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15.963 Advanced Strategy: Mit Opencourseware

This document summarizes the syllabus for the MIT course "15.963 Advanced Strategy" taught in Spring 2008. The key points are: 1. The course examines the dynamics of industry and organizational evolution and the puzzle of persistent performance differences between seemingly similar enterprises. 2. Students will study what drives sustained competitive performance through case studies of specific companies and their relational contracts over the semester. 3. Coursework includes participation, papers analyzing a selected company's relational contracts over time, and a final paper synthesizing conclusions.

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69 views21 pages

15.963 Advanced Strategy: Mit Opencourseware

This document summarizes the syllabus for the MIT course "15.963 Advanced Strategy" taught in Spring 2008. The key points are: 1. The course examines the dynamics of industry and organizational evolution and the puzzle of persistent performance differences between seemingly similar enterprises. 2. Students will study what drives sustained competitive performance through case studies of specific companies and their relational contracts over the semester. 3. Coursework includes participation, papers analyzing a selected company's relational contracts over time, and a final paper synthesizing conclusions.

Uploaded by

Sanket
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MIT OpenCourseWare

http://ocw.mit.edu
______________

15.963 Advanced Strategy


Spring 2008

For information about citing these materials or our Terms of Use, visit: ___________________
http://ocw.mit.edu/terms.
15.963: Advanced strategy

Rebecca Henderson
Eastman Kodak LFM Professor of
Management
Introduction

ƒ Origins of the class


ƒ A puzzle – and a hypothesis
ƒ Class outline
ƒ Deliverables
ƒ Housekeeping
In the beginning…

Organizational
Economics

System Technology
Dynamics Strategy

Um….Do you guys ever talk to each other?


PIMO: “Program in Innovations in Markets
and Organizations”

Organizational
Economics

System Technology
Dynamics Strategy

Do leading edge research –


and bring it into the classroom
Our focus:

ƒ The dynamics of industry evolution:


ƒ The dynamics of organizational evolution:
ƒ And the interaction between them
THE PUZZLE
Persistent Performance Differences in Seemingly Similar
Enterprises: “PPDs in SSEs”
Evidence of Persistent Performance Differences
(N. Beaulieu, R. Gibbons, & R. Henderson)

A. Large-sample profitability studies


(control for industry; N ≥ 11)
B. Large-sample productivity studies
(control for some inputs; N ≥ 28)
C. Productivity studies with physical output
(control for prices; N ≥ 15)

9
A. Large-Sample Profitability Studies

ƒ Decompose firm-level performance (ROA, EVA) into:


– Industry effects
– Corporate effects
– Business Unit/Segment effects
ƒ Robustness: PPDs found in
– Different data sets (FTC data, Compustat, Stern-Stewart)
– Different sectors (manufacturing & retail)
ƒ Representative Findings
– 30% of variation in performance attributable to firm effects
– Significant percentage of firm-level performance attributable to
extreme (best and worst) performers
– 35-55% of variation remains unexplained

Schmalensee, Rumelt, McGahan-Porter, Brush et. al., Roquebert et. al.,


Hawanini et. al., Hansen-Wernerfelt, Mauri-Michaels, …
10
B. Large-Sample Productivity Studies

ƒ Investigate sources of productivity growth


– Compute total factor productivity as residual
– Decompose industry productivity growth (within & between firms, entry & exit)
– Replicated in datasets from different countries
ƒ Measurement & estimation challenges
– Missing data on inputs and prices
– Endogeneity of input choices
– Entry, exit, and selection biases
ƒ Representative Findings
– Significant variation in establishment productivity after adjusting for inputs
– Persistence at the top of the productivity distribution over 5-10 years
– Adjusting for variation in prices increases intra-industry productivity dispersion

Griliches-Mairesse, Klette, Biorn, Haltiwanger-Lane-Spletzer, Bailey-Hulten-


Campbell, Foster-Haltiwanger-Syverson, Eslava-Haltiwanger-Kugler-Kugler, …
11
C. Small sample productivity studies:
Productivity in physical units
ƒ Productivity measured in physical output
– Examples: defect rates (semiconductor manufacturing), meals prepared,
patents obtained (pharmaceuticals), mortality rates (hospitals)
– Performance measures adjusted for internal and external factors (e.g.,
inputs & variation in demand)
– Frequently smaller samples and shorter panels
– PPDs documented in a variety of industries: e.g. semiconductors, apparel
manufacturing, hospitals, steel mini-mills, ship-building, pharmaceutical
research, high-precision machining
ƒ Representative findings
– Wide dispersion in productivity remains after removing variation attributable
to demand-side factors (i.e. prices)
– Some studies document intra-firm performance differences in addition to
intra-industry differences (replication vs. imitation)

Macher-Mowery, Hatch-Mowery, McClellan-Staiger, Huckman-Pisano, Dunlop-


Weil, Chew-Bresnahan-Clark, Argote-Beckman-Epple, Henderson-Cockburn, …
12
SOMETHING IS GOING ON

What?
Two potential (entirely complementary)
streams of exploration
ƒ Structural position
– First mover advantages, economies of scale, economies of scope,
network externalities…
• Eg: Oxford & Cambridge, U. Haul, Microsoft, Coca-Cola…

ƒ Organizational “capabilities”
– But what are they?
– Tacit routines? Embedded knowledge? Incentive systems?
Cognitive frames? Customer relationships? Great people? Culture?
Style? Leadership?......
Our working hypothesis:

ƒ One important source of long term competitive advantage


is the ability to build and maintain “relational contracts”

ƒ “Contracts” that allow the organization to behave in non


routine, “far sighted”, “trustful” ways
– To maintain “high performance work systems”
– To face problems rather avoiding them
– To invest in longer term initiatives even when current pressures are
intense
– To face “worse before better…”
The core work of the course…

ƒ Unpack the sources of long term competitive advantage:


– In class
– And in the case of a particular firm that you will study throughout
the semester
Course Outline

ƒ What drives sustained performance?


– Review 15.900, Explore Wal-Mart & Southwest
ƒ Organizational competence & relational contracts
– Review 15.311, Explore relational contracts at Lincoln Electric,
Nucor, Toyota & BP
ƒ Changing relational contracts
– If relational contracts are so great, how come everyone doesn’t
have one – BP, Delta’s Song, Toyota revisited
ƒ Doing strategy when relational contracts matter
– Corning, Lilly, Simmons
ƒ Leadership revisited
– Good to Great, Paul Levy @ the Deaconess Hospital
This course is not:

ƒ A conventional course in advanced strategy


– Think about taking 15.912, “Technology Strategy” and/or 15.834
“Marketing Strategy”
ƒ All that you need to know about designing and building an
effective organization
– Thing about taking 15.394, “Designing & leading entrepreneurial
organizations” or 15.320, “Strategic organizational design”
ƒ All that you need to know about high performance work
systems
– Think about taking 15.966, “Strategic Human Resource
Management”
ƒ Easy
What I expect from you:

ƒ Class participation!
ƒ Teams of 2-3 people:
– Which company will you focus on? Why?
ƒ Three two page papers about the company:
– Due February 21st, March 4th, March 13th
ƒ A brief slide deck outlining your conclusions:
– In class, May 13th
ƒ A final paper
– Due May 15th
ƒ And… arriving on time, staying for the whole class, not
sending email…
What you can expect from me:

My best efforts to make this a class that you will remember,


that will intrigue and challenge you and that might…
perhaps… make a difference to your career.

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