eve ra l o f G E’s k e y in dustr ia l s e cto rs s u ch a s a via tio n a nd e nerg y

w ere e sp ecia lly h ard h it . T he g lo bal fin ancia l c ris is b egin nin g in 2 008 c o m pounded th e

co m pany’s tr o uble s e ve n fu rth er. B eca u se th e c o n glo m era te r e lie d o n it s fin ancia l

se rv ic e s u nit , G E C apit a l, fo r m ore th an 5 0 p erc e n t o f it s p ro fit s , th e c o m pany w as h it

e sp ecia lly h ard d urin g th e g lo bal fin ancia l c ris is . In 2 009, S ta ndard & P oor’s

d ow ngra ded G E’s A AA c re dit r a tin g, fu rth er u nders co rin g th e m ark e t’s lo st c o nfid ence

in G E’s fin ancia l h ealt h . G E a ske d fa m ed in ve sto r W arre n B uff e tt fo r a $ 15 b illio n

liq uid it y in je ctio n. O n M arc h 5 , 2 009, G E’s s h a re p ric e h it a n a ll- tim e lo w o f $ 6.6 6. T he

perfo rm ance o f G E’s s to ck v e rs u s th e D JIA d urin g M r. Im melt ’s te nure is d epic te d in

F ig -9 . Fig ure 8

F ig ure 9

Q uestio ns 1. Do y o u a gre e w it h th e c la im th at “ G E e xp e rie nce d a s u sta in ed c o m petit iv e

a dva nta ge u nder J a ck W elc h , w hile it e xp e rie nce d a s u sta in ed c o m petit iv e

d is a dva nta ge u nder J e ff r e y Im melt ” ? W hy o r w hy n ot?

2. H ow m uch o f th e p erfo rm ance d if f e re nce in th e W elc h v e rs u s Im m elt tim e p erio ds

do y o u b elie ve c a n b e d ir e ctly a ttr ib ute d to th e r e sp e ctiv e C EO ? W hat o th er

fa cto rs m ig ht h ave p la ye d a n im porta nt r o le in d ete rm in in g fir m p erfo rm ance ?

(H in t: C onsid er e sp ecia lly th e p erio d s in ce 2 001.)

3. S hare hold er v a lu e c re atio n is o ne o f th e m etr ic s to a sse ss fir m p erfo rm ance . D o

yo u c o nsid er th is m etr ic to b e th e m ost im po rta nt o ne? W hy o r w hy n ot?

4. I f y o u w ere to u se a b ala nce d-s co re ca rd o r tr ip le -b otto m -lin e a ppro ach to

a sse ssin g fir m p erfo rm ance a nd c o m pe tit iv e a dva n ta ge, h ow m ig ht th ose

a ppro ach es c h ange y o ur a sse ssm ent o f th e W elc h a nd Im melt e ra s? If J a ck W elc h

h ad b een m ore fo cu se d o n b ro ad er m ea su re s o f fir m p erfo rm an ce , m ig ht G E h ave

b een b ette r a ble to w eath er th e p ost- 2 001 c h a nges?

E ssay # 2: C om petin g o n B usin ess M odels : G oogle v s. M ic ro so ft

R iv a ls o fte n u se d if f e re nt b usin ess m od els to c o m pe te w it h o ne a noth er. D ue to

c o m petit iv e d yn am ic s a nd in dustr y c o n ve rg ence , G oogle a nd M ic ro so ft p ro gre ssiv e ly

m ove o n to th e o th er’s tu rf. In m any a re as, G oogle a nd M ic ro so ft a re n ow d ir e ct

co m petit o rs . In 2 012, M ic ro so ft h ad $ 73 b illio n in r e ve n ues a nd G oogle $ 50 b illio n.

A lt h ough G oogle s ta rte d o ut a s a n o nlin e s e a rc h a nd a dve rtis in g c o m pany, it n ow o ff e rs

s o ftw are a pplic a tio ns ( G oogle D ocs, w ord p ro ce ssin g, s p re adsh eet p ro gra m s, e -m ail,

i n te ra ctiv e c a le ndars , a nd p re se n ta tio n s o ftw are ) a nd o pera tin g s yste m s ( C hro m e O S

fo r th e W eb; A ndro id fo r m obile a pplic a tio ns), a m on g m an y o th er o nlin e p ro ducts a nd

se rv ic e s. In c o ntr a st, M ic ro so ft b egan it s lif e b y o ff e rin g a n o pera tin g s yste m ( s in ce

1 985, c a lle d Wi ndow s), th en m ove d in to s o ftw are a pplic a tio ns w it h it s O ff ic e S uit e , a nd

in to o nlin e s e arc h a nd a dve rtis in g w it h B in g, a s w ell a s o nlin e g am in g w it h X box O ne.

T he s ta ge is s e t fo r a c la sh o f th e te ch n olo gy tit a ns. Fig ure 1 0

In c o m petin g w it h e ach o th er, G oogle a nd M ic ro so ft p urs u e v e ry d if f e re nt b usin ess

m odels , a s d eta ile d in F ig -1 0. G oo gle o ff e rs it s a pplic a tio ns s o ftw are G oogle D ocs fo r

fr e e to in duce a nd r e ta in a s m an y u se rs a s p ossib le fo r it s s e a rc h e ngin e. A lt h ough

G oogle ’s fla gsh ip s e arc h e ngin e is fr e e fo r th e e nd u se r, G oogle m ake s m oney fr o m

sp onso re d lin ks b y a dve rtis e rs . T he a dve rtis e rs p ay fo r th e p la ce m ent o f th eir a d o n th e

re su lt s p ages a nd e ve ry tim e a u se r c lic ks th ro ugh a n a d ( w hic h G oogle c a lls a

“ s p onso re d lin k”). M any b illio ns o f m in i- tr a nsa ctio ns lik e th is a dd u p to a s u bsta ntia l

busin ess. A s s h ow n in F ig -1 1 , a dve rtis in g r e ve n ues a cco unt fo r c lo se to 9 0 p erc e nt o f

G oogle ’s to ta l r e ve nues. Fig ure 1 1

A s in dic a te d in F ig -1 1 , G oogle u se s p art o f th e p ro fit s e arn ed fr o m it s lu cra tiv e o nlin e

adve rtis in g b usin ess to s u bsid iz e G oogle D ocs. G iv in g a w ay p ro ducts a nd s e rv ic e s to

in duce w id esp re ad u se a llo w s G oogle to b enefit fr o m n etw ork e ff e cts — th e in cre ase in

t h e v a lu e o f a p ro duct o r s e rv ic e a s m ore p eople u se it . G oogle c a n c h arg e a dve rtis e rs

fo r h ig hly ta rg ete d a nd e ff e ctiv e a ds, a llo w in g it to s u b sid iz e o th er p ro duct o ff e rin gs th at

co m pete d ir e ctly w it h M ic ro so ft.

A s in dic a te d b y th e o pposin g a rro w s in F ig -1 0, M ic ro so ft’s b usin ess m odel is a lm ost th e

re ve rs e o f G oogle ’s . In it ia lly , M ic ro so ft fo cu se d o n c re atin g a la rg e in sta lle d b ase o f

use rs fo r it s P C o pera tin g s yste m ( W in dow s). It h old s s o m e 9 0 p erc e nt m ark e t s h are in

o pera tin g s yste m s o ftw are fo r p e rs o n al c o m pu te rs w orld w id e. A s s h ow n in F ig -1 2,

ro ughly 5 0 p erc e nt o f M ic ro so ft’s r e ve n ues a re b ase d o n th e W in dow s fr a nch is e .

M ore ove r, th e u se rs a re lo cke d in to a M ic ro so ft o pera tin g s yste m ( w hic h g enera lly

c o m es p re lo aded w it h th e c o m pute r th ey p urc h a se d ), a nd th en w ant to b uy a pplic a tio ns

th at r u n s e am le ssly w it h th e o pe ra tin g s yste m . T he o bvio us c h o ic e fo r m ost u se rs is

M ic ro so ft’s O ff ic e S uit e ( c o nta in in g W ord , E xce l, P ow erP oin t, O utlo ok, a nd A cce ss), b ut

th ey n eed to p ay s e ve ra l h undre d d olla rs fo r th e la te st v e rs io n. T his a pplic a tio n

so ftw are s e gm ent ( c a lle d “ M ic ro so ft B usin ess D iv is io n,” s e e F ig -1 2) c o ntr ib ute s r o ughly

o ne-th ir d o f M ic ro so ft’s to ta l r e ve nues. T his im plie s th at o ve r 8 0 p erc e nt o f M ic ro so ft’s

r e ve nues a re e it h er tie d d ir e ctly o r in dir e ctly to it s W in dow s fr a nch is e .

Fig ure 1 2

A s s h ow n in F ig -1 0, M ic ro so ft u se s th e p ro fit s fr o m it s a pplic a tio n s o ftw are b usin ess to

s u bsid iz e it s s e arc h e ngin e B in g , w hic h is — ju st lik e G oogle ’s — a fr e e p ro duct o ff e rin g

fo r th e e nd u se r. G iv e n B in g’s r e la tiv e ly s m all m ark e t s h a re , h ow eve r, a nd th e

tr e m endous c o st in d eve lo pin g th e s e a rc h e ngin e, M ic ro so ft, u nlik e G oogle , d oes n ot

m ake a ny m oney fr o m it s o nlin e s e a rc h o ff e rin g; r a th er, it is a b ig m oney lo se r.

T he lo gic b ehin d B in g is to p ro vid e a c o u nte rv a ilin g p ow er to G oogle ’s d om in ant

posit io n in o nlin e s e arc h . T he lo g ic b ehin d G oogle D ocs is to c re ate a th re at to

M ic ro so ft’s d om in ant p osit io n in a pplic a tio n s o ftw are . M ore ove r, th e c o m putin g in dustr y

is u nderg oin g a s h if t a w ay fr o m p ers o n al c o m pu te rs to m ob ile d evic e s. A lt h ough

M ic ro so ft s e t th e s ta ndard a nd d o m in ate s th e in dustr y w it h W in dow s, G oogle h old s

so m e 7 5 p erc e nt m ark e t s h are in m ob ile o pera tin g s yste m s s o ftw are w it h A ndro id ,

w hile M ic ro so ft’s m ark e t s h are is le ss th an 5 p erc e n t. T hese ta ctic s c re ate m ult i- p oin t

co m petit io n b etw een th e tw o te ch nolo gy fir m s. T a ke n to geth er, G oogle a nd M ic ro so ft

c o m pete w it h o ne a noth er fo r m ark e t s h a re in s e ve ra l d if f e re nt p ro duct c a te gorie s

th ro ugh q uit e d if f e re nt b usin ess m od els .

Q uestio ns

1. H ow is a s tr a te gy d if f e re nt fr o m a b usin ess m od el? H ow is it s im ila r?

2. Wh y a re M ic ro so ft a nd G oogle b eco m in g in cre asin gly d ir e ct c o m petit o rs ?

3. L ookin g a t F ig -1 1 & F ig -1 2, c a lc u la te th e a nnual g ro w th r a te s fo r G oogle ’s a nd

M ic ro so ft’s d if f e re nt b usin ess s e gm en ts . W hat tr e nd e m erg es? W hat c o nclu sio ns

ca n y o u d ra w ?

4. Wh at r e co m mendatio ns w ould y o u g iv e to th e C EO o f M ic ro so ft to c o m pete m ore

e ff e ctiv e ly a gain st G oogle ?

5. Wh at r e co m mendatio ns w ould y o u g iv e to th e C EO o f G oogle to c o m pete m ore

e ff e ctiv e ly a gain st M ic ro so ft?

E ssay # 3: T hre adle ss: L eve ra gin g C ro w dso urc in g to D esig n C ool T -S hir ts

T hre adle ss, a c o m munit y -c e nte re d o nlin e a ppare l s to re ( w ww.th re adle ss.c o m ), w as

fo unded in 2 000 b y J a ke N ic ke ll, th en a s tu dent a t th e Illin ois In stit u te o f A rt, a nd J a co b

D eH art, th en a s tu dent a t P urd ue U niv e rs it y , w it h $ 1,0 00 a s s ta rtu p c a pit a l. A fte r J a ke

h ad w on a n o nlin e T -s h ir t d esig n c o n te st, th e tw o e ntr e pre neurs c a m e u p w it h a

b usin ess m odel to le ve ra ge u se r-g enera te d c o n te nt. T he id ea is to le t c o nsu m ers “ w ork fo r y o u” a nd tu rn c o nsu m ers in to p ro su m ers , a h yb rid b etw een p ro duce rs a nd

co nsu m ers .

M em bers o f th e T hre adle ss c o m mun it y d o m ost o f th e w ork , w hic h th ey c o nsid er fu n:

T hey s u bm it T -s h ir t d esig ns o nlin e, a nd c o m munit y m em be rs v o te o n w hic h d esig ns

th ey lik e b est. T he d esig ns r e ce iv in g th e m ost v o te s a re p ut in p ro ductio n, p rin te d, a nd

so ld o nlin e. T hre adle ss le ve ra ge s c ro w dso u rc in g, a p ro ce ss in w hic h a g ro up o f p eople

v o lu nta rily p erfo rm ta sks th at w ere tr a dit io nally b ein g c o m ple te d b y a fir m ’s e m plo ye es.

R ath er th an o uts o urc in g it s w ork to o th er c o m pa nie s, T hre adle ss o uts o urc e s it s T -s h ir t

d esig n to it s w ebsit e c o m munit y . T he c o n ce p t o f le ve ra gin g a fir m ’s o w n c u sto m ers v ia

I n te rn et- e nable d te ch nolo gy to h elp p ro duce b ette r p ro ducts is e xp lic it ly in clu ded in

T hre adle ss’ b usin ess m odel.

T hre adle ss’ b usin ess m odel tr a nsla te s r e al- tim e m ark e t r e se a rc h a nd d esig n c o nte sts

in to q uic k s a le s. T hre ad-le ss p ro duce s o nly T -s h ir ts th at w ere a ppro ve d b y it s

c o m munit y . M ore ove r, it h as a v e ry g ood u nders ta ndin g o f m ark e t d em and b eca use it

k n ow s th e n um ber o f p eople w ho p artic ip ate d in e ach d esig n c o nte st. In a ddit io n, w hen

sco rin g e ach T -s h ir t d esig n in a c o n te st, T hre adle ss u se rs h ave th e o ptio n to c h eck “ I’d

b uy it .” T hese fe atu re s g iv e th e T hre adle ss c o m munit y a v o ic e in T -s h ir t d esig n a nd

als o c o ax c o m munit y m em bers in to m akin g a p re -p urc h a sin g c o m mit m ent. T hre adle ss

d oes n ot m ake a ny s ig nif ic a nt in ve stm en ts u ntil th e d esig n a nd m ark e t s iz e is

d ete rm in ed, m in im iz in g it s d ow nsid e. N ot s u rp ris in gly , T hre adle ss h as s o ld e ve ry T -s h ir t

th at it h as p rin te d. M ore ove r, it h as a c u lt - lik e fo llo w in g a nd is o utp erfo rm in g e sta blis h ed

co m panie s s u ch a s O ld N avy a n d U rb an O ut- fit te rs w it h th eir m ore fo rm ula ic T -s h ir t

d esig ns.

T hre adle ss is a n e xa m ple o f a fir m b uild in g o n it s c u sto m er b ase to u se n ew p ro ducts

a nd a ls o to p artic ip ate in th e d esig n a nd v e ttin g o f p opula r d esig ns. In th e s p rin g o f

2013, D is n ey a nd P ix a r A nim atio n a nnounce d a n e xp a nsio n o f it s p artn ers h ip w it h

T hre adle ss. P re vio us s u cce sse s h ave b een s h ir ts fo r D is n e y v illa in s, T o y S to ry , a nd th e

M uppets , m ade fr o m d esig ns b ase d o n w in nin g s u b m is sio ns o f a n a rt c o nte st. T he

cu rre nt la unch is fo r T -s h ir ts d e sig ned to c o in cid e w it h th e s u m mer 2 013 s e quel o f

M onste rs U niv e rs it y b y D is n ey a nd P ix a r A nim atio n. T he d esig ns w ere c h ose n fr o m

487 s u bm is sio ns b y a rtis ts a ro u nd th e w orld . W it h D is n e y’s lo ng h is to ry o f e xp ertis e in

d esig nin g c lo th in g to c o in cid e w it h m ovie la unch e s, w hy d o y o u th in k th e c o m pany h as

decid ed to p artn er w it h T hre adle ss? H ow d oes th is h elp D is n e y b uild c o m petit iv e

a dva nta ge? Wh at o th er fir m s u se th is c ro w dso u rc in g te ch n iq ue? W here e ls e m ig ht th is

t y p e o f b usin ess m odel s h ow u p in th e fu tu re ?

E ssay # 4: Y ou w ork a s a s u perv is o r in a m anufa ctu rin g fir m . T he c o m pa ny h as

im ple m ente d a b ala nce d-s co re ca rd p erfo rm an ce -a ppra is a l s ys te m a nd a fin ancia l

bonus fo r e xce edin g g oals . A m ajo r c u sto m er o rd er fo r 1 ,0 00 u nit s n eeds to s h ip to a

d estin atio n a cro ss th e c o untr y b y th e e nd o f th e q uarte r, w hic h is tw o d ays a w ay fr o m

it s c lo se . T his s h ip m ent, if it g oes w ell, w ill h ave a m ajo r im pa ct o n b oth y o ur c u sto m er

sa tis fa ctio n g oals a nd y o ur fin a ncia l g oals . W it h 9 90 u nit s b uilt , a m ach in e b re aks

d ow n. It w ill ta ke tw o d ays to g e t th e p arts a nd r e pair th e m ach in e. Y ou r e aliz e th ere is an o pportu nit y to lo ad th e fin is h e d u nit s o n a tr u ck to m orro w w it h p aperw ork fo r th e

co m ple te d o rd er o f 1 ,0 00 u nit s . Y ou c a n h ave a n e m plo ye e fly o ut w it h th e 1 0

re m ain in g p arts a nd m eet th e tr u ck a t th e d estin atio n c it y o nce th e m ach in ery h as b een

re pair e d. T he 1 0 u nit s c a n b e a d ded to th e p alle t a nd d eliv e re d a s a c o m ple te s h ip m ent

of 1 ,0 00 p ie ce s, m atc h in g th e c u sto m er’s o rd er a nd y o u r p aperw ork . W hat d o y o u d o

and w hy?

E ssay # 5: F or m any p eople , th e s h are hold e r p ers p e ctiv e is p erh aps th e m ost fa m ilia r

m easu re o f c o m petit iv e a dva nta ge fo r p ublic ly tr a ded fir m s. W hat a re s o m e o f th e

dis a dva nta ges o f u sin g s h are ho ld er v a lu e a s th e s o le p oin t o f v ie w fo r d efin in g

co m petit iv e a dva nta ge?