What I Didn't Learn in Business School

What lessons do you learn from Justin’s experience in terms of the limits of some of the core strategy frameworks you learned in theory (examine for example, Michael Porter’s Five Forces and the challenges Justice faced in applying it, value chain analysis, the Resource Based View)

As senior director, Ken McCombs states, “You can use a hammer exactly the way it’s designed to be used, but instead of building something beautiful or durable, you can build a pile of junk. It’s not the tool, it’s how the tool is used; it’s the skills, interests, and motives of the person using the tool that determine whether the outcome of an analysis is reasonable.” (Barney 53). It’s in the use of the tools that create an effective strategy. In business strategy courses, this term strategy is used in a variety of ways and it true definition is often watered down.   Justin has a difficult time throughout the book adapting his understanding of business concepts to their real-world application. This seemed to be a theme of the book that Justin uncovers as he continues on his journey with HGS. According to Justin, the more valuable and difficult to imitate activities, the more likely those activities would contribute to a firms core competencies as seen within the VRIO framework (81). By being able to do this shows a huge breakthrough point for Justin because towards the beginning of the book, he was struggling to determine whether core competencies allow firms to expand and navigate through new potential markets. As the book progresses, it starts to show how Justin is now able to determine what the real definition of core competency is as well as other concepts he had learned in school.  “Core competence wasn’t just a buzz word for Justin now. VRIO or the other concepts was no longer just a lecture he has heard but are now tools that can be used to examine real-world strategies” (81).  He can now apply the knowledge acquired from school and apply those concepts to everyday business situations.   An example is Justin and Vivek’s conversation in regards to how technologies alone are not considered core competency but it's the actions taken to exploit these technologies that make them considered a core competency. If these technologies are considered rare and hard to imitate, they can sometimes be a source of sustained advantage (146).   This shows Justin has learned the true meaning behind the word of core competency and how it is used within the real world. Throughout the business school, we have learned the importance of utilizing strategy frameworks, which have been drilled into our heads in order to evaluate potential business decisions.  Frameworks like Michael Porters Five Forces Analysis and NPV analysis among many others have been useful in organizing and arranging information provided for situations that can lead to recommendations. This book proves theory we are taught doesn’t always reflect the real world. Justin’s situation expresses to the reader that the real world doesn’t follow a textbook and case studies don’t really prepare you for business. Justin has learned that in order to evaluate new markets, use of the frameworks is necessary, but he has also learned that there is more to it than just applying these methods. First, Porter’s Five Forces analysis method is used as an “initial step” in evaluating new markets. This method is first introduced in the book during Justin and Scott Beckett’s, VP and General Manager of Oil and Gas division at HGS, meeting in which they discussed their analysis of the men’s white dress shirt industry. Beckett goes as far as using the Five Forces model to describe how all kinds of threats are high (Rivalry, Buyer Power, Substitutes, Entry, and supplier Power). Justin quickly accepts Beckett’s argument and how the men’s white dress shirt industry is not a viable option for Plastiwear to enter. This is an example of Justin deterring from his original views and altering them to agree with the other party, which cannot be necessarily correct in the situation regarding Beckett’s view. As senior director, Ken McCombs states, the most attractive industries according to the five forces approach would have no rivalry, no close substitutes, no threats, and no powerful buyers or suppliers. This type of industry makes us go with lower risk markets, which are considered a monopoly, and is not likely to be a viable option for a firm. Justin later realizes the framework is only an “initial step” due to the limitations it offers. Despite these limitations, both managers and consultants often use it in strategy development. Justin realized that HGS wouldn’t have many opportunities in any of its businesses given the highly competitive nature of the industries in which they compete. Although this is used in evaluating the competitive threats in an industry, it should be noted that it is not to be used to estimate the overall attractiveness of an industry which therefore doesn’t tell you very much about strategic choice. This creates a dilemma for Justin in regards to HGS’s situation because he was still thinking there was one clear solution; he now needed to “crack the case”. Second, Net Present Value analysis (NPV) is a calculation to find the expected returns on a project; past product extensions or market entries would be areas looked at.  The calculation provides feel for the riskiness of a new project.  Justin experienced the limits of the NPV framework that we have learned in theory through his meeting with Shirley Rickert, CFO at HGS. Through this meeting, he learned that NPV calculations in the real world aren’t as cut and dry as they are when used in the classroom. Since these calculations are based on past activities especially in the area of innovative products like Plastiwear, it didn't really offer much guidance for future activities in these areas. Most of the time, the data is either not sufficient or overly sufficient in which you don’t need the analysis. Rickert also states that even though NPV is a powerful tool for objective strategic analysis, there is often managerial biases baked into the analysis that could either be intentionally but it is often done unintentionally. An example of this would be through Beckett’s negative NPV calculations, which depicts overly risky project. Again, this framework can be used as one of the “initial steps” in the overall strategy formulation process.  As Rickert states, “present value techniques-even when you are evaluating relatively straightforward investments-are just a way of keeping track of the financial implications of a strategy. NPV is one way to keep score in the game but it’s not the game. NPV is no substitute for having a strategy” (33). Third, the VRIO framework is finally used by Justin and helps him to determine the viability of the Plastiwear business. The VRIO framework is used to determine whether or not a certain strategy was likely to be a source of a sustained competitive advantage, which depends on the answer to four questions. First, Justin needs to discover ways that the Plastiwear strategy is valuable. Without value, it’s noted that a strategy can’t be a source of competitive advantage for the firm. Second, HGS would need to possess unusual skills or other assets that this Plastiwear strategy must utilize. The strategy must contain “rarity” in order to have a point of difference for the firm. “If many firms all have the ability to execute the same strategy, then that strategy will probably not be a source of advantage” (76). A firm’s strategy should be to focus on becoming rare and different. Third, Justin looks into the possibility of whether or not a strategy can be imitated and if so, how long before other firms are likely to begin imitating pieces of the strategy? Justin has “learned that firm’s strategies can be difficult to imitate for several reasons. Some strategies can rely on assets that may be protected by patents, some required skills are needed that took firms years to develop, trusting relationships among a firm’s managers or between firm and supplier/customer which can end up being difficult and time consuming and lastly, it is often difficult for competing firms to describe why a particular firm has an advantage. Therefore, that is why firms implement valuable, rare and costly to imitate strategies because this is what makes it possible for firms to gain more sustainable advantages” (77). Lastly, Justin raises within this framework focuses on the organization and whether it has the ability to execute and protect its sources of advantage. Justin reflects that within the classroom, he learned that certain structure and controls enabled a firm to realize the full potential of its strategies.   By answering the first three questions, it enabled him to “crack the case” so this last question didn’t require an answer. However, this framework led to the same conclusions that Livia had come to. For example even if there was demand for HGS’s shirt concept, there was no reason to believe that HGS embodied any special shirt-manufacturing skills. In other words, there was nothing rare in this area for HGS. Overall, Justin created his own matrix using the VRIO framework and through that he discovered the amount of information he didn’t know about Plastiwear as well as the types of opportunities that might exist within the different stages of the Plastiwear value chain.