Foundations of Business Strategy and Strategist’s Toolkit

Massively open online courses (MOOC) are changing the field of education. As most courses are offered for free, the big question is what is the motivation for the course providers to go through all the work of creating the materials for such a course.

In this post, I will take a deep dive inside a successful implementation of a MOOC: The Foundations of Business Strategy course offered by the University of Virginia’s Darden School of Business. I will explore the business model of this course as well as summarize and review its contents.

Foundations of Business Strategy – the model in detail

The online course is based on Darden’s first year required Strategy course, and the materials used have been developed over several years of teaching that course. While there have obviously been costs associated with producing the professional-quality video lectures for the online course, the subject matter itself has been developed for the live course regardless of the online version, thus reducing the overall cost of creating the MOOC.

Furthermore, the core reading for the live course, The Strategist’s Toolkit by Jared Harris and Michael Lenox, has been published by the university itself, and is widely available, for example from Amazon. Sections of the book are available for the MOOC students free of charge, which has again reduced the costs related to producing the online course as materials from the book have been directly reused.

How successful has this model been? The Foundations of Business Strategy MOOC has so far ran twice with a total of more than 150,000 participants, and despite the low completion rates (after all, it’s online and free), professor Lenox has commented that more people have completed the MOOC in one year than his live courses in 15 years.

So far, so good, but the MOOC itself is free and does not make any direct profits. What about the book? At the time I’m writing this, the Strategist’s Toolkit is ranked #26,596 Paid in Kindle Store, #18 in Kindle Store > Systems & Planning, and #49 in Books > Systems & Planning on Amazon. How much money has that made? I don’t have exact figures, but consider for a moment that those ranks are higher than any book from James Womack (the most famous Lean authority in the US), higher than any other book from John Kotter except Leading Change, and higher than any other book from Clayton Christensen except The Innovator’s Dilemma. That’s pretty impressive.

It’s not that Darden is an unknown institution. Financial Times ranks its MBA program at #27 in the world, but that rank should not yet make its strategy course core reading book the top-selling such book in the world. It is reasonable to assume that the MOOC has played a part in the book’s success. Indeed, Bob Bruner, the Dean of Darden, has stated that marketing is one of the purposes for Darden to offer MOOCs.

Foundations of Business Strategy and Strategist’s Toolkit – the contents

I wrestled with myself for some time whether this material belongs to the same blog post as the overall analysis of the course, and eventually decided that it does. The reason: this is a deep dive, and in order to properly estimate the value of the course, it is important to go in-depth to its contents, to really showcase what a MOOC can include.

The online course follows the materials of the book quite closely, although the book includes a few tools that are not discussed in the online course. In this content summary, I mainly follow the book.

The strategist’s challenge

The book starts with a brief overview of what strategy is and what strategic analysis is for. It describes the strategist’s challenge as finding the intersection between the company’s values (mission, scope, and values), opportunities (market demands, competition), and capabilities (strengths), and thus finding the position where the company can create and sustain value.

This section is rather brief, both in the book and on the online course, and on the course discussion forums it has clearly left some of the students confused as to why values matter. I found this the weakest part of the book and the course. There are two things to learn about strategy: what it is for, and how to use tools, and the course is not very good at explaining the first of these.

I don’t find this a crippling blow though, because I have often found learning the moves first and then learning the deeper purpose a useful route. Nonetheless, here I must recommend complementing the course with an account of the deeper meaning of strategy, for example by reading Cynthia Montgomery’s The Strategist: Be the Leader Your Business Needs or Richard Rumelt’s Good Strategy Bad Strategy: The Difference and Why It Matters.

The book, and the course, do better when they move on to the tools of the trade. Tools are showcased quite briefly, but sufficiently for the student to start applying them in a rudimentary form, and with enough references to further resources to start gathering in-depth information.

Competitor analysis

One of the most important tools of strategic analysis is competitor analysis.

  • Who are the competitors?
  • What are they doing?
  • What can they do?
  • What do they intend to do?

Environmental analysis

Environmental analysis is a look into the factors that are changing the business environment in which the company operates. The relevant factors can differ, but often include the following:

  • Demographic trends
  • Socio-cultural influences
  • Technological developments
  • Macroeconomic impacts
  • Political-legal pressures
  • Global trade issues

Five forces analysis

Porter’s five forces analysis can be used to examine the state of an industry and the relative strengths of the different roles in it.

Rivalry among existing competitors. The more companies operate within the industry, the more competitive it is.

Threat of new entrants. The easier it is to enter an industry, the more difficult is the competitive position of the incumbent companies. Barriers to entry can include legislation and licenses, but also investments that would become sunk, such as industry-specific R&D or production facilities.

Threat of substitute products or services. The easier it is to substitute the products or services of the industry with different products, the more difficult the competitive position of the companies in the industry.

Bargaining power of suppliers. The greater the relative power of the suppliers over the companies in the industry, the more difficult the industry is. One of the most difficult situations is when a supplier is a monopoly, the only provider of a product or service.

Bargaining power of buyers. The greater the relative power of the buyers over the companies in the industry, the more difficult the industry is. One of the most difficult situations is when a buyer is a monopsony, the only buyer for a product or service.

Competitive life cycle analysis

Competitive life cycle analysis is the analysis of a company’s portfolio of offerings in various phases of their life cycle: emergent, growth, or mature. Depending on the speed of the industry, i.e. how fast new products replace old ones, this analysis of the company’s own and its competitors’ portfolios can give valuable insights into where new offerings are needed and where the competitors are likely to renew their offerings.

Stakeholder analysis

A company has numerous stakeholders: owner, employees, suppliers, customers, community to name a few. In stakeholder analysis, these are identified, their interests are analyzed, and the effects of various actions and their reactions to them are charted.

Capabilities analysis

The strengths of the company are vital for deciding on a strategy. Capabilities analysis consists of the following:

  • Identify the business value chain and various capabilities along the value chain
  • Determine core capabilities (processes, people, systems)
  • Determine the degree of alignment between these core capabilities
  • Determine the sustainability of these core capabilities

Strategy maps

Maps provide a way to express differences between competing companies in a visual form. They can be drawn in a variety of ways depending on the industry and the aspect under analysis.

Diversification matrices

Diversification, or portfolio planning, matrices visualize the offerings of a company according to their current and potential value and resource needs. They are used in making portfolio-level decisions on where to take a company.

Tools only in the book

The above is where the online course ends. The book expands this content with a few more tools for the toolkit.

Hypothesis testing

When strategic choices are considered, it is important to analyze their feasibility. In hypothesis testing, the assumptions behind a possible choice are identified, tested in thought experiments against known (or acquirable) information, and finally subjected to experimental testing, if they seem promising – with the added knowledge on how to verify the assumptions in practice for the parts that could not be tested in thought experiments.

The main tests most strategic actions need to pass are the following:

  • Value test. Will it create value?
  • Execution test. Can we do it?
  • Scale test. Can it be sustained and leveraged?
  • Defensibility test. Can it be protected from copying?

Payoff matrices and game theory

Game theory is used when a limited number of competitors can choose from a limited number of options to analyze what are the possible end results of such games. The games can be simultaneous (players choose without knowledge of each other, represented by a matrix) or sequential (we know who chooses first and the other knows what the first one has chosen, represented by a tree). As long as the players, possible actions, and payoffs can be determined, game theory provides very solid tools for analysis.

Real options analysis

Real options analysis is a tool for deciding on the path to pursue staged investments.

Acquisition analysis

Acquisition analysis is a tool for evaluating whether acquiring another company is strategically beneficial.

Scenario planning

Thinking through various scenarios that can happen in the future help make strategic choices that do not depend on a single view of the future, as well as realize what aspects of the future a company should attempt to shape in its favor.

So, what is learned on the course?

The course and the book give a good overview of various tools in the strategist’s toolkit. Hey, that’s what the name of the book says. The course and the book also supplement each other very well: the information is presented a bit differently, and there is a bit more of it in the book, whereas taking the course and doing the various assignments gives a different perspective to learning. Overall, the course and the book form a good, integrated learning package. This is an interesting model for other MOOCs to learn from! (And some others are doing the same already)

What is not taught is what a good strategy looks like and how it is derived from the purpose of a company. Unless these lessons are learned elsewhere, the tools themselves cannot be used to full effect. Nonetheless, the course gives a wide enough perspective that venturing into most strategy books is not difficult afterwards – the language of the game has become familiar enough.

What about the future?

Is a MOOC course like this a good business? Based on book sales, it appears to be so in the short term, but what about the future? Considering the Foundations of Business Strategy is a basic course on the subject, there are hundreds or even thousands of institutions that could put one together, some of which have a better brand than Darden.

It is indeed quite possible that there will be competition in the future, but it still seems that there is certain advantage to being the first mover here: there are lots of potential subjects to build courses on, so while the MOOC space is still filled with blank spots, why would someone want to build a directly competing course, when they can build one on a different or more specialized subject, and showcase their specific expertise even better?

As for new entrants, the experiences of Darden are promising. Building a completely free course, and offering fairly low-cost, non-essential complementary material (MOOC students come from all over the world, so their sensitivity to price varies a lot) seems a viable business model. There is another industry that has come to the same conclusion, actually – the free-to-play model used in many online games is based on the same logic, and there the most successful US company, Riot Games, reported revenues of $624 million in 2013. The future looks exciting!

Photo: The Strategy of Chess by Ken Teegardin of SeniorLiving.org (CC)

Author: Ville Kilkku

I run my own consultancy business, so if you find the ideas on this blog intriguing, contact me at consulting@kilkku.com or call me at +358 50 588 5043 and we can discuss how I can help you solve your business problems. I am currently based in Tornio, Finland, but work globally. Google+