Wednesday, June 04, 2003

Many people think that Strategy is bullshit.  Below, you'll find an email sent from our Strategy professor to a student who had asked for an elucidation of one of the concepts discussed in class. Is Strategy bullshit?  Your call. Dear Mr S, To add to your understanding of the Sharp spiral and the co ordinates you may like to look at the second last page of the handout( do you have it in front of you?) that depicts how the contents of knowledge interact with each other in the spiral of knowledge creation(socialization,externalization,combination and internalization). For example, sympathised knowledge about market needs become explicit conceptual knowledge about a new product concept through socialization and externalization.Such conceptual knowledge becomes a systematic knowledge through combination.For example a new product concept steers the combination phase in which newly developed and exisiting component technologies are combined to build a prototype.Systemic knowledge, for example the production process for the new product turns into operational knowledge for the production of the product through internalization.In addition,experience based operational knowledge often triggers a new cycle of knowledge creation and therefore the spiral continues to grow .Hope this is helpful. best wishes, S Raghunath ________________________________ To be fair, the administration has reacted swiftly to class feedback, and has restructured the class to include other professors.  Our last professor, Javier Gimeno, has been excellent in his clear explanations of competitive advantage. Today's class reviewed the famous HBS Wal-Mart case.  Towards the end, we reviewed Wal-Mart's international expansion strategy, and evaluated its fit with their competitive advantages.  Javier posted a slide of their expansion history and said, "This is why I love teaching this case at Insead - let's go down this list and hear someone from each country comment on Wal-Mart."  He then proceeded to go down the entire list: Mexico, Canada, Hong Kong, China, Argentina, Brazil, Indonesia, South Korea, Germany, UK, Japan.  We had a student from each country in the room, and each gave their evaluation.  A very Insead moment, which, I daresay, could never be duplicated at any other business school in the world.   8:40:10 PM    comment []

What does one study in Finance II ?  Here is a taste; you'll note that I find the philosophical aspect of finance to be quite interesting. Why should companies carry debt?  Usually because the interest tax shield increases enterprise value (see Modigliani-Miller). What are some of the costs of debt?  Too much debt leads to agency conflicts between bondholders and shareholders.  Often, managers will take risky bets (bets with negative NPV) because they can transfer wealth from bondholders to shareholders.  In doing so, they destroy value, but they are able to transfer more than they destroy, so they still do it. Underinvestment is another problem - managers may pass over positive NPV projects if their benefits accrue to bondholders. How to solve these problems?  Some firms use clauses in their bond contracts that forbid dividend distribution - this forces bondholders to be paid back first.  Other firms use convertible debt, and still others use project finance. There are other reasons why debt is good - it can be a signal that management is confident of success.  This has been shown to be a real effect, albeit one of low magnitude.  A better reason for debt is that it forces maangement discipline - it avoids the corporate jet problem, which occurs when managers have too much money, and start spending it on things that are nice to have but don't generate value for shareholders.   8:13:16 PM    comment []