How to learn the most from our case studies:

1. Review the meaning of the five strategic areas – Go to the Core Curriculum Pages

Value Chain

Brand Community

Controlled Operations

Leadership & Culture

Business Model

2. Read the case study once, completely, and consider:

- What sentences in this case are mostly about value chain?

- What sentences in this case are mostly about managing the brand community?

- What sentences in this case are mostly about controlled operations?

- What sentences in this case are mostly about leadership & culture?

- What sentences in this case are mostly about the business model?

3. We are going to evaluate each case by doing the following:

a. Identify issues

b. Prioritize issues

c. Generate alternatives actions

d. Filter solutions ethically

e. Pick the remaining solution most likely to yield a sustainable advantage.

f. Consider staging/timing

g. Action

4. Turn on the analysis tool by clicking on one of the core strategic areas in the black analysis pane

a. The sentences related to that core strategic ingredient become highlighted.

b. Read one of the highlighted sentences. Try to think why and how it is related to that strategic category. Then click on that sentence and the key resource(s) involved in that issue will populate the analysis pane.

c. Then click next in the analysis pane. The main issue will populate the analysis pane.

d. Click on the resource within the analysis pane to determine if it is a potential source of competitive advantage.

e. Follow the on screen prompts

f. When you reach the end, click on one of the other highlighted sentences and begin again.

The magic behind the analysis interface

Use the first page (above) as a quick reference guide. Most learners need to get an MBA to read what is next. We give it to you so that you can use these case studies to become wise. Wisdom unlocks profitability. Crack open a beer, and spend a good hour reading the next few pages. If you have a question, post it to the Forum and we’ll answer.

Basics of strategic leadership

Remember this sequence (in order):

1. Identify Issues

2. Prioritization: Prioritize issues strategically

3. Analysis: understand the resources and relationships among the resources involved.

4. Innovation: Generate possible solutions

5. Ethical Selection: Filter possible solutions against organizational values and culture.

6. Choose the remaining solution most likely to yield a sustained competitive advantage.

7. Action Plan: Consider the resources needed and the timing of action.

8. Implement according to staging plan

This sequence matches the Leadership point of view, proposed by Clawson and advanced by Meckler. Leaders see what need to be done, identify the forces at play, generate innovative solutions, and have the courage to act and the wisdom to wait.

Many of the phrases and sentences in each case study are hyperlinked to an analysis tool that drills down into the issues inferred by that phrase or sentence. A click on a phrase or sentence reveals at the top of the page in the analysis pane, what we think is the issue inferred by that phrase.

Avoiding Decision Errors. Managers should try to avoid the major types of decision errors (Boal & Meckler, 2010).

• Visioning errors: “Errors of the third Kind.” Working on and solving the wrong problem, not seeing the main issues (Mitroff & Betz, 1972).
• Correlation Errors:

o Alpha or Type I error - Seeing a relationship when there really is no significant relationship.

o Beta or Type II error - Not seeing a relationship when there really is a significant relationship.

• Innovation Errors: Failing to propose feasible alternatives; proposing “straw man” alternatives; not paying equal attention to all alternative solutions.
• Action Errors: Acting when you should not have acted. Not acting when you should have acted.

Case Studies – Decision Methodology: This is how we want you to think. This is how we came up with the ratings and choices you see in the case study interface.

VRIO CRITERIA - HOW TO SCORE A RESOURCE
Valuable		Rare		Imitable		Organized
What potential value to the customer does this resource offer (or other key stakeholder identified in mission)?		Does firm have advantageous access to this resource? Normal cost for superior quality? Or normal quality at reduced cost?		How long until this advantageous access can be imitated or How costly will it be to imitate?		Are organizational issues limiting or promoting potential advantage?

STEP-BY-STEP INSTRUCTIONS

First, identify issues:

1. What is the issue? What sort of issue is it? Is it a problem, an opportunity, or a threat?

2. Among all issues, how do I decide if this issue is a priority?

a. We teach you to prioritize issues so that you can act strategically. That is, so you end up acting on and organizing around those things most likely to provide you with competitive advantage. Gaining Competitive advantage yields at least one of the following:

i. Lower your costs without significantly lowering your quality or sales volume,

ii. Raise your price point, without significantly increasing your costs or lowering your sales volume.

iii. You sell more volume without increasing your costs per unit or significantly lowering your price per unit.

b. The two schemes we use most often are resource based strategy (Barney, 1991; Rumelt, Schendel, & Teece, 1994; Wernerfelt, 1984) and transaction cost economics (Williamson, 1975, 1985, 1991).

c. Because resources offer a very direct path for considering costs and pricing, we teach you to use what is known as resource based strategy. This was made famous by Jay Barney, and we discuss the basics of this strategy in various white papers on the website. The basics method is as follows (For a detailed look, read the White Paper: Resource Based Strategy):

i. Is the resource valuable? (V)

ii. Is the resource rare (R)

iii. Is the resource inimitable, i.e. hard/expensive/time consuming to imitate (I)

iv. Is the business organized, or is it able to feasibly organize to maximize and extract that resource’s value? (O)

v. VRIO

d. We use this method to help you decide what issues are a priority, and to lead you toward above average profitability. You want to optimize your organization and your business model around the resources that are the most valuable, rare and hard to imitate, all while constantly economizing. If you have the resource already, then leverage it. If you do not have the necessary resource, but it is VRIO, then you may consider acquiring the resource.

i. Strategically wisdom is achieved when a manager knows what resources yield a competitive advantage. It follows the old Ken Kesey saying: “put your good where it will do the most.”

In designing these interactive case studies, we took the time to rate each of the resources involved in each issue. We rated each resource on a 1-5 scale, with 5 being extremely valuable. We score each resource according to the VRIO scale (Barney).

- A score of 3 is strategic parity, no advantageous or disadvantageous access to this resource.

Value Scoring: What potential value to the customer does this resource offer? Value to the customer means they will either buy more, or pay more for it. (See our white paper The Concept of Value)

Rarity Scoring : Quality Advantage/Disadvantage & and Cost Advantage/Disadvantage. - It is possible to have a quality advantage and a cost advantage or quality advantage and a cost disadvantage, etc.

Example: a recipe, this is a knowledge resource

Cost 5: We can get a good recipe for free that nobody can get unless they pay a lot for it.

Cost 3: We can get a standard quality recipe for the same cost as anyone else can.

Cost 1: We have to pay a lot more than average to a to acquire or develop the recipe.

Quality 5: For about the same cost of development we get a far superior recipe.

Quality 4: For about the average cost that everyone spends to develop or acquire a recipe, we get a better recipe.

Quality 2: As beginners, for the average cost that everyone spends, our recipes are lower in quality

Imitability Scoring :

1: Immediately imitable once others see/notice what we are doing, and wont have to pay any of the cost we had of figuring it out.

2: Easy to imitate, but it will take a bit of planning and figuring.

3: Will get imitated by others, no specific barriers, but typical implementation, testing, cost etc.)

4: Hard or expensive to imitate. It's going to take time and money.

5: Virtually inimitable in the short or medium term.

Organization Scoring: Resources with an average score above 3 on the V-R-I criteria deserve further examination and investment. But they only contribute to a competitive advantage if they are properly organized.

Are there organizational problems slowing these down? Are organizational systems in place to enhance their ability to reach their full potential for competitive advantage? Is imitability protected? Is the identified rarity level assured? Is the value actually adding to the bottom line, or achieving a major goal?

Organization Rating:

1: Org issues severely limit potential

2: Org issues are much in the way

3: Some org issues limit, some exploit

4: Organized well to exploit potential advantage,

5: Organized great, achieving full potential for competitive advantage with no limiting factors

Potential for Competitive Advantage Score: Above average value, above average rarity and above average inimitability resources are the likeliest sources of competitive advantage. Attention to them should be prioritized. Also look at high value, very low rarity score items indicating disadvantageous access.

Here is how our the scoring rules on our worksheets look:

VRIO CRITERIA - HOW TO SCORE A RESOURCE
Valuable		Rare		Imitable		Organized
What potential value to the customer does this resource offer (or other key stakeholder identified in mission)?		Does firm have advantageous access to this resource? Normal cost for superior quality? Or normal quality at reduced cost?		How long until this advantageous access can be imitated or How costly will it be to imitate?		Are organizational issues limiting or promoting potential advantage?

Last step – The Common Sense Test

Once all the V-R-I-O scores are decided, you must step back and use common sense. We look at the individual scores on each VRIO category and not just the average. If an item scores low mostly because the O score was very low, that resource represents a strategic option. A manager can reorganize to increase the economic rents and decrease the transaction costs of resources that are VR and I, but are not O...

REFERENCES

Barney, J. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1): 99-121.

Boal, K. & Meckler, M. 2010. Decision errors of the 4th, 5th, and 6th kind. Handbook of decision making: 327-348.

Mitroff, I. I. & Betz, F. 1972. Dialectical decision theory: A meta-theory of decision-making. Management Science, 19(1): 11-24.

Rumelt, R. P., Schendel, D., & Teece, D. J. 1994. Fundamental issues in strategy : a research agenda. Boston, Mass. :: Harvard Business School Press.

Wernerfelt, B. 1984. A Resource-based View of the Firm. Strategic Management Journal, 5(2): 171-180.

Williamson, O. E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.

Williamson, O. E. 1985. The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

Williamson, O. E. 1991. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives. Administrative Science Quarterly, 36(2): 269-296.