Case 4 How the strategy process kills innovation at Microsoft

1. Describe the strategic management process at Microsoft under CEO Steve

Ballmer(2000-2014). How are strategic decisions made? What are the strenghts and
weaknesses of this approach? Explain in detail.
- Steve Ballmar wanted to manage through delegation and would not reverse a decision
made by managers three levels below him;
- Steve Ballmer admits problems in Microsoft,s strategic management process such as -
He was impatient.
- They did not by Overture due his expensive price, Yahoo bought it instead
dominating the online search for several years;
- They introduced their own digital music player too late, although it was propoused to
Steve Ballmar in 2005 to compete with iTunes;
- Ballmar shut down all projects that were related to Apple( tabletes, smart watches,
office for iphone);
- Also Ballmar shut down many projects that for other companies were a huge success(
car software,
2. Although Microsoft invented some promising computing breakthroughs, and often
before competitors, why did Microsoft fail to successfully commercialize them?

In most of the cases Steve Ballmer thought that those projects were wasting the company
money and they were too risky. He did not predict the needs of it s consumers and where the
market was going.

3. Why is it so difficult for CEOs of large and successful companies such as Microsoft
to balance exploitation- applying current knowledge that may enhance a firm
performance in the short term- with exploration- searching for new knowledge that
may enhance a firm s future performance? What are the trade- offs? How could they
be reconciled?

Especially in IT Innovation is the key word, here every day companies evolve and find new
applications and devices; the most important thing is to find the right time to commercialize
them or creat a need for people with the new devices. Microsoft didn t predict the needs of it
s customers in the future.
 4. What recommendations would you give Microsoft CEO Satya Nadella to redesign
Microsoft s strategic management process in order to achieve more succesful
innovation?

To listen to it s employers and annalyze their proposals, also to focus on the future.

Case 8: Nike’s Core Competency: The Risky Business of Fairy Tales

1. The Mini Case indicates that Nike’s core competency is to create heroes. What does
this mean? How did Nike build its core competency? Does it obey the VRIO attributes
(valuable, rare, inimitable, and organized to capture value based on the resource-
based view of the firm)?

Nike has based its core competencies in creating heroes out of some of the popular athletes of
our time by showing their consumers that their endorsers are human and are like everyone
else.

- This strategy calls for the identification of an athlete relatable to the general
public who is then, through careful advertising campaigns, portrayed as an
almost godlike figure. Individuals have been carefully selected from various
sports with the sole intention of turning them into an Icon (Peter, 2015).
- Nike chooses athletes who have gone through a lot but have been able to rise
up from their problems.
- Since the early days of Nike, some of these ad campaigns highlight the
hardships and roadblocks that athletes have overcome in order to solidify their
status as something greater than the average man.
In the case of Nike and its heroes all of the VRIO attributes seem to be followed.

- Each Hero is handpicked from a pool of coveted athletes. This allows Nike to
exploit a resource that is not available to its competitors thus rendering them
less of a threat.
- The rarity of the hero is high as no other company or firm has access to them in
the way that Nike does. Each Hero’s contract makes them an exclusive resource
for Nike.
- The idea of procuring a highly skilled and well known athlete to represent the
company or product is in essence imitable. Yet, in this instance the imitations
may or may not match the skill level being exploited by Nike.
- Nike is well organized to support and exploit its valuable resources allowing
them to sustain competitive advantage and dominate the market share.
It is important to note that even with the VRIO framework attributes being met, Nike should
still consider their advantage to be a fleeting one. Shifts in the perception of their Heroes can
cause irreparable damage to the overall value of the resource rendering their sustained
competitive advantage obsolete.
2. What would it take for Nike’s approach to turn from a strength into a weakness? Did
this tipping point already occur? Why or why not?

While the company continues to remain financially successful, Nike will not be able to sustain
its competitive advantage based on the sole usage of its Heroes to sell their products. Each
scandal linked to the company systematically decreases the public perception of the implicated
Hero and in turn damages the reputation of the company as whole.
The tipping point occurred:

1. Four consecutive years of continued scandals brought about by their athletes.

- Tiger Woods, Michael Vick, Kobe Bryant, Lance Armstrong, Manny Pacquiao and
Oscar Pistorius. While Woods, Vick, and Bryant had relatively mild scandals
involving cheating and other actions devoid of moral reasoning,
2. Nike’s Solution: continued faith in their athletes and their core competency of “Creating
Heroes”
- Armstrong, Pacquiao, and Pistorius found themselves in such legal dilemmas that
the company could no longer continue with their contracts in good faith.
- Tiger Woods found his contract decreased as a consequence of his infidelities
(Roberts & Snyder, 2014).
- Manny Pacquiao found his contract terminated after making vulgar comments
referring to homosexuals and animals (Rovell, 2016) and
- Oscar Pistorius lost his endorsements when he was indicted for and subsequently
convicted of the murder of his girlfriend (Onishi, 2015).
3. Nike gave second chances to their athletes to show that they stick with them through
thick and thin.
3. What recommendations would you have for Nike? Can you identify a way to reframe
the competency of creating heroes? Or a new way to think of heroes, teams, or sports
that would continue to build the brand?
• Phil Knight and Nike must reframe the legendary hero that they currently base their
campaigns on by focusing on the everyday hero (i.e. students in middle and high school,
and college/universities).
• They should continue to bring inspiration and innovation to every athlete in the world
and create heroes in regular individuals.
• Reframing Core Competencies
- Choose their athletes thoroughly
- Do background check
- Nike will not be easily shaken when scandals and controversies arise with their
athlete endorsers.
• A highly specific focus on athletic contributions and various physical feats would prove
to be beneficial in allowing the company to spread its financial investments among a
broader pool of people who the general public will, no doubt, find more relatable.
4. If you are a competitor of Nike (such as adidas, Under Armour, New Balance, or Li-
Ning), how could you exploit Nike’s apparent vulnerability? Provide a set of concrete
recommendations.

● Begin creating heroes at a younger age by using technological advances to identify up

and coming athletes and savants
● Begin Ad campaigns focused on the quality of their product as compared to a Nike
product
● Exploit the past failures of Nike endorsed athletes and Nike’s continued support for
individuals who time and again fall short of the company’s own created mythology.
● Capture the market where they do not have endorsers and create products and
innovations that would allow them to capture market share
● Enter a market where their share is not as strong as it supposed to be

- Adidas’ strategy to enter the casual wear market gave them a competitive advantage
over Nike
- Adidas is known to have bigger market share and Nike is having a hard time
penetrating it

Case 15: Competing on Business Models: Google vs. Microsoft

1. Strategy vs business model?
Strategy is different from a business model in that business model describe the means that a
business has to use so as to create and deliver value to the customers and to collect revenues
from the customers so as to make profits. Business models could vary from business to business
based on the business structure and the method for maximization of the revenues and profits
Business strategy on the other hand refers to the methods used by the businesses to achieve the
mission and the objectives. For example the business strategy could describe how a firm will
engage the competitors, identify the customer segment and respond to the market environment.
The business strategy and business model are similar in sense that the business model is part
of the overall business strategy. Both the business model and the business strategy relates to
how the business is going to achieve its goals and objectives.

2. Why are Microsoft and Google becoming increasingly direct competitors?

Microsoft and Google have increasingly become direct competitors due to various reasons.
First the two companies have started adopting each other's business models of earning. For
example Microsoft introduced Bing which offers direct competition to Google search engine.

The two companies have also increasingly adopted the same strategy such as innovation
strategy which has resulted to developing of the same applications that has increased
competition among the two companies. For example, through innovation Google was able to
support its own file types and it's thus able to support the Google docs without having to rely
on Microsoft. Microsoft also came up with Office Live Workspace (OLW) which allows the
Microsoft Office documents to be shared online.

3. Identify other examples of companies that were not competing in the past but are
becoming competitors. Why are we seeing such a trend?
Other companies that have increasingly become competitors include Apple Inc. and Nokia.
Apple Inc. initially focused on computers and software but in the year 2007, the company was
renamed to indicate the focus to consumer electronics including the phones. By introducing the
IPhone in the year 2007, the company was able to compete more directly with Nokia. There is
now intense competition and Nokia has also introduced online music stores to compete with
the Apple iTunes.
Why are we seeing such a trend? The reason for such trends is because companies are shifting
the business strategies and business models to be able to increase revenues by getting into the
market space of the competitors
5. What recommendations would you give to Satya Nadella, CEO of Microsoft, to compete more
effectively against Google? To engineer a turnaround at Microsoft?

To be able to compete more effectively and favorably with Google, Microsoft need to develop better
apps like those of Google that can be fast and reliable. Microsoft needs to be more innovative to be
more unique in its business model and strategies so that it is able to be more preferable to the users. The
company needs to refine and develop its products more so as to capture the mainstream customers.

6. What recommendations would you give to Sundar Pichai, CEO of Google, to compete more
effectively against Microsoft? To continue to sustain its competitive advantage?

To compete more effectively with Microsoft, Google need to continue innovating more and more
applications and developing the capability of the search engine to be able to sustain its competitive
advantage against Google. Also Google need to enhance more its existing applications such android to
sustain its competitive advantage.
Case 16: Assessing Competitive Advantage: Apple
vs. BlackBerry
Calculate some key profitability, activity, leverage, liquidity, and market ratios for Apple and
Black- Berry over time.

Conduct a dynamic firm profitability analysis over time (fiscal years 2008–2012) as
shown in Exhibit MC16.2. Can you find signs of performance differentials between
these two firms that may have indicated problems at BlackBerry? When did Black-
Berry’s performance problems become apparent?
Over time, from the ratios, Apple was experiencing steady growth and was surpassing
Blackberry in sales and had greater net income.
Performance difference is apparent in 2012 where, from the activity, leverage, liquidity and
market ratios, Blackberry was already lagging behind. Blackberry’s overall operations were
slow, they kept inventories longer than they could sell them and turn into profit.

Shareholders valued Blackberry’s assets less than Apple’s, thus, more investors opted to
finance Apple’s stocks. This in turn, increased the overall value of Apple over Blackberry in
the tech-industry.

Heins as Blackberry CEO could focus on rebuilding the brand that Blackberry stood for -
simplicity and security. In terms of ratios, it is not good to keep their inventories long since it
entails costs. Marketing and sales initiatives and promotions are needed to sell their products
which will translate into profits. In the capital intensive tech-industry, Blackberry is not
utilizing their fixed assets as they are incurring more costs due to depreciation.
Make a recommendation to the CEO of Black-Berry about actions that could be taken to
improve firm performance.

Overall, Apple performance is consistent, though there is a noticeable slowing of growth

between 2011 and 2012. It is consistent as they were really able to penetrate the market due to
their competitive advantage. Their leverage ratios should always maintain a balance between
equity and debt. Continued sustainability of the fast turnover of inventory will maintain high
sales and therefore, produce high profits.

Case 25: Sony vs. Apple: Whatever Happened to Sony?

Why had Sony been successful in the past (for example, with the introduction of the
Walkman, PlayStation, the CD, and the VAIO computer line)?

All these products were consumer-oriented, not asset-, process-, or even department-oriented.
This fact facilitated cooperation among the different units because it was clear what the goal
was and how this would provide the desired value for the customer. The Walkman was perhaps
the biggest of Sony’s successes since it presented for the first time the revolutionary idea of
music on the go.

What was Mr. Idei’s assessment of strategic alliances versus M&As?

Mr. Idei suggests that M&As are rigid and inflexible forms of alliances that tend to slow down
and limit the growth and success possibilities of a firm in a particular market. Additionally, he
implies that strategic alliances offer an alternative that avoids these major pitfalls.

Do you agree or disagree? Support your assessment.

Students may agree with his assessment about the level of commitment that requires each type
of alliance saying that one is better than the other is a biased observation. If the business venture
requires a large investment that will create asset specificity, the partners may need a
commitment beyond a simple contract, in which case, hard alliances or M&As may provide a
better long-term solution. On the other hand, if flexibility is a key requirement for success, then
soft alliances may be a better solution.

Why do you think Apple succeeded in the digital portable music industry while Sony
failed?

Sony failed for two main reasons.

- First, Sony didn’t have in place a system that allows the firm to integrate the
capabilities across different divisions to develop a truly winning product. Proof of
this isolation is that in 1999 both the VAIO division and the Digital Music division
launched a memory device that allowed users to store and play music using Sony’s
version of MP3.
- The second part of the story is the role of Sony Music. When technology allowed
music files to be copied into a personal computer, played through simple programs
such as Windows Media, and shared through CDs copied at home or even through
the Internet, the music companies saw this as a problem that needed to be
 eradicated. Sony Music was no exception, and instead of jumping at the
opportunity, it focused on ways to make its disks more secure and developed
different file types that gave Sony more control but made the user experience more
cumbersome. The idea was to protect the current way of doing business in which
they knew how to lead and represented a significant investment, instead of
disrupting their own organization and becoming the leader in the new market as
well.
Apple succeeded by doing the opposite.
- i-Pod was a great innovation in terms of technology, but also in usability and
design. The customer need was the priority when this product was brought to
market.
- Additionally, what the music industry saw as a threat, Apple used as a
complementary product of its iPod. I-Tunes not only increased the value of
the iPod to the customers, but also leveraged the growing trend of music files and
the way that customers were using them at that time.

What could Sony have done differently to avoid failure? What lessons need to be learned?

• Sony should have done a few things differently:

• Be more aggressive and not be afraid of self-disrupting.
• Coordinate better among the different business units to appropriately leverage each
other’s specialties.
• Avoid hubris and not underestimate any competitor. Sony didn’t see Apple coming and
repeated this problem with Nintendo.
What recommendations would you give Sony’s CEO to help them compete against Apple?
Sony has great technology, outstanding products, superior capabilities, and vast experience in
the market. What they lack is a clear strategy. In today’s consumer-technology world, markets
are being shaken by several different trends, mobile phones, tablets, 3D, and HD. Apple has a
clear positioning of differentiation consistent across these different trends.
Sony has the resources and capabilities to compete head to head with most of Apple’s products
and bring a comparable offering for a similar price. Then, the battle in most of these new
markets could be redefined by content. Those companies that deliver not only a great product
but also great complementary content (for instance, apps for tablets and phones, movies and
music for both tablets and players, books for readers, and so on) will win the next round in this
technology fight.
Case 28: Struggling Samsung Electronics
Introduction:
* Founded in 1938 in South Korea mainly selling noodles and seafood and now specializes in
industries like electronics, chemicals, shipbuilding, financial services and construction.

* 1993 was a pivotal point for Samsung where they had to reinvent themselves because their
electronics were falling behind in Europe and the United States. They reinvented themselves
into premium electronics to move to the higher end of the market.
* Samsung’s style of strategic management style is struggling because it plays the catch-up
game with competitors, like Apple. They use the “follow first- innovate second” rule, which
lets them safety sell their products in the market.

Corporate Strategy
1. What makes Samsung a conglomerate? What type of diversification does Samsung
pursue? Identify possible factors such as core competencies, economies of scale, and
economies of scope that were the basis of its past success as a widely diversified
conglomerate (chaebol). Why is Samsung as a conglomerate struggling today?

Samsung has a wide array of products that are unrelated. It started out as a food company and
has diversified into several industries like construction, electronics and so on.

2. Despite being a widely diversified conglomerate, Samsung prefers vertical

integration: in-house design and development teams, manufacturing in large
company-owned factories, and coordinating a sprawling global supply chain. In
contrast, Apple concentrates on the design (and retail sales) of high-end mobile
devices, while it outsources its production to Foxconn and others. Do you think
Samsung’s high degree of vertical integration contributed to its recent problems?
Why or why not? Explain.

Yes, the recent problems Samsung has faced can be attributes to the high degree of vertical
integration it contributes to complexity of the organizational structure.

Even though there are three co-CEOs in charge of different divisions, it’s difficult for the
leaders of Samsung to be able to focus on product innovation/R&D and production/operation
at the same time.

Business Strategy
1. Lee Jae-yong, the 46-year-old grandson of the Samsung founder and heir apparent,
was educated at Seoul National University, Keio University (in Japan), and Harvard
Business School. He wrote a master’s thesis at Keio University on Japan’s struggle to
retain its world leadership in manufacturing in the mid-1990s when the country’s fast-
growing period was ending. He concluded, “Japan’s troubles were worsened by its
 manufacturers’ pursuit of scale and market share.”2 Is Samsung Electronics’ pursuit
of scale and market share to blame for its losing its competitive advantage?

Yes, because Samsung tried to pilot the industry when they were best off being followers. Their
niche was not premium, high-end products. They were best at “follow first, lead second”.

2. Why is Samsung Electronics encountering problems selling its flagship line of

smartphones, the Galaxy? How should it compete against premium phone makers
such as Apple and low-cost leaders such as Xiaomi and Micromax?

Samsung must make an effort to be quick innovators rather than following in the steps of their
competitors. To compete with Apple and other smart phone companies, Samsung needs to find
their competitive edge. Rather than following trends and keeping prices relatively high, they
must find a core competency that makes them unique.

3. What would you recommend Samsung Electronics would need to do to revive and
turn around its fledgling mobile division?

We believe that to revive the company's declining mobile device problem, Samsung needs to
focus on their competition. Their low cost competitors are taking away from Samsung's low
end business. From an organizational perspective there needs to be a reallocation of resources
so that the company can drop the cost of production so that they can afford to sell products at
a more affordable price. Samsung will look more attractive to their low cost customers, which
will help them regain that market share. This tactic will only be successful if Samsung corrects
their products mistakes. Their new product the Galaxy S7 and S7 edge should help Samsung
regain and keep their market share. To be successful Samsung should really focus on who their
customers are, what their strategies are, and ways to improve their products.

Extra Case
Some recommendations for Howard Schultz may be to reduce some of their product lines so
that they can refocus on coffee and tea, as well as return to grinding coffee throughout the
day so that each time a customer walks through the doors, there is a constant smell of fresh
coffee.